Hwang Da Lin and Another v. Wong Chung Keung and Others
Read the full judgment text of CACV 300/1998 on BabelCite. This Court of Appeal judgment was delivered on 25 May 1999 before Mortimer VP, Godfrey JA, Rogers JA.
Company law – minority shareholder – buyout order – winding up – valuation date – exercise of discretion – date of presentation of petition – Companies Ordinance s.182 – petitioner crystallises intention not to submit to unfair conduct – linked property holding and trading companies – 'Canadian wrongs' – manipulation and diversion of company funds – unfavourable trading with related companies in Canada (Sea Giant Companies) – at least $14 million in subsidised advances and $2 million in pure loans – post-petition diversion of rental income to Mr Leung's personal accounts – $3.5 million transferred between companies after winding-up petition without s.182 authorisation – 2nd Respondent did not give evidence – Mr Leung's evidence disbelieved – whether trial judge erred in choosing date of presentation of petition as valuation date – held no, judge's discretion properly exercised – date of petition is date when petitioner elects to treat unfair conduct as destroying basis on which he agreed to continue as a shareholder – risk of subsequent fall in value thrown on respondents – Re Cumana Limited [1986] BCLC 430 followed – appeal dismissed – indemnity costs ordered on appeal for reprehensible conduct in settling ten grounds of appeal and then reducing to one at a late stage after the respondents had prepared to meet all ten.
Legal issues: Valuation date for buyout of minority shareholder's interest
Outcome: Appeal dismissed
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CACV000300/1998 CACV 300/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 300 OF 1998 (ON APPEAL FROM HCCW 643 OF 1996)
---------------------- Coram : Hon. Mortimer, V.P., Godfrey & Rogers, JJ.A. in Court Date of hearing : 25 May 1999 Date of judgment : 25 May 1999 ---------------------- J U D G M E N T ---------------------- Rogers, J.A. : Introduction 1. This is an appeal from a judgment of Mrs. Justice Le Pichon of the 8th October 1998. In that judgment, the Judge ordered that the Petitioners' interest in the company, Tai Lap Investment Company Limited, should be bought out or in the alternative, the company should buy out the Petitioners' interest if the Respondents should fail to do so. 2. The subject of this appeal is that the Judge ordered that the valuation date for the purposes of the buyout should be the date of the presentation of the petition. This, I might say at the outset, is perhaps the normal date for the purposes of valuation in such circumstances. It is certainly a logical date. It is the date when unequivocally the Petitioner has crystallised his intention of not submitting to the conduct of which he complains. If, as in the circumstances of this case, it is ultimately held that the Respondents' position was untenable and the action should never have been defended, it is therefore also for that reason an appropriate date. 3. However, it is important to note at the outset that this is a matter of the Judge's discretion. In deciding the date for the purposes of valuation, of course, the Court must do what is right in the circumstances. In order for an appeal to succeed, it is necessary to show that the Judge has proceeded in error either as to the law or has misunderstood the facts or has taken into account irrelevant considerations which would render the exercise of discretion flawed. 4. This case involved two linked companies. The first was Tai Lap Company Limited (TLC) and the other was Tai Lap Investment Company Limited (TLIC). 5. The 1st Petitioner was the brother of a Mr. Wong Tai Lap, who died before the commencement of proceedings. His widow, Wong Ching Man was the 1st Respondent. The 1st Respondent died shortly before the hearing in the Court below. The 2nd Respondent, Mr. Wong Chung Keung was the son of Mr. Wong Tai Lap and Madam Wong Ching Man. 6. The 1st Petitioner owned 30% of Tai Lap Company. He was also entitled to 30% of Tai Lap Investment company but he transferred 20% to the 2nd Petitioner, his son. There was no dispute that the Petitioners were intended to have a voice in the running of the two companies. Tai Lap Company ultimately dealt in frozen seafood. Tai Lap Investment Company was a property holding company. The cash which Tai Lap Investment Company generated was used to finance Tai Lap Company. 7. Partly because the 1st Petitioner had not worked in Hong Kong and lived much of the time abroad and partly because of his age, the 1st Petitioner did not have a full knowledge of the business of the companies. 8. The grievances of which the 1st Petitioner complained included the manipulation and diversion of the funds used to finance TLC a great deal of which were in turn used to finance the businesses of Mr. Wong Tai Lap's other children in Canada, the wrongful exclusion of the 1st Petitioner from management of the companies, the wrongful usurpation of directorship by the 2nd Respondent in Tai Lap Investment Company and the non-provision of information to the Petitioners about the workings of the two companies. 9. On the second day of the hearing, the Respondents agreed to a winding-up order in respect of Tai Lap Company. There was no alternative. In relation to both two companies there was a veritable litany of abuses. These can be summarised very shortly. 10. There were what the Judge has referred to as the "Canadian wrongs". Briefly, Tai Lap Company was financed throughout, as I have indicated, by Tai Lap Investment Company. Tai Lap Company used those funds to trade at very unfavourable terms to TLC with the Sea Giant Companies in Canada. The Sea Giant Companies were owned by Wong Tai Lap's other children. Altogether there were expenses of at least $14 million in advances and interest charges to Tai Lap Company which were all subsidised by Tai Lap Investment Company. More than $2 million of that was not even referable to trading deals, they seemed to have been loans, pure and simple, by Tai Lap Company to the Sea Giant Companies. In respect of one transaction referred to as the Point Claire transaction, it seems that Tai Lap Company took over Sea Giant's bad debts. There was a sum of US$100,000 which was transferred which did not go through the books of Tai Lap Company. 