Vitaly Orlov v. Magnus Leonard Roth and Another

HCMP 1331/2017

[2020] HKCFI 1072

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1331 OF 2017

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BETWEEN

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AND

HCMP 2753/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2753 OF 2017

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BETWEEN

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(Heard together)

Before: Hon Coleman J in Chambers (Open to Public)

Date of Hearing: 3 June 2020

Date of Ruling: 4 June 2020

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R U L I N G

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A. Introduction

1.This Ruling relates to a concern that has arisen as to a potential conflict regarding the appointment of a Valuer of shares in the respondent company (“TTC”), following the making of a buyout order.

2.The matter of concern was first raised in correspondence, but seemed to me to be a point which required ventilation in court.  Therefore, albeit without requiring any formal summons, on 29 May 2020 I directed the parties to appear at relatively short notice at a hearing on 3 June 2020.

3.The contest at the hearing was whether the Valuer appointed ought to be removed and replaced, notwithstanding that the Valuer is currently engaged in the valuation process directed by the Court, and notwithstanding that no criticism is made as to the conduct of the Valuer.

4.That contest gives rise to considerations relating to, at least: (1) the nature of the role of the Valuer; (2) the appropriate test to be applied in considering whether or not to remove the Valuer and replace him; (3) whether there was material non-disclosure during the appointment process, and the effect that might have on the appointment; and (4) the costs consequences if the Valuer is to be removed and replaced.

5.This is my Ruling.

B. The Order for Valuation

6.By way of background, these proceedings concern what were effectively cross petitions relating to TTC, where each petitioner (“Orlov” and “Roth”) were equal 50% shareholders, and where each accused the other of unfairly prejudicial conduct, and sought the relief of a buyout order.

7.In my Judgment after trial dated 28 August 2019 ([2019] HKCFI 2120), I found various unfairly prejudicial conduct by both sides, and I ordered Roth to buy out Orlov.  I gave liberty to apply as to the precise terms of the buyout order, albeit only on the approach I directed within the Judgment.

8.As the parties were unable to agree the terms of the Order to be made, a hearing was fixed for argument on 31 December 2019.  Subsequently, by my Ruling dated 23 January 2020 ([2020] HKCFI 273), I settled the finalised form of the relevant Judgment and Order.  The approach taken in that Ruling, and the matters already agreed between the parties, are reflected in the terms of the Order dated 23 January 2020.

9.The precise terms of that Order included that:

(1) The price to be paid for the shares (“Shares”) to be bought out by Roth should be ascertained through valuation as a going concern (“Valuation”), without discount for the fact that each of Orlov and Roth’s shareholding represents a 50% interest in TTC, and with a valuation date of 1 January 2018.

(2) The price or Valuation of the Shares should be determined by a certified public accountant as valuer (“Valuer”) to be appointed by the Court.

(3) Absent agreement between the parties as to who should be appointed as Valuer, Orlov and Roth should submit the names of two certified public accountants as candidates for the Valuer, and the Court would appoint one of those candidates as Valuer.

(4) The Valuer would be appointed pursuant to written instructions to be settled.

(5) There would be procedures for the provision of information to all parties and the Valuer, and the ability for the parties to make representations (“Representations”) to the Valuer.

(6) The Valuer would have power to ask further questions of the parties on their Representations, and to permit further responses.

(7) The Valuer would have liberty to seek further directions from the Court if he thinks this is required in order to make a determination as to the Valuation of the Shares.

(8) The Valuer shall make a determination as to the Valuation in the form of a written report (“Report”) to the Court, having regard to any Representations and further responses made by the parties, and the Report shall set out the assumptions and methodology relied upon to arrive at the Valuation of the Shares.

(9) The Valuation shall be final and binding on Orlov and Roth, unless it is established that (i) the Valuer has departed in a material respect from the instructions given to the Valuer, or (ii) if there is fraud or collusion, or (iii) if there is patent error on the face of the Valuation in the Report.

(10) In the absence of either (i), (ii) or (iii) being established, the Valuation shall be made and Order of the Court.

10.In my Ruling, I made the following explanatory points (as are material for current purposes):

(1) I have ordered TTC, together with its subsidiaries, to be valued as a going concern.

(2) It is important that the information used for the Valuation process should be available to all parties, being Orlov and Roth, TTC, and the Valuer.  The aim is equality of information.

(3) That does not require some sort of prior disclosure process between the parties themselves before information is provided to the Valuer.  Rather, each party should provide the relevant and necessary materials to the Valuer, and simultaneously to the other party.

(4) Similarly, all communications with the Valuer should be on an “all-informed” basis.

(5) The Valuer must be entitled at any time and without restriction to seek whatever further documentation or information he considers necessary and appropriate for the purposes of making the Valuation.

(6) Whilst it may well be that in making their Representations to the Valuer in accordance with the procedure identified that each of Orlov and Roth may seek certain professional or expert assistance, it is not helpful for the Representations in effect to be made by or through experts retained by the parties.  The point of the Valuation by the Valuer is to provide a process of valuation by an independently appointed single joint expert.

(7) Nor is it necessary or appropriate to reserve to the Court what might turn out to be a repeated valuation process by the Court itself, by reference to expert evidence material produced by the parties. Proportionality is important.  I intended, and the settled Order provides, that the Valuation shall be final and binding on Orlov and Roth, save for only the narrow exceptions identified.  Those exceptions are recognized exceptions to similar orders made in previous cases.

(8) For the avoidance of any future doubt, it may assist to know that the reference to “patent error on the face of the Valuation in the Report” is intended to identify a limited basis for interfering with the Valuation analogous to the Court’s limited basis for interfering with an arbitration award.

(9) The costs of the Valuation are to be reserved to the Court.

(10) The settled Order provides for TTC to be bound by the result, irrespective of any potential change in management or ownership.

