XINXING COUNTY YUEXINGHUA STAINLESS STEEL PRODUCTS CO LTD v. UNITED PACIFIC TRADING LTD

HCA 505/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 505 OF 2006

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J U D G M E N T

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1.  By this action, the Plaintiff 新興縣粵興華不銹鋼制品有限公司 (which is transliterated as Xinxing County Yuexinghua Stainless Steel Products Company Limited) claims the sum of HK$51,246,726.27 from the Defendant, United Pacific Trading Limited.

2.  There were before the court four applications contained in two summonses issued by the Plaintiff and the Defendant respectively.  These were:-

(1) An application by the Plaintiff for summary judgment;

(2) An application by the Plaintiff to strike out the Defendant’s Defence;

(3) An application by the Plaintiff seeking an interim payment of HK$50 million, as an alternative to their application for summary judgment; and

(4) An application by the Defendant seeking security for costs against the Plaintiff, on the ground that the Plaintiff is a foreign company, and does not have assets within Hong Kong to satisfy any costs order that might be made against it.

3.  The Plaintiff is a Mainland company.  It is a manufacturer of stainless steel kitchenware and cooking accessories.  The Defendant is a Hong Kong company, and was a retailer and exporter of kitchenware.  The Defendant is now in liquidation, having been ordered to be wound up on 11 October 2006 on the presentation of a petition by employees whose wages had not been paid.  These proceedings were commenced on 8 March 2006, prior to the winding up of the Defendant.  On the making of the winding up order, they were automatically stayed.  The Plaintiff invited the provisional liquidators of the Defendant to accept its claim, but they did not do so.  The Plaintiff later obtained leave to proceed with this action, with a view to establishing the Defendant’s liability to it.

4.  It is common ground that the Plaintiff was one of the principal suppliers of kitchenware and cooking accessories to the Defendant.  It also appears that the Defendant had an interest in the Plaintiff, although the extent of that interest is in dispute.

5.  The Defendant has two shareholders, a Mr Liao Zhe and a Mr Ho Man Yee.  They were, prior to its winding up, also its only two directors.  Mr Liao is also a director of the Plaintiff.  It appears that, in about early 2006, Mr Liao and Mr Ho had a falling out.  This resulted in an action (HCA 485/2006) being brought by Mr Ho against Mr Liao and a company called United Pacific Cookware Limited, in which Mr Ho alleges that Mr Liao and other directors of the Plaintiff are interested.  According to Mr Ho, Mr Liao and United Pacific Cookware were diverting the Defendant’s business and enticing away its employees, in breach of Mr Liao’s duties which he owed to the Defendant as one of its directors.

6.  The Plaintiff’s claim is straightforward.  It alleges that as a result of its supply of kitchenware products to the Defendant between 1996 and January 2006, the Defendant owes it the amount claimed in these proceedings.  According to the Plaintiff, the arrangement between itself and the Defendant was that goods manufactured by the Plaintiff would be supplied to the Defendant on credit, on the basis of a running account between them.  As and when goods were supplied, the value of the goods would be added to the balance of the account in the Plaintiff’s favour, and as and when payments were made by the Defendant, the payments would be added to the Defendant’s side of the account, reducing the balance in favour of the Plaintiff.

7.  The Plaintiff also says that at the end of each month, the Defendant would send to the Plaintiff a statement, bearing the chop of the Defendant, showing the opening balance at the beginning of the month, all of the transactions on the account during the month, and the closing balance at the end of the month.  The Plaintiff would check the statement and place its own chop on it to signify its agreement to it.  The Plaintiff put in evidence for the purpose of these applications a number of such statements, including a statement for December each year from 1996 to 2005.  It also produced a full set of statements for 1997, and a statement for January 2006, which was the last month in which goods appear to have been supplied by the Plaintiff to the Defendant.

