Case Details

Citation

SHE WAI HUNG v. JULIANO LIM AND OTHERS, HCMP 6472B/2001

Case Number

HCMP 6472B/2001

Court

Court of First Instance

(CFI)

Decision Date

22 August 2007

Parties

Applicant(s):

SHE WAI HUNG

Respondent(s):

JULIANO LIM, JOHNATHAN LIM, GOLDEN BRIGHT LIMITED

For Applicant(s):

Mr Domminick Chung, instructed by Messrs Cheng, Chan & Co

SHE WAI HUNG v. JULIANO LIM AND OTHERS

HCMP 6472B/2001

Court of First Instance22 August 2007

HCMP006472B/2001 SHE WAI HUNG v. JULIANO LIM AND OTHERS

HCMP 6472/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6472 OF 2001

______________________

	IN THE MATTER of GOLDEN BRIGHT LIMITED
	and
	IN THE MATTER of Section 168A of the Companies Ordinance, Chapter 32

______________________

BETWEEN

	SHE WAI HUNG	Petitioner
	and
	JULIANO LIM	1^st Respondent
	JOHNATHAN LIM	2^nd Respondent
	GOLDEN BRIGHT LIMITED	3^rd Respondent

______________________

Before : Hon Kwan J in Chambers

Dates of Hearing : 1-3 and 22 August 2007

Date of Handing Down of Decision : 26 November 2007

______________________

D E C I S I O N

______________________

1. This is a hearing to determine the fair valuation of the petitioner’s shares in Golden Bright Limited (“the Company”), to be bought by the 1^st respondent pursuant to a court order made in a petition under section 168A of the Companies Ordinance, Cap. 32. I have given two judgments in these proceedings, on 27 February 2004 and on 21 September 2006.

The judgment on 27 February 2004

2. In the first judgment, I found for the petitioner that there was unfairly prejudicial conduct in the affairs of the Company in two respects:

(1) there was wrongful diversion of the Company’s only substantial business, being a processing factory in the electroplating of spectacles frames, to Gold Loop Electroplating & Metal Finishing Company Limited (“Gold Loop”), in May 1997. The factory is known as Kwai Chung Gold Loop Spectacles Processing Factory (“the Factory”) and is situated at the Longgang District, Shenzhen, in Mainland China; and

(2) the petitioner, who was actively involved in operating the Factory, was wrongfully excluded from the management of the Company since May 1997, notwithstanding that the sale of the petitioner’s 40% shareholding in the Company to the 1^st respondent had fallen through subsequently.

3. I made these orders to give relief under section 168A:

(1) the 1^st respondent do purchase the 4,000 ordinary shares of HK$1.00 each in the capital of the Company presently registered in the name of the petitioner at a price to be fixed by such valuer being a certified public accountant, as may within 14 days thereof be agreed upon by the petitioner and the 1^st respondent, or failing such agreement as may be appointed by the president for the time being of the Hong Kong Institute of Certified Public Accountants upon the application of either party with or without the consent of the other;

(2) the valuer is directed to value the petitioner’s shares by reference to the assets, profitability and future prospects of the Company as at 18 May 1997 and without discount for the fact that the petitioner’s shareholding is a minority holding and on the footing that adjustment is to be made to the purchase price to take into account the shortfall in the petitioner’s contribution to the loan capital being HK$496,671.25; and

(3) there be liberty to all parties to apply for directions as to the payment of the purchase price and generally.

4. The date of 18 May 1997 chosen as valuation date was the day before the petitioner’s resignation from his positions in the Company took effect and just before Gold Loop could be regarded as effectively taking over control of the Factory. The Company had formally ceased business since March 1999, well before the presentation of the petition in December 2001. I was satisfied fairness would require that the valuation of the shares should relate back to a date before the presentation of the petition and before the occurrence of unfairly prejudicial acts.

5. For the purpose of the valuation of the petitioner’s shares, it is pertinent to note the following findings in the judgment:

(1) Prior to the incorporation of the Company and in November 1992, Gold Loop had signed an agreement with a Mainland party (“the November 92 Agreement”) to set up the Factory. Gold Loop was given the right to operate the Factory, to be built on land provided by the Mainland party, for a period of five years, which was extended for ten years to November 2007 by the Shenzhen Longgang Economic Development Bureau in March 1996. Gold Loop was to provide machinery and equipment and pay the wages of workers supplied by the Mainland party. The Mainland party was to be paid a processing fee by Gold Loop when production commenced.

(2) In July 1993, Gold Loop (in which the 1^st respondent and his family held 90% of the shares) sold its interest in the Factory to the petitioner at HK$1.8 million. The price was settled by the petitioner by HK$300,000.00 in cash and by the proceeds of sale of his indirect interest in Gold Loop, agreed at HK$1.5 million.

(3) Shortly after this, the 1^st respondent changed his mind about giving up the Factory. In July 1993, the 1^st respondent agreed to co-operate with the petitioner and to acquire a company for the purpose of operating the Factory, in which shares were to be held as to 60% by the 1^st respondent and 40% by the petitioner. This was the Company, incorporated on 8 July 1993. They agreed to invest HK$6.8 million in it, in the same proportion of 60% and 40% as in their respective shareholdings. The petitioner ultimately contributed HK$2.2 million odd as capital contribution, of which HK$1.8 million was the agreed value of his interest in the Factory, which was injected as part of his capital contribution to the Company.

(4) From late 1993 to May 1997, the Company operated the Factory. The Factory started production in early 1994. The name of the Hong Kong party authorised to operate the Factory under the November 92 Agreement was changed from Gold Loop to the Company in November 1996 and the legal representative of the Factory on record was changed to the petitioner, with the approval of the Mainland authorities.

(5) The business of operating the Factory was the only substantial business of the Company. The business turnover of the Company in its audited accounts was derived wholly from the operations of the Factory. The Factory was a substantial undertaking and the Company had invested millions of dollars in the setting up and operations of the Factory.

(6) The 1^st respondent had contended that there was no diversion of business when Gold Loop took over the control of the Factory in May 1997, as Gold Loop had merely authorised the Company to manage the Factory since 1993, that authority was revoked in May 1997 and the business and interest in the Factory had belonged to Gold Loop at all times. This contention was rejected by the court.

