LAM CHARM AND ANOTHER v. YUNG SHIU CHING AND OTHERS

HCCW 279/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 279 OF 2010

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AND

HCCW 346/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 346 OF 2010

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AND

HCMP 117/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 117 OF 2014

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AND

HCMP 118/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 118 OF 2014

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D E C I S I O N

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1.  On 21 August 2015 Master Hui, as part of the process of taxation in these proceedings, made an order that the Claimant shall bear 20% of the 1^st Respondent and the 2^nd to 7^th Respondents’ costs of the taxation, such costs to be determined by summary assessment if not agreed.

2.  That order has not been sealed.  It would appear that the 1^st Respondent was unclear whether the order that had been made in their favour allowed them to recover not only a proportion of their legal costs incurred but also the 1^st Respondent’s own costs. 

3.  As a consequence the 1^st Respondent issued four summonses in the various proceedings on 13 November.  Paragraph 1 of each of the summonses reads as follows:

“that part of the Order made by Master Hui dated 21 August 2015 herein where the Claimant was ordered to pay 20% of the 1^st Respondent’s costs of the taxation be clarified so as to read:

‘The Claimant should bear 20% of the 1^st Respondent’s costs of the taxation, such costs are inclusive of:

(a) the 1^st Respondent’s own fees and expenses of the taxation; and

(b) taxing fees’ ”

4.  The summonses were heard by Master Hui on 20 November 2015.  The Master dismissed each of these summonses and made no order as to costs.  The orders have been sealed.

5.  However, during the course of the hearing on 20 November 2015 (of which there is a transcript), the Master said at p. 12 letter G of the transcript “I believe the liquidator’s costs must include the whole set of costs, the liquidator’s and also legal costs.”

6.  On 4 December 2015 the Claimant issued a Notice of Appeal against the Master’s decision.  The Notice of Appeal read as follows:

“TAKE NOTICE that the above-named Claimant intends to appeal against that part of the Decision of Master Hui given on the 21^st day of August 2015 that the Claimant do bear 20% of the 1^st Respondent’s costs of the taxation (“Decision”) which was clarified on the 20^th day of November 2015 that:-

1. The 1^st Respondent’s costs of the taxation is inclusive of his own fees and expenses; and

2. There be no order as to costs in respect of the 1^st Respondent’s clarification application.”

7.  It seems to me that at present there is nothing for the Claimant or the 1^st Respondent to appeal.  As I have already mentioned the order of 21 August has not been sealed.  The summonses issued on 13 November 2015 were dismissed. 

8.  I do not think that observations made during the course of the hearing on 20 November can give rise to an appealable determination.  What is required is this.  The order made on 21 August 2015 should be sealed, when it has been sealed and it is clear what its terms are both parties can consider whether or not they need to appeal that order.  If that order is not subject to appeal, then I would expect that taxation to proceed, and if an issue arises during the taxation as to whether or not the 1^st Respondent is entitled to recover, pursuant to whatever the final form of the 21 August order is, its own costs of dealing with the taxation (which I am told are in the order of HK$4 million), the Master will have to produce a determination which will be reduced into writing, in a form which constitutes an appealable determination.  That determination could either be made as one of principle before the taxation of the actual costs incurred by the liquidator is undertaken or, if it is felt more efficient, it would be as a consequence of an assessment of the liquidator’s own costs.

9.  It does not seem to me that it particularly matters which course is taken other than to the extent it is the most efficient and cost effective method.  It would, however, result in there being something which would be open to appeal. 

10.  I, therefore, dismiss the Claimant’s Notice of Appeal, and I will hear the parties on costs.

(Submissions on costs)

11.  Costs to be reserved.

HCCW 279/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 279 OF 2010

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AND

HCCW 346/2010

COMPANIES WINDING‑UP PROCEEDINGS NO 346 OF 2010

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AND

HCMP 117/2014

MISCELLANEOUS PROCEEDINGS NO 117 OF 2014

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_________________

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AND

HCMP 118/2014

MISCELLANEOUS PROCEEDINGS NO 118 OF 2014

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_________________

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(HEARD TOGETHER)

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REASONS FOR DECISION

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1.  There were two groups of summonses before the court. The first concerned taxation issues and the second, an application for a further interim payment. Each group comprised four summonses seeking identical relief in respect of each of the four companies (respectively “Hempstone”, “De Rodeo”, “Senrich” and “Vinki”). Those companies form part of the same group of companies.

2.  This matter has a long history and has come before me on a number of occasions.  The last occasion was a year ago when taxation was ordered and provision made for an interim payment.  Despite that order, no progress has been made on the taxation front as a result of the continuing polarised, adversarial and uncooperative stance of the parties that has coloured their dealings with each other and every single court application.

Background facts

3.  A brief summary of the background to the dispute appears in §§1 to 11 of Reasons for Decision (“the 2014 Decision”) I handed down on 18 February 2014 following a hearing on 29 January 2014.  For ease of reference, they are set out below:

“1. These were applications by Shinewing Specialist Advisory Services Ltd (‘Shinewing’) …

BACKGROUND FACTS

2. The applications were made in relation to Hempstone Ltd (in compulsory liquidation), De Rodeo Catering Ltd (in compulsory liquidation), Senrich Industries Ltd (in creditors’ voluntary liquidation) and Vinki Corporation Ltd (in creditors’ voluntary liquidation).

