YAU WAH HING AND ANOTHER v. YUEN SO YING, the Executrix of the Estate of YUEN KAY MING, deceased

HCA 4252/2003

[2026] HKCFI 339

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 4252 OF 2003

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D E C I S I O N

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A.  Introduction

1.  The disputes in the present case arose between the Plaintiffs and Mr Yuen May Ming, who were partners running a public light bus business since 1984.

2.  In this Action, the Plaintiffs claimed against the Defendant for, inter alia, a declaration that the Plaintiffs and the Defendant were in partnership (“Partnership”) in running a public light bus business under a Passenger Service Licence No. 1260C (“Licence”) grantedv to the Defendant on 25 August 1984. The Plaintiffs also claimed against the Defendant for, inter alia, distribution of the assets and profits of the Partnership.

3.  The trial on liability took place before Yam J on various dates from April to June 2011. On 3 February 2012, Yam J handed down judgment (the “CFI Judgment”), holding that:-

(1)  The 1^st Plaintiff (“Yau”) in the name of the 2^nd Plaintiff (“Winlite”) and Yuen Kay Ming had been partners since 1984 in respect of the public light bus business.

(2)  The Licence for the running of the public light bus business was held by the Defendant on constructive trust for the Partnership.

(3)  Since 17 November 2023, Yau (through Winlite) and the Defendant remained as the two partners to the Partnership; and that Yau was ousted from the Partnership.

4.  Yam J made an Order in Chinese granting, inter alia, the declaration sought together with an order for payment of damages to be assessed: see CFI Judgment §88; CA Judgment[1] §§4-6.

5.  The Defendant appealed against the CFI Judgment. On 7 March 2013, the Court of Appeal handed down judgment (“CA Judgment”):-

(1)  The Court of Appeal dismissed the main points of the Defendant’s appeal and affirmed the factual findings made by Yam J that the Partnership started in about 1984 and subsisted after 1992 despite a change of the business model.

(2)  The Defendant’s appeal was allowed in part, in that §§3 and 4 of Yam J’s Order written in Chinese (which related to the new licence No. 18633C granted in about January 2011) was set aside by the Court of Appeal on the basis that such new licence never forms of the Plaintiffs’ pleaded case: CA Judgment §§20, 47, 59-64.

(3)  The Court of Appeal further directed the parties to the Court of First Instance for directions on the second part of the trial in connection with the question of remedies: CA Judgment §64.

6.  For present purposes, it is pertinent to note that, in the CA Judgment, it was held that the exclusive right under the Licence to operate the public light bus service was something of value (at §38); and that the exclusive right under the Licence was a partnership asset (at §39).

7.  After the CA Judgment, the parties had filed pleadings on the question of remedies.

8.  Pursuant to a Consent Order dated 4 July 2019, it was agreed between the parties, inter alia, that the Partnership was dissolved on 24 February 2010; and that the Plaintiffs were entitled to 18.5% interest in the Partnership at the time of its dissolution.

9.  At this hearing, the parties ask the Court to assess the value of the Plaintiffs’ interest in the Licence at the time of the dissolution of the Partnership (i.e. 24 February 2010), so that its value could be distributed to the Plaintiffs. At this hearing, Ms Queenie W.S. Ng and Ms Michelle L.Y. Wong appear for the Plaintiffs; whereas Ms Chung appears for the Defendant.

B.  Factual background

10.  The factual background has already been set out in the CFI Judgment and the CA Judgment, which I shall not repeat. For present purposes, the salient facts may be summarized as follows.

11.  Since about 1984, Yau, the Defendant and some others had been partners in a public light bus business. In 1984, the Licence was applied by the Defendant on behalf of a partnership business called Hung Kei Maxicab Company. They successfully tendered the Licence for operating Route 65, running between Fo Tan KCR Station and Kau Tao / A Kung Kok: CFI Judgment §§4-8; CA Judgment §9.

12.  Over the years, Route 65 was later sub-divided into other routes, namely, Nos. 65A, 65K, 65S, 66K, 67A and 67K in Shatin: CFI Judgment §65. Under the Licence, the Partnership enjoyed the monopoly of operating those routes.

13.  Since about June 1992, there were changes of the business model to from 公司制 into 分帳制 (or later known as self-ownership scheme (車主制): CFI Judgment §§30, 33; CA Judgment §14. Each of the minibus owners shall be responsible for their own profit and loss and sharing their own profit sharing with their drivers. Despite such changes, it was held that the Partnership continued. It was against this background that Winlite was established by Yau. As found by Yam J, Yau had been enjoying a long-term right to operate the minibus business on Route 65; and that the Defendant shall not obstruct the operations by any reason.

14.  From 1987 to 1992, some partners withdrew from the Partnership with their shares or shares and minibuses acquired by the others.

15.  Since around 1992, Yau (in the name of Winlite) and the Defendant had been partners to the Partnership. As in 1992, Yau in the name of Winlite had 4 minibuses running Route 65 and 3 shares in the Partnership.

16.  In about 1993, Winlite had 5 minibuses running Route 65.

17.  During the period between 1993 and 1999, Yuen Kay Ming wrongfully added 10 minibuses to the operation of Route 65, thus diluting the revenue of the Plaintiffs and other partners.

18.  Since around 1997, the Defendant made a series of attempts to exclude Yau and the other partners from the business of Route 65: CFI Judgment §57. Amongst other things, the Defendant had banned the interchange practice of the Plaintiffs’ minibuses at the terminal for servicing passengers heading to Fo Tan, causing a drop in the Plaintiffs’ revenue.

19.  In 1999, the Defendant also withheld the renewed PLB licences and entry permits for restricted areas and that eventually led to the temporary suspension of the operation of the Plaintiffs’ minibuses for nearly one month.

20.  On 30 September 1999, the Defendant asked Tsang Yan (“Tsang”), another partner of the Partnership, to write and sign on a document to the effect that Tsang had left Route 65 voluntarily. It was held that that document did not reflect the truth: CFI Judgment §62.

