In The Lands Tribunal of The Hong Kong Special Administrative Region

A A
B B
C C
LDCS 7000/2014
D D
E
IN THE LANDS TRIBUNAL OF THE E
HONG KONG SPECIAL ADMINISTRATIVE REGION
F F
LAND COMPULSORY SALE MAIN APPLICATION NO. 7000 OF 2014
G _________________ G
BETWEEN
H H
ABLE LUCK DEVELOPMENT LIMITED 1st Applicant
I DAILY WELL CREATION LIMITED 2nd Applicant I
J SKY HUGE DEVELOPMENT LIMITED 3rd Applicant J
K
WISE MILLION LIMITED 4th Applicant K
FUJI PROPERTIES LIMITED 5th Applicant

L L
th
KELLEX INDUSTRIES LIMITED 6 Applicant
M M
LAM WAI YING 7th Applicant
N N
HOMFORD DEVELOPMENT LIMITED 8th Applicant
O SPREAD CAPITAL LIMITED 9th Applicant O
P JETFAIR ENTERPRISES LIMITED 10th Applicant P
and
Q Q
st
PUBLIC GLOBAL INVESTMETS LIMITED 1 Respondent
R R
nd
CENTURY DEVELOPMENT (HK) LIMITED 2 Respondent
S (Discontinued) S
T TOP SPEED INTERNATIONAL HOLDINGS 3rd Respondent T

LIMITED (Discontinued)
U U
JETFAIR ENTERPRISES LIMITED 4th Respondent
V V
A A
B 2 B
C C
(Discontinued)
D WONG YU SUM and LEUNG YUET MING 5th Respondents D
E YAT SHUN HONG COMPANY LIMITED 6th Respondent E
SZE SHAU FONG and TAM HOI LAM 7th Respondents

F F
WONG PAK LEUNG and CHIN YUK LING 8th Respondents

G G
th
TREASURE LOUNGE LIMITED 9 Respondent
H H
KOK YICK and SO KAM LAN 10th Respondents
I KOK YICK 11th Respondent I
J WONG KAI CHUN 12th Respondent J
K
THE INCORPORATED OWNERS OF YIP FAT 13th Respondent K
FACTORY BUILDING PHASE 2 (Discontinued)
L L
BILLION CHEMICAL (HONG KONG) 14th Respondent
M LIMITED M
_________________
N N
O Before: Her Honour Judge KOT, Presiding Officer of the Lands Tribunal O
and Mr Lawrence PANG, Member of the Lands Tribunal
P Dates of Hearing: 12-16 & 19-20 December 2016 and 15-17 & 20 March 2017 P
Date of Inspection: 13 December 2016
Q Date of Closing 24 March 2017 Q
Submissions:
R R
Date of Judgment: 6 October 2017
S S
_________________
T T
JUDGMENT
U _________________ U
V V
A A
B 3 B
C C
D D
A. Background
E 1. This is an application for compulsory sale of all the undivided E
shares in Kun Tong Inland Lot No 3 (“the Lot”) for the purpose of
F F
redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for
G Redevelopment) Ordinance, Cap. 545 (“the Ordinance”). G
H H
2. Currently erected on the Lot is a 15-storey industrial building
I I
which is known as Yip Fat Factory Building Phase 2 (“the Building”) with
J the address of 75 Hoi Yuen Road, Kwun Tong, Kowloon. Hoi Yuen Road is J
a major local distributor traversing across the business area of the Kwun
K K
Tong district from Kwun Tong Road towards the waterfront. Kwun Tong
L Road is a major district distributor which separates this business area from L
M
the new town centre under construction together with the predominantly M
residential area to the north-east.
N N
O 3. The Building is as a whole served by 3 common staircases, 2 O
cargo lifts and one passenger lift. There are also two common staircases
P P
abutting Hoi Yuen Road which serve only from the ground floor (“G/F”) up
Q to the top podium floor (ie 2/F). Q
R R
4. According to an occupation permit (“OP”) issued on 1
S S
November 1978, the Building is for non-domestic use. Carpark and
T workshop are permitted on G/F while the 1/F – 14/F are permitted to be used T
as workshops. Indeed, the Government lease in respect of the Lot as
U U
modified by a Deed of Variation dated 12 February 1979 restricts
V V
A A
B 4 B
C C
development of the Lot to “a factory or factories or a warehouse or

D D
warehouses or both and ancillary offices and such canteen and other welfare
E facilities (but excluding residential quarters) for workmen employed ……” E
notwithstanding the Lot is now within an area zoned “Other Specified Uses
F F
annotated (Business)” on the Kwun Tong (South) Outline Zoning Plan No
G S/K14S/20 dated 21 July 2015. Under this zoning designation, the area G
H which was previously an industrial area is intended primarily for general H

business uses. Only non-polluting industrial uses would be permitted for
I I
intending industrial redevelopment. For other industrial uses, planning
J permission would be required. J
K K
5. Furthermore, Unit E on 1/F was approved for canteen use by
L virtue of the alterations and additions (A&A) plan approved on 31 December L
M
1986 by the Building Authority though it is currently in godown use. M
N N
6. On the other hand, Workshop Unit H on 14/F is subject to the
O alterations and additions (A&A) plan approved on 18 November 1986 to O
allow A&A works for changing an opening for connection to the adjoining
P P
building, ie Yip Fat Factory Building, Phase 1. During our inspection, such
Q Q
opening has already been reverted back to a partition wall.
R R
7. By reference to the Land Registry records as at 5 February
S S
2014, there are 1,000 equal and undivided shares of and in the Lot with the
T following allocation: T
Carparking Spaces (“CPS”) on G/F each with 1 equal undivided share:

U U
Unit No Registered Unit No Registered Unit No Registered
V V
A A
B 5 B
C C
Owner Owner Owner
D D
1 R13 9 A1 6A A6
E 2 A1 10 A1 7A A7 E
3 A1 11 A1 8A A4
F F
4 A1 1A R11 9A A8
G 5 A1 2A A5 10A A9 G
H
6 R9 3A A2 11A A1 H
7 A1 4A R14
I I
8 A1 5A A1
J J
Workshops with corresponding equal undivided shares:
K K
Floor Unit Registered Undivided Floor Unit Registered Undivided
L Owner Share Owner Share L
G/F E A1 100 8/F E A1 14
M 1/F E A1 30 F R8 14 M
F* A1 30 G A1 14
N N
2/F E R1 24 H A1 14
O O
F A1 24 9/F E A1 14
P G R2 17 F R9 14 P
H A2 17 G A1 14
Q Q
3/F E A1 24 H A1 14
R F A1 24 10/F E A1 14 R
G R3 17 F A1 14
S S
H A10 17 G A1 14
T T
4/F E A1 24 H R10 14
U U
V V
A A
B 6 B
C C
D D
F A1 24 11/F E A1 14
E G A3 17 F R12 14 E
H A3 17 G A1 14
F F
5/F E* A1 16 H A1 14
G F* A1 16 12/F E A1 14 G
H
G* A1 14 F A1 14 H
H* A4 14 G A1 14
I I
6/F E A1 14 H A1 14
J F R5 14 13/F E A1 14 J
G A1 14 F A1 14
K K
H A1 14 G A1 14
L 7/F E A4 14 H A1 14 L
F R6 14 14/F E* A1 16
M M
G A1 14 F* A1 16
N N
H R7 14 G* A1 16
O H* A1 16 O
* The unit includes Flat Roof or Roof thereof

P ** The prefix “A” and “R” denotes the applicant(s) and respondent(s) respectively and P
the numerical that follows denotes the order of the applicant(s) or respondent(s) as the
Q case may be. Q
R 8. Thus, at the time of the application dated 23 May 2014 (“the R
Application”), the applicants had 823 equal and undivided shares which
S S
were equal to 82.3% of the Lot. Now following further purchases from some
T of the respondents1, the applicants altogether own 875 equal and undivided T
U 1 U
Proceedings against them have been discontinued.
V V
A A
B 7 B
C C
shares ie 87.5% of the Lot. They are represented by Mr Edward Chan SC

D D
and Mr Y C Mok (“Mr Mok”), instructed by Messrs Edmund Cheung & Co
E in the present proceedings. E
F F
9. As regards the outstanding respondents, they are R1
G (represented by Mr Paul Wong, instructed by Messrs Wong & Partners) and G
H R5-12 & R14 (represented by Ms Audrey Eu SC (“Ms Eu”) and Mr Julian H

Chan, instructed by Messrs Ho, Tse & Wai), collectively to be referred to as
I I
“RS”:
J Respondents Undivided Shares Corresponding Unit J
R1 24 Unit E, 2/F
K K
R5 14 Unit F, 6/F
L R6 14 Unit F, 7/F L
R7 14 Unit H, 7/F
M M
R8 14 Unit F, 8/F
N N
R9 15 Unit F, 9/F and CPS 6
O R10 14 Unit H, 10/F O
R11 1 CPS 1A
P P
R12 14 Unit F, 11/F
Q R14 1 CPS 4A Q
R R
10. In gist, the RS are disputing
S S
(a) justification of redevelopment with regard to age or state of
T repair of the Building on the Lot, T
(b) reasonable steps having been taken by the applicants to acquire

U U
their undivided shares in the Lot,
V V
A A
B 8 B
C C
(c) the existing use value (“EUV”) of the corresponding units, and
D D
(d) the redevelopment value (“RDV”) of the Lot.
E E
B. Section 3 of the Ordinance – Ownership of the applicants

F F
11. Whereas section 3(1) of the Ordinance requires the applicants
G to have not less than 90% of the undivided shares in a lot before they can G
H make an application, section 3(5) of the Ordinance provides that the Chief H
Executive in Council may, by notice in the Gazette, specify a percentage
I I
lower than the percentage mentioned in section 3(1) in respect of a lot
J belonging to a class of lots specified in the notice. J
K K
12. The Land (Compulsory Sale for Redevelopment (Specification
L of Lower Percentage) Notice was gazetted on 22 January 2010 and came L
M
into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice M
lowered the threshold for compulsory sale in respect of the classes of lots
N N
specified in the Notice from 90% to 80%. Those classes of lots include:
O O
“a lot that is not located within an industrial zone and each of the
buildings erected on the lot—
P P
(i) is an industrial building; and
Q (ii) was issued with an occupation permit at least 30 years Q
before the relevant date (ie the date of the application under the
R Ordinance)”. R
13. As mentioned, the OP for the Building was issued on 1
S S
November 1978 (ie not less than 30 years before the date of the
T Application) and the Lot is not located within an industrial zone. The T
Notice is applicable and the threshold percentage should be 80%.

U U
V V
A A
B 9 B
C C
14. At the time of the filing of the Application, the applicants

D D
owned 82.3% of the undivided shares of the Lot. We agree therefore that
E the applicants were entitled to make the Application under section 3(2)(b) E
of the Ordinance.
F F
G C. The Evidence G
H 15. For the purpose of the present proceedings, the applicants and H
the RS have produced the following expert reports:
I I
Structural Assessment
J J
(a) Expert report dated 24 June 20162 by Mr K S So (“Mr So”);
K (b) Rebuttal report dated 7 October 20163 by Mr NG Ka Wai K

(“Mr Ng”);
L L
Condition Survey
M M
(a) Expert report dated 28 June 20164 by Mr Benson Wong Sai-ning
N (“Mr Wong”); N
(b) Rebuttal report dated 7 October 20165 by Mr LAM Wai-ho (“Mr

O O
Lam”) and supplemented by Mr Ng;
P P
Valuation
Q Q
(a) Valuation report dated 22 May 2014 attached to the Application
R prepared by Mr Alnwick C H Chan (“Mr A Chan”) containing the R
assessments of the values of all units (which are conveniently

S S
T T
2
E/1-657
3
U E/658-682 U
4
D/1-1691
5
D/1692-1924
V V
A A
B 10 B
C C
termed as the existing use values, the “EUV” of all units) in the
D D
Building on the Lot as at 25 February 20146;
E (b) Valuation report dated 19 July 2016 on the EUV of the Building as at E
25 February 2014 by Mr Patrick Lai (“Mr P Lai”) 7;

F F
(c) Supplemental Report dated 19 July 2016 on EUV as at 25 February
G 2014 and redevelopment value (“RDV”) of the Lot as at 1 July 2016 G
H by Mr A Chan8; H
9
(d) Rebuttal Report dated 15 August 2016 by Mr A Chan ;
I I
(e) Rebuttal Report dated 12 September 2016 with additional EUV
J assessments and RDV as at 1 July 2016 by Mr P Lai10; J
(f) Further Rebuttal Report dated 4 October 2016 by Mr A Chan11;

K K
(g) Report dated 11 November 2016 on RDV as at 1 November 2016 by
L Mr P Lai12. L
M
(h) Supplemental Report dated 14 November 2016 on RDV as at 1 M
13
November 2016 by Mr A Chan .
N N
O 16. Notwithstanding the above, Mr A Chan and Mr P Lai have O
prepared a joint expert statement dated 9 November 201614 setting out their
P P
areas of agreement and disagreement. More particularly, the two experts
Q agree the floor areas of the various units in the Building, their internal Q
R R
6
S A/36-185. S
7
C1/1314-1558.
8
C1/1165-1313.
9
T C1/1559-C2/1636. T
10
C2/1638-1831 (also Bundle C2/1836-C3/2048).
11
C3/2050-2127.
12
U C3/2177-2232. U
13
C3/2234-2283.
14
C3/2129-2175.
V V
A A
B 11 B
C C
conditions, the EUV of the CPS15 etc.

D D
E 17. Furthermore, Mr A Chan and Mr P Lai have prepared a joint E
expert statement dated 23 November 201616 setting out their areas of

F F
agreement and disagreement on the parameters leading to the assessment of
G the RDV as at 1 November 2016. G
H H
18. Thereafter, Mr A Chan and Mr P Lai had revised their
I I
valuations on the EUV assessments and RDV which were produced at trial
J as Exhibit A12 dated 19 December 2016 and Exhibit R8 dated 9 March 2017 J
respectively though Mr A Chan saw fit to revise his assessments at the

K K
beginning of his evidence on 13 March 2017 as Exhibit A8.
L L
M
D. Existing use values (“EUV”) of all units as at 25 February 2014 M
19. Under section 4(1)(a)(i), if there is a dispute between the parties
N N
on the EUV of the units in the Building on the Lot, the Tribunal has to
O determine the values. Thus, the first task before us is to determine the O
dispute on EUV as at 25 February 2014 in case an order for sale be granted.

P P
Q 20. Mr A Chan and Mr P Lai have agreed that the EUV of the Q
carparking spaces in the Building as follows:

R R
CPS No EUV as at 25 February 2014 CPS No EUV as at 25 February 2014
S
1 $941,000* 1A $1,748,000 S
2 $894,000 2A $1,407,000
3 $917,000 3A $1,407,000
T T
15
But Mr P Lai maintains that no value should be assigned to CPS No 1 since it was owned by the
U Incorporated Owners (“IO”). He agrees however with Mr A Chan that if a value is applicable, it should be U
$941,000.
16
C3/2284-2298.
V V
A A
B 12 B
C C
4 $894,000 4A $1,407,000
D 5 $941,000 5A $1,407,000 D
6 $941,000 6A $1,407,000
E
7 $941,000 7A $1,407,000 E
8 $941,000 8A $1,407,000
9 $941,000 9A $1,407,000
F 10 $941,000 10A $1,407,000 F
11 $941,000 11A $1,407,000
G * only if a value is applicable G
H H
21. On the other hand, Mr A Chan and Mr P Lai arrived at the
I following EUV assessments of the various workshop units in the Building as I
at 25 February 2014:
J J
Unit Rate/m2 Mr A Chan Mr P Lai
Report of Report of Exhibit A12 dated Exhibit A8 dated Report of Exhibit R8 dated
K K
May 2014 July 2016 19 Dec 2016 13 Mar 2017 July 2016 9 Mar 2017
G/F $76,000 $76,000 $78,000 $100,000 $62,100 $61,100
L U/F $53,000 $52,000 $52,000 $52,000 $61,200 $61,800 L
M 22. As regards the EUV for the G/F Workshop, the two experts rely M
on the following 5 comparables:

N N
O Comp Address OP Transaction Sale Price Saleable Frontage Headroom Unit O

No* Date Date Area (m) (m) Price
P (sq m) (/sq m) P
KF1/ Factory A, G/F, and Car 1977 13 Jan 14 $50,266,000 405.50 11.07 4.75 $123,961
Q AA1 Parking Space Nos 14 & (with values Q
15, King Yip Factory of carparking
R Building, 59 King Yip spaces R
Street excluded)
KF2/ Unit 3, G/F, Shing Yip 1987 8 Dec 13 $31,838,000 410.31 42.01 3.95 $77,595
S S
AA2 Industrial Building, 19-
21 Shing Yip Street
T T
KF3/ Unit F2, G/F, Kwun 1979 4 Dec 13 $7,000,000 86.43 6.23 4.88 $80,990
AA3 Tong Industrial Centre
U U
Block 2, 460-470 Kwun
V V
A A
B 13 B
C C
Tong Road
D KF4 Unit 4, G/F, Century 1983 6 Sep 13 $28,000,000 228.74 5.66 3.14 $122,410 D
Centre, 44-46 Hung
E To Road E
KF5/ Unit A, G/F, Good Year 1978 29 Jul 13 $18,000,000 92.81 8.46 2.74 $193,945
F AA4 Industrial Building, 119- F

121 How Ming Street
* The prefix “KF” denotes the comparables adopted by Mr A Chan and the prefix “AA”
G G
denotes the comparables adopted by Mr P Lai.
H H
23. Further, the two experts have the following
I agreements/disagreements on the adjustment factors applicable:17 I
Adjustment Agreements/disagreements
J J
factors
Time Both agree that the Private Flatted Factories Price Index published by the
K K
Rating and Valuation Department (“RVD Price Index”) is applicable.
Layout Mr P Lai considers this factor not relevant since both the G/F workshop in
L L
the Building and the comparables are of regular layout. Mr A Chan
M considers this factor should be adopted in case of irregular layout in the M
comparables.
N Size While both experts agree the adjustment at 1% for every 20 sq m, they N
depart on the approaches. Mr A Chan adjusts the size on threshold basis
O O
(eg no adjustment for 19 sq m difference) whereas Mr P Lai adjusts the
size on pro-rata basis.
P P
Age Both agree at 0.5% for every 1 year difference.
Exposure Mr A Chan applies -20% for comparable with street exposure but Mr P
Q Q
Lai considers this factor not applicable for G/F workshop.
Accessibility Mr A Chan considers workshops in Kwun Tong are indifferent to this
R R
factor but Mr P Lai is of the opinion that this factor refers to the
S convenience in accessing the corresponding workshops in the buildings; S

eg workshops facing street would have better accessibility when compared
T with workshops located away from the street. He adopts -20% for T
Superior, -10% a little superior.