11. Even worse, after the presentation of the petitions in respect of Tai Lap Company and Tai Lap Investment Company, the banks naturally closed the accounts of Tai Lap Investment Company. One of the employees of Tai Lap Investment Company, however, saw fit to induce the tenants of Tai Lap Investment Company to pay their rents in cash and in cash cheques. This enabled Tai Lap Investment Company's funds to be diverted. Eventually, after orders were sought, it was revealed that that money was not even kept as cash by Tai Lap Investment Company but some of it ended in the accounts of Mr. Leung, the employee. 12. The 2nd Respondent did not see fit to give evidence although, as the Judge noted, he was in Court throughout the hearing. Mr. Leung's evidence was disbelieved by the Judge. She did not accept that Mr. Leung had acted on his own initiative in diverting Tai Lap Investment Company's funds. 13. There were continuing unlawful advances by Tai Lap Investment Company to Tai Lap Company. Sums of approximately $3.5 million were transferred from Tai Lap Investment Company to Tai Lap Company after the date of the winding-up petition. 14. No applications were made under Section 182 of the Companies Ordinance to authorise these dealings in the company's funds. 15. Before us, Mr. Tang, S.C. has manfully argued his case in the face of some strong comments from the Court. The burden of the Appellants' position is that the Judge should not have ordered a valuation to be as of the date of the presentation of the petition but it should have been as of the date of the handing down of the judgment, which was the 8th October. The reason behind that is that it is argued that the date of the presentation of the petition would be unduly unfavourable to the Respondents because there has been a drop in the value of property as a result of the financial downturn in the Asian markets. That is argued simply on the basis of what might be termed "general knowledge". There is not a shred of evidence that the value of these properties have dropped. Nor is there any evidence as to the extent to which the value of the properties might even have been thought to have dropped. Whether the value of these properties has dropped is a matter, in my view, of some speculation. We were told this morning the location of the property and it may be that that property has not dropped in value. 16. In any event, that argument was before the Judge. It is a factor which was taken into account. It is referred to in the Judgment. 17. Criticism was made of the other factors which the Judge took into account in deciding the date to be used for the purposes of the valuation. In my view, those criticisms fail. In effect, what the Judge was saying at page 23 of the judgment was that so many things had occurred in this company which by reason of the Respondents' conduct the Court was not in a position to assess, that the only safe date to take was the date of the presentation of the petition. 18. I see absolutely no basis for the criticisms which have been made of the factors which the Judge took into consideration. In any event, I would say that even if it were open to this Court to approach the exercise of the Judge's discretion anew, I, for my part, would have exercised it in exactly the same way. In my view, if the basis of a Court's order is that the company involved has been usurped and its assets misapplied by those of whose conduct complaint is made, on the face of the matters, the appropriate date to take is the date of the usurpation or the date where that wrongful conduct has unequivocally been declared by the Petitioner to be unacceptable. If the Respondents had acted properly after the presentation of the petition, they would not have defended the matter but would have conceded. They did not see fit to give any credible evidence at the trial. There was no basis for spinning the matter out. 19. In my view, the Appellants have no grounds for any complaint in respect of the date which has been taken. I would dismiss this appeal accordingly. Godfrey, J.A. : 20. The choice of a date for valuation in cases of this kind is a matter for the exercise of the trial judge's discretion. The judge in this case took the date of the petition. In In re Cumana Limited [1986] BCLC 430, Lawton, L.J., citing from the judgment of Vinelott, J. in the court below, said this at p.436 :
21. That is in effect the reason which the judge gave here for choosing the date of the petition. The risk of any fall in the value of the shares since that date is thus thrown on the respondents; but I see nothing at all unfair in that. 22. Like Rogers, J.A., I see no reason for interfering with the exercise here of the trial judge's discretion. I would have exercised the discretion in the same way and I, too, would dismiss this appeal. Mortimer V-P: 23. For the reasons which have been given, I agree that this appeal must be dismissed. 24. Miss Eu, on behalf of the respondents to this appeal, asks for costs of the appeal on either a common fund or an indemnity basis. The position is simply this. The appellants appeared in the court below, in our view, without a case. The judge so found. They then settled a notice of appeal containing ten grounds. The appeal bundles were prepared. Two days were set aside for the hearing of those ten grounds. Fortunately, at a late stage leading counsel seems to have brought some sense to bear upon these ten grounds and reduced them to one and the appeal bundles to one. Unfortunately the other side by this time had prepared to meet all ten grounds. It seems to us that the conduct of the appeal before today's hearing has been reprehensible. 25. In those circumstances, in order to fully compensate the respondents, we consider that it would be appropriate to order costs on an indemnity basis on the appeal. We so order.
Representation: Miss Audrey Eu, S.C. & Mr. Wong Yan Lung instructed by M/s. K.C. Ho & Fong for 1st & 2nd Petitioners Mr. Robert Tang, S.C. & Mr. Benjamin Chain instructed by M/s. Y.S. Lam & Partners for 1st & 2nd Respondents |