(11) The timetable set for the Valuation process is the result of a balance, in the exercise of my discretion, of the need for an expeditious and efficient process leading to the Valuation against the need to allow sufficient time for each individual step to be taken, and it is intended that all parties and the Valuer keep to that timetable.

(12) In that regard, I have taken into account that the parties long ago agreed that it would be Roth to buy out Orlov if any buyout order were to be made, and that the Judgment making such an order was delivered in late August 2019, soon after the conclusion of the trial.  The parties must, and they certainly ought to, have been considering matters relevant to the process of the Valuation, including the identity of the Valuer.

(13) There should be general liberty to apply in respect of any further consequential directions and orders.

C. The Appointment of the Valuer

11.The parties were unable to agree on the person to be appointed as the Valuer.  In those circumstances, each of Orlov and Roth put forward two candidates.  Orlov suggested Mr Stephen Apedaile assisted by Mr Ferry Choy of Sirius Corporate Services (HK) Ltd, alternatively Mr Bernard Poon assisted by Mr John Lees of EY.  Roth suggested Mr Jon Rowell of FTI Consulting (Hong Kong) Ltd (“FTI”), alternatively Ms Edwina Tam of Deloitte.

12.In my decision as to which candidate to appoint as Valuer I noted, amongst other things, that no objection had been taken by anyone to any candidate on the basis of any inappropriate prior or existing connection between any candidate and any relevant party to the valuation process.  I also pointed out that I was proceeding on the basis that all candidates would be capable of and would fully comply with the Code of Conduct for Expert Witnesses, including in particular the duty of independence and the fact that the Valuer is appointed by the Court.

13.I looked at the CVs of the potential candidates for appointment as Valuer, and I recognised that all candidates proposed probably had the general relevant level of experience and expertise, though inevitably their individual prior experience would differ, with some varying areas of background and focus.  In the end, I appointed Mr Jon Rowell of FTI as the Valuer.

14.The parties did agree on the form of the written instructions to be provided to the Valuer, which form was approved by me.  Mr Rowell was instructed by joint letter from the solicitors for the parties dated 14 April 2020.  Amongst other sections, the instructions contained a section headed ‘Code of Conduct for Expert Witnesses’ which included the following paragraphs:

“29. You are appointed by the Court and instructed jointly by the Parties, and are to carry out the Valuation in an independent, impartial and objective manner in accordance with the Valuation Order and your professional expertise.

31. In accepting these Instructions, you shall have regard to your professional obligations generally, and in particular in relation to conflicts of interest. You shall decline to act in the event that you consider you may not be able to meet those obligations. You shall also disclose to the Parties any prior or existing connection you or your firm has to: (a) The Parties; (b) To TTC or its subsidiaries (as listed in the Enclosure to here to); and (c) To JSC Norebo Holding and the Norebo Group of companies (of which Orlov is the sole shareholder).”

15.By letter dated 4 May 2020, Mr Rowell wrote to the parties’ solicitors accepting appointment as the Valuer to carry out the Valuation as set out in the letter of instructions.  The letter defines Mr Rowell as “Expert”.  Amongst other sections, the letter contained a section headed ‘Potential conflicts of interest’, which stated:

“FTI is a subsidiary of FTI Consulting, Inc.  FTI Consulting, Inc. and its subsidiaries (the “FTI Group”) are a major global business advisory firm and engaged by many other companies and individuals. FTI’s determination of conflicts is based on the substance of the work to be performed on an engagement as opposed to the parties involved.

We have reviewed the FTI Group’s global database of engagements and have not identified any prior or existing engagement involving (i) the Client Parties [ie. Orlov and Roth]; (ii) [TTC] or any of its subsidiaries; or (iii) JSC Norebo Holding or any of the Norebo Group of companies. Expert does not have any prior or existing relationship with any of these parties.

It is possible that some of Expert’s and FTI Group’s past, present or future clients will have disputes with and other matters relating to Client Parties during the course of and subsequent to this engagement.  As a condition of this engagement, Client agrees that members of the FTI Group and Expert may be engaged by parties with interests that are adverse to and may not be consistent with the interests of Client Parties.  However, during the term of this Contract, Expert and those staff (members and employees) of FTI providing expert advice and services under the Contract will not provide services to a party that is adverse to either of the Client Parties in this matter.  If appropriate, FTI and Expert will institute procedures to protect the confidentiality of information provided by Client on this engagement.”

16.Mr Rowell commenced his work as Valuer.  On 22 May 2020, Mr Rowell wrote to the parties seeking various information.  It seems the point has been reached in the Valuation process where the parties are due to provide him with their Representations on 9 June 2020.  However, the matters giving rise to the current considerations have now come to light.

D. New Information and the Consequent Correspondence

17.On 19 May 2020, Roth’s (Hong Kong) solicitors (“HW”) sent an email to Mr Rowell, copied to Orlov’s solicitors (“BCC”), informing Mr Rowell that:

“Our client’s English solicitors have notified us that FTI’s e-disclosure unit has been engaged on behalf of our client in connection with the English proceedings commenced by Mr Tugushev. In their view (and ours) this should not cause any issues in terms of conflicts (the role played by FTI on the e-disclosure front in England is not in any way advisory), but for the sake of good order we bring this to your attention, in the event that you were not aware of this matter.”

18.I have no reason to doubt, and I do not doubt, that HW informed BCC of the engagement of FTI by Roth in the English proceedings as soon as it came to HW’s attention.  It also seems to me obvious that HW did so because HW recognized that it was a matter of some potential relevance and should be disclosed.

19.Within 45 minutes, BCC sent an email to Mr Rowell, copied to HW, seeking Mr Rowell’s “confirmation that FTI’s role on the e-disclosure front in England is not advisory and that you are satisfied there is no issue in terms of conflict”.  Later the same day, BCC sought confirmation from Mr Rowell as to the date FTI was instructed in the England proceedings.

