CHAN LUEN YAN AND OTHERS v. CHAN TIN CHAI AND OTHERS

CACV 161/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 161 OF 2013

(ON APPEAL FROM HCCW NO. 211 OF 2007)

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JUDGMENT
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Hon Cheung JA:

1. I agree with the judgment of Chu JA. Accordingly, there will be an order in terms of paragraph 69 of the judgment.

Hon Chu JA:

Introduction

2. This is the 1^st to 4^th petitioners’ appeal against the order of Ng J (“the Judge”) of 3 July 2013 directing that:

(1) The petitioners’ shares in the 11^th respondent (“the Company”), whether Class A or Class B, be valued at HK$1,215.71 per share;

(2) The Company pays each of the petitioners the purchase price for their shares in the Company in accordance with the valuation, and interest, if any; such payment to be made by bankers draft on a date to be agreed between the petitioners and the Company, such date to be not later than 60 days from the date hereof; and

(3) Concurrent with the payment by the Company of the purchase price and interest, if any, on the date to be agreed, each of the petitioners shall execute all bought and sold notes, instruments of transfer and other documents reasonably required by the Company to effect the transfer of the petitioners’ shares to the Company. 

3. The petitioners also seek to appeal against the Judge’s order on costs insofar as he ordered the petitioners to pay the respondents’ costs of the valuation exercise incurred after 13 August 2012, to be taxed on party and party basis if not agreed.  

The background

4. The background and facts relevant to this appeal are taken from the Judgment of Barma J (as he then was) dated 14 May 2010 in HCCW211/ 2007 and also the Judge’s Judgment in the same proceedings dated 3 July 2013.

5. The petitioners are the minority shareholders in the Company and the 1^st to 9^th respondents are the majority shareholders.

6. All the individuals who are parties to this appeal are members of the same extended family, but from different branches of it. They are all members of a Chinese family tong known as the Chan Him Muk Tong. Members of the tong have since the early twentieth century, together with members of another Chinese family tong known as the Li King Sun Tong, operated a Chinese medicine business in Hong Kong under the name of “Chan Li Chai”. The business, which was initially operated under a partnership, was incorporated in 1975 under the name of Chan Li Chai Medical Factory (Hong Kong) Company Limited (“CLC Ltd”).  

7. The Company was acquired by members of eight out of the ten branches of the Chan family. Its shares are divided into two types – Class A and Class B, and they carry different voting rights.

8. On 22 January 1998, eight of the shareholders of the Company agreed to inject into the Company, by way of shareholder’s loans, their share of the sale proceeds of two properties of CLC Ltd.  The amount injected was HK$25.9 million.  It was also agreed that any transfer of shares in the Company by a shareholder should be accompanied by an assignment of his shareholder’s loan, and that the shareholder’s loans should be repayable only with the approval of the board of directors.

9. The Company is the registered owner of Units A1 and A2 of the 2^nd and 3^rd floor in Block A and also a car parking space at No. 40 Lee Chung Street, Chaiwan, Hong Kong (“the Chaiwan Property”).  The Chaiwan Property was rented out to CLC Ltd under a tenancy agreement.

HCCW 211/2007

10. On 15 May 2007, the petitioners presented a petition in HCCW211/2007 seeking relief under sections 168A and 177(1)(f) of the Companies Ordinance, Cap. 32, including an order that the respondents purchase their shares in the Company at a price to be determined by reference to the net asset value per share at the date of the petition.  The petitioners’ complaints relate to the manner in which the Company was run and its dealings with CLC Ltd.   

11. By his judgment handed down on 14 May 2010, Barma J held (at §52) that the decision in January 2005 to grant CLC Ltd a waiver of rent for 18 months, and to make all loans to CLC Ltd interest free from November 2004 onwards constitute conduct unfairly prejudicial to the interests of the petitioners. Barma J ordered (at §55) that the Company shall buy out the shares of the petitioners “on the basis of its net asset value as at the date of the petition, adjusted so as to include interest on outstanding loans and advances by [the Company] to CLC Ltd and all arrears of rental (ignoring any agreement by [the Company] to waive outstanding or future rents)”.   

