RE THE PRUDENTIAL ENTERPRISES LTD

HCCW594/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.594 OF 1999

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D E C I S I O N

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1. By summons filed on 6 March 2003, the 1st respondent applies for specific discovery under Order 24, rule 7, Rules of the High Court against the 7th and 15th petitioners in respect of six items of documents set out in the Schedule to the summons.

2. At the hearing, two of the six items are no longer in issue. The remaining four items that are in issue are :

(1) As against the 7th petitioner, the executors of the estate of Lee Chai Cheong

Item 1.2

Any documentation including correspondence, notes and memoranda between the executors themselves, and the executors and any third party advisers relating to the valuation attributable to the shares of The Prudential Enterprises, Limited ("PEL") held by the estate for the purposes of completing the provisional schedule of property provided to the Inland Revenue Department's Estate Duty Office attached to the grant of probate.

(2) As against the 15th petitioner, HY & HT Lee Brothers & Co. Limited ("HY & HT")

Item 2.2

HY & HT's unaudited financial statements/management accounts for the period 31 December 1993 to 31 December 2000 (inclusive).

Item 2.3

The reports from Robinson Management Limited ("Robinson") referred to in HY & HT's audited financial statements for the years end 31 December 2000 and 31 December 2001 and the unaudited accounts for the periods 1 January 2001 to 30 June 2001 and 1 January 2002 to 30 June 2002.

Item 2.4

All documents including correspondence, meeting notes, memoranda, internal memoranda and other documents passing between the management of HY & HT, the management of HY & HT and/or its auditors, Messrs TK Lo & Company, and/or any other third parties in relation to the treatment of the valuation of its shareholding in PEL in its audited and unaudited financial statements for the period 31 December 1993 to date, and/or otherwise in relation to the valuation of that shareholding during that period.

3. At the conclusion of the hearing, I ordered the 7th and 15th petitioners to make specific discovery by way of further and better lists of the documents under items 1.2 and 2.3, but in limited form. I now reduce my reasons into writing.

4. The 7th and 15th petitioners have not taken issue on the existence of the items of documents requested for nor on whether they are in their possession, custody or control. They oppose the application principally on the ground that the documents are irrelevant. Additionally, it is said that item 2.4 is oppressive and too wide. It is further submitted that the documents sought are not necessary for disposing fairly of the cause or matter or for saving costs within the meaning of Order 24, rule 8, Rules of the High Court.

Relevance

5. On the question of relevance, in the 15th affidavit of Eleanor Sin Chee Lam filed in support of the application, it is stated that the documents sought by the 1st respondent are likely to provide valuable evidence on the issues of the valuation of the PEL shares. Paragraph 9 of the affidavit states that the documents give evidence of the values that the 7th and 15th petitioners attribute to their respective shareholdings in PEL and the basis for calculating those values.

6. In the 16th affidavit of Eleanor Sin Chee Lam filed in further support of the application, it is further stated that items 1.2, 2.3 and 2.4 are relevant to the question of what is the appropriate methodology for valuing the PEL shares whereas item 2.2 addresses the question of the value the 15th petitioner attributed to its shareholding in PEL and the basis for adopting the valuation.

7. Among the matters complained of in the Re-Re-Amended Petition are the valuation of the shares of PEL for the purposes of, firstly, the Blue Pool Road Settlement ("BPRS") in 1995 and, secondly, the Rights Issue in October 1998. One of the relief that the petitioners seek in the Re-Re-Amended Petition is an order that the 1st and/or 3rd to 7th respondents purchase the shares of the petitioners in PEL at a value to be determined by the court or by an independent valuer appointed by the court.

8. Accordingly, the value and the valuation of the PEL shares are among the causes or matters to be resolved in these proceedings. The former refers to the worth of or the actual figure to be put to the shares and the latter refers to the basis or methodology to be adopted for arriving at a value to be attributed to the shares. These issues are to be resolved in the context of the 1995 BPRS, the 1998 Rights Issue and an order of buy-out in the event the petitioners succeed in obtaining the relief.

9. It follows that documents revealing the value attributed by the parties to the PEL shares and the basis for the valuation are relevant and are discoverable as a matter of evidence.

Expert opinions on valuation

10. As to the relevance of expert opinion, Mr Mok has argued that the opinions expressed by experts, such as Robinson, on the valuation of the PEL shares are not relevant and not discoverable, unless and until the experts are tendered as expert witnesses at trial. References were made to Hong Kong Civil Procedure 2002, para. 38/4/3 on the duties and responsibilities of expert witnesses. It is submitted that experts are to give independent opinions based on the primary documents or raw materials supplied to them. It is therefore of no assistance to the court to refer to other expert's opinions.

11. I accept that experts are expected to provide independent assistance to the court and to give objective opinions based on materials available to him and the court. But it does not mean that in assuming an independent role, experts cannot refer to or be referred to the opinions expressed by other experts. I am therefore unable to agree with the submission that the value and/or the methodology adopted by an expert not called at the trial is irrelevant and of no assistance to the determination of the disputes. At the least, the rationale or the basis of a valuation of an expert called by a party can be tested against those of another expert, even though the other expert is not tendered as witness. This will be of assistance to the court in assessing the weight to be attached to the evidence of the expert witness who has been called at the trial.