20.On 20 May 2020, HW informed BCC that their instructions were that FTI had been instructed in July 2019 in England. Later the same day, Mr Rowell sent an email to BCC and HW stating:

“I have spoken with our internal conflicts team and can confirm that the matter referenced by [HW] is not an advisory matter and is for the provision of e-discovery services. As such, I am satisfied that there is no conflict of interest.

Out of an abundance of caution however, I have requested that formal ethical walls be established between the engagements.”

21.On 22 May 2020, BCC wrote to Mr Rowell expressing the firm’s and Orlov’s “very serious concerns as to what has transpired and indeed, serious questions can be raised as to whether or not [FTI] should have accepted appointment as” the Valuer.  The letter set out some of the history relating to the appointment of Mr Rowell as Valuer, and expressed the view that a conflict check ought to have identified clearly that Roth had instructed FTI in England in July 2019.  BCC stated that had Orlov known that fact at the time of the appointment process, Orlov would have raised issues, and would have expressed to the Court the view that FTI should not have been appointed.  I note that the letter fairly made the express point that BCC did not question at all Mr Rowell’s own professional integrity nor his ability to do the valuation, but there is a view of perception and apparent conflicts that can arise out of the matters.  In the context of hostile litigation, Orlov’s confidence had been shaken.

22.On the same day 22 May 2020, BCC also wrote to the Court making similar points.  Whilst not questioning Mr Rowell’s professional integrity, BCC expressed that it had “no choice but to object to Mr Rowell continuing to act as the Valuer”.

23.On 23 May 2020, Mr Rowell responded by letter to BCC, copied to HW.  He identified the process of conflict checking within the FTI Group (similar to the explanation given in the letter accepting instructions to act as Valuer).  He also identified the occasions on which he had sought a conflict check in February 2020 and April 2020, and that he had asked the FTI Group conflicts team to provide him with details of any prior engagements for any of the parties so that he could disclose them to the parties.   No engagement, including the FTI UK e-discovery engagement, was brought to his attention.  He also stated:

“After [HW] informed me of the FTI UK engagement on 19 May 2020, I spoke with members of the FTI Group global conflict team. I understand their failure to inform me of this engagement earlier was an error or omission which is being investigated. However, they agree with me that the FTI UK engagement does not present an actual or perceived conflict in respect of my work in this matter, as I explain further below.”

24.The further explanation essentially identified that neither FTI team engaged in Hong Kong and England would know what information had been provided to the other, nor could they access it, and further a “formal ethical wall has now been established between [Mr Rowell’s] engagement and the FTI UK engagement”.

25.On 25 May 2020, Mr Rowell also wrote to the Court, for my attention, in similar terms.  As in the letter to BCC, he identified the way conflicts checks are carried out by the FTI Group, independently of client-facing businesses, by the general counsel’s office based in the United States.  He explained what checks had been performed in relation to this engagement, and also acknowledged that the failure to have been informed of the FTI UK engagement was “an error or omission which is being investigated”.  Mr Rowell confirmed that prior to HW’s email of 19 May 2020, neither he nor his team had any knowledge of the FTI UK engagement, and that neither team would be able to access information about engagements in which they were not involved.  With the same explanation given to BCC, Mr Rowell confirmed that his work in the matter would not in any way be affected by the FTI UK e-discovery engagement.

26.Mr Rowell also stated:

“I take my role as the independent Court-appointed Valuer very seriously. I am an experienced expert witness and I understand my duties to the Court. I have every intention to uphold these duties as I perform my work.

The work is well underway; my team and I have to date reviewed more than 300 documents provided by the parties, and I submitted a 12-page request for further information to the parties on 22 May 2020, shortly before [BCC] wrote to you.  Replacing me as independent valuer –  which I do not consider in any way necessary – would ‘reset’ the process and result in substantial time and cost wastage.”

27.On 26 May 2020, BCC wrote to the Court maintaining the objection to Mr Rowell continuing as the Valuer.  The letter pointed out that Roth must have paid, and will continue to pay, substantial fees to FTI UK in respect of the FTI UK engagement, so that the FTI Group, including FTI HK, must be considered to be conflicted as acting as the independent valuer in this matter.

28.On 28 May 2020, HW wrote to the Court referring to the previous correspondence.  HW stated that it was instructed to oppose an order/direction to discharge/revoke Mr Rowell’s appointment as the Valuer.  HW also stated that its client (Roth) was satisfied that there is no conflict in the present situation.

29.It is in those circumstances, and against the looming 9 June 2020 deadline for the provision and exchange of Representations, that I directed the parties to attend the hearing on 3 June 2020.  That hearing took place with the benefit of skeleton arguments provided in advance by the teams of Counsel representing Orlov and Roth respectively.

30.It might be noted that the circumstances giving rise to the hearing do not include any explanation whatsoever offered by Roth (whether directly or through his London solicitors or through HW) as to how it came about that he nominated Mr Rowell of FTI to be appointed as the Valuer within six months of his appointment of FTI UK to assist him in related litigation in England.

E. Shape of the Argument

31.I think it fair to acknowledge that had it been known prior to Mr Rowell’s appointment that FTI had been engaged by Roth in relation to the related London proceedings, at least two things would have flowed from that.  First, Orlov would undoubtedly have objected to the appointment of any person from FTI as Valuer in these proceedings.  Secondly, in any event, I would almost certainly have not appointed Mr Rowell as Valuer.

32.But my decision in those circumstances not to have appointed Mr Rowell would unlikely have been based on any detailed assessment as to whether or not any actual question of conflict arose.  Rather, in the context of extremely hostile litigation, I would simply have wished to avoid even the possibility of unnecessary further argument, and so would have chosen one of the other (at least in this respect) uncontroversial candidates from which to appoint.

