IN RE GRAND ASIA DEVELOPMENT LTD.

1996, No.CWU612

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)

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J U D G M E N T

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1. This winding-up petition ("the Petition") was filed on 16 October 1996 by Madam Au Kam Han ("the Petitioner") to wind-up Grand Asia Development Ltd ("the Company") on the just and equitable ground.

Background facts

2. There are only four issued shares in the Company, one each is held by the Petitioner and her late husband ("the Deceased") and one each by Au Kam Ming ("Au"), who is no relation of Madam Au, and Tsang Wai Man ("Tsang").

3. The Petition was filed in somewhat unusual circumstances. The Deceased was murdered in July 1996 and Au and Tsang were arrested and charged with his murder. Au was subsequently released, there being insufficient evidence against him. Tsang eventually pleaded guilty to the lesser charge of conspiracy to cause grievous bodily harm.

4. The sole asset of the Company is a property which is rented out and the lease does not expire until March 1998. So the Company is not one that requires active management.

5. The Petition was opposed by Au and Tsang. In July this year, there was an offer from the Land Development Corporation for the property which enabled the parties now to come to an agreement to settle the winding-up proceedings. The only outstanding issue relates to costs.

6. At the outset it should be stated that the Respondents do not take issue with the Petitioner regarding the filing of the Petition on the just and equitable ground. The only issue is whether there was any reasonable offer made to the Petitioner to settle the case in January of this year.

7. I should add that on 14 November 1996, Messrs Lo & Yip who at that time were only acting for Au made an offer on behalf of Au suggesting that Au purchase Madam Au's "shares of the Company at a reasonable market price to be ascertained by an independent certified accountant". The reference to "shares" is interesting, Madam Au, of course, holds only one share. The reference to "shares" was plainly an offer also to acquire the share belonging to the Deceased. In any event, it is not contended that this amounted to a reasonable offer. Suffice to say that, according to the records of the Company, as of November 1996 Au was no longer a registered shareholder of the Company. Unbeknownst to Madam Au, he had transferred his one share to Madam Keung in November 1995. So as of November 1996 he had really no locus to be making such an offer or indeed to oppose the Petition. Be that as it may, by December 1996, Messrs Lo and Yip were then also representing Tsang. In the present proceedings, they represent both Au and Tsang.

The offer

8. I now turn to the correspondence in January 1997. It is upon this correspondence that I have to decide whether or not a reasonable offer had been made.

9. On 14 January 1997, Messrs Lo and Yip made an offer to purchase the two shares in the Company, namely Madam Au's share and that of the Deceased, at just under $500,000 per share. This was based on a valuation of the property at $5.5 million. The valuation relied upon was made by Vigers as of 12 December 1996. That this report is deficient is apparent to anyone reading it. It contained an assertion as to valuation without disclosing the basis upon which the valuation was made. It simply asserted an analysis of the value of similar accommodation in the area and adjusted the valuation to reflect the characteristics of the subject property, but it did not condescend to particulars. The usual valuation report would contain details of comparables as well as the adjustments that have to be made.

10. This offer was rejected on 22 January, or just shortly before then, because on that date the solicitors for Au and Tsang wrote to the Petitioner's solicitors referring to the fact that the Petitioner had expressed her dissatisfaction with the price being offered. They then went on to say -

"As it is always your client's intention not to continue running the Company, we would therefore suggest that your client obtain another valuation report. If there is a difference in prices between the value derived from the new valuation report and the price offered by our client, it is suggested that the middle point be taken."

Pausing there, the reference to "running the Company" might suggest that this was a Company that really requires active management. As noted above, it merely holds one property : rent was to be collected and the mortgage payments made. That was in essence what "management" entailed.

11. On 23 January, the Petitioner's solicitors made a counter-offer to purchase the shares of Au and Tsang at the price that they had offered for the shares of the Petitioner and the Deceased. This led to a response on 30 January and the counter-offer was rejected. The solicitors for Au and Tsang reiterated the proposal made in their earlier letter of 22 January that if there was a difference in the valuation to be obtained, then the middle point be taken. What this implies, of course, is that on no account was the Petitioner's valuation to be accepted even if it did represent the market value and that some discount had to be offered in the sense that the middle point had to be taken. In the same letter of 30 January, the solicitors imposed a deadline for reply by 5:00 p.m. the following day.

12. On 5 February they wrote again in the same vein. Although this letter did not expressly refer to taking the middle point, it is accepted that this was a string attached to the valuation proposal made in all three letters that I have referred to from Messrs Lo and Yip of 22 January, 30 January and 5 February.

Was the Petitioner acting unreasonably in rejecting this offer?

13. It is clear to me that the Petitioner found the price unacceptable because the valuation report had merely valued the property at $5.5 million. I have already referred to the apparent deficiencies of the valuation report relied on. Although the suggestion that the Petitioner obtain her own valuation by seeking another valuer's expert advice is reasonable, the condition that the sale price to be the middle point if there be a difference between the two valuations is prima facie unreasonable. This is not a case where Au and Tsang were offering "to be bound by an independent valuation". If that had been the proposal, it might have made a difference, but it was not. There is also the fact that Au and Tsang refused to accept the counter-offer made to them. That, of itself, is rather telling. The fact that they were unwilling to sell at the price they were offering the Petitioner would suggest that the price was not a reasonable one, or at least the Petitioner was not acting unreasonably in refusing that offer. Nor is there any substance in the point that Au and Tsang have been "running" the Company. As noted above, no particular experience or expertise was required in "running" the Company.

14. The offer that has been made by the Land Development Corporation is something in the region of $9.8 million and in fact the Petitioner subsequently obtained an independent valuation as of 12 December 1996 and her expert valued the property at $7.9 million.

15. In all the circumstances of this cases, I have no hesitation in coming to the view that the Petitioner was not acting unreasonably in refusing the offer made by Au and Tsang to purchase the two shares held by her and the Deceased, leaving aside the technical problems created by there not being any administrator of the Deceased's estate. There was no reasonable offer made to the Petitioner to settle the Petition. In the circumstances, the Petitioner must be entitled to all her costs of and incidental to the Petition.

16. Au and Tsang are also to pay the costs of the Official Receiver and the Provisional Liquidator incurred in this Petition.