VITALY ORLOV v. MAGNUS LEONARD ROTH AND ANOTHER

HCMP 1331/2017

[2020] HKCFI 273

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1331 OF 2017

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AND

HCMP 2753/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2753 OF 2017

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(Heard together)

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R U L I N G

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Introduction

1.  These proceedings arose in what were effectively cross petitions relating to the respondent company (“TTC”) where each petitioner (“Orlov” and “Roth”) were equal 50% shareholders, and where each accused the other of unfairly prejudicial conduct, and sought the relief of a buyout order.  They agreed that if I were to order a buyout, it is Roth that should buy out Orlov.

2.  In the Judgment dated 28 August 2019 ([2019] HKCFI 2120), given following trial, I found various unfairly prejudicial conduct by both sides, and I ordered Roth to buy out Orlov.  I gave liberty to apply as to the precise terms of the buyout order, albeit only on the approach I directed within the Judgment.  As the parties were unable to agree the terms of the Order to be made, a hearing was fixed for 31 December 2019 for me to hear argument.

3.  In the Judgment, I also reserved the question of costs to further argument.  Costs submissions were filed by the parties in accordance with directions subsequently given.  The question of costs was to be disposed of on paper.

4.  Shortly prior to the hearing fixed for 31 December 2019, Orlov made an application for interim payment.  That application was opposed by Roth, not least as to any quantum, and the matter was also argued on 31 December 2019.

5.  This is my Ruling on those various matters.

6.  I would also mention that on 31 December 2019 I heard an application on behalf of Mr Alexander Tugushev (“Tugushev”) to intervene in these proceedings.  I dismissed that application by a separate reasoned judgment given ex tempore ([2020] HKCFI 279), and it is not traversed in this Ruling.  I note that whilst Tugushev’s solicitors wrote to the Court on 6 January 2020 in relation to Orlov’s interim payment application and Roth’s response to it, I do not need further to consider that letter in the light of my decided approach to that application.

Form of Order

7.  I attach to this Ruling my settled finalised form of the relevant Judgment and Order.

8.  Some of the matters as to the form of the Order as were in issue between the parties were resolved shortly before, and to an extent at, the hearing.  In so far as I have resolved matters that remained in issue between the parties, it may be helpful if I briefly identify the following points:

(1)  TTC is essentially a holding company, and the main assets and operations are held by and performed by its various subsidiaries.  I have ordered TTC, together with its subsidiaries, to be valued as a going concern.  But, in the light of the group structure, I do not think it correct to preclude the appointed Valuer from adopting whatever approach he thinks is appropriate to the valuation of any individual subsidiary in compiling the Valuation of TTC together with its subsidiaries as a whole as a going concern.

(2)  It seems to me important that the information used for the Valuation process should be available to all parties, being Orlov and Roth, TTC, and the Valuer.  The aim is equality of information.  I do not think it appropriate for there to be some sort of prior disclosure process between the parties themselves before information is provided to the Valuer. Rather, each party should provide the relevant and necessary materials to the Valuer, and simultaneously to the other party.  As much of the information might be held by subsidiaries, it is necessary for each of Orlov and Roth to procure TTC and its subsidiaries to provide the relevant information and documentation.  The Valuer must be entitled at any time and without restriction to seek whatever further documentation or information he considers necessary and appropriate for the purposes of making the Valuation.

(3)  Similarly, all communications with the Valuer should be on an “all-informed” basis.

(4)  Whilst it may well be that in making their Representations to the Valuer in accordance with the procedure identified that each of Orlov and Roth may seek certain professional or expert assistance, I do not think it helpful for the Representations in effect to be made by or through experts retained by the parties.  The point of the Valuation by the Valuer is to provide a process of valuation by an independently appointed single joint expert.

