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由此

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由此- 2 -

LDCS 1000/2010

IN THE LANDS TRIBUNAL OF THEHONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS COMPULSORY SALE APPLICATION NO. 1000 OF 2010

_______________

BETWEEN

GENTWAY LIMITED (雋偉有限公司) Applicant

and

LI KING FONG ( 李琼芳) 1st Respondent

LI NGAN TSOI ( 李銀彩) 2nd Respondent

THE PERSONAL REPRESENTATIVE OF THE ESTATE OF TON SUE QUNE,

DECEASED

3rd Respondent

THE PERSONAL REPRESENTATIVE OF THE ESTATE OF YUE HING NGA (余慶雅),

DECEASED

4th Respondent

_______________

Coram : Deputy Judge Lui, Presiding Officer of the Lands Tribunal

Dates of Hearing : 8 November 2010

Date of Judgment : 15 December 2010

Date of Reasons for Judgment

: 28 April 2011

________________

REASONS FOR JUDGMENT________________

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由此- 3 -

Written Reasons

1. After hearing and reading submissions and evidence before

me, I have granted judgment in favour of the Applicant on 15 December

2010 and made an order for sale under the Land (Compulsory Sale for

Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) with reasons

reserved. I now give my written reasons for the judgment.

T he Application

2. This was an Application made under the Ordinance for an

order of compulsory sale of all the undivided shares of and in Subsections

1, 2, 3, 4, 5 and the Remaining Portion of Section A of New Kowloon

Inland Lot No. 1694 (Nos. 186, 186A, 186B, 186C, 186D and 188, Tai Po

Road, Kowloon) (“the Lots”)

3. There was a 5-storey commercial / residential building (“the

Building”) erected on the Lots with 4 commercial units on the ground floor

of Nos 186 and 188 of Tai Po Road, 4 domestic units on the ground floor of

186A, 186B, 186C and 186D of Tai Po Road, 6 domestic units on 1 st floor

of Nos. 186, 186A, 186B, 186C, 186D and 188 of Tai Po Road, 10

domestic units on 2nd floor of Nos. 186, 186A, 186B, 186C, 186D and 188

of Tai Po Road, 6 domestic units on 3rd floor of Nos. 186, 186A, 186B,

186C, 186D and 188 of Tai Po Road and 6 domestic units on 4 th floor of

Nos. 186, 186A, 186B, 186C, 186D and 188 of Tai Po Road making a total

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由此- 4 -

of 5 undivided shares on each subsection (Total: 30 undivided shares). The

building was completed in 1955 and was served by 3 staircases.

4. The Applicant was the registered owner of all the undivided

shares of the Lots with exclusive right to use all the units of the Building

(“the Applicant’s Units”), except:-

(1) 3/4 of 1 undivided share of Subsection 3 of Section A of

New Kowloon Inland Lot No. 1694 held by the 1st

Respondent and 1/4 of 1 undivided share of Subsection

3 of Section A of New Kowloon Inland Lot No. 1694

held by the 2nd Respondent, both with exclusive right to

use the domestic unit at 2nd Floor, No. 186B Tai Po

Road, Kowloon (the 1st and 2nd Respondents’ Unit);

(2) 1 undivided share of Subsection 2 of Section A of New

Kowloon Inland Lot No. 1694 held by the 3rd

Respondent with exclusive right to use the domestic

unit at 3rd Floor, No. 186A Tai Po Road, Kowloon (the

3rd Respondent’s Unit); and

(3) 1/5 of 1 undivided share of Subsection 5 of Section A of

New Kowloon Inland Lot No. 1694 held by the 4th

Respondent with exclusive right to use the domestic

unit at Portion D 2nd Floor, No. 188 Tai Po Road,

Kowloon (the 3rd Respondent’s Unit);

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由此- 5 -

5. The average of Applicant’s undivided shares of the Lots was

92.66%. I was satisfied that the Applicant was entitled to make this

Application pursuant to section 3(1) of the Ordinance.