3. Hempstone has been in compulsory liquidation since August 2011. It has about 60 subsidiaries including De Rodeo, Senrich and Vinki.

4. Chen Yung Ngai Kenneth (‘Chen’) a director of Shinewing at the material time (who had a 5% indirect shareholding in Shinewing) was a joint and several liquidator of those companies and lead partner in those liquidations.

5. Tang Chung Wah Alan (‘Tang’) is the head of Shinewing and its majority shareholder. He was a joint and several liquidator of Senrich until his voluntary resignation following an application made for his removal in August 2013.

6. A dispute between Shinewing and Chen arose in late 2012. Shinewing issued a notice of immediate suspension to Chen on 24 October 2012. This was followed by a notice of summary dismissal on 28 November 2012. Chen, while alleging that the dismissal was wrongful, left Shinewing. Since his termination Chen has been working at Zhonglei Specialist Advisory Services Ltd.

7. Suffice it to say that since Tang and Chen fell out in late 2012 they have not been on good terms. While the stakeholders of the Hempstone Group preferred to go with Chen as liquidator, there were inevitable difficulties given that Tang remained a joint and several liquidator of Senrich and all books and papers were with Shinewing.

8. Matters came to a head and on 27 August 2013, I dealt with two applications: one related to Chen’s application to remove Tang as liquidator of Senrich and the second was an application for Shinewing to provide books and records of the Hempstone Group to Chen as liquidator.

9. Prior to Chen’s departure from Shinewing, considerable unbilled and/or untaxed work had been done by Shinewing.

10. At the hearing, the parties reached an agreement which was encapsulated in the order made on 27 August 2013. Due to an oversight, the order was not expressed to be ‘by consent’. The order provided for a number of steps to be taken by both sides with a view to outstanding bills being submitted for taxation and payment made of the taxed bills to Shinewing within a stipulated timeframe.

11.     Further disputes arose between the parties but it is unnecessary to recite them here.  The end result is that 10 bills remain outstanding.”

Taxation issues

12.  As is apparent from §10 of the 2014 Decision, the order made on 27 August 2013 contained a timeframe.  That was to ensure that taxation of the outstanding fees would not be unduly delayed.  Disputes between the parties continued resulting in some slippage.  To advance matters, an order was made at the hearing on 29 January 2014 setting out a new timetable (agreed by the parties) for various steps to be taken with a view to facilitating and progressing the taxation process.  

13.  Thereafter call-over hearings took place before the taxing master.  Suffice it to say that the liquidator then raised 5 issues at the call‑over hearing on 7 July 2014.  As appears from the taxing master’s written directions dated 15 October 2014, in the intervening three months between July and October, instead of narrowing the issues, the parties squandered the opportunity to do so.  All they did was to trade accusations and complaints through acrimonious and unnecessarily lengthy and repetitive correspondence.  The taxing master therefore directed that appropriate application(s) be taken out by 21 November 2014 to resolve the issues.

14.  This culminated in Shinewing issuing the taxation summonses on 21 November 2014 to resolve the taxation issues.  The delay also accounted for the applications for a further interim payment.  Following the taxation summons, a consent order was made on the first of the 5 issues to the effect that the 2^nd to 7^th respondents being the shareholders be joined as parties solely for the purpose of taxation of Shinewing’s fees as set out in the invoices being items 6 to 10 of the bills.

15.  By the time of the hearing on 27 January 2015, the remaining 4 issues were no longer controversial.  Nevertheless, almost an entire year has elapsed with no progress having been made on the taxation front.  That is unacceptable.  The parties and their legal representatives have a duty under the Civil Justice Reform to assist the court to further the underlying objectives: Order 1A, rule 3 of Hong Kong Civil Procedure 2015.  They have a duty, inter alia, to ensure that the matter is dealt with as expeditiously as is reasonably practicable and to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.  The parties’ conduct highlighted in §16 above falls far short of those duties.  In my view, they need to overcome their instinctive mistrust of each other and advance the taxation process so that it can be brought to a conclusion sooner rather than later. 

16.  At the conclusion of the hearing the following order was made:

“1. The Claimant’s Bills, which have been lodged for taxation by the 1^st Respondent on 9 April 2014, do stand as the bills to be taxed by the Court.

2. The taxation of the Claimant’s Bills be conducted in accordance with the Procedural Guide for Taxation/Determination of Bills of Provisional Liquidators or Liquidators by Masters and on the basis of the ‘Maxwell Principles’.

3. Leave be granted to the Claimant to set down the taxation of the Claimant’s Bills to be heard before a taxing master, with 5 days reserved and an early date to be fixed.

4. There be no order as to costs between the Claimant and the 1^st Respondent and costs be reserved for the 2^nd to 7^th Respondents.”

17.  As to the order of costs made, I considered that both Shinewing and the liquidator were to blame for the impasse created.  In those circumstances, as between them,a fair order would be no order as to costs.  The same considerations do not apply as regards the 2^nd to 7^th respondents who have been joined as parties solely for the purpose of taxation of bills 6 to 10.  Accordingly their costs were reserved.

18.  Given the relentless bickering that has beset this case, it is as well that I should state for the record the parties’ stance in relation to the following matters:

(a) Joinder of shareholders

As earlier noted the 2^nd to 7^th respondents (who are the shareholders) have been joined as parties solely for the purpose of taxation of bills 6 to 10.  Their counsel confirmed to the court that the shareholders do not require and so do not seek further information from Shinewing in connection with the taxation although there had been some suggestion to the contrary in the hearing bundles.

