ELLIOTT INTERNATIONAL, L P AND OTHERS v. THE BANK OF EAST ASIA, LTD AND OTHERS

HCMP 1812/2016

[2019] HKCFI 2744

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1812 OF 2016

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BETWEEN

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D E C I S I O N

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1.  On 3 December 2018 the Petitioners (“Elliott”) issued a summons for leave for the parties to adduce expert evidence. When this application, which was opposed, came on before me on 29 January 2019 I took the view that it should be adjourned until after witness statements had been exchanged in order that it could be assessed in the light of the factual evidence that the parties intended to adduce.

2.  The application came back before me on 31 October 2019 and was again opposed by the 2^nd to 19^th Respondents; who were the 1^st Respondent bank’s directors during the relevant period.

3.  Although the argument before me took a day it seems to me that the application can be disposed of fairly shortly.

4.  There was a dispute before me about the precise test by reference to which the application should be determined. Ms Sit for the directors argued in reliance on the Court of Appeal’s decision in Shenzhen Futaihong Properties v BYD Co Ltd [1] that it is necessary for Elliott to demonstrate that the expert evidence they wish to adduce is both relevant and necessary. There is no dispute that the evidence must be relevant. There was argument about whether the test was so high as to require necessity to be established. Given the view I take on the need for the evidence, the ambit of which I explain later, it seems to me that this debate is academic. I proceed on the basis that Elliott has to establish on the balance of probabilities that expert evidence is necessary in order to enable the court to make an informed and fair determination of the issues.

5.  The background to the Petition and the claims made by Elliott are described in previous decisions and it is not necessary for me to repeat them in any detail. They concern subscriptions, and their terms, for significant tranches of shares in BEA by CaixaBank and SMBC and whether or not they were unfairly prejudicial to Elliott and other shareholders in BEA. Determining these issues will need detailed consideration of the reasons for the subscriptions and, because this is said by BEA to be the underlying reason for them, their use to improve BEA’s capital position and the terms on which they were made, which include bilateral agreements, which purported to restrict how CaixaBank and SMBC could deal with their shareholdings and the exercise of the voting rights that attached to their shares. Elliott complain that the subscriptions and their terms were entered into in order to entrench Li Family control of BEA, and more relevantly to the question of the relevance and need for expert evidence, the impact of them on the share price of BEA and its attractions as a takeover target.

6.  In my view contrary to Ms Sit’ submissions, it is necessary for the court to understand generally how a listed bank would address a perceived need to enhance its capital position and the other matters described in the appendix to these reasons, which contains the questions in respect of which I have decided the parties should be permitted to adduce expert evidence.

7.  Elliott wish to call two experts as I am told that the practice of equity capital markets and equity valuation and analysis are different disciplines. I shall so order.

8.  I will make an order in the following terms:

(1) Leave be granted to the Petitioners and the 2^nd to 19^th Respondents to adduce expert evidence on the questions and issues listed in Appendix 1 to this order.

(2) No more than two experts may be called by each of the Petitioners and the 2^nd to 19^th Respondents.

(3) The Petitioners and the 2^nd to 19^th Respondents shall exchange expert’s reports on or before 4:30pm on 3 January 2020.

(4) The experts shall meet on a without prejudice basis by 4:30pm on 24 January 2020 with a view to agreeing or narrowing down the evidence, areas of dispute and expert issues to be determined by the Court.

(5) The experts shall provide and file a joint signed experts report by 4:30pm on 13 March:

(a) identifying (i) matters and issues on which they agree and (ii) matters and issues on which they disagree, with a brief summary of their respective positions in respect of each relevant matter and issue; and

(b) stating the brief reasons for their disagreement with the opposing views in respect of each relevant matter and issue;

(6) Each expert report filed and exchanged pursuant to this Order shall comply with and contain a declaration of compliance with the Code of Conduct pursuant to Order 38 rule 37C of the Rules of the High Court (Cap 4A);

(7) The experts shall attend trial for cross-examination;

(8) The costs of this application shall be in the cause; and

(9) The parties do have liberty to apply.

Appendix 1

1. The different methods by which a bank listed on the Main Board of The Stock Exchange of Hong Kong Limited (“listed bank”) could seek to improve or enhance its capital position. In addressing this question, and subsequent ones, the witness should have regard to the facts of these proceedings, in particular, the significance, if any, of the ways in which the Bank of Asia Ltd (“BEA”) had changed its capital position prior to the completion on 18 March 2015 of a subscription by SMBC for 222,600,000 shares in BEA.

2. In respect of each method identified in answer to question 1, the circumstances in which it is commonly adopted by listed banks in Hong Kong (and to the extent that it is instructive in a relevant way, listed companies generally) and the reasons for its adoption including why one method might be preferred to another.

3. What information would a director of a listed bank in Hong Kong typically require, and be expected to receive, in order to determine what method should be adopted to improve or enhance a listed bank’s capital position.

4. In respect of question 3, what rules, regulations, protocols or guidance, if any, exist as to best practice.

5. The extent to which there are known examples of a listed bank in Hong Kong or elsewhere, other than BEA, entering into bilateral contractual arrangements with an existing or prospective shareholder, the effect of which is to restrict the shareholder’s ability to deal in or exercise rights, including voting rights, attaching to shares in a listed bank. If a reason for such arrangements is know this should be explained.

6. Insofar as it is possible to assess (it does not need to be quantified), the likely impact of the subscriptions described in paragraph 41 of the Amended Petition on the trading price of shares in BEA and the likelihood of an offer to takeover BEA.

7. Insofar as it is possible to assess (it does not need to be quantified), the likely impact of the bilateral undertakings described in paragraphs 28 to 39 of the Amended Petition on the trading price of shares in BEA and the likelihood of an offer to takeover BEA.