LAM YUK HON v. KOOK TAI WAI

HCCW 1138/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1138 OF 1999

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D E C I S I O N

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Background

1.  This is the Petitioner’s application for an order that the Respondent do buy out the Petitioner’s shareholdings, namely the Petitioner’s 4,500 shares in Ruby Art Jewellery Company Limited (“Ruby Art”) at $6,191,499, pursuant to the terms of a Tomlin Order made on 10 January 2003.

2.  The brief history to this application is as follows.  The Petitioner Mr Lam Yuk Hon (“Mr Lam”) and the Respondent Mr Kook Tai Wai (“Mr Kook”) are the sole shareholders of Ruby Art.  In 1999, Mr Lam presented a petition against Mr Kook, pursuant to sections 168A and 177(1)(f) of the Companies Ordinance (Cap 32), in respect of the alleged exclusion by Mr Kook of Mr Lam from involvement in the business of Ruby Art since about 1999. 

3.  The matter proceeded in the normal way and came on for trial before Madam Recorder Leong, SC in January 2003.  On the first day of trial, the parties reached a settlement.  The proceedings were then settled by way of a Tomlin Order which provided for a stay of the petition, save for the purpose of carrying into effect the agreed terms which were annexed to the order.  The terms contained in the annex provided, in effect, for the appointment of an independent auditor (“Independent Auditor”) to carry out what was described as an audit of the company’s financial affairs for the period from the last available management accounts dated 31 March 1998 to 31 December 2002, the date at which it was agreed that Ruby Art should be valued for the purpose of what was effectively an agreed buy out by Mr Kook of Mr Lam’s 45% interest in Ruby Art.

4.  The parties had been unable to agree on the appointment of the Independent Auditor and sought directions from Barma J.  In March 2004, Barma J made an order appointing PricewaterhouseCoopers (“PwC”) nominated by Mr Kook as the Independent Auditor.  However, PwC was unable to produce a valuation of Ruby Art as at 31 December 2002 in the timeframe originally envisaged of three months.  This was because, firstly, PwC did not consider it had sufficient information in order to enable it to carry out this task in the way that it had originally intended to go about it; and secondly, because the parties had been in arrears of payment of PwC’s fees since about May or June 2004.  On 15 April 2005, the parties again sought directions from Barma J.  Barma J thought it unnecessary to give further directions but focussed the parties’ minds on the steps that need to be taken to take the matter forward.  But it took another two years and ten months before PwC was able to present a final report (“Report”) for the valuation of Ruby Art on 22 February 2008. 

5.  Under paragraph 7.5 of the Report, PwC assessed the valuation of Ruby Art as at 31 December 2002 to be $13,986,694.  Accordingly, Mr Lam’s 45% shareholdings was worth $6,294,012.  On the other hand, Mr Lam owed Ruby Art $7,921 and a company by the name of Excellent Perfect, which was jointly and equally owned by the spouses of Mr Lam and Mr Kook, was indebted to Ruby Art in the amount of $954,022.  After offsetting Mr Lam’s debt and Mrs Lam’s share of her liability in Excellent Perfect to Ruby Art as if it was Mr Lam’s liability, the net amount Mr Kook should pay Mr Lam for his 45% shareholdings in Ruby Art would be $6,191,499.  Mr Kook did not buy out Mr Lam’s 45% shareholdings within 28 days of the Report pursuant to the terms annexed to the Tomlin Order.  Hence, Mr Lam made the present application.  

6.  On 16 April 2008, the first returnable date of the application, Mr Wong of Messrs Cheung, Chan & Chung (“CCC”), solicitors for Mr Kook, submitted to Barma J that Mr Kook wished to challenge the Report as being utterly wrong in accounting principle and on the evidence.  He sought leave to file an affirmation within 21 days to challenge the valuation in the Report.  Despite objections from Mr Chan of Messrs Chan, Wong & Lam (“CWL”), solicitors for Mr Lam, Barma J acceded to the request, granted leave to Mr Kook to file his 8^th Affirmation within 21 days and leave to Mr Lam to file affirmation in reply within 7 days thereafter, ordered no further evidence may be filed without leave of the Court and adjourned the application to 5 June 2008.  The adjourned application was then set down for hearing before me.  But it was not until 2:30 pm on 4 June 2008 that Mr Kook filed his 93-page 8^th Affirmation together with five box files of exhibits.

7.  Mr Wong now seeks leave to file the 8^th Affirmation of Mr Kook out of time.  Mr Chan opposed.  Two considerations are relevant.  Firstly, Mr Kook must offer a reasonable explanation for the delay in filing his 8^th Affirmation.  Secondly, the contents of his 8^th Affirmation must be relevant to the application now before me.  If upon consideration of these two matters it is appropriate to grant leave, I shall give further directions for the hearing of Mr Lam’s application for buying out.  Otherwise, I shall dispose of Mr Lam’s application on the basis of the merits now before me.

Mr Kook’s explanations for the delay in filing his 8^th Affirmation

8.  The time for filing Mr Kook’s 8^th Affirmation expired on 7 May 2008.  The affirmation was filed badly out of time.  No application for extension of time had been sought prior to the expiry of the time for filing the affirmation.  Mr Wong frankly admits that an explanation for the delay was owed.  In his 8^th Affirmation, Mr Kook explained that the documents involved in the challenge were substantial and enormous.  He said that all documents had been given to PwC and he had to dig out copies which he still kept for verification purposes.  Substantial time was spent in analyzing the documents almost item by item with the Report and in preparing his 8^th Affirmation.  Mr Wong added that it took some time for PwC to provide the five box files of documents for Mr Kook to prepare his 8^th Affirmation.  A further reason advanced by Mr Kook was that he was absent from Hong Kong on business from 27 May to 2 June 2008 and he was only able to finally review and make his 8^th Affirmation on 3 June 2008.  He said that he was over-optimistic and under-estimated the volume of work involved.  I am not impressed by his explanation for two reasons.  Firstly, Mr Kook did not wake up on the morning of 16 April 2008 to find himself thrust with the Report and ordered to file affirmation in opposition.  He had about two months since the release of the Report or more than six months since the issue of the second draft report to formulate his objections.  Secondly, when Mr Kook’s explanation is considered in that light, his explanation for the time taken in the preparation of his 8^th Affirmation is neither credible nor reasonable.  All the circumstances showed that Mr Kook was delaying the progress of the valuation and the buy out of Mr Lam’s 45% shareholdings in Ruby Art. 

