DENNIS KWOK HON MING v. POON SUI CHEONG ALBERT AND OTHERS

HCMP 1526/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1526 OF 2013

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AND

HCMP 1527/2013

MISCELLANEOUS PROCEEDINGS NO 1527 OF 2013

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AND

HCMP 1528/2013

MISCELLANEOUS PROCEEDINGS NO 1528 OF 2013

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D E C I S I O N

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1.  By my judgment dated 14 December 2016 (“the Judgment”):

a. At paras 258‑259, I ordered that the Majority Shareholders buy out P’s shares in each of the Companies at a value to be fixed by the Court, with various ancillary orders.  I stated that I would hear submissions as to other directions required for the valuation if necessary.

b. At para 260, I made an order in respect of the payment of Manager’s remuneration to P and stated that I would hear submissions on the appropriate amount of remuneration if necessary.

c. At para 261 I ordered particular cash amounts held by or on behalf of the respective camps to be taken into account.

d. At para 262, I invited the parties to try to agree appropriate orders.

e. At para 264, I made a costs order nisi.

f. At para 265, I directed that if the parties considered that further rulings were required in order to finalise an order to reflect the judgment, the parties should inform the court within 28 days as to the matters still requiring resolution with proposals for directions.

2.  The Majority Shareholders and P each lodged written submissions dated 11 January 2017.  P lodged further responsive written submissions dated 13 January 2017.

3.  There had apparently been no attempt to try to agree directions.  I accordingly directed on 16 January 2017 that the parties liaised in respect of directions (in particular as to valuation and Managers’ remuneration) and inform the Court of points of agreement, and points of difference and why, in writing, by 10 February 2017.  I also directed further submissions on whether the costs order nisi had been challenged in time.

4.  R5 filed “supplemental submissions” dated 17 January 2017 (1) as to the valuation approach (2) as to R5’s entitlement to Managers’ bonus.

5.  The Majority Shareholders and P each lodged written submissions dated 24 and 26 January 2017 respectively to address the costs order nisi issue.  P’s submissions also sought a summary assessment of the costs of the Action attaching a skeletal bill of costs.  The Majority Shareholders responded to the skeletal bill by submissions dated 2 February 2017.

6.  The Majority Shareholders and P each lodged written submissions dated 10 February 2017 addressing the outcome of their negotiations as to further directions to be made by the Court.  The inter‑party correspondence has been attached, which I will now consider.

7.  On 20 January 2017, P’s solicitors proposed directions for valuation, for management bonus, and for dealing with the cash amounts held by or on behalf of P.  A response was sought within 7 days.

8.  The Majority Shareholders’ solicitors’ replied by letter dated 3 February 2017:

a. They responded to P’s proposed directions for valuation, for management bonus, and for dealing with the cash amounts held by or on behalf of P; and made further proposals in that regard.

b. They suggested that, in light of significant differences in position between the parties and the “substantive legal principles involved meriting argument”, there should be directions for the filing of evidence and a further 1‑day oral hearing to be fixed in consultation with counsel’s diary, asserting.  (No indication is given of what evidence would be necessary or what substantive legal principles would be involved).

c. They suggested that liability to pay the purchase price for P’s shares be split between the Majority Shareholders according to their shareholding; and that purchase of P’s shares should be “on the condition” that P waive all outstanding shareholder loans and interest payable to him.

9.  By letter dated 6 February 2017, P’s solicitors asserted that no oral hearing was required at this stage prior to valuation reports; the Majority Shareholders’ liability to purchase P’s shares was joint and several; and that a concise list of directions as to valuation, management bonus, and cash amounts should be prepared for the Court, enclosing a draft.

10.  By letter dated 8 February 2017, P’s solicitors referred to a meeting between the parties on 7 February 2017 and the extent of agreement/disagreement as to the valuation process and managers’ remuneration.  P’s solicitors attached further proposed directions.

11.  By letter dated 9 February 2017, the Majority Shareholders stated they had been unable to obtain instructions on the letter of 8 February 2017.