21.  From October 2003 to August 2009, the Plaintiffs’ minibuses were completely excluded from Routes 66K and 67K; and could only operate the sub-route 65A. The more lucrative routes of 66K and 67K were solely operated by the Defendant’s minibuses: CFI Judgment §65.

22.  It is now agreed between the parties that the Partnership was terminated on 24 February 2010. In other words, the Partnership had been operating for about 26 years since 1984.

23.  As at 24 February 2010, there were 27 minibuses operating under the Licence, out of which 5 were operated by the Plaintiffs and 22 minibuses were operated by Yuen Kay Ming. On this basis, the Plaintiffs were entitled to a 18.5% interest in the Partnership at the time of the dissolution.

24.  After the Plaintiffs’ withdrawal from the Partnership, Yuen ay Ming continued the operation of the same routes under the Licence. In July 2010, he applied for the transfer of the Licence to Hung Kei Maxicab Company Ltd (“HKMCL”), a company formed for the operation of the same route as that permitted under the Licence, with Yuen Kay Ming as his son being the shareholders. In January 2011, the Commissioner approved the transfer with effect from 1 February 2011; and a new licence number was given (i.e. No. 18633C, for the operation of the same route as that permitted under the Licence): CA Judgment §§17-19.

C.  Expert evidence

25.  In 2013, the parties had filed pleadings on the remedies. In July 2019, a consent order was made, declaring that the Partnership was dissolved on 24 February 2010 and that the Plaintiffs were entitled to 18.5% in the Partnership at the time of dissolution. It was agreed that there be an inquiry and determination as to how the assets of the Partnership should be distributed.

26.  On 30 March 2020, pursuant to the parties’ joint application, leave was granted for the parties to adduce expert evidence on the value of the Licence as at the date of dissolution (i.e. 24 February 2010).

27.  In this trial, the Plaintiffs rely upon the expert evidence of Ms Law Kok Yu Stella (“Ms Law”). Ms Law obtained a Bachelor of Engineering (Software Engineering) from the University of Hong Kong (“HKU”) in 2003; and a Master of Science in Finance (Financial Analysis) from the Hong Kong University of Science and Technology in 2007. She is an accredited senior appraiser of the American Society of Appraisers and a member of the Royal Institute of Chartered Surveyors (valuation of Businesses and Intangible Assets pathway). She has over 20 years’ experience in business valuation and financial advisory services.

28.  The Defendant’s expert is Mr Lee Yan Chai Haydn (“Mr Lee”). He graduated from the HKU with a Bachelor of Science in 2004. He is a chartered financial analyst, a registered business valuer and a member of the Australasian Institute of Mining and Metallurgy. He has over 10 years’ experience in business valuation.

29.  The parties have no challenge against their respective expertise. For the purpose of this hearing, the parties have filed the following expert reports:-

(1)  Ms Law’s report dated 14 September 2020 for the Plaintiffs;

(2)  Mr Lee’s report dated 11 September 2020 filed for the Defendant; and

(3)  Joint report dated 31 July 2023.

30.  On the assessment of expert evidence, the relevant principles are well-established. The Courts have repeatedly emphasized that experts owe their overriding duty to the Court; and that they are expected to act independently. The Plaintiffs referred me to Chinachem Charitable Foundation Ltd v. Chan Chun Chuen (unrep), HCAP 8/2007, 2 February 2010, at §§484-493, in which Lam J (as Lam PJ then was) set out helpful guidance on the duties of an expert and what an expert is expected.

31.  In Echelles Riffaud SA v. Secretary for Justice [2024] HKCFI 1994, Madam Justice Au-Yeung said this at §§107-108:-

“107. When considering the credibility of an expert and the weight to be attached to his opinion, the Court pays attention to empirical data, calculations or facts that he relies on, his methodology and any change in opinion or provision of new opinion since his first report was filed.

108. … An expert witness could give evidence as to facts, interpret the data, express his / her opinion on those facts or data, and rely on his experience in his discipline. He/she may draw on literature in his discipline. The Court would decide what weight should be attached to his/her opinion. However, an expert witness could not stop at saying “I have a lot of experience. This is my opinion.” When challenged as to his opinion, there were 2 minimum sources on which he should justify himself: (1) his first hand evidence in past transactions; and (ii) information or publication in his discipline.”

D.  Gist of the Plaintiffs’ expert evidence

32.  Ms Law’s valuation may be summarized as follows:-

(1)  Ms Law identifies the 3 generally accepted valuation approach, namely, the cost approach, the market approach and the income approach (“Income Approach”).

(2)  Amongst the 3 approaches, Ms Law is of the view that the Income Approach should be adopted. In very simple terms, under the Income Approach, the value of an asset is determined by reference to the value of the income, cash flow or cost savings generated by the asset.

(3)  Ms Law identifies the Plaintiffs’ 18.5% interest in the Licence as the subject matter of the valuation. It is significant to note that she derives the market value of the Licence from the value of the economic benefit that can be generated from Winlite through ongoing business operation.

(4)  Ms Law concludes that it is appropriate to equate the market value of the Licence to the present value of the economic benefit earned by Winlite.

(5)  For the valuation of the economic benefit earned by Winlite, Ms Law adopted the Gordon Growth Model (“GGM”). According to Ms Law, GGM is appropriate to be applied for business, when the company’s business model is stable (with no significant changes in its operations); that the company grows at a constant rate and that the company has stable financial leverage.

(6)  The formula for calculating the market value of the business under GGM is MV = FCF / (r – g).[2]

33.  Ms Law adopts the GGM for the purpose of valuation, as Winlite has a stable business model, constant growth rate and stable financial leverage. In particular, she takes into account the fact that the Licence created a monopoly for Winlite to engage in the business of providing minibus services over the Route.

34.  Adopting the GGM, Ms Law’s valuation may be summarized as follows:-

(1)  On the annual free cashflow of Winlite, after taking into account the data from 2006 to 2010, she adopted HK$437,843 as the free cashflow of Winlite’s business.

(2)  As the formula suggests, there are 3 parameters in GGM. Ms Law adopts the following figures:-

(a)  FCF = HK$437,843

(b)  R = she adopts the weighted average cost of capital (“WACC”), which is the benchmark discount rate in valuing the equity interest of the Business.