9.  To make good my first observation, I shall first turn to the events leading to the finalisation of the Report.  There was a delay of thirteen months in the preparation of the Report between the appointment of PwC in March 2004 and the directions hearing before Barma J on 15 April 2005, which at least was partly attributable to failure of the parties to pay PwC’s fees.  I do not wish to determine who was responsible for that delay.  But a delay of a similar nature recurred in October 2007 towards the final stage of the preparation of the Report, which was undoubtedly attributable to Mr Kook’s dilatory conduct.  On 5 October 2007, PwC requested the parties for a new cheque book from Citibank NA for the purpose of issuing a cheque to settle PwC’s fees.  On 1 November 2007, PwC forwarded a cheque book re-order form to CWL for signature by Mr Lam.  Mr Lam signed the form which was then forwarded to CCC on the following day for signature by Mr Kook.  It took CCC ten days until 12 November 2007 to reply that Mr Kook was out of Hong Kong.  It then took CCC another five weeks to inform CWL on 20 December 2007 that Mr Kook had returned to Hong Kong on 16 December 2007.  Mr Kook then took another nineteen days to sign and forward the form to PwC on 4 January 2008.  Payment of PwC’s fees was a precondition for the release of the Report.  If Mr Kook was going to be out of Hong Kong for such a long period of time, he or his solicitors should have arranged for the form to be delivered to him overseas and to be returned to PwC by courier.  The further delay of nineteen days for signing the form since his return to Hong Kong speaks for itself.  Mr Kook was never serious in proceeding with the valuation of Ruby Art and was happy to let the process take as long as he could delay it. 

10.  The first draft report was issued on or about 23 January 2007.  According to Mr Kook’s 7^th Affirmation, he discovered numerous substantial mistakes.  On 2 February 2007, Mr Kook and his solicitor had a meeting with the handling staff of PwC during which they presented a written representation.  Mr Kook had all the opportunity to present his views and comments on the first draft report and he did so.

11.  PwC must have considered the comments of Mr Kook and incorporated those which it considered appropriate and rejected those which it thought inappropriate.  PwC must have done the same in respect of Mr Lam’s comments.  On 5 October 2007, PwC issued the second draft report to the parties’ solicitors.  PwC invited further response from the parties by 2 November 2007.  PwC wrote:

“If you believe there is further information that needs to be taken into consideration before finalising the valuation report, we would be pleased to meet with you and your respective clients to discuss the further information.  In such case, we would appreciate if you would inform and provide us with such information by 2 November 2007.”

On 2 November 2007, CWL forwarded Mr Lam’s comments on the second draft report to PwC with a copy to CCC.  Mr Kook and CCC did not respond to PwC’s invitation for comments or Mr Lam’s comments.  It was alleged by CCC that Mr Kook was out of Hong Kong, but no documentary evidence has been filed in support of that allegation.  While CCC gave excuses in relation to the signing of the cheque book order form, they were totally silent about PwC’s request for comments on the second draft report.  I have no reason to doubt that PwC had sent the second draft report to CCC or that CWL had sent a copy of Mr Lam’s comments to CCC.

12.  On 20 December 2007 when CCC informed PwC that they would arrange for Mr Kook to sign the cheque book re-order form, they purported, for the first time and well past the time limit set by PwC, to attend to PwC’s request for comments on the second draft report.  They requested for a copy of Mr Lam’s comments.  PwC responded promptly on the following day by sending CCC a copy of Mr Lam’s comments.  PwC also pointed out to CCC that they should have received a copy of Mr Lam’s comments under the cover of CWL’s letter dated 2 November 2007.  CCC did not retort.  But instead, on 4 January 2008, i.e. after two weeks, CCC wrote back to PwC and said that they had forwarded the second draft report and Mr Lam’s comments to Mr Kook for perusal and consideration, and they would revert to PwC as soon as possible. 

13.  Pausing here, I must say that Mr Kook’s as well as CCC’s attitude towards finalisation of the second draft report was less than lukewarm and unenthusiastic.  There was a total wanton disregard by Mr Kook of the time limit set by PwC.  CCC must have received the second draft report from PwC on 5 October 2007 and must be aware of the need to comment by 2 November 2007.  Even if Mr Kook were out of Hong Kong, that does not give him or CCC any excuse not to attend to the matter or to ask for extension of time.  But it was not until 20 December 2007, allegedly four days after Mr Kook had returned to Hong Kong, that CCC wrote to PwC to ask for a copy of Mr Lam’s comments.  CCC did not ask for a copy of the second draft report.  Obviously, CCC had already received the second draft report but chose to sit on it and to disregard the time limit for filing their comments.  Despite that the time for filing their comments had lapsed by a wide margin, it took CCC yet another two weeks merely to forward Mr Lam’s comments to Mr Kook for perusal.  Even assuming that Mr Kook was out of Hong Kong, no competent or reasonable solicitor knowing of the need for his client to respond by 2 November 2007 would have done nothing to bring the second draft report to his client’s attention or to add to the delay by withholding Mr Lam’s comments for another two weeks.  Mr Kook’s dilatory conduct showed that he was deliberately delaying the finalisation of the Report.  I hate to add that Mr Kook was aided and abetted in such dilatory conduct by those legally representing him.