33.Therefore, it seems to me that, simply because I would not have appointed Mr Rowell had I known what has now been revealed, does not necessarily answer the question as to what should happen in the current circumstances that Mr Rowell has been appointed as Valuer and has been engaged in the Valuation process.  Rather, it seems to me that there must be some proper analysis of the position.

34.Mr William Wong SC, Counsel for Orlov, leading Mr Justin Lam and Ms Euchine Ng, first emphasised that this is not a case in which a party is trying to remove an expert or valuer after the provision of the expert’s report or against criticisms of the conduct of the expert himself.  That takes this case outside the type of case typically considered in the authorities.  Mr Wong also identified in his written and oral submissions several main planks of argument:

(1) the role being performed by the Valuer in this case is a quasi-judicial role or as an adjudicator, which can be differentiated from the role of a typical expert offering expert opinion evidence;

(2) as a result, the applicable principles should be those relevant to cases of apparent bias regarding judicial officers or arbitrators;

(3) there was material non-disclosure by Roth during the appointment process, and it appears to have been deliberate in the absence of any explanation offered, so that the appointment process was “vitiated”;

(4) the Court should also exercise an overall discretion in circumstances where the appointment was from one of four proposed candidates, and there was no particular reason not to have appointed any one of the other three.

35.Mr Christopher Chain, Counsel for Roth, leading Mr Vincent Chiu, responded to those points broadly as follows:

(1) Mr Rowell is performing the exercise of ‘expert determination’, where the expert’s role and function is not quasi-judicial in nature;

(2) therefore, the threshold test to make good a complaint of lack of impartiality is essentially one of ‘actual bias’;

(3) there was no deliberate non-disclosure by Roth, whose London solicitors relied on FTI’s conflict check results, so that any disclosure was at most a mishap;

(4) there is no “overall” discretion to be exercised, where there is no actual bias arising from Mr Rowell’s continued appointment.

F. The Valuer’s Stance

36.As I have already indicated, Mr Rowell has considered his position and takes the view that no conflict arises.  There is, therefore, in his view, no reason to remove him from his appointment as the Valuer, and to do so would simply cause unnecessary additional delay and cost to the parties.

37.Mr Rowell was also kind enough to attend court for the hearing.  When invited to state anything in addition to those matters already canvassed by him in his correspondence, he had nothing further to add except to offer that it might be possible to obtain further information from the FTI Group general counsel if the Court were to want to know more of the circumstances in which the apparent “error or omission” occurred.  However, I do not think I need any further information to resolve this matter.

38.But I should like to record that whatever the resolution of this matter, I accept that Mr Rowell is an experienced expert, well-versed in and familiar with the duties owed by an expert to the Court.  I join the parties in expressing that there is no basis for any criticism of Mr Rowell himself in relation to the matters which now fall for consideration.

G. Applicable Test

39.It was not in dispute between the parties what are the correct tests in relation to (1) removal or recusal of a judge or arbitrator, and (2) a complaint of lack of impartiality against an expert conducting an expert determination.

40.Essentially, as regards the removal of a judge or arbitrator, the test is the ‘reasonable apprehension of bias’ test: see Deacons v White & Case LLP (2003) 6 HKFAR 322 at §§27-30.  First, the court must ascertain all the circumstances which have a bearing on the suggestion that the judge or arbitrator was biased.  Then, the court must ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility that the tribunal was biased.

41.As regards setting aside an expert’s determination because of partiality, that requires actual bias or a real danger of injustice resulting from the alleged bias, and not just conflicts of interest or apparent lack of independence: see Dlugash v Mayers [1997] 2 HKC 814 at 823C-D and Macro v Thompson (No 3) [1997] 2 BCLC 36 at 65f-g, where Robert Walker J (as he then was) stated:

“On the authorities as a whole I accept the submission … that when the court is considering a decision reached by an expert valuer who is not an arbitrator performing a quasi-judicial function, it is the actual partiality, rather than the appearance of partiality, that is the crucial test. Otherwise auditors (like architects and actuaries) who have a long-standing professional relationship with one party (or persons associated with one party) to a contract might be unduly inhibited, in continuing to discharge their professional duty to their client, by too high an insistence on avoiding even an impression of partiality.”

42.The Macro case was also followed by Kwan J (as she then was) in Re Golden Bright Ltd [2007] 1 HKC 89 at §26.  That was a case in which an unfair prejudice petition led to a buyout order, at a price to be fixed by valuer.  In considering whether there was any difference in approach to an expert appointed under contractual provisions to conduct an out-of-court valuation from one appointed by court order, Kwan J referred to the Dlugash Court of Appeal decision and said:

“I do not think the court-appointed expert is acting as an arbitrator here, so partiality in this context would probably require ‘actual bias or a real danger of injustice resulting from the alleged bias and not just conflicts of interest or apparent lack of independence’.”

43.Therefore, the relevant applicable test depends upon whether the Valuer in this case is to be regarded as someone making an expert determination or someone exercising a quasi-judicial role.  Both Mr Wong and Mr Chain accepted this was the critical question.

H. The Valuer’s Role and Function

44.Mr Wong pointed out in his submissions that, by my Ruling dated 23 January 2020, I accepted Orlov’s proposal that there should be a single independent expert valuer to determine the value of Orlov’s Shares in TTC, without the involvement of experts retained by the parties.

45.Thus, he submitted that the role of the Valuer is critical, not least where the value of TTC is estimated to be in the realms of tens of millions of United States dollars.  Mr Wong also relied on the fact that the Order at §2(o) identified that the Valuation shall be final and binding on Orlov and Roth, save for recognised narrow exceptions, and that absent those exceptions being established the Valuation would be made an Order of the Court.

