XU LIU CHUN v. WU CHANG JIANG AND ANOTHER

HCMP 3166/2014

[2019] HKCFI 1640

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3166 OF 2014

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DECISION

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INTRODUCTION

1.  I refer to my Judgment herein handed down on 23 April 2019 (“the Judgment”).  In this Decision, I shall use the same abbreviations as in the Judgment.  In paragraph 34(1) of the Judgment, I made an Order in the following terms (“my Order”):

“ (1) R [the 1^st respondent] do make payment into court in the sum of US$1.2 million within 21 days from the date hereof as an interim payment on account of the purchase money to be paid to P [the petitioner] for the purchase of the shareholding of P in the Company [the 2^nd respondent] pursuant to the Order of DHCJ Lee herein dated 13 July 2018 whereby the learned Judge ordered that R do purchase the 12,000 shares (ie 40% of shareholding) of US$100 each in the capital of the Company presently registered in the name of P at a price to be determined by the Court if not agreed, on the following terms:

(i) the certificates of the said 12,000 shares registered in the name of P together with all the necessary transfer documents shall be lodged with a stakeholder to be agreed between the lawyers for the parties or, failing such agreement, to be appointed by the court;

(ii) upon the lodging pursuant to (i) above being completed and upon the cross-appeal by R in CACV 380/2018 being dismissed by the Court of Appeal, the said sum of US$1.2 million shall be paid out of court to P on account of the purchase price to be paid by R to him for the purchase of the said 12,000 shares.”

2.  R has not made the payment pursuant to my Order set out above within the specified time or at all.

3.  Furthermore, despite the putting forward by P of two alternative firms of solicitors proposed to be appointed as the stakeholder pursuant to my Order, R has failed or refused to agree to the proposed appointment nor has R put forward the name of any stakeholder proposed to be appointed.

4.  As can be seen from paragraphs 2 – 9 of the Judgment, the proceedings before me had arisen out of a Judgment by DHCJ Lee (as he then was) herein handed down on 13 July 2018.  At the time of the hearing before me, there was an appeal by P and a cross-appeal by R in the Court of Appeal against the Judgment of DHCJ Lee under CACV 380/2018.  The appeal and cross-appeal had been heard by the Court of Appeal and its judgment had been reserved.

5.  Subsequently, by its Judgment in CACV 380/2018 dated 18 April 2019, the Court of Appeal dismissed both the appeal by P and the cross-appeal by R.  Hence, the Judgment of DHCJ Lee remains in full force.

THE PRESENT APPLICATIONS

6.  There are a number of applications before me now about which the parties have agreed that I should dispose of on paper without a hearing.  They are as follows:

 (i) An application by summons issued by R on 6 May 2019 for:

 (a) leave to appeal against the Judgment and my Order;

 (b) a stay of my Order pending appeal.

 (ii) An application by P by letter for directions relating to the appointment of the stakeholder under my Order.

 (iii) Applications for costs in relation to the matters now before me.

7.  I shall deal with the applications in turn below.  It is only logical that I should deal with the application for leave to appeal first.

APPLICATION FOR LEAVE TO APPEAL

8.  An application for leave to lodge an interlocutory appeal is governed by section 14AA of the High Court Ordinance, Cap 4 (“Cap 4”), the relevant parts of which read as follows:

“ 14AA. Leave to appeal required for interlocutory appeals

(1) Except as provided by rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unlessleave to appeal has been granted by the Court of First Instance or the Court of Appeal.

…

(4) Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that—

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

9.  R submits that he has satisfied both limbs in subsection (4) of section 14AA of Cap 4.

(A)   Lack of jurisdiction

10.  The first challenge by R to the Judgment both in the draft notice of appeal and in the submission by his counsel, Ms Au, is that I had erred in law in holding that I had jurisdiction in making an order for interim payment on account in a case of an order for buying out shares but before the determination of the purchase price and without the parties’ agreement.