12. On 25 July 2011, upon the parties’ joint application, Barma J made an order that the parties jointly appoint Mr Philip Lam of KLC Kennic Lui & Co (“the Valuer”) to perform an independent valuation of the Company’s net asset value pursuant to the order of 14 May 2010.

13. The Valuer issued his report on 3 November 2011 (“the Valuer’s 1^st Report”). He assessed the adjusted net asset value of the Company as at 15 May 2007 to be HK$2,894,238. On the basis that there were 1,800 Class A shares and 1,500 Class B shares, and that the two classes of shares had the same rights to dividends, entitlement and benefits, he assessed the adjusted net asset value per Class A and Class B share to be HK$877.04.

14. The petitioners were dissatisfied with the valuation. Upon their application, Barma J directed the parties to file further evidence and also to obtain a further report from the Valuer. Several rounds of affidavits were filed by the petitioners and the respondents. This included an affidavit from the petitioners’ own expert, Mr Lam Yat Cheong, who is a CPA, in which he exhibited a report of his valuation of the adjusted net asset value of the Company and its shares (“the LYC Report”). In the LYC Report, the adjusted net asset value of the Company was assessed at HK$16,692,343 and the adjusted net asset value per Class A and Class B share was assessed at HK$5,058.28.

15. By summons issued on 27 June 2012, the petitioners applied for a review of the Valuer’s 1^st Report as follows:

(a) The impairment provision for the loan to CLC Limited in the amount of $5,226,292 be reversed;

(b) The rent that had been waived be paid at the market rate, together with interest accruing at the commercial rate or judgment rate;

(c) The provision for impairment loss for the Company’s investment in CLC Ltd should be reversed;

(d) The directors’ estimated valuation of $15,863,000 be adopted as the valuation of the Chaiwan Property;

(e) The legal costs incurred in HCCW211/2007 should not be borne by the Company; and

(f) Directions be given on how the market rental, appreciation in the value of the Chaiwan Property and interest should be calculated after 15 May 2007 in order to compensate the petitioners’ interests.

16. The Summons also asked that a date be set for the completion of the procedure for the purchase of the petitioners’ shares. It further sought an order directing the Company to repay to the petitioners their shareholder’s loans which, according to the LYC Report, amounted to over HK$4 million as at 15 May 2007.

17. By order dated 18 July 2012, Barma J gave leave to the parties to file further evidence and directed the Valuer to take into account the further evidence when rendering his further report.

18. On 13 August 2012, the Valuer issued his supplemental report (“the Valuer’s 2^nd Report”), in which he revised the adjusted net asset value of the Company as at 15 May 2007 to HK$4,011,849 and the net asset value per Class A and Class B share to HK$1,215.71.   

19. The revised valuation is not accepted by the petitioners. Upon their application, another round of affidavit evidence was filed.   

20. The summons eventually came before the Judge for determination.  By his judgment handed down on 3 July 2013, the Judge accepted the Valuer’s valuation and made the orders set out in paragraph 2 above.  He refused to accede to the request in the summons that the Company be ordered to repay to the petitioners their shareholder’s loans at the same time as the completion of the buyout.

21. The Judge gave directions for the parties to put in written submissions on the issue of interest on the purchase price to be paid by the Company and the costs of the summons.

22. By his decision handed down on 14 August 2013, the Judge awarded interest on the purchase price at 1% over the prime rate of the Hong Kong and Shanghai Banking Corporation for the period from 15 May 2007 (the date of the petition) to 14 May 2010 (the date of the buyout order) and at judgment rate thereafter.  As to costs, the Judge ordered the respondents to pay the petitioners the costs of the valuation of the shares up to 13 August 2012 (the date of the Valuer’s 2^nd Report), and the petitioners to pay the respondents the costs of valuation incurred thereafter.