14.  What Mr Kook promised to do as soon as possible in fact took him almost a month.  On 30 January 2008, CCC wrote to PwC to request for a meeting to discuss the second draft report.  By then, it was three months after the time for making comments had expired.  CWL, of course, objected.  On 4 February 2008, CCC replied, complaining for the first time that CWL had not given CCC a copy of Mr Lam’s comments.  Even if that were true, that does not relieve Mr Kook of his obligation to furnish his own comments by 2 November 2007.  Given the dilatory conduct in which CCC handled the second draft report and in particular the lateness in which the complaint was made, I do not accept CCC’s complaint of not having received Mr Lam’s comments as genuine.  CWL replied reiterating their objection but left it to PwC to decide whether to have any discussion with Mr Kook.  On 5 February 2008, PwC replied that they were not inclined to have further meeting with Mr Kook but invited Mr Kook to provide more information about what he wanted to discuss.  They wrote:

“We are not inclined to have further meeting to discuss the Valuation Report as we have already offered two opportunities to receive and comment on drafts of the report.  However, if Mr Kook is able to provide more information about what he would like to discuss, we are happy to consider your request further.”

Mr Kook did not respond.  To make sure that they would have taken all relevant matters into consideration, PwC wrote to CCC again on 20 February 2008 to invite Mr Kook to submit the information which he wished to discuss.  They wrote:

“We refer to our letter dated 5^th February 2008.  We would be grateful if you would provide any response by the end of this Friday 22^nd February 2008.  If we do not hear from you, we will proceed to issue the final report.

  If you have any questions, please do not hesitate to contact me on 2289 2489 or Stephenie Fung on 2289 2406.”

No response having been received from Mr Kook, PwC issued the final Report on 25 February 2008 to CWL and CCC.

15.  Mr Kook did not make any prompt objection to the valuation in the Report.  On 8 March and again on 20 March 2008, CWL wrote to CCC demanding performance of the terms annexed to the Tomlin Order, neither Mr Kook nor his solicitors responded.  What is particularly significant about Mr Kook’s conduct is the total absence of response to the Report since its release on 25 February 2008 until 16 April 2008, despite his very serious complaint about PwC’s refusal to hear his views on the second draft report and his obligation pursuant to the terms of the Tomlin Order to buy out Mr Lam’s 45% shareholdings on the basis of the valuation of Ruby Art given by PwC.  Mr Kook virtually did nothing to object to the valuation in the Report until the day before the return date of the Plaintiff’s Summons, when he filed his 7^th Affirmation.

16.  In his 7^th Affirmation, Mr Kook alleged that he discovered PwC had made various substantial mistakes in the second draft report and requested a meeting with PwC to give representation, but PwC refused.  He said in his affirmation:

“5.  PwC issued the 2^nd draft valuation report on (“the 2^nd draft”) on or about 5 October 2007.  I have reviewed the 2^nd draft and found that the independent auditors have still made various substantial mistakes in the 2^nd draft, which mistakes shall drastically distort the valuation of the Company.

 6.  My solicitors have informed PwC through correspondences of my intention to meet them again to give my representation towards the 2^nd draft.  However, PwC has refused to do so.  It is now shown and produced to me marked exhibits “DK-40” copies of the correspondences exchanged between my solicitor and PwC in respect of the 2^nd draft.”

There was much disingenuity on the part of those who drafted this affirmation for Mr Kook.  What was said in the above two passages was not incorrect.  But what was untold makes what was told utterly misleading.  Firstly, Mr Kook did not disclose the time limit set by PwC for filing his comments on the second draft report and that the time for filing comments had long expired by almost three months when CCC first sought a meeting with PwC.  Secondly, Mr Kook portraited PwC as utterly irresponsible and unreasonable in being deaf to his representations and arbitrary in making the valuation.  But he did not exhibit PwC’s letters dated 5 and 20 February 2008 which would have shown that PwC had invited him twice for response though a meeting was declined.  Thirdly, Mr Kook did not disclose the fact that he did not make any representation despite the two invitations.

17.  Mr Kook’s 7^th Affirmation was utterly and deliberately misleading.  That casts real and serious doubts on the credibility of his explanation for the time taken in preparation of his 8^th Affirmation.  The truth is that Mr Kook wantonly disregarded the time limit for making comments and despite the further indulgence given by PwC he deliberately ignored PwC’s request twice to make written representations.  In the end, he delayed the finalisation of the Report by almost four months.  Mr Kook never told PwC what his complaints about the second draft report were.  This showed he had no substance at all in his complaint about PwC’s refusal to hold a meeting with him.  If he had any real grievance about the second draft report, he would not have failed to furnish his comments by 2 November 2007 or to respond to PwC’s two invitations for information.  Mr Kook’s dilatory conduct is not that of a person who had a genuine dispute about the valuation in the Report.  He has been persistently delaying the valuation.  The motive of his present challenge to PwC’s valuation is obviously for the purpose of further delaying the buy out of Mr Lam’s 45% shareholdings and to deprive him of the fruits of his nine years’ litigation.

