RE YUN JIP AUTO SERVICES LTD.

HCCW000084/1990

HCCW 84/1990

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS
NO. 84 OF 1990

____________________

	IN THE MATTER of the Companies Ordinance (Cap.32)
	AND
	IN THE MATTER of Yun Yip Auto Services Limited

____________________

Coram: Deputy High Court Judge A. Cheung in Chambers

Date of hearing: 18 June 2002

Date of judgment: 18 June 2002

____________

JUDGMENT

____________

 

1. This is an application to vary an order made by Cheung J, as he then was, on 12 May 1998. In that order, his Lordship ordered that the expenses of the Special Managers, including legal fees, general administration and related expenses, shall have priority to be paid out of the assets of the company, pursuant to rule 179 of the Companies Winding-up Rules and share equal priority with the fees, percentages and charges payable to, or costs, charges and expenses incurred by or authorised by the Official Receiver, provided that such expenses shall not exceed HK$50,000.

2. Today's hearing relates to the Special Managers' application to increase the total amount inclusive of the previous sum of $50,000 to $HK350,000. I am persuaded by the arguments put forward by Mr Bartlett, counsel for the Special Managers, relating to the necessity to make the present application which is not opposed by Miss Mckenna appearing for the Official Receiver. The supporting affidavit disclosed sufficient material to justify the requested increase.

3. Mr Bartlett very fairly pointed out to me during submission, that at the time when Cheung J made his order, rule 179 only referred to the remuneration of a special manager, but not the fees, disbursements or expenses of a special manager as they are now referred to in the rule as amended by an amendment made in 2000. On the other hand, at all material times, there was and is a power on the part of the court under section 220 of the Companies Ordinance to make an order as to the payment of costs, charges and expenses incurred in the winding-up out of the assets of the company, in such order of priority as the court thinks just.

4. My reading of Cheung J's order is that the learned judge, based on the material then presented before him, exercised his discretion under section 220 to provide for specifically the expenses and charges incurred by the Special Managers in the present case. In the exercise of his discretion, he ordered that the same should be accorded equal priority with the fees, percentages and charges payable to, or, costs, charges and expenses incurred by or authorised by the Official Receiver, something which was and is expressly provided for under rule 179.

5. Given my way of reading of the learned judge's order, and given the fact that there has been, since the order, no material change in circumstances except the circumstances relating to the need for the present application to increase the ceiling, I am happy to accede to the present request which, as analysed by me above, merely involves the variation of the ceiling, but not any re-exercise of discretion on the court's part.

6. I mention this because under the new rule or the rule as amended, the fees, disbursements and expenses of a special manager do not enjoy the same priority as that incurred by the Official Receiver, and any request to disturb the statutory priority would, of course, have to be supported by material and involve the court's exercise of its discretion under section 220. But as analysed by me above, the discretion had already been exercised before by the learned judge and there has been, as I say, no change in the circumstances. The present application only relates to the variation in the amount.

7. So, for all these reasons, I make an order in terms of paragraph 1(2) of the summons dated 4 June 2002 with the following amendments:

(1) The phrase, "pursuant to Rule 179 of the Companies Winding-Up Rules" appearing in the original order, be taken out from the order and be re-inserted after the words "the Official Receiver" in the original order, so as to accord with my above analysis of the jurisdiction exercised by the court in making the order in the first place.

(2) The figure, "HK$250,000" be changed to "HK$350,000", something which was dealt with by counsel during submission, with which I agree.

8. Apart from the above variation, there is also a second application to vary or to clarify a matter arising out of another order made by Le Pichon J, as she then was, on 4 February 1998, in which her Ladyship acceded to an application by the Special Managers for the appointment of solicitors to the Special Managers. The variation relates to the Special Managers' retaining of counsel in addition to solicitors, to assist them in their task in this matter, and the application in fact relates to a ratification of the Special Managers' retaining of counsel prior to this application to vary.

9. It is true that the order of the learned judge did not refer specifically to the Special Managers' retaining of counsel, but on the material before me I see no reason why the Special Managers should not have properly instructed counsel, in addition to solicitors, to assist them in this rather unusual and difficult case. So, I am also minded to accede to this application to vary, which, when granted, will confirm and if necessary ratify the Special Managers' retaining of counsel to assist them. So, in other words, I make an order in terms of paragraph 1(1) of the summons, save that in relation to this variation, the subject of variation is not the order of Cheung J dated 12 May 1998, but as I mention above, the order of Le Pichon J dated 4 February 1998.

10. Turning to the costs of this application, I make an order in terms of paragraph 2 of the summons; and as prayed for in paragraph 3 of the summons, I give liberty to apply.