12.  I am not aware of any further correspondence between the parties.

13.  Written submissions dated 10 February 2017 were filed on behalf of P (prepared by P’s solicitors) and on behalf of the Majority Shareholders (prepared by counsel).

14.  The Majority Shareholders’ submissions largely repeat the contents of their solicitors’ letter dated 3 February 2017.  They seek to file evidence and a 1‑day oral hearing in the same terms as that letter.  Still, there is no indication of what evidence would be necessary or why, nor what legal principles merit argument.  They seek to split the Majority Shareholders’ liability for purchase of P’s shares.  They also set out the extent of agreement and disagreement as to the valuation process, managers’ bonus, and cash amounts; although in respect of these issues, the submissions show that there is further agreement since the 3 February 2017 letter.

15.  P’s solicitors’ submissions do not have the advantage of having read the Majority Shareholders’ latest submissions and the progress made on agreed directions.  However, they do not indicate that they would wish to make any further submissions in respect of directions.

16.  It seems that there is an intention to continue inter‑party communication to resolve matters in respect of the identification of suitable valuation experts.  There are other matters where no agreement is likely to be reached.  I propose to address such matters as appear suitable for determination in writing now, which may assist the parties in their further negotiations.  I am not convinced that there is any need for the extra expense or use of court resources in directing an oral hearing with or without evidence at this stage; nor that the Court would be assisted by the filing of evidence (the nature of which has not been specified).

17.  I have already determined on P’s petitions, that the Majority Shareholders do buy out P’s shares.  There was no application at trial for liability to be split in the manner now proposed by the Majority Shareholders.  It was clear at trial that the Majority Shareholders did not act individually but on a joint basis, and that the unfair prejudicial conduct towards P, as determined after trial, was on a joint basis.  It is a joint and several liability of the Majority Shareholders to buy out P’s shares.

18.  I have also already determined in para 263 of the Judgment that P is not entitled to recovery of his shareholder loans in addition to a buy‑out of shares to be valued on the basis that shareholder loans were repaid in 1997.  There is no basis for asserting extra related “conditions” for share valuation.

19.  As to Managers’ bonus:

a. P was a Manager in his capacity as a shareholder and that shareholder status will cease as at the date of buy‑out of his shares. For the avoidance of doubt, I do not consider that the Manager status could outlive shareholder status.  Nor do I consider that the Managers’ bonus would be payable after the Managers lawfully ceased to be Managers.  On the face of Clause 4 of the Shareholders’ Agreement, it is only Managers who are entitled to receive the bonus.

b. Further to para 260 of the Judgment, I have seen no submissions which cause me to reconsider my preliminary view.  Insofar as R2 waived her right to receive a bonus, this was offered to and in favour of the Companies, and not to the other Managers.

c. Clearly, proper disclosure of actual sales of land should be given to P (to the extent that the same has not already been done) so that agreement may be reached as to the proper quantum of remuneration.

20.  Insofar as the parties have agreed that (1) the cash amount of HK$1.1million odd taken from Top Master’s account and held by P should be repaid to Top Master, and (2) the cash amount of HK$750,151.30 attributable to shareholder loan repayment in respect of P’s shares but held in escrow should be released to P:

a. Both those sums should be repaid with interest accrued from the date of removal from Top Master’s account and the date of declaration of the shareholder loan repayments respectively.

b. There appears to be no reason why both such sums should not be paid forthwith.