46.So, submitted Mr Wong, it should go without saying that the Valuer must be independent and must also appear to be independent.  He does not act simply as an expert in the usual sense, or even as a single joint expert under RHC Order 38 rule 4A (whose evidence can be challenged by any party or by the Court itself at trial).  Rather, the Valuer in the present case has been appointed, and acts, as an adjudicator making a binding determination between two adversarial parties who are specifically permitted to make the Representations.  Further, it can be noted that those Representations have to be taken into account by the Valuer in reaching his Valuation, which must be identified in a Report encompassing his reasoning.

47.Mr Wong also reminded me that earlier in the proceedings Harris J made an order for a split trial.  Therefore, the trial leading to my Judgment in August 2019 was the ‘liability’ trial. The ensuing ‘quantum’ trial might have been determined by the Court alone; but, with the agreement of the parties and by my Order, the valuation exercise has come to involve and be performed by the Valuer.  It is only in the limited exceptional circumstances that the Valuation will not be made an Order dealing with, that is resolving, the ‘quantum’ part of the trial.  This, says Mr Wong, also points to Mr Rowell exercising a quasi-judicial role.

48.In response, Mr Chain submitted that Mr Rowell is performing an exercise of ‘expert determination’.  Under such an exercise, the expert makes a final and binding decision which can only be challenged in the most exceptional circumstances.  That, said Mr Chain, is precisely what the Court ordered in this case.  He referred me to the decision of Kaplan J in Mayers v Dlugesh [1994] 1 HKC 755, which was an earlier episode in the case subsequently dealt with in the Court of Appeal.

49.The plaintiff and defendant in the case had agreed in principle that the business activities, assets and liabilities of a company in which they indirectly held shares should be distributed between them.  By a deed of submission, the parties agreed to appoint an independent third party to resolve any differences and to determine the manner in which such distribution was to be made.  The terms of the deed were inconclusive as to whether that third party was appointed as an arbitrator or expert.  It was therefore necessary for Kaplan J to decide as a preliminary issue whether the third party was an arbitrator or expert.

50.At 757A-D, Kaplan J stated (with references to authorities omitted):

“Arbitration is a tried and tested method of dispute resolution where the parties do not wish to litigate their differences before state courts. Expert determination, although having been used for centuries, is perhaps not so widely known. The classic features of expert determination are:

1. The expert makes a final and binding decision.

2. The decision can only be challenged in the most exceptional circumstances such as where the expert answers the wrong question.

3. The expert can be sued for negligence in the absence of an agreed immunity.

4. The expert’s determination cannot be enforced as an arbitral award.

Expert determination has been used for years in rent review cases and share valuation cases.”

51.Whilst ‘expert determinations’ can be conducted by contractual agreement, so they can arise upon appointment by the Court.  Mr Chain submitted that the Golden Bright case identifies just one example where an expert was appointed by the Court to conduct an expert determination on valuation of shares in unfair prejudice proceedings, similar to the present case.

52.Mr Chain submitted that it has expressly been held in the Dlugesh Court of Appeal case and the Macro case (see above) that, despite the final and binding nature of the expert’s decision, the limited grounds of challenge, and the extensive investigatory powers of an expert when making an expert determination, that is not akin to being an arbitrator, and is not a quasi-judicial function in nature.

53.Mr Chain also relied on the Golden Bridge case to make the point that reference was made to the powers granted to the court to regulate the procedure when an independent court expert is appointed under Order 40 rule 1.  In that case, Kwan J then made directions under Order 40 rule 2(2) that there should be a further or supplemental report, and that the valuer should provide that report after he had considered any further documents or information that may be provided by the 1^st respondent in that case and any submission that may be made by the parties.  Even though those steps were ordered, Kwan J apparently considered the valuer to be making an expert determination, and not exercising a quasi-judicial function (though it is fair to point out that there was no actual discussion of the point).

54.Mr Chain also submitted that there were no other rules by which the Court might “outsource” the decision-making.  Any use of a court expert remains under the supervision of the Court, which is (he said) why in this case the Court has reserved the question of costs of the Valuation.

55.But I am not sure the reference to “outsourcing” really assists.  The real question requires looking at the particular activities conducted by the expert in any case and deciding what is the substance of the nature of those activities.

56.It is helpful to delve deeper into the decision of Kaplan J in the Mayers v Dlugesh case.  Whilst that case required a comparison of acting as arbitrator and acting as an expert making an expert determination, I think the role of arbitrator can be equated to that of a judge or similar quasi-judicial role.  Two of the factors relied upon by the defendant in that case in support of the submission that the third party was appointed as an expert and not as an arbitrator were (a) that there was no formulated dispute, and (b) that there was no stipulated procedure or requirement for the third party to adopt a judicial approach.  In considering the first point, Kaplan J looked at a number of authorities.

57.In one of them, Re Carus-Wilson & Greene (1886) 18 QBD 7, there was to be a sale of land where the vendors and purchaser were each entitled to appoint a valuer of the timber on the land.  If those valuers failed to agree, they should appoint an umpire who would make a valuation.  That is what happened, and the Court of Appeal affirmed the first instance judgment that such a valuation was not in the nature of an award on an arbitration, so refused to set it aside.  But in that context, Lord Esher MR said (at 9), in a passage echoed by Lindley and Lopes JJ:

“The question here is, whether the umpire was merely a valuer substituted for the valuers originally appointed by the parties in a certain event or an arbitrator. If it appears from the terms of the agreement by which a matter is submitted to a person’s decision that the intention of the parties was that he should hold an enquiry in the nature of a judicial enquiry and hear the respective cases of the parties and decide upon evidence laid before him, then, the case is one of arbitration. The intention in such cases is that there shall be a judicial enquiry worked out in a judicial manner. On the other hand, there are cases in which a person is appointed to ascertain some matter for the purpose of preventing differences from arising, not of settling them when they have arisen and where the case is not one of arbitration but of mere valuation. There may be cases of an intermediate kind where, though a person is appointed to settle disputes that have arisen, still, it is not intended that he shall be bound to hear evidence or arguments. In such cases, it may be often difficult to say whether he is intended to be an arbitrator or to exercise some function other than that of an arbitrator. Such cases must be determined each according to its particular circumstances. I think that this case was clearly not one of arbitration as it falls within the class of cases where a person is appointed to determine a certain matter, such as the price of goods, not for the purpose of settling a dispute which has arisen, but of preventing any dispute.”

