LCTD v. CKMC

FCMC 6340/2018

[2025] HKFC 173

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 6340 OF 2018

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Decision
(Additional Expert Evidence)
(Paper Disposal)

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The Application

1.  Notwithstanding there are two summonses before me, both taken out by the petitioner husband, there is one single issue only: should the petitioner be given leave to adduce an additional expert valuation report with respect to the some shares owned by the respondent wife?

2.  In this Decision, for the ease of reference, I shall refer to the petitioner as “H” and to the respondent as “W”.

Background

3.  This is a case where the bulk of the family assets are under W’s name.

4.  The parties married in 2001. They have 2 children, both are boys and aged 23 and 19 respectively.

5.  On 24 May 2018, H petitioned for a divorce. A decree nisi was pronounced on 19 June 2019.

6.  What is at issue here are the minority shareholdings of W (“W’s Shares”) in two companies, namely, CC and CL (“W’s Companies”). Both CC and CL engage in the leasing of landed properties.

7.  CC is a Hong Kong company and the 100% shareholder of CC (Shenzhen) Limited (“CC SZ”). CC SZ holds 3 Mainland landed properties of the following value:

Property 1: RMB 731 million;

Property 2: RMB 20.4 million;

Property 3: RMB 118 million.

8.  W holds 35% shareholding in CC.

9.  The other company is CL, also a Hong Kong company. CL is the sole registered owner of a Hong Kong property, valued to be worth $44.4 million. W holds 20% shareholdings in CL.

10.  The above valuation of the underlying properties was made as of 31 October 2021 by a Mr. Lau (the parties’ joint valuation surveyor) in his report dated 26 August 2022. The value of these underlying properties is not the subject of the present dispute.

Valuation on W’s Shares

11.  By an order dated 11 May 2021, at the First Appointment Hearing, this Court, inter alia, granted leave for valuation reports to be prepared by a Single Joint Expert for W’s Shares.

12.  On 4 August 2021, after the parties failed to agree on the choice of the Single Joint Expert, this Court appointed Mr. Yeo (“the Expert”).

13.  On 9 January 2023, the Expert filed into Court his Report (“the SJE 1^st Report”), in which he opined at para 68 that, as at 31 October 2021 (“the Valuation Date”) , inter alia:

(1)  W’s Shares were worth $106,354,483 under the adjusted net asset approach and $74,428,620 under the market approach;

(2)  By taking the arithmetic average of these two figures, W’s Shares were therefore valued at $90,391,551.

14.  The Valuation Date was agreed by the parties and was given to the Expert under the Joint Instruction letter dated 26 October 2021 (“the Joint Instruction Letter”).

15.  On 29 October 2021, on behalf of the parties, their solicitors signed an Engagement Letter (“the Engagement Letter”) in favour of the Expert.

16.  In June 2023, the parties attended a FDR hearing without settlement.

17.  By a letter dated 2 November 2023 (“the Requisition Letter”), H’s solicitors set out his requisitions on SJE 1^st Report which I shall deal with below.

18.  In response, by a letter dated 2 November 2023, W opposed amendment or supplement to SJE 1^st Report.

19.  By a letter dated 14 November 2023, the Expert replied that he would not make any amendments to the SJE 1^st Report and would only consider any requests if directed by the Court/agreed by the parties.

20.  Pausing here, I do not find the Expert’s stance or reply could be impeached. It was proper for him not to give any further views in the absence of joint instructions or directions from the court.

21.  On 15 November 2023, H took out a summons seeking leave to adduce additional expert valuation reports on W’s Shares. This is the first summons.

22.  On 13 December 2023, the summons came before HH Judge CK Chan for mention. The learned judge made the following orders:

(1)  The Expert do amend, respond, and/or supplement his SJE 1^st Report in answer to the requisitions raised by (H) in (the Requisition Letter), if the SJE should consider it appropriate and necessary, within 28 days (emphasis added).

(2)  The summons be adjourned sine die with liberty to restore.

23.  On 8 February 2024, pursuant to the Order, the Expert filed his Supplement Report (“the Supplement Report”), reducing his valuation of W’s Shares from $90,391,551 to $85,725,622.

