KWOK CHIN WING v. KAO, LEE & YIP

HCCW 743/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 743 OF 2002

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Before:  Hon Kwan J in Chambers

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D E C I S I O N

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1.  I have before me a summons issued by Kwok Chin Wing (“Kwok”) on 3 July 2007 for a wasted costs order against his former solicitors, Messrs. Kao, Lee & Yip (“KLY”), pursuant to Order 62 rule 8 of the Rules of the High Court.  The hearing before me on 13 July 2007 was the first stage hearing under Practice Direction 14.5 [2005] 1 HKLRD 408.

2.  This Practice Direction came into effect on 1 March 2005 and was brought about by the decision of the Court of Final Appeal in Ma So So v. Chin Yuk Lun & Anr. [2004] 3 HKLRD 294.  Para. 12 of the Practice Direction provides as follows:

“At the first stage hearing, the court decides whether the matter should be allowed to proceed further.  The court will only allow it to proceed if satisfied:

(a)     that it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(b)     the wasted costs proceedings are justified notwithstanding the likely costs involved.”

3.  The burden of proof is on the applicant to establish the above matters.

4.  The summary jurisdiction to make a wasted costs order is discretionary.  The aggrieved party is not entitled to an order.  The discretionary considerations to be taken into account at the first stage hearing were put in this way by Li CJ in Ma So So, supra. at 303C to E and 304G to H:

“16.   In exercising its discretion at this first stage, the court has to take into account the strength of the prima facie case shown by the applicant.  Obviously, the stronger the prima facie case shown, the greater is the inclination to proceed.  But a most important matter the court has to consider is the proportionality of the exercise.  The rule enables an aggrieved party to obtain compensation from the solicitor concerned for costs incurred or wasted.  The court should compare (i) the costs likely to be incurred in litigating the application under the rule and (ii) the amount of the costs sought.  The likely costs to be incurred in litigating the application would depend on many matters including the nature of the allegations, the extent to which there are undisputed facts and the requirements of procedural fairness (see para. 22 below).  If such costs are likely to be relatively high compared to the amount of costs sought, the court should give this matter great weight and in an appropriate case, it would be a proper exercise of discretion to decide not to proceed further.  This would be so whether or not the applicant has a separate cause of action against the solicitor in respect of the conduct in question.”

“22.   The requirements of procedural fairness are relevant to the exercise of the discretion at the first stage when deciding whether the application should be allowed to proceed further (see para. 16 above).  As has been stated, the procedure should be as simple and summary as fairness permits.  But where procedural fairness requires an elaborate procedure which is likely to lead to costly litigation, the court would have to give the risk of disproportionate costs great weight in deciding whether to proceed further.  As has been stated, questions apt for summary disposal are usually clear cases.  The more elaborate the procedure, the more likely it is that the court may conclude that the matter is not appropriate for determination in this summary jurisdiction: Harley v McDonald [2001] 2 AC 678 at para. 54.”

5.  Miss Eva Sit submitted on behalf of KLY that the application should not be allowed to proceed.  I will first set out the background matters before I consider the submissions on both sides.

The background

6.  Rockapetta Industrial Co. Ltd. (“the Company”) was wound up by the court on 9 October 2002, on the petition presented by Kwok as a creditor of HK$52 million.  He was the founder of the Company but had ceased to be a substantial shareholder and director of the Company in 2001, before he presented his winding-up petition in July 2002.  The liquidators were appointed by the court on 18 March 2003, with a committee of inspection of five members, Kwok being one of them.

7.  From the start, Kwok had made known his concerns, first to the Official Receiver, and later to the liquidators, that there were matters in the affairs of the Company which clearly required investigation, in particular very substantial inter-company loans owed by the Company to seven related companies to the tune of HK$233 million and the disposal of the Company’s interest in a Shenzhen company after the commencement of the winding up.

8.  Kwok claimed that the liquidators had failed to discharge their duties in their investigation and take necessary action to preserve and recover assets.  In 2004, Kwok through KLY sought documents and information from the liquidators so that his own advisers could ascertain properly the affairs, assets and liabilities of the Company.  The liquidators drew the attention of KLY to section 219 of the Companies Ordinance, Cap. 32, which provides that the court may make an order for inspection of books and papers of a company in liquidation by creditors and contributories and requested KLY to apply to court under this provision.  The liquidators also indicated that such an application would not be opposed.

