YUNG YUI KWAI v. YUNG WOON KWAI AND OTHERS

HCMP 1685/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1685 OF 2009

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AND

HCMP 1686/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1686 OF 2009

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AND

HCMP 2153/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2153 OF 2009

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AND

HCMP 2154/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2154 OF 2009

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AND

HCMP 2567/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2567 OF 2009

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AND

HCMP 2568/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2568 OF 2009

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AND

HCMP 2569/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2569 OF 2009

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AND

HCMP 2549/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2549 OF 2015

(TRANSFERRED FROM COMPANIES WINDING-UP PROCEEDINGS NO 468 OF 2012)

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AND

HCMP 2550/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2550 OF 2015

(TRANSFERRED FROM COMPANIES WINDING-UP PROCEEDINGS NO 469 OF 2012)

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AND

HCMP 2551/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2551 OF 2015

(TRANSFERRED FROM COMPANIES WINDING-UP PROCEEDINGS NO 470 OF 2012)

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AND

HCA 937/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 937 OF 2013

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AND

HCA 1485/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1485 OF 2015

(TRANSFERRED FROM COMMERCIAL ACTION NO 12 OF 2014)

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(HEARD TOGETHER)

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D E C I S I O N

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1.  There are two groups of applications before the court relating to 12 sets of proceedings, which arise from disputes between the shareholders of the Companies which are the subject of the proceedings.

2.  The 1^st group of applications is by way of summonses issued on 19 April 2017 in 10 of the proceedings for orders for pre-trial valuation in respect of five companies which are the subject of the 10 petitions. 

3.  The 2^nd group of applications consists of two summonses also issued on 19 April 2017 in HCMP 1685/2009, a petition issued by Yung Yui Kwai (“YK Yung”) concerning Chun Yip Plastics Ltd (“Plastics”), and HCA 1485/2015.  Leave is sought to amend the Re‑amended Petition and the Amended Defence respectively.

4.  The background to the proceedings and the claims advanced by the protagonists are described in my judgment of 26 March 2015 dealing with applications to strike out two petitions which were successful and the winding-up relief in certain other petitions which were also successful.   As explained in my earlier judgment the parties divide into two camps, both of whom have presented five petitions against the other.  They are described in more detail in the earlier judgment.  I shall refer to them as the YK Camp and the AY Camp respectively. 

5.  The applications have been brought by the YK Camp.  The YK Camp were represented before me by Mr Douglas Lam SC and Mr Gary Lam and the AY Camp by Mr Victor Joffe and Ms Bonnie Cheng.

The Pre-trial Valuation Applications

6.  The YK Camp seek a pre-trial valuation of the five Companies in order to facilitate settlement negotiations.  They envisage an accountant being appointed to value the Companies as going concerns without reference to the parties’ respective claims.  Mr Lam SC submitted that an independent valuer was necessary because a number of the Companies own fixed assets which are valued at cost in their accounts and, importantly, the YK Camp have no information about Chun Yip Plastics (Shenzhen) Ltd, which is a wholly‑owned subsidiary of Chun Yip Holdings Ltd, a company incorporated in Mauritius and it is common ground that it represents about half the economic value of the group of Companies, the subject of the dispute which I will refer to as the Chun Yip Group.

7.  There is no dispute that the court has the power to appoint a valuer before trial to value a company with a view to facilitating settlement or the narrowing of issues.  Various authorities were drawn to my attention by Mr Lam SC to illustrate this.  He referred me to a Practice Direction introduced in 2014 in the Supreme Court of Victoria which envisages, at the earliest stage in proceedings, the court making directions for the valuation of shares in a company and for a mediation on the underlying assumption that commonly the main dispute between the parties is the value of the shares, it being probable that one party will have to buy out the other.  I was also referred to the judgment of Madam Justice Le Pichon (as she then was) in Re Forecast Nominee [1] at 26G–H:

“Its availability [of a share valuation] could conceivably encourage a resolution of the present dispute. Even if no settlement is reached and the petition were not to come on for some time, the valuation could always be updated by way of a supplemental report. In these circumstances, there is every advantage in granting the application: not to order a valuation now would only prolong the dispute.”