24.  I shall refer to the SJE 1^st Report and the Supplement Report collectively as “the Reports”.

25.  Subsequently, on 18 November 2024, H took out a second Summons seeking:

(1) to restore the first summons: see [21] above ;

(2) leave for H to appoint a Mr Pun of Grant Thornton (or any other person as the court deems fit) as his valuation expert and adduce additional expert evidence within 35 days with respect to W’s Shares; and

(3) leave for H to provide his second expert with “all documents and/or information relevant to valuation of (W’s Shares) for the purpose of preparing such additional expert report(s), including but not limited to (i) financial information of (CC) and (CL), (ii) valuation report by Mr Lau (deleted) of (deleted) dated (deleted); and (iii) valuation reports by (the Expert) dated 6 January 2023 and 8 February 2024”.

Legal Principles

26.  Lord Woolf MR made the following observations in Daniels v Walker (Practice Note) [2000] 1 WLR 1382, at 1387D – G:

“In a substantial case such as this, the correct approach is to regard, the instruction of an expert jointly by the parties as the first step in obtaining expert evidence on a particular issue. It is to be hoped that in the majority of cases it will not only be the first step but the last step. If, having obtained a joint expert’s report, a party, for reasons which are not fanciful, wishes to obtain further information before making a decision as to whether or not there is a particular part (or indeed the whole) of the expert’s report which he or she may wish to challenge, then they should, subject to the discretion of the court, be permitted to obtain that evidence.

In the majority of cases, the sensible approach will not be to ask the court straight away to allow the dissatisfied party to call a second expert. In many cases it would be wrong to make a decision until one is in a position to consider the situation in the round…”

27.  In Daimler AG (formerly known as Mercedes-Benz AG) v Helge Herbert Leiduck and another [2014] 3 HKLRD 56, Madam Recorder Lisa Wong SC (as her Ladyship then was) set out the legal principles governing the admission of additional expert evidence following appointment of a single joint expert:

“32. The appointment of a single joint expert (‘SJE’), whether by agreement between the parties or imposed by the Court, does not per se bar a party from seeking leave to instruct its own expert to challenge the SJE’s evidence or aspects thereof.

33. Leave should and would be granted if, upon balancing all relevant considerations, it is just and accords with the underlying objectives of the Civil Justice Reform (as set out in the Rules of the High Court Order 1A, rule 1) to do so. See Daniels v Walker [2000] 1 WLR 1382 (CA), per Lord Woolf MR at 1386H and L v L, HCMC 1/2003, unreported, 20 April 2005, per Lam J (as he then was) at §§22 and 25. See also Hodgkinson, Expert Evidence: Law and Practice (3^rd Edition) at §5-005 p 158.

34. In Cosgrove v Pattison [2001] CP Rep 68, Neuberger J identified 9 factors for consideration in deciding whether to allow the evidence of a second expert, in addition to the evidence of an expert instructed jointly, under Civil Procedure Rules Part 35:

(1) the nature of the dispute;

(2) the number of disputes on which the expert evidence is relevant;

(3) the reason for requiring the second report;

(4) the amount at stake or the nature of the issues at stake;

(5) the effect of permitting a second expert report on the conduct of the trial;

(6) the delay in making the application;

(7) the delay that might be caused in the conduct of the proceedings;

(8) any other special features;

(9) the overall justice to the parties.

35. With regard to the reason for requiring own-party expert evidence, in Daniels v Walker, supra, Lord Woolf MR held (at 1387E) that additional expert evidence may be permitted where the dissatisfied party’s reasons for wishing to adduce such evidence are ‘not fanciful’. The same judge then seemed to suggest, obiter, a more stringent test in Peet v Mid-Kent Healthcare Trust [2002] 1 WLR 210 (CA) at §28, in that ‘good reasons’, as opposed to ‘reasons which are not fanciful’, must be shown.

36. In L v L, supra, Lam J was referred to both cases and the language of §17 of his Lordship’s judgment[1] appears more consistent with a preference for the ‘not fanciful reasons’ test in Daniels v Walker. Further, it is observed in Hodgkinson, Expert Evidence: Law and Practice, supra, p 158 at footnote 34 that the later dicta was probably per incuriam. The distinction seems to me to be a fine one. […] I am inclined to think that, for what is essentially a case management decision to be made to achieve justice and upon balancing all material factors of which the reasons for challenging the SJE’s opinion is but one, it should be sufficient if those reasons are not fanciful, particularly if the other considerations also point to own-party expert evidence being appropriate.

37. While on the reasons for own-party expert evidence, Mr Wong SC refers to and highlights precedents of such evidence being allowed where the SJE was found to have been instructed by a party’s solicitors many times before (Smolen v Solon Co-operative Housing Services Limited [2003] EWCA Civ 1240) or where a party’s solicitors had secret communications with the SJE (Oldham Metropolitan Borough Council v GW & Ors [2007] EWHC 136 (Fam)). However, the situations in which own-party expert evidence is allowed are not confined to these rather unusual circumstances. Certainly, a case can be made with reference to the materiality, significance and quality of the additional expert evidence in respect of which leave is sought.