U U
17
Bundle C3/2142.
V V
A A
B 14 B
C C
Headroom While both experts agree the adjustment at 2% for every 1 m difference,
D D
they depart on the approaches. Mr A Chan adjusts the headroom on
threshold basis (eg no adjustment for 0.99 m difference) whereas Mr P Lai
E E
adjusts the headroom on pro-rata basis.
Internal They agree at:-
F F
Condition +2% for Good
G 0% for Fair G
-2% for Poor

H H
-4% for Very Poor,
I
assuming all comparables in fair conditions. I
Location They cannot agree adjustments for comparables KF2/AA2 and KF5/ AA4.
J J
D1. EUV for G/F as at 25 February 2014
K 24. Thus Mr A Chan and Mr P Lai had made the following K
L adjustments to their comparables: L

Comp Unit Adjustments Adjusted
Time Location Internal Head- Age Size Access Exposure Total
MNo Price Unit Price M
Condition room -ibility
(/m2) (/m2)
KF1 $123,931 0.4% 5.0% -2.0% -2.0% 0.5% -10%* 0% -20% -28.1% $89,106
N N
AA1 $123,961 0.4% 0.0% -2.0% -3.4% 0.5% -15.8% -20% 0% -40.3% $74,005
KF2 $77,595 0.3% 0% -2.0% -2.0% -4.5% -10%* 0% 0% -18.2% $63,473

O O
AA2 0.3% 10.0% -2.0% -1.8% -4.5% -15.6% 0% 0% -13.6% $67,042
P KF3 $80,990 0.3% 0% -2.0% -4.0% -0.5% -10%* 0% 0% -16.2% $67,870 P
AA3 0.3% 0% -2.0% -3.7% -0.5% -31.8% -10% 0% -47.7% $42,358

Q Q
KF4 $122,410 -2.9% 10.0% -2.0% 0% -2.5% -10%* 0% -20% -27.4% $88,870
R KF5 $193,945 -2.8% 0% -2.0% 1.0% 0% -10%* 0% 0% -13.8% $167,181 R
AA4 -2.8% 5.0% -2.0% 0.6% 0% -31.5% -10% 0% -40.7% $115,009

S S
* Mr A Chan however capped the adjustment for headroom at +/-4% and that for size at
+/-10%.
T T
U 25. Apart from applying a cap to the adjustments for headroom and U
V V
A A
B 15 B
C C
size at +/-4% and +/-10% respectively, in his latest revision in Exhibit A8,
D D
Mr A Chan discarded his comparables KF1 and KF4 on the ground that
E these two comparables have direct street exposure whereas the single ground E
floor unit in the Building, Unit E, is situated at the rear of G/F without any
F F
street exposure.
G G
H 26. In a usual valuation exercise, this might be a proper approach to H

be adopted in order to compare like with like but in the captioned case, in
I I
view of the limited number of reliable comparables available (as we shall
J see), we prefer to include them as Mr A Chan initially did. This is J
particularly the case when Mr A Chan saw fit to adopt an adjustment of

K K
-20% for exposure and Mr P Lai incidentally adopts a similar adjustment of
L -20% for accessibility for KF1/AA1 because accessibility of Unit E “should L
M
be inferior compared with ground floor workshops facing street/lane or near M
18
entrance of industrial buildings.” Indeed, Mr A Chan conceded in his
N N
Rebuttal Report dated 15 August 2016 that he believed this factor of
O adjustment on accessibility is the same as his adjustment for exposure 19. In O
this regard, we consider the two adjustment factors be the same though with
P P
different terminology by the two valuation experts.
Q Q
27. We further agree with the -10% for accessibility as proposed by

R R
Mr P Lai for comparables KF3/AA3 and KF5/AA4.
S S
T 28. The other major difference in opinion between Mr A Chan and T

Mr P Lai is the location adjustment. In his rebuttal report of 12 September
U 18
U
para 3.26 of C2/1646.
19
para 5.2.5.6 of C2/1565.
V V
A A
B 16 B
C C
2017, Mr P Lai had the following to say:20

D D
“Location
E E
3.12 The Existing Building is situated close to the Kwun Tong
MTR. I consider it is situated in a relatively better location relative
F F
to the G/F comparables in terms of convenience for workers and
visitors coming to the G/F workshop.
G G
3.13 Other than the convenience for workers and visitors using
the MTR, convenience for goods vehicles and visitors/workers
H coming by cars to the Existing Building is also an essential factor H
in the consideration of the location differences between the
I Existing Building and the buildings within which the G/F I
comparables are located.
J 3.14 G/F comparable 2 is situated on Shing Yip Street within J
walking distance from the Existing Building. I note that Shing Yip
K Street could only allow one way traffic. Vehicular access to Shing K
Yip Street could only be gained from King Yip Street which is
situated at the southern side of Shing Yip Street at a distance from
L Hoi Yuen Road. L
M 3.15 Based on my observation, goods vehicles and private cars M

have been habitually parked by the sides of the two pavements
most times of the day leaving only one central lane for the passage
N of passing traffic along Shing Yip Street. As a result, traffic N
congestion is a common phenomenon and vehicular access to the
O industrial buildings along Shing Yip Street has become very O
inconvenient and difficult…….
P ……. P
3.20 Similar observation is noted on that section of How Ming

Q Street in front of G/F comparable 5 where goods vehicles and Q
private cars have also been habitually parked by the sides of the
R two pavements most times of the day leaving only one central lane R
for the passage of passing traffic along How Ming Street.”
S S
29. In this regard, Mr A Chan took the view, on the one hand that
T T
street parking off the comparables from the two streets is an advantage that
U U
20
C2/1644-1645.
V V
A A
B 17 B
C C
should offset any inconvenience of vehicular traffic congestion at these two

D D
streets, and on the other hand, the advantage of uninterrupted traffic in the
E Building would be offset by the disadvantage of the lack of street parking in E
the vicinity of the Building. Further, traffic congestion is a problem in the

F F
whole of Kwun Tong. He maintained that there should be no adjustment for
G location of the comparables from these two streets21. G
H H
30. We agree with the general observation of Mr P Lai as well as
I I
his quantum of adjustments for location save that for KF1/AA1 which we
J consider +10% more appropriate. We do not agree with Mr A Chan that J
street parking in front of KF2/AA2 or KF5/AA5, for instance, would provide

K K
many advantages as claimed by him; street parking is indeed the cause of
L traffic congestion. We agree with Mr P Lai’s view that street parking should L
M
not be taken into consideration in adjustment for location. We further do not M
agree with Mr A Chan that “the location of G/F Workshop Comparable 2
N N
and 5 are very similar to the Property in terms of distance from MTR
O station”22. They differ in terms of both the traffic routes and the proximity to O
Hoi Yuen Road; during traffic congestion, we agree with Mr P Lai that
P P
additional driving distance of 500m would add significant travel time and
Q inconvenience. Q
R R
31. We also adopt a location adjustment of 15% for KF4 which lies
S S
further away at Hung To Road. This is consistent with the agreement by the
T valuation experts in their assessments as at 1 July 2016. T
U 21
U
para 4.4.1-4.5.5 of C3/2056-2057.
22
para 4.4.1 of C3/2056.
V V
A A
B 18 B
C C
32. As regards this comparable KF4, however, Mr P Lai found that

D D
it was first sold on 8 March 2013 at $38,000,000 but by a supplemental
E agreement some 6 months later (ie 6 September 2013), the consideration was E
reduced to $28,000,000 (ie a reduction by 26.32%). He further noted that in

F F
the said supplemental agreement, there was a provision whereby the
G purchaser could back out without any compensation to the vendor. Mr P Lai G
H was of the opinion that the transaction might not be done at arm’s length and H
also the relevant date for the agreement could not be ascertained with
I I
certainty. He considered therefore it was not desirable to be included as a
J comparable.23 J
K K
33. However, we do not find any evidence to support that the
L transaction was not done at arm’s length. We note from Second Schedule of L
M
the original Agreement for Sale and Purchase dated 8 March 2013 that the M
purported sale appears to be subject to a tenancy in favour of a canteen
N N
operation.24 Then according to the record from the Land Registry, two
O waiver letters in respect of the operation of the canteen were terminated by O
the District Lands Office/Kowloon East on 14 January 2013 and 22 October

P P
201425. This may explain why Clauses 1 & 2 of the supplemental agreement
Q stated that: Q
R 「1. 不論今日之前任何事件發生，賣方認可及確認，除以下修訂 R

外，原買賣協議所有其他條款繼續存在及仍然生效。」 26
S (For reason unknown, the same sentence was repeated in Clause S
2.)
T and the reduction in consideration. T

23
para 3.5-3.10 of C2/1643.
24
U C2/1707-1708. U
25
C2/1692.
26
C2/1715.
V V
A A
B 19 B
C C
D D
34. We consider it appropriate to include KF4 as a comparable
E when good comparables are limited. E
F F
35. Turning to Comparable KF5/AA4, Mr P Lai found that the unit
G had been granted a waiver by the Government permitting the use for the G
H purpose of a canteen. The transaction included also the sale of internal H

decorations and fixtures and equipment for use as a canteen in Schedule 4 of
I I
the Agreement for Sale and Purchase27. In this regard, Mr P Lai considered
J this not a suitable comparable. J
K K
36. Mr A Chan responded that the Government lease of the Lot (as
L varied by Deed of Variation dated 12 February 1979) has already permitted L
M
factory canteen inside the Building as: M
“a factory or factories or a warehouse or warehouses or both and

N N
ancillary offices and such canteen and other welfare facilities …as
may in the opinion of the said Director be necessary ….”28
O O
Therefore, he considered this comparable no different from the permitted use
P of Unit E. P
Q Q
37. Mr A Chan also pointed out that there was no inventory list in
R the Agreement for Sale and Purchase. He opined that “(I)f these decoration, R
fixtures and equipment are of any significant value, would a prudent

S S
purchaser requires a proper inventory list to be attached to the S&P to
T T
protect his interest. I believe Schedule 4 is no more than a standard condition
U 27
U
C1/1343, 1486-1487 & 1495.
28
C1/1234.
V V
A A
B 20 B
C C
implying the vendor will not dismantle the existing decoration or remove the
D D
trade equipment. The liability of removal rests with purchaser.”29
E E
38. By reference to the Government lease of the Lot (as varied by

F F
the Deed of Variation), we agree with Mr A Chan that the use of premises in
G the Building for use as a canteen does not require a waiver from G
H Government. Our view is also supported in view of the following: H

(a) The A&A Plan for canteen use in respect of 1/F of the Building
I I
was approved on 31 December 198630 but since then no waiver
J letter had ever been issued by the Government. J
Notwithstanding the latter, our joint site inspection revealed

K K
that signage for a canteen on 1/F was still present despite it is
L now not occupied as a canteen. The high probability is that no L
M
waiver would be required otherwise it cannot be explained why M
no waiver from the Government had not been issued;
N N
(b) In contrast, the Government lease for Comparable KF5/AA4
O does not provide for any use that may pertain to a canteen31. O
P P
39. On the other hand, we do not agree that those decoration,
Q fixtures and equipment were not of any significant value because the Q
analysed result as shown in the table at §22 above appears to be out of line
R R
with the others.
S S
T 40. In Bright Dragon Properties Limited v Director of Lands, T
29
U para 5.2.5.10-5.2.5.11 of Bundle C1/1566. U
30
C1/1252.
31
Exhibit R9.
V V
A A
B 21 B
C C
LDLR 3 of 2007 (unreported, dated 8 August 2014), a comparable for

D D
restaurant use but with no inventory list was found. Mr P Lai, who happened
E to be also the valuation expert in that case, considered that comparable could E
not be a useful comparable but nevertheless was prepared to assign a value

F F
in the sum of some less than 10% to reflect the cost of the restaurant
G installations equipment furniture and chattels. See §§55-58 of the judgment. G
H We are prepared to adopt a similar approach by deducting $1.5 million from H

the consideration to test the result.
I I
J 41. We consider that this Comparable KF5/AA4 should not be J
discarded for the sole reason that it was suitable for canteen operation. We
K K
agree with Mr A Chan during his cross-examination that so long as canteen
L operation is permitted, competing uses as workshop or otherwise would L
M
determine the value of the premises. We also note, indeed, comparable M
KF2/AA2 is also occupied for canteen operation as well but Mr P Lai is
N N
happy to adopt it as comparable.
O O
42. In respect of the adjustments for size and headroom, we prefer

P P
the threshold approach by Mr A Chan32 because there cannot be a formula
Q for adjustment as such in real life; we appreciate the concern by the RS that Q
there might be situation where a mere minor difference in size or headroom

R R
would bring the adjustment applicable into different thresholds. That
S S
difference, if it does occur, however will be very small.
T T
32
At para 5.2.5.7 of his Rebuttal Report dated 15 August 2016, Mr A Chan explained that “no adjustment
U should be applied unless the difference reached a threshold and do contribute to value difference from a U
user’s perspective or the difference is apparent that prudent purchaser/vendor would attach addition or
negative value.” C1/1565.
V V
A A
B 22 B
C C
43. We do not agree however with Mr A Chan that a cap should be

D D
applied. Firstly, we agree with the RS that where the line to be drawn is not
E supported and appears to be arbitrary. More importantly, if the adjustment E
turns out to be too large, it would only indicate that the comparable itself
F F
might not be good enough to be adopted. This is indeed the case for
G Comparable KF3/AA3 where the difference in size is significant. The G
H comparable and the subject unit may belong to different markets. The H
application of a cap might distort the picture of analysis.
I I
J 44. Thus, despite that all the comparables suffer to a certain degree J
of imperfection, we are prepared to adopt the following analysis for the

K K
purpose of determining the EUV of G/F as at 25 February 2014:
L Comp Unit Adjustments Adjusted L
Time Location Internal Head- Age Size Accessibility/Ex Total
No Price Unit Price
M Condition room posure M
(/m2) (/m2)
AA1 $123,961 0.4% 10.0% -2.0% -2.0% 0.5% -16.0% -20% -29.1% $87,888
N KF2/ $77,595 0.3% 10.0% -2.0% -2.0% -4.5% -16.0% 0% -14.2% $66,577 N
AA2
O KF3/ $80,990 0.3% 0% -2.0% -4.0% -0.5% -32.0% -10% -48.2% $41,953 O
AA3
KF4 $122,410 -2.9% 15.0% -2.0% 0% -2.5% -25.0% -20% -37.4% $76,629
P P
KF5 $177,783 -2.8% 5.0% -2.0% 1.0% 0% -31.0% -10% -39.8% $107,025
Q Average: $76,014 Q
Average (excluding $84,530

R KF3/AA3): R

S KF3/AA3 and KF5): S
Average (excluding AA1, $86,801

T KF3/AA3 and KF4): T
U U
V V
A A
B 23 B
C C
45. However, we are surprised that a further comparable for a

D D
transaction in Block 3, Kwun Tong Industrial Centre dated 31 March 2014
E found by Mr A Chan for assessing the EUV as at 1 July 2016 was not E
included as comparable. The particulars of it are as follows:

F F
G Comp Address OP Transaction Sale Price Saleable Area Frontage Headroom Unit Price G
No Date Date (sq m) (m) (m) (/sq m)
H KF3/2016 Unit A3, G/F, 1979 31 Mar 14 $19,250,000 167.22 6.30 4.88 $115,118 H
Block 3, Kwun
Tong Industrial
I Centre, 448-458 I
Kwun Tong Road
It is just opposite comparable KF3/AA3 and its size difference from Unit E,
J J
G/F of the Building is less significant.
K K
L
46. If this comparable is also included for consideration, the analysis would L
become:
MComp Unit Adjustments Adjusted M
Time Location Internal Head- Age Size Accessibility/ Total
No Price Unit Price
N 2 Condition room Exposure N
(/m ) (/m2)
AA1 $123,961 0.4% 10.0% -2.0% -2.0% 0.5% -16.0% -20% -29.1% $87,888
O KF2/ $77,595 0.3% 10.0% -2.0% -2.0% -4.5% -16.0% 0% -14.2% $66,577 O
AA2
P KF3/ $80,990 0.3% 0% -2.0% -4.0% -0.5% -32.0% -10% -48.2% $41,953 P
AA3
KF4 $122,410 -2.9% 15.0% -2.0% 0% -2.5% -25.0% -20% -37.4% $76,629
Q Q
KF5 $177,783 -2.8% 5.0% -2.0% 1.0% 0% -31.0% -10% -39.8% $107,025
R KF3/ $115,118 -1.0% 0.0% -2.0% -2.0% -0.5% -10.0% -10% -43.5% $65,042 R
2016
S Average: $74,186 S
T T
U U
V V
A A
B 24 B
C C
D KF3/AA3): D
E KF3/AA3 and KF5): E
F F
47. Within the above range of figures, we determine that the EUV
G of G/F as at 25 February 2014 should be $80,000 per sq m33 and therefore G
H
the EUV of Unit E is 722.06 sq m x $80,000 per sq m = $57,764,800. H
I I
D2. EUV for U/F as at 25 February 2014
J 48. In respect of the upper floors (“U/F”), Mr A Chan and Mr P Lai J
rely on the following 22 comparables:

K K
Comp Address OP Transaction Sale Price Saleable Floor Headroom Unit
No Date Date Area loading (m) Price
L L
(sq m) (lb/sq ft) (/sq m)
AA1 Unit B, 14/F, Good Year 1978 15 May 14 $11,225,000 157.00 150 3.05 $63,739
M Industrial Building, 119- + (Roof: M
121 How Ming Street 152.86)

N N
KF1/ Unit C, 13/F, Good Year 1978 2 Dec 13 $10,388,000 163.77 150 3.05 $63,430
O AA2 Industrial Building, 119- O
121 How Ming Street

P KF2/ Unit B, 5/F, Good Year 1978 6 Dec 13 $11,076,000 157.00 150 3.05 $65,968 P
AA3 Industrial Building, 119- + (Flat
Q 121 How Ming Street Roof: Q
65.38)
R AA4 Factory 1, 2/F, and Sing 1980 24 Apr 14 $26,300,000 451.08 150 3.05 $58,305 R
Win Factory Building,
S 15-17 Shing Yip Street S
AA5 Unit 301, 3/F, Sunbeam 1986 12 Mar 14 $32,787,000 508.96 150 2.94 $64,420
T 33
T
As we shall see, even when we adopt the EUV at $80,000 per sq m, there would be a huge jump to the
EUV as at 1 July 2016. Nevertheless, this $80,000 per sq m is still more amenable to the $61,100 per m
U proposed by Mr P Lai. In this regard, we must emphasize that the RVD has expressly qualified that the time U
index adopted by the two experts is in respect of upper floors only; not necessarily applicable to the ground
floor units even as an average.
V V
A A
B 25 B
C C
Centre, 27 Shing Yip
D Street (with 1 loading D
/unloading area on G/F)
E AA6 Unit 203, 2/F, Sunbeam 1986 27 Feb 14 $17,917,200 310.68 150 2.94 $57,671 E
F Street (with 1 loading F

/unloading area on G/F)
KF3 Unit A, 2/F, Manning 1977 2 Dec 13 $20,000,000 442.96 150 3.18 $45,151
G G
Industrial Building, 116-
118 How Ming Street
H H
KF4 Unit B, 2/F, Manning 1977 2 Dec 13 $20,000,000 438.59 150 3.18 $45,511
Industrial Building, 116- + (Flat
I I
118 How Ming Street Roof:
65.38)
J KF5 Unit C, 2/F, Manning 1977 2 Dec 13 $20,000,000 456.99 150 3.18 $43,661 J
K 118 How Ming Street Roof: K
6.45)
L KF6 Unit D, 2/F, Manning 1977 2 Dec 13 $20,000,000 463.38 150 3.18 $43,070 L
M 118 How Ming Street Roof: M
5.86)
N KF7 Unit B, 6/F, Manning 1977 2 Dec 13 $14,226,000 284.64 150 3.05 $49,979 N
O 118 How Ming Street O

KF8 Unit C, 6/F, Manning 1977 2 Dec 13 $15,937,200 299.57 150 3.05 $53,200
P P
118 How Ming Street
KF9/ Unit F, 1/F, East Sun 1977 11 Sep 13 $25,500,000 447.63 150 3.43 $52,535
Q Q
AA7 Industrial Centre, 16 + (Flat
Shing Yip Street Roof:
R R
226.57)
KF10 Unit A, 7/F, King Yip 1977 26 Jun 13 $13,200,000 284.11 150 3.18 $46,461
S S
Factory Building, 59
King Yip Street
T T
KF11 Unit D, 13/F with 1 1978 1 Jun 13 $7,000,000 109.21 150 3.05 $55,563
Carparking Space, Good
U U
Year Industrial Building,
V V
A A
B 26 B
C C
119-121 How Ming
D Street D
KF12 Unit L, 7/F, Winner 1978 11 Jun 13 $5,626,800 102.38 150 3.05 $54,960
E Factory Building, 55 E
Hung To Road
F KF13 Unit D, 3/F, East Sun 1977 27 Mar 13 $22,598,400 393.88 150 3.42 $57,374 F
Industrial Centre, 16
G Shing Yip Street G

KF14 Unit D, 11/F & Roof, 1977 21 Feb 13 $21,800,000 393.88 150 3.42 $50,324
H East Sun Industrial + (Roof: H

Centre, 16 Shing Yip 314.46)
I Street I
KF15 Unit C, 14/F, Good Year 1978 20 Feb 13 $9,550,000 163.77 150 3.05 $52,277
Industrial Building, 119- + (Roof:
J J
121 How Ming Street 151.28)
KF17 Unit B, 12/F, King Yip 1977 28 Jan 13 $12,000,000 282.06 150 3.18 $42,544
K K
King Yip Street
L L
KF18 Unit B, 7/F, King Yip 1977 21 Jan 13 $15,023,000 282.06 150 3.18 $53,262
M M
King Yip Street
KF19 Unit A, 6/F, Manning 1977 2 Dec 13 $14,226,000 286.02 150 3.05 $49,738
N N
118 How Ming Street
O O
* The prefix “KF” denotes the comparables adopted by Mr A Chan and the prefix “AA”
denotes the comparables adopted by Mr P Lai.
P P
Q
49. Further, the two experts have the following Q
34
agreements/disagreements on the adjustment factors applicable:
R R
Adjustment Agreements/disagreements
factors
S S
Floor Mr A Chan proposes adjustments at 1% for every 10 lb/sq ft difference
Loading but Mr P Lai considers the adjustment only applicable to loading capacity
T T
within similar range.
U
Headroom While both experts agree the adjustment at 2% for every 1 m difference, U
34
C3/2141.
V V
A A
B 27 B
C C
D D
threshold basis (eg no adjustment for 0.99 m difference) whereas Mr P Lai
E E
Building Both agree at 0.5% for every 1 year difference.
Age
F F
Floor Both agree at 1% for every level difference.
Size Mr A Chan proposes 1% for every 30 sq m difference whereas Mr P Lai
G G
proposes 1% for every 40 sq m difference
Time Both agree that the RVD Price Index is applicable.
H Internal They agree at:- H
Condition -2% for Good

I I
0% for Fair
J +2% for Poor J
+4% for Very Poor,
K assuming all comparables in fair conditions. K
View35 Mr A Chan considers 0% for Building View, -5% for Open View but Mr
L P Lai considers this is not a factor for adjustment because it is not L
uncommon that windows of workshops are covered.