(5)  Nor is it necessary or appropriate to reserve to the Court what might turn out to be a repeated valuation process by the Court itself, by reference to expert evidence material produced by the parties.  Proportionality is important.  I intended, and the settled Order provides, that the Valuation shall be final and binding on Orlov and Roth, save for only the narrow exceptions identified.  Those exceptions are recognized exceptions to similar orders made in previous cases.  For the avoidance of any future doubt, it may assist to know that the reference to “patent error on the face of the Valuation in the Report” is intended to identify a limited basis for interfering with the Valuation analogous to the Court’s limited basis for interfering with an arbitration award.

(6)  The costs of the Valuation are to be reserved to the Court.  Though such costs are stated to include the costs of TTC, if any, that is not intended as an invitation to TTC (or its subsidiaries) to incur any significant legal costs expenditure.  At present, it is difficult to see why any significant legal costs need be expended by TTC in its performance of its role in the Valuation.

(7)  In accordance with §§184 and 396 of my Judgment, the settled Order provides for TTC to be bound by the result, irrespective of any potential change in management or ownership.  Nevertheless, I was dealing in the Judgment only with civil claims, and I do not think it is right for the Judgment to bar criminal proceedings, which might be proceedings of a fundamentally different nature.  Nor does it properly fall to me to say what impact my decisions and rulings in the Judgment might or might not have in any such fundamentally different proceedings, not least because of potentially different burdens or standards of proof.

(8)  On timetable, it is necessary to balance the need for an expeditious and efficient process leading to the Valuation against the need to allow sufficient time for each individual step to be taken.  The timetable set by me is the result of that balance in the exercise of my discretion, and it is intended that all parties including the Valuer keep to that timetable.  I have taken into account that the parties long ago agreed that it would be Roth to buy out Orlov if any buyout order were to be made, and that the Judgment making such an order was delivered in late August 2019, soon after the conclusion of the trial.  The parties must, and they certainly ought to, have been considering matters relevant to the process of the Valuation, including the identity of the Valuer and the marshalling of relevant documents and information.  Indeed, they were trading correspondence about the form of the Order over the months following the Judgment and before the hearing.  Requests for further time beyond that provided in the settled Order are not invited or encouraged.  Any request for any further time for any further step will be met by the most careful scrutiny and require the most cogent reasons if it is to be granted in whole, or even in part.

(9)  The parties have agreed and I accept there should be general liberty to apply in respect of any further consequential directions and orders.  I can only hope that the liberty is not exercised too freely.

Costs

9.  In the Judgment at §402, I indicated my then current inclination would be to make no order as to costs on both petitions. However, I declined to make any costs order, even on a nisi basis, pending further argument.  That argument has now been conducted by way of the mutual exchange of two rounds of written submissions.

10.  The broad scope of the argument is as follows. Orlov’s position is that he was the successful party, and costs should follow that event, whereas Roth’s cross-petition was unnecessary, so that Roth should also pay Orlov’s costs of the cross-petition.  Orlov also seeks that Roth pay TTC’s costs of and incidental to both petitions.  Roth’s position is that, in light of the findings in the Judgment where neither Orlov nor Roth can be said to be the sole successful party or to have done substantially better than the other, the original inclination for no order as to costs on both petitions is correct.

11.  I do not think there is, or can be, any significant dispute as to the principles applicable in relation to costs. Those principles can be summarized in brief.  The Court has a broad discretion, which must be exercised judicially.  There is a well-established general rule that costs follow the event, where the winning party is entitled to his costs even if he does not succeed on all arguments raised.  Costs need not follow the event where it appears to the Court that in the circumstances of the case some other order ought to be made.  There may be cases which identify a different approach is appropriate, for example to deprive a winning party of some of his costs by raising an issue which substantially added to the length or cost of proceedings and on which he did not succeed.  But too ready a departure from the general rule may encourage unnecessary argument, and undermine the utility of the rule itself.  Order 62 rule 5 identifies the matters which the Court shall take into account in exercising its discretion on costs, including the aspects of conduct detailed in paragraphs (1)(e) and (2) of that rule.

12.  Applying those principles to the particular circumstances of this case, on more mature reflection possible with the benefit of the written submissions made by the parties, I am persuaded that my original inclination was not correct.

