TAM SHUK YIN ANNY v. CHOI KWOK CHAN AND OTHERS

HCMP 2399/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2399 OF 2004

____________

____________

____________

_____________

D E C I S I O N

_____________

1.  The judgment in this petition under section 168A of the Companies Ordinance, Cap. 32 was handed down on 14 June 2007.

2.  In paragraph 206 of the judgment, I set out the reliefs sought by the petitioner and made ruling on each of the reliefs sought in the ensuing paragraphs.  I gave liberty to apply generally.

3.  The petitioner and the 1^st and 2^nd respondents have reached agreement on the terms of the judgment and on a number of directions for the valuation of the shares of companies and the landed properties concerned.  The judgment and directions for valuation were sealed by way of orders on 9 and 15 January 2008.

4.  There remains a number of issues that the parties have not been able to reach agreement, they are set out in a list of additional reliefs and a list of further directions for valuation.  The hearing today is to resolve these remaining issues in dispute.  I am satisfied there is power to grant additional reliefs sought as I had granted liberty to apply generally in my judgment.

5.  I will first make an order regarding those of the additional reliefs that are agreed by the 1^st and 2^nd respondents.  So for the additional reliefs, there will be an order in terms of paragraphs (3), (5), (6), (8), (9), (12), (13) and (14), save for one minor amendment to paragraph (9) by adding the words “of the Order dated 9 January 2008” as proposed by the petitioner’s counsel, Mr Hingorani.

6.  I turn to the additional reliefs in dispute and I will take them in the order as in the submissions of counsel.  For convenience, the words and expressions in this decision will have the same meaning as defined in the judgment of 14 June 2007.

Paragraph (1) – stamp duty on sale of No. 49 and No. 57

7.  I had granted relief in the judgment that the petitioner is to purchase from Richmond No. 49 and the 1^st and 2^nd respondents are to purchase from Richmond No. 57.

8.  The petitioner’s contention is that the stamp duty and additional stamp duty, if any, to be payable by the vendor and purchaser on the sale of the above 2 properties should be borne by the petitioner on the one hand and the 1^st and 2^nd respondents on the other hand in equal shares.

9.  The respondents have contended that each party should be responsible for the stamp duty and additional stamp duty of the property that he or she is to purchase, because it is customary for the purchaser to shoulder such burden.  If the respondents’ contention were adopted, they would end up paying less stamp duty than the petitioner as the value of No. 57 would be lower than that of No. 49.

10.  I rule in favour of the petitioner.  In schedule 1 of the Stamp Duty Ordinance, Cap. 117, it is provided that all parties to a conveyancing transaction are liable to pay stamp duty, not just the purchaser.  The reason why a purchaser usually pays the entire stamp duty is because of an express standard provision to this effect in sale and purchase agreements.  The petitioner and the 1^st and 2^nd respondents had been in agreement for a re-distribution of the ownership of No. 49 and No. 57 at the start.  The 2 camps are equal shareholders of Richmond, so each side will get the benefit of 50% of the proceeds on sale of the two properties of Richmond.  It is fair that each side should assume 50% of the burden of the stamp duty payable.  I agree with Mr Hingorani that both should take equal responsibility for the stamp duty that flows from their mutual agreement for re-distribution of ownership.

11.  I make an order in terms of paragraph (1) with the amendments in the petitioner’s reply submission, in the event that the parties are able to agree to an alternative arrangement to minimise the stamp duty payable.

Paragraphs (2) & (4) – reimbursement by the 1^st respondent of interest paid by Advance Wise and Wise Apex to Richmond

12.  In the judgment, I ordered Advance Wise and Wise Apex to pay rent due from No. 49 and No. 57 to Richmond up to the date of presentation of the petition on 17 September 2004 with interest until payment.  The petitioner seeks an order that the 1^st respondent should reimburse Advance Wise and Wise Apex for the interest paid in this regard, as the reason why such interest was payable was due to the 1^st respondent’s default in making rental payments to Richmond, which was found by the court to constitute unfairly prejudicial conduct on his part.  If this relief were not granted, the value of the shares of Advance Wise and Wise Apex would be depressed artificially, given the use of multiplier in the valuation exercise.