6. The Respondents did not appear in the hearing. I was satisfied

that the notices published in the Chinese and English newspapers pursuant

to the Directions of this Tribunal dated 4 June 2010 of HH Judge M Wong

were sufficient to bring the Respondents to the attention of this

Application.

7. Since the Respondents did not appear in the hearing, I

therefore requested the Applicant to prove its case to justify its application

for making the order according to the Ordinance. In my judgment, even if it

was uncontested, because of the absence of the Respondents, unless the

Applicant could satisfy this Tribunal with sufficient credible evidence that

all the requirements and conditions as laid down in the Ordinance were

duly met, the order of compulsory sale should not be granted. Since the

Applicant’s evidence was not challenged, I therefore directed that all the

witness statements, expert reports and documents filed by the Applicant in

support of this Application be admitted as evidence in the hearing without

calling the makers.

Valuation of the Existing Use Values (“EUV”) as per Part 1 of the

Schedule 1 of the Ordinance

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由此- 6 -

8. Under section 4(1)(a) of the Ordinance, the first determination

by the Tribunal would have been the determination of dispute, if any, on

the EUV valuations undertaken in the application valuation report filed

pursuant to section 3(1)(a) of the Ordinance. However, since the

Respondents did not appear in the present hearing, pursuant to section 4(1)

(a)(ii) of the Ordinance, the Applicant had a duty to satisfy this Tribunal

that the value of the Respondents’ units as assessed in this Application was

not less than fair and reasonable, and in particular, when compared with the

value of the Applicant’s Units.

9. After reading and reviewing the valuation report dated 27

January 2010 (which was the application valuation report filed pursuant to

section 3(1)(a) of the Ordinance) and the valuation report dated 29

September 2010 (which was a supplemental valuation report for adjusting

his original opinion expressed in the application valuation report dated 27

January 2010) of Mr. Charles Chan, FRICS, FHKIS, Chartered Valuation

Surveyor, I was satisfied that the EUV satisfied the above test that it was

not less than fair and reasonable, and in particular, when compared with the

EUV of the Applicant’s Units. I accepted the opinion of Mr. Chan that

direct comparison method was an appropriate valuation method for these

properties. And I also accepted that the valuation was based on good

market comparable transactions with suitable adjustments. Accordingly, the

EUV of all the units of the Building accepted by this Tribunal were:-

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由此- 7 -

Street Nos. of Tai Po

RoadExisting Use Values as at 19 January 2010 ($)

G/F 1/F 2/F 3/F 4/F

186 2,850,000 2,890,000 2,730,000 2,130,000

(South Portion)

9,130,000

(North Portion)

7,440,000

186A 1,610,000 1,620,000 1,730,000 1,780,000 1,580,000

186B 1,710,000 1,720,000 1,830,000 1,620,000 1,510,000

186C 1,940,000 1,900,000 2,030,000 1,890,000 1,760,000

186D 1,810,000 1,880,000 2,000,000 1,870,000 1,640,000

188 2,780,000 2,650,000 2,050,000

(Portion A) 740,000

(Portion B) 500,000

(Portion C) 620,000

(Portion D) 310,000

(Portion E) 350,000

(South Portion)

8,100,000

(North Portion)

7,460,000

Total 88,160,000

10. According to the above, the total EUV was $88,160,000 and

the EUV of the Respondents’ units respectively were:-

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由此- 8 -

(1) The 1st and 2nd Respondents’ Unit was $1,830,000 and

hence, it represented 2.0758 % of the total EUV of the

Lots;

(2) The 3rd Respondent’s Unit was $1,780,000 and hence, it

represented 2.0191 % of the total EUV of the Lots; and

(3) The 4th Respondent’s Unit was $310,000 and hence, it

represented 0.3516 % of the total EUV of the Lots;

Justification for Redevelopment and Reasonable Steps Taken

11. The second determination under section 4(1)(b) of the

Ordinance was whether the order of compulsory sale should be made.