13.  The starting point for Orlov’s argument as deployed by Mr William Wong SC, leading Mr Justin Lam, is that Orlov had to come to Court and go through a 10-day trial in order to obtain the relief he sought, namely the buyout order for Roth to buy his shares.  Although he did not win on every point, Orlov was awarded the only relief sought by him in the petition.  If one asks what is “the event”, it was the order that Roth buy Orlov’s shares.  That event was opposed by Roth even in his closing submissions, but the opposition was unsuccessful.  If one were to take a global view, looking at the realities and asking the question “who really won?”, then it can be seen in context that Orlov won.

14.  Mr Wong submits that the trial occurred as a result of Roth’s insistence, which particularly with hindsight was unreasonable and based on unsubstantiated reasons.  None of the three reasons put forward by Roth to support his insistence on a full trial were valid: first, the suggestion that Roth’s complaints in the cross-petition might render Orlov’s complaints not unfair, or might impact the grant of relief, failed; secondly, the suggestion that Roth’s allegations were important because they went to the basis of valuation failed; thirdly, the suggestion that the parties’ conduct might show some alternate arrangements agreed between them about which they could not now complain also failed.  Hence, Mr Wong submits that the sensible thing for Roth to have done would have been to concede one clear and indisputable complaint made by Orlov, namely the denial of information complaint based upon the decision of DHCJ Seagroatt, and to have proceeded straight to valuation.  The insistence on a trial caused significant delay, and (says Mr Wong) appears to be intended so to do.

15.  Mr Wong submits that on the petition Orlov is the clear winner.  He succeeded in his complaints about exclusion from management and denial of information, and there is no good reason why costs should not follow that event.  As for the cross-petition, Mr Wong submits it was unreasonably issued and persisted with, and in any event duplicated matters raised in defence to the petition.  Whilst it is correct that Roth succeeded in establishing unfairly prejudicial conduct on Orlov’s part to some extent, Mr Wong submits that is irrelevant for the purpose of costs as no part of that finding impacts valuation, so that it might be seen that Roth failed to achieve what he sought by the cross-petition, namely adjustments to valuation.  Roth also failed in his attempt to raise Orlov’s conduct as a way to “blunt” Orlov’s allegations of unfairly prejudicial conduct.  The fact that the Court ordered the same buyout, on the same terms, on each of the petitions emphasizes how unnecessary and redundant the cross-petition was.

16.  Mr Wong also refers to some policy considerations.  The costs following the event rule is a disincentive to parties wasting Court time by running arguments with minimal prospects of success, filing unnecessary claims, and departing significantly from their pleaded case.  Here, Mr Wong says, Roth engaged in all three such practices.  Parties should not be encouraged to file a cross petition if it is thought that there would be no adverse costs consequences.

17.  Whilst accepting the starting point that costs should follow the event, Mr Victor Joffe, leading Mr Robin McLeish, submits for Roth that the usual approach to determining who was the successful party by reference to the relief or remedy applied for and whether it was obtained does not apply in this case.  That is because both parties applied for the same relief, namely that Roth buy out Orlov’s shares, and the Judgment granted that relief on both petitions.

18.  Mr Joffe also points out that the argument that Roth’s cross-petition was unnecessary and inappropriate was in effect dismissed in the Judgment, and the attempt to achieve the “shortcut” so as to found jurisdiction to make the buyout order also failed, evidenced by the making of the order on both petitions.  Mr Joffe submits that Mr Wong’s criticism of Roth’s insistence on disputing jurisdiction and in issuing an unnecessary cross-petition are impermissible collateral attacks on those parts of the Judgment which determined that I would consider the totality of the cross complaints of both Orlov and Roth, because I was not persuaded that the complaints in Roth’s cross-petition should not be entertained at all.  Indeed, Mr Joffe submits that the costs submissions effectively seek to re-run arguments made by Orlov at trial that the Court did not accept, and in circumstances where Orlov had not applied to strike out Roth’s cross-petition (as he might have done), nor drop all complaints other than the one based on the Seagroatt Order.

