WING FUNG CONSTRUCTION (H.K.) LTD.

HCCW 807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 807 OF 2004

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D E C I S I O N

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1.  On 13 September 2004, I made an order by consent to stay a petition presented by Lau Yee Ching to wind up Wing Fung Construction (HK) Limited (“the Company”) on the just and equitable ground, alternatively, for relief under section 168A of the Companies Ordinance, Cap. 32.

3.  By paragraph 2 of the consent order, it was provided that the parties are to perform and abide by the terms set out in the schedule.  In the schedule, clause 1 provided that the petitioner is to sell his 30% shares in the Company at a price to be determined by an independent accountant acting as an expert.  Clause 8 provided that before making his reasoned determination, the independent accountant will invite the petitioner and the 1^st and 2^nd respondents to make such written representations to him as to the value of the shares as they may consider appropriate.  The independent accountant will have regard to such written representations as shall be made, but he is not bound to give effect to those representations.

4.  By clause 9, it was provided that 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.  Further, the reasoned determination will be “final and binding” upon the petitioner and the 1^st and 2^nd respondents.

5.  By clause 10, payment for the petitioner’s shares as valued by the independent accountant and of the costs will be made by means of a local bank’s cashier order caused to be issued by the Company.  If there is insufficient fund, payment shall be made by the 1^st and 2^nd respondents through their solicitors, 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.

6.  By the letter dated 3 November 2004, a certified public accountant, Yiu Cho Yan, was jointly appointed by the petitioner and the 1^st and 2^nd respondents pursuant to the terms of settlement to carry out the valuation of the petitioner’s shares as at 26 July 2004.

7.  The petitioner and the 1^st and 2^nd respondents have made their respective representations to Mr Yiu.

8.  On 12 March 2005, Mr Yiu issued his 1^st report and expressed his opinion that the current fair market value of the petitioner’s shares is in the range of $2.52 million to $2.82 million as at the relevant date.

9.  As Mr Yiu had affixed the chop of the word “draft” on each page of the report, this led to a dispute of the parties whether his report is meant to be final and binding.

10.  The respondents took the opportunity to make further submissions to Mr Yiu on his 1^st report.  This was objected to by the petitioner. 

11.  On 16 February 2006, Mr Yiu issued another valuation report, this time not in “draft” form.  In the 2^nd report he expressed his opinion that the current fair market value of the petitioner’s shares is in the range of $2,276,900.00 to $2,302,200.00.  Taking the average between the two figures, Mr Yiu determined that the petitioner’s shares should be in the value of $2,289,500.00.  After the 2^nd report was issued, the petitioner requested the 1^st and 2^nd respondents to make payment of the value determined for his shares being $2,289,500.00 in accordance with the terms of settlement.

12.  The 1^st and 2^nd respondents did not pay.  Through their solicitors, they wrote to Mr Yiu on 21 February 2006, complaining about the “inordinate delay” of Mr Yiu in giving his valuation on 16 February 2006.  They also reserved their right to challenge the contents of the 2^nd report.

13.  On 16 March 2006, the petitioner issued a summons seeking an order there should be specific performance of the terms of settlement in the consent order made on 13 September 2004 and requiring the 1^st and 2^nd respondents to forthwith complete the sale and purchase of the petitioner’s shares at the price as determined by Mr Yiu.

14.  On 17 March 2006, the Director of Legal Aid issued a notice that the 1^st respondent had applied for legal aid.  On 6 April 2006, the Director of Legal Aid gave notice that the 1^st respondent’s application has been refused.  Accordingly, I made an order on the 12 April 2006 that the stay on account of the application for legal aid be lifted.

15.  On 13 April 2006, the solicitors for the 1^st and 2^nd respondents filed a notice of change of their address for service.  The solicitors remained the solicitors on record for the 1^st and 2^nd respondents until the respondents filed a notice to act in person, shortly before 5:00 p.m. on 24 April 2006, the day before the hearing of this summons.  The 1^st and 2^nd respondents appear in person today and I have heard submissions from them.