38. Neuberger J’s list is acknowledged to be non-exhaustive. The learned authors of Hodgkinson, Expert Evidence: Law and Practice, supra, mention at §5-005 p 159 other examples, two of which are to my mind relevant to the present application: (1) whether the SJE’s report can be challenged by cross-examination without the need for a further report; and (2) whether the parties have already engaged own-party experts.”

(emphasis added)

28.  Further, on whether “not fanciful” reason is the test, G Lam JA in Redland Precast Concrete Products (China) Limited v AES Steel Mould (Hong Kong) Limited [2021] HKCA 1229 said the following at [13],

“[…] it was submitted that the test is whether there are ‘not fanciful’ reasons for the plaintiff to call another expert notwithstanding an SJE has been appointed, and that the fact that there is a materially different opinion from an expert of the same level of expertise as the SJE is such a ‘not fanciful’ reason. We are unable to accept this submission. The reason for the party concerned to want to put forward a second expert report (and it is unnecessary to decide whether it has to be a non‑fanciful reason or a good reason) is simply one of many factors to be considered in the exercise of the court’s discretion, which is ultimately guided by the interests of justice and the underlying objectives of the procedural rules as set out in Order 1A rule 1 of the Rules of the High Court (Cap 4A): Daimler AG v Leiduck (re: expert evidence) [2014] 3 HKLRD 56, §§33‑34; Dennis Kwok Hon Ming v Poon Sui Cheong Albert & others (HCMP 1526/2013, 29 December 2017), §§15‑20. The presence of such reason is not conclusive. The ‘test’ suggested by the plaintiff would mean that a litigant could always adduce its own expert evidence, despite the appointment of an SJE, so long as he could find an expert who took a materially different view. That does not seem to us to be correct.”

(emphasis added)

The Expert’s Reports

29.  Before I come to H’s complaints, it is necessary to understand what happened prior to the release of the SJE 1^st Report so that his complaints can be seen in proper perspective.

30.  I believe the following sequence of events is not in dispute.

31.  On 15 October 2022, prior to the finalizing of the SJE 1^st Report, a draft Report was provided to the parties. This court has not been provided with a copy of the draft Report.

32.  Following this, by a letter dated 14 December 2022, H’s solicitors raised 7 queries seeking clarifications (“the Pre-Report Queries”) from the Expert. In response, the Expert gave his replies (“the Replies”) on 6 January 2023.

