NG WAI SANG AND ANOTHER v. HO PO YENG AND OTHERS

HCCW 456/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 456 OF 2005

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D E C I S I O N

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1.  On 20 March 2007, I gave judgment for the 1^st and 2^nd petitioners on their petition and ordered the 1^st to 4^th respondents to purchase all of the petitioners’ shares in the subject company, Hang Sang Engineering Factory Limited (“the Company”).  On 7 November 2007, directions were made for the valuation of the petitioners’ shares by a valuer being a certified public accountant (“CPA”) to be agreed by the parties or, in the absence of agreement, to be appointed by the president of the Hong Kong Institute of Certified Public Accountants (“HKICPA”).  I ordered costs of the valuation shall be borne by the respondents jointly and severally.  I declined to award quasi interest to the petitioners as I did not envisage the valuation to be a drawn-out exercise and as the petitioners would receive interim payment of the purchase price on account as provided under the order (paragraph 24 of my decision on 7 November 2007).  That expectation turned out to be misplaced.

2.  On 27 June 2008, I made an order by consent appointing RSM Nelson Wheeler (“RSM”) as the valuer.  I was not told why it took over half a year for an appointment to be made, except that the parties had approached HKICPA to make an appointment in December 2007 and the latter had selected 3 CPA practices at random in February 2008, RSM being one of them.

3.  RSM agreed to act as the valuer pursuant to the terms set out in their engagement letter dated 9 July 2008, which incorporated the consulting terms and conditions of business in appendix II to the letter.

4.  The valuation process began in August 2008 and carried on for 8 months until mid March 2009.  It came to a stop when the respondents’ solicitors sent a 10-page letter addressed to each of the partners in RSM on 13 March 2009 asserting that the respondents have become “gravely and justifiably concerned about the impartiality, or lack thereof, displayed by various members of the [RSM] Engagement Team” and mentioned “3 major episodes” which had caused the respondents to “seriously doubt the neutrality of [RSM] acting through the Engagement Team”.  The respondents demanded a “detailed and thorough explanation” from RSM about each and every allegation set out in sections C to E of the letter within 7 days and to change the Engagement Team within 7 days.  They reserved the right to seek a termination of RSM’s appointment if the explanation was not to their satisfaction or if RSM should refuse to change the team in charge.

5.  By the time of the letter in March 2009, and according to the information provided by RSM to the respondents as stated in the said letter, the substantial portion of the valuation exercise had already been completed.

6.  RSM responded by a terse letter dated 20 March 2009, stating they considered all the allegations were not valid and not supported by reasonable grounds, they did not consider it necessary to change the Engagement Team, and they had reasonable grounds to believe they “have been threatened and have been exerted pressure” and believe “this would adversely impair [their] independence in this engagement”.  They stated they would withhold valuation work and would consider resuming only if three conditions were fulfilled: withdrawal of the respondents’ allegations; all the shareholders of the Company should sign a letter confirming RSM are independent and unbiased; and the respondents should settle the outstanding interim bill which was $99,965 at that time.

7.  The respondents’ solicitors regarded the conditions of RSM as “preposterous” and “farcical”.  The petitioners’ solicitors reminded RSM they were appointed by the court under Order 40 rule 1 of the Rules of the High Court and owed a duty to the court and the parties to continue with their work.  They urged RSM to complete the valuation as further delay would be detrimental to the petitioners.  Further correspondence was exchanged between RSM, the respondents’ solicitors and the petitioners’ solicitors.

8.  RSM consulted solicitors, Messrs Tso Au Yim & Yeung (“TAYY”).  TAYY wrote to the respondents’ solicitors on 18 May 2009 responding in detail to each of the allegations of the respondents.  Costs were incurred in respect of the work done by TAYY.  They rendered a bill of costs to RSM of $39,137 for work done by a partner over 11 hours during April to June 2009.

9.  RSM also issued an interim bill to the respondents on 18 May 2009 being “provision of valuation consulting services” from 11 February 2009 to 8 May 2009 in the sum of $231,857.  There is no dispute that the first 11 items of work in the job report during this period were in relation to valuation work and the respondents have agreed, after the present summons of the petitioners was issued, to pay part of the bill attributable to those items of work.  The respondents refused to pay the other items of the bill, which related to work done arising out of the allegations of bias made by their solicitors, contending that such work was not in relation to the valuation job and any investigation undertaken by RSM of the respondents’ allegations were “directed solely towards Nelson Wheeler’s own internal and proper management”.