8.  The statements indicate that between 1996 and 1999, the year end balance increased steadily, from HK$6,346,102.77 in December 1996 to HK$38,168,054.11 in December 1999.  After a drop at the end of 2000, the balance had risen to HK$51,767,981.14 by December 2001.  Thereafter, it fluctuated from year to year, but remained above HK$50 million at each year end.  As at December 2005, the balance was HK$50,910,719.78, rising slightly to HK$51,246,726.27 (the amount claimed) by the end of January 2006.

9.  The claim is resisted by the Defendant, acting through its present provisional liquidators.

10.  Initially, prior to the Defendant going into liquidation, Mr Ho had purported to file a defence on its behalf, the thrust of which was to allege that there was an agreement between the Defendant and the Plaintiff that the sum due was to be used as an investment in the Defendant’s factories in the Mainland – namely, the Plaintiff and two other companies which operated factories manufacturing kitchenware for supply to the Defendant.

11.  Thereafter, the former provisional liquidators of the Defendant caused another defence to be filed.  In this defence, it was alleged that:-

(1) The amount claimed, which was recorded in the Defendant’s accounts as an “amount due to subsidiaries” was the subject of an understanding between the Defendant and the Plaintiff that it should not be immediately repayable, but should be applied from time to time as for the purpose of investment in the business of the Defendant and its subsidiaries or associated companies, and should only be repaid on realisation of such investments.

(2) The Plaintiff was liable to the Defendant for conspiracy to injure the Defendant and for wrongfully interfering with its business, in that the Plaintiff had, at the instance of Mr Liao (who was acting in breach of the fiduciary duties which he owed to the Defendant as its director), terminated its dealings with the Defendant and dealing instead with United Pacific Cookware following the falling out between Mr Liao and Mr Ho, thus causing the failure of the Defendant, and the Defendant was entitled to set off the damages recoverable by it against the Plaintiff’s claim.

(3) The claim was an abuse of process, as its purpose was to stifle the bringing of proceedings by the Defendant to seek compensation for the damage caused to it by Mr Liao and the Plaintiff.

12.  At the hearing, Mr Maurellet, who appeared for the present provisional liquidators of the indicated that he did not seek to rely on either of the defences previously filed, but would rely on the matters raised by the present provisional liquidators in the affirmations filed by them in opposition to the summary judgment application.  These were:-

(1) That the evidence filed by the Plaintiff in support of its application, which the Plaintiff relied upon as admissions of the existence and amount of the debt owed to it by the Defendant, was inconsistent and, for various reasons, unreliable, thereby casting doubt on the Plaintiff’s case.

(2) Adverse inferences should be drawn against the Plaintiff as a result of its refusal to produce certain documents on request by the provisional liquidators.

(3) The Defendant was entitled to set off damages or compensation in respect of its counterclaims against the Plaintiff for conspiracy, unlawful interference with trade and dishonestly assisting Liao to breach his fiduciary duties to the Defendant.

(4) The claim was brought against the Defendant without proper authorisation on the part of the Plaintiff, as the Defendant, which was said to be a 58% shareholder in the Plaintiff, had not approved the bringing of the claim.

(5) The Plaintiff was estopped from bringing the claim because of an agreement or understanding between the Plaintiff and the Defendant that the amounts due were not to be repayable, but were long term investments in the Defendant’s subsidiaries and factories.

(6)    As the Plaintiff’s claim related to amounts arising from transactions dating back to 1996, some part of it, at least, must have become statute-barred.

(7) In any event, the circumstances were such that there ought for some other reason to be a trial of the Plaintiff’s claims.

13.  In the event, Mr Maurellet made it clear that the principal matters on which he relied were those set out in paragraphs 12(1) and (2) above.

14.  So far as the first of these points is concerned, it is necessary to consider the documentation that has been put forward by the Plaintiff in support of its claim.  This consisted of a range of documents, mostly emanating from the Defendant, which recorded the existence of a debt owing from the Defendant to the Plaintiff, namely:-

(1) The monthly statements to which I have already referred in paragraphs 7 and 8 above, which were stamped with the chop of each of the Plaintiff and the Defendant.  The final balance on this set of documents, the statement for January 2006, is the amount claimed in these proceedings.