58.In Sutcliffe v Thackrah [1974] AC 727, in the House of Lords, a similar point came up for consideration.  Lord Morris (at 745) made the point that it by no means follows that everyone who has a duty of valuing, a duty which obviously must be fairly and honestly discharged, is an arbitrator.  A valuer may not be exercising any judicial function.  Lord Reid stated (at 735):

“The reason must, I think, be derived at least in part from the peculiar nature of duties of a judicial character. In this country, judicial duties do not involve investigation. They do not arise until there is a dispute. The parties to a dispute agree to submit the dispute for decision. Each party to it submits his evidence and contention in one form or another. It is, then, the function of the arbitrator to form a judgment and reach a decision.

In other forms of professional activity, the professional man is generally left to make his own investigation.  In the end, he must make a decision but it is a different kind of decision.  He is not determining a dispute, he is deciding what to do in all the circumstances.”

59.In Arenson v Casson Beckman Rutley & Co [1977] AC 405, at 424, in a case relating to whether auditors who ascertained a fair value of shares in a company were immune from suit for negligence, Lord Simon referred to the Sutcliffe decision and as regards the point on formulated disputes said:

“There may well be other indicia that a valuer is acting in a judicial role, such as the reception of rival contentions or of evidence, or the giving of a reasoned judgment. But in my view, the essential prerequisite for him to claim immunity as an arbitrator is that, by the time the matter is submitted to him for decision, there should be a formulated dispute between at least two parties which his decision is required to resolve. It is not enough that parties who may be affected by the decision have opposed interests – still less that the decision is on a matter which is not agreed between them.”

60.In the same case Lord Wheatley (at 427-428) made clear that each case has to be decided on its own facts and that it was not possible to find an all-embracing formula to decide every case.  But he agreed that certain indicia, though not exhaustive or conclusive, might point to whether or not a person is “clothed” with acting in a quasi-judicial capacity. The indicia he referred to were: (1) there is a dispute or a difference between the parties which has been formulated in some way or another; (2) the dispute or difference has been remitted by the parties to the person to resolve in such a manner that he is called upon to exercise a judicial function; (3) where appropriate, the parties must have been provided with an opportunity to present evidence and/or submissions in support of their respective claims in the dispute; and (4) the parties have agreed to accept his decision.

61.As to that last mentioned point (4), whilst it might not be strictly correct to say that Orlov and Roth have agreed to accept the decision of the Valuer, they did at least agree that the ‘quantum’ phase of these proceedings should be conducted by an independent expert valuer.  Further, in addition to the detailed Valuation procedure which I have directed, I have ordered that the Valuation shall be made an Order of the Court (save where limited exceptional circumstances might be established).  So there is that element of finality.

62.Also, as it is sometimes put, the main difference between an arbitrator and an expert is that the arbitrator, like a judge, has to decide a dispute that has already arisen and he usually has rival contentions before him, while the mutual valuer is called upon before a dispute has arisen, in order to avoid it.

63.As to the second point of consideration by Kaplan J, relating to stipulation of a quasi-judicial procedure, he pointed out that this was also dealt with to some extent in the Sutcliffe and Arenson cases.  In the former, Lord Salmon (at 763) drew the distinction between someone who might do no more than examine goods or work or accounts and make a decision accordingly, and someone who might hear evidence and submissions of the parties.  Lord Simon said that the latter person would clearly be regarded as an arbitrator, though everything would depend upon the facts of the particular case.  Similar statements were made in Arenson.

64.Obviously, Mr Rowell has not been appointed as an arbitrator.  But, in the overall circumstances, it seems to me that he was “clothed” with acting in a quasi-judicial capacity:

(1) Albeit subject to the overall supervision of the Court, and the (limited) potential for interference by the Court, the Valuer in this case is essentially tasked with performing the ‘quantum’ phase of the proceedings.

(2) Both stages or phases of the split trial arise from an existing dispute between the parties.  Each stage or phase is required to resolve a part of that dispute.

(3) The ‘liability’ phase determined the appropriate relief, namely that Roth should buy out the Shares of Orlov, on the basis of a valuation, the parameters of which was set.  The ‘quantum’ phase is to determine the price at which that buyout should take place.

(4) The Valuation process specifically envisages the collation of evidence, and the sharing of it amongst the parties and the Valuer on an “all informed” basis.

(5) The Valuation process specifically envisages the parties making submissions on the appropriate finding to be made by the Valuer, through the Representations and in response to any further questions posed by the Valuer on the Representations.

(6) The Valuer is to identify the Valuation in a Report, which must contain his reasoning, based on the assumptions and methodologies adopted.

(7) The Valuer’s Valuation is expressed to be final and binding.

(8) The Valuation shall be made an Order of the Court, unless certain limited exceptions can be established.

(9) Those limited exceptions are, and were expressly identified as being, analogous to the limited circumstances in which a Court might interfere with an arbitration award.

(10) That is another way of identifying that, save for exceptional circumstances, the Valuation will be enforced, and will be enforceable, as an Order of the Court.

(11) That is also consistent with (a) the power given to the Valuer to return to the Court for further directions, if he thinks it required in order to make a determination as to the Valuation of the Shares, and (b) the power given to the parties to apply in respect of compliance by any party and the Valuer with the Valuation process ordered.  By those means, the Court is able to supervise and ensure compliance with the process which is intended to lead to a final and binding enforceable Valuation made an Order of the Court.

(12) That point was made clear also by the passage in my Ruling which identified that the Valuation process was intended to avoid any repeated valuation process by the Court itself.