(7) In May 1997, there were negotiations between the 1^st respondent and the petitioner for the sale of the 1^st respondent’s shares in the Company to the petitioner and in the alternative the sale of the petitioner’s shares to the 1^st respondent. The outcome was that the 1^st respondent agreed to buy out the petitioner and to pay HK$4 million for his 40% shareholding, to be paid in two instalments. They signed a provisional agreement for sale and purchase on 29 May 1997 and a formal agreement on 4 July 1997. Only the first instalment of HK$1 million was paid and the sale was aborted. The 1^st respondent claimed that the petitioner was in breach in that he had failed to deliver up before the completion date all the assets owned by the Company and the Factory, which was denied by the petitioner.

(8) The purchase price for the petitioner’s shares was on the basis that the Company was worth HK$10 million, as evidenced by a note written by the 1^st respondent dated 15 May 1997. This was based on an accountants’ report dated 8 May 1997 in relation to the review of accounts of the Company from 1 April 1996 to 28 February 1997 (“the Review Report”) prepared by a firm of certified public accountants, Francis S. L. Yan & Co. This firm (“the Auditors”) had been acting as the auditors of the Company since its incorporation.

(9) The value of HK$10 million put on the Company by the parties in May 1997 would not have been justified if Gold Loop had retained the interest in the Factory and the Company had no interest other than to manage or operate the Factory. The 1^st respondent had written to the Auditors in July 1997 referring to the Factory as “the wholly owned subsidiary factory” of the Company.

(10) Most of the material evidence given by the 1^st respondent was rejected, including the various reasons given by the 1^st respondent for the resolution to cease business of the Company in 1997.

The decision on 21 September 2006

6. Nearly two years after judgment was given, on 16 February 2006, Messrs. Alliott Tsoi & Co. (“the Valuer”) was appointed by the court as the single independent expert to carry out an out-of-court valuation of the petitioner’s shares, after much delay due substantially to the lack of co-operation of the 1^st respondent.

7. The Valuer submitted his report on 13 April 2006, putting a value of HK$5,578,334.13 on the petitioner’s shares. He based his valuation on the net asset value as reported in the management accounts of the Company for the period ended 31 May 1997, which were supplied to the petitioner in March 1998 by Miss Lam Bik Chu (“Miss Lam”; she was and is the personal assistant to the 1^st respondent and responsible for the preparation of the accounts of the Company), and which the Valuer regarded as the best information available to him. He adjusted the net asset value by deducting the notional profit from 19 to 31 May 1997. Reducing this valuation to take into account HK$496,671.25 being the shortfall in the petitioner’s contribution to the loan capital, the price payable by the 1^st respondent would be HK$5,081,662.88.

8. As the 1^st respondent made no response to the petitioner’s request to pay the purchase price calculated in accordance with the above valuation, the petitioner sought directions from the court on 20 April 2006. Two days before the hearing on 28 June 2006, the 1^st respondent indicated his intention to apply to set aside the Valuer’s report on the grounds of bias, collusion with the petitioner and material mistakes, and to remove the Valuer and replace him with another expert.

9. I dismissed the 1^st respondent’s application for the reasons given in my decision handed down on 21 September 2006. I did not however make an order to implement the Valuer’s report, as I regarded it unsatisfactory that the Valuer was not provided with all relevant information and documents for his valuation, albeit this was attributable substantially to the 1^st respondent’s act or omission. When the petitioner’s solicitors wrote to the 1^st respondent’s solicitors in February 2006 requesting for inspection of books and documents of the Company to be provided to the Valuer, the 1^st respondent’s solicitors had turned down the request. I gave directions for the 1^st respondent to provide to the Valuer all relevant books, accounts and documents of the Company within 21 days of the decision, that the petitioner should have access to the documents provided, that the parties should make further submissions in writing to the Valuer after the provision of further documents, and that the Valuer was to provide a further report to the court thereafter.

10. I also dealt with the petitioner’s application that the 1^st respondent should pay interest on the purchase price. For the reasons given in my decision, I ordered that interest be awarded on the value of the petitioner’s shares to be fixed by the Valuer, to run from the date of valuation (18 May 1997) to the date the order for purchase was made (27 February 2004), at the rate of 1% over the prime rate of The Hongkong and Shanghai Banking Corporation Limited prevailing during this period, and thereafter at the prevailing judgment rate until payment.

Events after the decision

11. Things did not run smoothly even after directions were given in the decision.

12. On 29 September 2006, the Valuer informed the petitioner’s solicitors that due to shortage of staff and his workload, he was not in a position to “take up further assignment” regarding the case.

13. The petitioner engaged a certified public accountant, Miss Mak Kam Brenda (“Miss Mak”), as his accounting expert to give an opinion on the value of his shares. Miss Mak provided her report on 10 October 2006, before the 1^st respondent had provided any documents pursuant to the directions given on 21 September 2006. She arrived at a value of HK$17,699,716.00 for the petitioner’s shares, after taking into consideration the assets, profitability and future prospects of the Company. She relied on the management accounts of the Company and the Valuer’s report. Copies of her report were served on the Valuer and the 1^st respondent pursuant to the directions.

14. On 12 October 2006, the 1^st respondent supplied a bundle of relevant documents pursuant to the directions.

15. The Valuer returned Miss Mak’s report and the documents provided by the 1^st respondent on 13 October 2006 and stated that he would not take up the job as valuer.

16. The court informed the parties on 18 October 2006 that as the Valuer had refused to continue to carry out his role as such, and it did not appear practicable to appoint another in his place, the responsibility of making a valuation would fall back on the court. The Valuer was informed that the court would not be inclined to approve any part of the fees incurred by the Valuer, which were wasted due to his refusal to continue in his appointed role, and the Valuer would need to apply to court if he should wish to seek payment of fees for the work done so far. Directions were given to vary the directions in September 2006 as follows:

(1) the 1^st respondent was to file and serve within 7 days a list of documents disclosed pursuant to the order of 21 September 2006 relevant to the valuation of the petitioner’s shares;

(2) the petitioner was to file and serve by 3 November 2006 a report prepared by his accounting expert on the valuation of his shares, taking into account the documents served by the 1^st respondent;

(3) the 1^st respondent was to file and serve by 3 November 2006 a report prepared by his accounting expert on the valuation of the petitioner’s shares;

(4) leave to the petitioner and the 1^st respondent to file and serve a further report by their respective experts, in answer to the first report filed by the other party, by 17 November 2006; and

(5) the parties were to submit draft directions on the further conduct of the proceedings for the valuation of the petitioner’s shares by 21 November 2006.

17. On 2 November 2006, Miss Mak submitted her 2^nd report pursuant to the above directions, after reviewing the documents served by the 1^st respondent. She maintained the basis and computation of the value of the petitioner’s shares in her 1^st report at HK$17,699,716.00.

