LUCK MOST LTD AND OTHERS v. GOOD MOVEMENT LTD

LDCS 11000/2020

[2023] HKLdT 52

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 11000 OF 2020

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DECISION

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The Applications

1.  There are 3 applications before me, which all turns on one issue in dispute, the interpretation of paragraph 2 of Schedule 2 of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”).

Background

2.  By a summons taken out by the applicants filed on 29 September 2021, the applicants apply for an order that 3 of the expert reports filed by the respondent be expunged from Court file and be not admitted as evidence in the trial. I refer to my decision given herein on 2 September 2022 (“the September Decision”), and these reports are referred to as Reports 2, 3 and 4. It is the contention of Mr Chain, counsel for the respondent that these reports are relevant to the argument that “merged site factor” or “special interest factor” should be taken into account for setting the reserve price if an order for sale is granted. Mr Chain also applies to adduce a new Report 5 which he contends would explain or supplement Reports 2, 3 and 4.

3.  Mr Mok, counsel for the applicants submits that this Tribunal shall not take into account such factors in setting the reserve price, referring to the interpretation of paragraph 2 of Schedule 2 of the Ordinance (“the on its own formula”). He also argues that these reports are not covered by the earlier order of this Tribunal on expert evidence and they are not admissible without leave. I do not repeat the submission of Mr Mok which has been set out in the September Decision.

4.  But I agree with Mr Chain that the on its own formula should not be considered in isolation without a corresponding application to strike out the part of the Amended Notice of Opposition of the respondent on the merged site issue raised, if I have to rule whether the on its own formula is arguable at all. And Mr Mok agrees to proceed with the striking out application on the other grounds. And at the end, I rule in favour of Mr Mok and expunged the 3 reports and rule that they are not admissible for reason set out in my September Decision, which I do not repeat. I do not allow the Report 5 be admitted.

5.  Mr Chain took out a summons on 16 September 2022 for leave to review/appeal against my September Decision. The grounds for review and appeal are the same.

6.  Around the same time, Mr Mok confirms that the applicants would apply to strike out part of the Amended Notice of Opposition on merged site issue. A summons to strike out part of the Amended Notice of Opposition on the merged site issue was taken out by the applicants on 7 October 2022.

7.  And by my ruling on 30 September 2022, I refuse to review my September Decision. And for leave to appeal, I suggest the application for leave to appeal be stayed and be restored after my determination of the striking out application for part of the Amended Notice of Opposition. Following some discussion with parties on paper, and by agreement, the part of the summons for leave to appeal is stayed pending my determination of the striking out application.

8.  By my decision given on 24 February 2023 (“February Decision”), I have allowed the application of the applicants and strike out paragraph 1(b) together with the plan marked A and the Schedule annexed to the Amended Notice of Opposition. I also give an order nisi that the applicants shall be entitled to costs.

9.  By another summons filed on 1 March 2023, the respondent applies for leave to appeal against my February Decision. By another summons filed on 10 March 2023, the respondent applies to vary my costs order nisi. The respondent has also restored the application for leave to appeal against my September Decision.

10.  I have directed all 3 applications be dealt with together, and by paper disposal. Submissions have been lodged by parties and this is my ruling.

Legal Principle on Leave to Appeal

11.  The legal principle on application for leave to appeal is trite and I only set out, firstly, section 11(2) of the Lands Tribunal Ordinance (“LTO”) which provides that:

“Subject to section 11AA and the provisions of any Ordinance relating to appeals from the Tribunal, any party to proceedings before the Tribunal may appeal to the Court of Appeal against a judgment, order or decision of the Tribunal on the ground that such judgment, order or decision is erroneous in point of law.”

12.  Section 11AA further states that:

“(6) Leave to appeal shall not be granted unless the Tribunal, the Court of Appeal or the registrar hearing the application for leave is satisfied that –

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

13.  And it is well established that “a reasonable prospect of success” means an appeal with prospect that are more than fanciful without having to be probable: SMSE v KL [2009] 4 HKLRD 125 at paragraph 17.

14.  Mr Chain invites this Tribunal to consider both applications for leave to appeal together. And in particular, he relies on section 11AA(6)(b), that there is some other reason in the interests of justice that leave to appeal should be granted.

Interest of Justice Point

15.  I shall come to the substantive argument of Mr Chain on the interest of justice point first. The February Decision turns on my ruling in favour of the on its own formula. And if I am correct, there is no reason in any event to admit the 3 reports expunged (and the non-admitted Report 5) by my September Decision as they turn on the RDV of the subject lot taking into account the redevelopment potential of developing the lot with adjacent lots.

16.  Mr Chain in his submission said the 2 leave applications turn very much on the arguability of the merged sites point, i.e. whether either the value of the subject lot (or in setting the reserve price) the Tribunal can have regard to its potential to be redeveloped together with neighbouring lot or lots. He submits that in valuation terms this is sometimes referred to as hope/marriage value, or Clay factor.

17.  Mr Chain refers to the intended grounds of appeal in both applications for leave. But I believe he is mainly relying on the grounds set out in the Summons for leave to appeal against my February Decision. While he submits that the grounds are arguable and hence I should grant leave, he has not elaborated on these grounds at his first written submission.

18.  Mr Chain submits that irrespective of whether the merged sites point is arguable as a pure point of law/interpretation, the point even if considered on the more limited basis of hope value/intrinsic value would be facts sensitive, and therefore neither the pleadings nor the evidence should be struck out, in that those facts are, at the very least, potentially relevant to hope/intrinsic value, and the Tribunal would not know whether they are in fact relevant/probative until the evidence are given.

19.  Mr Chain has sensibly made a broad bush submission on the 13 paragraphs of the proposed grounds of appeal. I shall deal with his argument on the grounds later in this decision with the submission from Mr Mok, who indeed goes through each paragraph.

20.  At this juncture, I shall consider the argument on interest of justice first, as he relies on a newly added 14^th ground of appeal in his submission: -

“14. The learned Presiding Officer further erred in striking out, inter alia, paragraph 1(b) of the Notice of Opposition, which pleaded facts pertaining to the potential value of the subject lot, on the sole basis that on a true and proper interpretation of the “on its own” formula in paragraph 2 of Schedule 2 (“Formula”), the Tribunal when setting the reserve price (which the learned Presiding Officer accepted is only a (minimal [I presume he meant minimum]) protection (paragraph 39 of Decision), cannot as a matter of law even consider those facts pleaded in paragraph 1(b); in so ruling the learned Presiding Officer either erred in conflating the value (and/or redevelopment potential) of the subject lot with the reserve price, alternatively, if the learned Presiding Officer did agree with R’s submission that the reserve price inevitably means the value (and/or the full redevelopment potential) of the subject lot, then erred in failing to hold that the Formula is unconstitutional in that it would not be “no more than is necessary”, the Respondent repeats ground 11 above.”

21.  In support of his argument, Mr Chain refers to 2 judgments of this Tribunal by different panels.

22.  Mr Chain first refers to Double Top Development Ltd and others v Kentone Ltd and others[2023] HKLdT 28, a judgment by Member Alex Ng sitting alone, that it was held that “hope value should not be excluded in the setting of reserve price”, and that “hope value can sometimes be reflected in market value”.

23.  Mr Chain also refers to Asia Bright Enterprises Ltd and others v Liu Cheuk Man and others[2023] HKLdT 30, a judgment by a panel of HH Judge M. Wong and Member Alex Ng. He refers to paragraph 52 that “the Tribunal in fixing the reserve price has a discretion to consider other matters on top of the redevelopment potential of the lot”, and he further suggests at paragraph 57 to 59, the Tribunal has held to the effect that “that in appropriate cases hope value and even marriage value may be included/considered.” It is necessary to read paragraphs 57 to 59 of the judgment (which I have set out hereinafter) in greater details for my consideration of his argument.

24.  On the basis of these authorities, Mr Chain submits that grounds 2 and 4 of the proposed grounds of appeal are arguable, and also the new ground 14. I believe he is also arguing that because of the ruling by other panel of this Tribunal which appear to be in conflict with my ruling on the on its own formula, it is in the interest of justice for leave to appeal be granted.

Applicants’ Reply on Interest of Justice Point

25.  I shall consider the applicants’ argument on Asia Bright first.

26.  Mr Mok submits that these paragraphs have to be read in the whole context. As for paragraph 52, the Tribunal mentioned that in fixing the reserve price has a discretion to consider other matters on top of the redevelopment potential of the Lot. It gives an example immediately after that statement, that the adjacent lots are made subject matter of the statutory auction together with the subject lot. And it was stated in paragraph 53 to 56 of the judgment that “…as Site A, Site B and Site C [the adjacent lots owned by the majority owner] are not the subject matters of this application and have not been included in the intended auction, we do not consider that the marriage value and/or the so called “Clay Factor” of the merged site should be included in our determination of the reserved price.”

Discussion and Ruling

27.  And before I move on, I set out paragraphs 52 to 59 of the judgment –

“52. First of all, we accept R2’s submission that the words “takes into account” and “approved by the Tribunal” in paragraph 2 of Schedule 2 of the Ordinance shows that the Tribunal in fixing the reserve price has a discretion to consider other matters on top of the redevelopment potential of the Lot. In other words, the reserve price may not be just equivalent to the RDV of the Lot, but can be fixed at a figure that includes other considerations on top of the RDV of the Lot. For example, if there are other adjoining lots that would be sold together with the Lot in a single auction, the reserve price could be based on the RDV of the merged site of all the lots.

53. However, as Site A, Site B and Site C are not the subject matters of this application and have not been included in the intended auction, we do not consider that the marriage value and/or the so called “Clay Factor” of the merged site should be included in our determination of the reserve price.

54. R2 seeks to argue that “redevelopment potential of the lot on its own” cannot be wrongly equivocated to mean “redevelopment potential of the lot when redeveloped individually on its own”. However, in our view, what the Ordinance stipulates is clear – it is the redevelopment potential of “the Lot on its own”.