16.  A notice was issued by the Director of Legal Aid on 19 April 2006 that the 1^st respondent has made another application for legal aid.  According to a letter of the Director of Legal Aid, he was asked to attend the Legal Aid Department for an appointment on 27 April 2006.  The 1^st respondent sought an adjournment of the hearing today until his legal aid application has been processed.  I decline to grant an adjournment for this purpose.  In fact I had made an order on 21 April 2006 to lift the stay of proceedings due to the 2^nd application for legal aid.  The present proceedings are simply not within the scope of legal aid.  They are excepted proceedings as provided in Part II of Schedule 2 to the Legal Aid Ordinance, Cap. 91.  The relevant item in Part II of that schedule reads:

“Proceedings … involving disputes between limited companies or their shareholders regarding the respective rights of the company and the shareholders”.

This is clearly applicable to the present proceedings so I cannot see any basis on which legal aid may be granted to the 1^st respondent in these proceedings.

17.  The 1^st and 2^nd respondents inform the court that they disagree with the valuation of Mr Yiu.  They allege that the basis of the valuation is erroneous.  They seek an adjournment of the petitioner’s summons for 3 months to give them an opportunity to overturn Mr Yiu’s valuation in his 2^nd report.  I reject this application.  There is no power vested in this court to grant an adjournment for this purpose, as it is clearly provided in the terms of settlement that the determination made by the independent accountant acting as an expert will be final and binding on the petitioner and the 1^st and 2^nd respondents.  I see no ground at all and no legal basis for overturning the valuation of Mr Yiu.

18.  The respondents have also complained of the delay of Mr Yiu in rendering the 2^nd report.  It is not necessary for me to dwell on this or to ascertain whose fault it was that led to the delay, as delay is simply irrelevant to the obligation of the 1^st and 2^nd respondents to comply with the mechanism laid down in the terms of settlement for the purchase of the petitioner’s shares, once the independent accountant has made his determination.

19.  The 2^nd respondent has informed the court that she and the 1^st respondent will not make payment for the petitioner’s shares, instead she and the 1^st respondent will agree to wind up the Company.  That however is not the agreement reached between the parties as embodied in the terms of settlement in the consent order.  Their obligation as clearly stated in the terms of settlement is to buy out the petitioner’s shares at the value determined by the independent accountant within 7 days from the date when the valuation is made known to them by letters.

20.  I have invited the respondents to make submissions if they wish as to the time within which they should comply with their obligations to purchase the petitioner’s shares, in case they need further time.  The 1^st respondent has indicated to the court that he would need 8 months to come up with the funds to purchase the petitioner’s shares.  This is rejected by the petitioner.  The petitioner’s counsel informed the court that the petitioner would only accommodate the respondents by giving them 1 month.

21.  Under the consent order, I have given liberty to the parties to apply for the purpose of enforcing and carrying out the consent order and the terms of settlement in the schedule.

22.  The alleged inability of the respondents to come up with the necessary funds is not a reason for not making an order to enforce the terms of settlement.  How the petitioner may wish to enforce the order in view of the inability of the respondents to comply with it is a matter for the petitioner.  I make the following orders on the petitioner’s summons.

(1)     there be specific performance of the terms of settlement in the schedule to the consent order dated 13 September 2004;

(2)     the 1^st and 2^nd respondents do forthwith complete the sale and purchase of the petitioner’s 30% shares in the Company at the price of $2,289,500.00, in accordance with the terms of settlement;

(3)     the 1^st and 2^nd respondents shall within 28 days of this order pay the petitioner $2,289,500.00 by cashier order, whereupon the petitioner is to execute the instrument of transfer and the bought and sold note and shall resign from the Company as a director; and

(4)     the 1^st and 2^nd respondents are to pay the petitioner’s costs of this application.