11.  The gist of R’s argument can be summarized as follows:

 (i) Order 29, rule 12(c) of the Rules of the High Court (“RHC”) does not cover the situation in the present case.  It only covers a “money judgment” under which a party is directed to make an “outright unilateral payment”. It does not cover a payment in the nature of a payment of the purchase price in a bilateral transaction of sale and purchase.

 (ii) Although section 725(2)(a)(iv)(D) of Cap 622 seems to give the court wide power in making an order “for any other purpose”, it does not expressly refer to an order for interim payment of the purchase price in a buy-out order scenario.  Hence, the court has no jurisdiction in making such an order.

 (iii) Further, the concept of an “irreducible minimum” should not be elevated to the status of a general principle.

12.  R further argues that, in any event, the issue as to “whether the Court has jurisdiction to order interim payment of purchase price of shares after the conclusion of a trial on a s 724 petition but before such purchase price is determined or agreed” “involves a novel question of general principle,or a question of importance such that argument and decision of the Court of Appeal would be to the public advantage”.  (See paragraph 6 of R’s Skeleton Submissions).  In this regard, it is to be noted that my Order is not just to make an interim payment but an interim payment on account of the purchase price.

13.  I do not agree with the arguments of R as set out above.

14.  First of all, after having considered the wording of sections 724 and 725 of Cap 622 and Order 29, rules 9, 10, 12 and 13 as set out in paragraphs 11 and 12 of the Judgment, in paragraph 13 of the Judgment, I stated my conclusion that those statutory provisions were wide enough to enable me to make an order for interim payment in a situation such as that in the present case.  Irrespective of any case authority, my view on the interpretation of those statutory provisions has not changed.

15.  In paragraphs 14 – 17 of the Judgment, I made reference to case authorities in Hong Kong and in England: Re Hang Sang Engineering Factory Ltd and Ferguson,as being authority in support of the existence of such jurisdiction.  In addition, there is also the Lam Yuk Hon case which is referred to later on in the Judgment.

16.  My attention has now been drawn by Mr Suen, counsel for P, to the case of Re Annacott Holdings Ltd [2011] EWHC 3180 (Ch), a decision by HH Judge Hodge QC sitting as a deputy judge in the Chancery Division.  In that case, the learned Judge had made an order for one of the respondentsto buy out the shares of the petitioner in the company, based on a finding of unfair prejudice.  The petitioner applied for an order for interim payment on account of the purchase price.  The respondent argued that, under section 996 of the Companies Act (the equivalent of our section 725 of Cap 622) and CPR 25.7(1)(c) (the equivalent of our Order 29, rule 12(c) of RHC), the court had no jurisdiction to make an order for interim payment.  The learned Judge ruled against that and said in paragraphs 25 and 28 – 30 of his Judgment as follows:

“ 25. Mr Grant also objects that there is no general discretion under s.996 of the Companies Act to order an interim payment. He says that, even if there were jurisdiction, the court should decline to exercise it, because it would operate contrary to the Civil Procedure Rules, and the court’s inherent jurisdiction should not be invoked to do something contrary to those Rules. He submits that, to the extent that it was decided otherwise by the Inner House of the Court of Session in Scotland in Ferguson v Maclennan Salmon Company Limited [1990] BCC 707, that decision was wrong, and it is not binding upon me, and it should not be followed by me. Although it was common ground that an interim payment could be made on an unfair prejudice petition in Re Clearsprings (Management) Limited [2003] EWHC 2516, there was no actual decision of the court on the point. In any event, since no interim payment was awarded, any decision would, in any event, have been entirely obiter. Therefore, Mr Grant submits, that authority, too, is of no assistance on the question.

…

28. I am satisfied that the court has jurisdiction, both under s.996 and under CPR 23.7(1)(c) [sic: read 25.7(1)(c)], to order an interim payment in the circumstances of the present case. For the reasons given by the Inner House of the Court of Session, although they do not strictly bind me, I am satisfied that s.996 of the Companies Act 2006 does confer jurisdiction on the court to order an interim payment in circumstances where the court has decided that it should provide for the purchase of the shares in a company by one of its members. Section 996(1) says that if the court is satisfied (as this court is) that a petition under Part 30 is well-founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of. In my judgment, that is sufficient to found jurisdiction.