(3)  To determine the appropriate WACC, Ms Law conducted a search of comparable companies. In selecting the comparable, she bore in mind that the comparable should be engaged in the minibus operation industry; and should conduct its operation in Hong Kong. She identified AMS Public Transport Holdings Ltd (stock code 0077) (“AMS”) as a comparable, which is an investment holding company with its shares listed in Hong Kong, with the companies in the group engaging in the provision of franchised public light bus transaction and residents’ bus services. According to the database of Reuters, since the initial public offering of its shares, AMS’s average WACC is 4.0%. This is adopted in this case as a base discount rate for the Subject Business.

(4)  Given AMS is a listed company and that Winlite is a private ownership company, Ms Law made a discount of 25% to reflect the lack of marketability.

(5)  The last parameter is the perpetual growth rate that relates to the inflation of car fare and is determined with reference to the consumer price index published by the HKSAR Government. Ms Law adopts 2.2%, being the five-year average figure of the historical CPI from 2006 to 2010. There is no dispute between the parties on this figure.

35.  Adopting the GGM Approach, Ms Law concludes that the market value of 18.5% interest in the Licence as at the date of valuation was HK$18,243,458. This may be summarized as follows:-

	Subject	Amount	Formula
A	Assessed annual free cashflow	437,843	-
B	Discount rate	4.0%	-
C	Perpetual growth rate	2.2%[3]	-
D	Lack of marketability discount	25%	-
E	Value of Winlite’s business	18,243,458	E = A/(B-C)*(1-D)

36.  On the question of assessed annual free cashflow, there was no specific challenge to the calculation of the figure of HK$437,843 adopted by Ms Law. Instead, the dispute between the experts is a more fundamental one, namely, whether Winlite’s business was making profits. Further, the experts have disputes on adopting 4.0% as the discount rate, as Mr Lee’s opinion is that the 4.0% adopted by Ms Law is unreasonably low. In addition, Mr Lee is also of the view that the 25% discount for lack of marketability adopted by Ms Law is not sufficient, when Ms Law does not take into account other matters such as size premium and firm specific premium.

37.  On the other hand, whilst Mr Lee agrees to adopt the Income Approach, he is of the opinion that the multi-period excess earnings method (“MPEEM”) should be adopted for the valuation of the Licence. Should the MPEEM be adopted, Ms Law values the 18.5% interest in the Licence as HK$11,707,987 on the date of valuation. However, she does not set out in detail the calculation of this alternative valuation in the joint report.

E.  Gist of Mr Lee’s valuation

38.  It is the Defendant’s case that Ms Law’s valuation should not be adopted, when she values Winlite as a company rather than the Licence.

39.  Whilst Mr Lee agrees that the Income Approach should be adopted, he uses what is described as the MPEEM for the purpose of determining the market value of the Licence as an intangible asset. According to Mr Lee:-

(1)  Under the MPEEM, the value of an intangible asset is determined as the present value of the cash flows attributable to the subject intangible asset after excluding the proportion of the cash flows that are attributable to the contributory assets (i.e. those other assets required to generate the cash flows).

(2)  The MPEEM involves allocating the expected cash flows to the smallest business or group of assets of the entity that includes all the income derivable from the subject intangible asset.

(3)  From the forecast of cash flows, a deduction is made in respect of the share of the cash flows attributable to contributory tangible, intangible and financial assets. This is done by calculating appropriate charges or economic rents for the contributory assets and deducting these charges from the cash flows.

40.  Specifically, Mr Lee sets out in his report the specific steps in the MPEEM in calculating the equitable value of the Licence as follows:-

(1)  First, he has to project the earnings before interest and amortization (“EBIA”) of the business under the Licence for 2 forecast periods, namely, from 25 February 2010 to 24 February 2011; and from 25 February 2011 to 24 February 2012.

(2)  Second, he has to project the contributory asset charges (“CAC”) for working capital, office equipment and the public light bus licences (for each public light bus) for the aforesaid 2 forecast periods.

(3)  Third, one has to subtract the CAC from the EBIA for the two forecast periods to calculate the residual cash flows for the two forecast periods.

(4)  Fourth, one has to discount the residual cash flows by WACC or discount rate to calculate the discounted residual cash flows for the two forecast periods.

(5)  Finally, one has to sum up the discounted residual cash flows for the two forecast periods to calculate the equitable value of the Licence.

41.  For the purpose of considering the differences in their opinions, it is significant to note a number of points:-

(1)  First, he projects the EBIA as HK$2,174,056 (for the period from 25 February 2020 to 24 February 2021); and the negative sum of HK$2,030,063 (for the period from 25 February 2011 to 24 February 2012). Nonetheless, save that it is fairly clear that the negative value is reached because he has taken into account the significant severance payment (see below), he has not set out the basis on which his projection was made.

(2)  Second, Mr Lee takes into account the severance payment HK$730,590 from the financial statements of Winlite for the year ended 31 March 2010. He then projects car drivers’ severance payment to be HK$152,021 per public light bus (for the period from 25 February 2011 to 24 February 2012).

(3)  Third, as such, Mr Lee is of the opinion that the discounted residual cash flows would be negative, such that the valuation of the Licence would also be negative. In the course of his evidence, Mr Lee agreed that the main cause for the negative value of the Licence was due to the fact that he has taken into account the severance payment.

(4)  Fourth, proceeding on the basis that the discounted residual cash flow would be negative, Mr Lee is of the opinion that the economic life of the Licence would only last for 2 years from the date of valuation (i.e. until February 2012).

(5)  Fifth, in his report, Mr Lee also projects the finance costs in terms of interest on bank loans to finance the hire purchase of 27 public light bus licences. He projects finance costs as HK$4,042,781 (for the period from 25 February 2010 to 24 February 2011) and HK$4,123,636 (for the period from 25 February 2011 to 24 Feb 2012). In the course of his evidence, Mr Lee confirmed that he made reference to a hire-purchase agreement to ascertain the optimal capital structure for his calculation of the CAC in his financial model. However, Mr Lee also accepted in cross-examination that Winlite did not enter into any hire-purchase agreement at the date of valuation.