33.  I set out the Queries and the Replies side by side below.

No	The Pre-Report Queries	The Expert’s Replies
1.	Given the simple nature of the companies whether the “Income Approach” could be adopted.	The Expert did not consider the income approach since no financial forecast of W’s Companies was available as at the Valuation Date.
2.	“…Our client takes the view that the minimum value of the subject companies should not be lower than the valuation arrived at using the “Adjusted Net Asset Approach”. In reaching this proposition, our client has taken into account the sole business nature of the subject companies – its leasing business. Given the simplicity of its business structure, the shareholders and /or management can opt to continue to operate or terminate the business at any time. In the event that the leasing business underperforms (rendering a situation whereby the “Market Approach” valuation lower than that using the “Adjusted Net Asset Approach”), the shareholders are at liberty to sell the underlying properties to reap the companies’ values. In reciprocal, in the event that the leasing business over performs the valuation of the underlying properties, it is only sensible to adopt the higher valuation of “Market Approach”. Please therefore confirm if the above understanding is correct.	“… the Respondent only owned 35% equity interest in CC and 20% equity interest in CL as at the Valuation Date. As such, W did not have the sole discretion to decide on the future of the operations. Therefore, we have considered and valued the business using both approaches. As regards which approach or valuation result should be adopted, this is a judgment call and we have used an average of the result for simplicity. We do note both approaches used are on the basis that the companies continue to operate on a going concern basis instead of a liquidation basis. Which result to adopt is therefore not based on the performance of the leasing business or intention of the shareholders but the market value of the companies assuming there is a hypothetical willing buyer and willing seller in an arms-length transaction. In other words, it does not matter what the shareholders’ intention is or whether the business is under or over performing, the approaches adopted is just based on a hypothetical situation under market value defined as the “estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.
3.	In respect of CC, the Expert had selected 8 companies as Comparable Companies. H suggested 2 other listed companies for The Expert’s consideration.	The Expert took H’s suggestions into account and revised the figure.
4.	In respect of CL, the Expert had selected 16 companies as Comparable Companies. H queried if the EV/EBITDA (ie “Enterprise value” to Earnings before interests, taxes, depreciation and amortization expenses” ratio) multiples of 3 listed companies might not be accurate as they differed from H’s calculations based on Bloomberg.	The Expert explained the reason for the discrepancies between his and H’s figures. He accordingly updated the figures for consistency
5.	If the accumulated tax loss of RMB5 million as of the Valuation Date could be used to set off against the corporate income tax?	CC might be able to use the accumulated tax loss on the basis that the tax loss is accepted by the PRC tax authorities in accordance with the PRC Corporate Income tax regulations. In any event, if the accumulated tax loss is considered, the final value of the adjusted net asset approach would only increase by 0.53 million.
6.	Since it was assumed that the properties would be hypothetically sold and hence a tax charge would be incurred. He sought for advice on whether the tax charge would be different if the shares of the W’s 2 companies are sold instead of the underlying properties. If so, what would be the quantum change?	The valuation approaches adopted are predicated on the basis of a hypothetical willing buyer and willing seller situation for the shares of the companies. As such, both the market and asset (or NAV) approach is on an exchange of shares basis but does not include any potential tax charge, if any, on the sale of the shares. In terms of tax savings from equity or asset sale, this is out of the scope of work as a valuation expert.
7.	H referred to the very high marketability discount that was being applied when the “market approach” was adopted in arriving at the valuation of CL. He raised the point that, as a matter of tax consideration, it is not uncommon for shareholders of property holding companies to transfer the shares of CL to potential buyers, instead of the underlying property. This scheme should be more commercially attractive to purchase the company as opposed to buying the underlying property outright. The buyer might even be willing to offer a premium. Hence, any DLOM adjustment was not justified.	The valuation approaches have already assumed a sale of the shares. The DLOM reflected a buyer’s preference on liquidity of a listed stock over an unlisted stock. Therefore, the DLOM is applicable to the companies since they are privately held.

34.  It is relevant to note that the Expert did answer all of H’s Pre-Report Queries.

35.  In respect of 6^th Query in which H sought for advice and to which the Expert declined, it is also relevant to note that it was expressly provided in the Engagement Letter that the Expert’s scope of work did not include “Providing or reviewing, without limitation, specialist advice (such as legal, regulatory, accounting, taxation matters”.

36.  The Engagement Letter also expressly set out the three common valuation approaches that could be used on valuation, namely (1) Income Approach; (2) Market Approach; and (3) Adjusted Net Asset (or Costs) Approach.

37.  This was against the above background that the SJE 1^st Report was issued, having incorporated revisions and adjustments proposed by H.

SJE 1^st Report

38.  I now turn to this Report.

Methodologies

39.  At Part H (Valuation Methodologies) the Expert said he had considered common valuation approaches, namely (1) income approach, (2) market approach and (3) adjusted net asset approach. As there was no financial profit and loss forecast of W’s Companies available he could not adopt the Income Approach. His analysis was therefore based on the (1) Market approach and (2) Adjusted Net Asset Approach.

Assessment of Value under Adjusted Net Asset Approach

40.  On the assessment under the adjusted net asset approach (under Part J), given that the properties would be hypothetically sold, he took into account the key expenses related to the disposal in particular any tax charges should be taken into consideration in the valuation of the assets. He said this was supported by numerous publications and even reinforced by legal precedent cases. There the Expert cited some journal articles and judgments. He accordingly included the potential tax charges on the realization of the properties in the valuation namely corporate income tax, value-added tax and land appreciation tax in the adjusted net asset approach. He made an adjustment of RMB 563.24 million and $4.59 million to reflect the potential tax charges for CC and CL respectively.

41.  The Expert accordingly assessed CC and CL’s values at $288.65million and $26.64million respectively, totalling $315.28. W’s share was therefore $106.35 million ($101.03 million + $5.33 million).

Market Approach

42.  In adopting this approach, the Expert made use of the EV/EBITDA (“Enterprise Value” to “Earnings before interests, taxes, depreciation and amortization expenses”) multiple of the comparable companies (which were listed companies). He was aware that the comparable companies might not be exactly identical to CC and CL in terms of size, operations and location. However, the companies selected all had certain aspects of their operations that were similar to CEC and CL in respect of property leasing business.

43.  He estimated CC and CL to be $206.58 million and $10.62 million respectively. W’s shares were therefore worth $74.43 million ($72.30 million + $2.12 million).