(b) Estoppel concerning the $8.66 million of write‑offs/ provision

At §22 of the 2014 Decision, I mentioned the conflicting affidavit evidence between the Liquidator and Shinewing concerning the existence or otherwise of a “write‑off practice” at the firm.  By the time of the July call‑over hearing that had developed into an estoppel issue.

Then by letter dated 16 July 2014, the Liquidator through his solicitors stated that he “has no view on the estoppel” and that it is up to the shareholders to take out an appropriate application should they wish to pursue it.  The shareholders have not made any application.  Their stance is that they are willing to abide by the determination of the taxing master.

(c) Basis of remuneration

It is no longer suggested or maintained by any of the parties that there is uncertainty or doubt concerning the basis of remuneration, namely whether work done in the liquidation should be charged on a basis other than a time-costs basis.

Miscellaneous

19.  In perusing the hearing bundles in preparation for the hearing of the summonses, a number of matters appeared to call for further clarification/explanation.  The taxing master may wish to note that:

(1) While the liquidator asserts that he had ‘written off’ approximately $8.66 million in 2011 and 2012 in respect of the work-in-progress recorded for the liquidation work, nowhere is his methodology explained. 

(2) The items written off have not been identified. 

(3) In his 14^th affirmation dated 6 January 2015 at §54, the liquidator criticised Shinewing’s bills. He highlighted a number of entries in the time records grouped under three specific heads: (a) non‑chargeable items; (b) uncategorised work; and (c) duplication of work. 

The liquidator has not explained whether and, if so, how those items correlate to work written off.  Further, it is unclear whether the items highlighted were by way of example only or whether they are exhaustive.  This needs to be clarified.  Anything short of a comprehensive exercise is unlikely to be of much assistance in the taxation process. 

20.  It should not be overlooked that the Liquidator was a partner at Shinewing until his departure in late October 2012.  The bills in question cover work done from 2011 through till December 2012.  The bulk of the work appears to have been carried out during the period while he was still a partner at Shinewing and the partner in charge of the Hempstone liquidation.  Criticisms of the shortcomings of the timekeeping system and practice at Shinewing is to be viewed against the backdrop that the liquidator along with his then partners were collectively responsible for the system and practice in place at the firm until 24 October 2012.

Further interim payment

21.  Shinewing sought a further interim payment in the amount of $3.5 million.  That would take the total amount of interim payments to $10.25 million, representing a little less than 40% of the aggregate amount of the bills.

22.  In the event, there was no objection to a further interim payment of $3.5 million being made.  I considered it appropriate for the order to be made: after payment of the further sum, a comfortable margin remains available to cater for items that may be disallowed on taxation.

HCMP 113/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2476 OF 2013

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1.  These were applications by Alan Tang and Shinewing SAS respectively (“the applicants”) for leave to appeal costs orders made on 14 March 2014.  At the conclusion of the hearing the applications were dismissed with costs. My reasons appear below.

2.  On 14 March 2014 I handed down my written decision on costs.  The background and the applications in respect of which costs had to be dealt with appear in my Decision and will not be repeated here.

THE ORDERS

3.  In HCMP 113/2013 (“the removal application”) it was ordered that 100% of the costs be paid by Mr Tang on any indemnity basis.  In HCCW 279/2010, it was ordered that 100% of the costs be paid by Mr Tang on a party and party basis.

4.  It is to be noted that in HCMP 113/2013 the only difference between costs Mr Tang was willing to pay (ie 100% of the costs on a party and party basis) and the court order (on any indemnity basis) was the basis of costs.  It would now appear from his draft notice of appeal that he wishes to resile from his position and is intending to seek an order that there be no order as to costs in the removal application.

5.  As regards HCCW 279/2010 (“the production application”), the only difference was as to the proportion of costs to be borne by him, with the court ordering 100% and Mr Tang’s offer of 50%.  Again, he seeks to resile from that position if leave were granted and is also intending to seek an order that there be no order as to costs in the production application as well.

THE APPLICABLE PRINCIPLES

6.  It is trite law that courts are reluctant to allow appeals on costs only.  The CJR has not relaxed the high hurdle that an applicant faces in making such applications.  It has to be shown that the judge had failed to exercise the court’s discretion or exercised upon a false principle, or did not exercise it judicially or the exercise of discretion was demonstrably flawed: see Hi‑Tech Precision Products Ltd v Soundwell Far East Ltd, unreported, CACV 294/2003, 25 May 2005, §8.

7.  For these applications, the applicants are represented by an entirely new legal team.  

8.  The written submissions of Mr Cheung, counsel for Mr Tang, are replete with “sound bites” abstracted from the transcript of the hearing on 27 August 2013.  I was surprised to see the transcript in the hearing bundle as I had not acceded to any application for a transcript of the hearing. Apparently, leave was obtained from a master during a period when I was not sitting.

9.  Where the court has given a written decision on the issue which is the subject of the application for leave to appeal, the transcript becomes entirely irrelevant.  That should be borne in mind when considering applications for a transcript.

10.  Mr Cheung (who did not appear in any of the earlier proceedings) put forward several grounds as to why leave should be granted. I propose to deal with them in turn.