(6)  Nonetheless, Ms Chung in her written closing submissions clarified that, whilst Mr Lee made the projection of finance costs for 27 public light buses, he did not make any such deduction from his projections.

42.  Adopting the MPEEM, Mr Lee is of the opinion that, as at the valuation date, the Licence was of a negative value of HK$4,339,212. Mr Lee’s valuation may be summarized as follows:-

Subject	Amount	Formula
Discount rate	13.32%	A
Time from valuation date for the forecast period from 25 February 2010 to 24 February 2021	0.5 year	B
Time from valuation date for the forecast period from 25 February 2011 to 24 February 2022	1 year	C
Residual cash flows for the forecast period from 25 February 2010 to 24 February 2021	- 11,167,612	D
Discount factor for the forecast period from 25 February 2010 to 24 February 2021	0.939	E = (1+A) ^ (-B)
Discounted residual cash flows for the forecast period from 25 February 2010 to 24 February 2021	-10,490,867	F=D*E
Residual cash flows for the forecast period from 25 February 2011 to 24 February 2022	-15,638,564	G
Discount factor for the forecast period from 25 February 2011 to 24 February 2022	0.829	H=(1+A)^(-C)
Discounted residual cash flows for the forecast period from 25 February 2011 to 24 February 2022	-12,964,330	I=G*H
Value of PSL 1260C	-23,455,198	J=F+I
Value of 18.5% interest in PSL 1260C	- 4,339,212	K=J*18.5%

43.  Alternatively, if GGM is to be adopted, Mr Lee’s valuation is that the Licence would be of a negative value of HK$31,055,074.

F.  Issues between the experts

44.  It is common ground between the experts that the Income Approach should be adopted for the purpose of valuing the Licence.

45.  Under the Income Approach, one considers the income that an asset will generate over its useful life and indicates value through a capitalisation process. Capitalisation involves the conversion of income into a capital sum through the application of an appropriate discount rate.

46.  Nonetheless, apart from the agreement on the Income Approach, there is little common ground between the experts. The major differences between the parties’ experts, as addressed in the Joint Report, may be summarized as follows:-

(1)  First, the subject matter of the valuation. It is the Defendant’s case that Ms Law valued Winlite as a company, as opposed to the Licence. This is denied by Ms Law, who maintained that she assessed the market value of the Licence by reference to the economic benefits that can be generated  from Winlite’s business operation.

(2)  Second, the valuation methodology: whether the Court should adopt the GGM or the MPEEM. Under the valuation methodology, the experts also disagree as to whether Winlite was making stable profits at the relevant period.

(3)  Third, the basis of valuation: in valuing the Plaintiffs’ 18.5% interest in the Licence, whether the Court should adopt the market value (as suggested by Ms Law) or its equitable value (as suggested by Mr Lee).

(4)  Fourth, whether the severance payment should be taken into account in the valuation / projection.

(5)  Fifth, the question of economic life of the Licence: in the valuation, whether the Licence should be deemed to be perpetual (as suggested by Ms Law); or whether one should impose a reasonable economic life of 2 years (as suggested by Mr Lee).

(6)  Sixth, whether contributory asset charges (“CAC”) on a public minibus licence should be applied (as suggested by Mr Lee). The question of CAC does not arise in Ms Law’s valuation. I shall elaborate further on the concept of CAC below.

(7)  Finally, the question of discount rate: whether it should be 4.0% adopted by Ms Law; or the 13.3% adopted by Mr Lee.

47.  According to Ms Ng, counsel for the Plaintiffs, amongst the aforesaid issues, the more substantial disputes relate to (1) the subject matter of valuation; (2) the methodology and (3) whether the Licence only had an economic life of 2 years. Ms Chung agrees and adds that (7) the discount rate is also a major difference between the experts.

G.  Discussion: some general observations

48.  At the outset, I set out some of the general observations on the respective expert witnesses.

49.  First, Ms Chung refers me to Ms Law’s curriculum vitae, which reads, inter alia, as follows:-

“… Throughout her career, Stella has honed her skills in utilizing cutting-edge valuation techniques, such as discounted cash flow analysis, market comparables, and asset-based approaches, to arrive at defensible conclusions. Her work has been crucial in helping clients navigate complex financial situations and achieve favourable outcomes in court proceedings. She has provided testimony in numerous high-profile cases, where her ability to effectively communicate complex financial concepts and defend her opinions under cross-examination has been widely recognized.

Her extensive experience in the field, combined with her commitment to excellence, has earned her a reputation as a highly sought-after expert witness in court proceedings.”

50.  Ms Chung seeks to discredit Ms Law’s credibility, when Ms Law admitted in cross-examination that, contrary to what is set out in her curriculum vitae, as a matter of fact she had not testified in court before. In re-examination, Ms Law explained that she had misused the word “cross-examination”, when she only had in mind the challenge and questions from the other side. Ms Chung argues that Ms Law exaggerated, if not misled, her court experience as an expert witness.

51.  I accept that there is some force in those criticisms made by Ms Chung against Ms Law. Nonetheless, there is no allegation or evidence to suggest that Ms Law was deliberate. I shall bear in mind those criticisms in considering the opinions adduced by Ms Law. Having said that, it is ultimately the valuation (in particular the parameters and assumptions adopted; and the reasoning and explanations given) that would be crucial in the assessment and evaluation of her opinions.

52.  On the other hand, insofar as Mr Lee’s valuation is concerned, it is pertinent to note that, according to Mr Lee, the Licence was of a very substantial negative value as at the date of valuation (i.e. to the tune of HK$4million to HK$31 million), no matter whether one adopts the GGM or MPEEM. On the face of it, Mr Lee’s valuation does not accord with the common and commercial sense and reality, when the Partnership had been operating the minibus business under the Licence for 26 years since 1984. Furthermore, in January 2010, the Defendant even applied for the transfer of the Licence to HKMCL (i.e. a limited company which consisted of the Defendant and his son as the shareholders). The Court of Appeal also held that the Licence was of some value. Had the Partnership’s minibus business under the Licence been operated at a loss, one immediately queries why the parties would have been carrying on the business for more than 26 years; and why the Defendant would have procured the transfer of the Licence to HKMCL.