M M
Layout Mr P Lai considers this factor not relevant since both the G/F workshop in
the Building and the comparables are of regular layout. Mr A Chan
N N
considers this factor should be adopted in case of irregular layout in the
O comparables. O
Building Mr A Chan considers the provision of lifts depending on the floor plate
P Facilities area but Mr P Lai considers the number of lifts provided would affect the P
efficiency in vertical transportation and hence the attractiveness of the
Q Q
workshops.
Loading/ Mr A Chan considers no significant effect on the provision of loading and
R R
Unloading unloading area whereas Mr P Lai considers the availability of loading/
S
unloading facilities would affect the efficiency in goods transportation. S
Location They cannot agree adjustments for comparables KF1/AA2, KF2/AA3 and
T KF9/AA7. T
U U
35
In his latest revision in Exhibit A8, Mr A Chan no longer adopted any adjustment for view.
V V
A A
B 28 B
C C
50. While we are surprised by Mr A Chan having provided so many

D D
comparables which have not been included by Mr P Lai, we agree with the
E latter’s comment that comparables KF3-8 and KF19 were indeed a single E
transaction as evidenced by the agreement for sale and purchase 36. When Mr
F F
A Chan was requested to revisit the comparables as a single transaction, the
G analysed unit price, subject to a cap of 7% on the size adjustment, is G
H $48,267/m2 and the average adjusted rate for all his comparables has become H
2 2
$55,000/m instead of $52,000/m .
I I
J 51. Once again, we agree with the RS that the cap is not supported J
and appears to be arbitrary. In any event, in view of the peculiar nature of

K K
this transaction and also the large number of other comparables already in
L place, we are prepared to discard comparables KF3-8 and KF19. L
M M
52. In respect of the other comparables adopted by Mr A Chan, the

N N
only objection by Mr P Lai is that “they were transacted at distant times
O from the date of valuation.” However, in view of their transaction dates were O
just about one year earlier than the relevant date, we prefer to adopt them
P P
because generally, if there be no particular good comparables, the more
Q Q
comparables in the basket, the more reliable the end result data would be.
R R
53. Similarly, we find no reason to exclude the 4 additional

S S
comparables introduced by Mr P Lai that were transacted very close to the
T date of valuation. T
U U
36
C2/1732.
V V
A A
B 29 B
C C
54. As regards the adjustments for location, Mr A Chan was of the

D D
initial view that those for the G/F and U/F are not necessarily the same. Mr
E A Chan explained in his rebuttal report dated 4 October 2016 as follows: E
F “4.11.2The operations between G/F workshops and U/F F

workshops are fundamentally different. The G/F workshops are
G
usually used for car repairing workshops or manufacturing or G
storing bulky items which could be transported by vehicles or
forklifts only. Therefore, the concern of location adjustment of G/F
H workshops is driving distance. H
4.11.3 In contrast, the U/F workshops are usually occupied by

I I
business or trades that do not require direct vehicular access or
street exposure. It is my opinion that the U/F workshop being close
J to the Kwun Tong MTR Station is superior to the other U/F J
workshop comparables as the Property offers convenience to the
workers and visitors travelling by public transportation.”37
K K
L L
55. By the time of trial, however, Mr A Chan conceded that the
M adjustments for location for the G/F and U/F can be the same. M
Notwithstanding this concession, we are prepared to adopt an upward
N N
adjustment of 5% for comparables at How Ming Street and Shing Yip Street
O but 10% for comparables at Hung To Road and King Yip Street. The latter O
again is consistent with the valuation experts’ assessment as at 1 July 2016

P P
for the comparables at Tsun Yip Street which lies just around the corner of
Q Hung To Road. Q
R R
56. Also, the adjustments proposed by Mr P Lai on “Building
S S
Facilities” and “Loading/Unloading” are preferred. In respect of the latter,
T we accept Mr P Lai’s view that private loading/unloading areas are more T
beneficial than public ones on the street outside.

U U
37
C3/2059.
V V
A A
B 30 B
C C
D D
57. As regards the loading and unloading area for Sunbeam Centre,
E while we are persuaded by the applicants that it is privately owned, we have E
no evidence to prove that when the transactions took place, occupiers were
F F
prevented from using the area for loading and unloading. Based on the
G principle of reality in valuation, the adjustment proposed by Mr P Lai is G
H accepted. H
I I
58. Such principle of reality is indeed applied quite frequently in
J the valuation practice. J
K K
59. In Cheer Capital Limited v Unibase Investment Limited &
L L
Others, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) (“Cheer
M Capital”), Mr A Chan, who was also the valuation expert in that case, indeed M
conceded that the yards which were enclosed albeit without proper title
N N
should be able to fetch some value in the market. See §64 of the judgment.
O This same principle was applied by the Tribunal in Gainfield Investment O
Limited & Others v Legend Time Limited & Others, LDCS 16000/2014
P P
(unreported, dated 17 October 2016).
Q Q
R 60. In contrast, the difference in opinion between the two experts R

on the adjustment for size is not so significant but again that of Mr P Lai (ie
S S
1% for every 40 sq m difference) is preferred. Once again, we maintain our
T preference to the threshold approach by Mr A Chan in respect of the T
adjustments for size and headroom.

U U
V V
A A
B 31 B
C C
61. In view of the above, we are prepared to adopt the following

D D
analysis for the purpose of determining the EUV of U/F as at 25 February
E 2014: E

F No Price
Time Location Age Floor Size Head- Building Loading/ Total
Unit Price
F
room Facilities Unloading
(/m2) (/m2)
G $63,739 -1.7% 5.0% 0% 6.0% -2.0% 0% 1.0% 0% 8.3% $69,029 G
AA1
KF1/ $63,430 0.3% 5.0% 0% 5.0% -2.0% 0% 1.0% 0% 9.3% $69,329
H AA2 H
KF2/ $65,968 0.3% 5.0% 0% -3.0% -2.0% 0% 1.0% 0% 1.3% $66,826

I AA3 I
AA4 $58,305 -1.0% 5.0% -1.0% -6.0% 4.0% 0.0% -2.0% 0.0% -1.0% $57,722
J J
AA5 $64,420 -0.6% 5.0% -4.0% -5.0% 5.0% 0.2% -6.0% -5.0% -10.4% $57,720
K AA6 $57,671 0.0% 5.0% -4.0% -6.0% 0% 0.2% -6.0% -5.0% -15.8% $48,559 K
KF9/ $52,535 -2.9% 5.0% 0.5% -7.0% 5.0% 0% 0% 0% 0.6% $52,850

L AA7 L
KF10 $46,461 -2.0% 10.0% 0.5% -1.0% 0.0% 0.0% 1.0% 0.0% 8.5% $50,410
MKF11 $55,563 -2.0% 5.0% 0.0% 5.0% -4.0% 0.0% 0.0% 1.0% 5.0% $58,341 M
KF12 $54,960 -2.0% 10.0% 0.0% -1.0% -4.0% 0.0% 0.0% 0.0% 3.0% $56,609
N N
KF13 $57,374 0.3% 5.0% 0.5% -5.0% 2.0% 0.0% 0.0% 0.0% 2.8% $58,980
O KF14 $50,324 1.7% 5.0% 0.5% 3.0% 3.0% 0.0% 0.0% 0.0% 13.2% $56,967 O
KF15 $52,277 1.7% 5.0% 0.0% 6.0% -2.0% 0.0% 0.0% 1.0% 11.7% $58,393
P P
KF17 $42,544 5.8% 10.0% 0.5% 4.0% 0.0% 0.0% 1.0% 0.0% 21.3% $51,606
Q KF18 $53,262 5.8% 10.0% 0.5% -1.0% 0.0% 0.0% 1.0% 0.0% 16.3% $61,944 Q
Average: $58,352
R R
S 62. In view of the above, we determine that the EUV of U/F as at S
T
25 February 2014, by reference to Unit G on 8/F, should be $58,000/m2. T
U U
63. Coming to the assessment of the EUV for each individual U/F
V V
A A
B 32 B
C C
unit, Mr A Chan and Mr P Lai have the following agreements/disagreements

D D
on the adjustment factors applicable:38
E Adjustment Agreements/disagreements E
factors
F Floor Both agree at 1% for every level difference. F
Internal They agree at:-
G Condition +2% for Good G
0% for Fair
H H
-2% for Poor
I -4% for Very Poor I

Size Mr A Chan proposes 1% for every 30 sq m difference whereas Mr Lai
J proposes 1% for every 40 sq m difference. J

Floor Mr A Chan proposes adjustments at 1% for every 10 lb/sq ft difference
K Loading but Mr Lai considers the adjustment only applicable to loading capacity K
within similar range.
L Headroom While both experts agree the adjustment at 2% for every 1 m difference, L
M threshold basis (eg no adjustment for 0.99 m difference) whereas Mr Lai M

N N
View39 Mr A Chan considers upward adjustment for units with open view but Mr
Lai considers view should not be a factor affecting values of workshops.
O O
Internal It is agreed that there are 3 steps from the lift lobby to the units on 13/F of
Layout the Building and 6 steps on the 14/F. Mr A Chan proposes adjustment of
P P
-5% and -10% respectively while Mr Lai proposes -3% and -4%
Q respectively. Q
R R
64. We have previously dealt with the disagreements between Mr A
S Chan and Mr P Lai on the adjustments for size and headroom etc (§§42-43 S
above).
T T
38
U C3/2135. U
39
In his latest revision in Exhibit A8, Mr A Chan no longer adopted any adjustment for view.
V V
A A
B 33 B
C C
65. As regards the level difference for the units on 13/F and 14/F of
D D
the Building which must be accessible by a few steps up from the lift lobby,
E we accept Mr A Chan’s adjustment at -5% and -10% respectively. We E
accept that this not only affects the effective floor area because of the steps
F F
but also the accessibility of the units concerned. As explained by Mr A Chan
G in his rebuttal report dated 4 October 2016: G
H “4.13.2 The current day’s logistic operation in U/F workshops are H

conducted by way of putting goods on pallet and transported by
I forklift trolleys pulled by workers. The level difference between I
lift lobby and U/F workshops on 13/F and 14/F requires workers to
lift goods into the premise by hand and causing inconveniences to
J J
the logistics operation.
K 4.13.3 In addition, I wish to supplement that the entrances to all K

U/F workshops in the Property are approximately 1.1m wide which
are not able to let a standard size pallet to enter….”
L L
In our opinion, the proposed adjustments by Mr P Lai at 3% and 4%
M respectively are not adequate. M
N N
66. Thus, the total EUV for the U/F is $989,030,000 as shown at
O O
Appendix A.
P P
D3. EUV of Carparking Spaces as at 25 February 2014
Q Q
67. As stated in §20 above, Mr C Chan and Mr P Lai agree on the
R EUV of the CPS save that Mr P Lai is of the view that no value should be R
assigned to CPS No 1 since it was previous owned by the Incorporated

S S
Owners (“IO”) and is still currently occupied as a security booth off the
T entrance of the Building. T
U U
68. We do not agree with Mr P Lai. The fact that the carparking
V V
A A
B 34 B
C C
space was owned by the IO does not prevent it from being sold. See also
D D
The Incorporated Owners of Lee Hang Industrial Building v. Billion
E Development and Project Management Limited, HCMP 2243 of 2007 E
(unreported, 12 March 2008). This parking space has never been identified
F F
as a common area by virtue of the Deed of Mutual Covenant.
G G
H 69. More particularly, Part 1 of Schedule 1 to the Ordinance H
requires the EUV to be assessed in respect of “each property on the lot” and
I I
the proceeds of the sale of the lot shall be apportioned on a pro rata basis in
J accordance with “the values of the respective properties of each majority J
K
owner and each minority owner of the lot as assessed” under Part 3. We do K
not find there should be any exception for CPS No 1 for the mere fact that it
L L
was or even is owned by the IO.
M M
70. Therefore, the total EUV of all the carparking spaces including
N N
CPS No 1 is $26,051,000 as agreed by Mr C Chan and Mr P Lai.
O O
P 71. As a result, the total EUV of the Building is: P
$26,051,000 + $57,764,800 + $989,030,000 = $1,072,845,800

Q Q
and the corresponding pro rata of the total EUV of the Building as at 25
R R
February 2014 is as follows:
S S
Responde Pro Rata of Total
Unit Owned EUV
nt EUV
T T
R1 Unit E, 2/F $29,029,00 2.7058%
0
U U
R5 Unit F, 6/F $17,144,00 1.5980%
V V
A A
B 35 B
C C
0
D D
R6 Unit F, 7/F $16,979,00 1.5826%
E 0 E
R7 Unit H, 7/F $16,821,00 1.5679%

F 0 F
G R8 Unit F, 8/F $16,814,00 1.5672% G

0
H H
R9 Unit F, 9/F and CPS $17,591,00 1.6397%
6 0
I I
R10 Unit H, 10/F $16,331,00 1.5222%
J 0 J
R11 CPS 1A $1,748,000 0.1629%

K K
R12 Unit F, 11/F $16,320,00 1.5212%
L 0 L
R14 CPS 4A $1,407,000 0.1311%

M M
N N
O E. EUV of the Lot as at 1 July 2016 O
72. In our decision dated 21 September 2016, we alluded to a

P P
comparison by Mr P Lai that the EUV was higher than the RDV and
Q therefore, the Lot on which the Building is erected has no redevelopment Q
potential. However, the comparison was made as at 25 February 2014 which

R R
should not be correct because the time for considering whether the
S S
redevelopment of the lot is justified and fixing the reserve price for the
T auction is at trial or a date closest to it. T
U U
V V
A A
B 36 B
C C
73. Therefore, we allowed an updated comparison analysis between

D D
the EUV and the RDV of the Building as at 1 July 2016.
E E
74. Whereas Mr P Lai prepared another EUV assessment as at 1

F F
July 2016, Mr A Chan was allowed to do the same pursuant to our Order
G dated 9 July 2016. G
H H
E1. EUV of CPS as at 1 July 2016
I I
75. Again the two experts agreed that the EUV of the carparking
J spaces in the Building as at 1 July 2016 as follows: J
CPS No EUV as at 25 February 2014 CPS No EUV as at 25 February 2014

K 1 $1,163,000* 1A $2,640,000 K
2 $1,104,000 2A $2,134,000
L L
3 $1,133,000 3A $2,134,000
M M
4 $1,104,000 4A $2,134,000
N 5 $1,163,000 5A $2,134,000 N
6 $1,163,000 6A $2,134,000
O O
7 $1,163,000 7A $2,134,000
P 8 $1,163,000 8A $2,134,000 P
9 $1,163,000 9A $2,134,000
Q Q
10 $1,163,000 10A $2,134,000
R R
11 $1,163,000 11A $2,134,000
S * only if a value is applicable S
T 76. Thus, the total value of the carparking spaces is $36,625,000. T
U U
E2. EUV for G/F and U/F as at 1 July 2016
V V
A A
B 37 B
C C
77. Again, Mr A Chan and Mr P Lai could not agree on the EUV
D D
for the workshops. They arrived at the following EUV assessments as at 1
E July 2016: E
Unit Mr A Chan Mr P Lai

F F
Rate/m2
Report of Exhibit A12 Exhibit A8 Report of Exhibit R8
G G
Oct 16 dated 19 Dec 16 dated 13 Mar 17 Sept 16 dated 9 Mar 17
G/F $88,000 $97,000 $97,000 $97,000 $95,600
H H
U/F $55,000 $55,000 $54,000 $62,000 $61,800
I I
78. The following table shows their latest assessments as at 25
J February 2014 and as at 1 July 2016 vis-à-vis the RVD Price Index which J
the two valuation experts agree as applicable:

K K
L L
M
EUV Mr A Chan Mr P Lai RVD Price Index M
G/F U/F G/F U/F
Index* Increase
2 2 2 2
N As at 25 $100,000/m $52,000/m $61,100/m $61,800/m 652.6 N
February
O 2014 O
2 2 2 2
As at 1 $97,000/m $54,000/m $95,600/m $61,800/m 673.2 3.16%
P July 2016 P
* The index is expressly stated by RVD that it is in respect of upper floor units only.
Q Q
E3. EUV for G/F as at 1 July 2016

R R
79. As regards the EUV as at 1 July 2016 for the G/F Workshop,
S the two valuation experts rely on the following 5 comparables which are S
however all dated some time before 1 July 2016:

T T
Comp Address OP Transaction Sale Price Saleable Frontage Headroom Unit Price
U No Date Date Area (m) (m) (/sq m) U

(sq m)
V V
A A
B 38 B
C C
KF1/ Rear Portion, G/F, 1972 18 Dec 15 $23,104,000/$ Mr A NA 4.42 $120,921/
D AA1 Milkyway Building, 77 22,945,000 Chan: $135,814 D
Hung To Road (excluding 191.64
E value of 3 Mr Lai: E
lorry C/P and 134.48
F 3 private C/P) F
AA2 G/F, Dah Way Industrial 1971 12 Jan 15 $40,000,000 299.96 NA 5.26 $132,815
G Building, 86 Hung To + (Yard: G

Road 7.26)
H KF2/ Unit 2, G/F, Hung To 1983 9 Dec 14 $23,200,000 331.11 NA 4.78 $70,067 H
AA3 Industrial Building, 80
I Hung To Road I
KF3 Unit A3, G/F, Block 3, 1979 31 Mar 14 $19,250,000 167.22 6.30 4.88 $115,118
J Kwun Tong Industrial J

Centre, 448-458 Kwun
K Tong Road K
AA4 Unit 1, G/F, Sing Win 1980 13 Nov 14 $42,800,000 289.80 NA 3.90 $147,688
Factory Building, 15-17
L L
Shing Yip Street
M M
80. In respect of the first comparable, ie KF1/AA1, it is quite
N unusual that there is dispute between the experts on the saleable area of the N
O
workshop. By reference to the approved building plan dated 21 December O
1972, the workshop space concerned was previously situated at the rear part
P P
of another workshop in the front. By the time it was sold, for instance, in
Q December 2015 together with 3 lorry parking spaces and 3 private Q
carparking spaces adjoining thereto, however, there has been an approved

R R
A&A plan whereby the parking spaces have been rearranged and the
S workshop space has been relocated to occupy the former parking spaces; ie S
the workshop space concerned is no longer situated at the rear part of

T T
another workshop space and has its independent access from the car ramp.
U U
And because of this latter arrangement, the workshop space concerned has
V V
A A
B 39 B
C C
become smaller but Mr A Chan bases his analysis on the former larger area
D D
whereas Mr P Lai conducts his analysis on the prevailing workshop area.
E Thus, in reality, the workshop space only has a saleable area about 134.48 sq E
m as opposed to its original area of 191.64 sq m. In this regard, the area

F F
adopted by Mr P Lai at 134.48 sq m should be preferred as it is no excuse
G that the workshop user could switch it back to its original layout because as G
H such it would not have an independent access. H
I I
81. Apart from the above, there is no material difference in opinion
J between Mr A Chan and Mr P Lai save that Mr A Chan adjusts the size J
between Unit E, G/F of the Building and this comparable subject to a cap
K K
against which we have ruled at §§43 & 51 above. There should not be such a
L cap on adjustment for comparable KF2/AA3 as well. L
M M
82. In respect of comparable KF3, we are surprised that it was
N N
dated as early as 31 March 2014 which was much closer to 25 February
O 2014 than 1 July 2016. If it should be adopted as a comparable at all, it O
should be adopted for assessing the EUV as at 25 February 2014 instead of

P P
as at 1 July 2016; otherwise the whole exercise would become otiose
Q because we can simply apply the RVD index to arrive at the EUV as at 1 Q
July 2016. In any event, the footnote of the indices expressly states that “the
R R
indices are in respect of upper floor units only.”
S S
T 83. Mr A Chan does not agree to adopt AA2 as a comparable T

because it has a lengthy frontage onto Hung To Road which, in his view, is
U U
much superior to Unit E, G/F of the Building. Mr A Chan even conducted an
V V
A A
B 40 B
C C
analysis below between this and comparable KF2/AA3 to prove that there is
D D
“a huge contrast in the unit rate” between the two with or without the street
E exposure:40 E
Comparable Date of Sale Consideration Unit Price % difference

F F
(/m2) before adjustments
AA2 (with 12 Jan 2015 $40,000,000 $130,715
G G
street frontage) (which has been revised
H to $132,815) H
KF2/AA3 9 Dec 2014 $23,200,000 $68,071 -47.9%
I (without street (which has been revised (-47.2%) I
frontage) to $70,067)
J 84. At trial, a similar analysis was also conducted with a J
comparable sale of the unit in front of KF2/AA3, ie comparable KF3/AA3

K K
adopted in assessing the gross development value (“GDV”) in the residual
L valuation as at 1 July 2016 or 1 November 2016: L
Comparable Date of Sale Consideration Unit Price % difference

M M
2
(/m ) before adjustments
N
KF3/AA3 (with 9 Dec 2014 $36,800,000 $168,506 N
street frontage)
O KF2/AA3 9 Dec 2014 $23,000,000 $70,067 -58.4% O
(without street
P frontage) P
Q Q
85. Mr Mok argues that based on these two pairs of analysis, the
R adjustment of -20% proposed by Mr P Lai is obviously inadequate. R
S S
86. Nevertheless, we immediately pointed out there were not really
T two pairs of analysis; both analysis relied on the same transaction ie T
KF2/AA3. If for any reason the transacted price of this comparable was
U U
40
C3/2062.
V V
A A
B 41 B
C C
below the market, the whole exercise would become wrong and
D D
misleading41. And, as we shall see, if the adjustment something like -50% is
E applied instead of -20%, neither Mr A Chan or Mr P Lai could get their E
proposed result of $97,000/m2 or $95,600/m2 as the case may be.