According to section 4(2) of the Ordinance, this would involve 2 statutory

requirements, namely:-

(1) Was the redevelopment of the Lots justified due

to age or state of repair of the Building; and

(2) Had the Applicant taken reasonable steps to

acquire all the undivided shares in the Lots.

12. If the Applicant failed to satisfy this Tribunal that the above

statutory requirements were met, be it an uncontested application, an order

of compulsory sale ought not be granted.

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由此- 9 -

13. For requirement (1) above, I had taken into consideration of

the experts opinion of Mr. Dennis W C Wong, MRICS, MHKIS, Building

Surveyor and Authorized Person as stated in his report dated 4 October

2010 and Mr. C M Wong, FHKIE, CEng, FICE, a Registered Structural

Engineer and Authorized Person as stated in his report dated 5 October

2010. The experts were of the view that that the existing buildings were in

poor and dilapidated condition, namely :-

(1) A number of cracks and spalling were found in

the structural elements of the Building;

(2) Some of the steel reinforcement in the Building

was badly corroded;

(3) Considerable voids were found in the structural

elements of the Building;

(4) 29% of the structural elements of the Building

were found to have concrete over less than the

design cover and the design concrete cover were

below the current design standard;

(5) 19% of the structural elements of the Building

had doubtful adequacy of concrete strength;

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(6) Carbonation had reached the concrete

surrounding steel reinforcement in 89% of the

tested samples which meant that the steel

reinforcement susceptible to corrosion;

(7) The chloride content in the concrete for 50% of

the tested samples exceeded the acceptable limit

of 0.4%;

(8) The structural and concrete elements did not

provide for sufficient durability and fire

resistance in meeting the current requirements as

stated in the relevant ordinances;

(9) The condition of the facade of the Building was

poor. The rendered and painted surface was

stained and deteriorated due to weathering and

lack of proper maintenance. Serious deterioration

was observed at the side and rear elevations of the

Building;

(10) Delamination was observed on the external walls

of the Building and such delamination would

deteriorate rapidly due to ingress of rainwater to

the voids behind the rendering. The external wall

rendering had come to the end of its effective life;

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(11) Many unauthorized building structures were

erected in the yard of ground floor, the main roof

on external wall without proper maintenance;

(12) Asbestos contained materials were found in some

corrugated sheets at many locations of the

Building and therefore were dangerous and

hazardous to the occupants and the general

public;

(13) The waterproof membrane on the roof was

defective and not performing its intended

function of keeping rainwater from the entering

the Building;

(14) None of the electricity meters and electrical

wirings were protected with fireproof enclosures

and therefore were potential fire hazards;

(15) No emergency lighting was provided to the

staircases and corridors;

(16) No fire hydrants or hose reels system was

provided in the Building;

(17) No equipotential bonding for metal windows for

preventing electrical shocks was installed;

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(18) 25% of the domestic units had been illegally and

substantially altered creating structural, fire safety

and hygiene problems;

(19) Voids under the ground floor slab of the Building

were detected by using Ground Penetrating Radar

Survey. These voids would cause ground

subsidence endangering the safety of the residents

and damages to the underground utilities.

(20) Many illegal drainage installations and

connections had been made to the toilets and

kitchens in the illegally altered domestic units;

14. Mr. Patrick Fung, S.C. leading Miss Nancy Ngai Counsel for

the Applicant, submitted that although extensive repair works could extend

the Building’s life span, as explained in the experts’ reports, the continuous

maintenance costs would be high. Most of the building components and

finishes were at the end of their effective life span and without substantial

repairs, the Building was not up to tenantable standard. I accepted that the

condition of the Building was substantially below the usual standard for

human habitation and the expected 50-year design life of it had been

reached. Without extensive repair, the Building was unfit for habitation.

