Lwya v. Kyw

CACV 151/2013 AND CACV 152/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 151 AND 152 OF 2013

(ON APPEAL FROM FCMC NO. 14018 OF 2011)

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CACV 151/2013

BETWEEN

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CACV 152/2013

BETWEEN

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(Heard together)

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J U D G M E N T

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Hon Cheung JA:

1.I agree with the judgment of Kwan JA and the orders she proposes to make.

Hon Yuen JA:

2.I agree with the judgment of Kwan JA.

Hon Kwan JA:

3.On 4 March 2013, Deputy District Judge Carlson gave judgment in the determination of a preliminary issue in an application for ancillary relief.  He found in favour of the husband that the 20 million shares in Nicegood Properties Limited (“NPL”) held in the name of the wife are beneficially owned by her, contrary to the contention of the wife and her father (“the intervener”) that she held the shares on trust for the intervener.

4.On 4 December 2014, this court handed down judgment dismissing the appeals of the wife and the intervener.  As the challenges of the wife and the intervener to the judge’s findings of primary fact were all rejected, concurrent findings of fact have been made that the shares allotted to the wife were in the nature of a gift from the intervener.

5.The wife and the intervener wish to mount a challenge to the concurrent findings of fact before the Court of Final Appeal.  Because the judgment of this court was given before 24 December 2014, they are entitled to apply under the “as of right” ground pursuant to the old section 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance, Cap 484[1].  Provided they come within the “as of right” ground, leave to appeal would be given without inquiry into the merits of proposed appeal.

6.The applicants rely on the second limb of section 22(1)(a), namely, that the appeal involves, directly or indirectly, some claim or question to or respecting property or some civil right amounting to or of the value of $1,000,000 or more.

7.The preliminary issue decided by the judge involves the determination of the beneficial ownership of the 20 million shares held by the wife in NPL.  It is a claim to some particular property or a proprietary right.  The only question is whether, on the evidence, the value of the claim is “clearly quantifiable” in the sum of $1 million or more (China Field Ltd v Appeal Tribunal (Buildings) (No 1) (2009) 12 HKCFAR 68 at §24; Chinachem Charitable Foundation Ltd v Chan Chun Chuen (2011) 14 HKCFAR 798 at §20(vi)).

8.In Z v X (C: Intervener), CACV 166/2011, 26 March 2013, the Court of Appeal granted leave to appeal to the intervener in the determination of a preliminary issue concerning the beneficial ownership of shares in a company on the basis that the requirement of the second limb of section 22(1)(a) was satisfied[2].  In that case, evidence on the valuation of the shares which exceeded $1 million was adduced in the court below (§7 of the judgment).

9.In contrast, the Court of Appeal refused leave to appeal in To Pui Kui v Ng Kwok Piu & Ors, CACV 281/2012, CACV 1/2013 and HCMP 2466/2012, 29 January 2015, noting that the applicant for leave did not file evidence regarding the value of the 20 shares which was the subject of the claim.  It was simply asserted by counsel that the company was the 99% of various subsidiaries which owned property valued in 1997 at over $81 million according to a party.  The valuation was disputed and there was pending litigation which would affect the value of the shares.  In those circumstances, the court could not be satisfied that it could be said without regard to such dispute that the shares had a readily ascertainable value of over $1 million (§§27 and 28 of the judgment).

10.In opposing these applications, Mr Sussex, SC submitted on behalf of the husband that the value of the shares was never in issue in the determination of the preliminary issue, and that the court was concerned solely with the ownership of the shares in NPL.  As the issue of valuation has not yet arisen, no valuation evidence was called for or received.  No findings on the value of the shares have been made.  He submitted that nowhere near sufficient disclosure has been made in relation to NPL for the husband to be expected even to take a firm view on valuation at this stage.  He contended there are just bald assertions that the shares are worth more than $1 million, and that is insufficient to confer a right of appeal to the Court of Final Appeal.  He referred to Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd & Ors, FAMV 5, 6, 7 & 8/2014, 14 October 2014.  The subject matter of the claim in that case was three shares with a total par value of US$3 in two holding companies at the apex of a corporate network.  The Appeal Committee held that leave as of right was not made out and Ribeiro PJ said this at §26:

“To translate the value of the shares from their US$3 par value to a real value, there is clearly a need for further adjudicatory processes requiring the resolution of contentious questions as to the proper methodology and as to what conclusions can properly be drawn, given the seriously depleted state of the group’s financial records. Such processes of assessment, quantification or apportionment are likely to be extremely difficult and may, in some cases, be virtually impossible. Even with the extensive evidence before us, it could not be shown that the requisite value of $1 million or more was reached. In truth, the evidence only served to underline the sheer difficulty or impossibility of the exercise. This is not the type of case the “as of right” procedure was meant to cover.”