(2) Annual financial statements of the Defendant for the years ended 31 December 1998 through to 31 December 2005, which disclose the existence of amounts due to subsidiaries, in amounts that were the same as, or very close to, the amounts shown in the monthly statements for December of each relevant year.  The financial statements for the years up to 2004 were audited, while the final set of financial statements was unaudited – these recorded a liability to the Defendant of the same amount as was recorded in the monthly statement for December 2005.

(3) A confirmation letter signed by both Mr Ho and Mr Liao dated 26 August 2005, confirming that the balance due to the Plaintiff from the Defendant as at 31 December 2004 was as stated in the audited financial statements as at that date, in an amount very close to that shown in the monthly statement for December 2004.

(4) Statements of affairs signed by Mr Ho and Mr Liao respectively, which indicated that at the time of the Defendant’s winding up, there were substantial balances owing by the Defendant to the Plaintiff, although in amounts that differed from that claimed in these proceedings.

(5) A written request for confirmation of balance issued by the Defendant’s auditors on 3 April 2008 which also disclosed the existence of a debt owed by the Defendant to the Plaintiff of an amount close to that claimed.

15.  Mr Maurellet submitted that given the existence of the differences between the amount shown as due from the Defendant to the Plaintiff in these various documents, it should be concluded that there was substantial doubt as to the amount (if any) actually owing, so that the Plaintiff should not be awarded summary judgment.

16.  With respect, however, this seems to me to be putting the position too high.  It is, I think, important to bear in mind that there has never been any dispute as to the existence of the course of dealings relied upon by the Plaintiff in support of its claim.  Nor has there ever been any real dispute as to the amount of the claim.  Even in the two defences that had been filed on behalf of the Defendant by Mr Ho and its former provisional liquidators respectively, no issue was taken as to the existence of a debt in the amount claimed, owed by the Defendant to the Plaintiff.  Rather, what was there said was that the amount claimed is not presently recoverable, as the result of what has variously been termed an agreement, or understanding, between the Defendant and the Plaintiff.

17.  Further, it must be borne in mind that the existence of the course of dealings and of substantial balances in the Plaintiff’s favour has been consistently confirmed throughout the period from 1998 until 2005, during which time Mr Ho and Mr Liao were, it would seem, still on good terms with one another, before the breakdown in the relationship between them in early 2006.

18.  It is notable that the amount shown as due in the (admittedly unaudited) 2005 financial statements the net amount due to the Plaintiff (after netting off the temporary advances by the Defendant to the Plaintiff with the current liability of the Defendant to the Plaintiff) matched the amounts shown in the monthly statement for December 2005.  When the figures for January 2006 are factored in, this gives rise to a debt of the amount claimed in these proceedings.

19.  In these circumstances, where the Defendant is unable (through no fault of the provisional liquidators) unable to suggest that there is in fact some other amount, differing from that claimed, due from the Defendant to the Plaintiff, it seems to me that the best evidence of the amount due is to be found in the monthly statements which have been put forward, and which appear to have been acknowledged as accurate by both parties.

20.  Mr Maurellet also submitted that reliance should not be placed on the financial statements of the Defendant.  In relation to the audited financial statements, he relied on the qualification of the audit report by the auditor.  In each of the financial statements relied on, there had been a qualification by the auditor by reason of a lack of evidence as to the financial position of four subsidiaries or associated companies of the Defendant, one of which was the Plaintiff.  However, it is clear from the terms of the qualification that the uncertainty that the auditors had in mind related not to the balance due from the Defendant to the Plaintiff, but to the value of the Defendant’s investment in the Plaintiff (and the other subsidiaries or associated companies).  I do not think, therefore, that this provides a reason to doubt the Plaintiff’s claim.

21.  Thus, on the basis of the material which the Plaintiff has put forward, I would accept that the Plaintiff has demonstrated that the Defendant is liable to it in the amount claimed.