Arithmetic Averaged

44.  The Expert took the average of the two figures (ie ($106,354,438 and $74,428,620) ÷ 2) and came to $90,391,551.

Further Requisitions

45.  H was clearly dissatisfied with the SJE 1^st Report. What followed was the Requisition Letter from H’s solicitors on 2 November 2023 that I have referred to at [17] above. There were 3 requisitions. In brief, they were:

46.  First, as regards the adjusted net asset value approach, H queried the need to incur significant tax liabilities even if it is necessary to presume a hypothetical exchange. H invited the Expert to supplement the report by considering possible structures of the hypothetical exchange which best promote tax efficiency (“Tax Efficient Structure”). H suggested that the hypothetical sale could be structured in the following manner:

(1)  Sell Property 2 and Property 3 (being the less valuable properties) and incur Mainland tax on these transactions;

(2)  CC becomes a special purpose vehicle holding Property 1;

(3)  Effect an equity sale of W’s Shares of CC and incur only Hong Kong stamp duty of 0.1% and avoiding Mainland tax of up to RMB 481 million.

47.  Second, as regards the market approach: H questioned the choice of comparable companies for both CC and CL and invited the Expert to review the choice accordingly.

48.  Third, whether the market approach is a wholly inappropriate way to value CC and CL as it failed to reflect their maximum financial potential such that whether it would be more appropriate to adopt the adjusted net assets approach as the only valuation methodology. Further, he queried if it was appropriate to adopt an arithmetic average of the two approaches, instead of adopting the adjusted net value approach only, or a weighted approach of the two approaches.

49.  It is unnecessary to examine the requisitions in minute details. Suffice to say is that the requisitions were essentially a repeat of the previous Pre-Report Queries.

The Supplement Report

50.  As referred to at [23] above, on 8 February 2024, the Expert filed the Supplement Report, reducing his valuation of W’s Shares from $90,391,551 to HK$85,725,622.

Hypothetical Sale under the Adjusted Net Asset Approach

51.  In Part B of the Supplement Report, the Expert dealt with the issue of hypothetical sale structured in a more tax-efficient manner under the Adjusted Net Asset Approach. He maintained, with explanations and calculations, that the potential tax charge of the remaining property, ie Property 1 (which has the highest value) held by CC SZ still needs to be deducted from its market value as a hypothetical sale is assumed. He assessed W’s post-tax 35% equity interest in CC SZ and post-tax equity interest in CL at $91.86 million and $5.32 million respectively, totalling $97.18 million ($91.86 million + $5.32 million).

Under the Market Approach

52.  Under the market approach, the Expert re-calculated the value on a share transfer basis. At para 45, under Part E (Appropriateness of Adopting an Equally Weighted Approach of the Adjusted Net Asset Approach and Market Approach), the Expert explained that the market approach for the value of a company (as opposed to a property) is based on the nature of its income and/or profitability. Given W’s Companies had constantly generated income from the property leasing business, he considered the market approach based on the comparable companies is appropriate in the valuation. He concluded that W’s post-tax 35% equity interest in CC SZ and post-tax 20% equity interest in CL under the market approach were $72.15 million and $2.12 million respectively, totalling $74.27 ($72.15 + $2.12 million).

53.  The Expert explained the choice of comparable companies at Part D of the Supplement Report. The comparable companies selected are listed and principally engaged in property leasing business in the Mainland (for CC) and Hong Kong (for CL). At least 50% of their revenue is contributed by the property leasing business. He also explained that since the multiples of private companies are not publicly available. As such, only multiples of listed companies could be used which was the normal valuation practice. Given the listed comparable companies were not exactly similar to the W’s companies, an adjustment like “Discount for Lack of Marketability” (“DLOM”) had therefore been made to the valuation result. Consequently, the Expert adopted the median EV / EBITDA multiple of the comparable companies as the valuation basis. He further added that as a common practice, the adoption of median figures removed the distortive impact of outliers on the the comparable companies. He therefore considered the choice of the comparable companies and adopted EV / EBITDA multiples (after the DLOM adjustment) reasonably reflected the overall market condition of property leasing business in the Mainland (for CC) and Hong Kong (for CL).

Arithmetic Average

54.  The Expert also dealt with the appropriateness of adopting the arithmetic average at Part E. At para 47, he said he did not find any reasonable basis to choose one approach over the other simply based on the results or even to apply any weighting on the approaches. He therefore took the view to adopt equal weighting to avoid any bias towards either of the approaches.