53.  There are other aspects which suggest that Mr Lee’s expert evidence is unsatisfactory. For instance, as rightly submitted by Ms Ng, during cross-examination, when he compared the minibus lines in Shatin against those in Aberdeen, Mr Lee tried to back up his views by relying upon certain personal feeling or impression which was not supported by any empirical data.

54.  As such, I remind myself to scrutinize carefully the assumptions Mr Lee adopts and the valuation he makes.

H.  Disputed issue: the subject matter of the valuation

55.  As agreed by the parties, the major issue for determination is the value of the Licence as at the date of valuation. Ms Chung challenges Ms Law’s valuation, arguing that she only conducted her valuation of Winlite as a company and failed to value the Licence. In support of this argument, both Mr Lee and Ms Chung refer me to various parts of Ms Law’s report in which she made reference to the valuation of the “business of Winlite”.

56.  This is denied by Ms Law. In her report, whilst there are references to the valuation of the business, Ms Law makes it clear that “her instruction was to value the Plaintiff’s interest in the Licence PSL 1260C”. She then explains that she conducts the valuation of the Licence through considering the economic benefits generated from operating the business in question. Her opinions are prepared on the basis that the market value of the Licence would be reflected from the present value of the economic benefit earned by Winlite.

57.  Having considered the evidence and the submissions, I find that Ms Law’s valuation is made against the value of the Licence, as opposed to the equity interest in Winlite. Whilst Mr Lee picked up various references in her report to suggest that the valuation was made against Winlite as a company, Ms Law had made it clear that the subject-matter of the valuation was the Licence; and that she valued the economic benefits brought by the Licence by reference to the income generated for the business of Winlite.

58.  Further, it is significant to note that Ms Law did not value the equity interest of Winlite, when she has not taken into account the value of the other assets of Winlite, such as the 5 public light buses and the 5 corresponding public light bus licences owned by Winlite. As such, I am satisfied that Ms Law is not valuing the equity interest of Winlite; and that she only conducts the valuation of the Plaintiffs’ interest in the Licence through valuing the economic benefits derived from it.

59.  A separate and yet related question concerns the value of the public light buses. In her closing submissions, Ms Chung criticizes Ms Law for failing to take into account the values of the 5 public light buses in her valuation of the Licence, when the parties could only bid the Licence in 1984 because of the vehicles contributed by the partners. I have no hesitation in rejection such argument. Here, the exercise is to value the Licence. The valuation was made by reference to the economic benefits derived from the Licence (which is itself a distinct intangible asset), as opposed to the public light buses, which are separate tangible assets. The public light buses should not affect the intrinsic value of the Licence.

I.  Discussion on the methodology: whether GGM or MPEEM should be adopted

60.  According to Ms Law, the GGM is applicable in cases where the business model is stable (i.e. with no significant changes in the operations); the company grows at a constant, unchanging rate and that the company has stable financial leverage. This is not disputed by Mr Lee.

61.  Ms Law is of the view that the GGM is applicable in the present case, when the Partnership has been running the minibus business for a very long period; and that the available financial information shows that there were stable profits from 2005-2010.

62.  On the other hand, as to the MPEEM approach, according to Ms Law, it would involve the following (which is not disputed by Mr Lee):-

(1)  First, interviewing the management of the company to understand its financial information and its future business plans;

(2)  Second, building a financial forecast based on the financial information and future business plan obtained from the investigations;

(3)  Third, building a model, but this would involve a wide range of parameters.

63.  According to the experts, the major difference between these two methods is that the GGM focuses on historical financial performance as an anchor of valuation; whereas the MPEEM is based on a prepared financial projection.

64.  Ms Law’s opinion is that the MPEEM is not appropriate in this case for the following reasons:-

(1)  The MPEEM involves a number of projections and assumptions as to the future; and yet there is only limited information available in this case. The available information is not sufficient so as to render a comprehensive and reliable financial forecast. For instance, under the MPEEM, she would need to know how many more minibuses would be needed for the operation of the Route. She takes the view that valuation under the MPEEM is not possible when Winlite’s business was terminated when the report was prepared.

(2)  The MPEEM involves subjective judgments on future cash flows; and yet there is limited financial information for the experts to project on the reasonable future cash flow. Any projection would be liable to manipulation.

(3)  According to Ms Law, Mr Lee had incorporated two major assumptions in his calculation, including (1) the assumption that the economic life of the Licence is for 2 years only; and (2) that he had incorporated large amount of one-off expenses upon ceasing of business. Ms Law’s opinion is that these assumptions are unjustified and had distorted the valuation.

65.  On the other hand, Mr Lee relies upon the fact that, at the early stage of the preparation of the report, in a letter dated 9 January 2020, Ms Law had suggested, inter alia, that the MPEEM should be adopted (without mentioning the GGM). In this respect, Ms Law clarifies that, whilst she did consider the MPEEM at the beginning, after she had obtained the information available and with a better understanding of the case, she realized that the financial projection under the MPEEM cannot be made in light of the limited information available.

66.  Irrespective of the approaches to be adopted for the valuation, I find Mr Lee’s MPEEM valuation unreliable.

67.  First, it is unclear how Mr Lee can build the company’s forecast, when he had very little information about the company’s future business plan / information about its clients. Worse still, Mr Lee has not explained in his report why the financial projection he made is justified without the opportunities of interviewing the management.

68.  Second, bearing in mind that an expert owes an independent duty to the Court, Mr Lee should have clarified in his report that his valuation may be prejudiced by the fact that he did not have the chances of interviewing the management. However, he fails to do so in his report. Such failure compromises his duty to act fairly as an independent expert.

