YKY v. The personal representatives of the estate of WSM

FCMP 10/2020

[2020] HKFC 246

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 10 OF 2020

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D E C I S I O N

(Expert directions)

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THE ISSUES

1.  The issues which this court will deal with by virtue of this Decision are:

(i)  whether the court should give expert directions on the valuation of 3 companies owned by the deceased, WSM (“the 3 Subject Companies”);

(ii)  if so, what directions this court should give, in particular, whether single joint valuation expert should be instructed.

BACKGROUND

2.  The Applicant (“the Wife”) and WSM (“the Husband”) were married in 1967.

3.  The Wife commenced divorce proceedings in July 2017 and made a claim against the Husband for ancillary relief.  Unfortunately, the Husband passed away on 12 March 2019 before any court order was made on the Wife’s aforesaid claim.

4.  As the Wife is completely unprovided for in the Husband’s will, she commenced the proceedings herein pursuant to the Inheritance (Provision for Family and Dependents) Ordinance, Cap.481 (“the Ordinance”).

5.  By consent, various case management directions had been given by this court on 26 March 2020 (“the 26 March Directions”), pursuant to which parties were directed, among other things, to file and serve Questionnaires and Answers.  A call-over hearing was fixed to be heard on 7 October 2020.  It was expected that the parties would have filed and served all the documents as directed by then.

6.  However, this was not what happened. 

7.  On 25 September 2020, this court discovered that the parties were “behind schedule” in terms of filing and serving various documents pursuant to the 26 March Directions, and it was certain that parties would not be able to take all the steps as required by those directions before the then forthcoming call-over hearing date of 7 October 2020.  Parties were therefore invited to consider whether the hearing should be refixed to a later date.

8.  It then transpired that the Wife had, on 22 September 2020, already proposed by letter to the Respondents (“the Personal Representatives”) that the call-over hearing on 7 October 2020 should be vacated.  In the same letter, the Wife also suggested that expert directions should be sought from this court on the valuation of the 3 Subject Companies owned by the Husband.  However, as the Personal Representatives objected against the giving of such expert directions, parties could not agree on the terms of any consent summons.  Therefore, the call-over hearing on 7 October 2020 had to proceed as scheduled. 

9.  Parties’ respective counsel then lodged written submissions for the call-over hearing.  It is clear therefrom that but for the parties’ different views taken in respect of expert directions, the hearing could have been vacated. 

10.  Mr Koo and Mr Chan for the Personal Representatives submitted that expert directions on the valuation of the 3 Subject Companies should not be given that soon, on the following grounds:

(1)  It was pre-mature to carry out valuation while the parties had not yet filed affirmations in opposition nor in reply;

(2)  The issues in dispute between the parties had not been crystallised;

(3)  As the Personal Representatives had provided the Wife with audited reports of the 3 Subject Companies, it was not known whether it was necessary to call for any valuation report, nor was it known how such a report would assist the court in the present case; and

(4)  It was impossible to formulate appropriate expert directions at that stage.

11.  This court was, to say the least, sceptical about these grounds at the call-over hearing.  However, since this court considered that parties should be allowed to set out their submissions in full rather than doing it hastily in a call-over hearing, parties were directed to lodge and serve full written submissions.

12.  By consent, the Wife’s application for expert directions is disposed of on papers.

THE APPLICABLE LEGAL PRINCIPLES

13.  The principles applicable for leave to adduce expert evidence are well established.  In Fung Chun Man v Hospital Authority (HCPI 1113/2006, unreported, 24 June 2011), Bharwaney J had summarized those principles as follows:

“9. The enactment of the CJR did not result in a change to O.38, r.36 of the Rules of the High Court (‘RHC’). However, after the enactment of the CJR, it is clear that the court’s discretion, whether or not to grant leave to a party to adduce expert evidence, is to be exercised within the ambit of the court’s management powers. Those powers must be exercised in the light of the underlying objectives of the CJR, including the need to ensure the cost effectiveness of the proceedings; to ensure that the case is dealt with expeditiously; to ensure reasonable proportionality having regard to the amount of money involved, the importance of the case, the complexity of the issues, and the financial position of each party; to ensure procedural economy in the conduct of the proceedings; and to ensure fairness between the parties.