22.  I turn next to consider Mr Maurellet’s argument that an adverse inference should be drawn against the Plaintiff by reason of its failure to supply further information as requested by the provisional liquidators.  I do not consider this argument to be well-founded – it is for the Plaintiff to put forward such evidence as it considers necessary to make good its claim to summary judgment, and for the reasons which I have already given, it is my view that the material put forward by the Plaintiff suffices for this purpose.  Mr Maurellet referred in this context to rule 82 of the Companies (Winding Up) Rules, which entitles a liquidator to call for further documentation or evidence in connection with any proof of debt that has been filed – however, it does not seem to me that this rule has any application to a claim for summary judgment in proceedings between the claimant and the company in liquidation.  Where, as here, the provisional liquidators have indicated that they are not prepared to accept the Plaintiff’s claim and admit it to proof in due course, so as to require the Plaintiff to establish that claim in separate proceedings against the company, it seems to me that there is no reason to require more of the Plaintiff than would be required of any other plaintiff in ordinary proceedings, simply because the Defendant is a company in liquidation.

23.  So far as the other arguments put forward by Mr Maurellet are concerned, these can be disposed of relatively shortly.

24.  As to the supposed set off, it does not seem to me that this can operate to provide a defence to the claim by the Plaintiff.  Leaving aside the fact that the provisional liquidators have put forward no evidence in support of such claims other than the evidence filed by Mr Ho in his claim against Mr Liao and United Pacific Cookware (which has not yet been tested in any trial), it seems to me that even if it were possible to extrapolate from that evidence a viable claim against the Defendant on any of the bases suggested, such a claim would not provide a defence to the Plaintiff’s claim, as it would not be sufficiently closely connected with the Plaintiff’s claim so as to give rise to a defence of set off.

25.  Mr Maurellet suggested that since the Defendant was in liquidation, the relevant set off to be considered was that which arises in liquidations and bankruptcies, where all mutual claims are capable of being set off against each other.  However, I see no good reason why this would apply in the context of an ordinary action such as this.  It seems to me that the appropriate course would be to give judgment to the Plaintiff in the absence of a valid defence of set off, and to leave it to the Defendant to establish its alleged claim for damages against the Plaintiff by proceedings in the normal way, after which any damages awarded to it could be set off against the Plaintiff’s judgment when determining whether and for what amount the Plaintiff should be admitted to proof as a creditor of the Defendant.  If the Defendant were to fail to establish its claim to damages, there would appear to be little scope for any reduction of the amount for which the Plaintiff would be entitled to prove in its liquidation.

26.  Mr Maurellet did not really press the argument based on lack of authority for the Plaintiff’s proceedings.  I do not think it gives rise to a defence.  First, authority for bringing proceedings on the Plaintiff’s behalf would appear to rest with its board of directors, and there is simply no basis on which the Defendant appears able to suggest that such authority was lacking or has not been exercised.  The Defendant’s case appears to rest on its allegation that it has a 58% interest in the Plaintiff, but that does not detract from the authority of the directors to conduct the Plaintiff’s business, including by bringing proceedings such as these.  Further, the evidence as to the extent of the Defendant’s interest in the Plaintiff is in any case unclear, as there was before the court other evidence and documentation which suggested that the Defendant’s interest in the Plaintiff was much less than 50%.

27.  So far as the alleged agreement or estoppel is concerned, it does not seem to me that this provides a good defence either.  It is founded on the assertions of Mr Ho in the defence filed by him at an early stage of these proceedings (on which Mr Maurellet did not seek to rely).  There is, moreover, little evidence in support of it.  Mr Chong, who appeared for the Plaintiff, pointed out that there was something improbable about an “investment” that fluctuated over time, as the balance on the running account between the parties did.

28.  The most that can, I think, be said for this point is that it reflects the statement in the notes to the Defendant’s financial statements that the balance owing to the Plaintiff was a long-term interest free loan with no fixed terms of repayment.  However, this does not mean that the loan or advance should never be repaid.  Moreover, even if the balance on the running account had been intended as a form of loan capital, it seems to me that on the winding up of the Defendant, there would no longer be any reason for it to remain non-repayable.  Whatever may be the merits of an argument that a loan of that nature should not be repayable so long as the Defendant were continuing in business, there would seem to be no justification for maintaining that position once it had ceased to operate, so as to prevent the lender from ever recovering or proving for the loan.