9.  KLY refused to issue a summons for that purpose and insisted that they should be allowed inspection of documents without a court order.  In the end, the liquidators issued their own summons on 20 January 2005, seeking directions whether Kwok should be allowed to inspect documents and the scope of the inspection.  Kwok then issued his own summons for inspection on 3 February 2005.

10.  Both summonses came before me on 16 February 2005 and were adjourned for argument with directions for the filing of evidence, in view of allegations against the liquidators of breach of duty made in Kwok’s affirmation in support of his own summons, and the opposition of other members of the committee of inspection.  The other members had objected to give inspection of documents to Kwok, alleging that this might jeopardise possible legal actions of the Company against him.  The summonses were later set down for hearing with one day reserved.

11.  At the hearing of both summonses on 8 December 2005, I ordered that Kwok be allowed to inspect the books and records of the Company, limited to five specific areas set out in paragraph 20 of my decision of the same date (“the Decision”).  I was critical of KLY in their handling of Kwok’s demand to inspect documents as seen from the correspondence of October 2004 to February 2005 placed before the court, see paragraphs 4, 5, 8, 24 to 26 and 35 of the Decision.  In summary, I was of the view that if KLY had adopted a more sensible attitude, and put Kwok’s case in a more temperate way in the affirmations of Kwok, additional work and costs might well have been avoided, as the allegations against the liquidators were quite unnecessary.

12.  I rejected Kwok’s application for costs against the liquidators or the other members of the committee of inspection notwithstanding that he was allowed to inspect documents.  I made no order as to Kwok’s costs on the summonses.  I ordered the liquidators’ costs to be paid out of the estate of the Company.  I refused the application of the other respondents to have their costs paid out of the assets of the Company (paragraphs 27 to 39 of the Decision).

The summons for a wasted costs order

13.  My decision was given on 8 December 2005.  The present summons for a wasted costs order was issued only on 3 July 2007.

14.  Kwok seeks an order for KLY to show cause why an order should not be made against them that costs as between Kwok and KLY regarding the summons before me on 8 December 2005, costs in relation thereto and costs incurred in relation thereto prior to the said hearing should be disallowed on these grounds:

(1)     KLY, improperly and without reasonable cause, did not take account of or act upon the provisions of section 219 of Cap. 32, despite having had their attention drawn to the section by the liquidators and despite the liquidators informing them that an application to the court by Kwok would not be opposed;

(2)     KLY’s strident, intransigent and confrontational stance in their dealings with the liquidators was unreasonable in the circumstances and resulted in the liquidators taking out an application under section 219 and thereby causing totally unnecessary costs to be incurred, taking into account that the liquidators had informed KLY they would not oppose an application to the court by Kwok; and

(3)     Kwok’s taking out a second summons under section 219 after the liquidators had taken out their summons under the same provision was superfluous and thereby caused unnecessary costs to be incurred.

15.  There was significant delay in making the present application.

16.  Mr. Ronald Mayne, appearing for Kwok, drew my attention to the fact that Kwok’s present solicitors were engaged in March 2006.  On 15 March 2006, Kwok issued a writ in HCA No. 568 of 2006 against his former solicitors KLY.  The indorsement of claim raised the issue of wasted costs incurred by Kwok in the winding-up proceedings attributable to KLY.  I understand the writ has not been served on KLY to date.

17.  In April 2006, Kwok issued two originating summonses in HCMP Nos. 792 and 793 of 2006 against KLY for taxation of costs in the winding-up proceedings.  An order was made by a Master on 27 July 2006 referring the bills of KLY to taxation, except for two of them.  Kwok obtained discovery against KLY in the taxation proceedings and in the course of those proceedings raised the issue that part of the costs of KLY should not be taxed but should be disallowed as wasted costs.  He sought repeated extensions of time in the taxation proceedings to bring an application for a wasted costs order against KLY.  On 2 March 2007, it was ordered by a Master that within 21 days from production of the documents sought by Kwok from KLY, he should apply to this court for a wasted costs order in the winding-up proceedings.  On 2 May 2007, KLY delivered the documents sought but some of the documents including attendance notes were redacted.  On 22 June 2007, a Master ordered that unless Kwok should take out an application for wasted costs within seven days thereof, taxation of the bills of KLY would proceed without regard to his wasted costs application.  It was also ordered that KLY should produce to Kwok unedited copies of the redacted documents within 14 days from 22 June 2007.