A. The court failed to consider Mr Tang’s offer to settle for $7.5 million which should have been taken into account for both orders

11.  It was said that a reference to this offer can be found at §55 of Mr Tang’s first affirmation.  However it is clear from that paragraph that the offer was made only to “Camp A shareholders” who are only part of the shareholders, there being also Camp B shareholders.

B. The costs issue should have been dealt with as a single incident

12.  I understood this to mean that only one comprehensive costs order should have been made.  But there were two separate applications the costs of which were outstanding.

13.  In so far as it is suggested that the costs order for each of the applications should have been the same, I confess to having some difficulty in following the logic since there were two separate and different applications before the court.  While they were intertwined in some respects, they involved different parties.

C. The court should have considered whether or not Mr Chen should bear some of the costs

14.  This was premised on the fact that Mr Chen as the liquidator was responsible for issuing the fee notes.  Essentially the complaint was that SWSAS was not being paid because Mr Chen through his falling out with Mr Tang was dilatory in pursuing fees.

15.  This overlooks the fact that it was open to Mr Tang to make an interim fee application at any time.  But he did not do so until several months after the August hearing.  I see no merit in this argument.

D. The court erred in not considering the common fund basis as an alternative

16.  The special circumstances justifying the indemnity basis appears in §27 of the Decision.

17.  The so‑called grounds are misconceived and wholly devoid of merit. The applications should not have been made.

HCMP 113/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 113 OF 2013

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DECISION

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Introduction

1.  This is a decision on costs in respect of two related matters that came on for hearing on 27 August 2013.  The parties were able to resolve the issues arising save as to costs.  The costs issue was adjourned sine die to enable the parties to continue their negotiations and to be restored for hearing if necessary.

2.  As no agreement could be reached, the issue of costs in both applications and the applications of Shinewing Specialist Advisory Services Ltd (“SWSAS”) for interim payments were fixed for hearing on 29 January 2014.  When the interim payment applications took up the allotted hearing time, the parties were content that the costs issue should be decided on written submissions only.

3.  The first matter (HCMP 113) was an application by Chen Yung Ngai Kenneth (“Mr Chen”), one of two joint and several liquidators of Senrich Industries Ltd (in creditors’ voluntary liquidation), for the removal of Tang Chung Wah Alan (“Mr Tang”) as the other joint and several liquidator of Senrich (“the removal application”).  The second (HCCW 279) was an application by Mr Chen as liquidator of Hempstone Ltd (“Hempstone”) (in compulsory liquidation) for SWSAS to provide the books and records of the Hempstone Group to Mr Chen as liquidator (“the production application”).

Background facts

4.  Mr Chen joined Shinewing CPA on 15 November 2010 and holds 5% of its issued share capital.  Mr Chen was to develop SWSAS (formed in late 2010/early 2011), the insolvency and forensic practice of Shinewing CPA and so indirectly holds 5% of the equity in SWSAS.

5.  Mr Tang is the majority shareholder of SWSAS.

6.  In December 2010 Mr Chen was appointed one of the joint and several provisional liquidators of Hempstone which is the holding company and has about 60 subsidiaries. A number of Hempstone’s subsidiaries are in liquidation. Mr Chen was the lead partner in the Hempstone liquidations.

7.  Mr Tang and Mr Chen were appointed joint and several liquidators of the Senrich (in creditors’ voluntary liquidation and one of the Hempstone subsidiaries) on 4 March 2011.

8.  Collectively, the Hempstone Group is solvent.

9.  By 2012, the Hempstone liquidations had generated substantial liquidation fees, running into many millions.  The liquidations have not yet concluded.

10.  The relationship between Mr Chen and Mr Tang broke down completely in the autumn of 2012.  SWSAS issued a notice of immediate suspension to Mr Chen on 24 October 2012.  A notice of summary dismissal followed on 28 November 2012.

11.  Mr Chen (while maintaining that the dismissal was wrongful) left SWSAS and has since been working at Zhonglei Specialist Advisory Services Ltd.

12.  The falling out between Mr Chen and Mr Tang meant that they no longer had a working relationship.  That led to difficulties on two fronts arising from the fact that:

(1) they were joint and several liquidators of Senrich; and

(2) while Mr Chen was the lead liquidator of the Hempstone liquidations, the books and records of the Hempstone Group remained with SWSAS.

It was in those circumstances that the applications were made.

13.  After the falling out between Mr Tang and Mr Chen, it became increasingly obvious that they could not carry on being joint and several liquidators of Senrich. For the liquidation to go forward, one of them had to step down.

14.  The ultimate owners of the Hempstone Group decided to go with Mr Chen as sole liquidator.  All the shareholders signed a resolution approving the removal of Mr Tang.  Mr Tang refused to step down or to release the books and records of the Hempstone Group, resulting in the removal and production applications. Understandably, the prospect of SWSAS losing what had been a lucrative liquidation assignment was not appealing. In addition, Mr Tang was unhappy that not only were substantial accrued fees outstanding, bills had not been raised for work done in the Hempstone liquidations since July 2011 save in a single instance. Mr Chen as the lead liquidator would have been responsible for raising bills.

15.  At the hearing on 27 August 2013, after lengthy negotiations, the parties agreed terms to settle their various differences arising from the removal application and the production application. It could be said to be an overall settlement of their differences.

16.  On the removal application, Mr Tang agreed to resign voluntarily and to submit his resignation within seven days.  No order was made on the removal summons.

