CHOW FU HSIEN v. K VISION INTERNATIONAL INVESTMENT (HK) LTD

   HCA 2884/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2884 OF 2004

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J U D G M E N T

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1. This is an appeal from an order made by Master de Souza on 6 February 2009, giving the plaintiff leave to fix a date for the taking of an account, with five days reserved.  The Master also directed that there be further evidence filed by the parties in relation to the accounting exercise.

2. The present action was commenced back in December 2004.  Interlocutory judgment was eventually obtained by the plaintiff on 19 July 2007, whereby it was adjudicated that the defendant holds 35% of its interest in a Beijing property project – via a Beijing company, namely, Beijing K Vision – on trust for the plaintiff. 

3. The judgment ordered that an account be taken in respect of the plaintiff’s 35% interest.  Originally, the defendant’s interest in Beijing K Vision had been 80% but, by two assignments in favour of two third parties, that interest was reduced to 20%.  In other words, a substantial part of the interest of the defendant and, therefore, of the plaintiff, in the project was converted to proceeds of sale. 

4. There had been disagreements between the shareholders of Beijing K Vision and that resulted in arbitration proceedings held in Beijing.  On 12 April 2006, an arbitral award was made.  Under the award, the company was to be wound up and the net assets of the company were to be distributed amongst its shareholders, including the defendant.

5. Returning to the Hong Kong proceedings, as I said, it was commenced in late 2004 and interlocutory judgment was entered in July 2007.  On 12 November 2007, directions were given by Master Lung for the defendant and plaintiff to file an account of the defendant’s interest in the project and objections to the account respectively.  The Master also directed that after the filing of the account and the objections, the parties shall apply to the court to fix a date for the taking of the account. 

6. After the filing of the account and the objections, the defendant turned down a request from the plaintiff to apply to fix a date for the taking of the account.  That eventually resulted in the plaintiff making an application by summons to the court to fix a date for the taking of the account.  That summons was contested and eventually resulted in Master de Souza’s order made on 6 February 2009.  From that order, the defendant now appeals to this Court.

7. Having listened carefully to the parties’ arguments and having read their skeleton submissions, I am not with the defendant.  A main theme of the defendant’s argument is that, because of the imperfect documentation, no meaningful accounting exercise can take place at this stage. 

8. As a general proposition, this may or may not be true but, on the facts of the present case, I do not accept that no meaningful accounting exercise can be undertaken in the absence of perfect documentation.  It is quite true that the aim of an accounting exercise is to achieve finality, but finality does not necessarily require perfect documentation, or that everything must be final.  Depending on the subject matter, there can be contingent items or liabilities.  Provisions can be made at the end of an accounting exercise to cater for these contingent items.  Certainly, depending on the facts, one can put a present value on a disputed or a contingent item at the end of an accounting exercise.

9. Whilst any analogy to be drawn with assessment of damages, say in a personal injury action, is bound to be an imperfect and rough one, I have never heard that in the case of an assessment, no meaningful assessment can take place unless everything is final and certain.  Finality does not require absolute certainty or accuracy.  Neither an assessment nor an accounting exercise requires that.

10. Dealing with the question of imperfect documentation, as I say, I do not think, by itself, it is an answer to not holding the accounting exercise.  This is particularly so when there is no guarantee that more documents would be available in the near future. 

11. The defendant relies on the liquidation process of the Beijing company.  But almost three years have lapsed since the arbitral award and not even an interim report has been forthcoming from the committee responsible for the liquidation process.  One simply does not know how much longer one has to wait. 

12. Moreover, the liquidation process would not be binding on any parties in Hong Kong, nor on the Hong Kong court.  Whatever result or figures the liquidation committee may arrive at are, therefore, by definition, not final.  Given the time that has lapsed since the commencement of proceedings, I do not think delaying the matter further would really help. 

13. Then it is suggested that the difficulties that the defendant has been facing in terms of collecting evidence are caused by the fact that some connected parties who are in possession of some relevant documents are actually in the same camp as the plaintiff’s.  Put another way, the plaintiff has been behind the defendant’s difficulties in putting forward a better and more comprehensive account.

14. This is a serious allegation, but all I have is a passing observation made by another judge in related proceedings back in 2006.  It was meant as no more than a passing observation or provisional view and it was made quite before the entry of interlocutory judgment against the defendant. 

15. Furthermore, there has been an application by the defendant to stay the current proceedings on the ground of forum non conveniens.  That has been rejected by a master and also by a judge on appeal.  A similar point was not sufficient to persuade the court to grant a stay then.  I am not at all convinced that the present complaint is sufficient to persuade the Court not to hold the accounting exercise now. 

16. Moreover, if the allegation can be backed by good evidence, there is nothing to stop the defendant from raising the matter before the master before whom the accounting exercise is to be undertaken and from asking the master to draw appropriate inferences against the plaintiff.  That, from my experience, is done from time to time in ordinary civil litigation.