65.I acknowledge that in other cases the appointment of a valuer of shares may not create a quasi-judicial exercise. Further, as the authorities identify, between the clear extremes of ‘arbitration or quasi-judicial decision’ and ‘mere valuation’, there may be cases of an intermediate kind where it may be difficult to say whether the person appointed is to exercise some function other than a quasi-judicial function.

66.But in the particular circumstances of this case, the various features taken overall identify that the Valuer is conducting a quasi-judicial function, or performing a role so close to it that it should trigger the test applicable to those performing such a role.  In other words, the nature of the role of the Valuer in this case seems to me to be one which triggers, as the necessary and appropriate test to be applied, the ‘reasonable apprehension of bias’ test.

I. Material Non-Disclosure

67.Arguments about material non-disclosure normally arise in the context of court orders made upon ex parte applications.  In such applications, it is settled that the applicant has a duty to make full and frank disclosure, including of matters which might be raised as points against him.  Materiality is to be decided by the Court, not by any party.  If the Court is satisfied that there has been a material non-disclosure, the Court may set aside the ex parte order obtained, and it may do so without further consideration of the underlying merits.  The Court nevertheless retains the discretion to re-grant a similar order on an inter partes basis, notwithstanding the material non-disclosure, where it appears just and convenient to do so.  One of the matters which may be relevant to the overall consideration is whether the non-disclosure was deliberate or inadvertent and innocent.

68.In this case, Mr Wong submitted that when Roth put forward Mr Rowell as one of the candidates to be appointed as the Valuer, he owed a duty to make full and frank disclosure to the Court and Orlov of his dealings with FTI.  In support of that contention, Mr Wong referred to Maysun Engineering Co Ltd v International Education and Academic Exchanges Foundation Co Ltd (unreported, DCCJ 27/2006, 22 September 2010) at §52, where HHJ Mimmie Chan (as Mimmie Chan J then was) stated that it is only when such details are given to the Court that the Court can decide whether it is proper to accept the person as an independent and impartial expert of the Court, who can be considered to be uninfluenced by the exigencies of litigation.

69.In this case, there was clearly a failure by Roth to disclose his prior engagement of FTI UK in connection with the English proceedings.  Mr Wong submits that the non-disclosure must be taken to have been deliberate.

70.Whilst accepting the fact of non-disclosure, Mr Chain submitted that there was no basis from which it could fairly be inferred that the non-disclosure was deliberate, rather than a mishap.  Indeed, Mr Chain suggested (albeit without evidence) that the London solicitors of Roth relied on FTI’s conflict check results.  He said that if reliance is to be placed upon a serious allegation of deliberate non-disclosure, Roth must be given the chance of filing explanatory evidence.

71.But, it seems to me Roth has had an opportunity to offer an explanation (which need not necessarily have been in an affidavit).  There can be no doubt what was the purpose of the hearing conducted.  That purpose was perfectly clear from the exchange of correspondence (see above) and the joinder of issue between Orlov and Roth as to whether Mr Rowell should be removed as the Valuer, as a result of the revelation of circumstances not previously disclosed.  The correspondence also contained Orlov’s/BCC’s position that the non-disclosure must have been deliberate.  It would have been the obvious reaction for Roth to have offered some explanation or at least to have denied any deliberate non-disclosure.  Nevertheless, at least until Mr Chain’s skeleton argument, there is not a word of explanation offered as to how the non-disclosure occurred.

72.I accept that it may be wondered what would be the purpose of a deliberate non-disclosure of the previous FTI engagement.  A deliberate non-disclosure might seem to make sense in the context of some actual bias, or something closely approaching it.  But, deliberate non-disclosure in the context of apparent bias seems far less likely.  Indeed, Mr Rowell and FTI were one of only four candidates for potential appointment as the Valuer, and it would have been difficult to predict which of those four candidates might be chosen by the Court.

73.Mr Wong submitted that Roth should not be able to take the “benefit” of the appointment of Mr Rowell as the Valuer, when that was the result of a process involving non-disclosure.  But absent any allegation of actual bias, which Mr Wong was quick to make clear he was not putting forward, I am not sure I see what the “benefit” was.  Nevertheless, it remains telling – and rather unhelpful – that there is no offered explanation at all as to how current circumstances of come about.

74.Even Mr Chain’s possible explanation is difficult to see as being exculpatory.  Indeed, it seems rather to confirm a deliberate non-disclosure; Roth’s London solicitors must have been aware of the engagement of FTI by Roth in the London litigation, yet it is said that they simply left it to FTI’s conflict checks to determine whether or not that gave rise to a conflict.  That seems to me to be deeply unsatisfactory.  That is perhaps particularly so, where the instructions to the Valuer included a requirement that he disclose any prior or existing connection that he or his firm had to the parties (amongst others).

75.Indeed, I take the view that the prior engagement of FTI UK in the connected English proceedings is something which ought to have been brought to my attention.  It is also apparently something which Mr Rowell thinks should been brought to his attention, as he regards the failure to do so as an “error or omission” which justifies investigation. Of course, Mr Rowell was expecting to have this brought to his attention by FTI, rather than by Roth perhaps, but the relevance of the point remains.

76.Perhaps what happened is that someone ‘dropped the ball’ in what ought to have been the passage of information between Roth’s London and Hong Kong solicitors.  But they are all Roth’s solicitors, acting on his instructions, and he must ultimately take responsibility for the problem which has arisen.  I have already noted that HW raised the matter with the Valuer and BCC as soon as HW became aware of the point, and I have no doubt that they would have raised the point before the appointment of the Valuer had they known of it then.