69.  Third, I find the opinions of Mr Lee contrived and problematic. Mr Lee tries hard to say that the MPEEM should be adopted in the present case, relying on the fact that Ms Law or her firm had adopted the MPEEM in 3 previous valuation reports, namely:-

(1)  valuation prepared for Greater China Financial Holdings Ltd (“Greater China Financial”) dated 30 June 2020;

(2)  valuation prepared for Sunshine 100 China Holdings Ltd (“Sunshine”) dated 20 June 2020; and

(3)  valuation report dated 6 January 2020 prepared for Luye Pharma Group Ltd (“Luye”).

70.  With respect, I find Mr Lee’s reasoning contrived and unconvincing. The fact that Ms Law had adopted the MPEEM in the previous 3 valuations by itself does not mean that it is inappropriate for her to adopt GGM in the present case. Further, it is plain and obvious that the 3 previous valuations conducted by Ms Law and her firm are very different from the present one. The subject matters in those 3 valuations are different, ranging from e-commence (in the case of Greater China Financial); first-grade land consolidation in Mainland China (in the case of Sunshine, involving valuation of certain equity interest in a target company); and clinical research and development of innovative drugs (in case of Luye).

71.  More importantly, as apparent from those 3 valuation reports relied upon by Mr Lee, the MPEEM valuations there were prepared after Ms Law or her firm had discussion with those companies’ management on their business plans such that financial projections can be made. This is also consistent with the unchallenged evidence of Ms Law given during cross-examination that, when one prepares a financial forecast and projection for the purpose of the MPEEM valuation, one needs to interview the management of the company for the purpose of ascertaining their business plans. In the present case, it is difficult to see how Mr Lee could justify the financial projections he made, when he did not conduct any interviews of the management of Winlite.

72.  Fourth, as elaborated below, irrespective of which approach is to be adopted, I find it difficult to accept Mr Lee’s valuation, when he takes into account the severance payments and also the financial costs in his financial projection. I see no justification for him to take into account such one-off expenses, as a result of which the income was projected to be negative (such that he concludes that the economic life of the Licence should only be of 2 years only). I shall elaborate further below.

73.  Fifth, his view that the Licence should only have an economic life of 2 years does not sit comfortably with the fact that the Partnership had been operating the minibus business without any interruption for 26 years; and that the Defendant even saw fit to transfer the Licence to HKMCL (a company owned by him and his son) in February 2010.

74.  On the GGM suggested by Ms Law, the major difference between the experts is whether Winlite was earning stable profit. According to Ms Law, Winlite was earning stable profit from 2005 to 2010. Mr Lee disagrees, contending that Winlite had accumulated loss from the year ended 31 March 2006 to the year ended 31 March 2009.

75.  According to the experts, such loss was explicable by the fact that the entirety of such liabilities of not more than HK$6 million (from the year ended 31 March 2006 to the financial year ended 31 March 2010) were due to Winlite’s own directors and shareholders; and it was remarked in the financial statements that such amounts were unsecured.

76.  According to Ms Law, these shareholders’ loans are essentially a form of working capital to support the operation of Winlite; and that a shareholder / director would not demand the loan.

77.  The differences between the experts lie in the fact that Ms Law excludes the sum owed by Winlite to its own directors and shareholders; whereas Mr Lee does take into account such sums.

78.  I prefer the views of Ms Law, for they are consistent with commercial sense and reality. There is no evidence suggesting that directors / shareholders had demanded from Winlite for the repayment of such sums.

79.  Another major area of disagreement relates to director’s remuneration. Ms Law suggests that director’s remuneration should be taken into account for the purpose of considering if Winlite was making stable profits during the relevant period. Mr Lee disagrees.

80.  In support of Ms Law’s opinion, Ms Ng cites Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, 373G-374C as an example in which profits made by the subject company (i.e. similarly a private company in the form of a quasi-partnership) were distributed as directors’ remuneration. Again, I find Ms Ng’s arguments accords with common and commercial sense. In cases involving a small private company like the present one, I find it hard to ignore the directors’ remuneration for the purpose of considering if Winlite was making stable profits.

81.  In the circumstances, I agree with Ms Law that the business of Winlite was stable and had been making profits over those years.

82.  In the closing submissions, in support of her argument that Winlite had no stable profits, Ms Chung referred me to a secured bank loan of HK$7,702,502 in Winlite’s financial statement for the year ended March 2006. This was objected to by Ms Ng on the basis that this was never put to Ms Law.

83.  In my judgment, it is unfair for Ms Chung to rely upon such sum against Ms Law, when this was never put to her during cross-examination (which was accepted by Ms Chung). Further, this point was not open to the Defendant, when Mr Lee did not raise any challenge to the figure for 2006 adopted by Ms Law or raise this point either in his own report or in the Joint Report. In any event, this point would not assist the Defendant, when it is clear from Winlite’s financial statements that it had settled such bank loan within the same year.

84.  In the closing submissions, Ms Chung also challenges Ms Law’s valuation as exaggerating, arguing that Ms Law had included in her GGM valuation the economic benefits of the 5 public light bus licences. I cannot accept this argument. Ms Law’s unchallenged evidence is that none of the cash items on the balance sheet relates to the value of the 5 public light bus licences. According to Ms Law (which is not challenged by the Defendant), the 5 public light bus licences did not generate any cashflow and those 5 licences were only booked at costs in the balance sheets prepared in accordance with the International Financial Reporting Standards. On this basis, I fail to see how the value of the 5 public light bus licences were adopted by Ms Law in exaggeration of the value of the Licence. Ms Chung also fails to demonstrate how those 5 public light bus licences were included in Ms Law’s calculation.

J.  Whether the severance payment of Winlite should be counted

85.  As stated above, a major dispute between the experts is whether the car drivers’ severance payment should be taken into account in the valuation.

86.  According to Mr Lee, the severance payments ought to be included, as severance payments were recorded in the financial statement for the financial year ended 31 March 2006 (i.e. HK$131,409) and for the financial year ended 31 March 2010 (i.e. HK$730,590).

87.  On this basis, in terms of the projected expenses, Mr Lee included in his valuation the severance payments in the sum of HK$152,021 per public light bus for the forecast period from 25 February 2011 to 24 February 2012.