8.  Whether or not the court should make such an order is largely a matter of judgment and to a large extent a matter of commercial judgment.  In Re Plankton Ltd [2], I said this in [25]:

“… It seems to me that the mere fact that the Respondents’ current position is that they are not currently interested in buying the Petitioner’s shares takes a lot of the force out of the argument that a valuation will increase the chance of settlement. This is speculation. Presumably the parties all have some idea what the Company is worth and are capable of making simple adjustments to the accounts to take into account the Petitioner’s claims. Presumably there is more between them than valuation issues; there is a genuine difference of opinion over the Petitioner’s claims. It does not seem to me in the circumstances that it is appropriate to order a valuation at this stage that would be more expensive than a valuation after trial in the face of objections from the Respondents.”

9.  Patricia Yung explains in her 2^nd affirmation why the AY Camp oppose the applications:

“6. The settlement negotiations between the parties have so far been unsuccessful because the extent of the wrongdoing of Mr YK Yung and his associates in relation to the companies in the Chun Yip Group has been concealed from us. Without the full disclosure of the misconduct and its extent, we are unable to ascertain the losses which they caused to the companies and ultimately agree on the price of the shares in the companies. Mr Alex Yung, Mr Tang and I verily believe that this is the main reason why the mediation conducted in May 2012 and the subsequent without prejudice settlement negotiations have failed.

7. Indeed, we consider that it would be unreasonable to expect us to agree on a price for the shares in the companies unless we are apprised of the quantum of the losses occasioned to the companies by wrongdoing and misappropriation, so that the appropriate figure can be taken into account in the negotiations. Due to the failure of Mr YK Yung and his associates to make full disclosure of the wrongdoing and discovery of relevant documents, we are not presently in a position to do so. We are not prepared to contemplate settlement whilst we remain in the dark about these matters.

8. Over the years, we have investigated the affairs of the companies in the Chun Yip Group to uncover the misconduct of Mr YK Yung and his associates. Various companies within the Chun Yip Group have also commenced proceedings against Mr YK Yung, his associates and the companies they control (the ‘YK Yung camp’) to recover the losses which they caused to the companies prior to Mr YK Yung and his associates’ resignation in March 2010. For example, Chun Yip Shenzhen successfully obtained judgment against Max Smart Shenzhen (which is under Mr YK Yung’s control) for RMB166 million in July 2014. To date, Chun Yip Shenzhen has not managed to recover the full judgment debt. There are also substantial claims in HCA 1485 of 2015 which remain undetermined. This process has been drawn out due to failure of the YK Yung camp to disclose information of their wrongdoings”

10.  Broadly speaking, it is the AY Camp’s case that after the YK Camp left the Chun Yip Group they established a competing business and poached staff and clients, and without information about the impact of these allegedly improper acts in practice the value of the competing business that was established cannot be completed.  If the YK Camp are not prepared to provide financial information necessary to value the competing business, settlement is not possible.  Nothing, they say, will be achieved that realistically cannot be achieved by the parties conducting their own desk-top valuations of the Chun Yip Group by appointing an accountant other than the incurring of unnecessary costs. 

11.  On balance I am inclined to agree with this view and I will therefore dismiss the applications.

The Amendment Applications

12.  The proposed amendment by the YK Camp to the petition in HCMP 1685/2009 relating to Plastics seeks to introduce three new allegations of unfairly prejudicial conducts:

(1)    The cost of purchasing a flat for Alex Yung by Plastics as a gift was wrongly recorded in the books as a loan to YK Yung of $29,622,831.00.

(2)    Advances made by YK Yung to Plastics totaling $69,934,896.38 were made by him but only $50,634,896.34 is recorded as sums due to him. 

(3)    Loans of $1,000,000.00 each to Alex Yung and Mr Tang are wrongly recorded as sums due from YK Yung.