55. If the Lot could be redeveloped together with other lots, the redevelopment potential of “the Lot on its own” would be higher. Although it is not disputed that the applicants do have the plan to redevelop Site A, Site B and Site C together with the Lot, it does not mean that the applicants will certainly be able to acquire the Lot through the auction and hence redevelop all the lots together. After all, there will be a public auction and other developers may outbid the applicants. The other developers would not be able to redevelop Site A, Site B and Site C together with the Lot, and it is unrealistic to assume that they would pay a price that reflects the marriage value of all the lots. One cannot just assume that the redevelopment potential of “the Lot on its own” must be higher because the applicants want to redevelop the Lot together with the adjoining lots, as it does not represent the market value as such. It is just a special interest to the applicants to acquire the Lot so that it could be redeveloped with the other lots.

56. Thus, we consider that the reserve price for the auction under Schedule 2 of the Ordinance, which takes into account “the redevelopment potential of the lot on its own”, should be the RDV of the Lot only, the market value of the Lot on the basis of redevelopment of the Lot alone.

57. From valuation perspective and in accordance with HKIS Valuation Standards 2020, hope value can be included in the market value, which should reflect the highest and best use of an asset that maximises its potential and that is possible, legally permissible and financially feasible, but the amount of hope value must be limited to the extent that it would be reflected in offers made by prospective purchasers in a general market under a rational environment which means with market-evidence.

58. We agree that if the Lot is redeveloped together with its adjacent 3 sites, there will have a marriage value released from the site merger. Both Mr Chan and Mr Cheung opine that the market value of the merged site is greater than the aggregate of the individual market value of the 4 sites, though they have different opinion on the amplitude of the difference. However, we are not persuaded by Mr Cheung that the market value of the Lot would include the proportional marriage value or part of the proportional marriage value. On the conditions that size of the Lot is about 1,000 square meters, large enough for an efficient development, and the market value of the Lot is a large lump sum over $1,000 million, we are of the view that except for the applicants and/or related parties of the applicants, which are the special purchaser(s), there would not have any rational purchaser which would pay a price for the Lot higher than the RDV of the Lot in the hope of sharing the marriage value with the applicants.

59. Hope value may sometimes be reflected in the market value but usually in exceptional cases only, such as the cases that (i) there would have competition from at least 2 purchasers (i.e. in the scenario that the relevant lot can be merged with the other lots on the right or the lots on the left and the lots on the right and left are owned by different parties); and (ii) the marriage value is substantial when it is compared with value of the relevant asset, so that a rational purchaser would take the risk to put in a higher bid in the circumstances.”

28.  I have no problem with paragraph 52. It is a discretion to grant an order for sale. And every discretion has to be exercised judicially. And in the context of the Ordinance, it has to be exercised in light of the express provision of the Ordinance, and that is the reason why all cases turn on the interpretation of Paragraph 2 of Schedule 2 of the Ordinance.

29.  It is clear that by paragraphs 53 to 56, the panel in Asia Bright set out clearly that if the adjacent sites are not included in the intended auction, or the subject matters of the application, the merged site and Clay Factor should not be taken into account in assessing the reserve price, have regards to Paragraph 2 of Schedule 2 of the Ordinance. Paragraphs 57 to 59 must be read with these paragraphs. And paragraphs 57 to 59 in the correct reading is a discussion on market value if the subject lot is developed with adjacent lot(s). I believe there is no conflict between Asia Bright and my ruling or that for justice or special reason shall be clarified by the Court of Appeal.

30.  It is the argument of Mr Chain that I should not exclude the introduction of expert evidence or to prevent the respondent from arguing the merged site issue. This should be left to the determination of the Tribunal after hearing all the evidence. But the introduction of expert evidence is subject to leave of this Tribunal. It is an interlocutory matter, and a case management decision. When leave is considered, it has to be considered in light of the law. And hence the argument is not a matter for trial, but at case management stage whether this Tribunal should allow the evidence be introduced. It is clearly within the jurisdiction of the Tribunal to decide if the expert evidence shall be adduced at the interlocutory stage.

31.  Mr Mok also refers to another recent judgment of this Tribunal given in China Orchid International Limited and others v Fujitec (HK) Company Limited and others[2023] HKLdT 38. He refers in particular to paragraphs 315 and 316 of the judgment: -

“315. We accept that the words “takes into account” and “approved by the Tribunal” in paragraph 2 of Schedule 2 of the Ordinance show that the Tribunal in fixing the reserve price has discretion to consider other matters on top of “the redevelopment potential of the lot on its own”. In other words, the reserve price may not be just equivalent to the RDV of the lot, but can be fixed at a figure that includes other considerations on top of the RDV of the lot.

316. However, including Swire’s “special interest” as part of the considerations for establishing “the redevelopment potential of the lot on its own” is a completely different matter. This is trying to include potential that is not due to the lot on its own. In our view, what the Ordinance stipulates is clear – it is the redevelopment potential of “the lot on its own”. Hence, this alleged “special interest” cannot be taken into account in establishing the RDV of the subject lot.”

32.  Again, this is a judgment against the consideration of merged site factor when the adjacent sites are not matter of the application or to be included in the auction. And again, the Tribunal adopts the on its own formula. There is no special reason why I should grant leave to appeal.

33.  As for Double Top, this is a judgment by a Member sitting alone. This means that no legal issue is raised and the dispute between parties are on valuation. Hence, with no disrespect, the comments by the learned Member would be his opinion on valuation. Having read the submission of Mr Mok, in his reply submission, Mr Chain agrees to ignore this judgment for this application for leave to appeal. He reiterates that both Asia Bright and China Orchid are at the very least arguably authorities which show that the merged sites issues should not be struck out, and which I disagree for reasons set out above. I reject the argument of Mr Chain.

The Grounds of Appeal on the February Decision

34.  For completeness, I shall come to the proposed grounds of appeal for leave to appeal against my February Decision. In the summons, 13 paragraphs of proposed grounds of appeal have been set out.

35.  I believe paragraph 1 has to be read with paragraph 2. It is claimed that this Tribunal erred in holding that the “on its own” formula is exhaustive and not inclusionary only. Paragraph 2 further said in so holding, this Tribunal has placed no or no sufficient weight to the words “redevelopment potential” in the same paragraph, i.e. paragraph 2 of Schedule 2 of the Ordinance.

36.  Mr Chain has not elaborated on the reason, and I believe he is relying on the submission at the hearing, and I do not repeat what I have stated in my Decision. Mr Chain is relying further on the new cases and which I considered above. There is no merit.

37.  Mr Mok in fact has given a very detailed submission on the on its own formula which I agree. I do not see any prospect that Mr Chain’s submission that my interpretation of the on its own formula is wrong.

38.  Paragraph 3 complains that my February Decision is unclear as to whether I accepted the respondent’s submission that as a matter of fact in the great majority of applications under the Ordinance, the applicant is a developer and where there is an order for sale, there is usually no competition at the public auction and the reserve price is almost the sale price.

39.  I am not making any fact finding in the February Decision. The reason I reject the respondent’s argument is on law. There is no merit in this paragraph.

40.  Paragraph 4 said I erred in the true and correct interpretation of Paragraph 2 of Schedule 2 of the Ordinance. I only repeat my Decision and I also adopt the submission of Mr Mok herein on the interpretation of the on its own formula. There is no prospect of success in this paragraph.

41.  Paragraph 5 said I should not entertain the argument of a point of law, as the same point may be relevant to other application after trial. Yet there is an application before me and there is no reason why I should not determine a point of law to resolve the striking out application. There is no merit in this point.

42.  Paragraph 6 is not a point for this Tribunal. What Mr Chain complains of is that, the public auction does not provide a level playing field. Not that there is no evidence in support, and that I was not asked to rule thereon. And if minority owners are not satisfied with the sale arrangement provided by the Ordinance, this is a matter for consideration by the Legislature for amendment of the Ordinance, not suggesting that I agree with the contention of Mr Chain. That is the same argument raised in paragraph 7. There is no merit in these paragraphs.

43.  Paragraph 8 argues that Fully HK Investments Ltd and others v Poon Val Ching and others HCMP591/2007 is not a ruling of the Court of Appeal. No authority has been adduced at this hearing to support this argument. And I have no reason to doubt the correctness of the judgment. There is no merit in this ground.

44.  Paragraph 9 does not appear to be a ground. The fact that it might be difficult is not a reason for the Tribunal not to do so. But what I said in my decision is the Legislature has considered the difficulty when approving the amendment to add the on its own formula. The paragraph has no merit.

45.  Paragraph 10 said I erred in relying too much on the minutes of the meeting of the Bills Committee on 28 February 1998 when there was no or no sufficient evidence on what discussion/suggestions led to the Law Society’s suggested difficulties. I do not believe one has to consider the difficulties suggested by the Law Society. It is a point taken by the Legislature before passing the Bill. If there is any doubt on the clear meaning of the on its own formula as set out in the Ordinance, the minutes clearly assist this Tribunal on the interpretation. And I also rely on the judgment of Day Bright on interpretation of Paragraph 2 of Schedule 2 of the Ordinance. There is no merit on this ground.

46.  Paragraphs 11 and 12 should be considered together. It is Mr Chain’s argument on constitutionality. As I stress in my February Decision, I am to determine the reserve price, and not the final sale price. There is no reason to believe that the reserve price would affect the final sale price. I believe Mr Chain is trying to merge the 2 issues as one, as he believes that the reserve price is usually the final sale price. And I have followed the decision of the Court of Appeal in Fully that the sale price, with any other factors, even the merged site factor, could be reflected in the final sale price set by the market.

47.  There are no merits in these 2 grounds.

48.  Paragraph 13 argues that the true value of the potentialities of the subject lot ought only to be decided after hearing all relevant evidence. I have no disagreement as long as the on its own formula provided in the Ordinance is followed. This paragraph adds nothing to the proposed ground and has no merit.

49.  And I have fully considered the argument of Mr Chain on the new Ground 14 which I found there is no merit.

50.  In summing up, there is no merit in the proposed grounds of appeal for the February Decision. Having considered all submission and matters raised before me, I see no other reason to grant leave to appeal and I therefore dismiss the application and I shall come to costs at the end of this decision.

Grounds of Appeal on the September Decision

51.  I shall now come to the Grounds of Appeal on the September Decision.

52.  Mr Chain submits that there are 2 arguable points of law. First, as a matter of law, whether the Tribunal can without any further order, in effect, limit the way how expert evidence can be presented when the original order granting leave has not so provided. And secondly, as a matter of fact whether an expert report under the Ordinance must without exception set out (i) a basis of valuation or methodology” and (ii) the so called RDV when such term is not even a term provided for in the Ordinance.

