LAU YEE CHING v. WONG TAK KWONG AND OTHERS

CACV 172/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 172 OF 2006

(On appeal from HCCW 807 OF 2004)

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J U D G M E N T

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Hon Tang VP:

1.  The petitioner, the 1^st and 2^nd respondents, were shareholders in the 3^rd respondent, Wing Fung Construction (HK) Ltd.  On 26 July 2004, the petitioner presented a petition to wind up the 3^rd respondent on the just and equitable ground, alternatively for relief under section 168A of Companies Ordinance, Cap. 32.

2.  By the order dated 13 September 2004, the petition was stayed by consent on terms, and except for the purpose of enforcing or carrying out the order and those terms, for which the parties were given liberty to apply.

3.  Under those terms, the petitioner was to sell his 30% shares in the 3^rd respondent, at a price to be determined by an independent accountant, with the value date 26 July 2004.  The terms of settlement which are important for the purpose of this appeal are clauses 9 and 10 in the schedule to the consent order , and they read as follows:

“9. The reasoned determination made by the independent accountant shall be completed and made known to the parties within 8 weeks from the date of his appointment and will be final and binding upon the petitioner and the 1^st and 2^nd respondents.

10. Payment for the shares as valued by the independent accountant and of the costs will be by means of a local bank’s cashier’s order caused to be issued by the company and, if there is insufficient fund, from the 1^st and 2^nd respondents through their solicitors Messrs Paul, Kong & Company, payable to the petitioner on the date of completion, which is 7 days from the date when the valuation is made known by letters to the parties hereto.”

4.  By letter dated 3 November 2004, Mr Yiu Cho Yan, a chartered accountant, was appointed by the parties as such independent accountant.

5.  On 12 March 2005, Mr Yiu issued a report, which valued the plaintiff’s shares in the range of $2.52 million to $2.82 million, but that report was chopped with the word “draft”.  By letter dated 17 March 2005, the 1^st and 2^nd respondents, through their then solicitors, Messrs Paul, Kwong & Co., supplied detailed criticisms on the draft report.  There was however no complaint of delay in that letter.

6.  By letter dated 29 March 2005, Messrs Tsang, Chan & Wong, solicitors for the petitioner objected to the course taken to Messrs Paul, Kwong and Co.

7.  On 16 Feb 2006, Mr Yiu issued a document with the title of “Valuation Report for Wing Fung Construction (H.K.) Limited as at 26 July 2004”, which determined the fair market value of the 30% shares as $2,289,500.00.

8.  No payment was made by any of respondents.  On 13 March 2006, the petitioner by summons sought specific performance of the terms of settlement in the consent order.

9.  On 25 April 2006, Kwan J ordered, amongst other things, that the 1^st and 2^nd respondents to pay the petitioner the sum of $2,289,500.00 within 28 days, upon which the petitioner was to execute the instrument of transfer and the bought and sold note in respect of his 30% shares in the 1^st respondent, and to resign from the 3^rd respondent as a director.

10.  In the proceedings before Kwan J, following the petitioner’s summons of 16 March 2006, the 1^st and 2^nd respondents filed no evidence.  In the judgment of Kwan J, she referred to the fact that on 21 February 2006, the 1^st and 2^nd respondents through their solicitors wrote to Mr Yiu, complaining about the “inordinate delay” of Mr Yiu in giving his evaluation on 16 February 2006.  They also reserved their right to challenge the contents of the 2^nd report.  That is para. 12 of the judgment.

11.  There is no evidence of any other complaint to Mr Yiu of delay.

12.  This is the 1^st and 2^nd respondents’ appeal, they acted in person below, as well as appeared before us in person.

13.  In the Notice of Appeal, two grounds are relied on:

“(1)   the learned judge was wrong when she ruled on page 6B to C that court had no power to grant an adjournment to challenge the report by Mr Yiu Cho Yan; and

(2)     the learned judge was wrong when she ruled on page 6I to J that delay is irrelevant to the obligations of the respondents.”