18. On 3 November 2006, Mr. Cheung Yuk Ming (“Mr. Cheung”), the accounting expert engaged by the 1^st respondent, submitted his 1^st report pursuant to the above directions. By reference to the assets, profitability and future prospect of the Company, based on the information in the audited financial statements, his opinion was that the Company had no value at all relevant times in 1997 and so the petitioner’s shares had no value.

19. On 17 November 2006, Miss Mak submitted her 3^rd report and Mr. Cheung his 2^nd report, in answer to the earlier report of each other. Mr. Cheung also made an affirmation filed on 28 November 2006. Miss Mak opined that the management accounts of the Company reflected the financial results of the business as a whole, including the Factory, whereas the audited financial statements only reflected the financial results of the Company in Hong Kong and could not form the basis of any meaningful analysis. Mr. Cheung disagreed; he was firmly of the view that only the information in the audited financial statements, which he regarded as correct, should be considered and used in this exercise.

20. On 30 November 2006, I gave directions that the valuation of the petitioner’s shares should be determined in a hearing with liberty to cross-examine the accounting experts on both sides. I also directed Miss Mak to provide a further report to deal with various matters raised in Mr. Cheung’s 2^nd report and his affirmation. No further evidence, whether expert or factual, was to be adduced without leave. Miss Mak served her 4^th report on 11 January 2007. No leave was sought by the 1^st respondent to adduce evidence from any other expert witness or any factual witness, such as the Auditors or Miss Lam, notwithstanding their evidence is clearly material, in view of the observations and comments in Miss Mak’s 4^th report.

21. In the course of the hearing in August 2007, Miss Mak and Mr. Cheung each submitted two further reports, to deal with matters raised in the course of their oral testimony.

The challenge to the petitioner’s expert

22. Mr. Wong King, appearing for the 1^st respondent, mounted a challenge at the outset that Miss Mak should not be considered qualified to give expert evidence in the valuation of shares. As a fallback argument, he submitted that if it should be held that Miss Mak is qualified to give expert evidence, less weight should be attached to her opinion and where there is difference between her opinion and that of Mr. Cheung’s, the latter’s opinion should be preferred as he is an experienced and well qualified valuer in the valuation of shares.

23. Miss Mak had provided her professional qualifications and experience in her 4^th report. She gave further evidence on this in her examination in chief and was cross-examined on this somewhat extensively by Mr. Wong. I indicated to the parties that I would rule on the question whether Miss Mak could be regarded as qualified to give expert evidence at the conclusion of the hearing, and proceeded to hear evidence from Miss Mak de bene esse.

24. Mr. Wong devoted a great deal of energy in contending that Miss Mak does not have adequate knowledge, training, qualification and experience to qualify as an expert witness in the valuation of a business. She was further attacked for failing to form her opinion independently and was accused of bias.

25. Counsel’s allegations of bias and lack of independence went too far and are unjustified. I will examine his other contentions on lack of knowledge, qualification and experience.

26. Miss Mak is currently the sole proprietor of a firm of certified public accountants set up by her in 1994. She obtained her academic qualifications in accounting in Hong Kong and Australia in the early and mid 1980s, and her professional qualifications as a certified public accountant in Hong Kong and Australia in the late 1980s and the early 1990s. Prior to setting up her own firm, she had worked as a trainee and an audit intermediate in the audit department of a big firm of certified public accountants for three years, as an assistant accountant in the accounting department of a bank in Hong Kong for one year, as the accountant in a Hong Kong company for two years, and as a consultant in a firm of certified public accountants for six years.

27. Miss Mak did not study any course in valuation or appraisal in her tertiary education. Her knowledge of the valuation of a business was derived from her working experience in accounting, auditing and taxation. When she was employed as the accountant in a Hong Kong company in the mid 1980s, her employer had invested in a factory in Zhuhai. She worked closely with the accounting department of the factory to ensure that the accounting records were kept up to the standards in Hong Kong. Her role was akin to that of an auditor. After she started her own practice, she worked mainly as an external auditor and tax representative and gained insight into the nature of business of her clients, about 5% of which were in manufacturing. Most of the clients in manufacturing operated factories in the Mainland, under the system in which the Hong Kong party would provide capital for setting up the factory, pay wages and overheads, provide raw materials, and obtain the end products for sale to customers. She had carried out valuation of shares of Hong Kong companies in three instances during 2003 to 2005 for the purpose of transfer of shares between shareholders. Two were property investment companies, the third operated an education centre. In all instances, the parties accepted her valuations. The net assets of these companies were between HK$5 to $10 million.

28. Mr. Wong pointed out that Miss Mak has worked mainly in the areas of accounting and auditing, and has very limited experience in share valuation. She has not appeared in court as an expert witness before. She has not acquired special qualification as a valuer or financial analyst from a recognised professional body, such as the Hong Kong Securities Institute. Her only professional qualification, being that of a qualified accountant, is a general qualification in accounting.

29. Notwithstanding the above, I am satisfied that Miss Mak does have sufficient knowledge and expertise, derived from her not inconsiderable experience as an external auditor and tax representative, to carry out the share valuation of a company with manufacturing business in the Mainland and draw inferences from observed facts as an expert. She would be familiar with examining the accounts and related documents of a business of this kind, as was indeed demonstrated in her subsequent testimony. I accept that she is qualified as an expert to give evidence on share valuation. I also reject the submission that just because Mr. Cheung has special qualification as a valuer and with greater experience in this field, his opinion should be preferred whenever there is a conflict between his views and Miss Mak’s. The court would be shirking its responsibility if the evidence of each expert is not examined critically and the opinion of one is preferred to the other merely on the basis as suggested by Mr. Wong.

30. Since counsel for the 1^st respondent had mounted such a vigorous attack on Miss Mak, I feel obliged to point out that notwithstanding Mr. Cheung was put forward as a well qualified valuer with experience in litigation support and had acted as an expert witness before, he made some fairly elementary errors and omissions in going about his valuation. He did not appear to have paid much attention to the findings in the judgment of 27 February 2004, and even made some observations in his reports contrary to the findings of the court. He failed to mention the documents he had considered in respect of bad debts when he listed in his first two reports the documents he relied on.