29. I am reinforced in that view by the fact that in the Clearsprings (Management) Limited case distinguished company law counsel (Mr George Bompas QC for the petitioner and Mr Robin Potts QC for the respondents) were apparently both of the view that the court had jurisdiction, both under the relevant section and under the relevant provision of the CPR, to order an interim payment. Lawrence Collins J did not take issue with that, although, in the event, he did not find it appropriate to make such an order.

30. So far as CPR 23.7(1)(c) [sic: read 25.7(1)(c)] is concerned, that confers jurisdiction upon the court to make an order for an interim payment if the court is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment.  I am satisfied here that, on the eventual determination of the sum to be paid for Mr Attwood’s 50 percent shareholding in Annacott, a substantial sum of money will be ordered to be paid as the consideration for Mr Attwood’s 50 percent shareholding the company.  I am satisfied that that is the equivalent of obtaining judgment for a substantial amount of money. …”

17.  Re Annacott is a good answer to the points raised by R.  Although it is not an authority binding on me, I agree with the reasoning of HH Judge Hodge QC and apply the same in the present case.

18.  Regarding the argument of R based on the concept of “irreducible minimum” in the context of jurisdiction as summarized in paragraph 11(iii) above, all I need to say is that during the hearing before me, counsel for R never argued that the said concept would be relevant for the purpose of deciding whether the court had jurisdiction to make an order for interim payment.  They only referred to the said concept in the context of the exercise of discretion by the court.  (See paragraphs 16 and 17 of the Skeleton Submissions for the Respondents dated 5 March 2019.)

19.  In all the circumstances set out above, I hold that the proposed appeal has no reasonable prospect of success so far as the argument based on lack of jurisdiction is concerned.

20.  Furthermore, in light of my interpretation of the relevant statutory provisions and all the case authorities I have referred to, I simply cannot see how section 14AA(4)(b) of Cap 4 is satisfied.

(B)   Wrong exercise of discretion

21.  Next, R attacks the Judgment by arguing that I had exercised my discretion wrongly.  The argument by R can be summarised as follows:

 (i) No or no adequate reasons had been given by me to explain why I concluded that there was an “ascertainable irreducible minimum value of the shares in the sum of US$100 per share”.  What I had done was simply to repeat the submissions of both parties.

 (ii) I had erroneously reversed the burden of proof by requiring R to demonstrate what, if any, liabilities the Company might have or why it might be insolvent.

 (iii) The seven reasons given by me in paragraph 32 of the Judgment did not, individually or collectively, support my conclusion about the “irreducible minimum value” of the shares.

 (iv) My said conclusion is factually wrong as shown by the 1^stAffirmation of Lau Wing Yee Veronica filed herein on 7 May 2019 (“the Lau Affirmation”) which was well after the date of the Judgment.

22.  I deal first with the Lau Affirmation.  The first thing to note is that it is not an affirmation by R, who might be expected to have personalknowledge of the matters deposed to, but by his solicitor, Ms Lau, who does not even profess to have personal knowledge of the matters deposed to but has simply made the affirmation on her “information and belief”. That in itself is highly unsatisfactory.

23.  Secondly, except for exhibit “VL-1”, an Agreed Chronology, and “VL-2”, an affirmation of R filed on 2 September 2016, which were before me at the hearing, Ms Lau in the Lau Affirmation has exhibited a large number of documents (I reckon over 100 pages) including bank statements and accounting sheets which were not before me and which were not referred to in the written or oral submissions of counsel for R at the hearing.  Thus, the Judgment was written by me without my having considered such documents.  So far as “VL-2” is concerned, although it wasin one of the hearing bundles, as far as I can recollect by checking my notes, it was never referred to by counsel for R at the hearing which lasted just under two hours.

24.  So far as the large number of documents now exhibited in the Lau Affirmation which were not before me at the hearing are concerned, if R wishes to refer to and rely on them for the purpose of an appeal to the Court of Appeal or an application for leave to appeal to the Court of Appeal, he would have to satisfy the requirements under the rule in Ladd v Marshall before he will be allowed to do that.  There is absolutely no explanation in the Lau Affirmation to deal with that rule and as to why such documents could not have been put before me at the hearing.  I will therefore ignore the same.

