Re Fortuna Dev Corporation

• Jurisdiction: Cayman Islands
• Judge: (Henderson, J.)
• Judgment Date: 17 September 2007
• Court: Grand Court (Cayman Islands)
• Date: 17 September 2007

Grand Court

(Henderson, J.)

IN THE MATTER OF FORTUNA DEVELOPMENT CORPORATION

S. Phillips, Q.C., and N.D. Robinson for the petitioner;

R. Hacker, Q.C., and G. Halkerston for the respondents.

Cases cited:

(1) Bernhard Schulte GmbH & Co. KG v. Nile Holdings Ltd., [2004] 2 Lloyd”s Rep. 352; [2004] EWHC 977 (Comm), referred to.

(2) Boswell & Co. (Steels) Ltd., ReUNK(1988), 5 BCC 145, referred to.

(3) Gillies v. Work & Pensions Secy., [2006] 1 W.L.R. 781; [2006] 1 All E.R. 731; 2006 S.C. (H.L.) 71; 2006 SLT 77; 2006 S.C.L.R. 276; [2006] ICR 267; (2006), 9 CCLR 404; [2006] UKHL 2, dictum of Baroness Hale of Richmond applied.

(4) Isaacs v. Belfield Furnishings Ltd., [2006] 2 BCLC 705; [2006] EWHC 183 (Ch), referred to.

(5) Macro v. Thompson (No. 3), [1997] 2 BCLC 36, referred to.

(6) Man O”War Station Ltd. v. Auckland City Council, [2002] UKPC 28, dictum of Lord Steyn applied.

(7) Nugent v. Benfield Greig Group Plc, [2002] BCC 256; [2002] 1 BCLC 65; [2002] W.T.L.R. 769; [2001] EWCA Civ 397, referred to.

(8) O”Neill v. Phillips, [1999] 1 W.L.R. 1092; [1999] 2 All E.R. 961; [1999] 2 BCLC 1, referred to.

(9) XYZ Ltd., In re, 1987 PCC 92; (1986), 2 BCC 99520, referred to.

Valuers and Appraisers-valuation of company assets-winding-up proceedings-competent expert undertaking valuation of company assets ‘independent’ if free from prior dealings inclining it to favour one party over another-requires not only fact but also appearance of impartiality-question of fact to be decided in particular circumstances of each case

The petitioner sought the winding up of Fortuna Development Corporation.

The petitioner was a minority shareholder in Fortuna, a Cayman company established to further investment initiatives in Vietnam. It petitioned for the company to be wound up, alleging that the majority shareholders (the respondents) had made improper transactions and engaged in unfair and oppressive behaviour. Inspectors were appointed and the Grand Court (Henderson, J.) ordered that the petition be stayed to allow the inspectors sufficient time to examine the company”s affairs. The respondents offered to buy the petitioner”s shares and agreed with the petitioner to appoint an independent valuer to establish the value of its minority shareholding. The agreement contemplated that the petition would be dismissed following the sale of the petitioner”s shares. The parties appointed Ernst & Young (Vietnam) (‘EYV’) and, after substantial valuation work had been done, the petitioner discovered that EYV”s principal valuer had had links to various companies in which Fortuna had investments. The court asked EYV to reply to the allegations but it did not do so, and the petitioner applied for a declaration that it was not ‘independent’ within the meaning of the agreement.

The petitioner submitted that EYV was not independent because (a) its principal valuer claimed, in EYV”s promotional literature, to have been involved in evaluating the assets of a company, CT&D, in whose subsidiary, PMHC, Fortuna had invested, which assets were also the subject of the current valuation; (b) she owned shares in a company controlled by Fortuna”s chairman; (c) her husband, a partner in EYV, had given tax advice to CT&D; and (d) another member of the valuation team had participated in a previous valuation of PMHC.

The respondents submitted in reply that (a) the principal valuer had not carried out any detailed due diligence in relation to CT&D, nor had she been directly involved in evaluating any assets that were the subject of the

present valuation; (b) she had had no personal contact with Fortuna”s chairman for three years and was merely a passive investor in his company, and in any event, the petitioner itself had a 22% shareholding in a related company; (c) her husband had had no more than preliminary discussions with CT&D regarding a joint venture that never took place; and (d) the other team member had never expressed an opinion on the value of any assets and had left EYV soon after the present valuation started.