The valuation of the petitioner’s expert

31. In her first four reports, Miss Mak arrived at HK$44,249,290.38 as the net present value of the estimated value of the Company as at the valuation date of 18 May 1997. She described her approach as a hybrid of asset base and earning base, which would allow her to take into consideration the profitability and future prospects of the Company. Her methodology and the rationale behind this may be stated as follows:

(1) The Valuer had assessed the net assets of the Company at the valuation date in the sum of HK$13,945,835.33. He adopted the asset approach for his valuation in arriving at HK$5,578,334.13 for the petitioner’s 40% shareholding. In so doing, he did not make any projection on the profitability or future prospects of the Company.

(2) According to the management accounts of the Company as at 31 March 1996 and the “audit report” in Chinese of the Factory dated 19 December 1996 prepared by an accountant engaged by the 1^st respondent, Miss Li Fan (referred to in paragraph 53 of the judgment on 27 February 2004; “the Chinese Audit Report”), the retained profit of the Company as at 31 March 1996 was over HK$9.6 million.

(3) The total profits of the Company and of the Factory from 1^st April 1994 (being the date of commencement of business of the Factory) to the valuation date were calculated, based on the figures in the management accounts. The total was HK$7,349,037.58 and the average annual profits amounted to HK$2,347,000.00.

(4) The capital employed in the business as at 1 April 1994 was HK$6,596,797.75 (based on the management accounts as at 30 April 1994) and that employed as at the valuation date was HK$13,945,835.33 (as assessed by the Valuer). The average capital employed was HK$10,271,316.54.

(5) The rate of return on capital (HK$2,347,000.00/ HK$10,271,316.54) was 22.85%.

(6) The useful life of the Company to generate profits was premised on the remaining life of the land granted to the Factory, which was 46 years from the valuation date. Taking into account uncertainties in market and policies, a projection on the profitability and future prospects of the Company was made on the basis of a useful life of ten years, at the rate of return on capital of 22.85%.

(7) A discount rate of 5% was applied to the projected profits each year. 5% was the average of Hong Kong Consumer Price Index for the three years from January 1996 to December 1998. The objective of this was to calculate the real money value of the projected profits caused by expected depreciation in purchasing power. On top of that, 50% was applied to the discounted projected profits, on the assumption that the Company was only able to achieve 50% of the rate of return on the capital employed, to arrive at the total net present value of the projected profits of the Company, which was HK$33,980,000.00. To this figure was added the net assets of the Company at the valuation date as assessed by the Valuer of HK$13,945,835.33, and deducted the net book value of the fixed assets being HK$3,676,544.95, on the basis that the fixed assets would by the end of ten years be fully worn out and become valueless. The resulting figure of HK$44,249,290.38 was the net present value of the estimated value of the Company as at the valuation date, and 40% of its shares would amount to HK$17,699,716.00.

32. In the course of the hearing, it was drawn to Miss Mak’s attention that under the November 92 Agreement, Gold Loop was given the right to operate the Factory for five years only and that this was extended for ten years to November 2007 by the Shenzhen Longgang Economic Development Bureau in March 1996 (see the finding in the judgment set out in paragraph 5(1) above). It might not be appropriate to project profits for the Company on the premise that the land use rights of the Factory had a remaining period of 46 years. Miss Mak therefore provided her 5^th report dated 1 August 2007 in which she used the same methodology, save that future profits have been projected for three years instead of ten years. The figure she arrived at as the value of the petitioner’s shares was rounded off to HK$6.2 million.

33. There was nevertheless a very big gap between her valuation and Mr. Cheung’s, as the latter had valued the petitioner’s shares at nil.

The valuation of the 1^st respondent’s expert

34. Mr. Cheung approached the valuation of the Company by reference to the estimated market value of its net assets, its profitability, and its future prospect.

35. On the net assets of the Company, as mentioned earlier, Mr. Cheung considered that the valuation should be made on the basis of information in the audited financial statements only. The audited accounts of the Company as at 31 March 1997 showed net liabilities of HK$1,648,527.00. In his 1^st report on 3 November 2006, Mr. Cheung adjusted the negative net worth of the Company to HK$4,515,527.00, by adding to HK$1,648,527.00 the amount of HK$2,867,000.00 (being bad debt that could never be recovered from customers, and reducing the value of trade debtors under current assets by this figure). In his 2^nd report on 17 November 2006, Mr. Cheung revised the figure of HK$2,867,000.00 to HK$1,777,270.00 (on the basis that out of the trade debts of HK$7,516,595.00 as at 31 March 2007, HK$5,739,325.00 had subsequently been collected). The negative net worth of the Company as at 31 March 1997 was accordingly revised from HK$4,515,527.00 to HK$3,425,797.00.

36. In the course of his testimony, Mr. Cheung was questioned on his different adjustments, as the 1^st respondent had produced no documents pursuant to the directions given by this court that might throw light on the revision. It was then that Mr. Cheung revealed that some documents relating to the subsequent recovery of trade debts were shown to him by the 1^st respondent’s personal assistant Miss Lam, but were not disclosed to the petitioner’s legal advisers or expert. No explanation was tendered on behalf of the 1^st respondent for this omission. It is regrettable that this should be allowed to happen, as detailed directions were given by the court to ensure that there should be equality of arms in the valuation exercise after the 1^st respondent had complained in June 2006 that the Valuer did not contact him for relevant information and documents.

37. In his 3^rd report given in the course of the hearing dated 3 August 2007, Mr. Cheung produced a record compiled by Miss Lam purporting to show the collection of trade debts from April 1997 to November 2000 in the total sum of HK$5,739,324.77. He also produced samples of bank statements showing the receipt of funds and two pages in the ledgers for collections. He had looked at other documents in this regard but as he did not make copies he could only produce what he kept in his working papers. These documents produced in his 3^rd report and other unidentified documents were not among the documents listed in his first two reports as documents considered by him. Needless to say, this is highly unsatisfactory. He confirmed that the information provided by Miss Lam was not audited, nor did she explain to him how the mistake of the first figure of HK$2,867,000.00 had come about.

38. On Mr. Cheung’s analysis, the Company had a net liability, not a net asset situation. 40% of the negative net worth of the Company as at the valuation date, on his calculation, would be a negative figure of HK$815,622.00.

39. On the profitability of the Company, according to the audited accounts, the profit or loss for the past three years before the valuation date was as follows:

Period/Year ended 31 March Profit (loss) as per audited accounts HK$

1995 199,076

1996 555,666

1997 (2,413,269)

(1,658,527)

Average loss for one year (552,842)

40. As the Company had incurred accumulated net loss of HK$1,658,527.00 in the three years before the valuation date, Mr. Cheung considered the Company to have no value at all by reference to profitability. He concluded there was failure in credit control when the Company was under the petitioner’s management and the Company had to write off and provide for bad and doubtful debts in 1997.

