Lam Yuk Hon v. Kook Tai Wai

HCCW1138/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 1138 OF 1999

____________________

BETWEEN

____________________

Before : The Hon. Barma J, in Chambers

Date of Hearing : 4 September 2007

Date of Decision : 4 September 2007

____________________

D E C I S I O N

____________________

1.This is an application by the Petitioner seeking an order for an interim payment against the Opposing Contributory.  The background to this matter is set out in an earlier judgment that I delivered on 15 April 2005, slightly over two years ago, when I gave directions to enable the valuation of the Company, which was the subject of a winding up petition brought under section 177(1)(f) of the Companies Ordinance that had been settled on terms requiring such a valuation to be made, to be proceeded with. 

2.The grounds on which the application is based are as follows: 

(a)	First, there has been substantial delay in the production of a final valuation report by the appointed valuers, PriceWaterhouse Coopers, which the Petitioner says is due, to a large extent, to delay on the part of the Opposing Contributory; and
(b)	Secondly, the Petitioner has, as a result of the delay, suffered considerable hardship in that he has been kept waiting for a very long time for the moneys which he is to be paid for his shareholding in the Company under the settlement, which took place as long ago as January 2003.

3.Notwithstanding that the settlement was reached in January 2003, it took over two years before valuers were appointed to carry out the valuation in respect of the Company.  The background to and reasons for the delay are set out in my earlier judgment, and I do not propose to repeat those matters here. 

4.Following the appointment of the valuers, there has been further delay owing to various difficulties that have arisen in relation to the valuers obtaining adequate information on which to base their valuation. 

5.The application is, according to the summons before me, made under section 255 of the Companies Ordinance or the inherent jurisdiction of the court.  I have to say at the outset that I have considerable sympathy, as I did two years ago, for the predicament in which the Petitioner finds himself – of having nothing to show for these proceedings after the length of time that has now elapsed.  If anything, my sympathy for him has increased, given that a further two years have passed and he is still not yet in a position where he has been able to transfer his shares and receive payment for them in accordance with terms that were agreed by way of settlement.

6.Although Mr Wong, who appeared for the Opposing Contributory, sought to suggest that the Petitioner was himself in perhaps almost equal measure to blame for the delays that had taken place since the making of the Tomlin order and the appointment of the valuers, I do not think that I would accept that the Petitioner bears very much of the blame for the delay in this case.  It is true that the Petitioner has taken out a number of applications which have taken a little time to get to court and to be disposed of, but it seems to me that all of those applications were taken out with a view to progressing the valuation exercise that had been agreed upon under the Tomlin order by which the proceedings were settled, and that they were applications which were entirely reasonable for the Petitioner to have made. 

7.So far as the delay since the valuation exercise commenced is concerned, it seems to me that part of the delay has been due to the fact that PriceWaterhouse Coopers have taken sometime to form views on certain matters.  That said, I think there is more than a grain of truth in the submission by Mr Chan (appearing for the Petitioner) that the Opposing Contributory has been, in part at least, to blame for the delay that has occurred. 

8.It also seems on the basis of the material that is before me, that it is very likely that, at the end of the day, whatever valuation is produced, there will be an amount that will be payable to the Petitioner in respect of his shares in the Company which are to be transferred to the Opposing Contributory. 

9.At the very least, the valuation of the Company will have to reflect the cash and bank balances of the Company together with an indisputable amount of stock that was still retained by the Company at the valuation date of 31 December 2002.  It may or may not be appropriate to make deductions from the assets of the Company in respect of certain items of expense that had been incurred since that date.  Those items of expense may or may not be matters which should properly be deducted from the value of the company when a valuation is reached.  That, however, is a matter for the valuers to determine and not for the court, since the valuer is, under the terms of the Tomlin order, to act as an expert and the valuer's decision is to be final and binding on the parties. 

10.I think, in fairness to Mr Wong, that he accepted that, at the end of the day, there might well be an irreducible minimum beyond which the value of the company as at 31 December 2002 would not drop but he nonetheless resisted this application on various grounds.  However, at the end of the day, having given this matter careful thought, I am unfortunately of the view that the court simply does not have jurisdiction in the circumstances of this case to grant the interim payment order that is sought. 

11.The basis on which the application is brought is, as I have said, section 255 of the Companies Ordinance.  That section, which appears in the part of the Companies Ordinance that is headed "Provisions Applicable to Every Voluntary Winding-up", provides that:

"

The liquidator or any contributory or creditor may apply to the court to determine any question arising in the winding-up of a company or to exercise as respects the enforcing of calls, or any other matter, all or any of the powers which the court might exercise if the company were being wound up by the court."

12.It seems to me that that section has no application at all in the circumstances of the present case.  The section is clearly one that applies only to companies that are in liquidation and, moreover, to companies that are in voluntary liquidation.  It is designed to give the court the power to give directions, in an appropriate case, as if the company were being wound up by the court. 