13.  These matters are if proven, certainly, arguably prejudicial to YK Yung.  But whether they are unfair to him necessarily depends on how they came to be so recorded.  The alleged unfairly prejudicial acts are pleaded in the draft Re-re-amended Petition at [150Q]:

“By letter dated 19 June 2015 from Messrs. K.C. Ho & Fong (acting for YK Yung and Billion Rise) to Messrs. Baker & McKenzie (acting for the Company, Alex Yung and Tang), the Company, Alex Yung and Tang were requested to forthwith rectify the aforesaid errors in its accounts and to make repayment of the sum of HK$72,071,506.25 due to YK Yung/Billion Rise. However, they have unfairly failed and/or refused to make the necessary rectification resulting in prejudice to YK Yung.”

14.  However, it is accepted that at this time the claims would all have become time-barred.  It may be, I put it no higher, that if the AY Camp were responsible for YK Yung not being able to identify the mischaracterisation of the various payments until June 2015 in the accounts, this would not prevent the matters from being capable of constituting unfairly prejudicial matters, but otherwise I agree with Mr Joffe’s submission to that it is difficult to see how it would be consistent with the current directors’ fiduciary duties to acknowledge the alleged liabilities and thus render them enforceable because to do so is not in the interest of Plastics as opposed to the personal interest of one shareholder: YK Yung. 

15.  Mr Lam SC argued that a duty to correct any error in the accounts arose from section 123 of the then Companies Ordinance, Cap 32, and section 373 of Cap 622 which replaced it.  These, however, are not duties owed to individual shareholders.  However I accept that the failure to keep compliant accounts is of itself capable of constituting an unfairly prejudicial matter to a shareholder qua shareholder.  However, Mr Lam SC’s submissions still beg the question of why it is unfair and not simply an accidental prejudice, responsibility for which cannot be fairly laid at the feet of the AY Camp.  In his 2^nd affirmation, YK Yung says this:

“5. These loans were advanced by me to the Company first, to be reimbursed later, as a matter of convenience. This practice was agreed by Alex Yung, Tang and me. I would then give the supporting documents to Patricia Yung, Accounts Manager of the Company, to keep for the accounts. I did not keep any records myself. However, given the large amounts of money, I would have a rough idea of how much I have advanced. By 2013, I roughly advanced approximately HK$70,000,000 to the Company according to my impression. I have not approved the audited financial statements of the Company since 2013. Before that, the amount owed by the Company to me on the book and accounts roughly accorded with my impression.

6. On 2 February 2015, in HCA No 937 of 2013, the parties (the Company being the 1^st plaintiff there and me being the 1^st defendant there) exchanged lists of documents. Item 22 in the plaintiffs’ list of documents, being ‘Current account of the 1^st Defendant in the books of the 1^st Plaintiff’ was discovered and its copy was produced for inspection. For convenience, the plaintiffs’ list of documents is exhibited hereto as ‘YYK-3’ and Item 22 as ‘YYK-4’.

7. In perusing the account, I discovered that those now set out in Annexes 7 and 8 to the draft Re-Amended Defence and Counterclaim should have been credited, but were in fact erroneously debited, in my account, because those sums were advanced by me to the Company, but not the other way round.  This Court may see that the entries of the corresponding dates in the account show the same amounts of money as in Annexes 7 and 8, but as I said, these entries should be entered onto the credit side instead of the debit side.”

16.  In Patricia Yung’s 3^rd affirmation she disputes YK Yung’s characterisation of the payments and deposes to the fact that YK Yung supervised Plastics’ accounts department and signed many of the relevant vouchers.  More critically, in my view, Ms Yung exhibits the audited financial statements for the three years, 2005 to 2007, which record in the notes the relevant sums as owed by YK Yung to the Company.  Mr Yung signed those three sets of financial statements. Even assuming that YK Yung’s characterisation of the payments was proved to be correct at trial I cannot see how, as he approved three sets of financial statements which clearly disclose the accounting treatment and sums as due from him to the Company, there is any basis for saying that it was unfair in June 2015 for Plastics’ directors to decline to alter the accounting treatment of the payments in the next financial statement thus acknowledging a debt that would otherwise be unrecoverable. 

17.  I will not, therefore, allow the amendments to the petition.  Mr Lam SC accepted during argument that if I did not do so the question of allowing amendments to the counterclaim necessarily falls away. I will therefore dismiss the applications.  I will hear counsel on costs.