41. On the future prospect of the Company as at the valuation date, Mr. Cheung opined that it would appear from the audited accounts that the Company did not have the capability to distribute any dividend “in the many years after 1997”. He considered the Company to have no value as it incurred losses in all years subsequent to 1997 until it formally ceased business in 1999.

42. Even taking into account that business had been diverted from the Company to Gold Loop, he did not think the Company had a worthy prospect in May 1997, as shown in the table below giving the combined profit and loss of the Company and Gold Loop, the information of which was extracted from the audited financial statements of these two companies:

Year The Company HK$ Gold Loop HK$ Combined HK$

1998 (2,969,618) 1,024,571 (1,945,047)

1999 (354,061) 1,128,987 774,926

2000 - (1,130,924) (1,130,924)

2001 - (597,234) (597,234)

2002 - (1,326,631) (1,326,631)

2003 - (437,426) (437,426)

2004 - (1,709,913) (1,709,913)

2005 - (231,234) (231,234)

Net loss (3,323,679) (3,279,804) (6,603,483)

43. He was of the opinion that “no reasonably experienced people in the business community with sufficient information” would buy an interest in the Company and there was no market for its shares.

Criticism of the methodology of the petitioner’s expert

44. Mr. Cheung criticised the methodology of Miss Mak in adding the net asset value of the Valuer (of HK$13 million) to her net present value of total projected profits (of HK$33 million over ten years) as a duplication of values and is incorrect. Further, the high level of profit estimated by Miss Mak for each of the ten years, even with her 5% discount rate and 50% further reduction, bore no resemblance to the reality of the business, which did not have a sustained profit history, whether before or after 1997. He criticised her method as containing too many arbitrary and subjective parameters.

45. Even though the net book value of all fixed assets of HK$3.7 million was eliminated from the net present value of the estimated value of the Company in Miss Mak’s valuation, I am not persuaded there would be no duplication of values at all in the hybrid method she adopted by adding a premium to the net asset value.

46. As explained by Mr. Cheung, where the business is valued as a going concern, there are a number of approaches that a valuer may adopt. He may study the asset situation, consider the past profitability, see if there is any comparable sale and purchase, or assess the future prospects of the company. These independent approaches are useful as cross check, as they should not yield a value that is vastly different from one another. In some situations, it may be appropriate to give weightings to different approaches to come up with a proper value. If the company is asset heavy, the valuer may wish to give a weighting of, say, 80% to the asset approach and 20% to the profit approach. If it is a service company, he may give a weighting of 90% to the profit approach and 10% to the asset approach. This is an accepted way of giving a valuation using a combination of approaches and there would be no duplication of values, unlike Miss Mak’s method. I do not agree with Miss Mak that this method of applying a percentage weighting towards different approaches is questionable or illogical.

47. As for the projection method used by Miss Mak, this was different from the discounted cash flow method commonly used in the valuation practice. She could not give a precedent or provide any authoritative support for the methodology devised by her, other than an anecdotal instance. The conceptual problem with her method, as stated by Mr. Cheung, was that profit was only a parameter used in limited circumstances when other sources of information were not available, since profit could quite easily be manipulated whereas cash flow in the discounted cash flow method would not. Further, the discount rate should not be based on the consumer price index but should be based on an interest rate, which, if properly selected, would have taken into consideration the risk factor of inflation expectation.

48. I am inclined to think that Mr. Cheung’s criticisms are largely justified. It would be unsafe to use the methodology of Miss Mak.

Further reports from both experts

49. The disparity in the valuations of the two experts and their irreconcilable positions made it very difficult for the court to arrive at a sensible evaluation of the shares. In the course of the hearing, I took the exceptional step of adjourning it for two weeks and asking for a further report from each expert, after impressing on them their overriding duty to the court to give assistance on matters within their expertise, in the event that I should not be wholly in agreement with the views of either expert in their existing reports.

50. On 17 August 2007, Miss Mak submitted her 6^th report and Mr. Cheung his 4^th report. Both were questioned on their additional reports when the hearing resumed on 22 August 2007.

51. At the request of the court, Miss Mak was asked to provide a valuation by splitting 100% weighting towards the asset approach and the earnings approach, which was not the method she advocated but was the “main-stream” method described by Mr. Cheung of giving a valuation using a combination of approaches. She applied 80% weighting towards the net assets and 20% towards the annual earnings in arriving at the total value of the Company. She explained this weighting was chosen because the Company was a small private company and the valuation should rely more on the net asset approach rather than on the earnings approach. The range of figures she arrived at as the value of the petitioner’s shares was between HK$4,268,375.00 to HK$5,309,179.00.

52. At the request of the court, Mr. Cheung was asked to provide a valuation on the basis that the petitioner’s shares represented not merely an interest in the Company but was coupled with an interest in the Factory, so that the assets, profitability and future prospects of the Factory should also be taken into account. Mr. Cheung reported that there are no available financial statements of the Factory for the years of 1995 to 1999 and that the 1^st respondent regarded its assets, liabilities, income and expenses “have been fully accounted for in the Company’s financial statements which included all the Factory’s overheads, the machineries used and other items”. The Company’s financial statements referred to are the audited financial statements. He therefore did not give any revised valuation on the basis as requested by the court. He maintained his opinion that the Company and the Factory together had no value at all as at 18 May 1997.

53. The only revision Mr. Cheung made to his earlier valuation was in respect of the capital contribution the petitioner made to the Company as found in paragraphs 69 and 70 of the judgment in the sum of HK$2,223,329.00. Owing to this capital contribution, Mr. Cheung opined that there should be an amount of HK$594,411.00 payable to the petitioner, after deducting the amount he owed (HK$258,599.00 according to the audited accounts) and his share of the net liabilities (40% of the negative net worth as Mr. Cheung had assessed at HK$3,425,797.00).

54. I turn to consider the matters on which the experts hold different views.

The relationship between the Company and the Factory

55. In his 2^nd report, Mr. Cheung referred to the November 92 Agreement and opined that the relationship between the Company and the Factory was one of sub-contracting. He concluded on the basis of the documents available to him that there was “no ownership or control relationship between the two entities”. He referred to “the auditors’ judgment”, which, as he understood it, was premised on the terms of the November 92 Agreement, that the Company “does not have power to govern the financial and operating policies of the factory”, and hence there was no relationship of parent and subsidiary under Hong Kong law.