H’s Case

55.  H claims there are good reasons to adduce second valuation evidence further to the Expert’s evidence. The Reports suffer from serious flaws in reasoning and analysis, including his application of the “adjusted net asset value approach” and “the market approach” in making his valuation. H is essentially repeating his queries set out in the Requisition Letter.

56.  H has since obtained a Preliminary Report from his expert Mr Pun. According to Mr Pun’s Preliminary Report dated 18 November 2024, W’s shares were valued at $340.86 million, 4-time higher than the Expert’s figure. Relying on this Preliminary Report, H says W’s shares were grossly undervalued by the Expert.

W’s Case

57.  In response, it is submitted by Mr Yim that H’s application is a classic case of “expert shopping” and should not be allowed. H’s approach is no different from saying “heads I win, tails you lose”. The arguments that H puts forward ranging from the Expert’s treatment of Mainland tax liabilities to the selection of comparable companies and failure to use the “adjusted net average approach” in reaching the ultimate valuation are all red herrings to mask the fact that his sole grievance is simply that he is unhappy with the value of W’s Shares estimated by the Expert.

Discussion

Tax Efficient Structure

58.  H’s major criticism is that the Expert failed to take into account the tax efficient structure proposed by him. That result in the much lower value of W’s shares.

59.  Mr Man, SC submits that while the Expert considered that share transfer in CC SZ is more tax efficient than the share transfer in CC, there was no meaningful explanation. Despite having the tax efficient structure put to him in the Requisition Letter, the Expert failed to properly consider its implication and maintained that PRC tax charges should be taken into consideration.

60.  As said above, in Part B of the Supplement Report, the Expert did perform the valuation under the Adjusted Net Asset Approach on the basis of a tax efficient structure.

61.  The Expert did explain in SJE 1^st Report at para 46 (and referred to in para 10 of the Supplement Report) that the potential tax charge of the Property 1 held by CC SZ would still need to be deducted from its market value as a hypothetical sale is assumed. This tax charge is therefore included in CC SZ’s current liabilities. He considered the matter on the basis of transfer of shares in CC SZ on the ground that “share transfer in CC SZ is more tax efficient than the share transfer in CC”: see [5] of the Supplement Report.

62.  Further, I do not agree that the Expert did not provide an explanation. Indeed, Mr Man seemingly agrees that the Expert did provide an explanation at footnote 4 of Appendix 2 (Summary of estimated PRC taxes for share transfer in CC and CC SZ) that share transfer in CC (notwithstanding this is a Hong Kong company) would be subject to Individual Income Tax of PRC of 20%, which will be levied on an individual’s “capital gain derived from equity transfer of PRC entity”. It appears to me that Mr Man’s compliant is this explanation was “tucked away” in the footnote and was not set out in the main body of the Report. He then complains this explanation was a bald assertion because the Expert did not mention the “significant citations” in support in Appendix 4 (Applicable PRC & HK tax clause for share transfer of the Supplement Report).

63.  For the above reasons, I do not agree with Mr Man that the Expert failed to have taken a tax efficient structure into account. Nor do I accept Mr Man’s assertion that the Expert misunderstood the tax efficient structure or that he disagreed with the feasibility of the tax efficient structure without any reasons being given. Even accepting that Expert did not mention any “significant citations”, I fail to see how this ground alone would justify adducing an additional expert evidence. There is no reason why clarification or further information could not be sought from the Expert or these issues to be dealt with in cross-examination.

64.  Another challenge is there is no sound basis for the Expert to have taken into account the potential liabilities in the first place. Mr Man criticizes that the well-established “highest and best use principle” (which I take, in the context of his argument, to mean potential tax liabilities should not be included) is nowhere to be found in the Reports. He submits that the Expert’s basis to suggest that tax is relevant is highly questionable. The “journal articles” citied by the Expert in Appendices 9, 10, 11 and 12 of SJE 1^st Repot are either not authoritative statement or not understood. He also questions why a Land Appreciation Tax was included in the total tax liabilities set out in Appendix 3 (Details of the estimated tax provision for CC SZ and CL). I must confess I do not quite follow the basis on which he relies in support of his contention the articles cited were not authoritative statement. Be that as it may, again, I fail to see why clarification or information could not be sought from the Expert.

Market Approach

65.  Mr Man criticizes that the choice of comparable companies was patently inappropriate. All the 25 comparable companies are public, listed companies whereas CC and CL are family-owned private companies. The Expert paid no regard to the vastly different business models, size and operation of the comparable companies.

66.  Further, the inappropriateness is evident from their wide-ranging EV / EBITDA multiples, especially for CC. This can only suggest that there was not even any degree of comparability. For this reason, he questions why the “market approach” is appropriate.