15. Apart from the professional opinions of the experts, I also

looked at the primary evidence supporting the opinions including:- the

photographs, the survey records and the various tests results (including:-

Covermeter Survey, Core Compression Test, Depth of Carbonation

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(Pheolphthalein Test) Test and Chloride Content Test) in coming my

decision. I accepted the Applicant’s submissions that the expert opinions

were sound and supported by the facts.

16. Further, in consideration of the evidence above, I was entitled

to look at all of the above collectively to see if redevelopment was justified,

even though when each of them, if considered alone, was insufficient to do

so. I was satisfied that the evidence showed that the existing building on

the Lots had reached beyond the design working life of 50 years and the

state of repair was very poor. The Building was unfit for habitation and

unreasonable high costs may have to be incurred to restore them into an

acceptable standard but no evidence seemed to suggest that any reasonable

owners would do so. I was therefore satisfied that the redevelopment of the

Lots was justified due to age and state of repair of the existing building.

17. In Intelligent House Ltd v Chan Tung Shing & Others [2008] 4

HKC 421, this Tribunal formulated certain tests, which included some

economic perspective, for deciding whether or not a redevelopment was

justified due to age or state of repair. The Applicant’s Counsel submitted

that, even without any opposing submissions, it was still appropriate in this

Application for this Tribunal to apply these tests. I disagreed. Since the

correctness of these tests were subsequently questioned by the Court of

Appeal “without the benefit of hearing full argument” in Fineway Property

Ltd v Sin Ho Yuen Victor CACV 95 of 2009 (Unreported), in my judgment,

it was not appropriate to deal with the correctness of the relevant tests

formulated in Intelligent House on “age” and “state of repair” without the

assistance of opposing legal submissions. Further, since I was satisfied

with the facts and expert opinions adduced before me that the

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redevelopment was justified due to age and state of repair of the existing

building, it was no longer necessary for me to apply these tests for disposal

of this Application.

18. For requirement (2) above, I had taken into consideration of

the evidence of Miss Lui Wing Yan. She was a manager of the Applicant

and had knowledge about the intended acquisition of the Respondents’

units. She said that, on 30 December 2009, the Applicant offered the 1 st and

2nd Respondents to purchase their unit for $3,714,750 and $1,238,250

respectively. Since the Applicant had no knowledge of the whereabouts of

1st and 2nd Respondents, it therefore sent the offer by:- (a) leaving the offer

letters at the 1st and 2nd Respondents’ Unit; (b) inserting the offer into the

mailbox; and (c) sending the offer by registered mail. According to the

witness, the Applicant did not receive any reply from them and the offers

sent by mail were returned.

19. According to the witness, on 3 February 2010, the Applicant

made further effort to purchase the 1st and 2nd Respondents’ Unit by making

offers to the 1st and 2nd Respondents for $4,195,800 and $1,398,600

respectively in a similar manner. Similarly, there were no reply and the

offers sent by mail were returned. On 25 October 2010, the Applicant made

a final attempt to purchase the 1st and 2nd Respondents’ Unit by making

offers to the 1st and 2nd Respondents for $4,756,950 and $1,585,650

respectively. Again, there was no reply.

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20. Regarding the 3rd Respondent, the witness told the Tribunal

that a Richfield Realty Limited, an estate agent, said that a Mr. Yee Jay Wee

claimed to be the intending administrator of Ton Sue Qune. According to

Richfield Realty Limited, this Mr. Yee was living in the United States of

America and did not allow Richfield Realty Limited to inform the

Applicant of his address. At that time, Mr. Yee claimed that he appointed

Messrs. Gallant Y.T. Ho & Co., a firm of solicitors in Hong Kong, to handle

his application for administration of the estate of Ton Sue Qune. Although

the capacity of Mr. Yee to represent the 3rd Respondent was yet to be

proved, Applicant still offered Mr. Yee to purchase the 3rd Respondent’s

Unit for a price of $3,000,000 to which Mr. Yee accepted. A provisional

agreement for the sale and purchase was signed by the Applicant and Mr.

