DENNIS KWOK HON MING v. POON SUI CHEONG ALBERT AND OTHERS

HCMP 1526/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1526 OF 2013

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MISCELLANEOUS PROCEEDINGS NO 1527 OF 2013

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MISCELLANEOUS PROCEEDINGS NO 1528 OF 2013

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(Consolidated pursuant to the Order of
the Honourable Mr Justice Harris dated 27 January 2015)

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JUDGMENT

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Introduction

1. This is the directions hearing to precede a substantive hearing at which the court will be asked to fix the price of the shares of the petitioner (“P”) to be bought out by the Majority Shareholders pursuant to the judgment of 14 December 2016 (“the Main Judgment”).  P has also taken out a summons dated 14 June 2017 for interim payment, supported by P’s affidavit of the same date.

Directions

2. I gave initial directions for the valuation process by order dated 15 March 2017 (“the March Order”).  In particular:

(a)  Where the parties had agreed that one or more independent valuers should be appointed, but could not agree on the identity of such valuers and requested the court to make such determination, I ordered that Deloitte and Colliers (“the Independent Valuers”) be directed to value P’s shares.

(b)  I directed the basis of valuation.

(c)  I ordered the valuation report to be produced within 60 days.

(d)  I directed that any questions raised by the parties on the valuation report be put to the Independent Valuers within 14 days, and that the Independent Valuers respond within 14 days thereafter (“the Q&A Process”).

(e)  I gave directions for this directions hearing, including that it should be fixed between 1 June and 1 July 2017. 

3. At the Independent Valuers’ request, the time for filing of the valuation report was extended to 23 June 2017.  The directions hearing had already been fixed for 28 June 2017.  This did not allow time for the Q&A Process with the Independent Valuers.

4. The parties had largely agreed directions.  They have made provision for the Q&A Process with the Independent Valuers, and procedural directions for listing and preparing for the substantive hearing.  Save that I would not approve proposed direction 3(e) in respect of evidence in its agreed form (for reasons given below), the other directions would be unobjectionable.  However, the dates in certain of the proposed directions (eg 3(a) and 3(b)) would need some adjustment in light of my views on evidence.  Further, the performance of the directions will need to be temporarily suspended in light of the emergence at the end of the hearing of P’s intention to apply to the court to address the question of incomplete and/or inaccurate information being provided to the Independent Valuers.

5. Proposed direction 3(e) is that there should be no evidence filed after the lodging of hearing bundles without leave.  That suggests that any evidence could be filed without leave before lodging of the hearing bundles (which is due 14 days before the substantive hearing).  That is not acceptable. 

(a)  The principal reason is that the substantive hearing should not be listed at a time when the valuation process is not complete, and it is not known what the state of the evidence will be nor how much will be disputed.  In those circumstances, it will not be possible to provide a time estimate. 

(b)  A potential second reason is that it is not clear whether further valuation evidence is admissible where the parties sought the appointment of independent valuers only prior to the March Order. 

(i)  I did not, by the March Order, permit further valuation evidence (other than the independent evidence) to be filed.  My directions for evidence in para 2.2 of that order related only to evidence to assist in resolving any outstanding issues at this directions hearing.  (At para 32 of my March Judgment I gave an example of a matter which might need to be addressed at this directions hearing, ie the return of papers from the Independent Valuers, which was not suitable to be addressed in March).

(ii)  At this directions hearing, Mr Joffe orally submitted that the parties would be entitled to adduce further expert evidence without leave pursuant to Order 40, rule 6 of the Rules of the High Court.  As this was a point not raised in his written submissions upon which I had no submissions from P, it is not a matter which I will determine now.  It is not yet relevant to determine because the independent valuation report process is not complete before the end of the Q&A Process, so it is premature for either party to decide if they would want to adduce further expert reports and/or cross-examine the Independent Valuers.

6. I will direct (and the parties were agreeable to this) that if either of the parties seeks to adduce further evidence at the substantive hearing, they must inform the other parties (within 14 days of completion of the Q&A Process) what further evidence they propose to adduce, from whom, on what issues, and pursuant to what jurisdiction.  If there is any dispute about the ability to adduce such evidence, then the matter can be brought back for directions.  Mr Joffe confirmed that if there was going to be an application to adduce a second expert report, then that application would be made within 14 days.

7. For the avoidance of doubt, it was common ground, and I agree, that time should not start running under RHC Order 40, rule 4 until the completion of the Q&A Process, as only at that time are the Independent Valuers’ reports actually complete. 

8. P requests an assessment of damages to be heard with the substantive hearing for fixing the price for buy-out.  P refers to the Main Judgment at para 253 where I stated that I considered I had jurisdiction under section 168A(2)(b) of the Companies Ordinance to order the Majority Shareholders to make payment of lost remuneration in the form of manager’s bonus by way of damages to P.  However, para 260 of the Main Judgment addresses the form of order for payment of lost remuneration; as formalized in para 4 of the sealed Judgment.  The findings of breach of shareholders’ agreement formed part of the finding of unfairly prejudicial conduct.  The remedies for the unfairly prejudicial conduct are as set out in the sealed Judgment.  There is no scope for further damages to be awarded in respect of the same unfairly prejudicial conduct.