Differences in the valuations of the Valuer and the petitioners’ expert

23. The differences between the valuation of the Valuer’s 1^st Report and the valuation of the petitioner’s own expert have been summarised and set out in the Valuer’s 2^nd Report (at §10.1). The Valuer’s 2^nd Report made revisions to two of the disagreed items. A summary of the differences in the Valuer’s 1^st and 2^nd Reports and the LYC Report is as below:

Items	Valuer’s 1st Report (HK$)	LYC Report (HK$)	Valuer’s 2nd Report (HK$)
Investment in CLC Ltd	1	350,000	1
Goodwill of CLC Ltd	0	2,136,311	0
Chaiwan Property	11,200,000	15,890,000	12,100,000
Impairment provision for the loan to CLC Ltd	( 5,226,292)	0	( 5,226,292)
Legal expenses written back	0	320,000	217,611
Interest on loans to CLC Ltd	662,785	1,738,288	662,785
Adjusted Net Assets Value of the Company as at 15 May 2007	2,894,238	16,692,343	4,011,849
Adjusted Net assets Value per Class A and Class B share	877.04	5,058.28	1,215.71

The appeal

24. The petitioners’ appeal relate to the following aspects of the valuation: 

(1) The valuation of the Chaiwan Property;

(2) The calculation of the waived rent;

(3) The interest rate on the outstanding loans to CLC Ltd and the waived rent;

(4) The provision for impairment loss of the Company’s loans to CLC Ltd;

(5) The valuation of the Company’s investment in CLC Ltd (i.e. 225 shares acquired at HK$350,000), which was written down to HK$1, and the related issue of the goodwill in “Chan Li Chai”;

(6) Repayment of shareholder’s loans; and

(7) The Judge’s costs order. 

25. The Notice of Appeal seeks the following relief:

(1) The Company shall repay the petitioners’ shareholder’s loans at the same time of purchasing their shares;

(2) Another valuation report for the Chaiwan Property be called for and the property be valued at its current market value;

(3) The interest on the loans be fixed by reference to previous loan contracts;

(4) The 30.5 months’ waived rental should be calculated at the prevailing market rate;

(5) The provision for impairment loss of the Company’s loans to CLC Ltd in the amount of $5,226,292 be reversed; and

(6) The provision for impairment loss in respect of the Company’s $350,000 investment in CLC Ltd be reversed.

26. As the Notice of Appeal was issued on 30 July 2013, before the Judge gave his decision on interest and costs, it also seeks interest on the purchase price of the shares from the date of the petition until completion of the purchase, and also costs incurred after Barma J’s judgment of 14 May 2010 to be borne by the respondents.  These aspects have been covered in the Judge’s Decision dated 14 August 2013.

27. The petitioners have included in Part F of their appeal bundles several documents which were not before the judge.  At the appeal hearing before us, the 1^st petitioner, who also represents the other petitioners, informed us that the petitioners no longer wish to rely on the new evidence.

The Judge’s approach

28. Pursuant to the order dated 25 July 2011, the Valuer was jointly appointed by the parties as the independent expert to carry out the valuation exercise.

29. In paragraph 23 of his judgment, the Judge held that “on a matter of opinion (as opposed to fact or law), unless patent errors can be demonstrated on the face of the report, the court should be very slow to intervene with the chosen expert’s determination solely on the ground that one party has subsequently found and engaged another expert who holds a different opinion”, citing Kendall, Freedman & Farrell Expert Determination 4^th Ed. para. 14.4.10; and Campbell and Palmer v Crest Homes (Wessex) Ltd. unreported Ch D 13 November 1989.

30. I am in agreement with the Judge’s approach.  I also note that the petitioners have not appealed against this.

Basis of the valuation

31. The petitioners raise a general complaint that the Valuer prepared his reports on documents provided by the respondents selectively and not on the basis of documents agreed between the parties.  

32. As pointed out by Mr Chang who appears for the respondents, under Barma J’s order of 16 January 2012, all the documents considered by the Valuer in the preparation of the first report were ordered to be provided to the petitioners and the petitioners were at liberty to comment and respond to them.  Further by the order of 18 July 2012, the Valuer was directed to consider any further evidence provided by the petitioners in the preparation of the second report.  There is no basis for this complaint.  