Yee on 2 July 2009. However, up to the date of hearing, there was no proof

shown to the Applicant that Mr. Yee was appointed as the administrator.

Further, Mr. Yee’s solicitors, Messrs. Gallant Y.T. Ho & Co. refused to

confirm their instructions to act for Mr. Yee in the sale of the 3 rd

Respondent’s Unit. By reasons of the above, there was no progress of the

sale of the 3rd Respondent’s Unit and therefore it was aborted.

21. On 26 October 2010, the Applicant made a further attempt to

purchase the 3rd Respondent’s Unit by making a revised offer for

$6,169,300. The Applicant:- (a) left the offer letters at the 3 rd Respondent’s

Unit; (b) inserted the offer into the mailbox; (c) sent the offer by registered

mail; and (d) requested Messrs. Gallant Y.T. Ho & Co. and Richfield Realty

Limited to pass the offer to the intended administrator of Ton Sue Qun’s

estate.

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22. About 3 days before the hearing, by a letter dated 5 November

2010, Messrs. Gallant Y.T. Ho & Co. confirmed their instructions to act for

Mr. Yee and a Madam Woon Sen Wong who were both appointed as

administrators of Ton Sue Qun’s estate. However the administrators,

despite having knowledge of the present proceedings, made no attempt to

participate in the same. I agreed with the Applicant’s submissions that,

given factual matrix between the Applicant and Mr. Yee, I had reason to

believe that the 3rd Respondent had knowledge of this Application and did

not intend to oppose it. In the same letter, Messrs. Gallant Y.T. Ho & Co.

also said that the offer to purchase the 3rd Respondent’s Unit for $6,169,300

was passed to the administrators for consideration. I was informed by the

Counsel of the Applicant that, up to the date of hearing, no reply from this

offer was received.

23. Regarding the 4th Respondent, since Mr. Yue Hing Nga was

once declared as a patient under the Metal Health Ordinance, Cap. 136, his

estate was managed by a committee who was then represented by the

Official Solicitor. However, after Mr. Yue passed away, the committee was

discharged without any court order. The Applicant had no knowledge when

Mr. Yue passed away and on 17 July 2009 sent an offer to the Official

Solicitor intending to purchase the 4th Respondent’s Unit for $700,000. The

Official Solicitor then informed the Applicant that they no longer

represented the 4th Respondent. As the Applicant had no knowledge who

the administrator was, the Applicant made offers to the 4th Respondents

by:- (a) leaving the offer letters at the 4th Respondent’s Unit; (b) inserting

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由此- 17 -

the offer into the mailbox; and (c) sending the offer by registered mail. On

30 December 2009, 3 February 2010 and 25 October 2010, the Applicant

offered to purchase the 4th Respondent’s Unit for $840,000, $948,200 and

1,074,500 respectively. However, up to the date of hearing, the Applicant

received no reply from these offers.

24. In my judgment, I accepted that the 3rd Respondent was given

sufficient time to consider the offers but failed to respond. For other

Respondents who had not communicated to the Applicant, either directly or

indirectly, namely the 1st, 2nd and 4th Respondents, I was satisfied that the

notices and advertisements published pursuant to the Directions of this

Tribunal dated 4 June 2010 of HH Judge M Wong were sufficient to bring

these Respondents to notice of this Application and, if necessary, to

respond to the offers made by the Applicant. Having considered the above,

I was satisfied that the offers were duly communicated through all possible

means to the Respondents.

25. According to the Applicant’s valuation expert, Mr. Chan, the

redevelopment value of the Lots, as at 21 October 2010, was $291,000,000.