56. Mr. Cheung opined that the audited financial statements had included all the major elements of the Company and the Factory in the sense that the Factory had charged sub-contracting fees to the Company. Hence, the audited financial statements contained the “whole picture” of the Company and the Factory.

57. The fact that the Factory was not a subsidiary of the Company within the meaning of the Companies Ordinance is neither here nor there. It was not correct to categorise the relationship between the Company and the Factory as purely one of sub-contracting. Mr. Cheung had paid no or no sufficient regard to the findings in the judgment, summarised in paragraphs 5(1) to (10) hereof. Insofar as the audited accounts of the Company had accorded with the 1^st respondent’s contention that the business and interest in the Factory had belonged to Gold Loop and not the Company, this was rejected in the judgment as set out in paragraph 5(6) hereof.

58. Mr. Wong submitted that Miss Mak had confirmed in cross-examination she could not find anything in the management accounts of the Company which stated that those accounts included the assets and liabilities of the Factory. This is taking her evidence out of context. Insofar as assets are concerned, Miss Mak had made the point that land and building and closing stock of the Factory appeared in the management accounts of the Company, but not in the audited accounts. As for liabilities, she had said if the terms of the November 92 Agreement were considered, one could see that all the expenses of the Factory should be the disbursements of the Company as it was the Company that was responsible for buying raw materials and paying all the expenses for the Factory and that the Factory should have no liabilities.

59. I do not accept the 1^st respondent’s contention that all the assets, liabilities, income and expenses of the Factory had been fully accounted for in the Company’s audited financial statements. This brings me to the next major area of dispute in this hearing.

The audited financial statements

60. Mr. Cheung pointed out that in carrying out the audit for the Company from 1995 to 1999, the Auditors had proposed adjustments to correct errors in the ledgers and the directors (including the petitioner for the years of 1995 and 1996) had agreed to the corrections and adopted the audited financial statements. Hence, the management accounts and the Review Report (it was not signed by the Auditors) would have been superseded by the audited financial statements.

61. Mr. Cheung emphasised that under sections 121 and 122 of Cap. 32, a company is obliged to keep proper books of account to give a true and fair view of the state of its affairs and to explain its transactions and the directors are obliged to lay before the company at its annual general meeting a profit and loss account and a balance sheet. The Auditors, as independent professionals, were obliged to scrutinise and review the financial statements of the Company by reference to all the available evidence and on acceptable accounting standards. Under section 141 of Cap. 32, an auditor is required to state in his report if in his opinion the company’s balance sheet and profit and loss account have been properly prepared in accordance with the Ordinance and whether a true and fair view is given; further, if the auditor should fail to obtain all information and explanation which to the best of his knowledge and belief are necessary for his audit, he is required to state that fact in his report. With the exception of the Review Report (which contained a qualified opinion), and the accounts for the year ended March 1999 (which was the date of business cessation), all the auditors’ reports for the years ended March 1995 to 1998 contained an unqualified statement by the Auditors that the audited financial statements gave a true and fair view in all material respects of the state of the Company’s affairs as at the date in question and had been properly prepared in accordance with the Ordinance.

62. He gave as examples of these errors in the management accounts that had not been corrected as requested by the Auditors for reconciliation with the audited financial statements:

1995 HK$ 1996 HK$

(a) omission of depreciation of fixed assets 1,108,530 690,477

(b) omission of sub-contracting costs 7,331,329 9,628,957

63. Thus, without incorporating the adjustments proposed by the Auditors, the management accounts were inherently unreliable, did not reflect the true financial status of the Company, and should not be relied on in preparing the valuation.

64. Miss Mak explained why, notwithstanding the statutory requirements, she considered the audited financial statements did not show a true and correct view of the state of affairs of the Company and the Factory and therefore should not be used in the valuation. She set out a number of material differences in the accounting treatment and account balances between the audited financial statements and the Review Report of the same Auditors; significant assets and transactions were not reflected in the former, and she had doubts about a number of transactions in the audited accounts. Further, the Review Report was dated 8 May 1997, which was after the audited financial statements for the year ended March 1997 were signed in April. The material differences were as follows:

(1) The management accounts showed that the Company and the Factory owned land and building in the amount of HK$2,367,412.00. A journal entry was made to take away land and buildings from the management accounts and this important asset was excluded in the audited financial statements for the years ended March 1995, 1996, 1997 and 1998. It was however included in the Review Report as an asset of the Company and the Factory.

(2) Shareholders’ advances of HK$6,586,797.75 were not included as part of the liabilities in the audited financial statements for the years ended March 1995 and 1996. They were included as liabilities in the management accounts and the Review Report.

(3) Amounts due to sub-contractor of HK$3,901,307.55 and HK$2,030,991.25 were shown in the audited financial statements for the years ended March 1996 and 1997 respectively. These liabilities were not stated in the management accounts or the Review Report. On the contrary, the management accounts and the Review Report showed debit balances due from the sub-contractor (under “China Account Balance”) instead of credit balances due to the sub-contractor. According to paragraph 2.5 of the Review Report, the amount due from sub-contractor represented the amount due from the Factory to the Company; the Company was keeping a current account with the Factory, feeding it with cash advances from time to time and the Factory provided its monthly payment schedule for the Company to book as disbursements claimed for China Expenses. It was further stated that the balances due would stand for more a debt due by the petitioner than by the Factory itself. By the above statements, it was unlikely that the Company was indebted to the Factory. This was also consistent with the November 92 Agreement, under which the Hong Kong party was to provide working capital to pay wages and overheads for running the Factory. The petitioner, who was responsible for managing the operations of the Factory in the first three years, had kept the working capital out of which he was to discharge the expenses. That was why it was stated in the Review Report that the amount due from the Factory was more an amount due from the petitioner to the Company. Miss Mak pointed out that there was an entry of “Amount due by directors” in the audited accounts for the year ended 31 March 1997 (of which HK$258,599.00 was due by the petitioner) but no such entry was found in the management accounts or the Review Report. She opined that this amount could well have been included in the entry of China Account Balance in the management accounts and the Review Report.

(4) A journal entry was made to reduce the opening balance of the retained earnings of the Company as at 31 March 1996 by HK$7,273,181.61. No supporting documents were available to support the reasons to make this adjusting entry. As a result, the audited financial statements for the year ended March 1996 showed a retained earnings balance of HK$754,741.12. However, the management accounts as at 31 March 1997 showed the opening retained earnings balance as HK$8,027,922.73 and the Review Report showed the retained earnings as at 31 March 1996 as HK$7,245,291.43.