13.In this case, although the original proceedings were winding-up proceedings under the just and equitable ground of section 177(1)(f), the fact is that there has been no winding-up order and, given the terms of the Tomlin order, it seems unlikely that there ever will be a winding-up order made in respect of the Company because, on the completion of the valuation and the delivery of a final valuation by PriceWaterhouse Coopers, there will be an obligation on the part of the Opposing Contributory to acquire the shares of the Petitioner at 45 per cent of the net asset value of the Company as determined by the valuers. 

14.Upon that being done, the petition is to be dismissed or withdrawn.  That being the case, there is not likely ever to be any basis for the court to be exercising its powers under section 255 of the Ordinance in relation to the Company.  Moreover, I have some difficulty in seeing how, under section 255, the court would have power to grant an order for an interim payment in favour of a person in the position of the Petitioner in the present case.

15.I am therefore satisfied that section 255 provides no basis on which an order for interim payment can be made in the circumstances of this case.  I have considered whether there is any other basis on which the court might have jurisdiction to make an order for interim payment.  Unfortunately, I do not think that there is any basis for such a jurisdiction.  Interim payments in ordinary actions are dealt with under Order 29, rule 10 of the Rules of the High Court.  However, it is quite clear from a perusal of Order 29, rule 10 and the other relevant rules that there is nothing in those provisions that confer on the court the jurisdiction to grant an interim payment in a situation such as this.  In order to exercise its jurisdiction under Order 29, rule 10, it seems to me that the court has to be dealing with a matter in which there is either a claim for damages or a claim for an account, or a claim for possession of land coupled with a claim for mesne profits.  There is nothing in those provisions to suggest that there is any scope for such an application in the context of a situation such as the present, where there has essentially been a settlement of the case on the basis of an agreed buyout of shares and where the court is simply concerned with the workings-out of a Tomlin order that had been agreed between the parties. 

16.At the previous hearing, Mr Chan referred me to the case of Ferguson v Maclennan Salmon Co. Limited & Others [1990] BCC 702, a decision of the Scottish Court of Session in which an order for an interim payment was made pending the resolution of the value at which a company's shares were to be bought out by one party to a petition brought under the UK equivalent of Section 168A of our Companies Ordinance. 

17.However, in that case, it is clear that the basis on which the court exercised its jurisdiction was that the court there considered that it had power in the context of a section 459 petition (the equivalent of a section 168A petition in Hong Kong), to make a wide variety of orders including interim orders for regulating the affairs of the company pending the hearing of the petition and also the making of an order for interim payment of an amount which the court was satisfied would ultimately be payable to the petitioner in respect of a buyout order that would be made in the proceedings.  In that case, the facts were rather special in that there was effectively an agreed order for a buyout, the only controversy being the valuation of the company so as to determine the price at which the shares were to be transferred. 

18.In that case, the court at first instance had in fact determined the valuation of the shares at three pounds and five pence.  There was a dispute as to whether this was the appropriate valuation and there was a pending appeal against the valuation.  However, the appellant in that case accepted that there was an irreducible minimum of one pound and 10 pence beyond which the valuation of the company would not fall.  In those circumstances, given that the court considered that it had jurisdiction under the UK equivalent of section 168A to order an interim payment, it is  perhaps understandable that the court felt able to order an interim payment on the basis of the irreducible minimum value of the shares beyond which the ultimate price payable for the shares would not fall.  

19.In this case, however, although it does seem to me that there may well be an irreducible minimum beyond which the price to be paid for the shares under the Tomlin order will not fall, it seems to me that given that there is now no longer outstanding any action or any proceedings in which the section 168A jurisdiction could be invoked, bearing in mind that the petition in the first place was based not on section 168A, under which the court has wide powers, but under section 177(1)(f) and sought only a winding-up of the company, and bearing in mind also that even if there had been conjoined with the section 177(1)(f) winding up application a claim under section 168A, the petition is in any event stayed, save for the purpose of carrying out the terms of the Tomlin order.

20.In those circumstances, it does not seem to me that there is any basis for the court to exercise any jurisdiction that it might have under section 168A to order an interim payment.  That leaves the inherent jurisdiction but, with respect, I am unable to see that there is any basis in the inherent jurisdiction for ordering an interim payment simply on the basis that the court feels that it would be a reasonable or just thing to do in the circumstances of the case. 

21.I am therefore afraid that I have come to the conclusion – which I have reached with some reluctance in the circumstances of this case – that there is simply no jurisdiction enabling me to grant the relief that is sought by the summons in this application and I must therefore dismiss the application. 

22.However, bearing in mind that PriceWaterhouse Coopers produced their draft valuation in January this year, and given that they have had representations from both parties by sometime in March this year, I would very much hope and expect that a finalised valuation will be forthcoming in the near future. 

(Submissions on costs)

Mr Edward Chan, of Messrs Chan, Wong & Lam, for the Petitioner

Mr Wong Chi Kit, Peter, instructed by Messrs Cheung, Chan & Chung, for the Opposing Contributory

Official Receiver’s attendance excused