SHINEWING SPECIALIST ADVISORY SERVICES LTD v. CHEN YUNG NGAI KENNETH 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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_________________

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AND

HCCW 346/2010

COMPANIES WINDING‑UP PROCEEDINGS NO 346 OF 2010

_________________

_________________

_________________

AND

HCMP 117/2014

MISCELLANEOUS PROCEEDINGS NO 117 OF 2014

_________________

_________________

_________________

AND

HCMP 118/2014

MISCELLANEOUS PROCEEDINGS NO 118 OF 2014

_________________

_________________

_________________

(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.

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.