53.  Mr Mok identified the relevant paragraphs in my September Decision in paragraph 45 of his written submission which I do not repeat. He submits that there is no merits in the respondent’s grounds of appeal in that “they do not contain any challenge against the finding [of this Tribunal] that Reports 2-5 failed to inform the applicants (and the Tribunal) (1) any proposed method to assess the alleged enhanced RDV of the Lot (owing to Hysan’s ownership of the adjacent lots, not forming subject matter of [this Application under the Ordinance]); (2) any justification for the proposed method, and (3) any idea on the quantum of the enhance RDV of the Lot.

54.  Mr Mok further submits that the reports do not contain any hint on how the applicants can prepare their response to the reports, nor any hints on how these reports could assist the Tribunal to assess the reserve price of the Lot.

55.  My short answer to the submission of Mr Chain is that I do not limit the original order on leave to adduce expert evidence. I did interpret the order on expert evidence. I believe it must be correct that the original order is to allow expert evidence to assist the Tribunal on the issues as pleaded. And if there is any doubt, it must be correct that the other parties may raise objection to the expert evidence adduced, and when determining if the expert evidence should be adduced at the trial, issue of relevance, and probative value must be a consideration. And this is a matter for case management and I see no reason why it has to be left to the Trial Presiding Officer.

56.  With that consideration, there is no merits in Mr Chain’s argument, or the proposed grounds of appeal. I also adopt the submission of Mr Mok to rule that there is no merit in the proposed grounds of appeal and the respondent’s application should be dismissed.

Costs

57.  The respondent applies by summons to vary the costs order nisi I gave in favour of the applicants with the February Decision. I refer to the Affidavit of Lung Siu Wing filed herein on 10 March 2023. He refers this Tribunal to the following facts, which are not in dispute –

“(a) Paragraph 1(b) of the Notice of Opposition was added by amendments which was allowed by consent;

(b) After the amendments and the Respondent’s filing of Reports 2 to 4 (“the 3 Expert Reports”), there were prolonged correspondences between the parties over the 3 Expert Reports; and

(c) Even then, when the Applicants issued their summons on 29 September 2021 (“1^st Summons”), the Applicants have not applied to strike out paragraph 1(b), and it was only after the learned Presiding Officer pointed that out at the hearing of the 1^st Summons that the Applicants issued the 2^nd summons dated 7 October 2022.

As a result, unnecessary costs were incurred (and wasted).”

58.  The respondent applies to vary the costs order nisi to the effect that “the respondent do pay the applicants 75%, or such other % as this Honourable Tribunal determines to be just, costs of the summons dated 7 October 2022 and costs of and occasioned by the 3 expert reports filed by the respondent on 30 July 2021, with certificate for counsel to be taxed at High Court Scale if not agreed”.

59.  Mr Mok submits that there is no duplication of work between the 2 summonses taken out by the applicants. There should not be any reduction of the costs. And Mr Mok asks for costs on behalf of the applicants for all 3 summonses to be summarily assessed.

Ruling on Costs Order Nisi

60.  This application is tricky. On the hearing in July 2022 (resulting with my September Decision), I have invited Mr Mok to orally apply for striking out and Mr Chain has no objection. But he asked for an adjournment and Mr Mok refused, and abandoned the argument on striking out. I have to say that both parties must be aware of the argument on the on its own formula and whether this Tribunal should strike out the paragraphs in the Amended Notice of Opposition turns on this issues. And I am convinced that if Mr Chain proceed with the application, his client would not have any prejudice.

61.  It is Mr Chain who asks for an adjournment but I cannot say that he is acting unreasonable. Mr Mok decided to proceed on other grounds, again I cannot say that he is acting unreasonable. It is unfortunate that we have to split the hearing into 2. I cannot say that the applicants have been acting unreasonably or leading to additional costs. If they agree to the adjournment, there would still be additional costs.

62.  Balancing all, I am not convinced that there should be reduction of costs against the applicants and I dismiss the application. And I retain my costs order given with the February Decision.

Conclusion

63.  Summing up, I dismiss all 3 summonses of the respondent, for leave to appeal/review my September Decision, for leave to appeal against my February Decision, and to vary my costs order nisi with my February Decision. And for costs, I see no reason why the respondent shall not bear the costs of the applicants. And I give an order nisi in favour of the applicants for costs of the 3 summonses to be taxed at High Court Scale with certificate for counsel. The order nisi shall become absolute within 14 days unless parties apply to vary.

64.  I am not prepared to direct the costs to be paid forthwith and I would leave the costs to be taxed in due course.

Mr Mok Yeuk Chi, instructed by Mayer Brown, for the 1^st to 10^th applicants

Mr Benjamin Chain, instructed by So, Lung & Associates, for the respondent

LDCS 11000/2020

[2023] HKLdT 14

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 11000 OF 2020

__________________________

__________________________

_________________

DECISION

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The Application and Background

1.  By a Notice of Application filed herein on 29 May 2020, the applicants apply under the Land (Compulsory Sale for Redevelopment) Ordinance (“Cap. 545” or “the Ordinance”) for an order for sale of Sub-section 3 of section A of Inland Lot No. 734 (“the First Lot”) (No. 10 Matheson Street, Hong Kong (“the First Building”)) and Sub-section 4 of Section A of Inland Lot No. 734 (“the Second Lot”) (No. 12 Matheson Street, Hong Kong (“the Second Building”)).

2.  The applicants claim to hold the average of over 90% in the First and Second Lots.

3.  There is only one respondent, who is the registered owner of 1 equal undivided 6^th part or share of and in the Second Lot together with the sole and exclusive right and privilege to hold, use and occupy the 5^th Floor of the Second Building.

4.  The respondent opposed the application. An Amended Notice of Opposition has been filed on 19 April 2021. According to the Amended Notice of Opposition, the particulars of opposition have been set out in paragraph 1 under section C.

5.  By a summons taken out by the applicants on 7 October 2022, the applicant sought to struck out paragraph 1(b), the plan marked A and the Schedule annexed to the Amended Notice of Opposition (collectively referred to hereinafter as “paragraph 1(b)”) under Order 18 Rule 19 of the Rules of High Court and/or under the inherent jurisdiction of the Lands Tribunal on the ground that they disclose no reasonable cause of action or defence, they are scandalous, frivolous or vexatious, or they may prejudice embarrass or delay the fair trial of the action, and/or they are an abuse of the process of the Tribunal. (The full text of paragraph 1(b) is set out in the Appendix I hereto).

Applicants’ case (Part I)

6.  As the background, I shall refer to an earlier summons by the applicants to expunge 3 of the expert reports filed by the valuation expert of the respondent and inadmissible for these proceedings. These 3 reports are on the RDV of the subject site developed with some adjacent lots. In the hearing on 29 July 2022, Mr. Chain, counsel for the respondent (in the earlier summons and today) argued that these reports were relevant to the argument of the respondent on the issue of merged site factor and/or special interest factor on the RDV of the First and Second Lots. And paragraph 1(b) set out the particulars to support the merged site factor and/or special interest factor as contended by the respondent.

7.  Mr. Mok, counsel for the applicants argued in the earlier summons that the merged site and special interest factor were not basis of valuation permitted by the relevant provision of Cap. 545, in particular paragraph 2 of Schedule 2. Hence he asked for the 3 expert reports be expunged for being irrelevant. Mr. Chain submitted that this would be a pleading point and if the applicants were to take this argument, they should also apply to strike the relevant parts in the Amended Notice of Opposition (including paragraph 1(b)) and which, the respondent would oppose.

8.  I accepted the submission of Mr. Chain and Mr. Mok asked to include an oral application to strike out paragraph 1(b), which I was prepared to entertain. And Mr. Chain had no objection but he asked for an adjournment to put in supplemental submission for the new oral application. Mr. Mok agreed to abandon the oral application and would not rely on the argument that the basis of merged site value and special interest value were not arguable at all for the summons to expunge the expert reports.

9.  While I have allowed the applicants’ summons to expunge the 3 expert reports for other reasons as set out in my Ruling dated 2 September 2022, Mr. Mok now returns seeking to strike out paragraph 1(b).

10.  Mr. Mok analyzed paragraph 1(b) and the argument of the respondent raised. I do not think this is disputed that Inland Lot 734 is sub-divided into sub-lots, making up of Nos. 5, 7, 9, 9A & 9B of Sharp Street East, and Nos. 10, 12,14, 16 & 18 of Matheson Street. And Inland Lot 734 is adjacent to Inland Lot 1451 with Leighton Centre erected thereon.

11.  Mr. Mok accepts that Cap 545 proceedings have been commenced for 10-12 Matheson Street (this action), 16 Matheson Street (LDCS 12000/2020), 9A-9B Sharp Street East (LDCS 13000/2020), 5 Sharp Street East (LDCS 10000/2020 with a sale order granted on 10 March 2021). No Cap. 545 application has been taken out for 14 & 18 Matheson Street, 7 & 9 Sharp Street East, and Leighton Centre.

12.  With this factual background, Mr. Chain submits that the respondent would argue at the trial that in assessing the reserve price if an order for sale would be granted, the merged site and special interest value should be taken into account. I would adopt the analysis of Mr. Mok on the case as pleaded by the respondent in paragraph 1(b) –

“(I) “In the premise” of what are pleaded in the proceeding paragraphs, some or all of the sub-lots in Inland Lot No.734, the Subject Lot included, “are at least potentially capable of being redeveloped together” and possibly together with Leighton Centre; and

(II) They “therefore are or will be of special interest to the current majority owners (including all the applicants in all the other applications under Cap 545 referred to above) irrespective of whether they (or some of them) are related to or beneficially owned or controlled by the Hysan Group”.

13.  It is not disputed that the applicants are related to or companies within the Hysan Group. It is therefore contended by the respondent that the First and Second Lots enjoy a special interest (or Clay Factor) of the potential to form part of a larger merged site redevelopment. And its RDV should be enhanced by a premium brought about by this special interest. And the applicants failed to take these into account when preparing the RDV expert report. And hence the respondent filed the other reports on the issue which I have expunged for other reasons. In any event, the respondent contends that these factors should be taken into account in valuing the redevelopment potential of the Lots and is relevant to the assessment of this Tribunal on the reserve price if an order for sale is granted.

