Read the full judgment text of HCCW 576/2007 on BabelCite. This Court of First Instance judgment was delivered on 17 January 2013 before Hon Harris J.
Civil procedure – Companies (Winding-up) – Companies Ordinance (Cap 32) ss 168A and 177(1)(f) – valuation of shares – consent order – independent valuer appointed by parties – manifest error – binding valuation in absence of manifest error – good faith of valuer – expert determination – meaning of 'manifest error' on the face of the report – effect on costs of pre-trial offer. Key facts: In a winding-up petition concerning Skydon Development Limited (the 4th respondent), the petitioner held shares in the company. A consent order dated 5 July 2010 provided that the 1st to 3rd respondents would purchase the petitioner's shares at a price determined by an independent valuer (RSM Nelson Wheeler) on terms set out in a Schedule. The Schedule required the valuer to value the shares on a pro rata, going-concern basis, without a minority discount, as between a willing seller and willing purchaser, and as at 7 July 2010, taking into account specified assets including a Hong Kong civil litigation database, the 4th respondent's 50% interest in Credit On Demand Limited, and its goodwill. The valuer delivered a report on 1 August 2011 valuing the shares at HK$3,977,515. The petitioner initially raised queries but subsequently accepted the valuation, while the 1st to 3rd respondents issued a summons on 24 April 2012 seeking to have the valuation declared null and void for manifest error. Whether the valuation report contained a manifest error within the meaning of the consent order – The court held no manifest error was demonstrated. The phrase 'manifest error' in the context of an expert valuation refers to a mistake plain and obvious on the face of the written decision, not one requiring lengthy enquiry, and covers arithmetical errors or basic mistakes such as the number of shares held (per Dixons Group plc v Murray-Oboynski [1997] All ER 34). The court followed the principle in Arenson v Arenson [1973] 1 Ch 346 and Campbell v Edwards [1976] 1 WLR 403 that a valuation made honestly and in good faith is binding on the parties even if mistaken; this principle applies a fortiori where the parties have expressly agreed that only 'manifest error' will invalidate the valuation. The 1st to 3rd respondents' complaints about methodology, assumptions, comparables, growth rates, working capital, and lack of explanation for revenue disparities were not plain and obvious on the face of the report, and no expert evidence was adduced to substantiate them. The court considered the broad authorities cited (Dean v Prince; Wong Man Yin v Ricacorp Properties Limited) unhelpful as they concerned materially different facts. Whether payment should be conditional on a separate action – The 1st to 3rd respondents proposed paying HK$1,000,000 into court pending taxation of costs in an associated High Court action. The court held the actions were independent and it was not appropriate to connect them. Rate of interest on the purchase price – The 1st to 3rd respondents argued for judgment rate from 28 April 2012; the court, taking into account the unusual complications from the conduct of all parties, ordered interest at Hong Kong prime plus 1% from 28 April 2008. Costs – A December 2012 offer by the 1st to 3rd respondents to accept the valuation on the proposed payment terms was unreasonable and did not affect the costs order. Outcome: Summons dismissed. 1st to 3rd respondents ordered to pay the petitioner HK$3,787,345 within 14 days of presentation of duly signed instruments of transfer, bought and sold notes and share certificates, with interest at Hong Kong prime plus 1% from 28 April 2008. 1st to 3rd respondents ordered to pay the petitioner's costs of the summons forthwith, to be taxed if not agreed.
Legal issues: Whether the valuation report contained a manifest error within the meaning of the consent order · Rate of interest payable on the purchase price · Whether payment should be conditional on resolution of an associated action · Effect of a December 2012 offer on the question of costs
Outcome: The 1st to 3rd Respondents' summons was dismissed; the valuation was held to be binding. The 1st to 3rd Respondents were ordered to pay the petitioner HK$3,787,345 for the shares, with interest, and to pay the petitioner's costs of the summons.
Cited by 5 cases · Cites 1 case