18.  But even putting aside Mr Kook’s motive and his previous dilatory conduct, his explanation for the time taken in preparation of his 8^th Affirmation is inherently incredible and unreasonable.  As I have said, he was not thrust with the Report for the first time on 16 April 2008.  According to Mr Kook’s 7^th Affirmation, he discovered various substantial mistakes made by PwC in the second draft report.  A reasonable time when Mr Kook would have discovered those mistakes would have been about two weeks after the issue of the second draft report, i.e. by 19 October 2007.  On his allegation that he was out of Hong Kong and returned only on 16 December 2007, then he would have discovered the mistakes by the end of December 2007 or at the latest 30 January 2008 when his solicitors requested for a meeting with PwC.  If Mr Kook was sincere in his allegation that the second draft report contained various substantial mistakes and that he genuinely wanted to have a discussion with PwC, why did he ignore PwC’s two requests for representation.  Furthermore, if what Mr Kook alleged in his 7^th Affirmation is true, he must have by 30 January 2008 some good evidential basis for him to make the allegation about substantial mistakes in the Report.  This is totally inconsistent with his allegation that all the documents had been given to PwC, that it took him some time to recover the documents from PwC and that it took him more time to prepare his 8^th Affirmation.  However, Mr Kook never disclosed to PwC what the serious mistakes in the second draft report were.  He never disclosed in his 7^th Affirmation the nature of the alleged substantial mistakes in the Report.  This showed a total lack of credibility in his allegation about mistakes in the Report.  If the mistakes alleged in his 8^th Affirmation are similar to or based on the same mistakes in the second draft report as alleged in his 7^th Affirmation, then irrespective whether the mistakes are genuine, Mr Kook simply failed to explain why given the fact that he had knowledge of the substantial mistakes since 5 October 2007 and documents in support of that allegation, he was unable to prepare a reasonably comprehensive affirmation within 21 days.  If the mistakes alleged in his 8^th Affirmation are new mistakes different from those alleged in the second draft report, again irrespective whether the mistakes are genuine, Mr Kook also failed to explain why given the fact that he had knowledge about the substantial mistakes since 30 January 2008 at the latest and some documents in support of that allegation, he was unable to prepare his 8^th Affirmation within 21 days setting out, at least, his main criticisms of the Report if not all the details. 

19.  Had Mr Kook been sincere in his request for more time to prepare his 8^th Affirmation, he should have made an application for extension of time before 7 May 2008, instead of lodging his 93-page affirmation and five box files of exhibits on the late afternoon before the return date of the present application.  His application for leave to file his 8^th Affirmation out of time bears all the hallmarks of deliberate delay.  This is particularly so in the light of his history of dilatory conduct.  Thus, I reject Mr Kook’s explanation for the delay in filing his 8^th Affirmation. 

Relevancy of Mr Kook’s 8^th Affirmation

20.  As for the contents of Mr Kook’s 8^th Affirmation, Mr Wong said that the Report is utterly wrong in accounting principles and in the evidence.  He submits that Mr Kook is challenging the correctness of the Report and is not challenging PwC as having departed from the instructions given to them in any material respect.  Mr Chan submits that this is not what Mr Kook is permitted to do under paragraph 7 of the annex to the Tomlin Order which provided that the valuation of PwC shall be binding and conclusive on the parties. 

21.  Mr Wong argues that the Court should ask itself whether it is in the interest of justice to enforce a report which is manifestly wrong.  That is probably correct as a general proposition.  But it has no application where the parties have agreed to delegate their decision to the expert and be bound by the expert’s decision.  This is a well established principle based on contract.  Sir John Strange MR in Belchier v Reynolds (1754) 3 Keny 87 said at 91:

“Whatever be the real value is not now to be considered, for the parties made Harris their judge on that point; they thought proper to confide in his judgment and skill and must abide by it, unless they could have made it plainly appear that he had been guilty of some gross fraud or partiality.”

22.  An expanded statement of this principle is to be found in the following passage of Lord Denning MR in Campbell v Edwards [1976] 1 WLR 403 at 407:

 “It is simply the law of contract.  If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it.  Even if he has made a mistake they are still bound by it.  The reason is because they have agreed to be bound by it. If there were fraud or collusion, of course, it would be very different.  Fraud or collusion unravels everything.”

This statement as a statement of principle was endorsed by Megaw LJ and all other members of the English Court of Appeal in Baber v Kenwood Manufacturing Co Ltd [1978] 1 Lloyd’s Rep 175.

23.  A more modern formulation of this principle by the English Court of Appeal is to be found in the headnote of Jones v Sherwood Computer Services Plc [1992] 1 WLR 277 which reads:

“… where parties had agreed to be bound by the report of an expert, the report, whether or not it contained reasons for conclusion in it, could not be challenged in the courts on the ground that mistakes had been made in its preparation unless it could be shown that the expert had departed from the instructions given to him in a material respect; ...”

Dhillon LJ said at 288:

“If the parties to an agreement have referred a matter which is within the expertise of the accountancy profession to accountants to determine, and have agreed that the determination of the accountants is to be conclusive, final and binding for all purposes, and the chosen accountants have made their determination, it does not seem appropriate that the court should rush in to substitute its own opinion, with the assistance of further accountants’ evidence, for the determination of the chosen accountants.”

24.  This principle was followed by Le Pichon J, as she then was, in Dlugash v Mayers [1997] 2 HKC 814 and by Kwan J in Re Golden Bright Limited, HCMP 6472/2001.  In Lau Yee Ching and Wong Tak Kwong and Others, CACV 172/2006, the Hong Kong Court of Appeal had the opportunity to consider the same issue.  Tang VP adopted the principle in Jones v Sherwood Computer Services Plc and held that it is settled law that where the parties have agreed to be bound by an expert’s report, the report could not be challenged on the ground that mistakes had been made unless it could be shown that the expert had departed from the instructions given to him in a material respects.  I consider I am bound by the Court of Appeal’s decision in Lau Yee Ching and Wong Tak Kwong and Others. 