67.  On adopting the median EV / EBITDA multiples, it is submitted by Mr Man that the Expert gave no consideration to assess whether the median multiple is actually an appropriate comparable and that two companies, namely Red Star Macalline Group Corporation Ltd (in respect of CC) and Pokfulam Development Company Limited (in respect of CL), with the median multiples bear little semblance to the nature of CC and CL.

68.  I do not think the complaint is justified. The Expert already set out the selection criteria in Appendix 5 & 6 of the SJE 1^st Report and in [40] to [43] of the Supplement Report. These criteria were:

(1)  The company is listed with sufficient relevant financial information available;

(2)  The company is principally engaged in property leasing business (with similar property type as being owned by CC) in the Mainland: and

(3)  The company with negative EV/EBITDA multiples are excluded.

69.  Mr Man has not sought to argue if any of these criteria was flawed or inappropriate. As a matter of fact, it is to be recalled that H even suggested some publicly listed companies for the Expert’s consideration under 3^rd and 4^th queries of his Pre-Report Queries (see [33] above) some of which were accepted by the Expert when finalizing the SJE 1^st Report.

70.  Mr Man also complains that the adoption of DLOM remained unexplained. I disagree. The DLOM question had been raised as early as in the 7^th query of the Pre-Report Queries and was answered: see [33] above.

71.  Another attack is on the adoption of an average figure. Again, the Expert gave his reply on why an average figure was adopted even before the release of the SJE 1^st Report: see [33] above. He gave further explanations in [44] to [47] of the Supplement Report. In brief, he said it was a judgment call and he did not find any reasonable basis to choose one approach over the other simply based on the results or even to apply any weightings on the approaches. He therefore adopted equal weighting on the two approaches. The fact that the Expert did not depart from equal weighting approach cannot be said to have failed or refused to engage with H’s queries.

72.  H examined the Reports with no stones unturned, so much so that he wore the Reports to pieces as if they were worthless. It may be that the Reports may not be as comprehensive and detailed as the H may wish to argue. There is always room to make a challenge or a complaint on the comprehensiveness or coverage of the Reports, or for that matter, any document, as it is virtually impossible to cover everything. H’s criticism even goes to the extent that certain matters should have been mentioned in the body of the Reports and not at the footnote. It is to be recalled that the Expert did not have to answer each and every requisitions raised by H in the Supplement Report. Pursuant to the Requisition Order, the Expert was only adjoined to answer the requisitions “should he consider it appropriate and necessary”. Nor the order required him to give any explanation if he chose not to give a reply to any particular requisition.

73.  Ultimately, the question is, has the Expert dealt with and addressed the issues that he was tasked under the Joint Instruction Letter. For the reasons that I have said, I have no doubt that he did. I am not persuaded that the Reports are unreliable as contented by H. I agree with Mr Yim that there is no satisfactory explanation from H as to why the Expert is not in a position to give evidence on the valuation of W’s Companies on which he already had in his Reports. H may test all of the Expert’s assumptions, calculations and professional judgments at the trial.

Relative Expertise

74.  Mr Man argues that the Expert is not an expert for this exercise. He highlights that the Expert’s primary area of expertise lies in a large variety of “specialized advisory services, including litigation support, corporate restructuring and insolvency, forensic accounting, mergers and acquisitions, valuation and transaction support”. In comparison, Mr. Pun’s specialist expertise lies in valuation of companies, where he “may” be better positioned to offer accurate valuation evidence to the Court.

75.  I pause here to note that Mr Man uses the word “may”. Without being overly semantic, this begs the question of if H is really of the view that Mr. Pun is in a better position than the Expert.

76.  Mr Man seemed to have alluded to the Expert as a generalist. He, however, has not elaborated on his “generalist” and “specialist” argument. Both the Expert and Mr Pun are Certified Public Accountants in Hong Kong with ample experience. I am not told if Mr Pun is a specialist in PRC taxation. Although the materials before me does not show the exact situation, it seems to me that the Expert has longer professional experience than Mr Pun. Leaving this aside, it is significant to note that the Expert was in fact nominated by H (and not by W) for the purpose of making the appointment of SJE. In fact, the Expert was twice proposed by H, not once. By a letter dated 18 June 2021, H initially proposed the Expert and one Mr McDonagh to be the SJE. Then, by another letter dated 13 July 2021, H changed to propose the Expert and one Mr Tong of Grant Thornton. At the end, by a letter dated 28 July 2021 to the court, H finally chose to nominate the Expert and Mr Tong. H also enclosed the Expert’s CV for court’s consideration which stated “he is the head of the Specialist Advisory Services Department that provides litigation support, forensic, valuation, transaction advisory and insolvency and restructuring services. (His) experience included written opinions on forensic accounting, business valuations, damages assessment and mergers and acquisitions”.