29.  Finally, the point as to limitation was not pressed by Mr Maurellet, in my view rightly, since, given that the amount due arose on a running account in respect of which there were both debits and credits from time to time, it seems overwhelmingly likely that the debt on that account arose within the limitation period of six years – even if the earliest advances might have taken place before that, given the movements on the account, those early advances would have been repaid relatively early on, to be replaced by fresh advances which would form the basis of the balance remaining due.

30.  For all of these reasons, I am satisfied that the Defendant has not demonstrated the existence of an arguable defence to the Plaintiff’s claim.  Nor does it seem to me that this is a case in which it can be said that there ought for some other reason to be a trial.  I shall therefore give judgment in the Plaintiff’s favour for the sum claimed, together with interest at 1% over HSBC’s prime rate from the date of the writ until judgment.

31.  In these circumstances, it is unnecessary to make any order in respect of the other parts of the Plaintiff’s summons by which it sought to strike out the Defendant’s defence, or sought (as an alternative) an interim payment.  It also follows that the Defendant’s summons for security for costs falls to be dismissed.

32.  So far as costs are concerned, I shall make an order nisi that the costs of both summonses are to be paid by the Defendant to the Plaintiff, to be taxed on the party and party basis in default of agreement.

HCA 505/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 505 OF 2006

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D E C I S I O N

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1.  This is an application by the plaintiff for an order that the former provisional liquidators of the defendant do personally bear the costs of an appeal that was heard on 28 June 2007.  The plaintiff brought the appeal against a decision of Master Ho.  The former provisional liquidators (“PLs”) vacated office when liquidators were appointed on 3 December 2007 to take their place.

2.  The plaintiff started this action against the defendant on 8 March 2006.  A director of the defendant, one Mr Ho filed a notice of intention to defend and a defence for the defendant, but he did so without the authority of the board.  He applied ex parte on 7 April for leave under O.5 r.6 to represent the defendant to defend this action.  The application was dismissed by a Master on 3 May.

3.  In the meantime, the plaintiff applied for summary judgment.  This application was referred to be heard by a judge of this court.  It came before me on 23 August 2006.  At the hearing, the plaintiff instead applied for leave to withdraw the application.  It did so because Ho had no authority to file the notice of intention to defend.  There was thus no valid notice of intention to defend filed by the defendant and the plaintiff could not have applied for summary judgment (see O.14 r.1 of the Rules of High Court).

4.  On 24 August 2006, the plaintiff applied ex parte for judgment in default of notice of intention to defend pursuant to O.13 r.1 of the Rules of High Court.

5.  Master Ho refused this application on 4 September 2006.

6.  The plaintiff filed a Notice of Appeal against Master Ho’s decision on 7 September 2006.  The appeal was scheduled to be heard on 20 October 2006.

7.  A winding up order was made against the defendant on 11 October 2006 and the PLs were appointed to take care of the properties of the defendant.  The plaintiff learned about the winding up on 17 October.  On 20 October 2006, the appeal was adjourned sine die because of the automatic stay brought about by the winding up of the defendant.

8.  On 26 October, 2006 the plaintiff’s solicitors wrote to the PLs setting out the history of the action and asked the PLs whether they would accept proof of the claim, and if not, whether they would consent to the plaintiff’s application for leave under section 186 of the Companies Ordinance to continue with the action against the defendant.

9.  On 8 November, the PLs verbally informed the plaintiff’s solicitors that the claim had not been admitted and the PLs took a neutral stance on the plaintiff’s application for leave.  The plaintiff then took out a summons on 12 January 2007 for leave under section 186 to continue with the action.

