LUEN TAT WATCH BAND MANUFACTURER LTD v. STEPHEN LIU YIU KEUNG DAVID YEN CHING WAI

HCMP 1071/2018

[2021] HKCFI 835

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1071 OF 2018

________________________

BETWEEN

	LUEN TAT WATCH BAND MANUFACTURER LTD	Plaintiff
	and
	STEPHEN LIU YIU KEUNG	1st Defendant
	DAVID YEN CHING WAI	2nd Defendant

________________________

Before:  Mr Recorder Houghton, SC in Chambers

Date of written submissions by plaintiff:  14 December 2020

Date of written submissions by defendants:  10 & 15 December 2020

Date of Decision:  31 March 2021

________________________

D E C I S I O N

________________________

Introduction

1.  The present application is brought the former liquidators of the plaintiff company (“the Former Liquidators”) by a Summons filed on 4/11/2020 (“the Summons”).  The Former Liquidators seek a stay of the Judgment of DHCJ Le Pichon dated 7 October 2020 (“the Judgment”) pending an intended appeal from the Judgment.  The parties were directed to serve written submissions as to the application, and the summons has been heard and determined therefore on the papers.

2.  By her Judgment, the learned Deputy Judge granted a mandatory injunction by which the Former Liquidators were directed to hand over to the Plaintiff certain documents (“the Schedule 1 Documents”) within 28 days of the date of the Order.  In addition, the Former Liquidators were required to make an affidavit confirming that all the Schedule 1 Documents had been handed over to the Company. 

3.  The Former Liquidators say that the Schedule 1 Documents which they were ordered to produce were defined in very wide terms so that an extensive volume of documents is involved.  The Order required the “return” of the so-called “Schedule 1 Documents”, (the documents identified in Schedule 1 to the Amended Originating Summons filed on 26 September 2018). These include both documents and records belonging to the plaintiff, and/or those that were generated in the course of the plaintiff’s liquidation but which have been retained by the Former Liquidators.

4.  There seems to be no dispute between the parties as to the relevant principles regarding stay applications such as this.  As formulated by counsel on behalf of the Former Liquidators, the principles[1] governing an application for stay pending appeal are that:

(1)  It is for the applicant for a stay to show an arguable ground of appeal (one with reasonable prospect of success) before any discretion to grant a stay arises.

(2)  If arguable grounds exist, and the discretion arises, it is to be exercised having regard to such other circumstances as may have been shown to justify depriving the successful party the fruits of the judgment.

(3)  An applicant may do so by demonstrating the existence of a strong ground of appeal, or by showing that the appeal would be rendered nugatory if the stay is not granted.

(4)  In assessing the strength of the appeal for the purpose of a stay application, it is impracticable and undesirable to go deeply into the merits. A broad brush approach is appropriate.

(5)  The reasons in favour of the grant of a stay are to balanced by the Court against the fact that the successful party has a judgment in its favour, and the prejudice that could be suffered by the successful party if a stay is granted.

The Basis for the Application

5.  The Former Liquidators contend that the stay pending appeal should be granted on two grounds, that is because there are strong grounds of appeal, and because the appeal would be rendered nugatory without a stay.

Strong Grounds of Appeal

6.  The basis upon which the Plaintiff Company asserted an entitlement to the handing over of the Schedule 1 Documents is the existence of a principal-agent relationship between the Company and the Former Liquidators. The Deputy Judge agreed that such a relationship existed as between the plaintiff and the Former Liquidators - see the Judgment at paragraph 18.

7.  The Former Liquidators do not appear to challenge that conclusion as to the existence of an agency relationship.  What is challenged, and is said to be “the question in the appeal” is whether the principal-agent relationship entitled the plaintiff to the delivery up of all documents generated in the course of the liquidation of the plaintiff and/or in the course of acting as the liquidators of the plaintiff.  In other words, there is no challenge in principle to the conclusion that the plaintiff is entitled to some documents.  The challenge is (in reality) whether the formulation of the Order is “too wide” in encompassing some documents to which the plaintiff is not, in truth, entitled.

8.  The basis for the argument to be heard on the appeal is said by the Former Liquidators to be that, as a matter of law:-

(1)  A liquidator does not always act as an agent for the Company.

(2)  The return of some documents by the Former Liquidators to the Plaintiff Company ought not to have been taken to be an admission of an obligation to return documents of a similar nature by the learned judge.

(3)  Even in a principal-agent relationship, the principal is not entitled to all documents brought into existence in connection with such relationship.

(4)  To determine which documents the principal might be entitled to recover, it is necessary to understand the purpose for which the documents were created.

Agency

9.  The underpinning to these submissions is the proposition that a liquidator is appointed by the Court to perform statutory functions, and in doing so may act as the company’s agent in carrying out the liquidation, but may also perform functions in where the liquidator acts otherwise than as the agent of the company.

10.  The above proposition is said to be supported by firstly the judgment of Cohen J in Tanning Research Laboratories Inc v O’Brien [1987] 11 ACLR 778 and the judgment of David Richards J in Re Southern Pacific Personal Loans Ltd [2014] Ch 426 (Ch).