10.  RSM refused to continue with the work citing paragraph 9.2.2 of their terms and conditions of business, which provided that in the event their invoice is not settled in full by the due date, they may suspend performance of services.

11.  To resolve the impasse, the petitioners issued the summons on 15 July 2009 seeking an order that the respondents do settle the interim bill of RSM dated 18 May 2009 in the sum of $231,857 and the bill of costs of TAYY of $39,137 within 7 days, alternatively, such other orders as the court sees fit.

12.  Two weeks before the hearing of the petitioners’ summons, the respondents issued a summons returnable on the same day seeking an order that UHY Vocation HK CPA Limited or another CPA firm in Hong Kong be appointed as the valuers in place of RSM.

13.  According to the supporting affirmation of the respondents’ solicitors, the reason for their summons was because the respondents take the view they have no responsibility to pay the fees in dispute, and as RSM is unwilling to resume work until the fees are settled, the most expedient way of completing the valuation is to appoint new valuers, notwithstanding the respondents would have to pay more for engaging new valuers.

14.  In my view, the fees incurred by RSM in dealing with the respondents’ allegations of bias plainly arose out of the valuation work.  The respondents are obliged to pay the expenses incurred by RSM in connection with the valuation work.  I regard the submissions of Miss Cheung to the contrary as untenable.  There is no need to say more about this.

15.  Under Order 40 rule 5(1), the remuneration of the court expert shall be fixed by the court.

16.  I consider the amount in the bill of costs of TAYY as entirely reasonable.  This amount is allowed in full.

17.  I have considered the job report of RSM which gave a break down how the sum of $231,857 in their interim bill was arrived at.  I consider it unreasonable for each of the 9 partners to charge for their time spent in reviewing the letters of the respondents’ solicitors after the first letter of 13 March 2009 and in taking part in a discussion meeting.  In my view, the work should reasonably have been delegated to one of the partners, who is the managing director and one of the members of the Engagement Team.  The time costs I deduct in this regard are in the total sum of $60,750.  The amount I allow to RSM is $171,107.25.

18.  I make an order on the petitioners’ summons that the respondents are to pay within 14 days hereof remuneration to RSM in the sums of $171,107.25 in respect of the interim bill of RSM dated 18 May 2009 and $39,137 in respect of the bill of costs of TAYY.

19.  I see no reason why I should replace RSM with new valuers, notwithstanding the respondents are willing to pay more for new valuers to take up the work where RSM has left off.

20.  Firstly, as mentioned earlier, RSM has been working on the valuation for 8 months and the substantial portion of the valuation exercise has already been completed by them.

21.  Secondly, as recognised by the respondents’ solicitors in their letters dated 4 June and 11 August 2009, the “most sensible and practical way forward” is for RSM to proceed with and complete the valuation work as expediently as possible.

22.  Thirdly, RSM have, by the letters of TAYY dated 18 May and 12 June 2009, stated that they are willing and ready to proceed with the valuation and fulfil their duties to the court subject to the compliance with their terms of engagement by the petitioners and the respondents, including in particular, the settlement of RSM’s outstanding fees.

23.  Fourthly, as I understand from the supporting affirmation of the respondents’ solicitors, the respondents are not seeking to remove RSM for bias.  They are seeking to appoint new valuers to avoid the need of engaging in “a protracted piece of litigation to determine whether the allegations against Nelson Wheeler have been made out.”  This is a curious kind of reasoning.  I do not accept it.  This is tantamount to saying the mere fact that allegations of bias are made is a sufficient reason for removing a court appointed expert so as to avoid the time and expense of looking into the complaint.  In any event, on the evidence adduced before me, I am far from satisfied the complaints of bias are made out.

24.  I dismiss the respondents’ summons to replace RSM as the valuers.

25.  I order costs of both summonses to be paid by the respondents to the petitioners forthwith, as this is a discrete matter consequential to the main litigation.  I see no sufficient reason to deprive the petitioners of part of their costs on their summons, notwithstanding I have disallowed part of the fees in the bill of RSM.  The petitioners have to come to court to seek an order due to the respondents’ refusal to pay any part of RSM’s bill attributable to work done to deal with the complaints of bias and the petitioners have succeeded in their application.  I decline to give a certificate for two counsel for the petitioners’ representation.