13.  The respondents have opposed this on the ground there is no evidence to suggest that the 1^st respondent had made use of the rentals due from Advance Wise and Wise Apex in not causing these companies to pay rent to Richmond.  Furthermore, the companies had been operating as a group with equal share holding between the 2 camps even though there is no formal holding company structure.  It was argued by Mr Law that inter-company transactions would not affect the overall profitability of the group of companies, as whether the profit was maintained in one company or another should not make any significant difference.

14.  The respondents had the use of the money not paid as rent.  The money that ought to have gone to Richmond was re-directed to the 1^st respondent’s management company.  By not paying rent to Richmond, the 1^st respondent had caused Richmond to suffer loss.  I reject the argument of companies in a group, each of the companies are separate entities.  The payment of interest by Advance Wise and Wise Apex would change the value of the shares of these companies as demonstrated in the example given by Mr Hingorani.  It is only fair and equitable for the 1^st respondent to reimburse the interest paid by Advance Wise and Wise Apex to Richmond so that the shares of the two companies can be properly valued without any artificial depression.

15.  I reject also the respondents’ contention that to order the 1^st respondent to reimburse interest paid to Richmond would be tantamount to requiring him to pay interest on interest.  There is no substance in this argument.

16.  I make an order in terms of paragraphs (2) and (4).

Paragraph (7) – reimbursement of rent by the 1^st respondent for occupation of No. 49

17.  In paragraph 234 of the judgment, I ordered Advance Wise to be reimbursed by the 1^st respondent for the rental of No. 49 from 1 January 2006, I have not mentioned the cut-off date to which reimbursement should be made.

18.  The respondents have contended that reimbursement should be up to 17 July 2007 when the keys of No. 49 were delivered to the petitioner, alternatively up to 10 December 2007 by which date the petitioner has taken full control and exclusive possession of No. 49.  The respondents’ counsel submitted that to require the 1^st respondent to reimburse rentals after the petitioner had obtained exclusive possession of No. 49 would be tantamount to double accounting as she could make use of the property exclusively for her benefit.

19.  The petitioner seeks reimbursement of the rental up to the expiry of the lease of No. 10, being 5 September 2008 (the earliest date on which the lease of No. 10 may be terminated pursuant to a break clause), on the ground that she had no choice but to renew the tenancy of No. 10 (the last renewal date was 16 June 2006) as it was the respondents’ fault that Advance Wise was unable to put No. 49 to proper use as a kindergarten.

20.  The rental of No. 49 for which reimbursement is sought is $120,000.  I understand the rent paid by the petitioner on No. 10 is higher.  The rationale for reimbursement is to compensate the petitioner for the wasted cost of supporting 2 premises, i.e. No. 49 and No. 10, when she only needed one property.  There is no double accounting as contended by the respondents.

21.  In the petitioner’s 10^th affirmation filed for this hearing, she said there was a real possibility that renovation works might not be finished by September 2008, being the start of the next school year and she had written to the landlord of No. 10 requesting to extend the date to serve a termination notice under the break clause from March 2008 to June 2008.

22.  The petitioner now seeks an order that the 1^st respondent is to reimburse Advance Wise for the rental of No. 49 until 5 September 2008 or such other date in the event that the lease for No. 10 should be terminated on a later date.

23.  I am not prepared to extend the date for reimbursement of rental on account of non-completion of renovation works by September 2008.  There may be a whole host of reasons why renovation works could not be completed on time, I fail to see why such reasons must be attributable wholly or substantially to the respondents so that they should be responsible for any additional loss incurred.

24.  There would be an order in terms of paragraph (7) as initially drafted.

Paragraph (10) – interest on proceeds of sale of Nos. 49 and 57

25.  The petitioner seeks an order that the 1^st respondent do pay interest on the petitioner’s share of the net proceeds of sale of Nos. 49 and 57.

26.  The respondents have resisted this on the ground that the 1^st respondent has been ordered to pay interest on the petitioner’s share of the accumulated profits of the group already.  It is contended that it would be unfair to require the 1^st respondent to pay interest on proceeds of sale of properties and to pay interest again on the overall accumulated profits of the group.  The respondents say this would constitute double accounting and double recovery.  There had not been any use of the petitioner’s investment by the respondents in the present case to justify an award of compensatory interest.  Mr Law also asked me to look at the overall picture, particularly the rise in the value of the properties since 2004.