25.  Mr Kook is not seeking to challenge PwC’s valuation in the Report on the ground of PwC’s departure from instructions.  He is only seeking to challenge its correctness.  He makes it very plain in paragraph 4 of his 8^th Affirmation that the purpose of the affirmation is to oppose the valuation of Ruby Art in the Report.  He concludes in paragraph 155 of his 8^th Affirmation that for that purpose he had to examine all the documents, all the raw materials, like ledgers, invoices, etc which had been delivered and kept by PwC and that he had to analyze those raw materials almost item by item against the Report.  Mr Wong reinforced Mr Kook’s case by saying that Mr Kook had to engage a financial analyst to aid in the challenge and in the preparation of his 8^th Affirmation.  Obviously, Mr Kook intended a full scale review of the Report.  This is precisely what he is prohibited from doing under the above principle.  The dicta I quoted from the various cases cited above are all applicable.  Mr Kook and Mr Lam made PwC their judge of the value of Ruby Art.  They thought it proper to confide in PwC’s judgment and skill and must abide by it.  Even if PwC might have made some mistakes, they are still bound by the valuation of PwC because they have agreed to be bound by it pursuant to the terms annexed to the Tomlin Order.  It is not permissible for Mr Kook now to engage his own expert to raise an item by item review of the Report.  There is no allegation that PwC has departed from instructions.  There is no suggestion of fraud or collusion.  I have taken time to read Mr Kook’s 8^th Affirmation and compared it with the Report.  It contains nothing but a challenge on the correctness of the valuation of PwC.  It even seeks to dispute the valuation on the basis that it should be reduced by PwC’s cost in preparing the Report.  This is effectively an attempt to re-write the terms annexed to the Tomlin Order which provided that the cost of the Report shall be borne by Ruby Art and not by Mr Lam and Mr Kook.  As a matter of legal principle, it is not permissible for Mr Kook to seek to challenge the valuation of PwC by what he called an item to item review of the Report.  Even if PwC had been erroneous in some of its findings, it is inappropriate for this Court now to substitute its valuation for that of PwC. 

26.  Mr Wong argues that it is unjust to enforce PwC’s valuation which is wrong in accounting principle and on the evidence.  Putting aside the question whether PwC’s valuation was erroneous, there is no procedural unfairness or injustice in enforcing PwC’s valuation.  Mr Kook was given the first draft report on 23 January 2007.  He had the opportunity to make representation on the draft and he did by making a representation with his solicitors to PwC on 2 February 2007.  On 5 October 2007, he was given the second draft report through his solicitors and invited to comment by 2 November 2007.  The second draft report must have incorporated all his comments which PwC considered to be appropriate.  He gave no response.  He put up various excuses such as that he was out of Hong Kong and that he had never received Mr Lam’s comments.  I do not wish to repeat my observations about those lame excuses.  Anyway, four months after the time limit for making comments had lapsed, he was given the further indulgence of making representations, though not the luxury of a meeting with PwC.  He ignored two invitations by PwC to make representations.  If he had so much to complain about the mistakes of PwC as to launch an item by item analysis of the Report, he should have done so then.  But, he did not.  The inference is that he had adequately raised all his criticisms and that his allegations about mistakes were not genuine.  Even on his own allegation, he received the second draft report on 16 December 2007, though his solicitors must have received it as early as 5 October 2007.  If, as was said in his 7^th Affirmation, he discovered the substantial mistakes in the second draft report, he would not have waited until 30 January 2008 to request for a meeting with PwC, or refrained from responding to PwC’s two invitations to make representations between 5 and 20 February 2008 or remained silent upon receipt of the Report, or refrained from objecting to CWL’ request to buy out Mr Lam’s 45% shareholdings.  There is no unfairness in enforcing the valuation on the Report.  The alleged unfairness were all Mr Kook own creation.

27.  The parties reached agreement to stay the petition to wind up Ruby Art, which was made the subject matter of the Tomlin Order.  Mr Kook and Mr Lam agreed to jointly appoint an Independent Auditor to determine the net worth of Ruby Art as of 31 December 2002.  The bases of the determination were clearly set out under the terms annexed to the Tomlin Order.  Paragraph 7 of the annex states that the determination of the Independent Auditor shall be binding and conclusive on the parties.  It was on that basis that Mr Lam consented to have the petition against Ruby Art stayed.  It took PwC four years to complete the Report, with much of the delay attributable to Mr Kook’s dilatory conduct.  By now nine years have lapsed since the commencement of the petition.  Mr Lam was deprived of the right to wind up Ruby Art and the benefit of actualising the fruits of the winding up action in the meantime.  If the enforcement of the Tomlin Order is to be delayed by a further round of expert evidence and argument, Mr Lam would be seriously prejudiced. 

28.  In the circumstances, I am not satisfied that there was a reasonable explanation for the late filing of Mr Kook’s 8^th Affirmation.  In any event, as a matter of law, it is not permissible for Mr Kook to challenge the valuation of PwC.  As the sole purpose of Mr Kook’s 8^th Affirmation is to challenge the valuation of PwC, the contents of the 8^th Affirmation is irrelevant for the disposal of Mr Lam’s buy out application.  It is neither unfair nor unjust to enforce PwC’s valuation.  On the facts, this case is indistinguishable from Lau Yee Ching and Wong Tak Kwong and Others.  Accordingly, I refuse leave for Mr Kook to file his 8^th Affirmation out of time and order that the affirmation filed be expunged.

Conclusion

29.  This litigation has now run its course.  According to paragraph 7 of the annex to the Tomlin Order, PwC’s valuation shall be binding and conclusive on the parties.  There is no valid challenge to that valuation.  After adjusting for the debt owed by Mr Lam to Ruby Art and for his wife’s share of her liability in Excellent Perfect to Ruby Art, the amount due to Mr Lam for the sale of his 45% shareholdings in Ruby Art is $6,191,499.  In accordance with the terms annexed to the Tomlin Order, Mr Kook should have bought Mr Lam’s 45% shareholdings within 28 days of the Report, i.e. by 21 March 2008.  Therefore, I make the following order:

(1)         that leave to file Mr Kook’s 8^th Affirmation out of time is refused, Mr Kook’s 8^th Affirmation together with exhibits be expunged;

(2)         that Mr Kook do buy out Mr Lam’s 45% shareholdings in Ruby Art at $6,191,499 within 14 days from the date of this Order;

(3)         that Mr Kook do pay Mr Lam interest on the sum of $6,191,499 at judgment rate from 21 March 2008 until 14 days from the date of this Order or the date of completion of the sale and purchase of Mr Lam’s 45% shareholdings in Ruby Art whichever the earlier;

(4)         that in default of compliance with sub-paragraph (2), Mr Kook do pay Mr Lam interest on the aggregate sum in sub-paragraphs (2) and (3) above from the 15^th day after the date of this Order at judgment rate until payment; and

(5)         that Mr Kook do pay Mr Lam’s costs of this application, such costs are to be taxed if not agreed.