	(A. Cheung)
	Deputy Judge of the Court of First Instance
	High Court

Representation:

Mr Jeremy Bartlett, instructed by Messrs Wilkinson & Grist, for the Special Managers

Miss Phyllis Mckenna for the Official Receiver

HCCW000084A/1990

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES (WINDING-UP)

NO. CWU 84 OF 19

___________

	IN THE MATTER of The Companies  Ordinace Cap. 32. Laws of Hong Kong
	and
	IN THE MATTER of YUN JIP AUTO  SERVICES LIMITED

____________

Coram: The Hon. Mr. Justice Barnett in Court

Date of Hearing: 20th and 23rd December, 1991

Date of Delivery of Judgment: 8th January 1992

_______________

J U D G M E N T

_______________

 

1. The petitioners, who are the majority shareholders in the company, are and have been for some considerable time in deadlock with the opposing contributories who control the board and therefore the company in its day to day affairs. In separate proceedings, the opposing contributories have made application for relief under s.168A of the Companies Ordinance. For their part, the petitioners seek winding-up of the company on the ground that it is just and equitable to do so.

2. On 17th August 1990, Mayo J. made by consent what was effectively a validation order in which the Official Receiver was appointed provisional liquidator, and a firm of accountants was given a measure of supervision over the company's financial affairs. On 24th October 1990, the petition came on for hearing before me. After two days of what I imagine to have been hard bargaining, I made an order by consent. Unhappily, the true meaning and intent of this order are now the subject of dispute. It is, therefore, necessary to look at the order in some detail.

Paragraph 1 of the order reads:

"The Petitioners in CWU No.84 of 1990 ("the Petitioners", being the 2nd to 7th Respondents in HCMP No.2245 of 1989) hereupon offer to sell to and the opposing contributories in CWU No.84 of 1990 ("the opposing contributories", being the Petitioners in HCMP No.2245 of 1989) or their nominees be at liberty to purchase all, but not fewer than all, the shares of the Petitioners in Yun Jip Auto Services Limited ("the company") free from all incumbrances at a fair value to be assessed in accordance with paragraph 5 hereof by paying to each of the Petitioners through their solicitors the price of the shares held by each of the Petitioners in full (without deduction), subject to paragraph 9 below, within 21 days from the notification pursuant to paragraph 5 hereof by Messrs. Pannell Kerr Forster of their valuation of the said shares to the Petitioners (or their solicitors) and the opposing contributories (or their solicitors)."

3. Paragraph 2 contains the machinery for transfer and other consequences in the event of the opposing contributories purchasing the petitioners' shares pursuant to the option contained in paragraph 1. It contains, inter alia, provision for the delivery of bought and sold notes and the dismissal of the parties' respective petitions.

4. Paragraph 3 reads:

"In the event that the opposing contributories or their nominees fail to comply with paragraph 1 hereof and do not purchase all the shares of the Petitioners in the company in accordance with paragraph 1 hereof, the opposing contributories be deemed forthwith to offer to sell and the Petitioners or their nominees be at liberty to purchase all, but not fewer than all, the shares of the opposing contributories in the company free from all incumbrances at a fair value to be assessed in accordance with paragraph 5 hereof by paying to each of the opposing contributories through their solicitors the price of the shares held by each of the opposing contributories in full (without deduction) within 21 days from the expiry of the 21 days during which the opposing contributories may purchase all the shares in the company of the Petitioners specified in paragraph 1 hereof;"

5. Paragraph 4 then contains provision, substantially similar to paragrah 2, for the transfer of the shares to the petitioners.

6. Paragraph 5 reads:

"Mr. Kenneth Morrison of Messrs. Pannell Kerr Forster of Level 9, One Pacific Place, 88 Queensway, Hong Kong proceed to assess within 2 months from the date hereof the value of the shares in the company as a going concern as at the date hereof, except that the valuation shall take account of the amount of all legal costs and expenses which the company is to bear as a result of this Order, to certify that value and to notify the Petitioners (or their solicitors) and the opposing contributories (or their solicitors) of that value."

7. Paragraph 6 provides for a speaking valuation.

8. Paragraph 7 reads:

"In the event that the Petitioners or the opposing contributories or any of them do not accept the provisional valuation and the reasons therefor, the Petitioners or the opposing contributories or any of them may apply to this Court for a ruling or rulings on issues of fact or law which affect the value of the shares or the reasons for the provisional valuation and for a ruling as to the fair value of the shares or directions to be given to the valuer."