18.  I was given to understand that Kwok’s legal advisers are still going through the unedited documents delivered to them last week, as they are quite large in number.  Even so, I have not been given any satisfactory explanation why Kwok had delayed in issuing the present summons for more than a year after he changed solicitors.  The bills of costs sought to be disallowed were issued by KLY between May to December 2005.  The documents sought by Kwok from KLY may be of relevance to the taxation proceedings.  It is not readily apparent from the two affirmations filed by Kwok in support of the wasted costs application what relevance the documents sought from KLY would have to the present application.

19.  Mr. Mayne submitted that no time limit is imposed for such an application to be brought, and the jurisdiction may be invoked while the costs remain a live issue before the court which conducted the proceedings (Harvey v. McDonald, supra. at 702H to 703A, para. 48).  Hence, as the taxation of the costs in the winding-up proceedings is still going on, it would remain a live issue whether part of the costs should be disallowed as wasted costs.

20.  Strictly speaking, Mr Mayne is correct on the above matters.  But I do not agree with him that the application for wasted costs could or should be delayed for years as long as taxation of costs is still in progress.  This jurisdiction is to be invoked in a clear case after the conclusion of the proceedings in question where the need for such an order is reasonably obvious (Ma So So, supra. at 301G to H and 303J, paras. 9 and 19; Practice Direction 14.5, para. 4).  It is not envisaged that an elaborate procedure would be required for the determination in this summary jurisdiction (Ma So So, supra. at 304G to H, para. 22; Practice Direction 14.5, para. 5).  The taxation of costs, which is an entirely separate matter, should not be used as a reason for delaying or holding up an application for wasted costs.  A late application for wasted costs could place the opposite party in a difficult position.  Evidence might no longer be available if the application is made long after the conclusion of the proceedings in question.

21.  I would not go so far as to question the bona fides of the present application, as submitted by Miss Sit, but delay is a factor that I will take into account in the exercise of my discretion whether to allow the application to proceed at the first stage hearing.

If the application is apt for summary determination

22.  Miss Sit submitted that there are a number of factual matters plainly relevant to whether a wasted costs order should be made, but are not covered by the Decision or the evidence adduced by Kwok in this application.  Factual matters in issue would include the following:

(1)     whether the stance taken in correspondence leading to the hearing on 8 December 2005 was KLY’s own act or whether KLY was acting on Kwok’s instructions; and

(2)     whether KLY had failed to advise or had given wrong advice to Kwok in relation to the issue of instructing senior counsel for the hearing.

23.  If the application were to proceed, KLY said they would need to adduce evidence on the communications between them and Kwok and the advice they gave him.  My attention was drawn to exhibit 10 to the latest affirmation of Kwok filed on 12 July 2007, being a bill of costs prepared by his law costs draftsman in which all the items claimed as wasted costs are listed (“Exhibit 10”).  I was taken by Miss Sit to the items in which KLY had communications with Kwok at various stages in the proceedings from January to October 2005.  I counted a total of 22 items, most of them were oral communications.  Although there were attendance notes of KLY covering the occasions for attending Kwok, Miss Sit submitted that in the nature of things, attendance notes would not be a complete record and it would be necessary to supplement the attendance notes with evidence on affidavit.  Insofar as there are disputes as to what had or had not been said by one party to the other on various occasions, it is likely that cross-examination of the parties would be required for the court to make factual findings. 

24.  Mr. Mayne submitted that it would not be necessary to seek the cross-examination of deponents, as the documents adduced particularly the correspondence between KLY and the liquidators would clearly demonstrate how the matter had escalated resulting in additional work and wasted costs due to KLY’s unreasonable conduct.  He queried whether the aggressive stance adopted by KLY in correspondence with the liquidators was on the specific instructions of Kwok.  He contended that it would be doubtful if solicitors would allow a lay client to impose his view on them if that was contrary to the law. 

25.  I am not prepared to make assumptions of the kind as suggested by Mr. Mayne.  I agree with Miss Sit that additional evidence on affidavit would be required from the parties in the first instance.  The court is likely to be faced with “issues about the nature or scope of the instructions which the client has given about the conduct of the litigation or the advice that may or may not have been tendered to the client by his barrister or solicitor” (Harley v. McDonald, supra. at 704E, para. 54).  To resolve such factual disputes, it would be necessary for the deponents to be cross-examined.  Further investigation by cross-examination is not consistent with the summary nature of the jurisdiction.