25.  Dealing with points (i), (ii) and (iii) as set out in paragraph 21 above, and having gone through paragraphs 30 – 33 of the Judgment, I do not agree that I had not given adequate reasons for my conclusion.  I had found the reasons given by counsel for P convincing and I adopted them.  I did not feel that there was any need to re-hash everything.  Regarding the allegation that I had erroneously put the burden of proof on R, it must be borne in mind that DHCJ Lee in his Judgment had found that R had been keeping P in the dark regarding the affairs of the Company.  In paragraph 106 of his Judgment, DHCJ Lee said as follows:

“ 106. In the present case, I have found that P is a beneficial owner of 40% [of] the shares of the Company rather than an employee who happened to have been given some shares. Viewing in this light, R had consistently conducted the Company’s affairs in such a way as if it were his sole-proprietorship, with the result that P was kept in the dark as to the Company’s true financial situation. It is no answer to this ground that P had access to the information about the movements in Company’s bank accounts, for they were,as I have found, a ‘mixed pot’ of different monies some of those did not even belong to the Company. Without any audited accounts,P was simply unable to ascertain the actual financial well-being of the Company. I find that P had been consistently deprived of his right to know and consider the state of the company and that was prejudicial to his interests as a member. It is most unlikely that the situation would improve in the future, now that the mutual trust between P and R has completely broken.” (emphasis added)

Thus, in those circumstances, if R was in a position to show that the Company did not have as much asset as alleged by P, he would have been expected to bring out the same in his evidence in reply.  If he did not, the court would be entitled to draw an adverse inference against him.  It was an evidential burden on R in the circumstances.  I do not agree that I had shifted the general burden of proof from P to R.

26.  In all the circumstances, I do not take the view that I had not given adequate reasons to support my decision or that I had wrongly exercised my discretion in making an order for interim payment on account.

27.  I therefore dismiss the application by R for leave to appeal against the Judgment and my Order.

STAYING OF MY ORDER PENDING APPEAL

28.  Regarding the application by R for a stay of my Order, since I am in effect ruling on the correctness of my own Judgment and since it seems very likely that R will apply to the Court of Appeal for leave to appeal, in the exercise of my discretion and in order to be fair to R, I am prepared to grant an interim stay of my Order on the terms set out below.  This may possibly relieve the Court of Appeal from the pressure of an urgent application for an interim stay pending the hearing of the application for leave to appeal.

29.  I make an order in the following terms:

 (1) I grant an interim stay of my Order dated 23 April 2019 set out in paragraph 1 above upon the following terms:

 (i) In the event that R notifies the Court within 3 working days from the date of this Decision that he will apply to the Court of Appeal for leave to appeal against the Judgment and my Order dated 23 April 2019, the said interim stay will be extended till after the Court of Appeal has disposed of the application by R for leave to appeal, provided that the following conditions are satisfied:

 (a) within 14 working days from the date of this Decision, R will make payment into Court of the sum of US$1.2 million in compliance with my Order dated 23 April 2019;

 (b) within the time limit permitted by the Rules of the High Court R makes an application to the Court of Appeal for leave to appeal against the Judgment and my Order as aforesaid and prosecutes the same with all expedition.

 (2) In the event that no notification by R is received by the Court within 3 working days as aforesaid or in the event that paragraph (1)(i)(a) or (b) is not complied with, then the said interim stay will cease to have effect and my Order shall become immediately enforceable.

THE STAKEHOLDER

30.  Pursuant to and for the purpose of paragraph (1)(i) of my Order, I appoint Messrs Kenneth C C Man & Co, Solicitors, as the stakeholder thereunder.

COSTS

31.  P’s solicitors have by letter dated 13 June 2019 submitted to the Court P’s Statement of Costs for Summary Assessment.  I direct that the parties should make their written submissions regarding both liability and quantum to the Court within 7 days from the date of this Decision before I make an order for costs.