Dennis Kwok Hon Ming v. Poon Sui Cheong Albert and Others

HCMP 1526/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1526 OF 2013

________________________

________________________

________________________

MISCELLANEOUS PROCEEDINGS NO 1527 OF 2013

________________________

________________________

________________________

MISCELLANEOUS PROCEEDINGS NO 1528 OF 2013

________________________

________________________

(Consolidated pursuant to the Order of
the Honourable Mr Justice Harris dated 27 January 2015)

________________________

DECISION

________________________

1.I refer to my judgment dated 14 December 2016 ordering (inter alia) that the Majority Shareholders should buy out the petitioner (P)’s shares in the Companies (“the Main Judgment”) and my decision dated 21 February 2017, addressing issues as to directions for the valuation stage of the proceedings (“the February 2017 Decision”).

2.The parties have (pursuant to para 26 of the February 2017 Decision) reverted to the court by written submissions setting out outstanding issues on which they seek the court’s determination, namely:

(a) The identity of the valuer(s);

(b) The appropriate orders to reflect paras 260 and 261 of the Main judgment relating to Managers’ remuneration and other amounts due between P and the Companies.

The identity of the valuer(s)

3.After some correspondence and negotiation which contemplated a number of different possible valuers, the parties’ positions are now:

(a) The Majority Shareholders seek the appointment of Ernst & Young (“EY”) to prepare a valuation report addressing valuation of the Land and valuation of the shares of the Companies.

(b) P seeks the appointment of Colliers to value the Land, and Deloitte to value the Companies’ shares.

4.There has been some correspondence post-dating the submissions in which the Majority Shareholders complain that P’s written submissions go beyond what is permissible, asking the court to either ignore the material provided or to permit the Majority Shareholders to respond. In reply, P has said that it has sought to identify the differences and reasons for the differences between the parties.

5.The February Decision directed written submissions on outstanding matters by 3 March 2017.  It had been anticipated prior to the February 2017 Decision that the identity of the valuers would be agreed with a little extra time, but unfortunately that has not happened.  The matter of finalising directions for the valuation process has dragged on long enough.  As reflected in the inter-solicitor correspondence, both parties knew in advance of the written submissions what issues existed between the parties as to the identity of the valuer(s) and why.  The Majority Shareholders have had just as much opportunity as P to put their position before the court.  The reality is that both sets of written submissions refer to factual matters, but P’s written submissions actually attach the documents and correspondence to which they refer.  I find this of much more assistance than unsupported, and in some respects inaccurate, factual assertions (a matter to which I will return).  I accordingly do not agree to postponing the matter for further submissions, nor do I agree that the correspondence and materials provided by P should be treated as inadmissible.  Frankly, I do not see how the Majority Shareholders could realistically ask me to decide on which valuer should be appointed without putting before the court the relevant valuers’ proposals.  They chose not to do so, but to rely on their own factual summaries of the position.

6.P does not agree to the appointment of EY as sole valuer because of the apparent lack of relevant experience of its identified personnel for the valuation of the Land.  Having regard to the information provided in the EY proposal, it is not apparent that any member of the proposed team has significant experience of valuing New Territories or Lantau agricultural land, where the value of the Land in this case is of critical importance.  I have sympathy with P’s concern.  No such concern is or could be expressed in relation to the proposed EY company valuation team members.

7.By contrast, the Colliers team clearly has relevant experience.

8.The Majority Shareholders object to P’s proposed combined valuation team of Colliers and Deloitte on a cost basis.  There is no, and on the materials before me there would be no grounds for, objection on the basis of relevant experience.

9.As I am asked to choose between Colliers and EY in respect of land valuation, Colliers should be appointed on the basis of being suitably qualified.

10.Costs are of course a material factor.  They are of particular concern to the Majority Shareholders who are liable for such costs.  However, cost is not the only factor.  Further, the costs position has not in my view been accurately summarised by the Majority Shareholders.