14.  Mr. Mok argues that the merged site factor is excluded by Schedule 2 of Cap. 545, in particular paragraph 2, which reads –

“2. The lot the subject of the auction shall be sold subject to a reserve price—

(a) which takes into account the redevelopment potential of the lot on its own (or, where 2 or more lots are the subject of the auction, on their own); and

(b) approved by the Tribunal.

2. 屬拍賣標的之地段須設底價，而該底價須 ——

(a) 顧及該地段本身或(如屬上述拍賣標的之地段關乎2個或多於2個地段)該等地段本身的重新發展潛力；並

(b) 獲審裁處批准。”

15.  Mr. Mok submits that by section 5(1) of Cap. 545, in the event of the grant of a sale order, the subject lot(s) “shall be sold by public auction in accordance with the conditions specified in Schedule 2”. The conditions include the “on its own” formula. And the “on its own” formula as now set out in paragraph 2 of the Schedule 2 was not originally included in the draft Bill. It was only added to Schedule 2 during the vetting stage by the Provisional Legislative Council. Mr. Mok refers to Day Bright Development Ltd & Others v Choi Pak Ling & Others [2014] 4 HKC 364, when the records of the Provisional Legislative Council on this matter has been summarized at paragraph 53, which are set out in Appendix II.

16.  Mr. Mok further submits that as recorded in the minutes of 28 February 1998 of the Bills Committee, “… members considered this suggestion [namely the suggestion of introducing the ‘on its own’ formula to Schedule 2] fair as it would be difficult to assess the reserve price if other factors such as the potential of adjacent sites acquired by the majority owners were taken into account. Moreover, even if the majority owners owned a number of adjacent lots, they might not be the successful purchaser of the lot at the auction.”

17.  In Day Bright’s case, after analyzing the records of the Provisional Legislative Council, another panel of this Tribunal with HH Judge Wong and Member Pang observed at paragraph 54(i) that –

“(i) The controversy associated with the extent to which a minority owner can share in the redevelopment benefits was acknowledged by the legislature as early as 28 February 1998 and before the second reading. A consensus was reached by then: the minority owner was to share only up to the full redevelopment potential of the lot, not the entire site of the redevelopment. The “on its/their own” formula was agreed. This was reflected in the CSA (already in place as at 27 March 1998), subsequently adopted in full and ended up in the Schedule 2 paragraph 2 of the promulgated Ordinance. Although whether a minority owner should be allowed to have a larger share of the often lucrative development is debatable, or whether the reasons leading to the original consensus remain justifiable given the current socio-economical situation, the above clearly shows that when the Bill was at its early stage, a consensus had been reached between legislators and the administration to exclude the redevelopment potential arising from the majority’s ownership of adjacent lots from assessing the reserve price.”

18.  Mr. Mok submits that there could be no ambiguity that the proper interpretation of Schedule 2 is (a) to exclude, in the fixing of reserve price, any enhanced redevelopment potential that could be generated by the full ownership of the majority owner of adjacent lots and (b) to allow the auction to take care of whether, and if so, to what extent the difficult-to-assess factors, including inter alia the merged site and special interest factors, would affect the final bid.

19.  He also refers to a number of decision of this Tribunal by different panels, which adopt the “on its own” formula, including Day Bright’s case, First Kind Ltd v Yuet Loong investment Co Ltd [2018] 2 HKLRD 83, and other cases listed in paragraphs 12-14 of his written submission which I do not repeat.

20.  Mr. Mok also refers to the judgment of Le Pichon JA (as she then was) given in Fully H.K. Investments Limited & Others v Poon Vai Ching & Others, HCMP 591/2007, in particular paragraph 20 –

“18. I do not consider those authorities to be of assistance to the second respondent. As Mr Mok who appeared for the applicants rightly submitted, the Raja line of cases establishes assumptions for assessments and valuation purposes that apply in a context where there is absolutely no possibility of an actual auction. Where, as here, there is to be a public auction, the factors mentioned in the judgment of Swinfen Eady LJ quoted above would be matters that would be taken care of by the actual process of the public auction. To say that the Tribunal should seek to attribute a value to those factors so as to establish a valuation by reference to which the fairness and reasonableness of the offer is to be determined is little short of inviting the Tribunal, as it were, to second guess the outcome of the public auction. That is at odds with the principles set out in Capital Well.

19. It is clear from that decision that in assessing whether reasonable steps had been taken by the majority owners under section 4(2)(b) of the Ordinance, the role of the Tribunal is not to conduct a valuation exercise. Mr Smith SC sought to distinguish Capital Well on the basis that the Tribunal’s finding in that case was made on the basis of both sides’ valuation evidence on the open market value of all six lots, taking account of the composite sites redevelopment potential. He submitted that this was not the present case since what is in the issue is the Tribunal’s assessment of the lot’s redevelopment potential. But if Capital Well is properly understood, it is not distinguishable. What according to Mr Smith SC the Tribunal ought to have done is precisely what the Court of Final Appeal held a Tribunal should not do – to engage in a valuation exercise that decides what valuation principles ought or ought not be adopted such as ‘marriage value’ ‘strategic position’ ‘special interest’ and the like and how they are to be assessed.

20. The value of the lot on the basis of plot ratio 5 is not in dispute. As to the question how the court is to “decide what figure to put on top” of the plot ratio 5 to reflect the Clay factor, the second respondent’s stance below was that that was a question of quantum. Yet, it is clear from the transcript of the evidence of the second respondent’s expert that he could not tell what the quantum was except that it should be somewhere between the levels of plot ratio 5 and plot ratio 9. As I have said, that is a matter that is to be resolved as part of the actual auction process.”

[passages in bold are relied on by Mr. Mok]

21.  In gist, Mr. Mok submits that I am bound by the decision of Fully’s case, which ruled that merged site or special interest factors are excluded by paragraph 2 of Schedule 2. And there is no unfairness as the issues of any enhanced value would be taken care of by the process of auction.

22.  Leaving aside the question of constitutionality which Mr. Chain relies on and which I shall deal with in the later part of this ruling, Mr. Mok submits that there is no reasonable cause of action for the respondent to rely on these matters for valuation and they should be struck out.

Legal Principles on Striking out in Lands Tribunal Applications

23.  I do not think the legal principle for striking out is in dispute and no submission has been made. I do not go into details. In fact, I have discussed the application of striking out in the Lands Tribunal in my decision dated 2 September 2022 at paragraph 20, which I do not repeat.

24.  I remind myself that an order to strike out should only be made in the plain and obvious cases.

The Respondent’s case (Part I)

25.  Mr. Chain responds to the submission of Mr. Mok, saying: -

“Insofar as A submits the legal point is clear, it can only be on the basis that, as A submits, the “on its own” formula in Schedule 2 was a deliberate choice, and is meant to, and does have the effect of excluding the minority owners from having a share in the “marriage/hope value” which is an intrinsic part of the value of the properties.

“So submitted, that is: (a) wrong in law/fact, and (b) if indeed to be so construed, plainly unconstitutional.”

26.  I take the first responses from Mr. Chain first. On interpretation, Mr. Chain submits that the “on its own formula” does not have the effect as contended by the applicants. I believe he is arguing that the applicants seek to argue that the minority owners are being deprived of their shares or benefit derived from merged site or special interest factors. I do not think that is the position taken by the applicants from the above analysis.

27.  While the respondent complains that the reserve price usually results in the sale price, Mr. Chain accepts that the respondent’s complaint is irrelevant on the question of interpretation of paragraph 2 of Schedule 2.

28.  Mr. Chain submits that the formula under paragraph 2 only requires the Tribunal when setting a reserve price, which by its very nature is, and is meant to be, a minimum, to “take into account (in Chinese 顧及) the redevelopment potential of the lot but on its own.” The Tribunal must have regard to the redevelopment potential on its own. It does not follow that the Tribunal may not have regard to other factors in fixing the reserve price. He submits that the merge site or special interest factors may be considered and taken into account in setting the reserve price.

29.  It is his submission that the merged site factor and special interest factor are intrinsic value of the property of the minority owners and they should not be deprived of. They should be allowed at least to argue the point. It is opened to this Tribunal after hearing all evidence to reject the argument. But it is wrong to deny the respondent the right to argue the point.

30.  Mr. Chain complains that in some of the cases cited by Mr. Mok, the Tribunal in setting the reserve price is not concerned with what is the value of the property, and held it would be a matter for the market. He moves on to argue that by so doing, the minority owners would be deprived of a portion of the intrinsic value of their property when the same were to be taken against their will.

Discussion and Ruling on Interpretation

31.  I believe it is clear that Cap. 545 only requires this Tribunal to set a reserve price for the auction. This Tribunal would not fix the sale price of the lot or lots to be sold, or the compensation of the minority owners. Even at the debate at the Provisional Legislative Council, the concern is on fixing of the reserve price.

32.  Mr. Chain submits that Day Bright relies heavily on the minutes of the Bills Committee. And there is no sufficient information on what exactly was the suggestion made by the Law Society and what the debate was about. But I believe what has been included in the judgment is sufficient for the consideration, in particular that paragraph 2 of Schedule 2 is an amendment at the vetting stage and consideration has been placed on the difficulty of setting the reserve price. I would not go as far as Day Bright to suggest that the minority owners were to share only up to the full redevelopment potential of the lot, not the entire site of the redevelopment (paragraph 54 of the judgment). And indeed, Day Bright’s conclusion is that “a consensus had been reached between legislators and the administration to exclude the redevelopment potential arising from the majority’s ownership of adjacent lots from assessing the reserve price.” To that I agree.

33.  And as Mr. Chain submits, the reserve price is the minimum and is not meant to be the final sale price. I thought it must follow that the ultimate sale price, as determined by the market, is the fair compensation for the minority owners, and would reflect when appropriate, other factors that the lot or lots would enjoy including merged site or special interest factors.

