CHAN HIN TUNG AND OTHERS v. CHAN TIN CHAI AND OTHERS

HCCW 211/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 211 OF 2007

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D E C I S I O N

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Background

1.  By a petition presented on 15 May 2007, the Petitioners, as shareholders of the 11^th Respondent, Goldsfine Development Limited (“the Company”), sought relief under sections 168A and 177(1)(f) of the Companies Ordinance (Cap 32).  Under section 168A, they sought an order for the Respondents to buy back their shares in the Company at a price to be determined by reference to the “net asset value of the Company as at the date [of the petition] to be determined by an independent certified public accountant nominated by the Court”.

2.  The petition was tried before Barma J (as he then was) in April 2009. The Respondents were held to have committed unfairly prejudicial conduct towards the Petitioners. At paragraph 55 of the Judgment handed down on 14 May 2010 (“the Judgment”), the learned Judge ruled that “the appropriate way in which to deal with the unfairly prejudicial conduct, which is likely to continue so long as the Respondents are in control of [the Company], is by requiring [the Company] itself to 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). The parties should seek to agree on the identity of a valuer and any consequential matters, but may apply to the court for directions if they are unable to agree”. An Order along those lines was subsequently drawn up (“May 2010 Order”).

3.  On 25 July 2011, pursuant to a joint application by consent, the learned Judge ordered the Petitioners and the Respondents to jointly appoint Mr Philip Lam of KLC Kennic Lui & Co (“the Valuer”) to perform an independent evaluation of the Company’s net asset value pursuant to the May 2010 Order (“July 2011 Order”). Paragraph 5 of the July 2011 Order provided that the valuation when completed be placed before the court with liberty to the parties to restore the matter for further consideration by the court.

4.  The Valuer issued a valuation report on the net asset value of the Company on 3 November 2011 (“First Report”). 

5.  The Valuer’s conclusion, set out in section 16 of the First Report, was that the adjusted net asset value of the Company as at 15 May 2007 was HK$2,894,238. On the basis that the total numbers of Class A and Class B shares were 1,800 and 1,500 respectively, and that both Class A and Class B shares had the same rights to dividends, entitlement and benefits, he assessed the adjusted net asset value per Class A and Class B share at HK$877.04.

6.  On 16 January 2012, upon the Petitioners’ application, Barma J directed the parties to file expert evidence, ordered a further report from the Valuer and gave the parties liberty to fix a hearing after receiving the Valuer’s supplemental report (“January 2012 Order”).

7.  After the January 2012 Order, several rounds of affidavit evidence were filed by the parties. One of the affirmations filed on behalf of the Petitioners was made by a Mr Lam Yat Cheong, CPA, the Petitioners’ expert. According to his evaluation, the adjusted net asset value per Class A and Class B share should be HK$5,058.28.

8.  By a summons filed on 27 June 2012 (“the Summons”), the Petitioners sought a review of the First Report.

9.  The Summons set out, inter alia, the Petitioners’ requests to revise various aspects of the First Report which, if allowed, would result in an upward adjustment to the net asset value of the Company. In the Summons, the Petitioners further requested for

“direction … on how the market rental, appreciation in value of the property and interest should be calculated after 15^th May, 2007 in order to compensate our interests.” (emphasis added)

10.  On 18 July 2012, Barma J gave leave to the Petitioners and the Respondents to file further affidavit evidence and directed the Valuer to take into consideration the further evidence in preparing his supplemental report (“July 2012 Order”).

11.  On 13 August 2012, the Valuer issued his Supplemental Report (“Supplemental Report”). His revised conclusion, set out in section 13 of the Supplemental Report, was that the adjusted net asset value of the Company as at 15 May 2007 should be HK$4,011,849. On the basis that the total numbers of Class A and Class B shares were 1,800 and 1,500 respectively, and that both Class A and Class B shares had the same rights to dividends, entitlement and benefits, he assessed the net asset value per Class A and Class B share at HK$1,215.71.

12.  The Petitioners were still not satisfied with the revised valuation. Upon their application, the learned Judge ordered yet another round of affidavit evidence on 17 September 2012 in relation to the value of the Company’s shares, and adjourned consideration of the two Valuation Reports to a date to be fixed.

13.  The learned Judge having been elevated to the Court of Appeal, this court was assigned to preside over the adjourned hearing and fix the purchase price of the Petitioners’ shares.

14.  In a judgment handed down on 3 July 2013 (“2013 Judgment”), this court made the following order:

a. the Petitioners’ shares in the Company, whether Class A or Class B, be valued at HK$1,215.71 per share;[1]

b. the Company do pay each of the Petitioners the purchase price for their shares in the Company in accordance with the valuation aforesaid, 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;

c. 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;

d.     liberty to apply.

15.  So far as interest on the purchase price and costs were concerned, this court gave leave to the parties to file and exchange written submissions on whether interest should be payable, and if yes, the rate of interest and the period for which it was payable, as well as costs, within 14 days for disposal on paper.

16.  This is the court’s decision on interest on the purchase price and costs, after considering the written submissions filed by the parties.

Interest on purchase price

17.  There are abundant authorities in support of the proposition that the court has power to award interest on the purchase price if it makes a buy‑out order under section 168A: Re Tai Lap Investment Co Ltd. [1999] 1 HKLRD 384; Re Sharpart Co Ltd., HCCW No. 858 of 1999, 15 November 2000, Chu J; Wong Man Yin v Law Lam Wai & Ors [2001] 3 HKLRD 720; Re Golden Bright Ltd., HCMP 6472 of 2001, 21 September 2006, Kwan J. 

18.  Interest awarded in this situation is not qua interest; it is used as “a proxy to measure the increment in the value of the petitioner’s investment in the company appropriate to reflect the fact that the respondent’s interests had the use of the petitioner’s investment since the date of the petition[2]”: Re Tai Lap Investment Co Ltd. at 402J.