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11. The expert evidence can only be adduced with leave of the court and, in deciding whether or not to grant leave, the court must ensure that such evidence is admitted only if it is likely to be of real assistance to the determination of the issues, and that it is adduced in the most effective and economic way consistent with the objectives of the CJR.

14. In this regard, I echo the observations of Evans-Lombe J in Barings PLC v Coopers & Lybrand (No.2) [2001] Lloyd’s Rep Bank 85:

‘45. Expert evidence is admissible …. in any case where the court accepts there exists a recognised expertise governed by recognised standards and rules of conduct capable of influencing the court’s decision on any of the issues which it has to decide and the witness to be called satisfies the court that he has a sufficient familiarity with and knowledge of the expertise in question to render his opinion potentially of value in resolving any of those issues. Evidence meeting this test can still be excluded by the court if the court takes the view that calling it will not be helpful to the court in resolving any issue in the case justly. Such evidence will not be helpful where the issue to be decided is one of law or is otherwise one on which the court is able to come to a fully informed decision without hearing such evidence.’

15. The Court of Appeal in Mann v Messrs. Chetty & Patel (a firm) [2000] EWCA CIV 267 proposed 3 questions that ought to be asked before deciding to allow expert evidence :

‘(a) how cogent the proposed expert evidence will be;

(b) how helpful it will be in resolving any of the issues in the case; and

(c) how much it will cost and the relationship of that cost to the sums at stake.’

16. Chu J, as she then was, referred to Barings PLC v Coopers & Lybrand and concluded, in Wong Hoi Fung v. American Assurance Co. (Bermuda) Ltd. [2002] 3 HKLRD 507, that the expert evidence must be reasonably required to resolve the issues before the court before leave would be granted to adduce it.

15. In summary, the expert evidence must be in a recognised discipline, reasonably required to enable the court to resolve the issues in dispute, and proportionate.

16. However, even if a prima facie case is made out for the admission of expert evidence, in every case, the court must also have regard to other relevant circumstances, such as the potential disruption to the trial, the prejudice to the other parties, and the explanation offered by the applicant in cases where a late application is made for expert evidence to be adduced.  These matters have to be considered and weighed in the light of and against the underlying objectives of the CJR: to ensure cost effectiveness and economy, expedition, proportionality, and fairness between the parties.  Ultimately, the court strives to do justice between the parties and, in cases where the court permits the parties to call expert evidence, the court strives to ensure a level playing field with fair access to proper experts for all parties.’”

THE PERSONAL REPRESENTATIVES’ GROUNDS OF OBJECTION

17.   While it was submitted on behalf of the Personal Representatives at the call-over hearing that it was still not known whether it would be necessary to call for any valuation report, they have now accepted[1] that:

(a)  the size and nature of the net estate of the Husband are important factors to be considered in the present proceedings, by virtue of section 5(1)(e) of the Ordinance;

(b)  insofar as the value of the net estate is concerned, two different time frames are material to the determination of the reasonable financial provisions (if any) for the Wife: (i) value at the time of death of the Husband; and (ii) the current value[2]; and

(c)  proper valuation of the Husband’s shares in the 3 Subject Companies will be of assistance to the court.

18.   Be that as it may, they submitted that no expert direction should be given at this stage, for reasons which may be summarised as follows:

(a)  “While it is clear that there is an issue as to what the net total value of the 3 Companies is, it is unknown or unclear from the Affirmation and/or documents what the issues concerning the valuation of the 3 Companies are”[3], therefore it is pre-mature for the court to give such directions;

(b)  The expert directions cannot be properly formulated at the moment, and those proposed by the Wife are totally inappropriate because she did not mention the specific scope, basis or methodology of valuation in such proposed directions; and

(c) There is no urgency to give expert directions.