34.  And as Mr. Mok submitted, the enhanced price by merged site factor, or indeed any reason why someone in the market is prepared to put up a higher price would be reflected in the auction proceedings. And that is also the ruling of Court of Appeal in Fully’s case. By employing the auction proceedings, it would reflect the market price, which must include all realizable value of the lot(s), including any merged site or special interest factors. I would refer to a passage in the judgment given by the Court of Appeal in Good Faith Properties Limited & Others v Cibean Development Company Limited, CACV 35/2014 (dated 22 September 2014) :

“32. We appreciate there are differences in the inherent nature and special features of the proceedings when one compares [Cap. 545] proceedings with resumption cases:

(a) The Tribunal has to decide whether an order for sale should be made in [Cap. 545] proceedings whereas in resumption cases it only has to decide the quantum of compensation;

(b) When the Tribunal ordered a sale under [Cap. 545], it would be conducted by a trustee in an auction with a reserve price and the purchaser may not be the majority owner;

(c) Unlike ss 6(2A),8(4) and 10(2)(e)(ii) of the Lands Resumption Ordinance Cap 124, there is no statutory provision in [Cap. 545] prescribing that reasonable costs of the proceedings of the minority owner shall be borne by the applicant; and

(d) As explained above, the minority owner may obtain the benefit of the hope value if this is reflected in the sale price achieved in an auction ordered under the [Cap. 545].”

[my emphasis]

35.  The above judgment is on whether the respondents in a Cap. 545 application should be entitled to costs on compensation approach. But the above passages shed light on the way how Cap. 545 should be interpreted.

36.  The Court of Appeal accepts that the minority owners may obtain the benefit of the hope value if this is reflected in the sale price achieved in the auction, and this must include any realizable enhanced value attributable to merged site or special interest factors. The function of the Tribunal is to decide if an order for sale should be granted, and if so, the reserve price.

37.  I fail to see why the fixing of a reserve price on the redevelopment value on its own would deprive the minority owner of a share in the merged site or special interest factors. These are hope value, and as considered by the above ruling in the Court of Appeal, they may be reflected in the sale price.

38.  Public auction is a known mean to obtain the market value. Clearly, the provision under Cap. 545, in particular section 5(1) has only required the subject lot(s) to be sold by public auction in accordance with the conditions as set out in Schedule 2. And in Schedule 2, paragraph 2 provides that the reserve price shall take into consideration the redevelopment potential of the lots on its own. If I would read in this way, the minority owners are compensated by a market price of the property obtained by auction. The reserve price is fixed by taking into account the redevelopment potential of the lots on its own. In setting this mechanism of fixing the reserve price, it is clear that the legislature intends to protect the “minimum compensation” receivable by the minority owners with a surplus. At the same time, there is a clear guidance that is workable to fix a reserve price for the auction to take place. The maximum return must be determined by the market.

39.  A reserve price is a protection. Yet it is part of the scheme for redevelopment under Cap. 545. There could be many potential elements that may increase or decrease the value of the subject lot. If there is no limit to the factors to be taken into account in assessing the reserve price, the auction could not take place and the order of sale would not be effective. That appears from the minutes of debate in the Provisional Legislative Counsel to be the concern of stakeholders, which was adopted by the legislature and hence the additional amendment of the “on its own” formula.

40.  Even if the applicant may own adjacent lots, there is no guarantee that he is the successful buyer, and that he must develop the subject lot with his own lot. And looking it this way, if the minority owners who may be so wealthy as able to acquire the subject lot, there is no guarantee that he could acquire the lot of the applicant for a joint development. Hence the possibility of a merged site or special interest is afterall a probability of extended development, or market reality. I agree with Madam Justice Le Pichon that this may, if there is such potential factor to enhance the value of the subject lot, be reflected in the sale price of the subject lot. It is fair to let the market determine the correct final sale price. The intrinsic value of the property of the minority owner, if could be realized in the market would has been taken into account in the final sale.

41.  Mr. Chain also raised a point for argument with a hypothetical case. If there are 2 adjacent lots and the applicant is the owner of lot A. the applicant is applying for an order for sale against the minority owners in lot B. And the applicant being a big developer has made known to its shareholders and the public that its plan is to redevelop both sites together, and has indeed been submitting building plans for a joint redevelopment of the 2 lots. The applicant also makes known to its shareholders that it would definitely bid at the auction. On the fact of such an extreme case, Mr. Chain submits that “one is left wondering why: - (a) the legislative should, and if so, why it is constitutional, make provision to deprive the minority owners of their fair share of the auction price, and (b) how [Cap. 545] can have that effect?”

42.  At first glance, the argument of Mr. Chain is very attractive. It appears that it is unfair for the applicant/buyer would benefit from the merged site value, while he only pays for the value of the subject lot with a price valued on its own.

43.  But if the law does set the reserve price taking into account the merged site factor, one would wonder who would be the interested parties to bid at the auction? In his example, one wonders if the only interested party would be the applicant. An outsider would not bid up to the enhanced value without first obtaining the understanding from the applicant that they may develop together, or the applicant is happy to sell the adjacent lot to him/it. Otherwise, upon buying the subject lot, the new purchaser has no guarantee of receiving the enhanced redevelopment value and could suffer loss by bidding at a higher than market value of the subject lot on its own.

44.  Cap. 545 has been discussed at length by the Court of Appeal in Pacific Base Holdings Limited & Others v Lee Hop Biu & Others[2021] HKCA 780. While the issue is on feasibility, the discussion is still useful in our analysis of the consideration of reserve price.

45.  The Court of Appeal accepts that the making of a compulsory sale order can interfere with the private ownership of the minority owners. And yet the Court of Appeal found that the scheme under Cap. 545 serves legitimate aims (and which I shall refer to again in the discussion on constitutionality later).

46.  I refer to paragraphs 40-42 of the judgment –

“40. Mr Mok quite rightly reminded us that it is a matter for the legislature to strike the balance between different interests amongst the majority owners, the minority owners and the public interest in urban renewal. In essence, it is a policy judgment. Whilst the court can entertain judicial review based on constitutional ground in respect of a balance embodied in a statute, given the high policy contents of such judgment in balancing and the competing interests, we firmly believe that the legislature should have a great margin of discretion in devising the scheme under the [Cap. 545]. Thus, in accordance with the considerations discussed by Ribeiro PJ in Hysan Development Co Ltd v Town Planning Board, supra, at [105] to [107] the standard of review should be that of “manifestly without reasonable foundation”.

“41. As we said, the statutory scheme leaves it to the market to decide if redevelopment is feasible instead of requiring the Tribunal to reach a conclusion on this matter. Bearing in mind that the applicant majority owners may not be the redeveloper, and that if the market does not perceive redevelopment to be feasible no sale would be achieved, we do not find the balance struck by the statutory scheme to be manifestly without reasonable foundation. As it is most unlikely that a purchaser would take the enormous risk of acquiring the lot without taking account of the feasibility of redeveloping the same in light of the implied condition imposed by the Government lease, the legitimate aim of redevelopment is achieved without requiring the Tribunal to rule on the same. There is a rational connection between such aim and the mechanism under the [Cap. 545] which is not manifestly without reasonable foundation in order to achieve the aim.

“42. Further, as Mr Mok submitted, it is difficult to define the scope of the inquiry into feasibility in the proceedings before the Tribunal. There is no reason in principle to confine the concept of feasibility to structural engineering feasibility. On the other hand, Section 4(2)(a) makes it clear that financial ability of the majority owners to undertake the redevelopment is not relevant.”

[my emphasis in bold]

47.  It is clear that it is a policy decision on how to strike the balance between the interest of majority owners, minority owners and the public interest in urban renewal. And most important, the statutory scheme leaves to the market to decide if redevelopment is feasible, instead of the Tribunal. I see no reason why the same rationale should not apply to fixing of reserve price which leaves the fixing of the final sale price to the market, and there would be a fair scheme to fix the price taking into the interest of the majority owners, the minority owners and the public interest.

48.  And for pure interpretation, reserve price is the reserve price. The wordings of paragraph 2 of Schedule 2 give this Tribunal the guideline on how to assess the reserve price. The “on its own” formula is clear to set the reserve price with reference to the redevelopment potential of the subject lot on its own. I can only accept that we may consider any factor as suggested by the experts for valuation as long as this is not in conflict with the clear wordings of Cap. 545. And the provision of “on its own” is so clear that there could be no alternative to fix the reserve price taking into account the redevelopment potential of the subject lot on its own. The Chinese version of Cap. 545 would not assist Mr. Chain but if there is any conflict, having considered all the argument, I would rule under Cap. 1 Rule 10B that the English version best reconciles the texts.

Constitutionality (Part II of Parties’ Case)

49.  Mr. Chain submits that the reserve price is the minimum sale price. A formula of setting the reserve price to take into account of the redevelopment potential of the lot on its own would be unconstitutional. I shall now move on to his second argument and the response from Mr. Mok.

50.  With my analysis above, I do not agree with Mr. Chain that the provision in Cap. 545 deprived the minority owners of any value in the proprietary interest they hold. The scheme of arrangement for a sale by auction is to take into account all possible realizable value of the property and I disagree with Mr. Chain’s submission.

51.  And if the “on its own” formula does have an adverse impact on the value of the property, I note the argument of Mr. Chain that any provision to such effect has to comply with the proportionality test laid down by the Court of Final Appeal in Hysan Development Co. Ltd. & Others v Town Planning Board (2016) 19 HKCFAR 372. I do not think Mr. Mok has any disagreement to the principle. And I set out paragraph 52 of the judgment of Court of Final Appeal –

“52. In subsequent authorities, after a finding that the invoked right is engaged, the two questions referred to by Sir Anthony Mason NPJ have tended to be expressed as a three-step inquiry. Thus, in Mok Charles v Tam Wai Ho,[1] Ma CJ formulated the approach as follows:

“The proportionality test, which is a well known test in our courts, consists of the following analysis in respect of any restriction or limitation:

(a) The restriction or limitation must pursue a legitimate aim.

(b) The restriction or limitation must also be rationally connected to that legitimate aim.

(c) The restriction or limitation must also be no more than is necessary to accomplish that legitimate aim.”

52.  The Court of Final Appeal further comes to the ruling that a fourth test should be added. I refer to paragraph 135 of the judgment: -

“135. A fourth step should be added. In line with a substantial body of authority, where an encroaching measure has passed the three-step test, the analysis should incorporate a fourth step asking whether a reasonable balance has been struck between the societal benefits of the encroachment and the inroads made into the constitutionally protected rights of the individual, asking in particular whether pursuit of the societal interest results in an unacceptably harsh burden on the individual.”