88.  Ms Law disagrees. Whilst she also takes into account the severance payment in 2006, she excludes the severance payment for the financial year ended in March 2010. Her expert evidence is that the valuation has to be conducted on normal market conditions, and thus one should exclude the severance payment in 2010 (which was due to the disputes between the Plaintiffs and the Defendant culminating in the present case). Ms Law further takes the view that Mr Lee’s opinion / argument is circular, viz., his projected valuation is not profitable because Mr Lee took into account the severance payments; and that the severance payment had to be made because the business was not profitable and had to be terminated within 2 years.

89.  For the Plaintiffs, Ms Ng argues that Ms Law’s opinions should be preferred, when the severance payments only arose in the circumstances when Winlite was unable to conduct the business freely in about 2009 and thus had to dismiss the drivers during the financial year ended March 2010.

90.  For the Defendant, Ms Chung argues that both parties contributed to the termination of the Partnership and that Yau decided to withdraw from the Partnership. She asks this Court to adopt the opinions of Mr Lee that the severance payments ought to be taken into account.

91.  Having considered the expert evidence and the parties’ submissions, I prefer the opinions of Ms Law. I see no justification for Mr Lee to project the severance payments in his valuation, when those severance payments were explicable by the fact that the Plaintiffs were forced to cease the business as a result of the Defendant’s wrongful conduct. When Winlite’s position was generally stable and profitable (but for the Defendant’s wrongful conduct), there is no basis for Mr Lee to include in his projection the severance payments. He has not provided any other justification or explanation either.

92.  Further, in light of the facts summarized in Section B above, I am unable to accept Ms Chung’s submissions. Apart from the Plaintiff’s withdrawal from the Partnership, she has not identified any evidence in support of her contention that the Plaintiffs had contributed to the termination of the Partnership.

K.  The question of “reasonable economic life” of the Licence

93.  In her report, Ms Law conducts the valuation of Winlite on the basis of ongoing concern; and on such basis the economic life is deemed to be perpetual. Ms Law considered that the renewal of the PSL was an administrative process and that the minibus business was making positive cashflow consistently.

94.  This is disputed by Mr Lee, who maintains that the economic life should only be 2 years. According to Mr Lee, since the discounted residual cash flows from the Licence are negative, it would make no sense for Winite to continue the operation of the routes under the Licence. Hence, he adopts a reasonable economic life of 2 years from the valuation date, such that his valuation was made on the basis that the Licence would expire in around February 2012.

95.  As explained above, Ms Law observes that Mr Lee reached the negative discounted cashflow only because Mr Lee has included a large amount of one-off expenses (for instance, the severance payments). This is not disputed by Mr Lee.

96.  In my judgment, I agree with Ms Ng that there is no basis for Mr Lee to factor in those severance payments in his valuation. If one were to ignore those expenses, there was no basis for Mr Lee to conclude that the discounted cash flow was negative. As such, it also follows that there was no basis for him to make an assumption that the remaining useful life of the Licence as at 24 February 2010 would only be 2 years.

97.  As stated above, I find Mr Lee’s valuation unsatisfactory, when his opinion is also inconsistent with the reality that the Partnership had been operating the business for more than 26 years; and that the Defendant even tried to transfer the Licence to HKMCL.

L.  The basis of valuation

98.  On the basis of valuation, Ms Law adopts the market value, which is defined in the International Valuation Standards (“IVS”) as “the estimated value for which an asset or liability that should be exchanged on the valuation date between a willing buyer and a willing seller in an arm’s length transaction”.

99.  Mr Lee disagrees and maintains that valuation on the basis of market value is not appropriate in this case because the Licence is not legally transferable and must be returned to the Commissioner for Transport upon its termination or upon the expiry of its operation period.

100.  As stated earlier, there are various features indicating that Mr Lee’s valuation as a whole is unreliable. As such, I am reluctant to adopt his views. I would prefer those of Ms Law and proceed on the basis that the valuation is on the market value of the Licence. But Ms Law accepts that, whether I adopt the market value or the equitable value, this should not impact on the valuation. Mr Lee does not suggest otherwise.

M.   Contributory asset charges

M1.  Not necessary for the Court to determine this issue

101.  In IVS §60.7, “contributory assets” is defined as follows: -

“Contributory assets are assets that are used in conjunction with the subject intangible asset in the realisation of prospective cash flows associated with the subject intangible asset. Assets that do not contribute to the prospective cash flows associated with the subject intangible asset are not contributory assets.”

102.  Mr Lee also refers me to IVS §60.14, which provides that CAC are generally computed on an after-tax basis as a fair return on the value of the contributory asset, and in some cases a return of the contributory asset is also deducted. The appropriate return on a contributory asset is the investment return a typical participant would require on the asset. The return of a contributory asset is a recovery of the initial investment in the asset.

103.  Mr Lee further explains that, given Winlite had 2 assets, namely, the Licence and the 5 licences for the 5 public light buses, the cashflow generated shall be allocated to different assets, namely, the Licence on the one hand and the 5 public light bus licences on the other hand.

104.  In the present case, whilst Mr Lee makes deduction in light of the CAC, Ms Law does not make any deduction in this respect.

105.  Given my ruling that the GGM is to be adopted, it is not necessary for me to resolve the parties’ disputes on the CAC. This is so especially when Mr Lee also accepted in re-examination that no deduction of the CAC is required under the GGM approach. Nonetheless, solely for the sake of completeness, I would set out the reasons why I shall not rely upon Mr Lee’s opinions on the CAC.

M2.  Mr Lee’s opinions on the CAC unreliable

106.  Mr Lee’s opinions on the inclusion of the CAC are, to say the least, doubtful and unreliable.

107.  First, whilst Winlite’s minibuses were not subject to any hire purchase arrangement, Mr Lee proceeds to assume that all 27 minibuses were subject to hire purchase. During cross-examination, Mr Lee mentioned a hire purchase agreement relating to one minibus of the Defendant obtained from the Defendant’s solicitors. Yet the odd thing is that he does not refer the same in his report and did not produce any copy at the hearing.