F F
G 87. In respect of comparable AA4, it is interesting to note that Mr P G
H Lai himself discarded it on the ground that the workshop had been granted a H
42
temporary waiver for canteen operation . As explained at §41 above, this
I I
should not be a good reason for discarding it as a comparable.
J J
88. Thus, discarding only comparable KF3, we have the following

K K
analysis:
L Comp Unit Adjustments Adjusted L
Time Location Internal Head- Age Size Accessibility/ Total
No Price Unit Price
M Condition room Exposure M
(/m2) (/m2)
KF1/ $170,620 -4.3% 15.0% -2.0% -2.0% 3.0% -29.0% 0.0% -19.3% $137,690
N AA1 N
AA2 $132,815 -2.7% 15.0% -2.0% -4.0% 3.5% -21.0% -20.0% -31.2% $91,377
O KF2/ $70,067 -1.7% 15.0% -2.0% -2.0% -2.5% -19.0% 0.0% -12.2% $61,519 O
AA3
AA4 $147,688 -1.6% 10.0% -2.0% 0.0% -1.0% -21.0% -20.0% -35.6% $95,111
P P
Average: $96,424
Q Average (excluding $99,605 Q
AA2 & AA4):
R R
S 89. In view of the above, we are prepared to adopt $96,400 per sq S
m as the EUV of G/F as at 1 July 201643 and therefore the EUV of Unit E is
T T
41
We note both KF3/AA2 and KF2/AA3 were transacted on the same date and we suspect they were just
U part of a single transaction. U
42
para 7.6-7.8 at C2/1856.
43
$96,400/m2 is some midway between Mr A Chan’s $97,000/m2 and Mr P Lai’s $95,600/m2.
V V
A A
B 42 B
C C
722.06 sq m x $96,400 per sq m = $69,607,000

D D
E E4. EUV for U/F as at 1 July 2016 E
90. In respect of the upper floors, Mr A Chan and Mr P Lai rely on

F F
the following 12 comparables:
G Comp Address OP Transaction Sale Price Saleable Floor Headroom Unit G
H (sq m) (lb/sq ft) (/sq m) H
KF1 Unit U2, 7/F, Kwun 1979 18 Jul 16 $8,197,200 149.10 150 3.20 $54,978
I Tong Industrial Centre, I
J Tong Road J
KF2 Unit B6, 3/F, Mai Hing 1980 18 Jul 16 $6,880,000 165.39 150 3.13 $41,599
Industrial Building Block
K K
B, 16-18 Hing Yip Street
L L
KF3 Unit C4, 1/F, Kwun 1980 11 Jul 16 $9,400,000 145.07 200 3.28 $64,796
Tong Industrial Centre,
M M
Tong Road
N KF4 Unit G4, 7/F, Kwun 1980 23 Jun 16 $5,500,000 105.59 150 3.20 $52,088 N
Tong Industrial Centre,

O O
Tong Road
P KF5/ Unit B, 8/F, Speedy 1980 8 Jun 16 $8,350,000 130.82 150 3.14 $63,828 P
Q How Ming Street Q
KF6 Unit D, 10/F, Camelpaint 1981 30 Apr 16 $14,812,700 245.45 150 3.15 $60,349
R Building Block 1, 62 Hoi R
Yuen Road
S KF7/ Unit A-D, 13/F, Speedy 1980 6 Apr 16 $32,800,000 511.93 150 3.37 $64,071 S
T How Ming Street T

KF8 Rear Portion, 8/F, Ming 1975 23 Sep 15 $13,480,000 265.85 150 3.20 $50,705
U Sang Industrial Building, U

21 Hing Yip Street
V V
A A
B 43 B
C C
AA3 6/F, Block C, East Sun 1977 20 Jan 16 $22,930,000 437.97 150 3.43 $52,355
D Industrial Centre, 16 D
Shing Yip Street
E AA4 Flat J, 8/F, Wang Kwong 1978 27 May 16 $4,050,000 77.18 150 3.05 $52,475 E
Industrial Building, 45
F Hung To Road F
AA5 Flat G, 10/F, Wang 1978 17 May 16 $4,800,000 88.33 150 3.05 $54,342
G Kwong Industrial G
Building, 45 Hung To
H Road H
AA6 Flat K, 8/F, Wang 1978 10 May 16 $4,050,000 77.18 150 3.05 $52,475
I Kwong Industrial I
Building, 45 Hung To
J Road J
K 91. It is interesting to note that out of these 12 comparables, only 2 K
of them are common comparables adopted by both valuation experts. And in

L L
respect of comparable KF7/AA2, one of the major differences in opinion
M M
between them is that Mr A Chan applies a layout adjustment of 10% for the
N reason that those workshop units in this comparable are, like the 14/F of the N
Building, at a level higher up than the lift lobby and has to be accessible by a
O O
flight of steps. At trial, Mr P Lai conceded that he had not gone up the units
P for inspection and therefore failed to realise the level difference. In this P
regard, we accept Mr A Chan’s adjustment of 10%.

Q Q
R 92. As regards the 6 comparables adopted by Mr A Chan but not by R
S
Mr P Lai, the latter’s only criticism is on KF8 which was transacted some 10 S
months before the valuation date of 1 July 2016. We agree that, in view of
T T
the so many comparables available as at much closer dates, this comparable
U is odd in timing and can be discarded. U
V V
A A
B 44 B
C C
D D
93. On the other hand, as regards the 4 comparables adopted by Mr
E E
P Lai but not by Mr A Chan, the former applies 10% adjustment for
F loading /unloading facilities to the 3 comparables in Wang Kwong Industrial F

Building to account for there being no carparking facilities available in the
G G
building. At trial, however, Mr A Chan no longer disputed the 10%
H adjustment. H
I I
94. We have dealt with the other adjustment factors in determining
J J
the EUV as at 25 February 2014. Applying the same approaches, we are
K prepared to adopt the following analysis for the purpose of determining the K
EUV of U/F as at 1 July 2016:

L L
No Price Unit Price
M (/m2) Time Location Age Floor Size Head- Building Carparking/ Total (/m2) M
room Facilities Layout
N KF1 $54,978 0.0% 0.0% -0.5% -1.0% -3.0% 0.0% -5.0% 0.0% -9.5% $49,755 N
KF2 $41,599 0.0% 5.0% -1.0% -5.0% -2.0% 0.0% 1.0% 0.0% -2.0% $40,767
O O
KF3 $64,796 0.0% 0.0% -1.0% -7.0% -3.0% 0.0% -5.0% -5.0% -21.0% $51,189
KF4 $52,088 -2.5% 0.0% -1.0% -1.0% -4.0% 0.0% -5.0% 0.0% -13.5% $45,056
P P
KF5/ $63,828 -2.5% 5.0% -1.0% 0.0% -3.0% 0.0% 0.0% 0.0% -1.5% $62,871
AA1
Q Q
KF6 $60,349 -2.4% 0.0% -1.5% 2.0% 0.0% 0.0% -1.0% 0.0% -2.9% $58,599
R KF7/ $64,071 -2.4% 5.0% -1.0% 5.0% 5.0% 0.0% 2.0% 10.0% 23.6% $79,192 R
AA2
S AA3 $52,355 -2.0% 5.0% 0.5% -2.0% 3.0% 0.0% 0.0% 0.0% 4.5% $54,711 S
AA4 $52,475 -3.3% 10.0% 0.0% 0.0% -5.0% 0.0% 0.0% 10.0% 11.7% $58,615
T T
AA5 $54,342 -3.3% 10.0% 0.0% 2.0% -4.0% 0.0% 0.0% 10.0% 14.7% $62,330
U AA6 $52,475 -3.3% 10.0% 0.0% 0.0% -5.0% 0.0% 0.0% 10.0% 11.7% $58,615 U
V V
A A
B 45 B
C C
Average: $56,518
D D
Average (excluding KF2): $58,093
E E
95. In view of the above, we determine that the EUV of U/F as at 1

F F
July 2016 should be $58,000/m2 which is applicable to the reference unit of
G Unit G on 8/F. G
H H
96. Thus, the total EUV as at 1 July 2016 for the U/F is
I I
$989,030,000 as shown in Appendix B.
J J
97. As a result, the total EUV of the Building is:

K K
$36,625,000 + $69,607,000 + $989,030,000 = $1,095,262,000
L L
M
F. RDV of the Lot as at 1 July 2016 M
98. Mr P Lai did provide a sale of a much smaller site at 43-45
N N
Tsun Yip Street as a comparable and try to make adjustments to this transaction:
O Accommodation Value (“AV”) of the site at Tsun Yip Street:44 $32,120/m2 O
Location: 10%
Scale of development: 10%
P Height of development: 5% P
Time: -2%45
Q Total: 23%46 $39,508/m2 Q
R R
S S
44
T Mr A Chan pointed out at para 6.2.11.2 of his Rebuttal Report dated 15 August 2016 that the transacted T
price should be equated to an AV of $35,483/m2 instead of an AV of $32,120/m2.
45
This adjustment is wrong in itself as the RVD price index was 671.7 as at August 2014 whereas the index
U has become 673.2 (provisionally) as at July 2016. Also, the index is expressly stated that it applies to upper U
floor flatted factory units only.
46
If the adjustments are by multiplication instead, the total adjustment would become 24.5%.
V V
A A
B 46 B
C C
99. In spite of the above, we consider these adjustments are

D D
grossly inadequate to reflect the difference in development
E potential/market value of the two sites. E
F F
100. Firstly, the transaction was dated as long ago as 5 August
G 2014 when the market conditions then were quite different from that as at 1 G
H July 2016, ie two years later. While Mr P Lai conceded that “property H
47
prices had been on the increase during the period” , yet the index applied
I I
(if correct) is expressly qualified by RVD that it applies to upper floor
J flatted factory units only. Because of the difference in market sentiment, J
the increase in land value can be more significant than the upper floor
K K
units.
L L
M
101. The site was also much smaller at 850.98 sq m when M
compared with the Lot which comprises 1,858.05 sq m (which is more
N N
than double). And although both this site and the Lot are subject to a
O similar height limit of 51.5 mPD under the Government lease, this site is O
subject to a lower height limit of 100 mPD imposed by the Kwun Tong
P P
(South) Outline Zoning Plan S/K14S/20. In comparison, the height
Q restriction imposed by the Outline Zoning Plan on the Lot is 200 mPD, ie Q
the Lot has a higher or double flexibility in development subject to

R R
payment of premium to Government for relaxing the height limit under the
S S
land lease. The 10% adjustment for scale of development or 5%
T adjustment for height appears inadequate. T
U U
47
C1/1354.
V V
A A
B 47 B
C C
102. More importantly, as pointed out by Mr A Chan at para 6.2.7-

D D
6.2.10 in his Rebuttal Report dated 15 August 2016 48, the Government
E lease conditions pertaining to this site are more onerous. For instance, this E
comparable comprises two Lots, Kwun Tong Inland Lot Nos 359 & 360
F F
which are governed by 2 separate Government leases and that pertaining to
G Kwun Tong Inland Lot No 359 stipulates that: G
H “…… will not partition the demised premises or assign mortgage H

charge underlet part with the possession of or otherwise dispose of
I the demised premises except as a whole without the consent in I
writing of the said Director …… And will not erect or allow to be
erected on the demised premises any building other than a factory
J J
and ancillary offices and quarters ……. And will not erect or
allowed to be erected any building or support for any building at
K ground floor level on the portion of the demised premises coloured K
…. and will not use or allow to be used the said portion at ground
level or any part thereof for any purpose other than the parking
L L
loading and unloading of motor vehicles (it being agreed and
declared that buildings at first floor level and above may however
M be erected over the said portion provided there is clear space M
extending upwards from the ground level to a height of fifteen
feet) …” 49
N N
In comparison with the Lot which is not subject to similar onerous
O conditions, the above should have negative impact or restriction on the O
P marketability for which Mr P Lai has not allowed. P
Q Q
103. In addition, the location at Tsun Yip Street is inferior to the
R Lot at Hoi Yuen Road which is close to the APM, a regional shopping mall R
and the MTR Kwun Tong Station.

S S
T T
48
C2/1577-1578.
49
U C2/1619. This latter sentence does not appear in the Government lease pertaining to Kwun Tong U
Inland Lot No 360.
V V
A A
B 48 B
C C
104. The deficiency in adjustments is particularly obvious when Mr

D D
P Lai appeared to have applied the similar adjustments for location and
E time applicable to the completed flatted factories to this development land. E
It is trite that the value of land is derived from its development potential to
F F
produce revenues (or the gross development value (“GDV”) as it is often
G known) in excess of the required payments to all other factors of G
H production, for example, the construction cost (“C”), ie for simplicity: H

Land Value = GDV – C
I I
J 105. While C is usually territory-wide and subject to less variation J
within a short period of time, C is relatively constant. If the GDV as

K K
affected by location, scale of development, height, time etc is increased by
L say 30%, the new land value would become: L
M
Land Value (new) = 1.30GDV – C M
= 1.30(Land Value + C) – C
N N
= 1.30Land Value + 1.30C – C
O = 1.30Land Value + 0.30C O
That is, the increase in land value would be amplified and be more than
P P
30% (unless C has also increased more or less the same during the same
Q period, which is however very unlikely). And if, for instance, C is 0.4 as Q
much as the original land value, the increased land value would be:
R R
1.30Land Value + 0.30 x (0.4Land Value)
S S
= 1.30Land Value + 0.12Land Value
T = 1.42Land Value T
U U
V V
A A
B 49 B
C C
106. In any event, both Mr A Chan and Mr P Lai resort to the

D D
residual valuation method in determining the RDV of the Lot which
E comprises a site area of 1,858.05 sq m. They have prepared a residual E
valuation as at 1 July 2016. This is done by deducting development costs

F F
(including construction cost, professional fees, finance costs etc) and
G developer’s profit from the estimated gross development value of the G
H completed optimum development. Mr A Chan arrives at $1,191,037,465 H

2
(ie AV$59,237/m ) while Mr P Lai arrives at $908,800,000 (ie
I I
AV$44,467/m2).
J J
F1. Optimum hypothetical development model

K K
107. Notwithstanding the above, the two valuation experts disagree
L on the hypothetical development model as shown below:50 L
Mr A Chan Mr Lai
M M
Assumed Development A 15-storey industrial A 15-storey industrial
N building with 1 basement building with 2 basement N
level of carparks levels of carparks
O Vertical Circulation 5 passenger lifts, 1 cargo lift 1 passenger lift, 3 cargo lifts O
and 2 staircases and 4 staircases
P P
Site Level 4.75 mPD at Hoi Yuen 4.82 mPD at Hoi Yuen
Road Road
Q Q
Maximum Building Height 51.5 mPD
R under Government Lease R
Development Height 51.5 - 4.75 = 46.75m 51.5 - 4.82 = 46.68m

S S
Total Gross Floor Area 20,106.30 sq m 20,437.81 sq m
(“GFA”)
T T
Basement 1 level with 11 private 2 levels with 2 motorcycle
U U
50
C3/2155-2157.
V V
A A
B 50 B
C C
carparking spaces parking spaces, 17 private
D (accessible by car lift) carparking spaces and 22 D
lorry parking spaces as well
E as 1 container parking space E
G/F 10 lorry parking spaces and

F 1 container parking space F
G Remaining Saleable Area 279.60 sq m 1,044.15 sq m G

on G/F (Efficiency Ratio: 65.2%) (Efficiency Ratio: 68.6%)
H Saleable Area on 1/F 1,608.05 sq m 1,430.80 sq m H
(Efficiency Ratio: 86.6%) (Efficiency Ratio: 83.9%)
I I
Saleable Area on 2/F – 3/F 3,216.10 sq m 3,051.30 sq m
(Efficiency Ratio: 86.6%) (Efficiency Ratio: 84.7%)
J J
Saleable Area on 4/F -14/F 11,902.56 sq m 11,071.50 sq m
K
(Efficiency Ratio: 84.4%) (Efficiency Ratio: 81.4%) K
Total Saleable Area 17,006.31 sq m 16,597.75 sq m
L L
4/F Flat Roof 575.99 sq m 588.00 sq m
M Roof 1,106.50 sq m M
N N
108. In gist, apart from the minor difference in total GFA or
O saleable areas on each floor, the two valuation experts have different O
opinion on the hypothetical workshop size, workshop number and the

P P
number of level(s) of carparks.
Q Q
R 109. In his Rebuttal Report dated 15 August 2016, Mr A Chan R

commented on the hypothetical development model proposed by Mr P Lai
S S
as follows:51
T T
“6.3.1 There is excessive provision of private carparking spaces
and lorry parking spaces beyond the land lease requirement
U U
51
C2/1579.
V V
A A
B 51 B
C C
resulting (sic) 2 levels of basements have to be created and this in
D turn inflated the construction cost and brought down the RDV. D
6.3.2 The proposed 1 container space, 22 lorry spaces, 17 private

E car spaces and 2 motorcycle spaces are designed to be E
accommodated on 2 levels of basements. The aggregate GDV is
F HK$50,600,00052 (which I do not agree) whilst the basements F
construction cost is HK$70,977,510 exclusive of fees. It showed a
negative value.
G G
6.3.3 There is no illustration on the detailed allocation of these
H carport spaces and not sure how they are distributed on B1 and B2. H
If the container space is located on basement and served by ramp,
it would take up huge circulation space.
I I
6.3.4 It is questionable whether the Basement 2 is capable of
J accommodating 22 lorry spaces provided beyond the lease J
requirement.
K 6.3.5 The G/F headroom proposed by AA is 3.980m …. The K

absolute minimum headroom for container truck is 4.1 m therefore
L
there is insufficient G/F headroom for access by container to L
basement.”
M M
110. We agree with the above comments by Mr A Chan. Moreover,
N N
in view of the prevailing trend of industrial development more akin to clean
O industrial and industrial-office uses, as well as the proximity of the Lot to O
the Kwun Tong MTR Station, we consider the minimum carparking spaces
P P
as provided by Mr A Chan as per the Government lease should be adequate.
Q Q
R
111. As regards the lift provision, we agree with Mr A Chan that R
“the number of cargo lifts and passenger lifts could be reallocated” and
S S
therefore his total lifts provision will be more than the lift provisions
T proposed by Mr P Lai. 53 T
U 52 U
This figure however only corresponds to the value of 22 lorry parking spaces as at 1 November 2016.
53
C3/2075.
V V
A A
B 52 B
C C
112. Turning to the difference in GFA or saleable areas to be

D D
provided, we find they are minimal or mostly within 10% (though the
E differences on the G/F workshop and 1/F workshop provision are larger). E
The difference in total saleable area is however only between 17,006.31 sq

F F
m and 16,597.75 sq m, ie a difference of 408.56 sq m or some 2.4%.
G G
H 113. In any event both Mr A Chan and Mr P Lai have carried out an H
alternative residual valuation based on the other’s development model and

I I
found the difference in result was below 2%. See Exhibit A11 and Exhibit
J R8. J
K K
114. In view of the above, we are prepared to adopt the hypothetical
L L
development model proposed by Mr A Chan for the purpose of determining
M the RDV of the Lot. M
N N
F2. Value of CPS as at 1 July 2016
O 115. In assessing the EUV of the private carparking spaces in the O
Building as at 1 July 2016, the two valuation experts agree that each is
P P
worth between $1,104,000 and $1,163,000. As regards the value of the
Q Q
proposed private carparking spaces in the hypothetical development, Mr A
R Chan adopts 11 private carparking spaces at $1,176,000 each whereas Mr R

P Lai adopts 17 private carparking spaces at $1,250,000. Nevertheless, it
S S
was agreed that the market value of the private carparking spaces are
T $1,250,000 each if Mr P Lai’s model of hypothetical development be T
adopted.
U U
V V
A A
B 53 B
C C
116. We agree with Mr P Lai that 2 of the 4 comparables adopted

D D
by Mr A Chan, ie the carparks in Kwun Tong Industrial Centre, were very
E different from the carparks to be provided in the hypothetical development E
in terms of scale of developments and carparks54. In view of the above

F F
therefore and the marginal difference between $1,176,000 and $1,250,000,
G such a distinction between which model is to be adopted is not necessary; G
H we are prepared to adopt $1,250,000 as a value of a private carparking H

space.
I I
J 117. Similarly, the two valuation experts agree that the market J
value of each lorry parking spaces is $2,200,000 and that value of a

K K
container space is $2,800,000 if Mr P Lai’s model of hypothetical
L development be adopted. Again, having reviewed their comparables L
M
provided, we are prepared to adopt $2,200,000 and $2,800,000 M
respectively in determining the GDV for the hypothetical development.
N N
O F3. Value of G/F Workshop as at 1 July 2016 O
118. As regards the determination of the hypothetical ground floor

P P
premises, Mr A Chan and Mr P Lai rely on the same comparables
Q (excluding rightly the comparable at Kwun Tong Industrial Centre that we Q
have discarded because it was dated as early as 31 March 2014) as those