53.  Mr. Chain does not seek to rely on the first 2 steps/tests. He submits that it is not accepted that there is any legitimate aim why on a compulsory sale, which he argues is the same as a compulsory purchase, an owner should not be fully compensated for the full value of his properties. If the “on its own” formula is as contended by the applicant, fall foul of the 3^rd and 4^th tests. It would not be “no more than is necessary”. It would also not be proportionate.

54.  Mr. Mok first refers to the judgment of this Tribunal given in Intelligent House Limited v Chan Tung Shing & Others [2008] 4 HKC 421 which ruled that even if Basic Law Article 105 (“BL105”) did apply, it did not exclude a law permitting and requiring a private individual to sell his property to another private individual in accordance with the law. Cap. 545 does not breach BL 105. I do not think Mr. Chain challenge this ruling.

55.  If we take a look at Cap. 545 again, the scheme of redevelopment starts off with the requirement that the applicant has to satisfy this Tribunal that the subject lot shall be redeveloped due to age or state of repair. And when we are so satisfied, then an order for sale shall be granted, the property shall be put on auction.

56.  Mr. Mok has no objection to the 4 tests principle as aforesaid set by the Court of Final Appeal. And on tests/steps 3 & 4, he seeks further assistance from a judgment given by the Court of Appeal in Pacific Base Holdings Ltd & Others v Lee Hop Biu & Others [2021] 5 HKC 214, in particular paragraphs 40 and 41 which I have referred to above. He submits that it is constitutional to exclude the Tribunal from considering whether the redevelopment of the subject lot is feasible, and the same would apply to any provision to require the Tribunal to consider the redevelopment value of the subject lot on its own. I agree.

57.  Mr. Mok adds that “the ‘on its own” formula of Schedule 2, in excluding the difficult-to-assess factors in the assessment of the reserve price, serves the useful function of providing the Tribunal with a well-defined working formula when fixing the reserve price. That would facilitate the smooth resolution of Cap. 545 proceedings to facilitate urban renewal.” I agree.

58.  In summing up, I am confident to say the scheme of Cap. 545 in getting the best price by auction does cover all factors that may affect the price. We have to accept that any factor is just a probability to enhance the value of the subject lot(s). The applicant may not be the successful bidder. He may have an adjacent lot, yet he is not obliged to develop with the subject lot. And in no case the owner of a lot may compel the owner of the adjacent lot to develop their property together. Hence it is a reasonable balance between all interest parties to leave how these probabilities would affect the final sale price to the market, and the realizable value would be reflected from auction result. (And I would repeat the analysis by the Court of Appeal in Pacific Base which I set out in paragraph 42-44 above.)

Conclusion and Order

59.  And hence I repeat that Cap. 545 provided this Tribunal is to fix the reserve price with regards to the redevelopment potential of the subject lot(s) on its(their) own. This would not deprive the minority owners of an enhanced value. I rule against Mr. Chain and do not find that the “on its own” formula is unconstitutional.

60.  It follows that the merged site factor or special interest factor would not be relevant and any reference to evidence thereof shall be irrelevant. The part in the Amended Notice of Opposition suggesting that these would be raised and evidence to be adduced on such factors should be struck out. Having considered all matters raised before me, I found this is a clear case that the issue raised in paragraph 1(b) should be struck out.

61.  Mr. Chain also submits that the issue should be determined by way of trial of a preliminary issue instead of striking out. Yet when an issue is clearly unarguable, I fail to see why this Tribunal should not strike out the issue. This is within our jurisdiction, and should be so exercised for case management and for saving of Court’s time and costs.

62.  In conclusion, I would allow the application and struck out paragraph 1(b) together with the plan marked A and the Schedule annexed to the Amended Notice of Opposition.

63.  As for costs, I believe that this may be one of those situations in a Cap. 545 application when the applicants should be entitled to costs of the summons. So I give an order nisi in favour of the applicants that they should have costs of this summons with certificate for counsel which should become absolute within 14 days unless directed otherwise.

64.  I have also reserved the costs of the 3 expert reports mentioned above in the prior application and to be determined after this ruling. I have reserved the costs to be determined after I have decided on this striking out summons. As I rule against the respondent, the reports which are for the merged site and special interest factors would not be relevant at all. I believe the correct order is that the applicants shall have the costs of and occasioned by these reports with certificate for counsel and an order nisi to that effect is granted and shall become absolute within 14 days unless directed otherwise. All the costs are to be taxed at High Court Scale if not agreed.

65.  Finally, I thank counsel for their able assistance.

Mr Mok Yeuk Chi, instructed by Mayer Brown, for the 1^st to 10^th applicants

Mr Benjamin Chain, instructed by So, Lung & Associates, for the respondent

Appendix I page 1

Appendix I page 2

Appendix I page 3

Appendix II

“53. The following can be gleaned from the records of the Provisional Legislative Council placed before the Tribunal:

(i)  21 January 1998: According to the Official Record of Proceedings, the then SPEL moved the Bill to be read for the second time in the Council. The debate was adjourned and Bill referred to the House Committee. The following 2 areas of the Bill in its original drafting are worth mentioning:

(a) Section 3(1) of the Bill was drafted similar to the current section 3(1). The current section 3(2) is non-existent;

(b) Schedule 2 §2 is drafted differently, and is as follows. It is noted that the “on its own” formulation of the reserve price was not there.

“The lot the subject of the auction shall be sold subject to a reserve price –

(a) Which takes into account the redevelopment potential of the lot; and

(b) approved by the Tribunal”

(ii)  28^th February 1998: The Bills Committee under the House Committee of the Council held a meeting for examination of the Bill. From subsequent speeches/reports the said meeting was one of at least 12 meetings held by the Bills Committee. According to the meeting minutes (BC127-08/97-98), members examined the Bill clause-by-clause in accordance with a list of their concerns. It is recorded in §13 of the meeting minutes:

“Referring to the LS’s (“Law Society”) suggestion that the reserve price should take into account the redevelopment potential of the lot “on its own”, members considered this suggestion fair as it would be difficult to assess the reserve price if other factors such as the potential of adjacent sites acquired by the majority owners were taken into account. Moreover, even if the majority owners owned a number of adjacent lots, they might not be the successful purchaser of the lot at the auction. The Administration agreed to introduce CSAs [Committee Stage Amendment] to Schedule 2 to specify that the reserve price should take into account the redevelopment potential of the lot “on its own” (or, where two or more lots were the subject of the auction, on their own).”

(iii)  27 March 1998: A House Committee meeting was held and a paper entitled “Report of the Bills Committee on Land (Compulsory Sale For Redevelopment) Bill” was prepared and annexed to meeting minutes. It is noted that a list of Committee Stage Amendments (“CSA”) was annexed to the report as appendix. In the concluding paragraphs of the report, it was stated:

(a)  Subject to the CSA to be moved by the government as per the appendix, the Bills Committee supported the Bill;

(b)  The Bills Committee recommended the resumption of the second reading debate of the Bill on 7^th April 1998.

(iv)  §9 of the said report addressed concerns of some members on the “pencil” effect of the Bill which was not ideal from redevelopment perspective. While the then Committee supported the concept of comprehensive development, from what has been recorded it appears that the majority members of the Committee were more concerned with a situation where a developer might bundle lots which it had already acquired the threshold percentage together with lot it had no undivided shares at all, thus oppressively acquiring the latter against the owners’ will. The report went on to say:

“… As the Bill does not prohibit the majority owners holding 90% of the undivided shares in each of the lots to make one application for the sale order in order to redevelop the lots together, the Bills Committee accepts that the minimum acquisition percentage should apply to a lot per se.”

(v)  The committee went on to say that it would deal with the technical problem in respect of buildings connected to one and other by a common staircase. It also stated that the government had taken on board members’ suggestion that an average of 90% interest in each of the lots had to be acquired by the majority owners.

(vi)  It is noted from the CSA already annexed the following:

(a)  The current version of section 3(2)(a) & (b) was introduced as proposed additions (then as section 3(1A) under the CSA[2];

(b)  The words “on its own (or, where 2 or more lots are the subject of the auction, on their own)” were proposed to be added, and such formula subsequently became the current version of Schedule 2 §2(a).

(vii)  7 April 1998: This was the date on which the Provisional Legislative Council resumed the Second Reading debate of the Bill. The Chairman of the Bills Committee, the Hon Arculli, some legislators who were also members of the Bills Committee and the SPEL made their speeches. Some of their speeches were referred to in Bond Star and Supergoal. After their speeches the Bill was read for the second time. The Council immediately went into House Committee stage. The CSA were put to legislators almost clause-by-clause and were all accepted. Council then resumed and the Bill was read for the third time and passed. From these records, the second reading, amendment of the Bill by the CSA and the third reading all took place on the same day.

(viii)  According to the Record of Proceedings on 7 April 1998, Hon Arculli addressed the Council as the chairman of the Bills Committee on the report of the Committee before the second reading. Some paragraphs relevant to the present discussion are:

“[3]Another focal point of discussion in the Bill Committee was whether owners holding an average of 90% of aggregate undivided shares in contiguous lots should be allowed to make an application to redevelop the lots as a package. Whilst we fully support the concept of comprehensive redevelopment, our concern was that should such approach be adopted, there may be situations where an applicant did not own any undivided shares in one of the lots whilst holding 90% of the aggregate undivided shares. The Bills Committee considered that it could not be justified on the sole ground of comprehensive redevelopment to compel all the owners of such a lot to sell their properties against their will. We, therefore, agreed that the ownership percentage should apply to each lot except where two buildings served by a common staircase in which case it would be the average of the undivided shares of the lots on which the buildings stand.

…

[4]… The amendments to be moved later by the Secretary for Planning, Environment and Lands at the Committee stage are the product of concerted efforts on the part of deputations appearing before the Bills Committee, members of the Bills Committee and the Administration so as to ensure a fair and balanced new policy to expedite urban renewal in order to provide environmental improvement as well as much needed housing for the community, …” (emphasis added)

(ix)  The SPEL, when addressing the Council before the second reading, had also said through clause-by-clause discussion in a spirit of co-operation, the Committee examined the Bill and that in turn greatly helped the government draw up the amendments to improve the Bill. He went on to say:

“We have reached consensus with the Committee on these amendments which I will explain further when they were introduced at the Committee stage.”