26.  As Lord Hope had observed in Harley v. McDonald, supra. at 704C to D, para. 53, allegations that may raise questions about duties owed to the client by the barrister or solicitor and the conduct of the case outside the courtroom are unlikely to be immediately and easily verifiable, and it is not the function of the court in the exercise of this summary jurisdiction to adjudicate on the position as between the client and his barrister or solicitor.  The concern of the court in the exercise of the summary jurisdiction is to serve the public interest in the administration of justice.  Where the client has allegations of professional misconduct or professional negligence against his solicitors, which cannot be dealt with summarily on agreed facts or after a brief inquiry, he should pursue his claim in separate proceedings (Harley v. McDonald, supra. at 703E to 704B, paras. 50 to 52).

27.  As mentioned earlier, Kwok has commenced a writ action against KLY, raising, inter alia, the issue of wasted costs.  It seems to me far more appropriate that he should pursue his claim for wasted costs in the writ action.

Causal connection between the conduct complained of and wasted costs

28.  Miss Sit advanced further reasons why the application should not be allowed to proceed.

29.  It is provided in Practice Direction 14.5 para. 8 that the summons which seeks an order that the solicitor show cause under Order 62 rule 8 should state what wasted costs are alleged to have been caused by the conduct complained of and are being claimed by the applicant.  The causal link between the solicitor’s conduct and the extent of costs incurred or wasted must be established (Ma So So, supra. at 300F and 304D, paras. 6 and 21).

30.  Further, the court’s power to make a wasted costs order under Order 62 rule 8 is circumscribed by the words “in any proceedings”.  The wasted costs must be incurred in respect of legal proceedings as a result of the solicitor’s default or misconduct in relation to those proceedings (Ma So So, supra. at 300B to C and 308Cto G, paras. 5 and 40).

31.  In Exhibit 10, Kwok’s law costs draftsman set out in respect of each item the amount of the costs sought to be disallowed as wasted costs.  I understand from Mr. Mayne that for some items the entire amount billed is sought to be disallowed and for other items only a partial reduction is sought.  No indication was given in Exhibit 10 which items are total reduction and which are partial reduction.  Nor is it readily apparent from Exhibit 10 the basis for partial reduction or the extent to which reduction is sought. 

32.  Miss Sit has queried whether all the items in Exhibit 10 were incurred in respect of the proceedings relating to the two summonses under section 219 or incurred as a result of the KLY’s alleged default or misconduct in relation to those proceedings.  She has referred me to items which would have no apparent causal connection in the above sense or would seem to be outside the scope of the court’s jurisdiction to make a wasted costs order.  These are the items of work relating to other aspects of the winding up for which KLY had been advising Kwok, such as the proposed engagement of lawyers in China by the liquidators to protect the Company’s interest in landed properties in the Mainland; the demand for a preliminary report from the liquidators; possible misfeasance proceedings against the liquidators and other parties under section 276; possible proceedings under section 182; the disposal of the Shenzhen company; and landed properties previously held by the Company.

33.  Mr. Mayne did not contend to the contrary.  I agree with Miss Sit that insofar as these items are concerned, the court cannot be satisfied that it has before it evidence or material which, if unanswered, would be likely to lead to a wasted costs order being made.

The proportionality of the exercise

34.  I should only allow the application to proceed if I am satisfied that the wasted costs proceedings are justified notwithstanding the likely costs involved.

35.  The total amount of fees claimed as wasted costs and itemised in Exhibit 10 is HK$1,280,048.33, covering work done by KLY from January 2005 to February 2006.  The total amount of fees billed by KLY up to the conclusion of the hearing on 8 December 2005 was HK$1,391,391.60.  I have no idea of the amounts of two other bills for work done after the hearing up to February 2006.  On a rough calculation, only about HK$110,000.00, less than 10% of the amount billed, would be regarded by Kwok as the proper fees of KLY for all the work done over a year.

36.  I am very sceptical if the claim for wasted costs is grossly inflated.  I have mentioned earlier those items which do not appear to me to have causal connection to the conduct complained of, or fall within the power to disallow costs as wasted in that they did not appear to be costs incurred in respect of the summonses.