10.  The defendant had some real properties that were mortgaged to a bank for finance.  On 11 December 2006, Messrs Chu & Lau, solicitors for the mortgagee informed the PLs that the mortgagee had recovered physical possession of the properties.  On 21 December, the PLs inspected the properties with the mortgagee.  On the same day, the PLs enquired Chu & Lau on the outstanding amount owed by the defendant to the mortgagee.  Chu & Lau replied on 3 January 2007 that the outstanding amount was $4,176,816.63.  The PLs instructed valuers on 15 January to appraise the value of the properties.  The valuers reported on 22 January that the open market value of the properties was at $13,800,000.  

11.  Meanwhile the PLs on 19 January 2007 wrote to the plaintiff’s solicitors suggesting that they should vacate the hearing of the application for leave under section 186 scheduled on 24 January.  They said that if the plaintiff should be given leave to continue with the action, it would take priority over the other creditors of the defendant.  Such stance is obviously wrong.  On 23 January, the PLs enquired with the plaintiff’s solicitors if the hearing had been vacated.  On 24 January, the plaintiff’s solicitors declined the PLs’ request and the hearing took place on the same day.  One of the PLs, Mr Tsui appeared at the hearing to oppose the application.  Despite Mr Tsui’s opposition, Master Hui allowed the application.  On the plaintiff’s application, the Master also ordered costs against the defendant.

12.  On 25 January, the PLs enquired with Chu & Lau on the progress of the realization of the mortgage properties.  On 31 January, they wrote and asked Chu & Lau to keep them informed of the progress of the realization.

13.  After the plaintiff had been given leave under section 186, its solicitors on 13 March asked the PLs to attend the Listing Clerk on 16 March to fix a day for the adjourned hearing of the appeal against Master Ho’s decision.  The staff of the PLs attended the Listing Clerk on 16 March and the hearing was fixed on 28 June 2007.

14.  On 8 May 2007, Chu & Lau sent the PLs a cheque in favour of the Official Receiver (“OR”) for $10,130,311.59 being the balance of the proceeds of realisation of the defendant’s properties.

15.  On 10 May, the PLs sent the cheque to the OR and requested the OR for sanction to engage a solicitor to advise on the merits of the plaintiff’s claim.  The OR gave the sanction on 17 May and the PLs instructed counsel for advice on the same day.

16.  On 21 June, counsel rendered an opinion advising that the defendant had a reasonably arguable defence.  On 22 June, the PLs forwarded counsel’s opinion to the OR and requested for sanction to instruct solicitors and counsel to defend the action.

17.  There were then some communications on the phone between the PLs and the OR.  The PLs repeated the request for sanction on 27 June and the OR gave the sanction on the same day.

18.  Counsel and solicitors were then instructed to represent the defendant on the appeal to be heard in the next morning. 

19.  In the next morning, the plaintiff’s lawyers learned that counsel had advised the defendant that it had a reasonably arguable defence.  The plaintiff therefore withdrew the appeal against Master Ho’s refusal to enter default judgment as the action would go for trial.  

20.  The defendant agreed to pay the plaintiff the costs of this appeal.  However, the plaintiff was not satisfied with this concession.  The plaintiff’s claim in the action was over $51 million.  It submitted that if it should succeed in the action, the proceeds given by the mortgagee to the OR would be insufficient to pay the debts owed to it and the other creditors.  In that event, the costs ordered to be paid by the defendant to the plaintiff would reduce the funds for payment of the debts as the defendant would be insolvent.  The debts due to the other creditors were very small when compared with the plaintiff’s claim.  The net effect would be that these costs or the bulk of which would be borne by the plaintiff if it should succeed in the action. 

21.  The plaintiff further submitted that the costs of the appeal could have been avoided if the PLs should have acted reasonably.  It therefore applies for an order that the PLs do bear the costs of the appeal personally.  Failing which and by way of a fallback position, it asks for an order that the PLs be deprived of their costs for their work done in this appeal.

22.  Having considered the development of the events aforesaid, I think there were steps that the PLs could have taken to avoid costs from being incurred in the appeal.

23.  I understand that it is not normal practice for provisional liquidators to seek counsel’s advice when the company has no funds available to pay counsel.  However, the PLs here, after they had received the plaintiff’s letter of 26 October 2006, could have asked for sanction from the OR to seek counsel’s advice on whether to contest the plaintiff’s claim. 