(x)  When section 3(2)(a) and (b) (then as section 3(1A) and referred to as clause 3 in the minutes) was proposed to be added to section 3 of the Bill and put to the Committee for a vote, the SPEL said the following:

“Subclause (1A) [i.e. 3(2)(a) and (b)] specifies that if the majority owner makes an application covering two or more lots, he must own not less than 90% of the undivided shares in each lot. It also provides for the average to be taken for the purpose of calculating the percentage of the undivided shares of two or more lots on which there are two buildings joined by a common staircase.”

LDCS 11000/2020

[2022] HKLdT 43

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 11000 OF 2020

__________________________

BETWEEN

__________________________

_________________

DECISION

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1.  There are 2 summonses before me today and I shall first deal with the summons taken out by the applicants. This is a summons to expunge 3 of the expert reports filed by the valuation expert of the respondent from Court file and inadmissible for these proceedings.

2.  As background, this is an application under Cap. 545 for compulsory sale of Nos. 10 & 12 of Matheson Street (“the Property”). The only respondent is the owner of 5/F, 12 Matheson Street, as the applicants have acquired all the other units.

3.  I begin my consideration on some procedural matters.

4.  Mr. Chain, counsel for the respondent suggests that the Lands Tribunal may not have the jurisdiction to hear the application, i.e., an application to exclude the expert report at the interlocutory stage. He refers to the judgment of Deputy Judge Wong (as he then was) given in Chung Wing Fat Polybag Printing Factory Limited v Secretary for Transport, LDRW 15/2001, (unreported and handed down on 7 April 2005). Deputy Judge Wong referred to the judgment of Hon Chung J given in Ko Chi Keung v Lee Ping Yan [2001] 1 HKLRD 830 when considering a similar challenge to the jurisdiction of the High Court. Hon Chung J came to the conclusion that the power to rule on the admissibility of expert evidence before trial derives from the inherent jurisdiction of the High Court. As the Lands Tribunal is a statutory creature, it does not have inherent jurisdiction. Deputy Judge Wong also considered the old section 10(1) of the Lands Tribunal Ordinance and concluded that Lands Tribunal has not been conferred with power to exclude evidence of a witness before trial.

5.  It must be noted that section 10 has been amended in 2009. And the current section reads:

“(1) The Tribunal may, so far as it thinks fit, follow the practice and procedure of the Court of First Instance in the exercise of its civil jurisdiction, and for this purpose, has the same jurisdiction, powers and duties of the Court of First Instance in respect of such practice and procedure.”

6.  Mr. Mok, counsel for the applicants refers me to a later judgment by HHJ Wong given in First Kind Ltd v Yuet Loong Investment Co Ltd [2018] 2 HKLRD 83 when HHJ Wong agrees that the new section 10 has extended the powers of this Tribunal with inherent jurisdiction of the High Court, which I agree. Before the opening, Mr. Chain agrees to abandon this argument, and this discussion is included for completeness.

7.  And I would add this, in the case management regime, Court would be proactive in case management and the exclusion of expert report must be part of the case management power, both to save costs and the Court’s time. Mr. Mok also refers to a Direction issued by the President of the Lands Tribunal dated 12 February 2009 which provides that the Tribunal shall adopt a flexible approach in adopting the new measures under the Civil Justice Reform. In particular, Order 1A, and rule 4A and Part IV of Order 38 of the Rules of High Court on expert evidence are applicable in the Lands Tribunal.

8.  I also remind myself the principle given by the Court of Appeal in Good Faith Properties Limited and others v Cibean Development Company Limited [2014] 5 HKLRD 534 that:

“a. The Tribunal should exercise firm and effective case management to ensure that its proceedings are conducted efficiently and in a proportionate manner; and

b. The Tribunal should impose costs sanction against unreasonable litigation conduct, including the unreasonable rejection of reasonable offers.”

9.  While not strictly on the issue, I see no reason why the power to limit expert report is not within the case management power of this Tribunal, and why it should not be exercised before the trial, as in High Court civil cases. Under this legal background, I would now consider the application by Mr. Mok.

10.  Order on expert evidence on valuation has been given by the Tribunal on 12 October 2020 (“October Order”). Paragraph 3 of the order read:

“Leave be granted to the Applicants and the Respondent to call no more than 1 expert witness on each side at the trial in each of the following 3 disciplines, namely, (a) valuation; (b)…”

11.  The valuation report by the respondent’s expert, Mr. Raymond Hui has been filed on 30 July 2021. In fact, he has filed 4 reports at the same time. Report 1 is the report on the EUV and RDV of the Property (“Report 1”). For the other 3 reports, they all started with the EUV of the Property which is the exact copy of Report 1.

12.  The 2^nd report gives the RDV of Nos. 9, 9A & 9B Sharp Street East and Nos. 10, 12, 14 & 16 Matheson Street (“Report 2”). The valuation covers the Property and some adjacent lots. The 3^rd report gives the RDV of 5, 7, 9, 9A & 9B of Sharp Street East and Nos. 10, 12, 14, 16 & 18 of Matheson Street (“Report 3”). And report 4 given the RDV of 5, 7, 9, 9A & 9B of Sharp Street East, Nos. 10, 12, 14, 16 & 18 of Matheson Street, and Leighton Centre (“Report 4”). There is no valuation on the RDV of the Property itself given in these 3 reports.

13.  First, Mr. Mok argues that no leave has been granted for the filing of Reports 2-4 as these reports give no RDV valuation of the Property.

14.  Mr. Chain, counsel for the respondent argues that the October Order covers all the 4 reports by Mr. Raymond Hui. I cannot agree.

15.  It is correct to note that the order for leave to the parties to adduce expert evidence by, inter alia, a valuer, does not specify that the opinion is on the EUV and RDV of the Property. And different from civil cases, there is no issues set out for comment and opinion by the expert. But it cannot be understood to grant leave for the parties to adduce whatever opinion by a valuer that the respondent wishes to adduce. The order is given to parties to prepare evidence for the Application and must be understood to give leave to the parties to adduce valuer’s report on the EUV and RDV of the Property. Without further explanation by the expert on how the valuation relates to the Property, the RDV for other lots would not be covered by the order.

16.  Assuming I found the reports are adduced without leave, Mr. Chain submits that he could apply for leave to adduce them. With consent from Mr. Mok, I would accept the oral application of Mr. Chain on behalf of the respondent for leave to file these reports if I found that these reports are relevant.

17.  Mr. Chain submits that these reports would be relevant to the argument on issue of merged site factor or special interest factor on the RDV of the Property. It is the argument of Mr. Mok that the assessment of merged site and special interest factor on the valuation of the Property are not matters that this Tribunal should take into account in assessing the reserved price of the Property, if an order for sale is to be granted. He relies on the case law he set out in his written submission which I do not repeat. He invited me to strike out the reports on the ground that they are for unarguable basis of valuation. Mr. Chain submitted that this would be a pleading point and if Mr. Mok wishes to take this point, he should first apply to strike out those paragraphs in the Amended Notice of Opposition.

18.  I agree with Mr. Chain that I should not rule on the admissibility of these reports by determining whether the issues of merged site and special interest factor are arguable at the trial without taking care of the pleading point at the same time. It runs the danger that if I struck out these reports without striking the corresponding parts in the Amended Notice of Opposition, technically Mr. Chain still can run the argument at trial. If he were successful, this Tribunal would be derived of expert evidence to assess the effect of merged site and/or special interest factor on the RDV and hence the reserved price of the Property for auction.

19.  Mr. Mok orally applied to include an application for striking out, but later agreed to give up this argument for the time being. He would consider taking out separate application for striking out the relevant paragraphs in the Amended Notice of Opposition related to merged site and special interest factor. But he retains his argument that the reports should be struck out for being irrelevant and unhelpful.

20.  As a remark, parties must be familiar with the principle that the Notice of Application and Notice of Opposition are strictly speaking not pleadings, but serve the purpose of letting the other parties know the issues and evidence that he would be facing. However, in Grand Power International Ltd v Chan Sing Hoi Enterprises Ltd and others, [2020] 2 HKLRD 142, the Court of Appeal held that the Judge below is clearly in error in supposing that no real prejudice would be occasioned to the applicant in allowing the respondent to run an unpleaded case. The Notice of Application and Notice of Opposition were prepared with such details in no way different from a pleading. Even if the Notice of Opposition is not to be treated as a pleading, it can hardly be regarded as giving “fair indication” of the issues likely to be raised. And the Judge below should not allow the respondent to run an unpleaded case. Hence application of striking out issues raised in Notices filed in the Lands Tribunal is a proper case management step and may shorten the length of trial.

21.  Having resolved the procedural matters, I shall come back to the applicants’ only objection to these reports.

22.  And the main and remaining objection by Mr. Mok is that there is no opinion on the RDV or enhanced RDV of the Property in Reports 2-4 and the Tribunal would have no assistance from these reports, even if Mr. Chain is successful with his argument on merged site and/or special interest factor. Hence the reports should be expunged from the Court file and inadmissible at trial.

23.  In opposition, the respondent filed an affirmation of Mr. Hui. The respondent later filed another application to file the 5th report of Mr. Hui (“Report 5”), which claims to explain why he has to prepare Reports 2-4. I shall come to Report 5 later.

24.  And there is a joint statement on the Property prepared by Mr. Hui with the expert of the applicant, Mr. Charles Chan. This is prepared on the bases of the valuation report prepared by Mr. Charles Chan and Report 1 of Mr. Hui. As explained in Mr. Hui’s affirmation, no joint statement for Reports 2-4 have been prepared because Mr. Chan refused. Mr. Hui agrees that the disagreement should be set out in the joint statement, which he has not.

25.  If I take Report 2 as an example, the RDV is in respect of a bigger Lot which consists of the Property. There is no apportionment to reflect the RDV of the Property. Mr. Mok submits that there is no linkage to Report 1, which is the RDV of the Property. Hence, if this Tribunal agrees with Mr. Chain on the merged site or special interest factor argument, it is impossible to assess what is the additional RDV value that should be added to the Property over and above the figure in Report 1, or how to assess the enhanced value.