19.   As a fall-back position, it was submitted by the Personal Representatives that separate experts, instead of single joint expert, should be instructed.

DISCUSSION

Identification of issues in disputes regarding valuation

20.   In the Personal Representatives’ Form E, the 3 Subject Companies were estimated to have a total value of more than HK$68 million.  Mr Koo and Mr. Chan explained that the figure was arrived at on the basis of the “net assets value” stated in the respective audited financial statements of those companies. 

21.   While they rightly acknowledged that the Wife was entitled to take issue on the Personal Representatives’ total estimated value, they complained that all that the Wife had alleged in her 2^nd Affirmation was that such an estimated value “does not take into account the true value of the Deceased’s companies and trademarks held by the companies” and that she “has not set out any clear and specific case or basis in her attempt to dispute the Respondents’ estimated values.  Nor has she suggested any basis or provided any evidence for challenging the Audited Statements composed by professionals.”[4]  

22.   They elaborated their submissions that the issues have not been defined by asserting that:

“20. …it is unknown or unclear inter alia that: - :

(1) whether she is going to take issue on the entire Audited Statements, or any parts or any figures thereof, as being untrue;

(2) whether she is suggesting that the estimated value of the 3 Companies should be assessed on some other appropriate basis, instead of that adopted by the Respondents; and

(3) whether she is merely suggesting that the Audited Statements have failed to take account of the value of the trademarks, or etc.

21. In all, at this stage, based on the Affirmation filed by the parties, it is impossible for the parties to identify or to adequately identify the issues in dispute related to the valuation of the 3 Companies, and thus one cannot formulate appropriate expert direction for the valuation pursuant to the said legal principles so as to avoid any improper, unnecessary or unhelpful valuation.”

23.   With respect, these arguments are rejected.

24.   I should point out right away that it is clear from Mr Yim’s 2 sets of submissions (lodged for the purpose of the 7 October 2020 hearing and for this paper disposal respectively) that the Wife does not accept the Personal Representatives’ estimated value of the 3 Subject Companies not because she is challenging the correctness of the audited accounts of those companies but because she holds the view that the valuation should not simply be regarded as equivalent to the “equity” figures appearing in those accounts.

25.   It is true that the Wife did not make it clear whether, apart from “trademark”, there are any other factors which a proper valuation should take into account. However, that is irrelevant.  If parties cannot agree on the valuation, expert evidence has to be called for.  In my view, it is not only a waste of time and costs but also unhelpful to require the parties in setting out what exactly they think should be considered in the valuation exercise.  After all, they are not experts.  It should be up to the expert(s) to be appointed to decide.  If there are different expert opinions on the proper basis or methodology to be adopted, the court shall, having considered such conflicting expert opinions, rule on the matter.

26.   While I appreciate that there were occasions when the court had given detailed directions which included guidance as to how the valuation should be carried out, it is not a must for the court to do so.  It depends on the circumstances of the case.  In the present case, I do not consider it appropriate to give such guidance.       

27.   On the other hand, the expert issue is clear, namely, the value of the 3 Subject Companies at the time of the death of the Husband and at present.  As far as the “present value” is concerned, I will direct that the experts shall adopt 31 December 2020 as the valuation date of the present value.  If, before the trial, any party has ground(s) to suggest that a supplemental expert report should be obtained, it is up to such a party to seek further directions from the court.

28.   It follows that there should not be any difficulty on the part of this court in formulating the expert directions.

Urgency

29.   While Mr Yim has urged this court to move this case forward on the basis that the Wife is now 83 years old and her claim under the Ordinance does not survive her death, Mr. Koo and Mr Chan queried her commitment to proceed with this case by reason of her delay in filing her Questionnaires and Answers.  They further submitted that there is no urgency at all.