Held, dismissing the application:

EYV was an independent valuer within the meaning of the agreement between the petitioner and the respondents. A competent expert who undertook such a valuation had a duty to act fairly, and the question was whether it was impartial in fact, while the appearance of impartiality was not crucial. However, the parties had agreed, not merely on an impartial valuer, but on an independent one. Independence was different from partiality and had as much to do with appearance as with fact. Given the level of suspicion on both sides, a reasonable and objective observer would conclude that the parties intended to appoint an impartial expert who could be seen by both parties to be free of any prior dealings that would incline it to favour one side or the other, and whether it was independent was a question of fact to be decided in the particular circumstances. The principal valuer did not suffer from partiality as she had not previously expressed an opinion on the assets she was now evaluating. Her prior dealings with CT&D did not include responsibility for valuing its assets, and the contrary assertions in EYV”s promotional literature were, in all probability, simply exaggerations. Her small and indirect interest in a company in which the petitioner itself had a 22% interest could not be viewed as affecting her independence, nor could the tax advice given by her husband, which had been brief, preliminary and did not require an opinion on value. The previous valuation of PMHC did not reach a conclusion and the team member involved had left EYV and could not now fetter its independence (paras. 54–60).

1 HENDERSON, J.: The petitioner, Tempo Group Ltd., agreed with the respondents, Wynner Group Ltd. and New Frontier Development Corporation (‘the majority shareholders’) to have an independent valuer establish the value of Tempo”s minority shareholding in Fortuna Development Corporation (‘the company’). The parties agreed to appoint Ernst & Young (Vietnam) (‘EYV’). Having discovered certain information after the appointment which calls into question the independence of EYV, Tempo now seeks a declaration that EYV was not and is not an ‘independent’ valuer within the meaning of the agreement.

Procedural history

2 Fortuna is a Cayman exempt company established as a parent to numerous subsidiary and affiliated companies intended to further investment initiatives in Vietnam and elsewhere. As at the date of the petition (August 3rd, 2004), Tempo owned a 30% minority shareholding in the company. The majority shareholders owned a 55% interest. The key investments of the Fortuna group include Hiep Phuoc Power Company (‘HPPC’) which operates a power generation facility; Phu My Hung Corporation (‘PMHC’), the developer and manager of an urban development project; and Tan Thuan Corporation (‘TTC’), the developer and manager of a land and infrastructure project. All of these enterprises are in or near Ho Chi Minh City.

3 Commencing in 2002, Tempo and its principal, Dr. Chen, developed a growing concern over the way in which Fortuna was being managed. On August 3rd, 2004, Tempo commenced this action by petition asking that the company be wound up. The petition alleges a number of improper transactions and payments, acquiesced in by the majority shareholders because their principals benefited from them, to the prejudice of Tempo. The petition also alleges improper destruction of documents and unfair and oppressive behaviour on the part of the majority to the prejudice of the minority.

4 On August 13th, 2004, Levers, J. appointed Messrs. David Walker and Russell Smith of PricewaterhouseCoopers as joint inspectors of Fortuna. They conducted a very detailed investigation into the allegations in the petition and issued (on June 6th, 2006) a lengthy and exhaustive report.

5 Soon after their appointment, it became clear that the inspectors would need a considerable period of time to complete their task. With the concurrence in substance of both parties, I ordered (on November 30th, 2004) that the petition be stayed and an independent valuer be appointed. The inspectors were to continue to complete their examination into the affairs of the company. In a schedule to the order, the scheme was described:

‘1. New Frontier Development Corporation (New Frontier) and Wynner Group Ltd. (Wynner) (or their nominees) offer to buy, in accordance with the procedure set out in, and subject to, the terms set out below:

(a) the shares in the Company owned by Tempo Group Ltd. (Tempo);

. . .

2. An independent valuer (the valuer) will be appointed. The valuer will have experience in valuing the shares of major privately-held groups of companies with businesses similar to those conducted by the company and its subsidiaries, namely the development and operation of a new town area, an export processing zone and a major power plant in Vietnam, in each case with associated facilities. Wynner and New...