12. I turn now to deal with the four items of documents sought by the 1st respondent.

Item 1.2

13. As analysed above, documents supporting the valuation attributable to the PEL shares in the completion of the estate duty papers for the grant of probate for the estate of Lee Chai Cheong are relevant and ought to be disclosed. The scope of item 1.2 is however wider than this and the 1st respondent has not demonstrated the relevance for the documentation other than those identified above. Discovery should only be ordered for documents relied upon by the 7th petitioner in completing the provisional schedule of property provided to the Inland Revenue Department's Estate Duty Office with regard to the value attributed to the PEL shares held on trust by the estate of Lee Chai Cheong.

Item 2.2

14. Prima facie, financial statements of the 15th petitioner insofar as they have attributed a value to its PEL shareholding will meet the test of relevance. This is however limited to the relevant periods of time, namely, 1995, 1998, the date of the presentation of the Petition or some other dates relevant to the relief of a buy-out order.

15. The 1st respondent already has the audited reports and financial statements of the 15th petitioner for the periods 31 December 1993 to 31 June 2002. They would have provided him with information as to the value attributed to the 15th petitioner's shareholding in PEL. The 1st respondent does not know and is not in a position to say that the unaudited financial statements or management accounts now sought will contain more or further information on the issue of valuation. There is also no material before the court to suggest that the value attributed to the PEL shareholding, if any, in the unaudited financial statements or management accounts may differ from that in the audited financial statements. I do not consider the class of documents sought under item 2.2 are necessary for disposing fairly the causes or matters herein. In exercise of my discretion, I do not order their disclosure.

Item 2.3

16. It appears from the audited financial statements of the 15th petitioner for the years ending 31 December 2000 and 31 December 2001 that the value of its PEL shareholding given in the audited financial statements are based upon the report(s) of Robinson. Valuations given by Robinson on the PEL shares in connection with the BPRS and Rights Issue have been pleaded in the Re-Re-Amended Petition. Mr Mok now indicates that the petitioners may not call Robinson as their expert at the trial so that it is premature to make discovery of these reports. For the reasons given above, the fact that Robinson may not be called is immaterial. The valuations given by Robinson on the 15th petitioner's PEL shareholding as reflected in the audited financial statements remain relevant and should be disclosed.

Item 2.4

17. Mr Yu SC in his submissions agree that the last sentence of item 2.4 (i.e. "and/or otherwise in relation to the valuation of that shareholding during that period") has unduly extended the scope of the class of documents sought, and he proposes to delete it.

18. Even with that deletion, item 2.4 remains to be unduly wide. It extends not only to documents involving the management of the 15th petitioner and their auditors, but also any other third parties. Mr Yu SC submits that a common sense approach will limit the class of third parties to people who have the ability to advise on the valuation. It is further said that the scope of item 2.4 is also limited to documents relating to the treatment of valuation of PEL shareholding in the financial statements.

19. In the first place, the qualification that Mr Yu SC puts to the class of third parties is not apparent from item 2.4 itself. Even if it is thus qualified and limited to the treatment of valuation in the financial statements, one cannot overlook the fact that item 2.4 covers a period of nearly 10 years. It is a far too onerous burden to put on a litigant, bearing also in mind that the 1st respondent is asking for "all documents". The request is unnecessary and not justified.

Form of the order

20. The 7th and 15th petitioners propose to file a further and better list in lieu of swearing an affidavit as presently sought in paragraphs 1 and 2 of the summons. The 1st respondent has no strong view on the proposal. Accordingly, I accede to the petitioners' request.

21. As to paragraph 3 of the summons that seek an order for production, I am of the view, and Mr Yu SC agrees, that it may involve other considerations such as privilege, and ought therefore to be the subject matter of another application. No order is made on paragraph 3.

Costs

22. The 1st respondent is therefore partially successful in his application. It also means that the 7th and 15th petitioners are partially successful in resisting the application.

23. In an Order 24, rule 7 application, costs is normally awarded against a party where a point of law or practice is ruled against him and the application is disposed of on that basis. Otherwise and if, for instance, only a prima facie case of relevance is made out, then costs are usually reserved or, to save costs, made in the cause of the proceedings : Hong Kong Civil Procedure 2002, para. 24/7/2.

24. In the present case, I have ruled against the 7th and 15th petitioners on the relevance of expert opinion, hence the Robinson reports requested for under item 2.3. To that extent, the 1st respondent should be entitled to the costs. On the other hand, the 7th and 15th petitioners have successfully resisted the applications on items 2.2 and 2.4 and would be entitled to costs on that basis.

25. In the circumstances, the appropriate course is to apportion the 1st respondent's costs and for it to be made costs in the cause. I therefore order that one-half of the 1st respondent's costs be in the cause of the Petition.

Conclusion

26. For the reasons aforesaid, there be an order that :

(1) The 7th petitioner do within 21 days from 21 May 2003 file and serve a further and better list of documents with regard to the documents the 7th petitioner relied upon in completing the provisional schedule of property provided to the Inland Revenue Department's Estate Duty Office in respect of the PEL shares held on trust by the estate of Mr Lee Choi Cheong, deceased.

(2) The 15th petitioner do within 21 days from 21 May 2003 file and serve a further and better list of documents with regard to the reports from Robinson Management Limited referred to in the 15th petitioner's audited financial statements for the years ending 31 December 2000 and 31 December 2001.

(3) No order be made on paragraph 3 of the 1st respondent's summons.

(4) One-half of the 1st respondent's costs of the application be in the cause of the Petition.