11.Mr Sussex submitted that the position here is indistinguishable.  Although NPL holds a number of valuable landed properties, he argued that one cannot draw conclusions as to the value of its shares merely from a snapshot of a selection of its prized assets, and that is not evidence resulting in clear quantification of value.

12.It is not necessary in every case to adduce valuation evidence of the shares that form the subject matter of a claim.  Whether on the evidence the court can be satisfied that the shares are clearly quantifiable in the sum of $1 million or more would depend on the particular circumstances.

13.We are here concerned with 20 million shares in NPL with a total par value of $20 million.  In none of the other cases cited was the court concerned with shares with a total par value in excess of $1 million.  As Mr Todd for the intervener has pointed out, the capital maintenance provisions in the legislation prevent a company from disposing of more than its par value by, for example, dividend declaration.  So any drop below this value would be unlawful and no one has suggested that the intervener has been acting unlawfully.  The husband has also relied on the par value in his submissions before the judge regarding the consideration shown in the instrument of transfer on the basis there was an “outright sale for value”.

14.In Pacific Electric Wire & Cable Co Ltd, the Appeal Committee had approached the value of the shares by first looking at the par value, and, if the value could not be readily ascertainable from this, it would need to inquire into their real value. Ribeiro PJ said at §14:

“This is therefore not a straightforward case of a claim to recover, say, a flat or a house, whose value is readily ascertainable and which will be the same whether viewed from the perspective of appellant or respondent. Top Selection’s shares in Blinco and Patagonia each have a par value of US$1 so that it is necessary to inquire into their real value which in turn depends on assessing the value of the group of companies whose shares were held by them. That also is not straightforward since the capital of those companies was generally also nominal, so that any valuable properties held by them must have been acquired against some countervailing liability. Moreover, assessment of the assets and liabilities involved has been seriously hampered by the loss or destruction of financial records relating to the relevant companies. This is obviously important where the evidence indicates that there were numerous inter-company transfers, set-offs and so on, within the group.”

15.Contrary to Mr Sussex’s submission, the present situation is wholly distinguishable.  Unlike the companies in Pacific Electric Wire & Cable, NPL is not a trading company.  The undisputed evidence was that the business of NPL is to hold landed properties for rental income or as residences for family members of the intervener.  And there is nothing nominal about the capital of NPL.  The intervener gave evidence that in December 2006 he injected working capital to NPL and increased its authorised capital to $126 million.  This was supported by the documents filed at the Companies Registry adduced at trial.  Unlike the network of companies in Pacific Electric Wire & Cable, NPL directly holds a number of properties it had purchased as mentioned in the husband’s evidence.  Even after the petition for divorce was presented, properties with an aggregate purchase price of over $208 million were acquired by NPL in 2012.  These properties would have appreciated in value over time.

16.There was also produced before the judge in November 2012 the last audited financial statements of NPL for the year ended 31 March 2011, showing that the total value of fixed assets as at 31 March 2010 was over $413 million and that the turnover for the year 2011, being the rental income from the letting of properties, was over $11 million.  For the year ended 31 March 2011, it recorded a profit of $5.8 million.

17.On the above evidence, I am satisfied that the 20 million shares in NPL held by the wife, which amounted to 16% of the issued share capital, are clearly quantifiable at a value in excess of $1 million.

18.I would grant leave to appeal to the wife and the intervener on the “as of right” ground and make an order nisi that the costs of the applications for leave to appeal be costs in the cause of the appeal.  I would direct the wife and the intervener to apply within 14 days of this judgment to the Court of Final Appeal for setting the conditions on leave to appeal and for further directions as to the prosecution of the appeal.

Written submissions by Mr Russell Coleman SC and Mr Robin Egerton, instructed by Simon C W Yung & Co, for the Petitioner (Appellant in CACV 151/2013)

Written submissions by Mr Charles Sussex SC, Mr Neal Clough and Mr Timothy Parker, instructed by T C Foo & Co, for the Respondent (Respondent in CACV 151/2013 and CACV 152/2013)

Written submissions by Mr Richard Todd and Ms Maggie Wong, instructed by Li, Wong & Lam & W I Cheung, for the Intervener (Appellant in CACV 152/2013)