30.   With greatest respect, it is not a question of whether there is or there is no urgency.  Even if there is no urgency in the matter at all (which I do not accept, given the old age of the Wife), it does not mean that parties are entitled to sit on the case.  In my view, case management directions should be sought, given and complied with on a timely basis, so as to ensure that the present case is “dealt with as expeditiously as is reasonably practicable” (Order 1A, rule 1(b), Rules of the District Court).  As I have ruled above that there is no need to wait for issues to be defined as argued by the Personal Representatives, there is no reason why expert directions should not be given as soon as possible so as to move the case forward.  Indeed, judging from the materials placed before the court, by the time when the expert evidence is ready, the case should be ready for trial.

Single joint expert vs separate experts

31.   Order 38 rule 4A(5) of the Rules of the District Court has set out the circumstances which this court may consider when deciding whether to appoint a single joint expert.

32.   Taking into consideration the respective stances of the parties, I am of the view that it is likely that they will have disagreement on the basis and methodology of valuation.  In these circumstances, appointing a single joint expert may at the end of the day delay the progress of the case because the dissatisfied party would most probably seek leave to adduce its own expert report upon perusal of the single joint expert’s report.  Even if such an application is refused, it will take time for the court to resolve the matter.  Needless to say, there will bound to be further delay if the application is granted.

33.   Higher cost would have to be incurred if separate experts are appointed.  However, given the value of the 3 Subject Companies, I do not think such cost is disproportionate to the value of the Wife’s claim herein.  

ORDER

34.   I will therefore make the following orders:

(1)  Leave be granted to the parties to adduce expert evidence from one company valuation expert each in these proceedings, giving expert opinion on the value of the 3 Subject Companies at the time of the Husband’s death and as at 31 December 2020.

(2)  Parties shall inform the court and the other side the identity and field of expertise of their respective expert by 18 December 2020.

(3)  Parties shall exchange their respective expert reports by 29 January 2021.

(4)  The experts shall, within 28 days after the exchange of their reports, attend a joint meeting on a without prejudice basis pursuant to Order 38 rule 38 and prepare a joint statement, in which they shall set out those parts of their evidence on which they are, and those on which they are not, in agreement, with reasons in support of their respective opinion.

(5)  Parties do file the aforementioned joint statement within 28 days after the experts’ joint meeting.

(6)  Liberty to apply.

COSTS

35.   As the Wife has successfully obtained expert directions, I make a cost order nisi that the Personal Representatives shall pay 90% of the Wife’s costs of the application for expert directions (with certificate for counsel).  I do not think more than 10% of the Wife’s costs should be deducted by reason of her failure to resist the Personal Representatives’ fall-back position on separate experts, because of the small proportion of the written submissions devoted to this particular issue.

36.   As far as the cost of the hearing on 7 October 2020 is concerned, as explained at the beginning of this Decision, that hearing had to be proceeded with purely because of the Personal Representatives’ objection against the Wife’s application for expert directions. 

37.   Mr Koo and Mr Chan submitted that the Wife should pay the costs of that hearing no matter how the court rules herein because the Wife did not succeed in getting the expert directions at that hearing.

38.   With greatest respect, this is a very bold submission.  As I explained at the hearing, no expert direction was given there and then only because this court felt that justice should afford the parties an adequate chance to properly argue the case.  The Wife cannot be regarded as the losing party of that hearing from any view.

39.   For the above reasons, I make a cost order nisi that the Personal Representatives shall pay the Wife’s costs of the hearing held on 7 October 2020, with certificate for counsel.  No deduction should be given because the Personal Representatives’ fall-back position was not taken until they lodged their written submissions subsequent to the aforesaid hearing.

40.   The two costs orders nisi shall become absolute in the absence of any application to vary within 14 days.

41.   The Wife’s costs of this application and of the hearing on 7 October 2020 shall be summarily assessed pursuant to Order 62 rule 9A(1)(a) of the Rules of the District Court.  For this purpose, the Wife shall lodge and serve her statement of costs within 7 days upon the costs orders nisi above being made absolute.  The Personal Representatives shall lodge and serve their statement of objection within 7 days thereafter.  The aforesaid 2 sets of costs shall then be summarily assessed on paper.  The Personal Representatives shall pay the costs assessed within 14 days after assessment.