17.  On the production application, the terms agreed were encapsulated in an order of that date which, due to an oversight, was not expressed to be by consent.  That error falls under the slip rule and is to be so amended.

18.  The terms agreed provided for the production of the books and records of Hempstone in SWSAS’ possession, custody or control; the appointment of Eversheds to advise the liquidator in the Hempstone liquidations; a timetable for the provision of bills by SWSAS to the liquidator with a view to the taxation of all outstanding bills; scrutiny of the bills by the liquidator; the scheduling of the taxation hearing and logistics of the same; the prompt payment of taxed bills and the setting aside of sufficient assets for that purpose.

Costs - the removal application

19.  On the question of costs, the difference is narrow.  Mr Tang is willing to pay 100% of the costs on a party and party basis while Mr Chen seeks costs on an indemnity basis.

20.  Where joint and several liquidators are appointed, invariably, they would be members of and/or working at the same firm.  The firm would provide the necessary manpower and services required for the liquidation.  It is also common that one of the joint and several liquidators would be the lead liquidator.

21.  When one of them leaves the firm, it is obviously impracticable for both to continue as liquidators. For reasons of efficiency, logistics and economy in the liquidation, one of them has to step down. It has to be appreciated that the stepping down or resignation in such circumstances does not imply any misconduct or shortcoming on the departing liquidator. It represents the only sensible solution to a practical problem presented by the parting of ways even in cases where the parting is amicable. But the problem becomes wholly intractable where (as here) the parting is less than amicable if one of them does not step down.

22.  As to which of two liquidators should go must depend on the circumstances of the particular case.

23.  As earlier noted, a number of subsidiaries within the Hempstone Group were in liquidation (whether compulsory or creditors’ voluntary). Mr Chen is not only the liquidator in every case, whether as sole liquidator or as one of the joint and several liquidators, he is also the lead liquidator while Mr Tang was a joint and several liquidator of Senrich and of one other Hempstone subsidiary only.

24.  I accept that the views of the creditors and shareholders are not determinative but unless their views are unreasonable, they are a relevant factor to be taken into consideration.  In the present case, the ultimate shareholders have passed a resolution for the removal of Mr Tang.  Lam Charm (“Mr Lam”), one of the ultimate shareholders, has filed an affirmation to explain his reasons for doing so.

25.  Mr Nip (counsel for Mr Tang) submitted that there was no reasonable basis for Mr Lam to “accuse” Mr Tang for expressing his concern that SWSAS had not been paid a substantial amount of fees because, factually, there has been substantial delay in settling SWSAS’ outstanding bills. I do not consider that Mr Lam was making any accusations against Mr Tang.  He was merely relating what had transpired at the meeting he and another ultimate shareholder had with Mr Tang and stated his impression and perception of Mr Tang at the meeting.

26.  As earlier stated, fault or misconduct does not come into the picture.  The situation that had arisen had rendered it impracticable for Mr Tang and Mr Chen to carry on as joint and several liquidators and necessitated the resignation of one of them.  That was a real problem that needed to be addressed.

27.  Looking at the matter objectively and having regard to the considerations mentioned, I am of the firm view that in the present case, if one of the joint and several liquidators had to step down, it had to be Mr Tang and his voluntary resignation as part of the overall settlement of the disputes is a belated recognition of the realities of the situation.  In my view, the removal application should not have been necessary and, in any event, should not have been resisted.

28.  In the present case, all outside creditors have been paid off. The only creditors left are companies within the Hempstone Group.  Mr Maurellet (who appeared for Mr Chen) submitted that any shortfall in costs would fall on the ultimate shareholders and as they are in no way responsible for the situation that had arisen, it would not be a fair result.

29.  On the facts of the removal application, I would agree. It is a special circumstance that would justify an order for indemnity costs and I would so order.

Costs – the production application

30.  On this application, SWSAS is willing to pay 50% of the costs on a party and party basis.  Mr Chen seeks 100% of the costs on an indemnity basis.

31.  If, as is my view, Mr Tang should have stepped down after the parting of ways with Mr Chen in respect of the Hempstone Group liquidations, prima facie, it should follow that the books and records of the Hempstone Group should not have been retained.

32.  But underlying the resistance to handing over the books and records was the fact that there were substantial fees owing to SWSAS for work done in relation to the Hempstone liquidations. In respect of fee notes raised of $15.4m prior to the application, $8m remained outstanding. Save for a fee note for De Rodeo Ltd (one of the Hempstone subsidiaries) for the period from July 2011 to December 2011, the remaining fees notes raised related to time costs up to June 2011 only. According to Mr Tang, another $16.6m or so of SWSAS’ time costs has not yet been billed.

33.  The settlement terms of the production application contained in the order of 27 August 2013 are summarized in §18 above. They reflect a strict timetable, inter alia, for the scrutiny of SWSAS’ bills, the fixing of the taxation hearing “with all due expediency”, the taking of “all reasonable steps” to arrange for payment and the setting aside of sufficient assets to meet the taxed fees. The accrued but unbilled fees relate to work performed from July 2011. Such provisions would not have been necessary had there not been a real need to address SWSAS’ concerns over the significant delay in the billing/taxation/settlement of outstanding fees for work done.

34.  In all the circumstances, I consider it fair that SWSAS bears 100% of the costs but on a party and party basis only and I so order.