(5) In addition to the provision for bad debts of HK$550,000.00 brought down, the audited accounts for the years ended March 1997 and 1998 made two additional bad debt entries in the amounts of HK$2,721,828.42 and HK$4,067,405.31 respectively. No supporting documents were available to support the reasons to make such adjusting entries to take up bad debts totalling HK$6,789,233.73. According to the age analysis of trade debtors in paragraph 2.1 of the Review Report, the total bad debts of HK$6,789,233.73 as compared to the total trade debtors balance of HK$10,429,943.78 would seem very drastic.

(6) The audited financial statements showed income from machinery rental of HK$1,330,236.00 for each year from March 1995 to 1997 and HK$2,030,991.25 for the year ended March 1998. Such machinery rental income was not reflected in the management accounts or the Review Report. The figures for rental income appeared out of proportion to the value of assets classified as plant and machinery. Besides, under the November 92 Agreement, it was the obligation of the Hong Kong party to provide machinery for use in the Factory at no cost.

65. As for those errors in the management accounts that Mr. Cheung said were not corrected as requested by the Auditors for reconciliation with the audited accounts, Miss Mak considered they were in fact accounted for. Depreciation of fixed assets for 1995 and 1996 in the total amount of HK$1,799,007.00 (made up of HK$1,108,530.00 and HK$690,477.00) was taken into account in her valuation. There was no omission of sub-contracting costs in arriving at the net profits in the management accounts and the Review Report, as the cost of goods sold of HK$8,909,299.00 and production cost of HK$9,456,610.99 had been deducted.

66. Normally, where accounts have been properly kept and audited by an independent auditor in accordance with the statutory requirements and acceptable accounting standards, the audited financial statements should be used in the valuation of the shares of a company, instead of the management accounts. However, the situation this court is concerned with is hardly a usual situation, given that all the relevant books and records were kept by the 1^st respondent and yet the accounting materials he chose to disclose, after all the opportunities afforded to him, are less than complete or satisfactory. Furthermore, the 1^st respondent had provided no explanation from the Auditors of the material differences in the accounting treatment and account balances between the audited accounts and the Review Report prepared by the same firm, which came after the audited accounts for the year ended March 1997 were signed. Besides, as found in the judgment and set out in paragraph 5(8) hereof, the Review Report was accepted by the petitioner and the 1^st respondent in arriving at a valuation of the Company for the purchase of the petitioner’s shares.

67. Mr. Wong submitted that Miss Mak should not be permitted to use information in the management accounts for the valuation, as she has no direct knowledge of the matters contained therein and was merely retailing information she had extracted from those accounts. He asserted that the 1^st respondent is entitled to have a witness whom he can cross-examine on oath as to the reliability of the facts deposed to, and not merely as to Miss Mak’s opinion regarding the reliability of information given to her not on oath. The witness as to fact with direct knowledge of the matters contained in the management accounts is Miss Lam, the personal assistant of the 1^st respondent. She made an affirmation on behalf of the 1^st respondent, as summarised in paragraphs 14 and 15 of the decision on 21 September 2006. Other than that, the 1^st respondent had chosen not to adduce any evidence from her, notwithstanding Miss Mak had given full reasons in her 4^th report why the management accounts should be used in the valuation. In these circumstances, the 1^st respondent cannot be heard to complain.

68. According to the figures in the audited accounts, turnover was HK$14.9 million for the period ended March 1995, HK$17.6 million for the year ended March 1996 and HK$9.3 million for the year ended March 1997. On the figures in the audited accounts, the percentages of profit on sales for these periods were 1.3%, 4.3% and minus 25.9% respectively. No profits tax was payable for the period ended March 1995 and for the year ended March 1997, and only about HK$200,000.00 was paid for the year ended March 1996. Thus, notwithstanding a high turnover in the aggregate of HK$41.8 million from incorporation to March 1997, the Company had paid very little in profits tax.

69. Miss Mak has made these comparisons between the audited accounts, the management accounts and the Review Report:

Audited accounts Management accounts Review Report

Turnover

1996 HK$17,592K HK$17,609K HK$17,592K

1997 HK$9,324K HK$9,333K HK$8,752K*

^{* The turnover for 1997 in the Review Report was for 11 months only from 1 April 1996 to 28 February 1997.}

Audited accounts Management accounts Review Report

Direct cost

1995 (no information) (no information) HK$8,909K

1996 (no information) HK$9,457K HK$9,259K

1997 (no information) HK$8,462K HK$7,708K

Audited accounts Management accounts Review Report

Net profit

1995 HK$199K HK$2,922K HK$1,809K^#

1996 HK$556K HK$6,709K HK$5,636K^#

^{# Depreciation in the amounts of HK$1,108,530.00 and HK$690,477.00 for the years of 1995 and 1996 respectively were included.}

70. The figures for net profit of the Company in the audited accounts were very different from those in the management accounts and the Review Report.

71. Mr. Cheung had pointed to the low cash position of the Company in the audited accounts from 1995 to 1999 to back up his opinion that the Company could not have made significant profits. However, the cash position as shown in the management accounts was entirely different.

72. I do not find the audited information reliable. I cannot be satisfied that the audited financial statements did show a true and correct view of the state of affairs of the Company and the Factory. I would agree with Miss Mak that in the special circumstances of this case, the audited financial statements should not be used in the valuation. It would be justified to use information in the management accounts and the Review Report in this situation, notwithstanding that the latter was not signed by the Auditors and was qualified in certain respects.

The appropriate method

73. In his latest report, Mr. Cheung stated that the Company continued to incur losses subsequent to 1997, and decided to give 100% weighting to the asset approach as the Company had ceased activities in the latter part of 1997. It was submitted by Mr. Wong that it would be appropriate to use the net asset approach and to value the Company on a break-up basis as the business was a losing concern which had no goodwill.

74. The valuation date of 18 May 1997 was chosen as the date just before Gold Loop had effectively taken over control of the Factory from the Company, thereby causing the Company to cease activities in the latter part of 1997 because its only substantial business of operating the Factory was transferred to Gold Loop. At the material date, the Company was a going concern and was profitable, as would appear from the management accounts and the Review Report. It would not be right to value the Company as at the valuation date solely on the net asset approach with a break-up basis.

75. In the present situation, I am inclined to think it would be appropriate to use a combination of approaches and apply a percentage weighting to them. I would agree with Miss Mak that an 80% weighting towards the net asset approach and 20% weighting towards the earnings approach would be appropriate for the reasons she gave.