19.  So, says Mr Joffe, if one puts aside those impermissible attacks and rather seeks to identify which of Orlov and Roth might be regarded as the successful party by reference to which had substantially greater success than the other with respect to their complaints of unfairly prejudicial conduct of TTC’s affairs, the answer is that neither party could be said to have had substantially greater success than the other. Orlov succeeded on four out of nine of his complaints, and Roth succeeded on two out of four of his.  Neither succeeded on the primary complaint made in each of their petitions when issued.  So, viewing the Judgment’s findings and orders in the round, Orlov’s partial success on his petition does not make him the successful party any more than Roth’s partial success on his cross-petition makes him the successful party.

20.  Further, Mr Joffe submitted, it could not reasonably be said that the complaints of unfair prejudice on which Orlov succeeded somehow outweigh those complaints on which Roth succeeded; if anything, the reverse is the case (because Orlov was found to be in breach of fiduciary duty).

21.  Mr Joffe also pointed out that the date of valuation ordered was in the middle ground between the dates contended for by the parties, albeit that Orlov’s claim to “quasi interest” was disallowed. There were no findings that it was unreasonable for either party to have raised or pursued or contested particular allegations or issues, that there was exaggeration of claims so as to justify an adverse costs order, or that conduct during the proceedings warranted such an order.  Insofar as Mr Wong relies on the fact that Roth failed in his claim for an adjustment in valuation, Mr Joffre points out that so did Orlov.

22.  Mr Joffe submits that Roth has forborne seeking an award for some part of his costs bearing in mind the observation at §404 of the Judgment that both parties have acted at times inappropriately and unfairly, and both parties have made criticisms which are unfair, in circumstances where the disputes may not be completely “black-and-white”.

23.  Mr Joffe also submits that avoiding a lengthy and costly taxation is consistent with the parties heeding the sentiments I expressed at §409 of the Judgment (though I have to say there has been little evidence since the Judgment of the parties really paying much heed to those sentiments).

24.  I think the argument is reasonably finely balanced.  My original inclination, and Roth’s adoption of it, has some support in the fact that each of Orlov and Roth made substantial criticisms of the other, and I found that some criticisms of both of them did amount to unfairly prejudicial conduct but some criticisms were themselves unfair.  I was not prepared at the beginning of the trial to refuse to entertain the cross-petition, or to take what at first blush might have been an attractive shortcut.

25.  However, now that the trial has taken place and I have made the various findings which I did in the Judgment, the position is different.  It seems to me that in the exercise of my discretion as to costs, and whilst not losing sight of the detail, it is appropriate to step back and look also at the bigger picture.

26.  By his petition, Orlov sought a specific relief that Roth should buy out his shares.  As it happened, that form of relief was not actually controversial.  What was controversial was whether jurisdiction could be founded on findings to be made in the petition so as to permit a buyout order.  Roth opposed such findings, even in the face of the Seagroatt Order (which was at least highly likely to found jurisdiction for a buyout order), and his opposition was unsuccessful.  The substance of the relief sought in the petition was granted to Orlov.  I accept that, but for the existence of the cross-petition, there would be no reason in the circumstances of this case to deprive Orlov of his costs of the petition.

27.  The question can then be asked what practical benefit was achieved from the cross-petition.  Of course, it is correct that I made findings in Roth’s favour that Orlov had also engaged in some unfairly prejudicial conduct.  But, other than perhaps as a matter of satisfaction, those findings led to no different relief.  Insofar as those findings were sought either to affect the valuation or to show that any prejudicial conduct by Roth was not unfair, that aim was not met.

28.  Whilst it is correct that I ordered the buyout on both petitions, I do not think that fact alone makes the cross-petition justifiable or necessary.  Indeed, I agree with Mr Wong that the fact that no different order was made as a result of the cross-petition identifies that its purpose was not achieved, and that in broad terms it was ultimately unnecessary.  Nevertheless, it of course added to the length and cost of the litigation.