In carrying out the valuation, Mr. Chan used the residual valuation method

and was of the view that the optimum hypothetical development should be

a composite commercial and residential building. I had carefully

considered and reviewed the steps taken, assumptions made and

comparables used by Mr. Chan in the valuation and accepted that they were

reasonable in the circumstances. I accepted that $291,000,000 was the

open market value of the Lots reflecting their redevelopment potential, on

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由此- 18 -

their own.

26. Applying the accepted redevelopment value of the Lots for

$291,000,000, this would give the proportionate values of the respective

Respondents units (calculated at the Respondents’ pro rata interest of the

development) as follows:-

Respondents Latest Offers

in October 2010

Proportionate Values

in October 2010

Pro Rata Interest

1st $4,756,950 $4,530,434 3/4 of 2.0758 %

2nd $1,585,650 $1,510,145 1/4 of 2.0758 %

3rd $6,169,300 $5,875,581 2.0191 %

4th $1,074,500 $1,023,156 0.3516 %

27. In my judgment, the latest offers made in October 2010 clearly

represented a fair and reasonable share of the redevelopment potential of

the Lots. By reasons of the above, the offers made by the Applicant to the

respective Respondents were fair and reasonable because they were duly

communicated to the Respondents and were fair and reasonable in

consideration of the statutory formula. Applying the test formulated in

Capital Well Ltd v Bond Star Development Ltd [2005] 4 HKLRD 363, I

was satisfied that the Applicant had taken reasonable steps to acquire all

the undivided shares in the Lots including all the Respondents’ units.

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由此- 19 -

28. By reasons of the above, I was therefore satisfied that the

order of compulsory sale ought to be made.

Reserved Price for the Auction

29. Given my findings above that $291,000,000 was the open

market value of the Lots reflecting their redevelopment potential, on their

own, as at 21 October 2010, I therefore accepted that it should be the

auction reserved price.

The Order for Sale

30. I therefore made an order for compulsory sale in the

following terms:-

(1) All the undivided shares of and in the Lots be

sold by way of a public auction for the purpose of

redevelopment under Section 4(1)(b) of the

Ordinance;

(2) Mr. Ma Ho Fai and Ms. Tsang May Ping be

appointed trustees (“the Trustees”) to discharge

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the duties imposed on the trustees to be appointed

under the Ordinance in relation to the sale of the

Lots and the Trustees be authorized to charge

such remuneration for their services in

accordance with the terms set out in the letter of

Messrs. Woo Kwan Lee & Lo dated 26 October

2010;

(3) For the purpose of sale of the Lots by public

auction under Section 5(1)(a) of the Ordinance:-

(a) the sale of the Lots be on the

particulars and conditions

substantially the same as those in the

draft Particulars and Conditions of

Sale initialed and approved by the

Tribunal;

(b) The reserve price be set at

$291,000,000;

(4) Subject to further extensions which the Tribunal

may subsequently allow upon the application of

the purchaser of the Lots or its successor in title,

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the redevelopment of the Lots shall be completed

and made fit for occupation within a period of 6

years after the date on which the purchaser of the

Lots becomes the owner of the Lots as specified

by Section 9 and Schedule 3 of the Ordinance;

(5) Liberty to the Applicant, the Respondents and the

Trustees to apply to the Tribunal for further

directions under the Ordinance;

(6) There be no order as to costs for this hearing and

the entire application; and

(7) Service of a copy of this Order on the

Respondents be dispensed with subject to notices

being inserted and published once within 21 days

from the date hereof in Sing Dao Daily and the

South China Morning Post on the same day:-

(a) informing the owners of the Lots,

including the Respondents, that an

order for sale of the Lots has been

made by the Tribunal; and

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(b) giving information as to the place

where and times during which a

copy of this Order may be obtained.

Deputy Judge Lui

Presiding Officer

Lands Tribunal

Mr. Patrick Fung S.C. and Miss Nancy Ngai instructed by Messrs. Yam and

Co, for the Applicant, present.

In person, the 1st, 2nd 3rd and 4th Respondents, absent.