Valuation of the Chaiwan Property

33. The Valuer’s 1^st Report valued the Chaiwan Property to be HK$11.2 million as at 15 May 2007, which was based upon the opinion of a registered professional surveyor, Jointgoal Surveyors Limited. The valuation was revised to HK$12.1 million, which was based on the opinion of a second firm of professional surveyors, CBRE HK Limited. A copy of CBRE’s appraisal report was included in the Valuer’s 2^nd Report.

34. In LYC Report, the petitioners’ expert valued the Chaiwan Property at HK$15.89 million as at 15 May 2007, relying on the valuation report of Goldrich Planners and Surveyors Ltd. The petitioners also referred to the valuation of HK$15.863 million made by the directors in the Company’s 2007 audited financial statements.

35. In adopting the valuation given in the Valuer’s 2^nd Report, the Judge explained (at §35):

“It is a matter of professional judgment whether the Valuer should simply rely on the Company directors’ estimation at the time or to entrust the task to professional surveyors. In my view, the Valuer’s approach in preferring the opinions of outside professional surveyors is sound and within the ambit of his instructions. Further, having obtaining a second professional opinion which was in line, albeit not identical, with the first, the Valuer was entitled to adopt the valuation of HK$12.1 million as the value of the Property. The criticism of the Petitioners in this regard is not justified.”

36. Property appraisal and valuation requires professional knowledge and skills. There is no indication that the directors of the Company possessed the requisite professional expertise or that the valuation they gave in the Company’s 2007 audited financial statements was based on independent professional opinion. I agree with the view of the Valuer and the Judge that the directors’ valuation should not be adopted.

37. The petitioners also question the difference between the CBRE valuation and the Goldrich valuation.  It is to be noted that Goldrich’s report gives no indication of the methodology used or the basis on which the valuation was made. CBRE, on the other hand, has provided in its report the valuation methodology and the comparables used for arriving at the valuation.

38. The petitioners further complain that CBRE valuation was based on the sellable area of the Chaiwan Property and not on their gross floor area.  However, as the petitioners acknowledged, this point was not raised before the Judge.  It is therefore not open to the petitioners to make the point on appeal.  

39. There is no merit in the petitioners’ complaint on the valuation of the Chaiwan Property.  

Waived rent

40. The Valuer calculated the amount of the rent that had been waived at $43,000, which is the rent agreed in the tenancy agreement. The petitioners contend that the Valuer should have used the prevailing market rent in the calculation. 

41. The order of Barma J was that the amount of rent waived should be added back in computing the net asset value of the Company. Plainly, the amount of rent waived must be the amount of rent payable under the tenancy agreement, rather than the hypothetical market rent. Indeed, the petitioners’ expert also adopted HK$43,000 as the basis of calculation (see Appendix 3 of LYC Report).

42. This aspect of the appeal cannot stand. 

Interest rate on the outstanding loans and rental waived or in arrears

43. The Valuer adopted 2.5% p.a. as the interest rate for the outstanding loans owed by CLC Ltd to the Company and the rental that had been waived.  This was the rate that the Board of the Company at its meeting on 19 September 2003 approved to be charged on the loans to CLC Ltd effective from 1 October 2003.  This was also the rate agreed between the Company and CLC Ltd in the letter of agreement signed on 30 September 2003 with addendum dated 27 October 2003.

44. The petitioners’ expert, on the other hand, adopted the judgment rate as the interest rate for the loans and rental due from CLC Ltd.

45. The Judge upheld the interest rate adopted by the Valuer.  He held (at §40):

“As far as interest rate is concerned, there was no judgment in favour of the Company against CLC Limited in respect of the waived rents (or outstanding loan for that matter) as at 15 May 2007. There was also no direction from Barma J in the Judgment that the Valuer should add back interest at judgment rate on the waived rent (or outstanding loan for that matter) in adjusting the Company’s NAV as at 15 May 2007. In making the adjustment, the Valuer has adopted the interest rate of 2.5% which was the rate approved by the Company’s board of directors and mutually agreed in 2003 by the Company and CLC Limited in respect of the outstanding loan. In my view, it is not unreasonable for the Valuer to adopt a uniform interest rate for waived rents as well as outstanding loan in adjusting the Company’s NAV as at 15 May 2007, and what he has done is within the ambit of the direction given to him in paragraph 55 of the Judgment.”