77.Nevertheless, I am not persuaded that this material non-disclosure has any other effect in the current circumstances, other than potentially triggering some cost consequences.  At most, it might be factored somehow into the “discretionary mix”, if there is one.  Whilst it might be thought that the appointment process was to some extent “vitiated” by the failure to have provided details relevant to the Court’s consideration as to whether it was proper to accept Mr Rowell as an independent and impartial expert, time has moved on and I am now dealing with the question of whether the appointment should or should not be disturbed, for rather more substantive reasons, and on the application of principles which do not turn on what was or was not disclosed.

J. Overall discretion

78.Mr Chain acknowledged that the general liberty to apply expressly granted in the Order of 23 January 2020 would enable the Court to revisit the appointment of the Valuer, if it so wished. That might be a seen as a matter of case management.  But, he submitted, aside from case management, there was no “overall” discretion to be exercised in the current circumstances.

79.I agree on some of those points.  The appointment of the Valuer was, it is correct, to an extent an exercise of case management.  It was a decision in the management as to how the ‘quantum’ phase of the trial should be determined.  It is also broadly correct that case management decisions are generally open to being revisited by the Court.  But, this particular type of appointment is unlikely to be revisited absent some real trigger.  The only relevant trigger is the revelation of the previous relationship between FTI and Roth, not known at the time of the appointment, and the possibility that there is some reasonable apprehension of bias.

80.But that point simply gives rise to the argument which is had in any event.  I do not think it arises under some general liberty to apply, or some free-wheeling reconsideration of the appointment process. For that reason, I also do not accept Mr Wong’s submission that I should now exercise my discretion because overall there might be a better outcome which could avoid future conflict.

81.No doubt, if the decision is that Mr Rowell should be replaced as the Valuer, that will trigger a fresh exercise of the discretion as to who should be appointed in his stead.

K. Result

82.For the reasons I have given above, I am satisfied that the appropriate test to be applied is the ‘reasonable apprehension of bias’ test.  Albeit not without some reluctance, I consider that that test has been satisfied.

83.As I indicated during argument, perhaps an analogy can be made (recognising, as I do, that analogies can often be inappropriate and unhelpful).  The analogy offered by me was of a solicitor of a large international firm being appointed as a Deputy High Court Judge and allotted to deal with a trial between parties, one of whom had instructed that solicitor’s firm’s London office in related litigation in England.  It seems to me to be at least likely that the deputy judge would recuse himself in those circumstances, or be removed by another court if he did not.  That would not be because of any perception that the solicitor might actually be biased, but simply because a fair-minded and informed observer might conclude that there was a real possibility of bias, that is that there was a reasonable apprehension of bias.

84.I do not think that it is said in this case that the FTI UK engagement is not an “advisory” role means any substantial difference to the analysis.  The role is significant, will last for many months, and will generate no doubt significant fees.

85.Part of the rationale for the reasonable apprehension of bias test is precisely the recognition that bias can be unconsciously present, and that it is insidious.  I have already taken account of Mr Rowell’s perfectly understandable personal view as to his ability to conduct the allotted task appropriately.  Indeed, it might be thought that in the present circumstances, if anything, Mr Rowell would be especially careful in his approach to this assignment.  But that itself has its own potential problems, as it might unconsciously lead to leaning in one direction.  If other matters are to come into the ‘discretionary mix’, that might be something also pointing to removing Mr Rowell.  In any event, for the reasons I have already given, I take the view that the relevant applicable test is satisfied in this case.

86.Therefore, Mr Rowell and FTI’s appointment as the Valuer is rescinded with immediate effect.

87.Mr Wong submitted that if I were to remove Mr Rowell it would fall to me to “re-flip the coin”.  I do not think the analogy is an appropriate one.  Whilst I did identify that there was relatively little between the four candidates in the choice to be made as to which one of them to appoint, I did not simply flip a coin or pluck a name out of a hat. Rather, I looked at the detail in the CVs and, balancing the various features that seemed to me to be shown, I alighted on Mr Rowell.

88.Of course, that did not mean that I did not think any of the other three candidates was capable of performing the appropriate role as the Valuer.  In my view, they all are.  Nevertheless, I had to choose between them.  Now, I have to choose between the remaining three. 

89.Having performed a similar exercise, I now appoint Ms Edwina Tam of Deloitte as the Valuer.

L. Costs

90.The parties asked me to make a costs order nisi, which I agree appropriate in the circumstances where the parties are yet to read this Ruling, its decision and reasoning.

91.However, at present it seems to me that costs must follow the event, and that those costs include the cost thrown away as a result of the replacement of Mr Rowell as the Valuer.  Orlov was successful in his application.  That arose because of the factual circumstances.  Had those circumstances been known prior to the appointment of Mr Rowell, the simple point is that he would not have been appointed, as I would have chosen one of the other uncontroversial candidates.  It seems to me to be irrelevant that Mr Rowell would not been appointed, not because of any detailed analysis or because of his own personal characteristics, but rather to have avoided precisely the arguments as might have arisen (and now have arisen).

92.I also take the view at present that the costs have been incurred or thrown away in circumstances where that was wholly avoidable.  Whether the material non-disclosure was deliberate or not, it ought not to have occurred.  That it occurred has caused costs to be incurred wholly unnecessarily, and at present I see no reason why Orlov should bear any part of those costs.  The cost thrown away seem to me likely also to include any costs incurred in the process of the appointment of Mr Rowell himself (as that now has to be repeated with Ms Tam).

93.Therefore, I make a costs order nisi that Roth must bear Orlov’s costs of and occasioned by the removal of Mr Rowell as the Valuer, including all costs thrown away by undoing his appointment and the aborting of his Valuation process, on an indemnity basis, payable forthwith.

Mr William Wong SC, Mr Justin Lam and Ms Euchine Ng, instructed by Boase, Cohen & Collins, for the petitioner in HCMP 1331/2017 and the 1^st respondent in HCMP 2753/2017

Mr Christopher Chain and Mr Vincent Chiu, instructed by Howse Williams, for the 1^st respondent in HCMP 1331/2017 and the petitioner in HCMP 2753/2017