108.  Second, I found his calculation of the CAC problematic. In his report, he first adopts a figure of 7.74% as the CAC. But when he was challenged in cross-examination that, using his formula, that the CAC should be 8.958% rather than 7.74%, he took a break to review his calculation. After the break, he later came back admitting that the 7.74% adopted in his report was incorrect. However, the problem of his evidence does not stop there. When he continued to give evidence the following day, he tried to put forward yet another formula.

109.  Such change of evidence shows that his calculation of the CAC is unreliable. As such, I place no weight on his evidence even if I have to take into account the CAC.

N.  Discussion: the discount rate

N1.  The evidence

110.  Finally, the parties have disputes on the discount rate.

111.  According to Ms Law:-

(1)  WACC comprises 2 components, namely, the cost of equity and cost of debt. Cost of equity was developed using Capital Asset Pricing Model (“CAPM”), which provides that an investor requires excess returns to compensate systematic risks and an efficient market provides no excess return for other risks. Cost of debt was developed with reference to the long-term prime lending rate.

(2)  She conducted research on available comparable companies for the purpose of determining the appropriate WACC. Ms Law adopted a 4.0% effective discount rate, based on the comparison with AMS (listed in Hong Kong, stock code 0077), which was 4.0%.

(3)  Ms Law then makes adjustment to the 4%, taking into account the fact that AMS is a listed company and that Winlite is a private company, such that there should be a discount reflecting lack of marketability. The lack of marketability discount represents the valuation discount between a publicly traded stock that has a market and a privately held stock with little marketability. On this basis, she applies a discount of 25% to reflect the lack of marketability.

112.  This is disputed by Mr Lee, who maintains that a much higher discounted rate of 13.3% for WACC should be adopted.

113.  To justify his opinion and to attack those of Ms Law, Mr Lee refers to 3 previous valuations prepared by Ms Law or her firm, in which the WACC adopted by Ms Law or her firm as follows:-

Company	Nature of business	WACC
Zhejiang Xin Yunlian Digital Technology Co Ltd / Zhejiang Xin Yunlian Cloud Technology Company Ltd	Fintech / IT Service company	14.0%
Wenzhou Zhongxin Haoyuan Investment Co Ltd	Real estate (raw land毛地 ) development	11.88%
Shandong Boan Biological Technology Co Ltd	Biotechnology Project	14.0%

114.  As such, Mr Lee adopts 13.32% as the WACC, stating that this is more in line with the range of discount rates adopted by Ms Law’s firm.

115.  Whilst Ms Law adopts 4.0% as the WACC after taking into account the fact that the minibus industry is of relatively low risk profile, this is disagreed by Mr Lee. According to Mr Lee, whilst the Partnership had monopoly in terms of the Routes, there still remained competition from other kinds of transport, such as MTR and taxis. However, I find it difficult to evaluate Mr Lee’s opinions, when he does not adduce any evidence or specify any routes which were in competition with the Route under the Licence.

N2.  Submissions and discussion

116.  In her submission, Ms Chung challenges Ms Law’s adoption of 4% as the WACC, when AMS is a listed company with 300 minibuses across 50 routes. She argues that Winlite and AMS are significantly different such that the WACC of 4% adopted by Ms Law should be rejected. She also refers me to Kam Kwan Sing v Kam Kwan Lai (unrep) HCCW 154/2010, in which Harris J rejected the valuation evidence adduced in that case, when the valuer gave expert evidence on the price to earnings ratio of Yung Kee Restaurant by reference to the price to earnings ratio of Tao Heung.

117.  I do not see how those dicta in Kam Kwan Sing would assist Ms Chung’s argument. It is trite that expert evidence is a question of fact. Those dicta in Kam Kwan Sing (above) simply relate to the valuation evidence adduced in that case. It is also trite that legal authorities should be cited for legal propositions, rather than for comparison of facts. In any event, the issues in the two cases are different, when the issue in Kam Kwan Sing is the determination of the appropriate P/E ratio and the issue here is one of the determination of discount rate.

118.  I also agree with Ms Ng’s argument that the 3 examples cited by Mr Lee do not assist the Defendant’s case at all. All those 3 cases involve business which involve higher risks; and in those cases it is not surprising that a higher WACC was adopted.

119.  Nonetheless, on the WACC, I agree with Ms Chung that the 4.0% adopted by Ms Law for WACC is unreasonably low (especially when the adoption of 4% as WACC would result in a valuation in which the 18% of the Licence would exceed HK$18 million and that the value of the Licence would come close to HK$100 million).

120.  Having said that, I also find that the 13.32% proposed by Mr Lee is unreasonably high, especially if one compares it against the three examples cited by Mr Lee. In the closing submissions, Ms Ng put forward the alternative of 8%.

121.  Trying the best that I can by reference to the 3 other valuations quoted by Mr Lee above, I would adopt 9% as the WACC.

122.  Whilst Ms Law makes an adjustment of 25% for lack of marketability, I also agree with Ms Chung that the discount of 25% applied by Ms Law only reflects the lack of marketability; and that there should be further discount to reflect the differences in size between Winlite and AMS. Trying the best that I can, I would give an aggregate discount of 35% to reflect both the lack of marketability and size.

O.  Summary

123.  In conclusion, adopting the parameters put forward by Ms Law, together with those found by this Court, the valuation may be set out as follows: -

Subject	Amount	Formula
Assessed annual free cashflow	437,843	A
Discount rate	9%	B
Perpetual growth rate	2.2%	C
Lack of marketability discount and size	35%	D
Value of Winlite’s business	4,185,264	E = A/(B-C)*(1-D)

P.  Conclusion

124.  In conclusion, it is my finding that the market value of the Plaintiff’s interest in the Licence (as at 24 February 2010), as reflected from the economic benefit brought by it through Winlite’s operation, is of HK$4,185,264.

125.  The parties are directed to agree on the terms of the Order and the question of costs within 14 days from the date of this Judgment. Should no agreement be reached, the parties should fix a hearing before me with 2 hours reserved.