24.  The PLs were also advised by the valuers on 22 January 2007 that the open market value of the defendant’s properties was at $13.8 million.  The debt due to the mortgagee was only $4,176,816.63.  There was also a sum of $369,538.19 being the arrears of salaries for which the defendant was wound up.  It was likely that after realization of the mortgaged properties, there would be a substantial surplus to the defendant.  The PLs also knew that the mortgagee was in the course of realizing the properties as they had enquired the mortgagee about the progress on 25 January and sought to be kept up to date on 31 January.  The plaintiff on 12 January 2007 issued the summons for consent under section 186.  The PLs could have written to the OR after 22 January for consent to seek counsel’s advice.  

25.  When the PLs were told by the plaintiff’s solicitors on 13 March 2007 to go and fix the date of hearing of the appeal, they could also have requested the plaintiff to wait.  They could have told the plaintiff of their expectation that they would soon be in the position to seek advice from counsel on the merits of the Plaintiff’s claim.

26.  If they did not feel prudent to so advise the plaintiff at that time as they could not tell when the funds would be available, they could on or after 8 May 2007 request the plaintiff to vacate the hearing.  They could have told the plaintiff that they were seeking sanction from the OR to obtain legal advice.  They had received the cheque from Chu & Lau on that day. 

27.  If that was still too early, they could certainly have asked the plaintiff to vacate the date and wait when they received the OR’s consent on 17 May 2007 to seek counsel’s advice.  They should have told the plaintiff that they already had the OR’s sanction to obtain counsel’s advice and the advice would determine if the PLs should oppose the appeal.  There was still time to vacate the hearing of the appeal fixed on 28 June 2007 and to save the costs. 

28.  However, the PLs did not take any of these steps.  They did not even alert the plaintiff’s solicitors when they received counsel’s advice on 21 June 2007.  The plaintiff only learnt that the defendant had received favourable advice from counsel before the hearing of the appeal on 28 June.  It was too late to save any costs as the plaintiff had completed all the preparations for the hearing.  I must say if the PLs should have behaved reasonably, the bulk of the costs of the appeal could have been saved.  It is for this reason that the plaintiff seeks an order that the PLs do personally bear the costs of the appeal. 

29.  Ms Chan for the PLs submitted that I have no jurisdiction to order the PLs to personally bear the costs of the appeal.  She pointed out that the PLs were not a party to the appeal and they have also not acted as the solicitors for the defendant.  The defendant was represented by another firm of solicitors and counsel in the appeal.  They were instructed with the OR’s sanction.

30.  Mr Chong for the plaintiff in his opening submissions referred to Mr Tsui’s appearance before Master Hui to oppose the plaintiff’s application under section 186.  Mr Tsui probably appeared as the solicitor representing the defendant.  Mr Chong relied on this appearance and some other matters where the PLs appeared to have acted as solicitors for the defendant.  Mr Chong submitted that these were the grounds for making the PLs personally liable for the costs of the appeal.  However, Mr Chong in his reply speech very rightly withdrew his reliance on Mr Tsui’s appearance before Master Hui.  The reason being that the plaintiff is only seeking an order of costs in the appeal and not in the matter before Master Hui.  For the same reason, if the PLs should have acted as the defendant’s solicitors in other matters relating to the winding up of the defendant but not relating to this appeal, those instances of representation should likewise be excluded from the consideration of this application.

31.  Mr Chong however submitted that the PLs are also solicitors and are officers of the court.  They are therefore subject to this court’s jurisdiction.  He in particular relied on O.62 r.8 where the court has jurisdiction to order costs against solicitors.

32.  He also relied on the case of In re John Tweddle & Co. Ltd [1910] 2 KB 697 for support of his argument that the court has jurisdiction to make costs orders against provisional liquidators and liquidators.

