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

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MISCELLANEOUS PROCEEDINGS NO 1527 OF 2013

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MISCELLANEOUS PROCEEDINGS NO 1528 OF 2013

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REASONS FOR DECISION

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1.  This is the hearing of:

 (a) the Majority Shareholders’ Summons dated 25 August 2017 seeking leave (insofar as required) to adduce the report of Mr Ian Cullen dated 25 August 2017 (“the Cullen Report”) and to call Mr Cullen as a valuation expert at the valuation hearing (“the MS’ Summons”); and

 (b) the Petitioner’s Summons dated 16 November 2017 seeking leave to call a valuation expert to adduce an expert report at the valuation hearing (“P’s Summons”).[1]

2.  The background is as follows:

 (a) By my judgment dated 14 December 2016 on the Petitioner’s unfair prejudice petitions, I ordered the Majority Shareholders to buy-out the Petitioner’s shares at a value to be fixed (“the Main Judgment”).

 (b) There followed several applications for directions relating to the valuation process.  I refer to my orders and related decisions dated 21 February 2017, 15 March 2017, 6 April 2017, 13 April 2017, 7 July 2017 and 3 August 2017.

 (c) In particular, by order dated 15 March 2017, I ordered that the Petitioner’s shares be valued by Deloitte and Colliers (“the Valuer”).

 (d) I will use the abbreviations used in the aforementioned decisions. 

3.  The MS’ Summons came before me on 26 October 2017. At that time there was no evidence in support of the summons.  I adjourned the summons, and recorded my reasons for doing so on 13 November 2017.

4.  At the end of the hearing on 19 December 2017, I approved in principle a draft of directions (subject to being formally drawn up) allowing the Majority Shareholders to adduce a modified report of Mr Cullen, and adjourning P’s Summons to enable him to obtain a report from JP Assets Consultancy Limited (“JPA”), on the basis that the same would be permitted to be adduced if produced pursuant to specified instructions and if JPA were provided the same factual materials relating to the Land as provided to the Valuer and Mr Cullen.

5.  The final form of directions are contained in the order.  I now give my reasons.

The MS’ Summons

6.  The MS’ Summons is now supported by Tseng 7, opposed by Kwok 5 with reply evidence in Tseng 8.

7.  Two issues arise:

 (a) Whether the Valuer is a court-appointed expert panel or single joint expert (“SJE”).

 (b) If they are a SJE, whether leave should be granted to permit the Majority Shareholders to adduce the Cullen Report.

8.  As to the nature of the appointment of the Valuer, I have had regard to the evidence filed on the MS’ Summons, and in particular to the parties’ submissions to the court prior to the Order of 15 March 2017 and to the Valuer’s appointment.

9.  The submissions made by the Petitioner and the Majority Shareholders between 11 January 2017 to 3 March 2017 make clear that the parties were (by consent) proposing the appointment of a single valuation panel to produce a valuation, upon which basis submissions would be made as to the proper buy-out price and timetable for payment.  The parties were not however agreed as to the identity of the valuation panel, as to which the dispute was the expertise and cost of the nominated valuers.  It was the identity of the Valuer which the court was asked to resolve.  I have no doubt that the parties had agreed on the appointment of a SJE but disagreed on who should be appointed on the basis of expertise and cost, and by consent requested the court to choose a single valuation panel from identified nominees.  It is clear that neither party expressly identified the jurisdiction pursuant to which they sought the appointment of a single joint valuation panel. There was at no time any suggestion that each party would appoint their own expert, nor that the court should itself appoint the valuer.  The appointment of a single joint valuation panel was entirely initiated by the parties by consent, and approved by me.  Order 38, rule 4A(2)(a) provides that where the parties cannot agree on who should be the SJE, the court may select the SJE from a list prepared or identified by the parties.  After consideration of the parties’ nominated valuers, I ordered on 15 March 2017 that the Shares be valued by the Valuer, with directions for the conduct of the valuation (which directions had been negotiated and largely agreed by the parties) (“the March Order”).

10.  Subsequently, the Valuer was appointed by the parties pursuant to a joint engagement letter, and not by the court.  The Valuer’s report was to the parties appointing them, and not to the court as would be required under Order 40, rule 2(1). The order made for the SJE’s costs to be paid by the Majority Shareholders was not consistent with Order 40, rule 5(2) which applies to court-appointed experts.

11.  The suggestion that the March Order was for a court-appointed expert was frankly surprising, and on review of the process leading to the Valuer’s appointment, I see no basis for that suggestion.