37.  The onus is on the applicant to satisfy the court at the first stage hearing the costs likely to be incurred in litigating the application are not likely to be out of proportion with the amount of the costs that are at stake.  For the reasons given earlier, I am of the view that this application for wasted costs is not appropriate for summary determination and cross-examination would probably be required.  Further, the court would need to consider, in respect of over 400 items of work in Exhibit 10, the amount sought to be disallowed or reduced and the basis of the reduction for each item.  Miss Sit submitted that the proposed exercise is really a form of taxation of costs in disguise.  I am inclined to agree.

38.  The court has not been provided with a credible figure of the amount of wasted costs likely to be at stake.  I am not satisfied that the substantial costs likely to be incurred in litigating the matter, with cross-examination of the parties and considering over 400 items of costs sought to be reduced, would not be disproportionate to the wasted costs that might be disallowed at the end of the day.

Conclusion

39.  For the above reasons, in the exercise of my discretion, I decline to allow the application to proceed.  The summons is dismissed, without prejudice to any separate proceedings Kwok might wish to pursue against KLY for wasted and unnecessary costs incurred.

40.  Costs in the present application should follow the event.  I make an order nisi that Kwok is to pay the costs of KLY in this application, to be taxed if not agreed on a party and party basis.

HCCW 743/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 743 OF 2002

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D E C I S I O N

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1.  There are two summonses before me, both are taken out under section 219 of the Companies Ordinance, Cap. 32.  Section 219(1) provides that:

“The court may, at any time after making a winding-up order, make such order for inspection of the books and papers of the company by creditors and contributories as the court thinks just, and any books and papers in the possession of the company may be inspected by creditors or contributories accordingly, but not further or otherwise.”

2.  The summons taken out first in time, on 20 January 2005, was by the liquidators of the company in question, Rockapetta Industrial Company Limited, now known as RIC Trading Limited (“the Company”).  The liquidators seek directions whether or not Kwok Chin Wing (“Kwok”) and/or his authorised agents are entitled to inspect the books, papers and documents of the Company, and the scope of the documents of the Company to be provided for inspection.

3.  This summons was served on Kwok, and on the other 4 members of the committee of inspection.

4.  This summons was issued by the liquidators because Kwok’s solicitors did not see fit to take out an application, despite having had their attention drawn to this provision since 27 October 2004.  In extensive correspondence exchanged with the liquidators in December 2004 and January 2005, the stance of Kwok’s solicitors was that the liquidators should provide the documents and information sought by them without an application under section 219, the suggestion that they should apply for leave from the court was “totally outrageous”, and the liquidators were repeatedly threatened with an application to seek costs against them personally if Kwok was required to take out his application.

5.  I do not think this is a stance now maintained by Kwok.  In the closely written submissions of 32 pages of Kwok’s counsel, there is no suggestion that the liquidators should have provided the documents without the need for an application.

6.  It does not seem to me that the liquidators could be criticised in issuing the summons.

7.  The second summons was taken out on 3 February 2005 by Kwok against the liquidators.  He seeks an order that he, his solicitors, accountants and agents be at liberty to inspect the books, papers and documents of the Company.

8.  It seems to me entirely superfluous for Kwok to issue a second summons.

9.  The liquidators initially indicated in correspondence with Kwok’s solicitors they would not oppose Kwok’s application, if he was to apply to court.  I do not think their position has changed materially.  They are still in principle neutral, despite what Kwok has said.  They also wish to seek guidance from the court on the scope of inspection, as there are potential claims of the Company against Kwok that are the subject of their investigation or may require investigation.

10.  As for the other 4 members of the committee of inspection present at the hearing today, they had written to the liquidators on 19 January 2005, before the first summons was issued, that they would object to Kwok’s request for inspection, on the ground that this might jeopardize possible legal actions by the Company against Kwok regarding preferential payments made to him within 2 years of the winding up.

11.  Since then, the 2^nd respondent, Ma Yum Kai of Wealthy Transport Company, has indicated that he would take a neutral stance.

12.  The other 3 respondents, which are companies related to the Company, would seem to have held out their opposition a little longer, but they too have indicated today that they are taking a neutral stance.

13.  That makes the task for me today a simple one.  I have been referred to all the relevant authorities on the statutory provision.  They are cases in England and Australia.