46. The petitioners do not dispute that 2.5% was the interest rate approved by the board of directors and agreed between the Company and CLC Ltd to take effect as from 1 October 2003.  The petitioners’ complaint is that higher interest rates were adopted in the previous loan agreements between the Company and CLC Ltd, and that it was due to the outbreak of the SARS epidemic in 2003 that the lower rate of 2.5% was used.  It is the petitioners’ contention that since the loans were unsecured, the Valuer should at the very least adopt the prime rate as the interest rate.

47. In my view, the Judge is clearly right to reject the petitioners’ expert’s adoption of the judgment rate, given there was no judgment in respect of the loan or the rental waived or in arrears.  This is also not Barma J’s direction to adopt the judgment rate as the interest rate.

48. The Valuer noted in his first report that the interest charged to CLC Ltd between 2002 and 2007 ranged from 2.5% to 7% p.a., but in the letters of agreement signed on 30 September 2003, 27 October 2003, 6 January 2005 and 20 December 2005, the Company and CLC Ltd had agreed to the interest rate of 2.5% effective from 1 October 2003.  In the circumstances, it is irrelevant that the Company and CLC Ltd had previously agreed to a different or higher interest rate.  Likewise, it is immaterial that due to the outbreak of SARS in 2003 that the Company had agreed to a lower interest rate.  There is in short no error on the Judge’s part to uphold the Valuer’s adoption of the agreed rate of 2.5%.   

Provision for impairment of loss and the goodwill in “Chan Li Chai

49. In the Company’s 2007 audited accounts, the directors had made provision for impairment loss of the loans made to CLC Ltd to the extent of $5,226,292 as they believed this amount was unlikely to be recoverable. Further, in view of the losses incurred by CLC Ltd, the directors also made provision for impairment loss of the Company’s investment in CLC Ltd (i.e. 225 shares acquired at $350,000) and wrote down the investment carrying value to a nominal book value of $1.

50. The Valuer took note of CLC Ltd’s 2007 audited financial statements, which showed it had an accumulated loss of $6,874,272 and a net liability of $5,351,772, and that the auditor had expressed reservation as to the ability of CLC Ltd to continue as a going concern.  On these bases, the Valuer considered it prudent for the Company to have made provision for the expected unrecoverable loans, and the amount of $5,226,292 was a fair and reasonable estimate of such impairment. The Valuer also considered, in the light of the significant losses incurred by CLC Ltd, which had depleted its entire share capital and resulted in a net asset deficit of $5,351,772, the provision of $349,999 for the impairment loss of the Company’s 225 shares investment in CLC Ltd is appropriate and proper.

51. The petitioners’ expert accepted that the provision of impairment loss for the loans to CLC Ltd was in accordance with the prudence concept in generally accepted accounting principles.  He, however, took the view that since the loans had remained on the audited financial statements of CLC Ltd, and as he did not foresee CLC Ltd being wound up in the near future, the amount of impairment loss should be added back.  The petitioners’ expert further considered there was no need to make provision for impairment loss of the Company’s investment in CLC Ltd, and he valued the investment at its initial purchase cost of $350,000.

52. The petitioners’ expert was additionally of the view that CLC Ltd had a goodwill in the name “Chan Li Chai”, the value of which was at least $37,969,000 because (LYC Report at §2.11):

“Chan Li Chai is a renowned brand name well known to the Chinese community worldwide. Its patent medicines are sold widely not only in Hong Kong but South East Asia, Europe and North America. CLC Ltd is holding a number of patents and trademarks registered in different countries and regions. In light of the audited financial statements for 2007 the profits on annual basis is around $2.15 Million (Appendix 6) after substantial drawings from the directors. Having regard to the long history of the brand and the incompetence in management of the responsible directors we estimate conservatively the annual profits of the CLC Ltd shall not be less than $2.15 Million. Apply a P/E ratio of 17.66 (Appendix 7) which in our view is fair and equitable, the goodwill is considered to be $37,969,000 in minimum.”