11.P has provided the court with the proposals of EY (dated February 2017, supplemented by email dated 1 March 2017) and Deloitte (dated 7 February 2017, supplemented by an email of 27 February 2017).

12.It is clear that EY’s scope of work is the preparation of a valuation report, but expressly excludes out-of-pocket expenses, additional work addressing work done by other experts, and implicitly excludes attendance at court.  For the valuation report on land and shares, EY would charge a fixed fee of HK$980,000; other work would be on their hourly rate depending on level of personnel (ranging from HK$7,000 to $1,200 per hour).

13.Deloitte has proposed work divided into Phase I (preparing valuation report), Phase II (comment on counterparty reports, and/or prepare supplemental reports) and Phase III (attending proceedings if necessary).  Deloitte was under a misapprehension that the valuation report should extend to managers’ bonus, P’s entitlement to shareholder dividends, and Top Master’s claim against P for return of funds, whereas the scope of work should be limited to valuation of the Companies’ shares.  Deloitte has estimated that Phase I work would cost HK$450,000 to HK$650,000.  Work would be on a discounted hourly rate ranging from HK$5,110 to HK$1,050.  Deloitte explained its reasons for not giving a fixed sum cap at this stage as including:

• the engagement was to be an expert to the court;

• the backdrop of litigation with parties with potentially differing and conflicting agendas;

• the complexity and long history of the matter;

• uncertainty as to the completeness and accuracy of financial statements and information;

• the qualifications of the current audited statements;

• the uncertainty of availability and clarity of information.  

Deloitte added that it was happy to provide weekly or fortnightly progress reports so that its progress/fees could be monitored, and queries could be raised with them or the court.

14.My observations are that:

(a) It is odd and unhelpful for the Majority Shareholders to submit that Deloitte has only provided the Phase I quotation, with an open-ended quotation in relation to Phases II and III.  EY has also only quoted for preparation of the valuation report, and has also said that further work would be on an hourly rate.  Indeed EY’s hourly rate is higher.  Otherwise the scope of work for which they have quoted is comparable.

(b) It is further inaccurate of the Majority Shareholders’ submissions to simply say that Deloitte “refused” to set a lump sum cap without having referred to Deloitte’s explanation, which in my view is reasonable and realistic.

15.I have no reason to consider that there is any significant difference between the suitability of the EY team or the Deloitte team to provide a valuation of the Companies’ shares.

16.I imagine it would have been more convenient to have one firm valuing both the Land and the shares, although I have no reason to think that land valuers could not coordinate effectively with share valuers of another firm.  In light of my appointment of Colliers as land valuers, there will have to be such coordination.

17.EY has not given separate quotes for Land valuation and share valuation, so I am not in a position to directly compare Deloitte’s estimated fees with EY’s fees for share valuation.

18.Having regard to Deloitte working on discounted hourly rates lower than EY’s usual rates, and its offer to provide regular progress reports, and in light of my earlier observations about scope of work and costs, I am not satisfied that Deloitte will be materially or unduly more expensive than EY.  I derive some comfort from Deloitte’s appreciation of the practical reality of the situation, that the parties may present conflicting views, and that its duty remains to the court.

19.On balance, and because it is important that progress in these proceedings should indeed be made, without further delay, I appoint Deloitte to value the Companies’ shares.

Managers’ bonus, share dividends, and money owed by P to Top Master 

20.Para 260 of my Main Judgment, and para 19 of the February 2017 Decision, determined that P be paid Managers’ bonus in respect of land sales up until buy-out, after which time P would no longer be a shareholder nor a manager.  It is not open to P to seek to re-argue the question of entitlement to Managers’ bonus by arguing that bonus should be payable in perpetuity.

21.The only remaining issue was quantum.  I note the parties have agreed the amount of bonus payable by the Companies to P is HK$592,967.47.  I see from the schedule of sales that they were by Top Master and Wealth Island.  It seems to me the bonus should be payable from the relevant company that sold the land.  The separate liability of the Companies may be relevant on valuation, and is certainly relevant to the overall second order I will make pursuant to paras 260 – 261 of the Main Judgment.