R R
for assessing the EUV; that is, Mr A Chan has adopted most of Mr Lai’s
S S
comparables in assessing the EUV as at 1 July 2016 but discarded his own
T comparable at Kwun Tong Industrial Centre. Mr A Chan also has T

discarded the comparable at Milkyway Building because he considers this
U U
54
para 15.7 in C2/1670.
V V
A A
B 54 B
C C
comparable has no street exposure. Comparable KF2/AA3 is however

D D
replaced by KF3/AA3 as stated in §84 above.
E E
119. Based on the comments we have made above, our analysis,

F F
this time assuming the G/F workshop (saleable area about 279.6 m 2 and
G headroom about 5 metres) would have a street frontage of 12.48 m abutting G
H Hoi Yuen Road, is shown as follows: H

Time Location Head- Age Size Accessibility/ Layout Total
I No Price Unit Price I
2 room Frontage
(/m ) (/m2)
AA1 $170,620 -4.3% 15.0% 0.0% 22.0% -7.0% 10.0% 0.0% 35.7% $231,531
J J
KF2/AA2 $132,815 -2.7% 15.0% 0.0% 22.5% 1.0% -10.0% 0.0% 25.8% $167,081
K K
KF3/AA3 $168,506 -1.7% 15.0% 0.0% 16.5% -3.0% 0.0%* 0.0%* 26.8% $213,666
(new)
L L
KF4 $147,688 1.6% 10.0% 0.0% 18.0% 0.0% 0.0% 0.0% 29.6% $191,404
M Average: $200,921 M
N Average (excluding $190,717 N

AA1):
O * We disagree with Mr A Chan that there should be any adjustment on layout or frontage O
for this particular comparable. Nor do we agree with Mr P Lai that there should be any
adjustment for accessibility. We simply cannot see any difference when the design and
P P
layout of the hypothetical G/F unit is still undetermined at this stage.
120. Thus, for the G/F workshop in the hypothetical development,
Q Q
we are prepared to adopt $200,000/m2 which is again some midway between
R Mr A Chan’s assessment of $201,000/m2 and Mr P Lai’s assessment of R
$190,400/m2.
S S
T F4. Value of U/F Workshops as at 1 July 2016 T
U 121. Mr A Chan and Mr P Lai rely on the following 14 comparables, U

2 2
arriving at $117,000/m and $106,800/m for the value of the hypothetical
V V
A A
B 55 B
C C
workshop units on the upper floors:

D D
Comp Address OP Transaction Sale Price Effective Floor Headroom Unit
E E
KF1/ Unit 6, 3/F, Entrepot 1994 6 Jun 16 $6,700,000 50.72 150 4.00 $132,098
F AA1 Centre, 117 How Ming F
Street
G KF2/ Unit E, 17/F, Capital 1995 3 Jun 16 $5,590,000 69.21 150 3.70 $80,769 G
AA4 Trade Centre, 62 Tsun
H Yip Street H
KF7/ Unit C, 10/F, Capital 1995 8 Jan 16 $4,750,000 58.17 150 3.70 $81,657
I I
Yip Street
KF8/ Unit A, 22/F, Capital 1995 24 Dec 15 $7,000,000 79.34 150 3.70 $88,228
J J
Yip Street
K KF3 Unit D, 12/F, Capital 1995 13 Apr 16 $3,980,000 46.00 150 3.70 $86,522 K
Trade Centre, 62 Tsun
L Yip Street L
KF4 Unit 2, 13/F, Lemmi 1996 22 Mar 16 $4,264,200 40.80 150 3.31 $104,515
M Centre, 50 Hoi Yuen M

Road
N N
Centre, 50 Hoi Yuen
Road
O KF6 Unit 8, 9/F, Lemmi 1996 17 Feb 16 $3,600,000 36.69 150 3.31 $98,119 O
Centre, 50 Hoi Yuen

P P
Road
AA2 Unit 5, 21/F, Entrepot 1994 20 Nov 15 $4,000,000 48.92 150 4.00 $81,766
Q Centre, 117 How Ming Q
Street
R AA3 Unit 2, 3 & 4, 16/F, 1994 29 Oct 15 $26,830,500 182.57 150 4.00 $146,960 R
Entrepot Centre, 117
S How Ming Street S

AA7 Unit 1 and Store Room, 1996 27 Jun 15 $10,230,000 102.39 150 3.31 $97,960
17/F, Lemmi Centre, 50 + (Store
T T
Hoi Yuen Road Room:
4.07)
U AA8 Flat 5, 7/F, Winful 1992 29 Apr 16 $6,560,000 89.58 150 3.13 $73,231 U
V V
A A
B 56 B
C C
D Street D
AA9 Flat 1, 11/F, Winful 1992 26 Oct 15 $4,625,000 66.57 150 3.13 $69,476
E Centre, 30 Shing Yip E

Street
F F
122. We have accepted Mr P Lai’s upward adjustment for location at
G G
5% for comparables at How Ming Street in §55 above but here Mr P Lai
H proposes a location adjustment of -15% for Entrepot Centre also on How H
Ming Street. Mr P Lai explained his change in opinion in his Rebuttal

I I
Report of 12 September 2016 as follows:
J J
“14.5 … the first floor of Entrepot Centre was readily accessible
from the adjacent development known as APM …..
K K
14.6 Being connected and readily accessible from APM, I
L consider the accessibility of Entrepot Centre was much superior L
compared with the hypothetical development on the Property.”55
M 123. During cross-examination, Mr P Lai also suggested that units in M
Entrepot were favoured by office uses that would be less affected by

N N
vehicular traffic. We agree with Mr Mok for the applicants that Mr P Lai’s
O view was not supported by further evidence apart from mere referral to the O
P
directory at the entrance lobby of the building which is not conclusive. P
However, this connectivity to APM and in turn to the MTR station is a
Q Q
unique feature of Entrepot Centre which has no equivalent in other
R comparables on How Ming Street. We agree with Mr P Lai’s change in R
opinion but we consider the adjustment should be -5% instead.

S S
T 124. While we have already dealt with most of the adjustment T
factors above, there is one further major difference in opinion on that Mr P

U U
55
C2/1668.
V V
A A
B 57 B
C C
Lai applies +5% adjustment for better loading and unloading facilities to
D D
these comparables but Mr A Chan does not. Whereas we have now adopts
E Mr A Chan’s hypothetical development model particularly on the carparking E
provision, we consider such an adjustment no longer necessary.

F F
G 125. More importantly, we have mentioned in §110 above that the G
H prevailing trend of industrial development is more akin to clean industrial H

and industrial-office uses. Regrettably, all the comparables cited by Mr A
I I
Chan and Mr P Lai are more than 20 years old. All the comparables tendered
J by the two valuation experts are less than satisfactory. J
K K
126. While we appreciate Mr P Lai’s inclusion of additional
L L
comparables of “greater sizes” is for the purpose of minimizing the effect of
M size differences, we do not consider Winful Centre at 30 Shing Yip Street M
comparable to the others in terms of its design and conditions, particularly

N N
when all the other comparables are, to a certain extent, comprising curtain
O wall façades. O
P P
127. And to the extent that we are limited by this set of dated
Q Q
comparables, we find no reason to exclude any of the other comparables
R adopted by either Mr A Chan or Mr P Lai. For instance, the size of their 1 st R
comparable at Entrepot Centre is also about 50.72 sq m, which is not

S S
materially different from those of other “small” comparables adopted by Mr
T A Chan. This is particularly the case when Mr P Lai is happy to adopt a T
U
quantum adjustment based on mere 1% for every 40 sq m difference. U
V V
A A
B 58 B
C C
128. Thus, based on this set of unsatisfactory comparables, our

D D
analysis is shown as follows:
E Comp Unit Price Adjustments Adjusted E
2 Time Location Age Floor Size Head- Lifts/ Total
No (/m ) Unit Price
room Building
F Facilities (/m2) F
KF1/ $132,098 -2.5% -5.0% 11.0% -6.0% -2.0% -2.0% 3.0% -3.5% $127,475
G G
AA1
KF2/ $80,769 -2.5% 10.0% 10.5% 7.0% -1.0% 0.0% 3.0% 27.0% $102,577
H AA4 H
KF7/ $81,657 -2.0% 10.0% 10.5% 1.0% -1.0% 0.0% 3.0% 21.5% $99,213
I AA5 I
KF8/ $88,228 -4.3% 10.0% 10.5% 12.0% -1.0% 0.0% 3.0% 30.2% $114,873
AA6
J KF3 $86,522 -2.4% 10.0% 10.5% 3.0% -2.0% 0.0% 3.0% 22.1% $105,643 J
KF4 $104,515 -1.8% 5.0% 10.0% 4.0% -2.0% 0.0% 2.0% 17.2% $122,492
K K
KF5 $107,785 -1.8% 5.0% 10.0% 8.0% -2.0% 0.0% 2.0% 21.2% $130,635
L KF6 $98,119 -2.2% 5.0% 10.0% 0.0% -2.0% 0.0% 2.0% 12.8% $110,678 L
AA2 $81,766 -9.4% -5.0% 11.0% 11.0% -2.0% -2.0% 3.0% 6.6% $87,163
M M
AA3 $146,960 -9.9% -5.0% 11.0% 6.0% 1.0% -2.0% 3.0% 4.1% $152,985
N AA7 $97,960 -7.8% 5.0% 10.0% 7.0% 0.0% 0.0% 3.0% 17.2% $114,809 N
AA8 $73,231 -2.4% 5.0% 12.0% -1.0% 0.0% 0.0% 3.0% 16.6% $85,387
O O
AA9 $69,476 -9.9% 5.0% 12.0% 3.0% -1.0% 0.0% 3.0% 12.1% $77,883
P Average: $110,139 P
Average (excluding AA8 & AA9) $115,322
Q Q
Average (excluding KF3, KF4, KF5, $114,156
KF6, AA8 & AA9)
R R
S S
129. Thus, save for our finding below, we are prepared to adopt
T $115,000/m2 as the unit price applicable to the U/F units in the hypothetical T
development based on these comparables.

U U
V V
A A
B 59 B
C C
130. We note Mr A Chan has made use of his same set of

D D
comparables to arrive at 2.5% higher for 1/F-3/F of the hypothetical
E development. In this regard, we agree with Mr P Lai that comparables KF3, E
KF4, KF5, KF6 have to be excluded because of their relatively small sizes
F F
when compared with a hypothetical unit about 268.01 sq m. Our analysis is
G shown in the following: G
Comp Unit Price Adjustments Adjusted

H Time Location Age Floor Size Head- Lifts/ Total H
2
No (/m ) Unit Price
room Building
Facilities (/m2)
I I
KF1/ $132,098 -2.5% -5.0% 11.0% 1.0% -5.0% -2.0% 3.0% 0.5% $132,758
J AA1 J
KF2/ $80,769 -2.5% 10.0% 10.5% 14.0% -4.0% 0.0% 3.0% 31.0% $105,807
K AA4 K
KF7/ $81,657 -2.0% 10.0% 10.5% 8.0% -5.0% 0.0% 3.0% 24.5% $101,663
AA5
L KF8/ $88,228 -4.3% 10.0% 10.5% 19.0% -4.0% 0.0% 3.0% 34.2% $118,402 L
AA6
M AA2 $81,766 -9.4% -5.0% 11.0% 19.0% -5.0% -2.0% 3.0% 11.6% $91,251 M
AA3 $146,960 -9.9% -5.0% 11.0% 14.0% -2.0% -2.0% 3.0% 9.1% $160,333
N N
AA7 $97,960 -7.8% 5.0% 10.0% 15.0% -4.0% 0.0% 3.0% 21.2% $118,728
O Average: $118,420 O
P P
131. Thus, again save for our finding below, we are prepared to
Q adopt $118,000/m2 as the unit price applicable to the lower floors in the Q
hypothetical development.
R R
S S
132. Having established the development potential or the GDV, a
T residual valuation can be expressed as a simple equation: T
Residual land value (economic rent) =

U U
(Value of completed development) – (development costs + developer’s profit)
V V
A A
B 60 B
C C
D D
F5. Development Cost and Period
E 133. By the Joint Expert Statement dated 9 November 2016, Mr A E
Chan and Mr P Lai also agree the following:

F F
Mr A Chan Mr P Lai Agreement/
G Disagreement G
Demolition Cost $48,000,000 Agreed
H
Construction Workshop $15,290/m2 (on $16,250/m2 H
Cost GFA) (on CFA)
I G/F Car Parking Spaces $9,800/m2 NA I
(on CFA)
J B/F Car Parking Spaces/ $23,900/m2 (on $22,750/m2 J
Plant Room CFA) (on CFA)
Disagreed
K Car Lift $5,000,000/ NA K
each
L Turntable $2,000,000/ NA L
each
M Total $350,512,193 $430,956,338 M
(on CFA) (on CFA)
56 2
N Curtain Wall $3,150/m NA N
Construction Period 2.5 years Agreed
O Demolition Period 0.875 year (ie 10½ months) Agreed O
Deferment Rate 5.0% Agreed

P P
Professional Fee 6.0% Agreed
Q Q
Marketing Cost 1.0% Agreed
R R
134. As can be seen from the table above, the difference in unit
S S
construction cost is minimal; the major difference comes from the different
T development models (see §107). Whereas we have stated at §§113 & 114 T
U 56
U
By Exhibit A8, Mr A Chan allows additional cost for glass aluminum curtain walling to elevations (or
residential) by reference to RLB Building Cost Data published in September 2016.
V V
A A
B 61 B
C C
above that we prefer Mr A Chan’s model and Mr A Chan has conducted a

D D
comparison between the result based on the two hypothetical models but
E using his own rates. He found that his model would produce a higher land E
value.57 In fact Mr P Lai found the same by his residual valuation attached to
F F
Exhibit R8.
G G
H 135. As regards Mr A Chan’s referral to the additional cost for glass H

aluminum curtain walling to elevations (or residential) by reference to RLB
I I
Building Cost Data published in September 2016, we consider it appropriate
J when all the comparables (except for Winful Centre at 30 Shing Yip Street J
which we have excluded as comparable) comprise curtain wall façades. Ms

K K
2
Eu or Mr P Lai has challenged the figure of $3,150/m being derived from
L the cost for residential development but we accept Mr A Chan’s explanation L
M
that this is the only separate item for curtain wall construction that can be M
found from the cost data. We are satisfied that curtain walling construction
N N
for residential development would not be quite different from curtain
O walling construction for the other types of development. In any event, Mr P O
Lai has not seen fit to allow for this in his provision of construction costs.
P P
We are however surprised that Mr P Lai has never in his mind that his
Q proposed development would only be commensurate with industrial Q
buildings built more than 20 years ago.

R R
S S
136. All in all, we conclude that we should adopt the construction
T costs proposed by Mr A Chan. T
U U
57
Exhibit A11.
V V
A A
B 62 B
C C
F6. Developer’s Profit

D D
137. Another major disagreement between Mr A Chan and Mr P Lai
E is the developer’s profit to be allowed in the residual valuation: Mr A Chan E
proposes 10% and Mr P Lai proposes 20%.

F F
G 138. As for any business undertaking, the developer who takes the G
H trouble to assemble a piece of land for redevelopment would seek to make a H

profit in return. In Hong Kong it is usual to assume that the developer seeks
I I
a capital profit expressed as a percentage of the total development cost
J (including interest) but such a percentage can never be a constant. “The J
target levels of profit will depend on the nature of development and allied
K K
risks, the competition for development schemes in the market, the period of
L the development and the general optimism in relation to that form of L
M
development.”58 M
N N
139. Notwithstanding the above, it is correct for Mr P Lai to assert
O that 15% is usually adopted for commercial/residential development and a O
higher percentage of 20% for commercial development. Therefore, Mr P Lai

P P
challenges Mr A Chan’s 10% being too inadequate for the captioned
Q hypothetical development. Mr P Lai refers also to the Property Market Q
Yields compiled by RVD where yields for private domestic (ranging from
R R
2.2% to 3% as at 1 July 2016) are always lower than that for flatted factories
S S
(at 3.2%)59 and concludes that “the risk level in undertaking industrial
T developments would be higher than the risk levels in undertaking T

commercial and/or residential developments”.
U 58
U
Eric Shapiro, David Mackmin and Gary Sams, Modern Methods of Valuation, 11th Edition, 2013, p150.
59
C2/1673-1674.
V V
A A
B 63 B
C C
D D
140. During cross-examination, Mr A Chan replied that it would not
E E
be appropriate to compare the percentage of developer’s profit directly with
F the yields from RVD because of their difference in nature; the yields F
required by a property investor would depend on the security of the rental
G G
income whereas the developer’s profit would depend on the risk of
H achieving the GDV as envisaged. H
I I
141. To this we agree. The factors on which yields and developer’s
J J
profit depend are mostly different.
K K
142. Firstly, yields from landed property investments are derived

L L
from the existing stock where the tenants’ covenant, the rent review cycle
M M
and the management issues are called into play. In this regard, in particular,
N the yields published by RVD are derived from a basket of properties which N
comprise a range of old and new premises60. To the extent, for instance,
O O
where both Mr A Chan and Mr P Lai had difficulty in locating comparables
P of recent developments in assessing the GDV, it tends to show that old P
flatted factories predominate the market and the yields derived therefrom
Q Q
would be suffering from bias tilting in favour of the old factories. With the
R basket comprising more new developments as time passes, this explains why R
S
as Mr A Chan said in re-examination that the gap between yields of S
industrial properties on the one hand and residential and commercial
T T
properties on the other hand have narrowed in the past 10 years. In any
U event, the hypothetical development proposed should be obviously new and U
60
The same is true when the RVD compiles the price indices for flatted factories.
V V
A A
B 64 B
C C
modern. Comparing percentage of the developer’s profit with yields

D D
predominated by old flatted factories is like comparing new to old premises.
E E
F 143. Secondly, whereas yields from landed property investments F

61
have also embedded therein an element of growth , the risk of achieving
G G
that as reflected in the percentage of developer’s profit in the residual
H valuation would depend on a host of factors as stated in §138 above which H
are different from existing landed property investments. During cross-

I I
examination, Mr A Chan cited a few examples of heated competition for
J development schemes in the market since the second half of 2016 including J
K
the more recent sale of Zung Fu Aberdeen Garage Building for an K
2
accommodation value of more than $9,500/sq ft (ie $102,300/m ). Like
L L
Kwun Tong in which the Lot is situated, Wong Chuk Hang is under
M transformation from an industrial area to a commercial area. M
N N
144. Mr P Lai has also referred to Cheer Capital, supra, where the
O O
Tribunal adopted a developer’s profit of 20% for a Ginza type development.
P But as stated by the Tribunal in §107 of the judgment, the Ginza type P
development was speculative and therefore a higher developer’s profit
Q Q
should be allowed. In contrast, we accept that the hypothetical industrial
R development would be much less speculative. Mr A Chan has indeed cited R
the Report on 2014 Area Assessments of Industrial Land in the Territory

S S
commissioned by the Planning Department of the Government of HKSAR to
T support that “... demand for industrial floor space is on the rise”. He also T
U 61
U
For illustration, see §§34-37 in Eltron Development Limited v Director of Lands, LDLR 4/2013
(unreported, dated 18 May 2016).
V V
A A
B 65 B
C C
commented on the low vacancy rates of Private Flatted Factories and Private
D D
Storage published by RVD.62 Mr A Chan also referred to the two fatal fire
E incidents in mid-2016 following which the Government has stepped up E
enforcement action against fire risks of old industrial buildings and to

F F
promote fire safety of these buildings to a higher standard; this would result
G in further shortage of flatted factories available in the market. G
H H
145. In the above regard, particularly in view of the prime location

I I
of the Lot, we are pleased to adopt a developer’s profit at 10%. With a total
J construction and demolition period of 3.375 years (40.5 months), this is J
K
equivalent to some 3% per year exclusive of finance cost (which has been K
63
separately allowed for at 5%) .
L L
M 146. Based on the analysis above and particularly comparables of M
more than 20 years in age which in our view are not commensurate with
N N
modern industrial developments, we provisionally arrive at a residual land
O O
value of $1,166,421,000 or an AV of about $58,000/m 2. Our residual
P valuation is shown at Appendix C. P
Q G. Reserve Price Q
R 147. The applicants propose that in case the Tribunal grants an order R
for sale of the Lot pursuant to the Ordinance, the reserve price be fixed at
S S
$1,300,000,000 by reference to RDV of the Lot as at 1 November 2016.
T T
U 62
U
C3/2083-2085.
63
On the contrary, the yields in themselves have the finance costs incorporated.
V V
A A
B 66 B
C C
148. Again, both Mr A Chan and Mr P Lai resort to the residual

D D
valuation method in determining the RDV of the Lot based on their own
E model of development. They also agree that in case the Tribunal accepts the E
carport model of Mr P Lai, the market values of the carparking spaces are as
F F
follows:
G Carparking spaces Value of each G
Private $1,300,000
H H
Lorry $2,300,000
I I
Container $2,900.000
J J
K
149. In this regard, our comments in §§110-114 above are still K
appropriate and we are prepared to adopt the model of development
L L
proposed by Mr A Chan.
M M
150. In determining the value of the hypothetical ground floor units,