Consequently, he attributed $2,136,311 to the Company as a value enhancement.

53. The Valuer disagreed that the value of the Company should be enhanced on account of goodwill in “Chan Li Chai” possessed by CLC Ltd.  He pointed out that the various audited balance sheets of CLC Ltd did not record any intangible properties, and the audited financial statements for 2004 recorded “Trademarks – No value has been placed on trademarks of the company.”  The Valuer also had regard to the affirmation of CLC Ltd’s director, Chan Hin Kuen Micky, which stated that as at 15 May 2007 or at any other relevant time, no registered patents were held by CLC Ltd or other companies for its benefits.  The Valuer further observed that the estimation of the goodwill given by the petitioners’ expert was unsupported by objective basis, and was further inappropriate for a number of reasons (see the 2^nd Valuer’s Report at §10.2).

54. The Judge accepted the view of the Valuer.  On the provision for impairment loss for the loans to CLC Ltd, he held (at §32):

“… The Valuer has expressed his view in both reports that such a provision was in line with the concept of prudence in generally accepted accounting principles. The Petitioners’ expert in fact acknowledged that this was so at paragraph 2.9 of his report. There is therefore no divergence of views between the experts on a matter of opinion, and the Petitioners’ complaint is baseless.”

55. As to the valuation of the Company’s investment in CLC Ltd and the provision for impairment loss of it, the Judge concluded that (at §28):

“… The Valuer’s view, based as it is on the figures in CLC Limited’s audited accounts, is entirely reasonable and prudent. I do not see what mistake the Valuer is said to have made. The only complaint discernible in the September affirmation was that CLC Limited had given special bonus to its directors in 2006. In my view, whether or not that was true, it was irrelevant.”

56. On the issue of whether there should be an enhancement to the valuation on account of goodwill possessed by CLC Ltd, the Judge said (at §§30 and 31):

“30. The Valuer, on the other hand, took the view that no (upward) adjustment to the Company’s NAV on account of the goodwill of CLC Limited was required. He based his opinion on CLC Limited’s audited balance sheets as at 30 June 2004, 2007 and 2011 which did not show any intangible properties, whether brand name, patent or trademark, as assets of CLC Limited. He also took into consideration a note in CLC Limited’s 2004 audited accounts under “Principal Accounting Policies” that no value had been placed on the trademarks of the company.  The latter was not challenged in the September affirmation as such – the Petitioners only insisted that CLC Limited possessed registered trademarks in the US and other countries, but without adducing any evidence in support of their expert’s assessment that the goodwill was worth anywhere near HK$37 million.

31. As I observed earlier, CLC Limited’s 2007 audited accounts recorded a net assets deficit of over HK$5 million. The directors of the Company have accordingly written down its investment in CLC Limited to a nominal value of HK$1, which the Valuer agreed. Consistent with this approach, I fail to see how the Valuer can be criticised for rejecting the approach of the Petitioners’ expert in attributing the sum of HK$2,136,311, or any sum, to the Company as a value enhancement.”   

57. The thrust of the petitioners’ complaint in this appeal is that notwithstanding it had incurred significant operation losses, CLC Ltd had paid bonus and salaries to its directors, and that given the business is over 400 years old, there must be some goodwill in the brand name “Chan Li Chai”.

58. In my view, having regard to the audited financial statements of CLC Ltd for 2007 as detailed above, the Judge cannot be faulted for accepting the Valuer’s view that it was prudent to make provision for impairment loss for the loans to CLC Ltd.  As the Judge pointed out, the petitioners’ expert agreed such a provision was in accordance with generally accepted accounting concept and principles. The reasons the petitioners’ expert gave for removing the provision were unconvincing. The fact that the loans continued to be recorded in CLC Ltd’s accounts only means that CLC Ltd acknowledged the indebtedness, but it does not mean that CLC Ltd was able to repay it.  In the same vein, the fact that CLC Ltd was not in winding up is no assurance that it was in a position to repay the loans.