Mr Jose Antonio Maurellet, instructed by Eversheds,
     for the applicant in both cases

Mr Norman Nip, instructed by Stephenson Harwood,
     for the respondent in both cases

HCCW 279/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 279 OF 2010

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R E A S O N S   F O R   D E C I S I O N

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1. These were applications by Shinewing Specialist Advisory Services Ltd (“Shinewing”) for interim payment pending taxation. At the conclusion of the hearing, interim payments were ordered with no order as to costs. My reasons are set out below.

BACKGROUND FACTS

2. The applications were made in relation to Hempstone Ltd (in compulsory liquidation), De Rodeo Catering Ltd (in compulsory liquidation), Senrich Industries Ltd (in creditors’ voluntary liquidation) and Vinki Corporation Ltd (in creditors’ voluntary liquidation).

3. Hempstone has been in compulsory liquidation since August 2011. It has about 60 subsidiaries including De Rodeo, Senrich and Vinki. 

4. Chen Yung Ngai Kenneth (“Chen”) a director of Shinewing at the material time (who had a 5% indirect shareholding in Shinewing) was a joint and several liquidator of those companies and lead partner in those liquidations. 

5. Tang Chung Wah Alan (“Tang”) is the head of Shinewing and its majority shareholder.  He was a joint and several liquidator of Senrich until his voluntary resignation following an application made for his removal in August 2013.

6. A dispute between Shinewing and Chen arose in late 2012. Shinewing issued a notice of immediate suspension to Chen on 24 October 2012.  This was followed by a notice of summary dismissal on 28 November 2012.  Chen, while alleging that the dismissal was wrongful, left Shinewing.  Since his termination Chen has been working at Zhonglei Specialist Advisory Services Ltd.

7. Suffice it to say that since Tang and Chen fell out in late 2012 they have not been on good terms.  While the stakeholders of the Hempstone Group preferred to go with Chen as liquidator, there were inevitable difficulties given that Tang remained a joint and several liquidator of Senrich and all books and papers were with Shinewing.

8. Matters came to a head and on 27 August 2013, I dealt with two applications: one related to Chen’s application to remove Tang as liquidator of Senrich and the second was an application for Shinewing to provide books and records of the Hempstone Group to Chen as liquidator.

9. Prior to Chen’s departure from Shinewing, considerable unbilled and/or untaxed work had been done by Shinewing.

10. At the hearing, the parties reached an agreement which was encapsulated in the order made on 27 August 2013.  Due to an oversight, the order was not expressed to be “by consent”.  The order provided for a number of steps to be taken by both sides with a view to outstanding bills being submitted for taxation and payment made of the taxed bills to Shinewing within a stipulated timeframe.

11. Further disputes arose between the parties but it is unnecessary to recite them here. The end result is that 10 bills remain outstanding.

THE OUTSTANDING BILLS

12. The 10 bills are summarised in Schedule 2 to each of the applications. They can conveniently be divided into and considered under two groups.

Group 1 bills

13. They comprise the first five bills listed in Schedule 2.  They were bills that Chen himself had issued prior to his departure from Shinewing and submitted to the court for taxation.  The total amount is approximately $7.4 million.

14. When pressed, Mr Maurellet who appeared for Chen accepted that there was no reason why they should not be taxed.  It is common ground that six bills in the Hempstone liquidations submitted by Chen in the past and taxed had been allowed at about 91%.  In other words, on average, they were taxed down by only 9%.

15. On the question of interim payment, Mr Maurellet submitted that in view of Chen’s evidence as to Tang’s current financial situation, there was a real risk that Tang would not be in a position to make repayment if after taxation the amount of fees eventually found due and payable was to be less than the amount of the interim payment.  He submitted that those concerns would be alleviated only if Shinewing or Tang were to provide a bank guarantee to cover any excess repayable.

16. Mr Nip who appeared for Shinewing informed the court that, on instructions, no bank guarantees would be provided.

17. In those circumstances, Mr Maurellet maintained his position that the stakeholders should not be exposed to any risk at all and in the absence of any bank guarantee, the court should not order any interim payment.

18. I do not accept that there is any inflexible rule that precludes the court from ordering interim payment pending taxation in the absence of a bank guarantee.  It may affect the amount to be released by way of interim payment but whether or not interim payment should be ordered must depend on the facts of the particular case.

19. In the present case, it is unfortunate that Chen and Tang have fallen out.  That has inevitably coloured the stance taken but the undeniable fact is that work has been done in the liquidations by professionals and, as regards Group 1 bills, four of them relate to work done as long ago as the first half of 2011 and the fifth, to work done in the first half of 2012.  There is no valid reason not to allow a reasonable amount by way of interim payment now since the taxation process is unlikely to be completed any time soon given the court’s diary.

20. I take into account the fact that the bills had been issued by Chen himself and his past bills in the Hempstone liquidation have been allowed at approximately 91%.  In the circumstances, I consider it appropriate to order that a sum of $3.75 million be paid by way of interim payment pending taxation.  That represents 50.56% of the Group 1 bills and, in my view, affords more than an adequate buffer given the average percentage of Chen’s bills taxed down in the Hempstone liquidations.

Group 2 bills

21. The remaining five bills (items 6 to 10) in Schedule 2 total approximately $18.8 million.  Those bills were issued by Shinewing after Chen’s departure.

22. There are two features that call for comment.  First, those bills apparently include approximately $8.6 million of work in progress that Chen had written off. The parties have given different accounts as to what the practice was at Shinewing regarding the making of provisions and/or for writing off work in progress. That is a dispute that I am not in a position to resolve and is a matter for the taxing master.