77.  It is intriguing to note that another nominee Mr Tong is in fact Mr Pun’s colleague. According to Mr Tong’s CV provided by H at the time of nomination, he was a partner in charge of both Transaction Advisory Services and Forensic & Investigation Services. The obvious question is, why Mr Pun was not proposed back then if H had contacted Grant Thornton for a suitable candidate?

78.  As Mr Man rightly pointed out, W’s Shares contributed 95% of the matrimonial assets. H, and his legal advisors, must have carefully considered the choice when the nomination was made, especially when it is H’s case that he has a strong “sharing claim”.

79.  For these reasons, I have to reject Mr Man’s argument. I agree with Mr Yim that H wants to have a second bite of a cherry and is “expert shopping”.

Mr Pun’s Preliminary Report

80.  The Preliminary Report apparently is not a response to, not least a critique of the Reports. It is a preliminary valuation of W’s Shares. If leave is granted, H will instruct Mr Pun to prepare a “full report for trial purpose”.

81.  The Executive Summary of the Preliminary Report stated that generally valuation will be based on (1) income approach, (2) market approach and (3) cost approach. Mr Pun did not adopt the Income Approach and the Market Approach (2.3 of the Report). He said it was due to the business nature of W’s Companies that he adopted the summation method of Cost Approach: see paras 1.2 and 2.4.3 of the Report.

82.  It seems to me that a different approach or different assumptions or projections have been adopted. This reminds me of the observations made by Lam J (as he then was) in L v L [2006] HKFLR 121 at [154],

154. … To begin, it is necessary to appreciate some limitations of valuations by the accountants. First, as explained by the experts, valuation is an art instead of a science. A lot of assumptions or projections are built into each valuation exercise and very often these assumptions or projections cannot be tested accurately and may even turn out to be inaccurate with the benefit of hindsight. A slight adjustment in one of the variables could have a great impact on the final result. This was demonstrated by Mr Mostyn in his able cross-examination of Mr Tam regarding the valuation of HKBT. Second, a valuation may depend on the veracity of information supplied by the party. A good example of the latter is the change in the valuation of LR as a result of the reduction in the figure of construction costs as evidenced in the July hearing.

(emphasis added)

83.  It is unknown as to what documents/information were provided to Mr Pun for the preparation of the Preliminary Report such that a value of $340.86 million was arrived at. I believe it is safe to assume that limited amount of documents/information had been provided otherwise there is no need for H to ask for leave from the court for him to provide Mr Pun with the documents/information required for valuation: see [25] above.

84.  Further, it is significant to note that the Preliminary Report expressly stated that “As no management account of CC and CL has been provided, the details of the properties held by W’s Companies and the net assets value (NAV) of CC and CL as at the Valuation Date are based on assumptions provided by (H)”.

85.  Mr Pun also acknowledges that the report is limited in scope as “no verification work has been carried out” and “the legality, authenticity, accuracy or completeness of all information and documents made available” have not been vouched.

86.  In the circumstances, I do not consider that the Preliminary Report is reliable for the purpose of this application. I should be slow to order a second expert just on the basis of the preliminary figures.

Will the Trial be Affected?

87.  The ancillary relief trial has long been fixed to commence on 9 February 2026 (with 5 days reserved). With only about 3 months away, I believe Mr Man is overly optimistic to take the view that the trial dates (being milestone date) would not be affected. Quite to the contrary, there is a high risk that the trial would be derailed. Mr Yim has made it clear that if H’s application is granted, W may need to instruct her own expert to comment on H’s secondary expert report. What followed then would probably be meetings of experts and some other pre-trial preparatory work.

Conclusion

88.  Whether H is allowed to adduce an additional expert evidence is a case management decision. When exercising its discretion, the court has to balance all relevant considerations and guided by the interests of justice and the underlying objectives of procedural rules as set out in Order 1A rule 1, RHC. I am conscious of H’s stance that this is a big money case, especially if it is based on Mr Pun’s valuation. However, on the above analysis and taking all the factors in the round, I do not think it is in the interest of justice that H’s application be allowed.

Order

89.  I make an order that H’s summonses dated 15 November 2023 and 18 November 2024 be dismissed, with costs (with counsel certificate) to W.