9. P is unrepresented.  The Majority Shareholders are represented by Mr Victor Joffe, Mr Justin Ho and Mr Tom Ng.  In these circumstances, I asked Mr Joffe to assist me as to whether or not there were any further matters which ought to be addressed before a hearing to fix the value of shares for buy-out pursuant to an unfair prejudice petition which are not on the agenda at this directions hearing.  He responded that there were not.

10. Towards the close of the directions hearing, R5 requested that she be entitled to participate in the Q&A Process with the Independent Valuers, and in their cross-examination.  R5 did not seek or obtain any relief in these Petitions.  The issue of the price to be paid by the Majority Shareholders for P’s shares is a matter between P and the Majority Shareholders.  If, however, she and P wish to cooperate in the presentation of P’s case by P, then that is unobjectionable.  To the extent that the Majority Shareholders have apparently excluded R5 from meeting with the Independent Valuers with P and the Majority Shareholders, it was clarified by Mr Joffe that there was no objection to R5 assisting P, as opposed to pursuing her own interests which are not in issue in these proceedings.

11. It was after R5’s application, at the end of the hearing, that it emerged that P has concerns that the Independent Valuers have not been provided with complete or accurate information for the purposes of producing their report.  P indicated that he had intended to cross-examine the Independent Valuers on this issue.  I indicated to P that if his concern was with the quality or content of information provided to the Independent Valuers, rather than the conclusions they had formed on complete and accurate information, then this was a matter to be resolved as soon as possible and prior to completion of the valuation process.  P confirmed his concern to be as to the content of the information provided.  In the absence of any application or evidence before me, this was not a matter which I could address.  P stated that he would make an application in respect of the information provided to the Independent Valuers within 14 days.  Directions for how to deal with that application can hopefully be agreed by the parties and in any event should be addressed on paper (not necessarily by me).

12. In light of the developments at the hearing, Mr Joffe submitted, and I agreed, that the Q&A Process with the Independent Valuers should not take place before P’s proposed application is resolved.  Mr Joffe agreed that his team would amend the proposed directions to reflect developments at the hearing; seek to agree the same with P; and in any event provide them to me to be addressed on paper.

Interim payment

13. P seeks an interim payment of HK$3 million, pending a determination of the price of his shares. 

14. I adjourned the application for interim payment with liberty to restore for the following reasons.

15. By way of jurisdiction in the unfair prejudice petition context:

(a)  P refers to Ferguson v Maclennan Salmon [1990] BCC 702; Re Hang Sang Engineering Factory [2007] HKEC 2073; Lam v Kook, (unreported) HCCW 1138/1999, 4 September 2007.  These authorities demonstrate a jurisdiction to make an order for an interim payment where the court is satisfied that an amount would ultimately be payable in respect of a buy-out order.

(b)  I note that in Ferguson, there was no dispute as to liability for unfair prejudice, only a dispute over value of the shares.  Accordingly, the court could be satisfied that there would ultimately be a pay-out.

(c)  Without deciding the point, it is not clear to me whether or not the Court has jurisdiction to make an interim payment order where the unfair prejudice finding is subject to appeal. 

(d)  If this application is restored, then this jurisdictional issue should be addressed so far as possible.

16. In order to demonstrate that a sum definitely will be paid to P, P refers, inter alia, to the Independent Valuers’ conclusion as set out in Deloittes’ report of 23 June 2017 that P’s shares are worth in excess of HK$22 million; to a January 2016 valuation of the Companies’ land assets by virtue of which P says his shares could be valued at HK$15 million; and also to Mr Tseng’s 5^th affirmation in the Court of Appeal dated 18 April 2017, which accepts that Ps’ shares would have a value before discount of at least HK$8 million (without supporting evidence).

17. In this case, if the Main Judgment were to be successfully appealed, then P would receive no payment at all, but would be liable in costs.  In such circumstances, whatever my own views about the prospects of success of any appeal, I cannot presently be satisfied that P will definitely receive payment.  This may be a matter covered by authority not shown to me. 

18. I bear in mind that one of the reasons I refused a stay of execution of the Main Judgment was that I did not accept that an appeal would be rendered nugatory in the absence of a stay.  Assuming no jurisdictional problems arising from the existence of an appeal, I do not consider I could make an interim payment unless I considered that P could repay the interim payment as well as costs out of his assets (as to which, I am only aware of his shares and/or shareholder loan).  I do not currently have reliable evidence before me to show that the shares could cover all these potential liabilities.

19. It seems to me that, if P considers the above jurisdictional and evidential difficulties can be overcome, restoration may be considered after the Court of Appeal’s determination of the stay application.  If the Court of Appeal orders a stay of execution of the Main Judgment, then there can be no question of an interim payment.  If the Court of Appeal dismisses the stay, then these proceedings can continue to be finalized.  I would hope that at that time, there would be clearer views on the range of possible valuations of the shares; and better, more reliable, evidence of costs which might be recoverable from P[1] (ie evidence from the Majority Shareholders’ solicitors).  In particular, if the Court of Appeal dismiss the stay application, I assume that the costs of the stay applications would not be recoverable from P.

Costs

20. I make a costs order nisi, which will become final within 14 days:

  (a)  Costs of the directions hearing be in the cause;

  (b)  Costs of the interim payment application be reserved.