23. Second, according to Chen, it was his practice to review the bills and make final adjustments before sending them out to the client and on average the original bill would be discounted by about 20 to 30%.  As earlier noted, the Group 2 bills had not been issued by Chen.

24. In view of those two matters, the appropriate course is to work from a figure that first takes out the $8.6 million from the total amount and is then discounted by 30%.  The resultant figure is a little over $7 million.  It is an amount that, in all probability, would reflect the value of Group 2 bills if issued by Chen.  I consider it appropriate in the circumstances to order that $3 million be released by way of interim payment pending taxation.  That represents 15.98% in value of the Group 2 bills.

25. Chen was ordered to pay from cash of each of Hempstone, De Rodeo, Senrich and Vinki the interim payments ordered within 28 days of the order.  Further, in relation to the interim payment payable by Hempstone, in the event of insufficient cash in Hempstone’s estate, Chen should take all reasonable and practical steps as soon as possible to procure its subsidiaries to declare dividends sufficient for Hempstone to comply with the interim payment order.

MISCELLANEOUS

26. The order made at the hearing also dealt with miscellaneous matters that arose: it provided for soft copies of bills narratives to be provided by Shinewing to Chen within seven working days, for Chen to submit Shinewing’s bills for taxation within two months of receipt of the soft copies, that Chen should, with all due expediency, proceed to fix the taxation hearing and inform Shinewing of the hearing date and time and that there be no order as to costs of the applications.

HCCW 279/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 279 OF 2010

____________

____________

BETWEEN

____________

_____________________________

JUDGMENT ON COSTS

_____________________________

1.  On 28 June 2010 the Petitioner issued a petition to wind up the 5^th Respondent (“Company”) pursuant to section 177(1)(f) of the Companies Ordinance on the grounds that there had been a break down in trust and confidence between the Petitioner and the 1^st to 4^th Respondents, the latter’s conduct of the affairs of the Company had been seriously improper and that it was just and equitable to wind up the Company.

2.  The Petition came on for the first time before a judge on 4 October 2010.  I made directions for the filing of evidence and for the Petition to be adjourned to 15 December 2010 before Fok J (as he then was) who was on that day to hear an application for the appointment of provisional liquidators.

3.  On 15^th December 2010 Fok J appointed provisional liquidators.  Mr Richard Leung who appeared on that occasion, as he did today, for the 1^st to 4^th Respondents told the court that his clients did not object to a winding-up order.  Fok J declined to make a winding-up order on that occassion.  The clerk’s notes say that Fok J adjourned the Petition to 10 January 2011 and stated “Winding-up order will be made on 10-01-2011 in any event…”.  So far as I can tell it seems to have been intended that the Company be wound up on the same date as a related company, De Rodeo Catering Limited, which had a Petition against it returnable before a judge on 10 January 2011 in HCCW 346 of 2010.

4.  The Petition came on before Poon J on 10 January 2011.  So far as I can ascertain from what I was told at the hearing before me and from reading the notes on the court’s file it appears that counsel for the Petitioner in the De Rodeo proceedings suggested to Poon J that the court must be satisfied that it is just and equitable to wind up a company before making an order; in other words the court should not wind up the company simply because the respondent does not contest the Petition.  This seems to have been seen as a jurisdiction issue which, assuming the point had merit, a subject which I address in the next paragraph, certainly in the case of the Company it is not. The court had jurisdiction to wind up the Company.  The point raised in the De Rodeo proceedings goes to whether or not the jurisdiction should be exercised.

5.  Before it winds up a company the court must be satisfied that a petition contains allegations that are capable of justifying the relief sought and that the relevant procedural and substantive formalities, in particular the requirement for an affidavit verifying the petition, have been complied with.  If it is so satisfied, as I am in the present case, if the respondent indicates that it will not contest the petition it seems to me that a court can make a winding-up order without having to enquire further into the merits of the case.  What may have caused some confusion in the present case is that the 1^st to 4^th Respondents, whilst agreeing that the Company should be wound up, insisted that were doing so without admitting liability for the matters complained of in the Petition.  It seems to me that a respondent in the position of the 1^st to 4^th Respondents has to make it clear whether it is or is not contesting the Petition.  It cannot try and hedge its bets.  It does not, however, have to expressly admit the allegations against it.  It can simply decline to respond to the Petition or give notice that it does not contest the Petition and the relief sought in it.

6.  At the hearing before me today Mr Leung told me that:

(1)   The 1^st to 4^th Respondents do not challenge the allegations in the Petition;

(2)   The 1^st to 4^th Respondents accept that there has been a breakdown in trust and confidence between them and the Petitioner;

(3)   The 1^st to 4^th Respondents accept that a winding-up order should be made; and

(4)   The 1^st to 4^th Respondents agree to pay the costs of the proceedings.

7.  As I have already stated the Petition contains allegations that justify the relief sought.  The Petition has been verified by affirmation. It does not seem to me that any further consideration of the merits of the case are required and I make a winding-up order.