12.  The Majority Shareholders have suggested that if there was going to be an appointment of a SJE, then an oral hearing would have been required pursuant to Order 38, rule 4A(6).  The Majority Shareholders submit that they asked for an oral hearing in their written submissions of 10 February 2017 but the same was refused. They submit this means that the order made could not therefore be an order appointing a SJE.  However, Order 38, rule 4A(6) provides that where a party disagrees with the appointment of a single joint expert witness to give evidence, the court shall not order the same unless the party has been given a reasonable opportunity to appear before the court and show cause why the order should not be made.  Both parties agreed to the appointment of a SJE.  They simply disagreed on which of their nominees should be appointed.  Accordingly, Order 38, rule 4A(6) is not relevant.  (The reasons for refusing the Majority Shareholders’ request of 10 February 2017 for filing of evidence and an oral hearing were addressed in the Decision dated 21 February 2017).

13.  Accordingly, I have no doubt that the appointment of the Valuer was pursuant to Order 38, rule 4A, and not Order 40.

14.  It is common ground that on the basis that the appointment of the Valuer was pursuant to Order 38, rule 4A, then leave is required to adduce any further expert evidence.

15.  It is common ground that, notwithstanding the appointment of a SJE, there is jurisdiction for the Court to give leave to the parties to adduce their own expert evidence.  Both parties rely on Daimler AG v Leiduck (re: expert evidence)[2014] 3 HKLRD 56. 

16.  I note that Order 38, rule 36 in respect of obtaining leave to adduce expert evidence, and the authorities in respect of that rule as cited by the Majority Shareholders, may serve as useful general background, but, as counsel for the Majority Shareholders agreed, they are not directly relevant to the current application.  The present situation is that the court has already permitted expert evidence of a SJE to be adduced on the valuation issue, with anticipated cost and efficiency advantages.  The question which arises is whether further own-party expert evidence should be permitted, which involves extra costs and potentially less efficiency than if there had been no SJE at all.

17.  The appointment of a SJE, whether by agreement between the parties or imposed by the court, does not per se bar a party from seeking leave to instruct its own expert to challenge the SJE’s evidence or aspects thereof: Daimler at para 32.

18.  Leave should and would be granted if, upon balancing all relevant considerations, it is just and accords with the underlying objectives of the Civil Justice Reform to do so: Daimler at para 33.

19.  Relevant considerations would include:

 (a) the nature of the dispute;

 (b) the number of disputes on which the expert evidence is relevant; 

 (c) the reason for requiring the second report;

 (d) the amount at stake or the nature of the issues at stake;

 (e) the effect of permitting a second expert report on the conduct of the trial;

 (f) the delay in making the application;

 (g) the delay that might be caused in the conduct of the proceedings; 

 (h) any other special features;

 (i) the overall justice to the parties;

 (j) whether the SJE’s report can be challenged by cross-‌examination without the need for a further report; and

 (k) whether the parties have already engaged own-party experts.

(Daimler at paras 34 – 38.)

20.  Essentially there is a case management decision to be made having regard to the circumstances as to whether it is appropriate to allow further evidence.

21.  In this case, although the Majority Shareholders and the Petitioner both originally agreed to a single valuation panel to produce a valuation of the Petitioner’s shares, once the valuation was given, neither the Majority Shareholders nor P are entirely happy with the conclusion of the valuation.  Both seek to adduce their own additional expert report.

22.  The Cullen Report suggests that the Valuer’s valuation was grossly excessive, to the tune of some HK$68 million.  The Petitioner seeks to adduce an expert report (as I understand it) to demonstrate that the Valuer did not take the most appropriate approach to assessing the development potential of the Land, with the consequence that the Valuer’s valuation was too low not too high.

23.  The notes at Hong Kong Civil Procedure 2017 38/4A/6 address the question of what happens if one of the parties is unhappy with the report ofa SJE and wants to instruct another expert.  The notes refer to Daniels v Walker (Practice Note) [2000] 1 WLR 1382, and that where further evidence had been obtained by the dissatisfied party then a court’s decision as to what evidence should be called at trial should not be made until after a meeting between the experts involved, permissible under Order 38, rule 38.

24.  The Majority Shareholders submit that they suggested an experts’ meeting but the Petitioner declined.  They submit in any event that there is no point in having an experts’ meeting before all proposed valuers can meet, and as yet, the Petitioner’s proposed expert has not yet been appointed. I agree that there is no point in an experts’ meeting until all experts have formed their opinions and are ready to meet.  However, on the basis of Daniels v Walker it is not appropriate to decide whether to permit Mr Cullen, or the Petitioner’s expert, to be called at the valuation hearing until after such meeting is held.

25.  The Majority Shareholders submit that no delay or prejudice will be caused to the Petitioner by adducing the Cullen Report because it has already been produced and will have minimal effect on the conduct of the hearing as that has yet to be fixed.  I am conscious that permitting further expert reports to be adduced will delay the setting down of the valuation hearing.  The Petitioner successfully obtained judgment on his petitions in December 2016, and there is still no date for the valuation hearing.  However, the Majority Shareholders and the Petitioner articulated their intentions to challenge the Valuer’s report promptly (albeit the Petitioner’s first application was his summons dated 29 August 2017 seeking a supplemental report from the Valuer which was dismissed on 26 October 2017) (“the October Order”).  The October Order provided for the Petitioner to apply within 21 days if he wished to seek leave to adduce a supplemental report.  He made his application on 16 November 2017, supported by his own affidavit, but without a draft expert report.  The Petitioner stated his hesitation to instruct an expert given the cost involved and referred to his intention to restore the interim payment application.  On reflection the Petitioner confirmed that he wishes to adduce his own expert report, so there will be delay in setting down the hearing for which he is jointly responsible.