N N
the two experts also adopt the same set of comparables as at 1 July 2016.
O O
Thus, the only difference in adjustments should be on time and our analysis
P is as follows64: P
Q No 2 Time Location Head- Age Size Accessibility/ Layout Total Q
(/m ) Unit Price
room Frontage 2
(/m )
R AA1 $170,620 -1.9% 15.0% 0.0% 22.0% -7.0% 10.0% 0.0% 38.1% $235,626 R
KF2/AA2 $132,815 -0.2% 15.0% 0.0% 22.5% 1.0% -10.0% 0.0% 28.3% $170,402
S S
KF3/AA3 $168,506 0.8% 15.0% 0.0% 16.5% -3.0% 0.0%* 0.0%* 29.3% $217,878
(new)
T KF4 $147,688 0.0% 10.0% 0.0% 18.0% 0.0% 0.0% 0.0% 28.0% $189,041 T
64
U Once again, we would like to point out that the footnote of the indices expressly states that “the indices U
are in respect of upper floor units only.”
V V
A A
B 67 B
C C
D D
Average: $203,237
Average $192,440
E E
(excluding
AA1):
F F
* Again, we disagree with Mr A Chan that there should be any adjustment on layout or
frontage for this particular comparable. Nor do we agree with Mr P Lai that there should
G be any adjustment for accessibility. G
H H
151. Thus, for the G/F workshop in the hypothetical development,
I we are prepared to adopt $203,000/m2. I
J J
152. As regards the value of U/F units, Mr A Chan and Mr P Lai
K K
adopt the following comparables:
Comp Address OP Transaction Sale Price Effective Floor Headroom Unit
L L
M M
KF1/ Units 1 & 2 (with 1996 29 Jul 16 $15,000,000 165.38 150 4.50 $90,700
AA1 storerooms 1 & 2), 1/F,
N N
Lemmi Centre, 50 Hoi
Yuen Road
O KF2/ 25/F, Fun Tower, 35 2013 27 Jun 16 $48,156,250 389.97 100 4.20 $123,487 O
AA2 Hung To Road
P KF3/ Unit 6, 3/F, Entrepot 1994 6 Jun 16 $6,700,000 50.72 150 4.00 $132,098 P
AA3 Centre, 117 How Ming
Q Street Q
KF4/ Unit E, 17/F, Capital 1995 3 Jun 16 $5,590,000 69.21 150 3.70 $80,769
R AA4 Trade Centre, 62 Tsun R

Yip Street
KF9/ Unit C, 10/F, Capital 1995 8 Jan 16 $4,750,000 58.17 150 3.70 $81,657
S S
Yip Street
T KF10 Unit A, 22/F, Capital 1995 24 Dec 15 $7,000,000 79.34 150 3.70 $88,228 T
/AA6 Trade Centre, 62 Tsun

U Yip Street U
KF5 Unit D, 12/F, Capital 1995 13 Apr 16 $3,980,000 46.00 150 3.70 $86,522
V V
A A
B 68 B
C C
Trade Centre, 62 Tsun
D Yip Street D
E Centre, 50 Hoi Yuen E

Road
F F
Centre, 50 Hoi Yuen
Road
G KF8 Unit 8, 9/F, Lemmi 1996 17 Feb 16 $3,600,000 36.69 150 3.31 $98,119 G
Centre, 50 Hoi Yuen

H Road H
AA7 Flat 5, 7/F, Winful 1992 29 Apr 16 $6,560,000 89.58 150 3.13 $73,231
I Centre, 30 Shing Yip I
Street
J J
153. In gist, Mr A Chan has introduced 2 additional comparables,

K K
one at Lemmi Centre and another at Fun Tower, this latter being the only
L L
comparable at an industrial building built more recently in 2013 (instead of
M the 90s). While Mr P Lai agrees to the introduction of the first comparable, M
he considers the one at Fun Tower has to be discarded because it has a low
N N
loading capacity which may restrict industrial uses and therefore is in a
O nature different from the hypothetical industrial building being proposed. In O
addition, Mr P Lai has discarded those comparables which took place in

P P
2015.
Q Q
R
154. We have dealt with the differences in opinion between Mr A R
Chan and Mr P Lai in §§122-127 above save for the inclusion of the
S S
comparable at Fun Tower. In the latter regard, we are impressed by the
T office-like development of Fun Tower which accords with modern trend of T
industrial development conceded by Mr A Chan; he has indeed provided

U U
many examples of late industrial developments to reflect the prevailing clean
V V
A A
B 69 B
C C
industrial and industrial-office trend in building design and quality at

D D
Appendix I of Exhibit A10. Instead of discarding it however, we welcome
E the inclusion of this modern day comparable at Fun Tower as a check E
against the other comparables all built more than 20 years ago.
F F
G 155. Thus, our analysis is shown as follows: G

H Time Location Age Floor Size Head- Lifts/ Floor Total H
2
No (/m ) Unit Price
room Building Loading
Facilities (/m2)
I I
KF1/ $90,700 4.9% -5.0% 10.0% -8.0% 0.0% -2.0% 2.0% 0.0% 1.9% $92,423
J AA1 J
KF2/ $123,487 2.2% 10.0% 1.5% 13% 6.0% -2.0% 3.0% 5.0% 38.7% $171,276
K AA2 K
KF3/ $132,098 2.2% -5.0% 11.0% -6.0% -2.0% -2.0% 3.0% 0.0% 1.2% $133,683
AA3
L KF4/ $80,769 2.2% 10.0% 10.5% 7.0% -1.0% 0.0% 3.0% 0.0% 31.7% $106,373 L
AA4
M KF9/ $81,657 2.8% 10.0% 10.5% 1.0% -1.0% 0.0% 3.0% 0.0% 26.3% $103,133 M
AA5
KF10 $88,228 0.3% 10.0% 10.5% 12.0% -1.0% 0.0% 3.0% 0.0% 34.8% $118,931
N N
/AA6
KF5 $86,522 2.3% 10.0% 10.5% 3.0% -2.0% 0.0% 3.0% 0.0% 26.8% $109,710
O O
KF6 $104,515 3.0% 5.0% 10.0% 4.0% -2.0% 0.0% 2.0% 0.0% 22.0% $127,508
P KF7 $107,785 3.0% 5.0% 10.0% 8.0% -2.0% 0.0% 2.0% 0.0% 26.0% $135,809 P
KF8 $98,119 2.6% 5.0% 10.0% 0.0% -2.0% 0.0% 2.0% 0.0% 17.6% $115,388
Q Q
Average: $121,423
R Average (excluding KF2/AA2): $115,884 R
S S
2
156. To the extent that we have adopted $115,000/m as the unit
T T
price applicable to the U/F units in the hypothetical development as at 1 July
U 2016 (without adopting the comparable at Fun Tower), in view of the rising U
V V
A A
B 70 B
C C
market, we are more prepared to adopt $120,000/m2 as the unit price

D D
applicable to the U/F units in the hypothetical development as at 1
E November 2016. E
F F
157. Likewise, we are going to make use of the same set of
G comparables (save for comparables KF5, KF6, KF7 & KF8) to determine the G
H value of 1/F-3/F of the hypothetical development: H

2 Time Location Age Floor Size Head- Lifts/ Floor Total
I No (/m ) Unit Price I
room Building Loading
Facilities (/m2)
J J
KF1/ $90,700 4.9% -5.0% 10.0% -1.0% 0.0% -2.0% 2.0% 0.0% 6.9% $96,958
AA1
K KF2/ $123,487 2.2% 10.0% 1.5% 20.0% 6.0% -2.0% 3.0% 5.0% 42.7% $176,216 K
AA2
L KF3/ $132,098 2.2% -5.0% 11.0% 1.0% -2.0% -2.0% 3.0% 0.0% 5.2% $138,967 L
AA3
KF4/ $80,769 2.2% 10.0% 10.5% 14.0% -1.0% 0.0% 3.0% 0.0% 35.7% $109,604
M M
AA4
KF9/ $81,657 2.8% 10.0% 10.5% 8.0% -1.0% 0.0% 3.0% 0.0% 29.3% $105,583
N N
AA5
KF10 $88,228 0.3% 10.0% 10.5% 19.0% -1.0% 0.0% 3.0% 0.0% 38.8% $122,460
O /AA6 O
Average: $124,965
P Average (excluding KF2/AA2): $114,714 P
Q Q
158. Thus we provisionally get $125,000/m2 as the unit price

R R
applicable to the lower floors in the hypothetical development as at 1
S November 2016. S
T T
159. As regards the construction costs as at 1 November 2016, both
U Mr A Chan and Mr P Lai are prepared to adopt their own set of data as at 1 U
V V
A A
B 71 B
C C
July 2016. However, Mr P Lai is of the view that should the transaction at
D D
Fun Tower be included as a comparable, he would increase the construction
E cost from $16,250/m2 to $32,300/m2, ie approximately doubling the E
construction costs to reflect the superior quality of Fun Tower as illustrated

F F
by the extract from the sale brochure below:65
G External Finishes: Building façade is finished with a combination G
of a curtain wall system with aluminium

H H
cladding; and ceramic tiles.
Entrance and Main Lobby: Walls and floors are finished with marble/
I I
granite/ artificial stone. A fully air-conditioned
J lobby features a suspended ceiling. J
Typical lobby – (6/F only): Walls and floors finished with marble and/or
K artificial stone. Ceiling finished with plaster K
board.
L Typical Corridor – (6/F only): Floor finished with artificial stone, walls L
finished with emulsion paint on cement/sand
M plaster, and featuring an aluminium panel M
ceiling.
N N
O O
160. We agree with Ms Eu that even the construction cost data from
P P
Rider Levett Bucknall (RBL) for “better quality high rise” industrial
Q buildings as adopted by Mr A Chan cannot match similar building standard Q
or specification offered by Fun Tower. Yet in reply as produced in Exhibit

R R
A10, Mr A Chan stated, inter alia, that “Mr Patrick Lai suggested to adopt
S office building cost while the GDV is derived from a basket of industrial S
units completed since 1992 is contrary to fundamental valuation principles.”

T T
We agree. For instance, in determining the unit price for the U/F of the
U U
65
C2/1612.
V V
A A
B 72 B
C C
hypothetical development, the comparable at Fun Tower is only one of the

D D
10 comparables and the unit price derived therefrom at about $120,000/m 2 is
E no way near the analysed unit price of $176,276/m 2 resulted from Fun E
Tower comparable.
F F
G G
161. In any event, if we proceed with our residual valuation based on
H the analysis above, we shall arrive at a residual land value of $1,239,925,000 H
or an AV of about $61,668/m2. Our residual valuation is shown at Appendix

I I
D.
J J
K 162. It is however important to note that Mr A Chan had carried out K
an alternative residual valuation adopting an adjusted unit rate of

L L
$170,800/m2 (as opposed to our $176,276/m2) from the comparable at Fun
M Tower and the construction cost of $32,300/m 2 (which pertains to ‘high M
quality office building) as proposed by Mr P Lai based on Mr P Lai’s

N N
hypothetical model. He arrived at a land value of $1,481,689,010 or an AV
O O
of $72,497/m2.66
P P
163. We consider this a more proper approach though, as said, we

Q Q
prefer to adopt Mr A Chan’s development model. When we carry out the
R residual valuation as shown at Appendix E adopting $176,276/m2 instead, R
S
we arrive at a land value of $1,621,592,000 or an AV of $80,651/m2. S
T T
164. We appreciate that it is unusual to rely on a single transaction
U U
66
Appendix II of Exhibit A10.
V V
A A
B 73 B
C C
for the purpose of valuation but as stated by Mr A Chan at §7.4.4 of his

D D
Rebuttal Report dated 4 October 2016:
E E
“Since the experts’ task is to assess the RDV, I should rely on
comparables built to the current day standard of finishes which
F duly reflects the marketable quality industrial building in the F
current market.”67
G G
165. Owing to the peculiar situation here where real comparables are
H H
lacking, this alternative valuation exercise accords with Ms Eu’s closing
I I
submission that “the construction costs of a building is directly linked to the
J standard of finishing of the proposed development.”68 That Mr P Lai has J
never in his mind that his proposed development should be up to the
K K
standard of Fun Tower is wrong in principle as no developer would be
L reasonably expected to build new development whose standard is only L
commensurate with those built more than 20 years ago. As we have deplored
M M
the lack of appropriate comparable sales of industrial units pertaining to the
N modern age, that the 0.5% for every 1-year difference in building age N
O
obviously does not take into account the change in building standards. We O
cannot but set the reserve price of the Lot at $1,621,592,000.
P P
166. And as a retrospect, we are going to review our residual
Q valuation as at 1 July 2016 based on this comparable at Fun Tower. Indeed, Q
the transaction was agreed at 27 June 2016 and it is quite unreasonable for
R R
the two valuation experts not to adopt it as a comparable as at 1 July 2016.
S Deducting a time adjustment of 2.2% from $176,276/m2, we get S
approximately $172,400/m2. Based on this figure, we arrive at a land value

T T
2
of $1,572,099,000 or an AV of $78,189/m as shown at Appendix F. We
U 67
U
C3/2078.
68
para E.4-E.6 of Ms Eu’s closing submission.
V V
A A
B 74 B
C C
consider it more appropriate to adopt this new figure as the land value of the
D D
Lot than the previous $1,166,421,000 or an AV of about $58,000/m 2. This
E revised figure is some 43.5% higher than the EUV of the Building at E
$1,095,262,000 as at 1 July 2016.

F F
G H. Section 4(2) of the Ordinance – Justification and Reasonable Steps G
H 167. In determining the application, s.4(2) of the Ordinance H

empowers the Tribunal not to make an order for sale unless, after hearing the
I I
objections of the RS, we are satisfied that:
J (a) the redevelopment is justified due to age or state of repair of the J
Building; and
K K
(b) the applicants have taken reasonable steps to acquire all the
L undivided shares in the Lot, including negotiating for the L
M
purchase of the undivided shares owned by the RS on terms that M
are fair and reasonable.
N N
O 168. Ms Eu submitted that since s.4(2) is deliberately drafted in a O
negative sense, the Tribunal is left with a residual discretion as to whether to

P P
make an order for sale even if it is satisfied that redevelopment is justified.
Q We beg to differ and agree with the applicants that the answer to such a Q
contention can be found in the judgment of Good Faith Properties Ltd &
R R
69
Ors v Cibean Development Co Ltd .
S S
T 169. In Good Faith, Lam VP had reinstated the statutory regime of T

the Ordinance and the four phases for the whole process enunciated by
U U
69
[2014] 5 HKLRD 534
V V
A A
B 75 B
C C
Ribeiro PJ in Capital Well Ltd v Bond Star Development Ltd (2005) 8

D D
HKCFAR 578. As far as the determination by the Tribunal is concerned, it
E is said that: E
F “6. The second phase is the determination by the Tribunal. F

Such determination usually falls into two parts. First, the Tribunal
G must determine whether the applicant has satisfied the conditions G
under s 4(2) of the LCSRO. Expert evidence is usually required to
satisfy the first condition, viz redevelopment is justified due to the
H age or state of repair of the existing building. As for the second H
condition, whether the majority owner(s) has taken reasonable
I steps to acquire all the shares, including negotiating on terms that I
are fair and reasonable, is a matter of fact and judgment…
J 7. If those conditions are met, the Tribunal would have to set J
the reserve price and decide how the proceeds of sale are to be
K apportioned by reference to the valuations in the s 3(1) report… K
…
L L
11. We must recognise that the LCSRO is a statutory
compromise balancing the competing interests of the co-owners:
M M
the majority owner’s interest in utilising his property by releasing
the land for redevelopment versus the minority owner’s proprietary
N interest in the disposal of his own property. The right of private N
ownership protected under Article 6 of the Basic Law (see Litton
NPJ in Sin Ho Yuen v Fineway Properties Ltd supra at para 24)
O O
should not be overridden without justification. Even if the right of
private ownership of the minority owner were to be overridden
P when there is proper justification, there must be fair and reasonable P
compensation. Thus, the statutory compromise is to provide
Q
safeguards on two different levels: Q
(a) The majority owner(s) (who must hold at least 90% of the
R interest in the land) must establish his justification to the R
satisfaction of the Tribunal before he could override the private
right of ownership of the minority owner. To do this, he must
S S
produce evidence to satisfy the statutory criteria; and
T (b) If he manages to establish the grounds to the satisfaction of T

the court, the minority owner would have to sell his property even
though he does not wish to do so. But he would get back a fair
U U
share of the sale proceeds on a pro rata apportionment determined
by the Tribunal.
V V
A A
B 76 B
C C
12. It is necessary to analyse the first tier safeguard at greater
D length because the proper understanding of this safeguard is D
important for the purposes of this appeal. First, until the Tribunal
is satisfied that the statutory criteria are met, the majority owner(s)
E E
does not have any right to compel the minority owner to sell. The
minority owner is quite entitled to insist on his right as private
F owner in rejecting any offers from the majority owner(s). After F
all, a person can have many reasons for refusing to sell his
property and one should not simply focus on the monetary market
G G
value of a property to form views about the worth of one’s
ownership. Though Hong Kong is a capitalistic society, we do not
H sell everything just because the price is right. There are other H
abstract matters which we treasure and one cannot simply put a
price tag on them. Thus, it should not be regarded as a legal wrong
I I
for a minority owner to reject an offer from the majority owner
even though such an offer may meet the statutory reasonable step
J requirement under s 4(2)(b). J
13. LCSRO gives the majority owner(s) a means to override

K K
the will of the minority owner not because the minority owner has
done something wrong: there is no legal wrong committed by the
L minority owner against the legal interests of the majority owner(s). L
It merely gives the majority owner(s) an opportunity to establish
the justification for doing so to the satisfaction of the Tribunal.
M M
And it is only upon the Tribunal deciding that the statutory criteria
have been met that the minority owner becomes obliged to sell.
N N
…
O 15. Further, the LCSRO also gives a right to the minority O

owner to have his objections heard by the Tribunal. Objections
can be raised in several respects. Under s 4(1)(a), the minority
P owner can dispute the value of the property. Under s 4(2), P
objections can be raised as to whether the applicant has met the
Q statutory criteria in s 4(2)(a) and (b). Q
16. Though the Tribunal will only come to the question of

R reserve price under Schedule 2 para 2 pursuant to s 5(1)(a) after it R
concludes that the statutory criteria under s 4(2) are met, the
S minority owner is also entitled to be heard on the setting of the S
reserve price because it would have a bearing on the quantum of
the sale proceeds in which he has an interest. Sin Ho Yuen v
T Fineway Properties Ltd, supra, is a case about the dispute between T
the majority owner and the minority owner in re-setting the reserve
U price. U
…
V V
A A
B 77 B
C C
18. To sum up, the first tier safeguard is to ensure that the
D minority owner’s right of private ownership of property is not D
taken from him without the Tribunal being satisfied in the statutory
process that there are sufficient justifications for the same in terms
E E
of the statutory criteria. The proceedings in the Lands Tribunal
should be regarded as a statutory means to justify this exceptional
F interference with the right of private ownership of property…” F
G 170. As can be seen from the quotations cited above, whether the G
H
statutory criteria stipulated in s.4(2) have been met is the only requirement H
that this Tribunal needs to consider and once this Tribunal is satisfied that
I I
such statutory criteria had been met, an order for sale should be allowed,
J reserve price should then be set and the minority owners are obliged to sell. J
There is no room for other consideration on top of the statutory criteria of

K K
age or state of repair and reasonable steps taken to acquire all the shares.
L L
H1. Section 4(2)(a) - Age or State of Repair

M M
171. The applicants had relied on the expert report of Mr So, the
N Structural Engineer and Mr Wong, the Chartered Building Surveyor to N
O justify that there should be a redevelopment of the Building due to age and O
state of repair.
P P
Q 172. Mr So had conducted a structural assessment of the Building Q
and prepared a report dated 24 June 201670. He found the following defects
R R
in the Building:
S (a) The design and construction of the structural frames were based S
T
on an obsolete design and the Building might not possess T
U U
70
E1 – E3
V V
A A
B 78 B
C C
adequate robustness to avoid disproportionate collapse due to

D D
accidents;
E (b) There are a total of 167 numbers of structural members E
exhibiting defects, in that 39 are accorded Severity Index 4

F F
(‘detailed investigation required and to provide immediate
G protective measure if necessary’), 46 accorded Severity Index 3 G
H (‘detailed investigation required’) and 82 accorded Severity H

Index 2 (‘general repair only but no detailed investigation
I I
required);
J (c) There is deficiency in the thickness of concrete cover in the J
structural frames of the Building to protect the embedded steel

K K
reinforcement bars against corrosion, fire and provide sufficient
L depth of concrete for the safe transmission of bond forces; L
M
(d) The carbonation depth test results revealed that the alkaline M
environment which gives protection to the embedded steel
N N
reinforcement bars in the reinforced concrete structural
O members against corrosion has been very extensively destroyed O
which is an indication that reinforcement bars near the surface

P P
of structural members are vulnerable to attack by corrosion;
Q (e) The compression tests results revealed that there is deficiency Q
in the concrete strength in 1 of 6 tested column samples and 2

R R
of 6 tested slab samples;
S S
(f) All the steel reinforcement bars exposed from corrosion survey
T locations exhibit rust of various magnitudes and this is evidence T

that the high carbonation depths in the concrete has caused the
U U
corrosion of the embedded steel reinforcement bars;
V V
A A
B 79 B
C C
(g) Tilting of the Building to an extent of 1:713 has been observed;

D D
and
E (h) Extensive settlement of the sub-soil underneath the on-grade E
concrete Ground Floor slabs have been observed.