29.  It also seems to me that it would have been possible for Roth to have accepted that there was a proper jurisdictional basis to found the buyout order which he agreed should be made, and to have retained the ability to argue for variations to valuation in the valuation process. Assuming Roth would have then raised the same arguments, the assumption is that they would also have failed at that stage, and costs would likely have followed that event.  That they were instead raised through the process of the cross-petition ought not to change that analysis.

30.  Ultimately, I agree that the apparent purpose of the cross-petition – where Roth must necessarily assert it had some purpose beyond that already achieved by the petition – failed.  That some findings were made in favour of Roth on allegations made in the cross-petition, when those findings ultimately led to no different result than was achieved by the petition, does not seem to me to justify a different approach, even on some sort of issue-based division of costs.  I have considered, but in the exercise of my discretion reject, somehow dealing with the costs of the petition and the cross-petition so as to give rise to cross costs orders.  I do not think that would be in any way appropriate in the circumstances.

31.  I also take into account that at the trial, in Roth’s oral evidence, (a) he sought to raise an entirely new case that the MU was subject to some conflict-of-interest exception, or perhaps had even ceased to exist at all, which was contrary to his pleadings and witness statements and which was rejected, and, partly by that change of stance, (b) he in effect expressly accepted that he had deliberately excluded Orlov from various management and denied him documents and information.  Had those matters been pleaded, or even contained in the witness statements, there is little doubt that I would readily have found a jurisdictional basis for making the buyout order without the necessity to go through any trial.

32.  In the circumstances, and in the exercise of my discretion, I order Roth to pay Orlov’s costs of and incidental to the petition and the cross-petition, including the written submissions on costs, with certificate for two Counsel, to be taxed if not agreed and payable forthwith. As to the time for payment, I see no reason why the payment of the costs should await the conclusion of the valuation process.

33.  As to TTC’s costs, there is understandably no application before me made by TTC.  Whilst Orlov seeks an order that Roth pay TTC’s costs of the petition and cross-petition, I agree with Mr Joffe that the costs up to the valuation date of 1 January 2018 can and will in effect simply be shared between the parties as 50% shareholders.  My settled Judgment and Order already provides that any costs incurred by TTC in the Valuation of the Shares is reserved to the Court.  Insofar as TTC incurred costs between 1 January 2018 and the start of the valuation process, they seem unlikely to me to be material.  I, therefore, make no order as to any of TTC’s costs.

Interim Payment

34.  On behalf of Orlov, Mr Lam submits that the application for interim payment of the purchase price for his Shares in TTC, to be purchased by Roth under the buyout order, arises from the inevitable delay in the valuation process, and also because Roth and TTC have been conducting TTC’s affairs on the basis that Orlov is a shareholder and director “in name only” since the handing down of the Judgment.

35.  Originally, on the evidence and before argument, it appeared that Roth’s primary position was that the Court does not have jurisdiction to order an interim payment in proceedings of this sort.  However, in argument, it became clear that that position was not maintained.  In any event, such an argument can be readily disposed of, because the Court of Appeal has held that the Court does have jurisdiction to order interim payments in unfair prejudice proceedings, on account of the purchase price to be paid under a buyout order.  The Court of Appeal did not consider the contrary position to be arguable: see Xu Liu Chun v Wu Chang Jiang [2019] HKCA 975 at §§10-16.

36.  In response to the application, Roth has (via Mr McLeish’s skeleton submissions) since offered to make an interim payment of US$15 million, on condition that the sum can be paid from TTC’s assets and that Orlov undertakes not to block, or seek to block, whether in reliance on Article 38 of TTC’s Articles of Association or otherwise, any decision passed by a majority of the members of the board of directors of TTC.

37.  Hence, the main argument between the parties is as to (a) the quantum of any interim payment, (b) the source from which it might be paid, and also (c) any condition which might be attached.  Though these might seem three separate or discrete points, and they can each be considered in turn, it seems to me that there may be some overlap when reaching a considered conclusion on the application.