26.  I have considered whether the court could equally be assisted by cross-examination of the Valuer using the assistance of the parties’ own experts.  If the experts—after meeting and discussing the issues on which their reports differ—hold different opinions on matters of judgment based on their own research and experience, it seems preferable to have each available for questioning at the valuation hearing.  That is notwithstanding the likely increase in the length of the hearing (although ideally a narrowing of issues in the experts’ meeting would minimise the length of hearing).

27.  The delay to the substantive hearing is not a sufficient factor to outweigh the importance of enabling the Court to achieve a just outcome in the valuation process.  To refuse the parties’ own expert reports would in my view be unjust, taken in the round, where Mr Cullen at least has articulated a very significant disparity in amount between the Valuer’s assessment of Land value and his own.

28.  I emphasise that I have not evaluated any of the opposing opinions currently before the court.  However, on the basis that Mr Cullen has appropriate expertise and appropriate instructions, and takes (in conclusion) such a strong differing view as to the value of the Land from the Valuer, it seems to me appropriate to permit his report to be adduced. That is on the basis of two conditions:

 (a) the Petitioner should also have the same opportunity to adduce his own report on valuation from an expert with appropriate expertise and appropriate instructions; and

 (b) the Valuer and the parties’ own experts are provided with the same factual materials.

29.  As to the question of factual materials, it has emerged in the evidence that the Valuer and Mr Cullen were not provided with the same factual materials:

 (a) Mr Cullen was provided with materials which were not provided to the Valuer:

 (i) an expert report of Mr Kenneth To dated June 2017 (“the KTA report”), annexed to Mr Cullen’s report;

 (ii) a tenancy agreement in respect of the Land (“the tenancy agreement”).

 (b) Mr Cullen was not provided with certain materials which were provided to the Valuer, although the Majority Shareholders’ evidence is that such materials have now been provided to Mr Cullen who does not consider the same to impact upon his opinion.

30.  It is my view that it is fundamental that the valuation hearing should not proceed unless it has been ascertained that all experts have the same factual materials relating to the Land.  The court will not be assisted by opinions which differ because they are based on different facts.  The directions are accordingly drafted in order to achieve the same factual platform for all the valuers.  The Majority Shareholders concede that it is not appropriate to include the KTA Report in the Cullen Report, so they will lodge an amended report which removes not just the KTA Report annex but use of the same in the body of the report.

31.  As to an expert report from the Petitioner:

 (a) JPA’s expertise to value the Land was accepted;

 (b) it was not clear at the hearing that the proposed scope of instructions to JPA was appropriate, whereas the instructions to Mr Cullen as set out at Section 1.2 of the Cullen Report would be appropriate;

 (c) the Petitioner should submit his proposed report from JPA within the directed timeframe in order to request leave, although in principle there is no opposition from the Majority Shareholders, and I would be inclined to permit a report which is appropriate in scope to be adduced.

32.  After the hearing, the Petitioner by solicitors’ letters dated 21 and 22 December 2017 requested an amendment to the directions to reflect that the Petitioner wished to provide JPA with factual materials relating to the Land which had only become available after the Valuation, and had not been provided to the Valuer or Mr Cullen. This was not addressed in evidence or at the hearing (as opposed to the possibility that JPA might request further factual materials). It seems to me that the directions at the Order paragraphs 4(2) and 10 should cover the position. JPA should be provided with all factual materials provided to the Valuer and Mr Cullen. If JPA request further factual materials and/or it is appropriate to provide further factual materials to JPA, then these must be provided to the Valuer and Mr Cullen at the same time pursuant to paragraph 10. There is no need for any additional direction. There must be a level factual information playing field between the three valuers for their reports to be of assistance to the Court.

33.  The directions also provide for an experts’ meeting after all permitted reports have been served, for a joint report outlining the outcome of that meeting, and for the court to have an opportunity thereafter to consider whether to permit the parties’ own experts to be called at the hearing in the light of the meeting and the outstanding issues.

34.  Accordingly, paragraph 1 of the MS’ Summons is dismissed; paragraphs 2 and 3 thereof are effectively allowed albeit in different terms; paragraph 4 is adjourned to the proposed case management conference to be listed after the joint experts’ meeting and joint report.  P’s Summons is adjourned to a date to be fixed as provided for in the order.

35.  On the basis that it may ultimately materialize that the Valuer’s report is found to be correct and the parties’ own reports are not, costs of the two summonses to date including this hearing are reserved.