27.  There is no question of requiring the 1^st respondent to pay interest on interest, as the order for payment of interest does not extend to unpaid dividends of Richmond, which is not included in the definition of “Companies” in the judgment order of 9 January 2008.  The loss of interest from the proceeds of sale, which was delayed owing to the respondents’ opposition of the petition and resistance of repeated buy-out offers, is a separate loss for which the petitioner should be compensated.  That there had been a rise in the value of properties since 2004 is in my view not relevant.

28.  I award interest on the petitioner’s share of the net proceeds arsing from the sale of Nos. 49 and 57, to run from 17 September 2004 to the date of judgment at 1% over the prime rate of HSBC and thereafter at the prevailing judgment rate until payment.

Paragraph (11) – interest on the purchase price of the petitioner’s shares of Wise Apex

29.  The petitioner seeks interest on the purchase price of her shares in Wise Apex.  The respondents have opposed this on the ground there would be double accounting as the shareholders had been remunerated by dividends already and the petitioner should not be entitled to interest.  There is no substance in this argument.  Dividends and interest are wholly unconnected.  Interest should be awarded to the petitioner as she was delayed in receiving the purchase money for her shares and had lost the opportunity to make use of this money.

30.  I order the 1^st respondent to pay the petitioner interest on the price of the petitioner’s shares of Wide Apex as valued by the independent valuer from the date of valuation to the date of judgment at 1% over the prime rate of HSBC and thereafter at judgment rate until payment.

31.  I now turn to the further directions sought, which have not been agreed.

Paragraphs (1) and (4)

32.  I do not propose to add words to the effect that the valuation determination shall be final and binding upon the parties as suggested by Mr Law.  To allow such words to be added would leave the parties with no recourse to challenge the valuation in the event of errors, unless it could be shown that the expert had departed from instructions given in a material way.

33.  There would be an order in terms of paragraphs (1) and (4).

Paragraph (2) – exclusion of interest payable by Advance Wise or Wise Apex to Richmond from share valuation

34.  The respondents submitted that as the amount due from Wise Apex is more than the amount due from Advance Wise, if interest were to be excluded in share valuation the respondents will be paying more in acquiring Wise Apex.  This is not a good reason for excluding interest.  I think it is right that such a direction should be given to the valuer, otherwise the share value of Advance Wise and Wise Apex would become artificially depressed.  It would be unfair as the interest payable by these companies to Richmond was as a result of the 1^st respondent’s default.

35.  I make an order in terms of paragraph (2).

Paragraph (3) – exclusion of miscellaneous fee income from share valuation

36.  In paragraph (25) of the judgment order sealed on 9 January 2008, it is provided that each of the petitioner and the 1^st respondent do bear the cost and keep all the miscellaneous fee income derived by the Kowloon Tong Schools irrespective of when during the school semester the income was received, i.e. whether at the beginning or during the course of the school semester.  In view of this, I think it is right to give a direction to the valuer that the miscellaneous fee income should be excluded from the share valuation and not be taken into account in the valuation of the shares.

37.  There would be an order in terms of paragraph (3).

Paragraph (5) – costs of valuation

38.  The petitioner seeks an order that the costs of the valuation be borne by the 1^st and 2^nd respondents.  The respondents have proposed that the costs of valuation should be borne by the parties in equal shares, contending that the costs of valuation would have to be incurred in any event even if the parties were to part company on amicable terms.  I think there is substance in this submission.

39.  I am aware I had made an order in another case that the costs of the valuation should be treated as part of the costs of the proceedings awarded to the successful party, but each case has to be considered on its own facts.

40.  I am satisfied that given the way in which the businesses were run here, a valuation exercise would have to be carried out and the parties would have to engage a valuer of shares and a valuer of property even if they had agreed to sever their interests in the 4 companies.

41.  I order that the costs of the valuation to be borne by the petitioner on the one hand and by the 1^st and 2^nd respondents on the other hand in equal shares.

Further direction – stamp duty on proceeds from sale of shares of the Companies

42.  The petitioner seeks an order that the stamp duty, if any, arising from the sale of the shares in the Companies be borne by the parties equally as equal shareholders in each of the Companies.

43.  For the same reason as regards the stamp duty arising from the sale of Nos. 49 and 57, I accept the petitioner’s submission that any stamp duty arising from the sale of shares in the Companies should be borne by the equal shareholders.  There will be an order as sought.

44.  Lastly, I would give liberty to apply in respect of the orders and the directions I made today.