14.  The general principles are not in dispute.  The section only applies to documents in the possession of the Company (In re North Brazilian Sugar Factories (1887) 35 Ch D 83 at 86 to 87; In re DPR Futures Limited [1989] 1WLR 778 at 789B).  The court will not allow the provision to be used for a vexatious purpose or to conduct a fishing expedition (In re The Birmingham Banking Company, ex parte Brinsley, In re The Joint-Stock Discount Company, ex parte Buchan (1867) 36 Ch D 150; IACS Pty Limited v Australian Flower Exports Pty Limited (1993) 10 ACSR 769 at 774 lines 40 to 50).  The powers to be exercised are prima facie to be exercised for the purposes of the winding up and for the benefit of those who are interested in the winding up (In re North Brazilian Sugar Factories, supra. at 87; In re DPR Futures Limited, supra. at 788H to 789A).  The Australian courts have taken a more liberal approach in this regard, creditors have been able to obtain orders for inspection for the purpose of furthering their own interests rather than benefiting the winding up (Re MMC Pty Limited (in liquidation)) (1992) 10 ACLC 365; Re BPTC Ltd (1992) 7 ACSR 291; and Re William Lawrence (Globe Dyeworks) Pty Ltd (in liquidation)(1993) 12 ACSR 181).

15.  There is no need to resolve whether the English cases should be followed or the more liberal approach in Australia should be preferred.  Kwok is evidently very dissatisfied with the apparent lack of progress of the liquidators in their work and asserted that the reason why he seeks inspection is to enable his own advisers to ascertain the affairs, assets and liabilities of the Company, with a view to increasing the assets realised and disclaiming bogus liabilities.  That must be a reason for the benefit of the winding up.

16.  It is clear to every one, and it is accepted by the liquidators, that the matters raised by Kwok for which inspection is sought are areas which require investigation by the liquidators.  There is no need at all to subject these matters to a close and critical analysis and this is hardly a fruitful exercise, as evidence is not complete at this stage and it would not be appropriate for the liquidators or the court to come to a view that the positions taken by Kwok on those matters must be right or would probably be right.

17.  I see no reason not to exercise my discretion to allow inspection by Kwok in the circumstances.  I do not think inspection should cause unnecessary delay in the winding up or would otherwise hinder the work of the liquidators, provided of course that the inspection permitted is to be done in a “reasonable and pragmatic” manner, as Kwok has promised he would do in his 4^th affirmation.  This is something that his advisers should bear firmly in mind.

18.  I should also mention that I do not see the need for heavy supervision or policing of the order for inspection, as envisaged by the liquidators’ counsel.

19.  I turn to the scope of the inspection.

20.  Kwok has stated 5 matters in which he would like to have inspection of documents:

(1)	the alleged liabilities of the Company to 7 related companies of HK$233,062,389.24 in the statement of affairs;
(2)	the alleged contingent liabilities in the statement of affairs of HK$38,720,361.00;
(3)	the alleged debts due to the Company of HK$170,978,331.00 in the statement of affairs;
(4)	the disposal of 70% interest of the Company in Shenzhen Rockapetta Toys Company Limited (“SRTCL”), which was a major asset of the Company, to Rockapetta Toys Ltd, allegedly after the commencement of the winding up; and
(5)	the allegation that the Company had continued to trade, whether on its own account or as agent for SRTCL, after the presentation of the winding-up petition.

21.  There being various specific areas in which Kwok would like to carry out his own investigation, there is no need and it would not be appropriate to order a general inspection of books and records of the Company.

22.  I order that Kwok be allowed to inspect the books and records of the Company limited to the 5 specific areas that I have mentioned.

23.  I now come to costs.  There are various sets of costs to deal with.  I would like to preface this by saying that these applications should have been a simple matter.  It is most unfortunate that the parties have made things a lot more complicated than they actually are.

24.  Kwok’s solicitors had adopted a strident, intransigent and unnecessarily confrontational stance.  Their allegations of breach of duty against the liquidators are quite unnecessary.  If such allegations are well founded, they should take out an application to remove the liquidators or seek other directions to protect their client’s interest.  The present applications are simply not the appropriate occasion for these allegations to be ventilated.

25.  Because of this stance, the liquidators found it necessary to deal with the allegations of breach of duty and impropriety on their part and to seek legal assistance.  This has added to the costs of the liquidation.

26.  Had the solicitors of Kwok adopted a more sensible attitude, and put his case in a more temperate way in the evidence filed, the additional work and costs might well have been avoided.