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

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D E C I S I O N

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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)

HCCW 1138/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1138 OF 1999

____________

____________

Before: Hon Barma J in Chambers

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D E C I S I O N

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1.  This is an application for further directions as to the manner in which the valuation exercise in respect of Ruby Arts Jewellery Limited (“Ruby Arts”), the company which is the subject of these winding-up proceedings, is to be taken forward or carried out.

2.  The brief history to this application is as follows.  The proceedings concern a petition pursuant to sections 168A and 177(1)(f) of the Companies Ordinance (Cap. 32), presented by the Petitioner, Mr Lam Yuk Hon (“Mr Lam”), against the Respondent, Mr Kook Tai Wai (“Mr Kook”), in respect of the alleged exclusion by Mr Kook of Mr Lam from involvement in the business of Ruby Arts since about 1999 onwards.  Following some correspondence prior to the proceedings being commenced, the petition was presented in early 2000.  The matter then proceeded in the normal way through exchange of evidence and discovery of documents.  The proceedings came on for trial before Madam Recorder Leong, S.C. in January 2003. 

3.  On, the first day of trial, the parties informed Madam Recorder Leong that they had reached a settlement.  The proceedings were then settled by way of a Tomlin order which provided for a stay of the proceedings, save for the purpose of carrying into effect the agreed terms which were contained in the schedule to the order.  The terms contained in the schedule provided, in effect, for the appointment of independent accountants to carry out what was described as an audit of the company’s financial affairs from the period from the last available management accounts dated 31 March 1998 down to 31 December 2002, the date at which it was agreed that the company should be valued for the purpose of what was effectively an agreed buy-out by Mr Kook of Mr Lam’s 45 per cent interest in the company.

4.  The Tomlin order set out, in some detail, various bases on which the valuation was to be carried out.  In particular, it identified a number of types of bank accounts and other matters relating to one or two related companies in relation to which assumptions or determinations were to be made by the independent accountants for the purposes of the valuation of the company as at 31 December 2002. 

5.  The Tomlin order also contained a liberty to apply.  However, that was limited to applications to be made for the purpose of putting the Tomlin order into effect.  The first application made pursuant to the liberty to apply was in March 2004 when the matter came before me because the parties had been unable to agree on the identity of the independent accountant to be appointed.  That application sought the appointment of PriceWaterhouse Coopers (“PWC”) to be appointed, and also sought that provision should be made as to the basis on which they were to be paid.  In the event, it was not necessary to make any order as to the latter part of the application because the schedule of terms to the Tomlin itself provided that the costs of the exercise to be carried out by the independent accountant were to be met out of the assets of the company. 

6.  At that time, I made an order appointing PWC as the independent accountants tasked with the carrying out of the roles envisaged by the schedule to the Tomlin order, and the parties thereupon entered into an agreement with PWC for PWC to take up that role.  Unfortunately, PWC has been unable to produce a valuation of the company as at 31 December 2002 in the timeframe originally envisaged of three months.  The reason for this failure appears to be twofold:  first, that PWC does not consider that it has sufficient information in order to enable it to carry out this task in the way that it had originally intended to go about it; and secondly, because since about May or June 2004, PWC has been insisting on payment of arrears of fees that it has incurred (and for which it has not taken sufficient payments on account) but these have not been paid. 

7.  There has been considerable debate as to the reasons why PWC has been unable to progress with the matter and complaints have been made on both sides with Mr Kook and Mr Lam essentially blaming each other for the hold-up in the progress of the valuation to be carried out by PWC. 

8.  However, it seems to me that, at the end of the day, the difficulties have been caused, first, by the absence of documentation that would enable PWC to proceed with the matter in the manner in which they had initially hoped.  It seems fairly clear from the correspondence that PWC were initially hoping to be able to carry out a complete reconstruction of the books of the company for the period from 31 March 1998 from 31 December 2002 on the assumption, which has unfortunately proved to be ill-founded, that there was available somewhere sufficient in the way of documentation and accounting records to enable that task to be carried out. 

9.  It has become apparent that that is not the position and that the accounts and accounting records of the company are in a state of some disarray.  Whoever bears the responsibility for the lack of such documentation, it seems to me that, at the end of the day, the position is that PWC are required to come up with a valuation of the company on the basis of such material as is available.  It may be that if the material available is less than complete, as it appears to be, that that valuation will be less than perfect.  But that, it seems to me, is a matter that cannot be avoided.

10.  In the circumstances, it seems to me that the appropriate way forward would be, subject to dealing with the question of PWC’s fees and their continued participation in the project, for PWC to ascertain what information is available.  For this purpose consideration will have to be given to a number of sources of information.  The first is the information is already available.  This clearly is available to PWC.  The nature and extent of it has been set out in various letters and documentation that have been produced to the court. 

11.  In so far as this information is insufficient, it should be possible for PWC to identify the sort of further information that they require.  It seems that they have attempted to do so to some extent in the past.  They have, for example, suggested that information may be obtained in relation to the company’s bank accounts and its expenditure from such accounts from the banks with which the company holds accounts.  In relation to the company’s stocks of jewellery from time to time, it has been suggested that information may be available from independent third-party sources such as the Hong  Kong Jewellery Manufacturers Association which may throw light on the level of the company’s stocks and the jewellery that it had in its possession between the dates in question. 

12.  It may be that there are other items of information that can be obtained from third-party sources as well.  Once these sources are ascertained or identified, it seems to me that the appropriate course would be for the parties to co-operate in giving such authorisations as are necessary to enable the information to be obtained from such sources. 