17. Returning to the point about waiting for the liquidation report from Beijing.  I have already mentioned the time that the committee in charge of the liquidation procedure has taken thus far in doing its job.  I mean no criticism whatsoever in pointing that fact out.  There may well have been many difficulties that are not apparent to somebody sitting in Hong Kong which the committee has had to deal with in doing its job.  We simply do not know.  What we do know is that there is no timetable for the release of any interim or final report. 

18. But a more fundamental objection to the point made by the defendant is that one simply cannot let others do the job for the Hong Kong court, otherwise, it would be equivalent to acceding to the defendant’s application for a stay in favour of a Beijing forum – via the back door.

19. The liquidation report, as I have already said, can by no means be final in terms of the local proceedings.  Furthermore, a substantial percentage of the defendant’s interest in the Beijing company has already been converted into proceeds of sale.  A valuation of the net assets of the Beijing company after liquidation would only affect a portion of the interest of the defendant in the Beijing company.  So everything considered, I do not think this factor takes the defendant’s appeal very far.

20. As I said, so far as contingent or unsettled items are concerned – and there are several of them – there are certainly ways to deal with them in the accounting exercise.  Mr Jonathan Wong, appearing for the defendant, has, very fairly, accepted that to be the case during submission.  As I said, it is quite open to the parties, or the experts, to put a present value on an unsettled item or a contingency.  Or a formula can be adopted so as to link the liability of the defendant to pay whatever amount that may be found due after the accounting exercise to the plaintiff, to the outcome of that contingency once it is resolved. 

21. I do not think that factor in itself is sufficient to upset the Master’s order.  This is particularly so in relation to two items mentioned by the defendant, rather belatedly. 

22. First, a piece of litigation on the Mainland by a related party to the parties to the arbitration.  In relation to the arbitral award, it must be noted that there has not been any appeal from the award to the courts on the Mainland.  The award is therefore final and binding between the immediate parties to the arbitration proceedings.  So strictly speaking, although the legal action commenced on the Mainland relates to some of the matters already dealt with and determined in the arbitration proceedings, the result of that litigation cannot affect the matter already decided in the award. 

23. However, as a matter of practice, I do accept that it could affect the amount of money that the defendant is able to pocket pursuant to the award.  But so far as the parties’ position in Hong Kong and so far as the money already received by the parties and available in Hong Kong are concerned, I fail to see how the result of that litigation on the Mainland could have any effect here, in the absence of any recognition of that result in Hong Kong, particularly bearing in mind that an award recognised and enforceable in Hong Kong has already been made. 

24. In any event, as I say, there is nothing to stop the parties and the experts from providing for that contingency by adopting an appropriate discount, or by applying a suitable formula of the type that I have described. 

25. The second item is a tax claim.  No details whatsoever are available in relation to that tax claim, apart from some bare allegations.  There are no means by which one can tell whether that tax claim would materialise into anything and the timetable of that process.  Again, certainly, provisions can be made in relation to that contingency. 

26. In the evidence, other matters of dispute have been raised but they are really matters for argument before the master in the accounting exercise.  They are not reasons for not holding the accounting exercise. 

27. The parties are agreed that the directions for a further round of evidence given by Master de Souza when he gave the plaintiff leave to fix a date for the taking of the account would be quite sufficient to enable the parties and their experts to deal with, in the further round of evidence, the contingent items in the way that I have described.  The only matter is that, given the time lost by reason of this appeal, an extension of time for the filing of further evidence should be given to the parties.

28. I am very mindful of the delay that these proceedings have already experienced.  As I said, the interlocutory judgment was entered in July 2007.  Now more than one and a half years down the road, we are still arguing whether a date should be fixed for the hearing of the accounting exercise ordered in that interlocutory judgment.  This is by no means a satisfactory state of affairs.  Although the civil justice reform provisions are yet to come into force – they will come into force on 2 April this year – the spirit and intention behind the reform must guide the parties’ further conduct of these proceedings. 

29. As I say, the parties do need time to put in further evidence.  Bearing the whole circumstances in mind, I take the view that they should be given a period of time that is no more than is necessary to do just that and, thereafter, the accounting exercise must go ahead. 

30. In other words, I am dismissing the appeal.  Subject to anything that the defendant might want to say, I am doing so with costs to the plaintiff. 

[Submissions on extension of time for filing further evidence]

31. Time for complying with paragraph 2 and paragraph 3 of Master de Souza’s order be extended by 49 days from the date hereof.

[Submissions re paragraph 6 of Master de Souza’s order]

32. Unless and until the defendant takes out an application (and indeed obtain an order) to vary paragraph 6, paragraph 6 stands.

33. As I say, the appeal is dismissed with costs.

[Submissions on gross sum assessment]

34. For the gross sum assessment, I accept ‘B’.  For ‘C2’, I give $4,000.  ‘C3’, I do not accept the item.  The rest is all right.  I arrive at the figure of $42,500.  So that will be the amount payable by the defendant to the plaintiff.