33.  Miss Chan instead referred me to section 52A(2) of the High Court Ordinance and submitted that this court has no jurisdiction to make any costs order against the PLs in this appeal.  Section 52A provides:

“(1) Subject to the provisions of rules of court, the costs of and incidental to all proceedings in the Court of Appeal in its civil jurisdiction and in the Court of First Instance, including the administration of estates and trusts, shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid.  (Amended 25 of 1998 s.2)

(2)   Subject to specific provision made in this or any other Ordinance (other than subsidiary legislation) nothing in subsection (1) shall authorize an award of costs against a person who is not a party to the relevant proceedings.”

34.  Ms Chan said that the PLs were not a party in this appeal and they are protected by section 52A(2).  She further submitted that for the same reason, O.62 r.8 can have no effect on the PLs.  She also submitted that the position of the liquidator in John Tweddle & Co. Ltd was different.  The liquidator there made himself a party to the proceedings and the court therefore had jurisdiction over him on costs.

35.  Mr Chong replied by saying that the PLs had taken part in the appeal as solicitors for the defendant.  The only conduct of the PLs as relied on by Mr Chong for this submission was the fixing of the date of hearing on 16 March 2007.  The PLs had sent their staff to take part in this matter.  For this conduct, Mr Chong said that the court has jurisdiction over the PLs despite another firm of solicitors was instructed to handle the appeal for the defendant on the day before hearing.

36.  I think Miss Chan’s arguments are correct.  I do not think the mere taking part in the fixing of a hearing date would make the PLs solicitors for the defendant.  That was only an administrative act that any provisional liquidator or liquidator who was not legally qualified could do.  It did not involve any right of audience before this court. 

37.  Since no other conduct is being relied on by the plaintiff, there is no evidence that the PLs have acted as solicitors for the defendant in this appeal.  I therefore find that the PLs are protected by section 52A(2) of the High Court Ordinance and O.62 r.8 is inapplicable to them.  I also agree with Ms Chan that John Tweddle & Co. Ltd is not applicable here as the liquidator there had made himself a party to the proceedings and hence was subject to the court’s jurisdiction on costs.

38.  I now deal with the plaintiff’s fallback position.  Mr Chong submitted that I could at least deprive the PLs of their costs for their work in the appeal.  He relied on O.62 r.6(2) and De-Etco International Ltd (in liquidation) v Desirable Enterprise Co. Ltd & Ors [1993] 1 HKC 251.  O.62 r.6(2) provides:

“(2) Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, insofar as they are not recovered from or paid by any other person, out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.”

This rule again is only applicable to a party to the proceedings.  De-Etco International Ltd is also a case where the liquidator was a party to the proceedings.  Since I have held that the PLs were not a party in this appeal, I do not think I can make any order under O.62 r.6(2) against them.

39.  In the premises, I dismiss the plaintiff’s application against the PLs.

40.  I also make the following costs orders nisi:

(1) I order the defendant to pay the plaintiff the costs of the appeal including counsel’s fee for the whole of 28 June 2007 and the costs of solicitors for 28 June 2007 up to the moment when the plaintiff withdrew the appeal in any event.

(2) I further order that the plaintiff shall pay the defendant the costs of solicitors for the hearing on 28 June 2007 from the moment of the plaintiff’s withdrawal of the appeal to the conclusion of the hearing on that day and the defendant’s costs from then onwards to the conclusion of the hearing on 24 October 2007 in any event.

(3) I now deal with costs of the plaintiff’s application against the PLs.  I have formed an undesirable view of their conduct.  I also think that the plaintiff was sufficiently aggrieved to feel that it should seek redress from the court.  Despite the plaintiff’s failure, I think this is one of those cases where I should depart from the usual rule.  I therefore make no order as to costs for this application.

(4) I have made an order of costs against the plaintiff on 24 October 2007 in relation to a matter in this application, but the scale of taxation was reserved for today.  In the light of my view on the PLs’ conduct, I order that those costs be taxed on a party and party basis. 

(5) I further order that the PLs shall not seek or be permitted to seek to recover any payment or reimbursement from the defendant for or on account of any costs that they had incurred in the conduct of this application.