22.Para 261(a) of the Main Judgment required amounts due to P by way of shareholder loan repayment or dividend from the Companies to be taken into account.  That needs identification of which Company made the payment which is held in escrow.

23.Para 261(b) of the Main Judgment required the HK$1.1 million amount owed by P to Top Master to be taken into account.

24.It is quite correct that Top Master has made no counterclaim in these proceedings.  However, the court’s jurisdiction is to make an order designed to remedy the unfair prejudice.  The “second order” outlined in paras 260 – 261 of the Main Judgment requires P’s liability to Top Master to be taken into account so that P receives a proper remedy, and is not over-‌compensated, for the unfair prejudice.  Accordingly, insofar as Top Master owes monies to P in respect of bonus and/or shareholder loan repayment or dividend, then P’s liability to Top Master should be deducted from the same.

25.Para 20 of the February 2017 Decision was written on the basis that the parties were agreed that P would repay Top Master the HK$1.1 million.  As it is now made clear there is no such agreement, there is no jurisdiction to order P to repay any liabilities to the Companies (subject to what is said at para 24 above).

26.The “second order” pursuant to paras 260 and 261 of the Main Judgment should recognise the separate liability of each Company.

27.The parties have had more than enough time to finalise this part of the order sensibly and I will now impose a tight timeframe for it to be finally drawn up.

Conclusion

28.The parties are directed to, by Monday 20 March 2017, draw up and lodge draft directions to be embodied in an order.

29.As to valuation, using the proposed directions included in para 3 of the Majority Shareholders’ Submissions of 3 March 2017:

(a) 3.1 should be amended to reflect the appointment of Colliers and Deloitte.

(b) 3.2 is to be included, save that 3.2(e) be amended to state:

“ The valuation should also assume that if the Managers’ bonus payable to P and/or the amount of HK$1.1 million owed by P to Top Master be repaid or otherwise discharged by the date of valuation, then those amounts should be treated as paid as at the date of the buy-out order of 14 December 2016.”

(c) 3.3 to be included.

(d) 3.4 to be amended to add the following underlined words:

“ … in such form and on such timetable as may reasonably be determined by the Valuers.”

(e) 3.5 to 3.8 to be included.

30.As to the second order, it should reflect the amount to be paid by each of the Companies to P whether as manager’s bonus or loan repayment or dividend, subject to a deduction from Top Master’s liability of HK$1.1 million.  Insofar as Top Master’s liability does not exceed HK$1.1 million, then P’s remaining debt to Top Master is an asset of Top Master to be recognised in the valuation of Top Master.  The second order should provide for payment within 14 days.

31.A 30-minute directions hearing should be fixed between 1 June and 1 July 2017 for the purpose of giving directions for a hearing to fix the value of the shares and final orders in relation to these proceedings.  The parties should (after coordination between themselves as to the remaining issues) file submissions 3 days in advance of the directions hearing identifying the extent of agreement, the outstanding issues, and proposed directions for any necessary final substantive hearing.  I will not give directions for evidence now.  Whether or not evidence will be required for the directions hearing is a matter for the parties; but no such evidence should be filed less than 5 days before the directions hearing without leave.

32.Matters such as return of papers from the Valuers can be addressed by agreement with the Valuers and/or at the next directions hearing.  It is premature to do so now where the Valuers may be required to do further work on the papers after their valuation report.

The Petitioner represented by M.C.A. Lai Solicitors LLP (in all cases)

Mr Douglas Lam SC, Mr Justin Ho and Mr Tom Ng, instructed by F Zimmern & Co, for the 1st to 4th and 6th to 8th Respondents (in all cases)

The 5th Respondent appeared in person (in all cases)

The 9th Respondent was not represented and did not appear (in all cases)