38.  Orlov seeks an interim payment in the sum of US$49.1 million, on the basis of figures put forward by Klock and TTC’s solicitors.  In an email dated 1 March 2018 to the TTC Board, Klock gave an overview of financial results, and a group consolidated balance sheet as at 31 December 2017, which stated that the net assets of TTC amounted to US$99 million.  On 2 June 2018, TTC’s solicitors provided a consolidated balance sheet also as at 31 December 2017, which put the net assets of TTC at US$98.2 million.  Orlov suggests a broad brush approach would be to take half of the latter and lower figure.

39.  However, in his affidavit of 19 December 2019, Klock suggests the figures previously produced were inaccurate, are highly likely to be a significant overvaluation, and should not be relied upon.  However, no new estimated value is offered, even on a rough basis.

40.  It is also argued by Mr McLeish that a valuation of TTC across the board by reference to its assets is inconsistent with the order that TTC be valued as a “going concern”.  He also suggested that the starting point should be to look at TTC’s own (not its consolidated) balance sheet, but I do not see the logic in that; the valuation ordered was of TTC and its subsidiaries.

41.  Anyway, the approach taken by Roth is unhelpful, as the Court is left with two reasonably consistent figures on which TTC was apparently expected to rely internally, but which are said to be unreliable externally, but with no other actual figures to bring into comparison.  This is despite the fact that it must be Roth and TTC who are currently in a better position than Orlov to put forward financial information which might permit some other estimate of valuation of the Shares.

42.  I am not sure the specific example given, relating to TTC’s indirect subsidiary Baltlanta, helps matters much.  Whilst it was given as an example to cast doubt on the net asset figure, it does not lead to an alternate suggested valuation which might be taken for interim purposes.

43.  Of course, the Court must do the best it can on the materials available.  Whilst it may well be that the ultimate valuation of the TTC Group on a going concern basis is not as high as the net asset figures the Group itself produced for internal use, plainly there is significant value in the Shares.  As Mr Lam has pointed out, in Roth’s skeleton argument relating to the terms of the Judgment and Order, he argued that the value of the Shares is “in the tens of millions of US$s”.  On the materials available to me so far, that is almost certainly correct.

44.  As to the submission made for Roth that the correct approach would be to order no more than the “irreducible minimum” possible valuation of Orlov’s shares in TTC, that might provide guidance in some cases.  But, that approach has its own potential pitfalls, at least in some cases.  I think the Court’s task in the present case is to balance the various factors to come up with what appears to be a figure for interim payment likely to be fair in all the circumstances, taking into account potential valuations, the purpose underpinning the buyout order made, affordability, ability for repayment of any overpayment (should that occur), and the impact of any conditions which might attach.

45.  Mr McLeish also submits that the requirement to avoid overpayment by way of an interim payment is of particular force in this case because Orlov is resident in Russia and the majority of his assets are in that jurisdiction.  Whilst I take into account that the Court should aim to reach a figure for interim payment that is unlikely to create an overpayment, I do not accept the view that recovery of any overpayment from Orlov would necessarily be extremely difficult.  That view presupposes an intention not to comply with any future court order requiring repayment of overpayment, and/or an intention to dissipate assets to frustrate such an order.  I am not prepared to draw such conclusion or reach any such view on the evidence available to me.  (In passing, I note that a similar view was expressed in the English proceedings in the context of Tugushev’s application for interlocutory relief.)

46.  Mr McLeish also submitted that a further complication is Tugushev’s claim to a one third interest in the TTC Group.  As indicated, I have dismissed Tugushev’s application to intervene in these proceedings.  I do not think it is necessary or appropriate to speculate as to what might happen on his claim in the English proceedings.  But, if the express concern is that Roth could find himself in a position of having overpaid Orlov even by way of an interim payment based on an “irreducible minimum” possible valuation of the shares registered in Orlov’s name, when one third of those shares might be found to be beneficially owned by Tugushev, that seems to me to be a litigation risk which Roth voluntarily assumed when he conducted the litigation in Hong Kong on the basis that he and Orlov, and only he and Orlov, were equal beneficial shareholders of TTC.  Therefore, and though I have in mind that any such claim might be met by an award of damages, I take no account of Tugushev’s claim for the purposes of considering Orlov’s interim payment application.