59. Also on the basis of CLC Ltd’s audited financial statements for 2007, which shows that its share capital had been depleted with a substantial net asset liability, the Judge did not err in accepting the Valuer’s valuation of the Company’s investment in CLC Ltd at a nominal value of $1 as being prudent and reasonable. The Judge is also correct in his view that the petitioners’ complaint that CLC Ltd had paid bonus to its directors, even if substantiated, is irrelevant because the Valuer’s task was only to ascertain the value of the Company’s investment in CLC Ltd as at 15 May 2007.

60. As to the issue of goodwill in “Chan Li Chai”, the 2^nd Valuer’s Report had gone at length to demonstrate the lack of factual support for enhancing the value of CLC Ltd on account of its possession of goodwill in “Chan Li Chai”, and also the errors in the estimation of the goodwill given by the petitioners’ expert.  The petitioners do not appear to be disputing that there is nothing in CLC Ltd’s audited accounts that is capable of supporting the assertion of a goodwill in “Chan Li Chai’. All that they contend is that since the business has over 400 years of operation, there must be goodwill in the name so that the absence of any reference to intangible properties in CLC Ltd’s audited accounts is not determinative. This, however, is hardly sufficient to show that the Valuer’s view, and the Judge’s acceptance of it, is wrong.  Critically, the petitioners have not been able to point to any objective evidence to enable an assessment be made of the alleged goodwill, let alone to support their experts’ assessment of some $37 million.  There is simply no basis to enhance the valuation of the Company’s investment in CLC Ltd on account of any goodwill in “Chan Li Chai”.

61. In short, this aspect of the petitioners’ appeal cannot stand.  

Repayment of the shareholder’s loans

62. The petitioners argue that, in accordance with the 1998 agreement between the shareholders (see paragraph 8 above), the shareholder’s loans due to them from the Company should be repaid at the same time when the purchase of their shares is completed.  The Judge, however, refused to make such an order, holding that (at §42):

“As far as this court can ascertain from the Judgment, there was no finding that the amounts allegedly due to the Petitioners were in fact due and immediately payable, and there was no direction by Barma J that the shareholders’ loans, if any, should be repaid at the same time as the completion of the buyout. This is not surprising since there was no such claim in the Petition itself. In these circumstances, this court is not prepared to make an Order to that effect in these proceedings. The Petitioners will have to make a demand on the Company, and, if necessary, take separate legal proceedings for repayment of the loans.”

63. The Judge is plainly right for the reasons he had given not to make the order sought by the petitioners. Importantly, the petitioners had not asked for such relief in the petition; consequently Barma J had made no finding and direction on the issue of shareholder’s loans. It is too late for the petitioners to ask for such an order in the valuation exercise before the Judge.

64. This ground of appeal therefore fails.

The Judge’s costs order

65. Finally, the petitioners argue they should not be ordered to pay the costs of the respondents of the valuation exercise incurred after 13 August 2012, which was the date of the Valuer’s 2^nd Report.  The petitioners contend that the Valuer and his reports were neither independent nor fair, and that they were only seeking to get back their entitlement.

66. Mr Chang submits that the appeal against the Judge’s costs order is not properly before this court. He points out, firstly, the notice of appeal is only directed at the Judge’s order of 3 July 2013. Secondly, and more importantly, it is said that the petitioners have not, in accordance with section 14(3)(e) of the High Court Ordinance, Cap. 4, applied for and obtained from the court leave to appeal against the costs order made separately on 14 August 2013.

67. I agree with Mr Chang’s submissions.  In any event, costs is a matter of the Judge’s discretion.  The Judge was of the view that the costs of the valuation exercise after 13 August 2012 should be borne by the petitioners because having refused to accept the valuation in the Valuer’s 2^nd Report, the petitioners failed to obtain a higher valuation of their shares (see Decision dated 14 August 2013 at §31).  The Judge did not err in principle.  There is no proper basis for us to interfere with his exercise of discretion.

68. The appeal against the Judge’s costs order also fails.    

Disposition

69. For all the above reasons, I would dismiss the petitioners’ appeal. Applying the usual rule of costs follow event, I would order that the petitioners pay the respondents the costs of this appeal, to be taxed if not agreed.

Hon Poon JA:

70. I agree.