Re Taipao Resins Chemical Co. Ltd.

HCCW 590/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.590 OF 1998

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J U D G M E N T

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1. On 13 March 2000, I made an order that the petitioners' shares be purchased by the respondents. This hearing is to deal with the outstanding issue of costs. The ordinary rule is that costs follow the event.

2. The only issue that now arises is whether a reasonable offer was made which had been unreasonably rejected so as to disentitle the petitioners to the costs that they could expect, and possibly have some repercussions on whether they should bear the respondents' costs after a certain date.

3. The relevant letters for this purpose commence with the letter dated 15 October 1998 from Richards Butler, the then solicitors for the respondents. That letter was an offer by the Huangs to jointly purchase all the shares held by the 1st to 8th petitioners at a fair market value on the following terms and conditions :

"1. the fair market value of the Shares shall be the net asset value of the Shares as of 24 August 1998 to be determined by an independent firm of certified public accountants ('the Accountants') of international repute and good standing. The firm of accountants shall be appointed by consent of both the Huang Family and the Yin Family and if the parties cannot agree on the appointment within a reasonable period of time, any member of the Yin Family and the Huang Family may apply to the Court for an appointment;

2. every member of the Yin Family and the Huang Family shall provide all information reasonably required by the Accountants for determination of the fair market value of the Shares;

3. the Yin Family shall discontinue the proceedings immediately on acceptance of this offer;

4. the Yin Family shall be responsible for their own costs in the proceedings and the Huang Family shall be responsible for the costs in opposing the winding up petition as of today's date;

5. completion of sale of the Shares shall be made within 3 weeks after determination of fair market value of the Shares. On completion, all the members of the Yin Family shall resign from their directorship of the Company and the members of the Yin Family shall execute all documents reasonably required for transfer and registration of the Shares;

6. the costs for determination of the fair market value of the Shares, the stamp duty and other taxes in relation to the sale of the Shares shall be borne by the Huang Family and the Yin Family equally;

7. each party shall be responsible for its own legal costs in relation to the sale of the Shares."

4. The response from the petitioners' solicitors is dated 22 October 1998. They observed that the proposed mechanism to use an international reputable CPA firm on costs grounds and also took issue with the date of valuation. They objected to the date of the petition as being arbitrary and proposed an alternative of 31 March 1998. They also took a point about legal costs in the proceedings. The letter set out a counter-offer for the purchase of the petitioners' shares by the respondents at the price of $23.32 million.

5. Richards Butler responded on 30 October 1998 disagreeing with the observation that it would be costly to appoint an international CPA firm given that the petitioners' alleged legal costs to date were already $1 million. They further stated that the proposed assessment of 24 August was not arbitrary (being the date of the petition) and that to value the Company as at 31 March would not represent the fair market value given that there had been a lot of changes in the Company since 31 March 1998. They rejected the counter-offer.

6. On 3 November 1998, the petitioners' solicitors set out another offer which, in substance, is not very different from that made by Richards Butler save that it specifically provides as follows :

"(c) (ii) The valuer be directed to value our clients' shares by reference to the assets, profitability and future prospects of the Company as at 1st July 1998 (the effective date of dismissal of Mr Mark Yin as General Manager of the Company) and without any discount for the fact that our clients' shareholding is a minority holding.

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(ix) Your clients (those who are members of the Huang family) shall pay our clients' costs of the captioned proceedings to be taxed if not agreed."

7. Thereafter the respondents were represented by Simon Siu, Wong, Lam & Chan, who (by letter dated 4 December 1998) sought clarification as to the date and basis of the valuation. The response on the latter point was less than satisfactory because the unreported decision cited (CWU No.104 of 1990) made no reference to the formula proposed.

At the hearing, it was suggested that the formula might have appeared in the directions given in CWU No.104 of 1990 after the date of the order. In any event, the correspondence that ensued between the petitioners' solicitors and the respondents' solicitors thereafter went off on a tangent, dwelling on irrelevant points that served only to exacerbate the differences that existed between the parties and hardened their respective positions. They were not at all conducive to any settlement and certainly do no credit to either firm.

8. It is quite clear to me that the initial offer from Richards Butler was reasonable. It was equally reasonable for certain points to have been raised such as whether there should be a discount for a minority shareholding.

9. The fact that the parties were not able to reach a settlement is most regrettable and the blame lies with both firms. I do not propose to go into any of the correspondence in any detail because it is not enlightening or edifying reading and it does not assist my decision.

10. I am firmly of the view that both sides are to blame for the state of affairs and that as the petitioners have succeeded in their claim, they should be entitled to their costs down to the date of Richards Butler's offer of 15 October 1998 and thereafter there should be no order as to costs. I propose that there be no order as to costs for today as well as I see no reason for giving a different order.