F F
G 173. Mr So come to the conclusion that the structural frames of the G
H Building are in need of repair as the Building, designed and constructed with H
reinforced concrete more than 37 years ago is exhibiting defects
I I
disproportion to its age and according to the current condition of the
J structural frames of the Building, the deterioration will continue steadily due J
to extensive carbonation of the concrete. New defects will be inevitable and

K K
previous defects though repaired will recur readily and required substantial
L repairs or even partial demolition and re-construction of some defective L
M
structural members in future. Although repairs are possible, repair work will M
need to be carried out regularly in the future and that such repairs will be
N N
more and more extensive as the structural frames become older. Although
O the present cost of repair may be relatively modest, such cost will escalate in O
the future as the extent and seriousness of deterioration of the structural

P P
members increased with age.
Q Q
174. He recommended the following repair works for the structural

R R
frames:
S S
(a) hammer tapping works to be carried out to all structure
T members of the Building and any defects such as spalling and T

cracks discovered together with spalling and cracks already
U U
V V
A A
B 80 B
C C
identified to be repaired as a matter of urgency and for future

D D
repairs;
E (b) In view of the extensiveness of structural defects found and the E
concrete covers are largely inadequate and highly carbonated,

F F
the next cycle and subsequent cycles of such repair works
G should be carried out at 3-yearly intervals; G
H (c) Thorough examination of the expansion joint to be carried out H

and to be monitored in the aspects of ground settlement and
I I
tilting be carried out for at least 12 months; and
J (d) Rectification works to the Ground Floor on-grade concrete to be J
carried out and the voids underneath the on-grade concrete to be

K K
filled.
L L
M
175. Mr Wong had carried out a condition survey of the Building M
71
and prepared a report dated 28 June 2016 . He found the Building is aged
N N
in the sense that:
O (a) many features and facilities which would nowadays be expected O
to be standard provisions in a factory building are missing or

P P
though provided, have not been improved to meet the upgraded
Q construction standards and statutory requirements; Q
(b) some features and facilities which were originally provided

R R
have now become obsolete or outdated;
S S
(c) some of the key building parts, components and finishes have
T already passed or are nearing the end of their useful lives, T

including the external wall rendering, waterproofing to the main
U U
71
D1-D5
V V
A A
B 81 B
C C
roof and other flat roofs, and the foulwater and rainwater
D D
underground drainage systems; and
E (d) there has not been sufficient repair or renovation work over the E
years to maintain its structure frames, its components, its

F F
finishes and its service installations in a tenantable condition.
G G
H 176. On the state of repair of the Building, Mr Wong found the H

following defects which required remedial/repair work to be performed:
I I
(a) a total of 171 nos. of hollow spots in the external rendering had
J been detected by infrared thermographic surveys which is J
potentially dangerous to public safety and complete

K K
replacement is required;
L (b) unauthorized additions of A/C frames and pipes to the external L
M
walls require checking and maintenance or removal; M
(c) asbestos found in some corrugated cement sheets, switch boxes
N N
and mastic under vinyl floor at 16 locations and these asbestos
O material should be removed; O
(d) the unauthorized rooftop structure on Roof 14E and the five
P P
unauthorized staircase housings are not structurally sound on
Q their own, and their loads have overloaded the roof slabs and Q
the structural frames of the Building and should be removed

R R
with the affected areas reinstated according to the approved
S S
plan;
T (e) original waterproof membrane to the roof is defective, complete T

replacements of roof coverings and waterproofing to the main
U U
roof and upper roof is required;
V V
A A
B 82 B
C C
(f) the rendering to the inside faces of parapet walls are general
D D
poor and need to be completely replaced and repainted;
E (g) wide gaps noted on one side of the main roof (adjoining No. 77) E
and the close gap on the other (adjoining No. 71) indicated that
F F
the Building’s superstructure has tilted sideward, though with
G no imminent structural danger envisaged in the near future, G
H further on-going structural monitoring is required; H

(h) the cement rendering to the water tank surfaces are crazed and
I I
stained requiring complete replacement and repainting with one
J manhole cover and two cat ladders to the water tanks need to be J
replaced;
K K
(i) debris and unwanted fixtures on the main and upper roof areas
L need to be taken down and disposed; L
M
(j) concrete carpark floors are worn and cracked with signs of M
ground settlement and since Mr So found many voids in the
N N
substrate underneath the ground floor slabs to the carpark and
O probably the G/F workshop, the majority area of the ground O
floor needs to be dug up, voids filled and floor slabs

P P
reconstructed;
Q (k) walls to the carpark are stained with paintwork peeling off and Q
these need redecorating;

R R
(l) ceilings and beams to the carpark are generally poor and
S S
required redecorating;
T (m) unauthorized building works constructed in the carpark, T

including a steel framed structure for use as building
U U
management office, a toilet cubicle structure and exhaust fan
V V
A A
B 83 B
C C
openings formed in the enclosing wall, created structural and

D D
fire safety problems and need to be removed with affected
E reinstated; E
(n) decorative appearances of the five staircases overall are poor,

F F
with walls, stair ceilings and soffits requiring redecoration
G work, handrails need to be wire brushed and repainted, G
H inspection and maintenance should be carried out to the H

aluminum windows according to the Mandatory Windows
I I
Inspection Scheme and old windows should be replaced with
J new aluminum units; J
(o) the five staircases are unsatisfactory means of fire escape for the
K K
upper floors due to unauthorized building works and/or
L deficiencies, all these unauthorized building works need to be L
M
removed or cleared; M
(p) interior finishes to the upper floor lift lobbies overall are poor,
N N
floors need to be resurfaced, walls and ceilings need to be
O cleaned off and repainted; O
(q) upper floor lift lobbies with fire escape routes have a few fire
P P
safety deficiencies which will be dangerous for its occupants in
Q the case of fire; Q
(r) unauthorized flat roof structures found on the flat roofs to

R R
Workshops 5E, 5F and 5G which have caused structural safety
S S
concerns;
T (s) common unauthorized building works found inside 17 out of T

the 37 workshops are sub-divisions into smaller units for
U U
separate occupancies resulted in inadequate fire resistance
V V
A A
B 84 B
C C
between the units and for the internal common corridors,

D D
therefore creating fire safety problems;
E (t) common defects found inside the workshops are non- E
conforming front entrance doors, defective floor, wall and

F F
ceiling finishes to work area and lavatories, removed toilets
G resulting in insufficient sanitary provisions, defective lavatory G
H doors, fitments and fitting as well as toilet cubicles and all H

required a replacement, reinstatement or paintwork decoration;
I I
(u) original mild steel windows have rusted badly and are not water
J resistant, replacement with new aluminum unit is required; J
(v) in 16 of the 37 workshops, the internal electrical installations

K K
and wirings were either in poor condition or haphazardly
L modified and required to be replaced completely; L
M
(w) 31 workshops have not provided with equipotential bonding M
connections for metal fixtures installed inside thereby exposing
N N
occupants to risks of electric shock;
O (x) Lockable cabinets should be provided to house the individual O
stop valves and meters for the fesh water system;

P P
(y) Drainpipes that have not been replaced are generally of cast iron
Q and due to lack of regular maintenance, should be replaced with Q
epoxy lined cast iron pipes;

R R
(z) No drainage of condensates from AC units installed externally;
S S
(aa) CCTV surveys revealed most of the underground foulwater and
T stormwater drains underneath the Building are defective and T

have come to the end of their effective lives and required
U U
replacement;
V V
A A
B 85 B
C C
(bb) The main electricity supply installation is serviceable but

D D
defects and fire safety deficiencies are noted and the bonding
E system and all its connections made to metal fixtures in the E
common areas and workshops should be checked and repaired,

F F
lightning protection system required to be installed and
G electrical installations and wirings installed in the upper lift G
H lobbies needs to be enclosed with fire resisting enclosures; H

(cc) The existing fire service installations have become sub-standard
I I
as compared with the requirements of current FSI Code so
J additions and improvements required; and J
(dd) 3 cargo lifts with one upgraded to become a passenger’s lift, 2

K K
cargo lifts remain manually operated are outdated and
L inefficient, need major checking and overhauling, desirable to L
M
upgrade the passenger’s lift to be an accessible lift for disabled M
persons and the door to the lift machine room needs to be
N N
replaced for fire safety.
O 177. Having completed the condition surveys of the Building, as well O
as considering the report of Mr So on the structural aspect, Mr Wong opined

P P
that the Building is in a poor state of repair due to general wear and tear,
Q noticeable in the defective external rendering, the substantial loss of subsoils Q
underneath the ground floor and the lack of improvements to fire service
R R
installations. The required repairs and improvements have been neglected in
S S
the past and most of the defects found in the Building are not superficial in
T nature which can be repaired effectively and economically. He estimated T

the total repair cost to be $64,548,264 which represents 27% of the
U U
construction cost of a new superstructure similar to that of the Building.
V V
A A
B 86 B
C C
Given the high repair cost, Mr Wong opined that the Building has
D D
deteriorated to a state which is beyond reasonable economic repair and even
E though periodic repairs can keep the Building in an operable condition, this E
will make the continued occupation of the Building uneconomical and even
F F
unsafe, to both occupants and third parties. The implementation of the
G immediate repairs will be disturbing and will last for at least 27 months. In G
H any event, even after the repairs, the Building is still an old industrial H
building with inherent limitations providing a lower quality of
I I
accommodation than a new building. Revitalization is not feasible for the
J Building which is in multiple ownership as it would be difficult to obtain J
consensus from all owners and the closing date for such an application has
K K
already expired on 31 March 2016.
L L
M
178. The RS had adduced rebuttal reports of Mr Ng and Mr Lam in M
answer to the opinion of Mr So and Mr Wong. According to the Joint
N N
Statements prepared by the pair of structural engineers 72, the following are in
O issue: O
(a) Whether the Building has apparently tilted or suffered from

P P
angular distortion and its cause;
Q (b) Whether the requirements of the new building design codes Q
since the construction of the Building is relevant;

R R
(c) Whether the Building is in good structural condition;
S S
(d) The methodology to be adopted in the rectification works to the
T voids underneath the existing on-grade slabs at G/F; T
U U
72
E3/683-701
V V
A A
B 87 B
C C
(e) Whether the ‘Practice Guidebook for Adaptive and Addition

D D
Works to Heritage Buildings 2012 (2016 Edition) is a relevant
E document for reference; and E
(f) Are the number of testing locations sufficient for the structural
F F
investigation of the Building.
G G
H 179. According to the Joint Statements prepared by the pair of H

73
condition surveyors , the following are in issue which touched upon the
I I
costs of repair:
J (a) Which is more practical, complete replacement of the external J
rendering or patch repair;

K K
(b) Whether there is external water seepage and is it the
L responsibility of individual owner or the incorporated owners; L
M
(c) Whether a covered walkway is required during the course of the M
repair works to the external wall;
N N
(d) Whether it is the liability of individual owner or the
O incorporated owners for the following repairs/demolition: O
i) the windows surrounds;

P P
ii) the A/C frames on external walls;
Q iii) corrugated cement sheets, switch boxes and mastic Q
under vinyl floor tiles;

R R
iv) unauthorized rooftop structure;
S S
v) main roof covering;
T vi) rendering to parapet wall T

vii) unauthorized flat roof structure outside Workshop 1F;
U U
73
D5/1925-1948
V V
A A
B 88 B
C C
viii) unauthorized metal doors and gates at workshop exits

D D
and/or protected lobby door openings;
E ix) workshops internally; E
(e) Whether the current MBIS standard should be adopted for the
F F
followings:
G i) fire resisting doors; G
H ii) metal stair balustrades; H

iii) fire resisting enclosures;
I I
(f) Whether the underground drainage should be replaced;
J (g) Whether the followings are improvement/upgrading item or a J
repair item:
K K
i) Fire services installations;
L ii) Cargo lifts; and L
M
iii) Accessible lift; M
(h) Whether the figure allowed for the following items necessary
N N
and/or reasonable:
O i) Contract contingencies of 10%; O
ii) Professional fees of 7.5%;

P P
iii) Clerk of works for 15 months at $40,000/month;
Q iv) Comparison of repair cost to construction cost; Q
v) Work period; and

R R
vi) Repair cost estimate.
S S
T H2. Tenantable Condition T

180. Before we deal with the disputes among the experts, we have to
U U
determine what is tenantable condition. Mr Wong defines this as “a
V V
A A
B 89 B
C C
classification of the existing state of repair of a building. If the state of

D D
repair of a building is up to the tenantable standard, it is in my view that the
E building is fit for the enjoyment of its users, which are reasonable in the E
present day circumstances for the type of building in question, with its
F F
structural frames, its components, its finishes and its service installations in
G either fair or good condition requiring no repair in the near future”74. Ms Eu, G
H on the other hand, submitted that since most of the Building was in fact let H
th th th
out to tenants back in May 2014 and 5 to 12 and 14 respondents were
I I
using their workshops and carparks themselves, 80% of the units in the
J Building were de facto tenantable. J
K K
181. We do not agree by the mere fact that there are tenants in
L occupation in the Building, it can be taken that the Building is “tenantable” L
M
or in “tenantable condition”. There are all the reasons for tenants to elect to M
stay at buildings which are not in tenantable condition. Just looking at such
N N
criteria in deciding whether a building is in tenantable condition is taking the
O concept on face value only. O
P P
182. We agree with the observation that tenantable condition is when
Q the building is “reasonably fit for use in the sense that it should be safe and Q
hygienic for occupiers and visitors, and provide a standard of comfort and
R R
convenience which is reasonable in the present day circumstances for the
S type of building in question” (emphasis added) in Intelligent House Ltd v S
Chan Tung Shing & Others [2008] 4 HKC 421. And we also agree that such
T T
U U
74
Para. 5.2.2 in D1/0026
V V
A A
B 90 B
C C
a standard is commensurate to the definition adopted by Mr Wong at §180

D D
above.
E E
H3. Issues in Dispute between Mr So and Mr Ng

F F
183. It is not in dispute that the expansion joint between the
G Building and Yip Fat Phase I has widened at the top of the Building G
H forming a crack and this is apparently a reason for concern. Even though H
Mr So had suggested possible causes for the building movement, there is
I I
no conclusive evidence to come up with the reason to explain the
J appearance of the widened expansion joint or whether the Building is J
tilted. However, irrespective of whether the Building is being tilted or

K K
suffered from angular distortion or the cause of the same, it is never
L suggested by Mr So that the Building is in dangerous condition not fit for L
M
occupation. We agree with Mr So, and as agreed by Mr Ng in his M
evidence, that “monitoring of the angular distortion must be carried out, for
N N
at least 12 months” in order to ensure that the Building will not abruptly
O develop into a dangerous situation and this must include a thorough O
examination of the expansion joint as suggested by Mr So. The existence

P P
of the widened expansion joint and the requirement of close monitor tend
Q to show that the safety of the Building is of concern that cannot be ignored Q
in the consideration of the age and state of repair of the Building.

R R
S S
184. Since the Building was being built at a time when the design
T requirements under the relevant Code and Building Regulations were quite T
different when compared with those enforced today, there is the argument
U U
as to whether new design codes since the construction of the Building are
V V
A A
B 91 B
C C
relevant. We find the answer to such an argument must be in the

D D
affirmative in the context of the Ordinance when considering the age and
E obsolescence of the Building. Obsolescence is a concept of comparison. E
Without reference to new design codes, how can any building constructed
F F
years ago be considered obsolete or aged if the same standard of design
G code at time of construction was being considered? Having said so, we do G
H not find the ‘Practice Guidebook for Adaptive and Addition Works to H
Heritage Buildings 2012’ (2016 Edition) relevant for reference since the
I I
Building is not a heritage building that is not required to meet the current
J design code. J
K K
185. And we also agree with Mr So that the Building is not in good
L structural condition with such findings supported by test results and visual L
inspection whilst Mr Ng had only conducted inspection of the Building

M M
only. The structural defects found by Mr So are not in dispute and are
N extensive and not just minor deterioration referred to by Mr Ng. We N
accept Mr So’s findings that the Building had exhibited defects

O O
disproportionate to its age. As for the sufficiency of the number of testing
P P
locations, there is no evidence to suggest that samples selected from 6 out
Q of 15 storeys is insufficient. Neither is there evidence to doubt Mr So’s Q

conclusion that the samples obtained are sufficient for him to form an
R R
opinion on the structural condition of the Building. Since Mr Ng had not
S conducted any sample tests on his own, we do not agree that he will be in a S
better position than Mr So to decide what sufficient sampling is required.

T T
U U
V V
A A
B 92 B
C C
186. It is not in dispute that the voids identified underneath the

D D
existing on-grade slabs at Ground Floor need to be rectified. The only
E issue is the repair method to be adopted. Mr So suggested a replacement E
of the existing on-grade concrete slabs and the sub-soil underneath the
F F
Ground Floor slab with suitable and selected earth which is to be
G compacted in layers and with such work to be done at the same time when G
H the underground drain pipes are to be replaced which requires the same H
work process. Mr Ng suggested the alternative of pressure injection with
I I
non-shrink grout material to fill up the voids underneath so as to provide a
J stiff enough base to support the existing on-grade slabs which gives a J
lower cost, shorter time and less disturbance to the tenants and owners.
K K
L 187. We prefer the opinion of Mr So in this regard. Mr Ng also L
admitted that he had never used the alternative method of pressure grouting
M M
for the repair of ground settlement. Other alternatives may well be
N available but without test being conducted to confirm or prove that the N
alternative method is suitable for such scenario, we cannot accept the

O O
alternative method suggested by Mr Ng should be considered or accepted.
P P
H4. Issues in Dispute between Mr Wong and Mr Lam
Q 188. We agree with Mr Wong that complete replacement of the Q

external rendering is more appropriate compared to the piecemeal repair
R R
suggested by Mr Lam given the fact that 65% of the façade areas were not
S properly infrared scanned and if only take the hollow spots found by Mr S
Wong as the only defective areas, this would not reflect the actual wall
T T
areas that require repair. Given the undisputed fact that there was no
U record of previous repairs of external rendering for the Building ever since U
V V
A A
B 93 B
C C
it was built, we agree with Mr Wong that a complete replacement of the

D D
external rendering should be a more practical method.
E E
189. The reliance by Mr Lam on the requirement for the Mandatory

F F
Building Inspection Scheme (“MBIS”) projects to support the argument
G that patch repair is sufficient or certain repair works are not necessary in G
H order to satisfy safety requirement of the Buildings Department is H

unjustified. We agree with Mr Wong that the repair standard of MBIS
I I
developed from the Buildings Ordinance and Regulations is only
J concerned with safety and hygienic aspects of buildings and its scope of J
work is rather limited and the owners are only required to repair to the
K K
standard applicable at the time when the building was built.
L L
M
190. We agree with the findings in Intellectual House (supra) that M
for redevelopment under the Ordinance, the Tribunal is entitled to “look at
N N
repairs which would render the building to a tenantable condition fit for the
O enjoyment of its tenants and visitors, which is reasonable in the present day O
circumstances for the type of building in question” (at §182). Such a

P P
consideration is apparently not canvassed by MBIS which only aimed at
Q restoring safety to the buildings. We find the MBIS standard not Q
applicable in the consideration of redevelopment of a building and the

R R
costs of repair should not be pegged to such a standard.
S S
191. The same consideration should be applicable to the so called

T T
“upgrading items for fire services installations, cargo lifts and accessible
U lift”. For repairs to achieve the purpose of rendering the Building to a U
V V
A A
B 94 B
C C
tenantable condition in the consideration of the Ordinance, it should satisfy

D D
the requirement in the present day circumstances and should not be
E considered an upgrading/improvement item. E
F F
192. As for the argument as to whether certain works are liability
G of individual owners or the Incorporated Owners, we find this to be G
irrelevant since it is the extent and state of repair that have to be considered
H H
and we fail to see how one can suggest that only repair in common areas
I should be considered. Irrespective of who is liable to pay for the repair, if I
J
we accept those parts are required to be repaired and did reflect on the state J
of repair of the Building, this cannot be ignored.
K K
193. Mr Wong opined that covered walkways should be

L L
constructed on the public pavements to the front and rear sides of the
M M
Building during the course of replacement of the external rendering and
N painting work for the protection of the public. Mr Lam found this rare in N
building repair projects since covered walkways are only required to be
O O
constructed for demolition of existing buildings, construction of new
P buildings or substantial building works to comply with the requirement of P
the Buildings Department. We agree with Mr Wong that Hoi Yuen Road
Q Q
and its pavements in front of the Building are busy carriage and pedestrian
R ways. With the external wall of the Building abutting the public pavement R
S
of Hoi Yuen Road and with the extent of work suggested by Mr Wong, S
covered walkways suggested is just reasonable in the circumstances of the
T T
Building.
U U
V V
A A
B 95 B
C C
194. Mr Wong had engaged the Building Diagnostic Consultants

D D
Limited (Building Diagnostic”) to conduct CCTV surveys of the
E underground drains and visual inspection of manholes and based on E
defects revealed from the surveys and inspection, Building Diagnostic

F F
found both the underground foulwater and stormwater drains have come to
G the end of their effective lives and recommended 13 out of 16 numbers of G
H underground drains to be replaced. Mr Lam, after consulting an H

experienced contractor, opined that only 1 number of drain is required to
I I
be replaced since there is no major structural or major defects found for the
J other 12 numbers of drains which could be repaired by mechanical J
cleaning or provision of new lining. We prefer the opinion of Mr Wong

K K
which is based on the findings of Building Diagnostic, a firm specialized in
L underground drains survey work who had conducted actual tests on the L
M
drainage system. There is nothing to doubt the findings of Building M
Diagnostic whilst there is no information as to the qualification of so-
N N
called experienced contractor consulted by Mr Lam or whether any test
O had been conducted. Since neither Mr Wong and Mr Lam are expert in O
underground drainage condition survey, we accept the evidence of

P P
Building Diagnostic.
Q 195. On the dispute as to the quantum of the contract contingencies Q
and professional fees, we also prefer the opinion of Mr Wong. Given the
R R
extent of the works involved, we accept the estimate on quantum and the
S S
work period required for the repair by Mr Wong is reasonable. And for the
T same reason, a full time clerk of work should be in place for a better T
coordination of the different repair works.
U U
V V
A A
B 96 B
C C
196. We accept the repair works recommended by Mr Wong are

D D
reasonable and necessary to reinstate the Building to a tenantable condition
E in the present day circumstances. Mr Wong assessed the total cost of E
immediate repair works at $64,548,264 which is supported by the 5

F F
quotations obtained by the tender organized by Mr Lam. We find the
G estimate by Mr Wong to be in line with market estimate otherwise G
H contractors will not put in tenders at such costs. And we agree with Mr H
Wong that the exceptionally low estimate of Mr Lam is for common areas
I I
only and based on a lower standard applicable when the Building was
J built. Judging from our findings above, this is apparently not an J
appropriate basis and had not covered all repair works required. We also
K K
agree with Mr Wong that the repair cost should be compared to the
L construction cost of a new building instead of the EUV of the Building L
M
itself since we are considering whether to repair or to redevelop. With the M
repair cost amounting to 27% of the construction cost, this is a rather
N N
substantial figure and tends to show that the repair is rather extensive and
O the Building is in serious disrepair and it is economically unworthy to O
repair the Building.