9. Paragraph 8 is not material to the current application.

10. Paragraph 9 reads:

"If within one calendar month of the notification to the Petitioners and the opposing contributories of the provisional valuation neither the Petitioners nor the opposing contributories or any of them take any step to apply to the Court for a ruling or rulings under paragraph 7 hereof the provisional valuation shall become final, binding and conclusive upon the Petitioners and the opposing contributories."

11. Paragraph 10 is not material.

12. Paragraph 11 provided liberty to apply in the event that Mr. Morrison or his firm should fail to produce a valuation.

13. Paragraph 12 reads:

"In the event that the Petitioners or their nominees do not purchase all the shares of the opposing contributories in accordance with paragraph 3 hereof, the company be wound up, the Official Receiver be appointed as its liquidator and the Order of the Honourable Mr. Justice Mayo dated 17th August 1990 thereupon be discharged."

14. Paragraph 13 provides for the payment of the Official Receiver's costs by the company.

15. Paragraph 14 reads:

"The costs of the Petitioners and opposing contributories in respect of CWU No.84 of 1990, HCMP No.2245 of 1989 (including Civil Appeal No.10 of 1990), High Court Actions No.3803 of 1989,No.3804 of 1989, No.3805 of 1989 and No.A2102 of 1990 be paid by the company, any previous orders as to costs notwithstanding, those costs to be taxed on a party and party basis (if not agreed)."

16. Paragraph 15 provides general liberty to apply.

17. Pursuant to paragraph 5, Mr. Morrison reported to the parties on 22nd December 1990. He found the shares in the company to have a nil value, principally because of the legal fees amounting to approximately HKS1.8m payable by the company to the parties pursuant to paragraph 14. Not unexpectedly, on 7th January 1991 the solicitors for the opposing contributories gave formal notice that their clients purchased the petitioners' shares at zero value and required transfer of the shares pursuant to paragraph 2. Such transfer not being forthcoming, on 11th January they gave notice that they would apply to enforce the terms of the order.

18. On 21st January, however, the petitioners issued a summons pursuant to paragraph 7, which asked the court to give directions to Mr. Morrison not to take account of certain payments. Their hope clearly was to try and have some value put on the shares which they were being called upon to transfer. That summons did not come on for hearing until 29th July. After hearing argument for 2 days, I dismissed the summons on 8th August.

19. By summons dated 9th August, the petitioners, pursuant to paragraphs 12 and 15, seek an order that the company be wound up; that the Official Receiver be appointed as its liquidator, that the order of Mayo J. be discharged; and that the petitioners' costs of this application be paid by the company.

20. Mr. Merry for the petitioners and Mr. Bernacchi Q.C. for the opposing contributories were in agreement that my order, which is the embodiment of an agreement reached between the parties, must be looked at and construed as a whole. My order does not consist of 15 separate paragraphs some of which may be relied upon while others are discarded. There, however, the agreement ended. Mr. Merry's submission was that my order is effectively a winding-up order subject to there being no earlier sale and purchase of the shares by one side or the other. For his part, Mr. Bernacchi contended that the essence of the order or agreement is to be found in paragraphs 1 to 4, the provision for winding-up being very much a last resort and not the real desire of the parties.

21. Mr. Merry argued that there has been no sale and purchase of the shares because the shares had no value at the date of valuation, that there can be no sale without a price, and that price must be in cash moving from the purchaser to the seller. He said that paragraph 1 is an unconditional offer by the petitioners to sell their shares to the opposing contributories, but that it is not an offer to give, donate or transfer their shares without consideration. The option contained in paragraph 1 is to purchase the shares at a price, being a fair value to be assessed. There being no value, there can be no price, and therefore no sale and purchase. A nil value is not a value, a fortiori there cannot be a fair value.

22. The meanings of "to sell", "to purchase" and their nouns was much canvassed. The authorities to which I was referred (inter alia Commissioners of Inland Revenue v. Gribble and Ors. (1913) 3K.B. 212; In re Westminster Property Group plc. (1985) 1 W.L.R. 676) show that prima facie these words should be given their ordinary commercial meaning of to transfer for money. Only if the context in which they occur so requires should they be given some other interpretation. For example, the word "purchase" in relation to land might be given its technical meaning of any form of transfer other than by way of descent or escheat. Most of the authorities, it is true, discussed the meaning of these words in a statutory context. It seems clear to me that if, in a statutory context, these words should be given their ordinary meaning, there is all the more reason for taking that meaning as a starting point where the words appear in an agreement giving effect to what is in essence a business transaction between the parties. I have no hesitation, therefore, in holding that prima facie the words "sell" and "purchase" in paragraph 1 mean the transfer for a price in money. I should be very surprised to learn that the parties or their legal advisors ever contemplated Mr. Morrison's nil valuation and intended another meaning of these words.