47.  As to the source of any interim payment, Roth’s offer is put forward on condition that the sum can be paid from TTC’s assets, albeit that in oral argument it was accepted that this must be in such a way that would be lawfully possible so as not to breach, for example, section 275 of the Companies Ordinance.  However, where the shares are to be bought by Roth from Orlov under the buyout order, I see no basis upon which any interim payment could be sourced other than from the buyer, namely Roth.

48.  I also take into account that in May 2016 Roth sold his 33% interest in the Norebo Group to Orlov for over US$200 million, which was paid in cash.  One might expect some symmetry when Roth is to buy out Orlov, and also affordability does not appear likely to be an issue.

49.  There is more force in relation to the position as to any relevant condition.  First, I have ordered the relevant valuation date as 1 January 2018, now more than two years in the past.  So, anything which the TTC Group has done in the intervening period, when it has practically been under the control of Roth (to the practical exclusion of Orlov) and which might affect the value of the TTC Group, has no continuing relevance. Secondly, where it was always common ground between the parties that ultimately (assuming some unfairly prejudicial conduct was established) Roth would end up as the owner of all of the TTC shares, that can also be recognised.

50.  Roth’s objection is that, by receiving an interim payment, Orlov would be placed in a position where at least some of his financial interest in TTC had been realised, but he would nevertheless continue to act as if he had an economic interest as a shareholder by seeking to exercise the full rights of a shareholder and director of TTC.  Hence, Roth would inevitably have to deal with what he sees as Orlov’s continued attempts to frustrate the usual functioning of TTC until the completion of the valuation process and the payment of the price due.

51.  I think this concern fairly arises.  I do not accept Mr Lam’s submission that Roth’s concern is wholly unfounded, simply because Orlov (or his alternate Mansfeld) cannot in fact do anything to disrupt TTC’s operations because he is in the minority at board level.  Whilst it may be correct that, practically speaking, Roth continues to be free to operate TTC as his own company, that is in effect what I have permitted and ordered.  The only remaining question is the calculation of the price to be paid for that freedom.  The problem is that until the buyout actually occurs Roth and Orlov remain equal shareholders, and reference might be made and/or reliance might be placed on Article 38.  That seems to me to be a recipe for yet more disputes.  If Orlov recognises the practical reality is that he cannot do anything to disrupt the operations because he is in the minority at board level, I see no reason not to make that the formal position against a sufficient interim payment.

52.  Indeed, where Roth seeks that any interim payment be paid on condition that Orlov essentially be formally excluded from exercising his rights as a shareholder or director in the interim period between now and the ultimate payment out for his Shares, the corollary must be that the interim payment should be as high as seems reasonably safe to order in all the circumstances which I have canvassed above.  Put simply, if Roth wants Orlov out of the company now, he has to pay now what on present material seems as close to an ultimate predicted figure as can fairly be identified at the current stage (when recognizing the implicit uncertainties, and the time which will be taken for the valuation process to be completed).  This is another reason why I do not think the “irreducible minimum” approach is the correct approach in the current circumstances.  Of course, what is sauce for the goose is sauce for the gander.  If Orlov wants as much as possible by way of interim payment, he must be prepared to pay the price of being excluded, as is the intended final effect of the buyout order.

53.  Balancing these various matters, in the exercise of my discretion, I have decided that the interim payment to be made by Roth, and which is to be paid from his own assets and resources (not those of TTC or the TTC Group), is the amount of HK$35 million.  In return, and upon payment of that amount, Orlov must not block, or seek to block, whether in reliance on Article 38 of TTC’s Articles of Association or otherwise, any decision passed by a majority of the members of the board of directors of TTC. The interim payment should be made within 35 days.

54.  Roth is to pay Orlov’s costs of this application, costs following the event.