14.  Essentially, the complaint is of the delay of Mr Yiu in providing the valuation report.  So far as the complaint that the judge failed to grant an adjournment was concerned, unless an adjournment would serve a useful purpose, the judge was entitled to refuse an adjournment.  An adjournment could only serve a useful if the respondents were entitled to resist performance either because of the delay or mistakes in the valuation.

15.  It is settled law that where the parties have agreed to be bound by an expert’s report, the report could not be challenged on the ground that mistakes had been made unless it could be shown that the expert had departed from the instructions given to him in a material respect.

16.  The leading case is a decision of the English Court of Appeal Jones v Sherwood Computer Services Plc [1992] 1 WLR 277, that decision has been followed in Hong Kong, by Le Pichon J (as she then was), in the case of Dlugash v Mayers [1997] 2 HKC 814.  This is what Le Pichon J said at page 819G:

“The leading authority is the English Court of Appeal’s decision in Jones v. Sherwood Computer Services Plc. [1992] 1 WLR 277 which held that:

‘... where parties had agreed to be bound by the report of an expert, the report, whether or not it contained reasons for the conclusion in it, could not be challenged in the courts on the ground that mistakes had been made in its preparation unless it could be shown that the expert had departed from the instructions given to him in a material respect; ...’”

17.  More recently, Jones v Sherwood Computer Services Plc was followed by Kwan J in the case of re Golden bright Ltd, HCMP 6472/2001, 28 September 2006.

18.  There is no evidence that Mr Yiu had departed from instructions at all, much less in a material way.  In any event, a bare assertion by the respondents that the valuation is wrong is not enough.

19.  As for delay, time was not made of the essence of the settlement agreement.  That being the case, the delay is irrelevant unless the respondents could show that the delay amounted to an operative frustration of the compromise.  The mere fact that the circumstances have changed, so that the performance had been rendered more difficult, onerous or extensive is not enough.

20.  There is no evidence to show that the circumstances have so changed as to rendered performance impossible or totally different from that which was contemplated as to make performance inappropriate.

21.  I should add there is no evidence that the delay was caused by the petitioner or that it was attributable to any fault by the petitioner.

22.  So for those reasons, I would dismiss the appeal.

23.  I should also mention that at the outset of this hearing, the respondents asked for this appeal to be stayed under section 14 of the Bankruptcy Ordinance, Cap. 6, because in HCB 10646/2006 and HCB 10647/2006, the petitioner applying as judgment creditor, have commenced bankruptcy proceedings against both respondents.

24.  The respondents have supplied us with a copy of the petition of HCB 10646/2006.  From para. 2 of the petition it is quite clear, that one of the indebtnedess relied on by the petitioner in the bankruptcy proceedings, is the judgment debt of $2,289,500, which was made payable as a result of Kwan J’s order of 25 April 2006, which is the subject of the appeal before us.

25.  That being the case, we did not believe that in the exercise of our discretion, we should order a stay.

26.  We saw no real advantage in granting a stay, since the progress of the bankruptcy proceedings, will, to a material degree depend on the outcome of this appeal.

27.  That is why we did not grant a stay of this appeal.

Hon Yam J:

28.  I agree with the judgment delivered by Tang VP.

Hon Waung J:

29.  I agree.  Except that I would like to add a few words in relation to the delay.

30.  The provision of clause 9, lays down an 8-week period.  There is no doubt that the delay was extensive.  It seems to me that another way of looking at this, apart from frustration that Tang VP has touched on as being not available to the respondents, is to look at the clause as a provision which is capable of being waived by the respondents.

31.  The respondents are given under the consent order leave to apply.  They have never applied to the court, not after the draft valuation was given, not before the actual valuation a year later.  Nor do we have any affidavit evidence of what step was taken by the respondents in relation to this non-compliance of the 8-week period.

32.  In the circumstances, I feel that regrettable it may be, that the appeal must also be dismissed.