76. The net asset value of the Company as at the valuation date was assessed by the Valuer at HK$13,945,835.33, using the net asset approach. Miss Mak had considered the Valuer’s report with the management accounts, the Chinese Audit Report, the Review Report and found they all helped her to the same conclusion, hence she had adopted the net asset value as assessed by the Valuer in her valuation. I see no reason to disagree with this assessment, subject to the adjustments to be considered. If the value of land and building is deducted from this assessment (for the reason mentioned below), the net asset value would be HK$11,578,423.00.

77. On the basis of the total profits of the Company and the Factory from April 1994 to the valuation date in the management accounts, Miss Mak calculated the average annual profits at HK$2,347,000.00. Using the multipliers of three years and five years, the value of the Company on the earnings approach would be assessed at HK$7,041,000.00 and HK$11,735,000.00 respectively.

78. Thus, the valuation of the Company using the net asset approach and the earnings approach would appear to be more or less comparable.

79. Next, I would need to consider what adjustments, if any, should be made to the net asset value arrived at using the net asset approach.

The value of land and building

80. The value of land and building of HK$2,367,412.00 was included in the management accounts and the net asset value as assessed by the Valuer. Under the November 92 Agreement, it was provided that on the expiry of the agreement, all immovable property such as the factory building and dormitory would be vested in the Mainland party. Owing to this, Miss Mak accepted that if the net asset base method is used, the value of land and building should not be taken into account.

81. In her 6^th report dated 17 August 2007, she proposed two alternative methods of making a suitable adjustment. The first is simply to deduct HK$2,367,412.00 from the assessed net asset value. The other is to amortise the value of land and building of HK$2,367,412.00 over the period from 16 July 1992 to 15 July 2042 on a straight line basis, as by virtue of an agreement dated 16 July 1992 between Gold Loop and a Mainland party, Gold Loop was granted the right to use the land for the construction of a factory for 50 years during the said period. I do not propose to use the amortisation method premised on land use rights of fifty years, as under the November 92 Agreement the Company’s right to operate the Factory was to expire in November 2007.

82. I would therefore adjust the net asset value by deducting HK$2,367,412.00.

Shareholders’ loans

83. It is implicit in the judgment that the loan capital should be included as part of the equity of the Company, as it was directed that the petitioner’s shares are to be valued on the footing that adjustment is to be made to the purchase price to take into account the shortfall in the petitioner’s contribution to the loan capital. Mr. Cheung therefore revised the valuation of the Company in his 4^th report dated 17 August 2007 to include the shareholder’s loans made by the petitioner to the Company. There is now no disagreement between Mr. Cheung and Miss Mak that the shareholders’ advances should not be deducted from the total assets of the Company in arriving at the net assets.

The bad debts

84. For accounts receivable or trade debts that are not collectable at the time of the valuation, it would be appropriate to use the fair market values under the break-up method as the book values may not be reliable.

85. In the Valuer’s valuation, trade debts in the current asset amounted to HK$10,846,362.14 as at 31 May 1997.

86. Having reviewed the balances due by individual debtors as at 28 February and 31 March 1997, the Auditors opined in the Review Report that of trade debts of HK$10,979,943.78 as at 31 March 1997, the provision of bad debts in the sum of HK$550,000.00 appeared to be on the low side. This was one of the reasons why they gave a qualified opinion in their Review Report.

87. In the audited accounts as at 31 March 1997, trade debts after adjustments amounted to HK$7,516,595.00. In his valuation, Mr. Cheung made a further adjustment of HK$1,777,270.00 to this amount, based on the information from Miss Lam that trade debts of HK$5,739,324.77 were collected over three years from April 1997 to November 2000. He was informed by Miss Lam that no further debts were collected after November 2000. So the total adjustments from the unaudited figure of HK$10.9 million would be about HK$5.2 million or 48% of the total trade debts.

88. According to the record compiled by Miss Lam, trade debts as at 31 March 1997 were HK$10,978,852.52, so the amount which was not recovered by November 2000 was HK$5,239,527.75. Mr. Cheung had not seen any post-cessation accounts submitted on behalf of the Company to the Inland Revenue Department regarding the subsequent collection of debts. He had no information if the amount of HK$1,777,270.00 was written off in the accounts and did not make enquiries if the necessary procedures were followed for writing off bad debts. He had no explanation why the figure of uncollected debts that Miss Lam provided not so long ago was greater than the subsequent figure by a wide margin of HK$1,089,730.00.

89. The Valuer did not make any adjustment for bad debts in his valuation. Miss Mak supported this approach. I do not agree with it. Even though the evidence adduced by the 1^st respondent is less than complete and I have doubts about the figure of uncollected debts provided by Miss Lam, some adjustments should be made to reflect the fair market values of the trade debts on account of questionable collectability. Instead of a deduction of HK$5,239,527.75 based on Miss Lam’s information, I will make a broad brush reduction in this instance and deduct 30% from the trade debts of HK$10,846,362.14. The deduction made is HK$3,253,908.64.

The valuation of the petitioner’s shares

90. The net asset value of the Company as at the valuation date, with the two adjustments of HK$2,367,412.00 and HK$3,253,908.64, is HK$8,324,514.69. Applying 80% weighting to this would give HK$6,659,611.75.

91. I am inclined to use a multiplier of three years instead of five years to work out the value of the Company on the earnings approach, in view of the fact that the Company did not have a history of sustained growth and significant provisions for bad debts were made in the audited accounts. The value arrived at is HK$7,041,000.00 and applying 20% weighting to this would give HK$1,408,200.00.

92. Thus, the fair value I arrive at for the shares of the Company as at the valuation date, using a combination of the net asset approach and the earnings approach, with 80% and 20% weightings, is HK$8,067,811.75. The petitioner’s 40% shareholding would be worth HK$3,227,124.70.

93. Pursuant to the judgment of 27 February 2004, the shortfall in the petitioner’s contribution to the loan capital of HK$496,671.25 is to be taken into account. Hence, the purchase price to be paid by the 1^st respondent for the petitioner’s shares is HK$2,730,453.45.

94. Pursuant to the order of 21 September 2006, the 1^st respondent is required to pay interest on the purchase price of HK$2,730,453.45 from 18 May 1997 to 27 February 2004 at the rate of 1% over the prime rate of The Hongkong and Shanghai Banking Corporation Limited prevailing during this period, and thereafter at the prevailing judgment rate until payment.

95. I make an order nisi that the 1^st respondent is to pay the petitioner’s costs of and occasioned by the valuation of his shares, including the costs of the hearing in August 2007.

SHE WAI HUNG v. JULIANO LIM AND OTHERS

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