27.  I would first set out the respective positions taken by the parties on costs.  Miss Eu, SC seeks an order as follows:

(1)	the liquidators, the 2nd, 3rd to 5th respondents should pay Kwok’s costs of both summonses which are heard together;
(2)	the liquidators should be ordered to bear such costs personally;
(3)	insofar as the liquidators had filed unnecessary and irrelevant evidence in these applications which Kwok has to deal with, the costs should be ordered against the liquidators on a common fund basis;
(4)	as for the liquidators’ own costs, they should be deprived of the costs of instructing solicitors because the appointment of solicitors was irregular and invalid.

28.  Mr Thomas Au for the liquidators seek an order as follows:

(1)	the liquidators’ costs in both summonses should be paid by Kwok and the 3rd to 5th respondents, jointly and severally;
(2)	alternatively, the liquidators’ costs should be paid out of the estate of the Company, save for the costs incurred by the liquidators in filing unnecessary evidence;
(3)	as for Kwok’s costs, the liquidators should not be made to bear his costs personally, nor should his costs be allowed from the estate of the Company.  There should be no order as to costs.

29.  Mr Victor Yeung for the 2^nd respondent submitted as follows:

(1)	the 2nd respondent should not be responsible for Kwok’s costs;
(2)	the 2nd respondent’s costs in this application should be paid out of the estate of the Company.

30.  Mr Harold Ng for the 3^rd to 5^th respondents submitted as follows:

(1)	the 3rd to 5th respondents should not be responsible for Kwok’s costs;
(2)	the 3rd to 5th respondents should not be responsible for the liquidators’ costs;
(3)	the costs of the 3rd to 5th respondents should come out of the estate of the Company.

31.  I turn to Kwok’s costs first.  There is no justification at all that the liquidators should bear his costs personally, despite the elaborate submissions made on his behalf.  I do not think the liquidators had acted unreasonably or improperly, in filing the evidence to answer the matters raised in Kwok’s 3^rd affirmation, or in engaging solicitors and counsel to act for them in these applications.  I do not think there is any want of reasonable professional skill and care of the liquidators in their handling of these applications.

32.  I turn to consider if the other respondents should pay Kwok’s costs.  The 2^nd respondent has taken a neutral stance fairly early on. The 3^rd to 5^th respondents have not taken an active role in opposition although they did not make clear they are also neutral until very late in the day.  I do not think their conduct is such that should justify a costs order to be made against them.

33.  This leaves the possibility if Kwok should recover his costs in the application out of the estate.  I agree with Mr Au that it is necessary for Kwok to apply to court for an order for inspection.  The fact that he has incurred more costs than he would otherwise have done cannot be attributable to others, having regard to the correspondence exchanged.

34.  Insofar as Kwok’s costs are concerned, I make no order as to his costs on each of the applications.

35.  I come to the liquidators’ costs.  The liquidators should have their costs paid.  The choice is whether these costs should come out of the estate or be paid by Kwok and/or other of the respondents.  I was very inclined at one stage to opt for the latter, in view of the comments I made earlier regarding the way the applications were handled on Kwok’s behalf.  I have decided not to depart from the usual course to order the liquidators’ costs to come out of the estate.  I hope this would serve as an exhortation and reminder that Kwok’s advisers would conduct themselves in a more measured and moderate way when dealing with the liquidators in future.

36.  I order the liquidators’ costs in this application are to come out of the assets of the Company.  These costs are to include work to be done in collating the documents to be provided for inspection and the manpower deployed to oversee the inspection.  The costs allowed would be subject to the approval of the court, and I emphasis that only reasonable costs would be allowed.

37.  As for the costs of the liquidators in instructing solicitors, I see no reason to disallow that.  The alleged irregularity in the appointment of solicitors to act for them in the applications is highly technical.  To put the matter beyond doubt, I exercise my inherent jurisdiction to give retrospective sanction to authorise the liquidators to pay the costs of the solicitors out of the estate of the Company (Re Associated Travel Leisure and Services Limited (in liquidation)[1978] 2 All ER 273).

38.  I do not propose to reduce any part of the liquidators’ costs insofar as some of the evidence filed was not strictly necessary or relevant to the present applications.  I would take a broadbrush approach.

39.  As for the costs of the other respondents, I see no reason why their costs should come out of the estate of the Company.  I refuse their applications for costs.