13.  A final source from which information may be available, would seem to be the parties themselves.  It seems to me that it would be perfectly open to PWC to seek such information as it thinks necessary from the parties in relation either to general matters or specific transactions which it identifies as a result of its review of the documentation that is available.  I see no reason why PWC should not seek such information from the parties, if necessary setting a time limit for the provision of such information, following which it should simply carry out the valuation on the basis of the information available.  In carrying out that valuation, I note that paragraph 9 of the schedule to the Tomlin order entitles both parties to make representations to PWC as to the approach to be adopted in relation to the valuation and I see no reason why, on the basis that the parties are aware of what information is available and what information is not available, they cannot make representations to PWC as to the appropriate approach to be adopted in their reconstruction of the accounts and valuation of the company.

14.  Armed with the information that is ultimately available after the various sources of information have been utilised and the benefit of submissions of the parties (which should be provided through their respective lawyers rather than personally, since that would be seem to be a more efficient course to adopt), it seems to me that it will then be for PWC to work out a valuation of the company as at 31 December 2002 identifying where appropriate the assumptions on which they have proceeded and giving an explanation which sets out their reasons for adopting a particular approach or assumption in any given situation.  That should produce a valuation of the company which will enable the balance of the Tomlin order to be carried into effect. 

15.  There has been some discussion in the course of today’s hearing as to various other matters that are, in my view, of peripheral relevance to the valuation exercise.  The first is the question of whether or not the company was in fact in operation as at the end of 2002. 

16.  Mr Chan, who appears for Mr Lam, has suggested, with some justification, that the agreement on Mr Lam’s part to a valuation as at 31 December 2002 must have been premised on the basis that the company was still in operation as at that date.  Certainly, there does not appear to be anything in the evidence filed in the course of the petition proceedings that suggests in terms that the company had ceased to operate at some particular point in time prior to the settlement, although there do appear to be statements in Mr Kook’s affirmations and evidence to the effect that the carrying on of the company’s business had been rendered difficult or more complicated by the approach that had been adopted by Mr Lam following the breakdown in the relationship between them.

17.  But be that as it may, it does not appear that there is any clear statement that the company was no longer in operation as at the time that the proceedings had reached trial.  It was therefore, said Mr Chan, something of a surprise for Mr Lam to learn in about mid-2003 that the company was said to have ceased trading as from about April 2000, although, in more recent evidence, Mr Kook has suggested that the cessation of trading was in mid-2000. 

18.  At the end of the day, it does not seem to me that this is a matter that is critical to the valuation of the company as at December 2002.  If the position is that the company has, in fact, ceased trading as at mid-2000, one would expect that there would be some information as to its activities up to that point and thereafter a lack of information as to further activities, on the basis that there were none thereafter. 

19.  However, this is I think at the end of the day, a matter which PWC will have to resolve in the context of their valuation of the company as at 31 December 2002.  If the company had, in fact, ceased business in about the middle of 2000, then there should be little change in its financial position between mid-2000 and December 2002.  But whatever the position, PWC are required under the terms of their appointment to do the best they can on the material available and come up with a valuation of the company as at 31 December 2002. 

20.  A second matter which was canvassed in the course of today’s argument was that the application that is before me today was taken out by a summons which sought, as what was apparently the primary form of relief, a summary valuation of the company at a stated value.  In the event, that application (which Mr Chan described as somewhat ambitious) was not seriously pressed by Mr Chan, either at the hearing on 10 March 2005 or at today’s hearing. 

21.  It seems to me that there is no basis on which the court could realistically be expected to carry out a summary valuation of the company.  First of all, this is contrary to the terms of the Tomlin order which embody the agreement between the parties.  Until such time as the parties, or one of them, seeks to contend that that agreement is no longer binding, it seems to me that both parties are obliged to carry out or to proceed with the implementation of the terms of the schedule to the Tomlin order.  In any event, even if it had been appropriate to consider such an application, it seems to me that the material before the court is not such as to permit the court to make any realistic assessment on a summary basis of the value of the company as at 31 December 2002. 

22.  I therefore do not consider that it would have been appropriate for me to make an order in terms of paragraph 1 of the summons.  In fairness to Mr Chan, it was not a course which he pressed. 

23.  At the hearing on 10 March 2005, I indicated to Mr Chan that it would be helpful if thought could be given to the directions that were required since, at that stage, it seemed that part of the hold-up was because there were possibly third-party sources of documentation that would be of assistance to PWC in their valuation exercise which had not been as yet explored, but which might be available if the parties were to co-operate in making the necessary requests for them.  However, it has transpired from the evidence which I have heard from Mr Parton and Miss Khoo of PWC today that the position is that PWC have not, in fact, progressed with this matter since about June or July 2004 for a number of reasons, one of which has been that their fees have remained unpaid since that time. 

24.  That being the case, it seems to me that it would be difficult at this point to identify specific items of information which should be provided or which should be sought in order to enable PWC to carry out their task.  It seems to me, in the circumstances, that the appropriate way forward is for PWC to consider the information now in their possession, ask the parties for such further information as they require, proceeding on the basis that Mr Kook clearly says now - if he has not already said so - that he has no further information in his possession. 

25.  On that basis, it should be possible for PWC to identify the third-party sources from which useful documentation might be obtained and for the parties to co-operate in ensuring that that information is provided as promptly as possible. 

26.  Mr Chan suggested, as an alternative, that Mr Kook should be required to give discovery on affidavit as to various classes of documents which, it was said, would be of assistance to PWC in their valuation exercise and which would also throw light on various allegations that have been made by Mr Lam in relation to these proceedings.  With respect, at this stage, it seems to me that it is not possible to say whether or not such information will, in fact, be necessary for PWC’s purposes. 

27.  The provision of an affidavit as to whether or not Mr Kook has in his possession certain classes of documents and, if not, an explanation for his failing to have them, is not a matter that I consider is likely to advance PWC’s task.  It seems to me that what is going to advance PWC’s task is the obtaining and production of such information or documentation as can reasonably be obtained from third parties.  Mr Kook has said in his affirmation dated 9 March 2005 that he has no further documentation in his possession in relation to these proceedings.  Mr  Parton and Miss Khoo stated, when giving evidence today, that that had in fact been Mr Kook’s position since about May or June 2004.