19.  The interest factor is added to the value of the petitioner’s shareholding to arrive at a fair price which should be paid for his shares, to give monetary compensation for the injury done to the petitioner: Re Golden Bright Ltd. at para. 36.

20.  Counsel for the Respondents submitted that the learned trial Judge “conspicuously did not award interest on the share buy-out (or in any other regard) in his Judgment [dated 14 May 2010].” He further submitted that, since interest was not a matter that the learned Judge left for a future court to decide, it should not arise for decision now.

21.  I accept that the learned Judge has not expressly reserved the question of interest to a later date or another court, but if Counsel intended to argue that “conspicuously did not award interest” meant “consciously decided not to award interest”, I would respectfully disagree. There is nothing in the Judgment which indicates the parties have made submissions to the learned Judge on the question of interest or that the learned Judge has consciously decided against it; otherwise, I would expect the learned Judge to have spelt out in the Judgment the arguments put forward by the parties and the reasons for his decision.

22.  It seems to me that the learned Judge simply has not dealt with the question of interest in the Judgment, for reasons which are unnecessary for this court to speculate. Now that the Petitioners have sought directions on the calculation of interest in the Summons, this court should deal with it without further ado. In so far as authority is required in support of the court’s power to order payment of interest after making a buy‑out order, see Re Golden Bright Ltd. at paras. 37-38. In that case, the question of interest on the purchase price was not raised by the petitioner’s counsel at the end of the trial of a 168A petition. Kwan J (as she then was) held that the court had power to award interest two and a half years after the making of the buy-out order, either under the slip rule or under the order made at trial giving liberty to apply “for directions as to the payment of purchase price and generally”.

23.  I hold that this court has power to award interest in the present situation under the slip rule.  In so far as may be necessary, I also rely on paragraph 55 of the Judgment which gave leave to the parties to apply to court for directions on “any consequential matters”. Following the reasoning in the authorities cited at paragraphs 17 - 19 above, it is in my view fair and appropriate to award interest on the purchase price in this case. Given the length of time for which the Petitioners’ investment in the Company has been locked up since the date of the petition ie 15 May 2007 (that being also the date of valuation), the Petitioners should be compensated for the loss of the use of their investment by an award of interest.

24.  The remaining question is the appropriate period for which interest should be awarded and at what rate.  The Petitioners in their written submissions said they would leave them to this court. The Respondents have put forward no meaningful submissions on these matters. This court can only do the best it can under the circumstances.

25.  In Re Tai Lap Investment Co Ltd [1999] 1 HKLRD 384; Re Sharpart Co Ltd, HCCW No. 858 of 1999, 15 November 2000, Chu J and Wong Man Yin v Law Lam Wai & Ors. [2001] 3 HKLRD 720, interest was awarded from the date of the petition, that being the date of the valuation. I see no reason to depart from those cases – as I have said earlier, the Petitioners’ investment in the Company has been locked up since the date of the Petition and they should be compensated by an award of interest from that date. I would therefore hold that interest on the purchase price should run from 15 May 2007.

26.  As for the rate of interest, I notice that the Hong Kong dollar prime rate has dropped significantly from 2007 onwards. It would therefore not be appropriate to adopt a flat rate, as in cases like Re Tai Lap Investment Co Ltd. I would instead follow the approach of Kwan J (as she then was) in Re Golden Bright Ltd. at paragraph 45 and order the payment of interest from 15 May 2007 to 14 May 2010, the date on which the buy‑out order was made, at the rate of 1% over the prime rate of the Hong Kong and Shanghai Banking Corporation during that period. After 14 May 2010, interest should be payable at the prevailing judgment rate.

Costs

27.  As far as costs are concerned, the Petitioners suggested that all costs should be borne by the Respondents.

28.  The Respondents, on the other hand, submitted that the valuation exercise had involved several rounds of affidavit evidence and hearings when only one should have been enough. They therefore asked that 75% of the costs of the valuation exercise, including 75% of all the costs reserved by Barma J since 14 May 2010, be to the Respondents.

29.  In principle, the costs of the valuation of the Petitioners’ shares (including costs of the hearings before Barma J in so far as the same have been reserved) should be borne by the Respondents, as part of the costs of this action: see Re Golden Bright Ltd. para. 46.

30.  In my view, this principle should apply up to the date of the Supplemental Report ie 13 August 2012 since this court did eventually make an order that the Petitioners’ shares be valued at HK$1,215.71 per share, as assessed in the Supplemental Report.

31.  If the Petitioners had been content to accept the valuation in the Supplemental Report, there would have been no need to incur further costs on valuation. It was entirely due to their dissatisfaction with the figure of HK$1,215.71 that the parties went back to Barma J on 17 September 2012 at which hearing the learned Judge gave leave to file one more round of affidavit evidence and adjourned the consideration of the two Valuation Reports for a one-day hearing.  Eventually, the Petitioners failed to obtain a higher valuation of their shares. In these circumstances, it seems to this court it is only fair that the costs after 13 August 2012 be borne by the Petitioners instead, and I so order. 

Disposition

32.  For the above reasons, I make the following orders on interest and costs:

(1) Interest be awarded on the purchase price of the Petitioners’ shares to run from 15 May 2007 to 14 May 2010, at the rate of 1% over the prevailing prime rate of the Hong Kong and Shanghai Banking Corporation, and thereafter at the prevailing judgment rate until payment.

(2) Costs of the valuation of the Petitioners’ shares up to 13 August 2012, including all costs previously reserved, be to the Petitioners, and all costs of the valuation exercise incurred thereafter be to the Respondents, to be taxed on the party and party basis if not agreed.