21.  As to the valuation process:

a. I note that the parties continue to negotiate the identity of the expert valuers.  I observe that I would be concerned about the independence of an accountant already employed by the Companies at the Majority Shareholders’ direction, unless P had no objection and agreed to appointment of such person/firm.

b. I note an issue as to whether the land should be valued on a “net asset value” and “as is” basis taking account of transaction costs, tax liabilities, and adverse possession claims (per the Majority Shareholders’ submissions dated 11 January 2017), and/or whether it should include the intrinsic value of the assets and/ or development potential of the land (per P’s Supplemental Further Submissions dated 13 January 2016).  It is not clear to me that there is a genuine difference between the parties.  The land (with the assistance of the expert surveyor) will be assessed as having development potential or not and valued accordingly.  Whether there are real development opportunities associated with any particular piece of land owned by any of the Companies as at the date of the buy‑out order (14 December 2016) is a matter for assessment.  Whether or not there are liabilities attaching to a piece of land affecting its value and/or the value of the company owning the land is again a matter of assessment.  All of these factors are relevant in the assessment of the value of the Companies.  It is common ground that the Companies should be valued on a going concern basis rather than on a distressed sale basis.  Whether or not a valuation of the Companies’ shares on a going concern basis takes account of more than the net asset value of the land assets is a matter for the valuers.  I would not wish to hamper the valuers in their assessment without knowing more about the reality of the Companies’ businesses as at 14 December 2016.  Contrary to para 18 of the Majority Shareholders’ submissions dated 10 February 2017, paras 11‑12 of the Judgment did not find that the Companies’ only business to date was to hold and sell the land.  Further, it was common ground at the trial that the Companies held the land with different investment objectives ie whether short‑term sale or potential development opportunity.

c. Had it not been for the unfairly prejudicial conduct by the Majority Shareholders, P would remain a shareholder in the Companies.  The valuation of P’s shares, and the transfer of P’s shares is a result of the Majority Shareholders’ conduct.  It follows that the costs of valuation and transfer (including stamp duty) should be borne by the Majority Shareholders.

22.  As to the purchase process and date(s) for payment for P’s shares, this can be addressed when or after the Court determines the value of P’s shares.  The burden will fall squarely on the Majority Shareholders to demonstrate why they should not make payment of the purchase price forthwith.

23.  As to the Companies’ books held by P, there is a dispute as to whether these should be returned to the Companies following issue of the final valuation report or after the full purchase price has been paid to P.  In light of P having no further management role in the Companies, and his interest now being limited to ensuring a proper valuation of his shares is achieved, I see no reason why the Companies’ records should not be returned following the valuation report, rather than waiting until he ceases to be a shareholder.

24.  As to costs of the proceedings until the Judgment.

a. I accept that in light of para 265 of the Judgment, the 14‑day timeline in RHC O 42 r 5B(6) was modified to 28 days.

b. The Majority Shareholders’ written submissions dated 11 January 2017 barely assert that R3 and R4 should not have been made parties to the Petitions as they are not shareholders, so they should have their costs of the proceedings.  It is too late to wait until after trial to suggest that any of the Respondents should not have been parties to the Petitions.  R3 and R4 are, it is common ground, the owners of R7 and R8 and as such interested parties, and indeed the persons driving the actions (and unfairly prejudicial conduct) of R7 and R8.

c. Having read the written submissions dated 11 January 2017, I recognize that I have a discretion to depart from the general rule that costs follow the event.  However, I am not persuaded in this case that there should be any apportionment of costs although P may not have succeeded in each and every one of his grounds of complaint. I am satisfied that P succeeded in all material respects of his complaint of unfairly prejudicial conduct, which was contested by the Respondents.

d. This is not in my view an appropriate case for summary assessment of costs. The costs will be taxed if not agreed.

25.  As to R5’s submissions:

a. Her submissions on valuation have been effectively made by P and are already addressed.

b. I have no jurisdiction to make any order in respect of Managers’ bonus or otherwise in favour of R5 who has sought no relief from the Court, which is dealing with petitions presented by P.

26.  The parties are directed to liaise to finalise a directions order in light of this decision by 3 March 2017.  It is to be hoped that the identity of the valuation panel will have been agreed by that time, and that the directions order will be one capable of being actioned forthwith.  Should the parties require any further directions at that time, not already addressed by the Court, they may make written submissions by that date.

27.  Costs of and relating to this decision and the intended directions be reserved to be addressed at the hearing to determine the price to be paid for P’s shares.