28.  As to this, Mr Chan has drawn my attention to various items of correspondence which suggest that PWC may have thought that there was some further documentation available which might assist them in carrying out a valuation exercise, such as a letter from PWC of 6 July 2004 in which PWC set out an alternative basis on which the valuation exercise could be carried out which appeared to envisage the existence of certain types of documentation which had not previously been provided.  It is also fair to say that in some of the correspondence from those then acting for Mr Kook in response to requests for documentation made by PWC, that Mr Kook’s then representatives did not suggest that there was no further documentation at all to be provided but asked instead for clarification with a view to seeing whether Mr Kook was in a position to assist further. 

29.  It may be that the difference between the two is that Mr Kook had indicated to Mr Parton and Miss Khoo in May or thereabouts last year that all of the information and documentation requested had been supplied, but was not making any particular representation as to whether there was any other relevant documentation in his possession.  However, it is not possible at this stage to come to a firm view as to that because I do not know the terms of any requests made to Mr Kook for documentation and the terms in which he responded to such requests.  In any event, I think it fair to note that as far as Mr Lam and Mr Chan are concerned, that the first that they could possibly have known that Mr Kook was saying that he had no further information to supply would be from Mr Kook’s affirmation of 9 March 2005.  But it seems to me that, at the end of the day, to order Mr  Kook to make an affirmation of discovery is not a matter that would, in any meaningful way, advance the implementation of the Tomlin order.  As I have said, what will advance the implementation of the Tomlin order and the exercise to be carried out by PWC will be the supply of such information as is available and the co-operation of the parties in obtaining such information from third parties where that is possible.  

30.  It therefore does not seem to me that it would be appropriate at this stage to order Mr Kook to make the affirmation that is sought. 

31.  So far as the information to be supplied or obtained from third parties is concerned, as I have said, it seems to me that the appropriate course would be for PWC first to identify that information or, if the parties consider that there is such information which can usefully be obtained, they can suggest such sources to PWC.  If PWC take the view that the suggestions are useful ones, they will, no doubt, pursue them by asking the parties to co-operate in obtaining that information. 

32.  The final direction that was sought today was an application on behalf of Mr Lam for an interim payment in the sum of $1 million in respect of the anticipated purchase price for his shares on completion of the valuation exercise by PWC.  Mr Chan suggested that this was an application that should be acceded to having regard to the very long delay that had taken place since the commencement of these proceedings and, indeed, since their settlement by way of the Tomlin order in January 2003, just over two years ago.

33.  While I have a great deal of sympathy for the position in which Mr Lam finds himself of having nothing to show for this litigation despite the fact that it was commenced some five years ago and settled some two years ago, it seems to me that there are real difficulties in the way of my making the order that is asked for. 

34.  The only case that I was referred to in which an order for interim payment in respect of a buy-out order was made was the Scottish case of Ferguson & McLennan v Salmon & Company Limited [1990] BCC 7032.  In that case, the Scottish court ordered that an interim payment be made in respect of the purchase price of shares which there had been an agreement that the respondent should purchase from the petitioner in a company that was the subject of the equivalent of a section 168A petition.  However, it seems to me that the position here is very different form that which obtained in the Ferguson & McLennan case.  In that case, the position was that the agreement that had been reached involved the court in making an assessment of the value of the company’s shares.  An assessment was in fact made by the court and therefore the company shares had been valued.  The valuation of the company shares was that each share in the company was worth £3.05.  This valuation would appear to have been reached following the consideration by the court of evidence and submissions from both sides.  Evidence filed by the respondents suggested that the value of each share in the company was no more than £1.10.  Following the court’s determination, the respondent to the petition appealed, but only as to the valuation of the company’s shares.  It was in that situation that the court made an order for interim payment on the basis that the shares of the company were (even on the respondent’s case) worth at least £1.10 and ordered that an interim payment on that basis be made to the petitioner. 

35.  In that situation, there had been a valuation of the company shares and there was an acceptance by the respondent that the shares had a minimum value of £1.10 pence.  Given that that was the case, it was apparent that, even if the appeal were wholly successful, the consequence would be that there would be an order that the shares be purchased at the price of £1.10 pence per share.  In those circumstances, it is not surprising that the court felt that it was appropriate to order an interim payment on that minimum basis pending the hearing of the appeal. 

36.  The position here, unfortunately for Mr Lam, is rather different.  Under the terms of the Tomlin order, there is no obligation to purchase the shares until such time as the valuation has been completed.  It is only when the valuation has been completed that Mr Kook will be obliged to purchase Mr Lam’s shareholding in the company on the basis of the value of the company as found by the independent accountants.  Until that is done, it seems to me that Mr Kook is not obliged to make any payment to Mr Lam.

37.  Even if one were to take the view that it would be appropriate for some form of interim payment to be made if it were possible to come to the view that the company has some minimum value, the fact is that at this stage there is not before the court any clear evidence as to what that minimum value might be.  If there had been such evidence, it might be necessary to consider whether it is appropriate to order an interim payment.  But in the light of the terms of the Tomlin order, I have serious doubts as to whether or not it would be open to the court to make an order for an interim payment in this case. 

38.  In those circumstances, it seems to me that I am not in a position to make any such order and I therefore decline to do so.  In the result the outcome is that I will make no order on the application for directions.  That is not to say, however, that the application has not had some useful effect in that it has, I think, had the effect of at least focussing the parties’ minds on the steps that need to be taken to take this matter forward.  It may also be that the reasons which I have briefly indicated above will be of some assistance when it comes to indicating to PWC the basis on which they should be proceeding with their task as independent accountants.  It therefore seems to me that the application has at least had that benefit. 

39.  I therefore make no order on the application and will now hear the parties on the question of the costs of the application itself. 

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

Mr Victor Dawes, instructed by Messrs Tang, Wong & Chow, for the Opposing Contributory

Official Receiver’s attendance excused