P P
Q 197. Ms Eu suggested that one should compare the repair costs Q

with the EUV of the Building as found in Intelligent House (at §165).
R R
However, such a comparison suggested in Intelligent House is in the
S consideration of the economic lifespan of the building in question. The S
concept of economic lifespan had been doubted by the Court of Appeal in

T T
Fineway Properties Ltd v Sin Ho Yuen Victor [2010] 4 HKLRD 1. We do
U not find it appropriate to adopt such an analysis in the consideration of the U
V V
A A
B 97 B
C C
state of repair. But even if we were to compare the repair cost to the EUV
D D
of the Building ($64,548,264/$1,095,262,000), a ratio of 5.9% is also a
E figure that cannot be lightly brushed aside since the enhancement value E
attributed from the repair is unlikely to be at such a high figure of at least

F F
6%.
G G
H H5. Conclusion on Age and State of Repair H

198. The Building is 37 years old and is an old industrial building
I I
in an area not zoned for industrial use. By the Land (Compulsory Sale for
J Redevelopment) (Specification of Lower Percentage) Notice, the threshold J
requirement of majority holdings is being lowered from 90% to 80%, and

K K
it is specifically provided that the lower threshold is also applicable to an
L industrial building not within an industrial zone issued with an occupation L
M
permit at least 30 years before the relevant day (whilst for other kinds of M
buildings, at least 50 years). Such a provision in the legislature must carry
N N
some thought and the only inference to be drawn is that industrial
O buildings in non-industrial zone calls for redevelopment consideration O
much earlier than those in an industrial zone. The fact that there are many
P P
industrial buildings in the area which are far older is irrelevant. Each
Q building must be considered in its own case. Q
R R
199. It is argued by Ms Eu that Mr Yeung Kin Man (“Mr Yeung”)
S of the applicants and his nominees are the one in control of the S
Incorporated Owners and elected not to initiate any repair and maintenance
T T
work for the Building. Worse still, to the extent that the applicants allow
U the condition of the Building to deteriorate and allow unauthorised U
V V
A A
B 98 B
C C
building works to remain in their units, the respondents can do nothing

D D
except to repair or maintain their own units which are found to be in good
E condition. So it would be grossly unreasonable to find that the Building E
should be torn down because of the state of repair for which the applicants
F F
and not the respondents are responsible. We do not agree that the
G respondents can do nothing in this regard. The Building Management G
H Ordinance (Cap 344) has ample provisions to protect the interest of the H
minority owners including the dissolution of the management committee
I I
and the appointment of administrator to take over the management of the
J Building. The respondents had also taken no step to push forward repair or J
maintenance work in the Building and they cannot just put the blame on
K K
the applicants. The state of repair of the Building as it is should be the
L result of the inaction of all owners of the Building. L
M M
200. Comparing to the up-to-date design requirements, we find the
N N
Building was obsolete in its safety design in many aspects to the extent that
O the Building might not possess adequate robustness to avoid O
disproportionate collapse due to accidents. A number of modern features

P P
expected in new buildings cannot be found in the Building in particular for
Q its fire services facilities. Such functional and physical obsolescence found Q
in the Building makes the Building no longer in a tenantable condition and

R R
may even be a danger to the occupiers and visitors.
S S
201. Having considered the evidence, we are satisfied that

T T
redevelopment of the Lot is justified due to age and state of repair in view
U of the following factors: U
V V
A A
B 99 B
C C
(a) The Building is 37 years old and in a very poor

D D
condition,
E (b) Its design has become obsolete over time in many E
aspects both physically and functionally and failed to

F F
conform to modern construction and statutory standards
G and requirement, and G
H (c) The Building is in serious disrepair and is not tenantable H

and disproportionate cost is required to repair and
I I
maintain the Building.
J J
I. Section 4(2)(b) – Whether the Applicant has taken reasonable

K K
steps
L 202. The applicants are under an obligation to take reasonable steps L
M
to negotiate on terms that are fair and reasonable for the purchase of the M
interest of the RS owning minority interests in the Lot under section 4(2)(b)
N N
of the Ordinance.
O O
203. Mr Justice Ribeiro P J on behalf of the Court of Final Appeal in

P P
Capital Well Limited v Bond Star Development Limited (2005) 8 HKCFAR
Q 578 (“Capital Well”) had remarked at §2 of p582 that: Q
R “(the Ordinance) permits a person owning at least 90% of the R

undivided shares in the Lot, who has failed to acquire the balance
S
of the undivided shares despite having made appropriate efforts to S
do so, to apply to the Lands Tribunal for a compulsory order
requiring sale of the Lot for the purposes of redevelopment.”
T T
U U
V V
A A
B 100 B
C C
204. We share the view that the Ordinance provides a statutory

D D
mechanism which a majority owner may only invoke after he has taken
E reasonable steps to acquire the undivided share of a minority owner. Thus, to E
determine whether the applicants have taken reasonable steps in acquiring

F F
the units owned by RS, the Tribunal has to make reference to what
G steps/actions the applicants have actually taken at various stages in the G
H acquisition process. H
I I
205. It is not disputed that the applicants have made the following
J offers to R1, R5-12 & R14 but none of the offers were accepted75: J
1st Offer 2nd Offer 3rd Offer 4th Offer EUV as revised
K K
(25 February (24 March (7 October (9 December on 6 December
2014) 2014) 2016) 2016) 2016
L R1 $31,080,000 $31,100,000 $31,893,000 $34,452,644 $30,007,000 L
R5 $18,800,000 $18,820,000 $18,960,800 $20,367,744 $17,742,000
M R6 $18,600,000 $18,620,000 $18,655,000 $20,174,623 $17,568,000 M
R7 $18,400,000 $18,420,000 $18,480,000 $19,981,503 $17,404,000
R8 $18,400,000 $18,420,000 $18,555,000 $19,968,629 $17,394,000
N N
$18,180,000 $18,200,000 $18,349,000 $19,775,509 $17,220,000
R9
$1,140,000 $1,150,000 $1,200,000
O O
R1 $18,170,000 $19,389,269 $16,887,000
$17,880,000 $17,900,000
0
P R1 $2,200,000 P
$2,068,000 $2,070,000
1
Q R1 $18,000,000 $19,376,393 $16,872,000 Q
$17,820,000 $17,840,000
2
R R1 $1,800,000 R
$1,730,000 $1,728,000
4
S That is, all the offers made were higher than the EUV of each unit owned S
by RS.
T T
U U
75
B1/346-347, B2/1143-1164 and B2/1165-1196.
V V
A A
B 101 B
C C
206. The Tribunal should also determine whether the prices offered
D D
by the applicants are fair and reasonable in light of the independent
E professional valuation opinion available to the applicants at the time of the E
offers. By reference to the witness statements of Mr Yeung dated 29 June

F F
2016, each offer letter of 25 February 2014 sent to the respective RS was
G accompanied by an advice letter from Mr A Chan setting out the EUVs, the G
H then assessed RDV and the share of RDV attributable to the corresponding H
respondent. While this evidence is undisputed, the same is evidenced from
I I
the offer letters dated 9 December 2016 to the RS.
J J
207. From the table above, we note that the EUV determined by the
K K
Tribunal was even marginally smaller than the EUV as revised by Mr A
L Chan as at 6 December 2016. L
M M
208. Of course, based on the EUV as determined by the Tribunal at
N Appendix A hereto and the RDV as determined by the Tribunal at Appendix N
E in the sum of $1,621,592,000, the apportioned RDV attributable to RS

O O
respectively are much higher than the offers by the applicants on 9
P P
December 2016:
Latest Pro-rata of Difference in
Q Q
RDV Percentage
Offer
R R
R1 $34,452,64 $43,877,00 27.4%
S 0 S
4
R5 $20,367,74 $25,913,00 27.2%
T T
4 0
U R6 $20,174,62 $25,663,00 27.2% U

0
V V
A A
B 102 B
C C
3
D R7 $19,981,50 $25,425,00 27.2% D
3 0
E E
R8 $19,968,62 $25,414,00 27.3%
F 9 0 F
R9 $19,775,50 $26,589,00 26.8%

G 0 G
9
H $1,200,000 H
R1 $19,389,26 $24,684,00 27.3%
0 9 0
I I
R1 $2,200,000 $2,642,000 20.1%
J J
1
R1 $19,376,39 $24,668,00 27.3%
K 0 K
2 3
L R1 $1,800,000 $2,126,000 18.1% L

4
M M
N N
209. Pausing here, we should however bear in mind the following
O guidance from the Court of Final Appeal in Capital Well, at §33: O
P “... the Tribunal is not conducting a valuation exercise. It does not P

need to adjudicate upon any disputes about the correct valuation
Q
principles to be applied. It does not itself arrive at any conclusion Q
as to what figure represents the correct valuation. It merely needs
to be satisfied that, on the evidence available, the offer falls within
R the range of what may broadly be regarded as fair and reasonable R
compensation for the interest in question.”
S S
T 210. The Court of Final Appeal stated further at §36 of the judgment T
that:
U U
V V
A A
B 103 B
C C
“What the Tribunal must do is to consider whether, in the
D circumstances of each case, the offer falls within a band of what D
represents a fair and reasonable assessment of the value of the
minority owner’s interest reflecting a proportionate share of the
E E
redevelopment value of the whole site.”
F F
211. Thus, in deciding on the issue of whether the applicants have
G taken reasonable steps to acquire the undivided shares held by RS, the G
H
offers, as decided by the Court of Final Appeal, need only fall within “a H
range of what may broadly be regarded as fair and reasonable
I I
compensation”.
J J
212. Also, it is trite that property valuation is not an exact science;

K K
mathematical precision is neither a feature of valuation particularly for
L developable land owing to the imperfection of the market where even L
between skilled valuers the margin of opinion may be surprisingly wide. In

M M
Singer & Friedlander Limited v John D Wood & Co (1977) 243 EG 212;
N N
(1977) 2 EGLR 84, Watkins J stated:
O O
“The valuation of land by trained, competent and careful
professional men is a task which rarely, if ever, admits of precise
P conclusion. Often beyond certain well-founded facts so many P
imponderables confront the valuer that he is obliged to proceed on
the basis of assumptions. Therefore he cannot be faulted for
Q Q
achieving a result which does not admit of some degree of error.”
R R
213. Nevertheless, the learned judge went on to say that it was
S S
agreed generally in the profession that a permissible margin was 10% either
T side of a figure which could be said to be the right figure (assessed as if T
arrived at when the valuation was made and not with the benefit of
U U
hindsight). In exceptional circumstances the margin could be 15% or a little
V V
A A
B 104 B
C C
more either way. In Muldoon v Maps of Lilliput Limited (1993) 14 EG 100,

D D
Judge Zucker QC used a range of 15-20% 76; this illustrates that the margin
E of error has not been set by precedent. E
F F
214. It is not disputed that the latest offers made by the applicants to
G the RS were over the 20% bracket, if there is a bracket to be applied at all. G
Nevertheless, we consider that the offers were still reasonable and

H H
acceptable as there has been a dearth of reliable land transaction in the
I vicinity for direct comparison. To the extent that both valuation experts of I
J
the parties resort to the residual valuation in determining the land value of J
the Lot, there is also a dearth of transactions of modern day industrial
K K
premises for assessing the GDV. Taking into account the above, we consider
L the offers fall within a band of what represents a fair and reasonable L
assessment of the value of the minority owner’s interest reflecting a

M M
proportionate share of the redevelopment value of the whole site.
N N
215. We are therefore satisfied that on the evidence available and in
O O
the circumstances of the Application, the applicants have taken reasonable
P steps to acquire all the undivided shares in the Lot which include negotiating P
for the purchase of such of those shares as are owned by RS on terms that
Q Q
are fair and reasonable.
R R
S J. Conclusion S
T 216. We are satisfied that redevelopment of the Lot is justified both T
in terms of age and state of repair of the Buildings and the applicants had
U U
76
See also K/S Lincoln v CB Richard Ellis Hotels Ltd [2010] EWHC1156 (TCC) per Coulson J.
V V
A A
B 105 B
C C
taken reasonable steps to acquire all the undivided shares of the Lot and had
D D
negotiated for the purchase of those shares as are owned by that minority
E owner on terms that are fair and reasonable. Under such circumstances, we E
found an order for sale should be granted in favour of the applicants.

F F
G K. Order G
H 217. This Tribunal make the following orders: H

(1) This Tribunal is satisfied that the value of the respondents’
I I
units as assessed in this Application is fair and reasonable and
J is fair and reasonable when compared with the values of the J
applicants’ units;
K K
(2) This Tribunal is satisfied that the redevelopment of the Lot is
L justified due to the age or state of repair of the Building, and L
M
that the applicants has taken reasonable steps to acquire all the M
undivided shares in the Lot including that of the respondents;
N N
(3) All the undivided shares in the Lot, the subject of the
O Application, be sold by way of public auction for the purposes O
of redevelopment of the Lots with the reserve price be set at

P P
$1,621,592,000;
Q (4) Parties to use their best endeavor to agree on the appointment of Q
trustees and solicitors for the trustees as well as the draft

R R
particulars and conditions of sale and report to this Tribunal on
S S
the progress on or before 27 October 2017;
T (5) Subject to further extensions that the Tribunal may T

subsequently allow upon the application of the purchaser of the
U U
Lot or its successor in title, the redevelopment of the Lot and
V V
A A
B 106 B
C C
the Building shall be completed and made fit for occupation

D D
within a period of 6 years after the date on which the purchaser
E of the Lot becomes the owner of the Lot; E
(6) Liberty to the applicants, the respondents and the Trustees to

F F
apply to the Tribunal for further directions.
G (7) We make a costs order nisi that the applicants do pay the G
H respondents costs of the Application, including all costs H

reserved to be taxed if not agreed on High Court Scale. This is a
I I
costs order nisi. Unless any of the parties apply by summons to
J vary it, the costs order nisi shall be made absolute upon expiry J
of 14 days.
K K
L 218. It remains for us to thank counsel for their invaluable L
M
assistance. M
N N
O O
P Angela KOT Mr Lawrence Pang P

Presiding Officer Member
Q Lands Tribunal Lands Tribunal Q
R R
S Mr Edward Chan SC and Mr Y C Mok, instructed by Edmund Cheung & S
Co, for the 1st to 10th applicants

T T
st
Mr Paul Wong, instructed by Wong & Partners, for the 1 respondent
U U
V V
A A
B 107 B
C C
Ms Audrey Eu SC and Mr Julian Chan, instructed by Ho, Tse, Wai &

D D
Partners, for the 5th to 12th and 14th respondents
E E
Appendices A-F
F F
G G
H H
I I
J J
K K
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V

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A A

J SKY HUGE DEVELOPMENT LIMITED 3rd Applicant J

FUJI PROPERTIES LIMITED 5th Applicant

P JETFAIR ENTERPRISES LIMITED 10th Applicant P

T TOP SPEED INTERNATIONAL HOLDINGS 3rd Respondent T

E YAT SHUN HONG COMPANY LIMITED 6th Respondent E

SZE SHAU FONG and TAM HOI LAM 7th Respondents

WONG PAK LEUNG and CHIN YUK LING 8th Respondents

J WONG KAI CHUN 12th Respondent J

O 3. The Building is as a whole served by 3 common staircases, 2 O

development of the Lot to “a factory or factories or a warehouse or

H which was previously an industrial area is intended primarily for general H

Carparking Spaces (“CPS”) on G/F each with 1 equal undivided share:

* The unit includes Flat Roof or Roof thereof

R 8. Thus, at the time of the application dated 23 May 2014 (“the R

shares ie 87.5% of the Lot. They are represented by Mr Edward Chan SC

H R5-12 & R14 (represented by Ms Audrey Eu SC (“Ms Eu”) and Mr Julian H

O R10 14 Unit H, 10/F O

(b) reasonable steps having been taken by the applicants to acquire

B. Section 3 of the Ordinance – Ownership of the applicants

Notice is applicable and the threshold percentage should be 80%.

14. At the time of the filing of the Application, the applicants

K (b) Rebuttal report dated 7 October 20163 by Mr NG Ka Wai K

(b) Rebuttal report dated 7 October 20165 by Mr LAM Wai-ho (“Mr

assessments of the values of all units (which are conveniently

25 February 2014 by Mr Patrick Lai (“Mr P Lai”) 7;

(f) Further Rebuttal Report dated 4 October 2016 by Mr A Chan11;

O 16. Notwithstanding the above, Mr A Chan and Mr P Lai have O

conditions, the EUV of the CPS15 etc.

E 17. Furthermore, Mr A Chan and Mr P Lai have prepared a joint E

expert statement dated 23 November 201616 setting out their areas of

respectively though Mr A Chan saw fit to revise his assessments at the

dispute on EUV as at 25 February 2014 in case an order for sale be granted.

carparking spaces in the Building as follows:

on the following 5 comparables:

O Comp Address OP Transaction Sale Price Saleable Frontage Headroom Unit O

F AA4 Industrial Building, 119- F

S convenience in accessing the corresponding workshops in the buildings; S

Superior, -10% a little superior.

-2% for Poor

L adjustments to their comparables: L

KF2 $77,595 0.3% 0% -2.0% -2.0% -4.5% -10%* 0% 0% -18.2% $63,473

AA3 0.3% 0% -2.0% -3.7% -0.5% -31.8% -10% 0% -47.7% $42,358

R KF5 $193,945 -2.8% 0% -2.0% 1.0% 0% -10%* 0% 0% -13.8% $167,181 R

AA4 -2.8% 5.0% -2.0% 0.6% 0% -31.5% -10% 0% -40.7% $115,009

H 26. In a usual valuation exercise, this might be a proper approach to H

particularly the case when Mr A Chan saw fit to adopt an adjustment of

27. We further agree with the -10% for accessibility as proposed by

T 28. The other major difference in opinion between Mr A Chan and T

2017, Mr P Lai had the following to say:20

M 3.15 Based on my observation, goods vehicles and private cars M

3.20 Similar observation is noted on that section of How Ming

should offset any inconvenience of vehicular traffic congestion at these two

the vicinity of the Building. Further, traffic congestion is a problem in the

street parking in front of KF2/AA2 or KF5/AA5, for instance, would provide

32. As regards this comparable KF4, however, Mr P Lai found that

reduced to $28,000,000 (ie a reduction by 26.32%). He further noted that in

the District Lands Office/Kowloon East on 14 January 2013 and 22 October

R 「1. 不論今日之前任何事件發生， 賣方認可及確認， 除以下修訂 R

T and the reduction in consideration. T

H purpose of a canteen. The transaction included also the sale of internal H

“a factory or factories or a warehouse or warehouses or both and

R 「1. 不論今日之前任何事件發生，賣方認可及確認，除以下修訂 R