8.  What proved contentious were costs.  Mr Charles Manzoni, who appeared with Mr Liu and Mr Lai, sought costs on an indemnity basis.  He accepted that it was unrealistic to expect the court to go into the merits of the underlying complaints in order to assess whether or not indemnity costs should be ordered.  He submitted that this was unnecessary.  He sought indemnity costs on the basis that the 1^st to 4^th Respondents could have made the concessions made before me earlier.  He argued that as they admit in the evidence of Yung Shui Ching one of the most serious allegations in the Petition, namely, the misappropriation $9,212,000, this should have been done at the outset.  It is only their prevarication at the hearings of the Petition, at which they have always qualified their agreement to a winding up with the comment that they do not admit liability for the matters alleged in the Petition and a refusal to admit liability for costs, that has led to a considerable amount of unnecessary work being done.

9.  I accept that it is unsatisfactory that this matter had dragged on for longer than appears necessary with attendant increases in costs.  The difficulty I have in adopting the robust approach to assessing the basis of costs proposed by Mr Manzoni is that having looked at the court file and tried to determine why the Company was not wound up earlier it is unclear to me to what extent it was a result of the 1^st to 4^th Respondents trying to hedge their agreement to a winding up with reservations or a misunderstanding on the part of the Parties as to the appropriate way for the court to proceed on 10 January 2011.  The court notes of the hearing on 15 December record the intention being that the Company be wound up at the hearing of 10 January 2011.  It seems to me that this probably should have happened and only the question of costs, if it was in issue, adjourned for argument.

10.  Whilst I have a certain sympathy for the Petitioner’s position it does not seem to me that I can determine whether or not indemnity costs should be ordered without a detailed analysis of the evidence in the case.  Mr Manzoni had not invited me to do this rather he accepted that if this were to be my conclusion that I should order costs on a party and party basis, which I do.

Mr Charles Manzoni & Mr Harry Liu & Mr Adrian Lai, instructed by Messrs Poon & Cheung, for the Petitioners

Mr Richard Leung, instructed by Messrs Hon & Co, for the 1^st to 4^th Respondents

Mr Kenneth Chen, one of the Joint & Several Provisional Liquidators, present

The Official Receiver, excused from attendance

HCCW279/2010
& HCCW 346/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS

NO. 279 OF 2010

____________________

____________________

_________________

RULING

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1.  I have before me a summons by the Petitioner for the appointment of provisional liquidators of the company Hempstone Limited.

2.  Before the summons came on today, the 1st to 4th Respondents in this petition issued a summons for an order that the company be wound-up.  A similar summons was also issued in a related winding-up petition, HCCW343 of 2010, in respect of De Rodeo Catering Limited.

3.  The position is that the petition in HCCW343 of 2010 will come on for hearing on 10 January 2011.  This petition will also now come on at that same time.  I am not prepared to make a winding-up order today, notwithstanding the summonses that have been issued. What that means, of course, is that the 1st to 4th Respondents in this petition accept that a winding-up order ought to be made.  They also appear to accept, therefore, that there has been a breakdown of trust and confidence between the parties and that it is appropriate for a winding-up order to be made and that the trust and confidence between them, on the one hand, and the Petitioners, on the other, has irretrievably broken down.

4.  As a matter of jurisdiction, in so far as the application to appoint provisional liquidators is concerned, it seems to me that the recognition that a winding-up order should be made is clear prima facie evidence that there is a reasonable prospect that a winding-up order will be made.  The question remains as to whether or not it is right in the exercise of my discretion to appoint a provisional liquidator in all the circumstances.

5.  Mr Manzoni on behalf of the Petitioners has drawn my attention to the complaints of misconduct made by the Petitioners against the 1st to 4th Respondents set out in the petition.  I do not propose to go through them at length.  They are addressed in his skeleton submissions, and as he indicated in the course of his oral submissions, many of the allegations are not in fact disputed by Mr Yung, the 1st Respondent.

6.  That obviously goes some way towards demonstrating that there is substance in the allegations of misconduct.  That is not to say that today’s decision amounts to a conclusive finding that that is the case, but rather, it does support, in my view, the existence of circumstances in which it would be appropriate to appoint provisional liquidators, albeit that it is possible that on 10 January next year, a winding-up order will be made in any event.

7.  On the one hand, that might suggest that there is no particular urgency to appoint provisional liquidators today.  On the other hand, I am satisfied that the evidence demonstrates at least to the level of a good prima facie case that the trust and confidence between the parties has irretrievably broken down.  In the circumstances, there would be good sense, in my opinion, in appointing provisional liquidators now.

8.  After any winding-up order is made, assuming that is the case, it will then be a matter to be decided in the usual way as to whether the provisional liquidators should continue as liquidators. Equally, it is possible, and I put it no higher than that, that the parties may be able to resolve their differences between now and the date when the petition is actually heard.  As I understand it, the company is solvent, or is thought to be solvent, and therefore there may be some commercial good sense in the parties seeking to reach some form of commercial resolution.

9.  Accordingly, I make an order in terms of the draft at Annex 2 of the bundle of submissions from the Petitioners, although there are obviously certain changes that need to be made to the form of the draft as it now exists, but I will leave that to the Petitioners to correct and submit for approval.

(Submissions on costs)

10.  I think in the circumstances it is appropriate that the costs of the application for the appointment of provisional liquidators should be paid by the 1st to 4th Respondents to the Petitioners.  This is not like an interlocutory injunction, in the sense that here we have a situation in which the Respondents have themselves asked for a winding-up order to be made today.  So the analogy breaks down and I so order.

(Submissions on certificate for counsel)

11.  I certify this as fit for two counsel.