26.  Mr. Mok submits that for Reports 2-4, and Report 5 to be relevant and admissible, they should serve the function of informing this Tribunal and the applicants at least the following questions on the pleaded special interest:

(1) What is alleged to be the quantum of the value of the special interest of the Property?

(2) What are the relevant steps of the valuation exercise to assess the quantum of the special interest of the Property?

(3) What are the justifications for the valuation exercise and assessment?

27.  And at this junction, I should also refer briefly to the Amended Notice of Opposition. It is pleaded in paragraph 1(b) that “the respondent avers that in assessing the value of its property, in particular its redevelopment potential, the applicants ought but have failed to have regard to any or all of the [matters pleaded in paragraph 1(b)].” I do not repeat all the matters set out in paragraph 1(b)(i) to (xxiii).

28.  Mr. Mok interprets the contention of the respondent as pleaded is that the Property would be of “special interest” to the majority owners in the lots set out in that paragraph. He refers specially to paragraph 1(b)(xxiii) and I also set out 1(b)(xxii):

“(xxii) based on the above, it is the respondent’s belief that on the basis the 10 sub-lots in Inland Lot No. 734 are given equal shares, Hysan Group and those companies related to or beneficially owned or controlled by it will together be the majority owners holding over 80% in Inland Lot No. 734,

(xxiii) in the premises, some or all of the sub-lots in Inland Lot No.734 including [the Property] are at least potentially capable of being redeveloped together, and possibly even together with Inland Lot No. 1451, and therefore are or will be of special interest to the current majority owners (including all the Applicants in all the other applications under Cap. 545 referred to above) irrespective of whether they (or some of them) are related to or beneficially owned or controlled by the Hysan Group.”

29.  Mr. Mok suggests that merged site factor is not pleaded. The claim is on special interest.

30.  Mr. Mok also explains the difference between special interest as a factor to enhance the value of the subject lot, and the concept of the RDV of a subject lot to be derived from the assessment of a hypothetical development of a merged site formed by the subject lot and some adjoining lots. His main argument is the Reports 2-4 do not provide the RDV of the Property on its own, or explain how the redevelopment value of the Property would be enhanced. It is not helpful and could not assist this Tribunal to assess the reserve price of the Property, if the merged site or special interest factor is adopted. They are therefore irrelevant and inadmissible.

31.  The distinction between special interest and merged site factor is agreed by Mr. Chain. However, he submits that when the respondent pleads redevelopment potential, it covers both factors. And the report on RDV is just a piece of expert evidence to be considered by this Tribunal and to fix the reserved price of the Property. And whether these 2 factors, or any of them may be accepted is a matter of finding of facts. But for today’s purpose, I would simply take it that merged site and/or special interest factors are raised as issues that may affect the redevelopment potential of the Property.

32.  Mr. Chain also submits that the applicants are wrong to say that the report must set out the RDV of the Property. He submits that it is not necessary, at least for the purpose of admissibility.

33.  This may be a convenient time to look at Report 5, the report that the respondent seeks to adduce by its summons, and which Mr. Hui seeks to explain why Reports 2-4 are necessary and admissible.

34.  Mr. Hui said in paragraph 3 that “a property valuation report lets the surveyor to express their professional opinions on and findings about the market value of a property. The surveyor always takes into account the specific purpose of the valuation, whether it is to sell, to buy, to let, or for another reason altogether. In this case, the market value of a redevelopment [of the Property] has to be assessed. It is vital for [him] to decide the basis of valuation and the use of valuation methodology that why the report has been written in the first place.” It is not clear the basis of valuation or methodology he is referring to in the Report 5, or Reports 2-4.

35.  He said at paragraphs 4-5 that according to his own research, Hysan Group is very active in the property market of Causeway Bay recently and has very strong interest in acquiring developing sites. He then explains the enhancing effect when more than one lot is developed together and I do not repeat.

36.  He opines that given Hysan Group’s interest in the vicinities, the market value of the Property would not be limited to the RDV of the Property, but would definitely be of a higher figure. And if that is his opinion, how is the higher figure for the Property to be assessed? Unfortunately, this has not been stated in Report 5, or the other reports.

37.  He goes on to consider the various possibilities of merge sites and explains why he selects the scenario of merged sites in each of his Reports 2-4. He claims that they are to assist the Tribunal to arrive at an appropriate reserved price.

38.  Mr. Mok submits that Report 5 does not provide any information on how the 3 RDVs obtained from Reports 2-4 relate to any of the crucial questions on the special interest of the Property that I set out in paragraph 26 above. It would prejudice the applicants and is wrong in principle to fair litigation.

39.  In considering admission of expert evidence, relevance and probative value are two of the key considerations, equally for valuation reports for application under Cap. 545. To consider the relevance, one has to consider the pleaded case of the parties. And as there is no direction given on the issues to be commented by the experts, my consideration would start with the record of instruction given to the expert in the report itself, and compare that with the pleaded case. I would use Report 2 again. On page 1, the instruction given as follows:

“I refer to your recent instruction for me to prepare a valuation report on the following basis:

(i) Existing Use Value (“EUV”) of the Property as at 31 March 2020; and

(ii) Redevelopment Value (“RDV”) of Nos. 9, 9A & 9B Sharp Street East and Nos. 10, 12 14 & 16 Matheson Street, Causeway Bay as at 4 February 2021.”

40.  Besides these 2 paragraphs, he has not mentioned that he was instructed specifically to take into account the special interest as pleaded to comment on the enhanced value. For these reports to the relevant and of probation value, one has to look at the pleaded case. In fact, at paragraphs 4-5 of Report 5, he explains that he had done he own research and considered, because of the land ownership of Hysan Group, the market value of the Property would not be limited to the figure of the so-called RDV in both Report 1 and the report of Mr. Charles Chan, but would definitely be of a high figure.

41.  As an example, Mr. Mok complains that Report 2 is for the RDV of 9, 9A & 9B Sharp Street East and 10, 12, 14 & 16 Matheson Street. It has not set out the RDV for the Property in the merged site scenario. But what is missing is his opinion of the enhanced figure of the Property, or how the RDVs of the larger lot is to affect the RDV of the Property. How is Report 2 helpful?

42.  There appears to be no instruction to assess the quantum of the special interest, or to assess the RDV of the Property by taking into account of the special interest as pleaded. Mr. Chain said the quantum is to be determined by this Tribunal after trial, and RDV is just a factor to be considered. But I agree with Mr. Mok that for the expert report to be relevant, it has to set out the methodology it employed to arrive at the enhanced value of the Property for special interest factor or merged site factor. Otherwise, they cannot assist this Tribunal. And I do not expect the expert to supplement his opinion when giving oral evidence, as this is a matter that he should comment on at the early stage, or otherwise the applicants would be prejudiced.

43.  Mr. Chain suggests that the RDV could be apportioned according to the area of each lot to show the enhance RDV for the Property. He further submits that there are many possibility of the mode of development, assuming that he could convince this Tribunal that the Hysan Group controls the adjacent lots to the Property. And at the end, it is a matter of assessment by this Tribunal as to the increase that should be allowed for the Property taking into account of the merged site or the special interest factor.

44.  Mr. Mok responded that, from his experience in this Tribunal, when question of merged site or special interest assessment has to be apportioned, there has been apportionment by EUV. It is possible for apportionment according to RDV of each lot, or their respective area. The expert has to work out the apportionment and his reason for choosing that basis in order to be helpful to this Tribunal. I agree and would add, if the respondent consider the basis of assessment a matter of law and he has argument with the applicants on say 2 apportionment methods, all the experts should be instructed to do is to apportion for both methods and leave the final decision on apportionment method to be adopted by this Tribunal after trial.

45.  As I am not ruling on whether the special interest factor or merged site factor may be arguable, I am proceeding on the basis that if they were argued, are the reports relevant and helpful. As Mr. Mok submitted and which I agree, the merged site and special interest factor would affect the reserved price to be set for the sale of the Property. We have the RDV of the Property (Report 1). And I believe Mr. Chain would argue that because of the merged site and/or special interest factor, the reserved price would be higher. He submits that the question is ultimately a ruling by this Court. I agree. But that does not mean the expert could prepare his reports 2-4 without reference to the enhanced value of the Property or the methodology to assess the enhanced value for the reports to be admissible.

46.  It is sufficient for today to say that these reports are unhelpful and of no probative value without the apportionment of RDVs and/or methodology being set out as how the RDV in Reports 2-4 would affect the RDV of the Property. Report 5 is also not helping at all.

47.  On the apportionment point, Mr. Chain has suggested in his closing that his expert could supplement that by giving a supplemental report. I am not going to consider this suggestion without sight of the further supplemental report. And if necessary, I believe that should be a separate application.

48.  And with the above analysis, I come to the conclusion that the reports 2-4 are not the reports for the valuation of the Property and not covered by the October Order. And in the alternative, they should be struck out for being irrelevant, unhelpful and inadmissible. And Report 5 should not be admitted.

49.  I therefore order and direct as follows:

(1) As no leave have been given for RDV of the lots as set out in Reports 2-4, and in any event, in their current position, they are not relevant or helpful, I would expunge Reports 2-4 from the Court file and inadmissible;

(2) For better case management, the applicants shall confirm with the respondent within 14 days if they are to take out an application to strike out part of the Amended Notice of Opposition. If the answer is affirmative, and subject to further direction of this Tribunal, further directions on expert report shall be given after the hearing of the summons for striking out or immediately thereafter;

(3) If the applicants elect not to strike out the Amended Notice of Opposition, the respondent shall advise the applicants if further directions on expert evidence is necessary. The parties shall endeavor to agree the issues for comment on the special interest factor and/or merged site factor by the valuers of the parties. And failing agreement, parties may apply to this Tribunal for directions.

50.  And for this hearing, parties should be aware that costs in Cap. 545 applications has special consideration. I note the applicants ask for costs. I would suggest the issue be determined by paper disposal and parties shall jointly report if that is agreeable, failing which the applicants shall fix a short hearing before me with 1 hour reserved. And to save costs, attendance of Counsel at such hearing could be excused.

51.  And I dismiss the respondent’s summons and the costs shall be dealt with at the same time with the applicants’ summons.

Mr Mok Yeuk Chi, instructed by Mayer Brown, for the 1^st to 10^th applicants

Mr Benjamin Chain, instructed by So, Lung & Associates, for the respondent