23. The question that arises is whether the overall context requires a different interpretation. Mr. Bernacchi contended that such interpretation is necessary, because otherwise it is not possible to move from paragraph 3 to paragraph 12. He argued that paragraph 12 can only be relied upon after a failure by the petitioners to purchase the shares in accordance with paragraph 3. If the petitioners are right in their interpretation of the word "purchase" no question of them exercising any option could arise. No effect can, therefore, be given to paragraphs 1 to 4 and as my order embodies one overall agreement upon the failure of part the whole must fail.

24. Mr. Bernacchi further argued that consideration has been or will be given by the opposing contributories. They will have to put money into the company in order to ensure that the company will be able to pay the costs in accordance with paragraph 14. He referred to this as "minus value". Further, the agreement on costs itself constituted some form of consideration. I reject this argument. No doubt the agreement as to costs constituted some or all of the consideration for the agreement as a whole. I do not, however, see it as being applicable to the transfer of the shares themselves. Further, the injection of money into the company, assuming that it is now necessary, in order that the company can pay the costs of the parties, does not in my view constitute consideration for the transfer of shares inter partes.

25. Mr. Merry contended that the whole agreement can be given effect to, even upon his interpretation of the words "sell" and "purchase", without doing violence to the wording of the agreement. His primary submission, of course, was that the agreement is one for winding-up subject only to an earlier sale of the shares between the parties. He pointed out that paragraph 12 provides for the situation where the petitioners "do not purchase all the shares". The paragraph does not use the word "fail" or any similar term. The paragraph is essentially neutral and is applicable to any inability on the part of the petitioners to purchase the shares. Perhaps by inadvertence, therefore, the parties have in fact provided for the situation which now arises.

26. I am persuaded that Mr. Merry is right. As I have said, I cannot believe that the parties or their advisers either contemplated or intended one party simply giving its shares to the other. I would be reluctant to attribute such a meaning and intention to paragraphs 1 and 3, unless wholly unavoidable in order to give effect to the agreement as a whole. I do not think it necessary. As Mr. Merry reminded me, this agreement occurs as part of winding-up proceedings. Winding-up, therefore, cannot have been absent from the parties' minds, as indeed paragraph 12 itself bears witness, and is not some extreme or wholly unexpected risk. It is expressly provided for. In my judgment, there is no impediment to the invoking of the provisions of paragraph 12. The wording of paragraph 3 is apt to provide for the situation which has arisen.

27. Mr. Bernacchi went on to argue that the petitioners cannot rely upon their interpretation of the meaning of the relevant words because of the principles of election or estoppel. He said that, knowing the shares to have been assessed at a nil value, the petitioners went on to rely on the order by availing themselves of paragraph 7, and by obtaining a garnishee order nisi upon the company's current account by virtue of paragraph 14. The petitioners have, therefore, affirmed the order upon the basis of a nil valuation. They are attempting to approbate and reprobate the order, and are estopped from setting up a restrictive meaning to the words "sell" and "purchase".

28. The Scottish principle of approbation and reprobation, or in its English form election, upon which Mr. Bernacchi relied is essentially a prohibition upon a party blowing both hot and cold. It prevents a party honouring part of an agreement which he considers to be to his advantage while rejecting part of which he disapproves. In my judgment, neither election nor estoppel have any part in this application. I see nothing inconsistent in what the petitioners have done, which is simply to work through the steps open to them under the order. I see nothing wrong in the petitioners initially trying to have some value put on the shares in order to avoid, upon their interpretation of paragraphs 1 and 3, the inevitable winding-up. The petitioners have not rejected all or any part of the order, indeed they expressly rely on it. The issue between the parties is simply one of interpretation, not of blowing hot and cold.

29. Finally, and with some reluctance, Mr. Bernacchi argued that the order has been frustrated by the nil valuation so that the whole order must fail and the parties for the time being at least must have recourse to the order of Mayo J. Accepting as I do the principles of frustration expounded by Mr. Bernacchi, again I find that the doctrine has no application to the present application. The position would be different, of course, had I found for the petitioners' interpretation of the words "sell" and "purchase" but been unable to bridge the gap between paragraphs 3 and 12, for then I think it would have been arguable that there had been a wholly unforeseen event, crucial to the performance of the agreement, leaving the agreement impossible of execution.

30. I am satisfied, therefore, that it is proper for me to make a winding-up order.

	(N.J. Barnett)
	Judge of the High Court

Representation:

Mr. M. Merry instructed by David Y.Y. Fung & Co. for Petitioners

Mr. B. Bernacchi, Q.C. & R. Yuen instructed by Raymond Hung & Co. for 3 Opposing          Contributories

Mr. Millican of Official Receiver