11.  The judge is said to have fallen into error in accepting, in effect, the proposition that everything done by the Former Liquidators in the course of the liquidation (as far as the creation of documents is concerned at least) was done qua agents of the Company. It was, say the Former Liquidators, for the plaintiff to establish this.

Documents previously returned

12.  The Former Liquidators’ contend that the learned deputy judge was wrong to have placed reliance on the inclusion, amongst the boxes of documents previously returned by the Former Liquidators, of proofs of debts and some draft liquidators’ reports as an admission that the plaintiff is entitled to documents of a similar nature.

13.  The Former Liquidators submit that if the plaintiff is not in fact entitled to such documents as a matter of law, then the earlier provision of similar documents does not provide a basis on which the Court should order the provision of further documents.  Neither a party nor the court is bound by a concession on a question of law: Paquito Lima Buton v Rainbow Joy Shipping Ltd Inc [2008] 11 HKCFAR 464.  

The “Created” Documents

14.  As far as the entitlement, or otherwise, of a principal to documents produced by an agent, the Former Liquidators’ argument is that it is necessary to determine the purpose(s) for which the documents were brought into existence in order to be able to determine the principal’s entitlement, if any.  The Former Liquidators’ rely on, among others, the decision in Gomba Holdings UK Ltd v Minories Finance Ltd [1988] 1 WLR 1231 (CA); and Bowstead & Reynolds on Agency (21^st Ed), para. 6-093. 

15.  In Bowstead §6-093, the authors note the “prima facie” position that the principal is entitled to have delivered up to him at the termination of the agency relationship all documents concerning his affairs which have been prepared by the agent.  However, “[i]n each case it is necessary (unless, as may be the case, the right to the documents is settled by the contract between the parties) to decide whether the document in question came into existence for the purpose of the agency relationship or for some other purpose, e.g. in pursuance of a duty to give professional advice.”. Examples of circumstances in which documents produced by an agent fall outside the “prima facie” obligation to deliver up documents are given. 

16.  The decision in Gomba is illustrative. In that case, the agents in question were receivers of property, owing duties to the mortgagor as well as the debenture holders.  The “issue” was described by Fox LJ (see 1235F) as requiring the identification of the party for which the documents were created: “were the documents brought into being in discharge of a duty to the debenture holders or to the companies?”  That principle is perhaps of limited assistance in the context of a liquidation however, where there cannot be said to be adverse parties to whom the liquidator owes a duty.

Strength of Appeal

17.  As stated above, no discretion to order a stay arises unless there are arguable grounds for the appeal itself.  I accept that there are such arguable grounds in regard to the 2^nd and 3^rd grounds of appeal summarised above.

18.  I am however wholly unable to agree with the Former Liquidators that these grounds are “strong”.  The mere fact that, in principle, some documents may have been created by the Former Liquidators in the course of the liquidation to which the plaintiff may have no entitlement does not establish that there are such documents.  That is a question of fact or a question involving factual considerations.

19.  Moreover, it is a question in respect to which, in my judgment, the onus lies on the Former Liquidators to adduce appropriate evidence.  It is they who assert that documents exist which fall outside the prima facie duty to provide documents referred to above.  They were the only party responsible for the preparation of the documents in question, and they have sole possession of these documents.

20.  The plaintiff submit that they have repeatedly sought identification from the Former Liquidators of the specific types or categories of document in respect of which the duty to disclose is said not to arise.  The judge concluded, on the evidence, that “apart from a reference to working papers in the 15^th May 2018 letter, at no stage did the Defendants specify or list the categories of documents withheld”.  See para.13 of the judgment.

21.  On the evidence, it appears to me, the Former Liquidators have raised hypothetical issues as to the entitlement to retain some documents, but without any significant evidential foundation to show “merit” in the argument.

22.  The theoretical entitlement to not hand over certain documents is of little relevance to the validity of the order made by the judge absent evidence identifying specific documents to be considered.  For present purposes it suffices for me to conclude that the Former Liquidators have failed to demonstrate a sufficiently strong ground of appeal as to cause me to exercise my discretion in favour of granting the stay.

Appeal Nugatory Without Stay

23.  On the question as to whether or not an appeal would be rendered nugatory, the Former Liquidators highlight the following observations of Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 (at 87):

“In determining the question whether or not an appeal would be rendered nugatory, the court must of course first have regard to nature of the order that is the subject matter of the appeal… Sometime, though, the nature of the order will by itself almost be determinative of the question. Where the relevant order is, for example, an injunction (and particularly so if it is a mandatory injunction), it may well be that, without a stay, an appeal would be rendered nugatory in the event of a successful appeal” (at §9(1)).

“An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant faces financial ruin or the loss of all his property. Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough” (at §9(4)).

24.  The Former Liquidators submit that they have been ordered to deliver the Schedule 1 Documents, which include, they say, documents to which the plaintiff is not entitled.  It is submitted that viewed in this light the appeal would be nugatory without a stay since the plaintiff would receive and see the contents of documents to which it is not entitled.  The process cannot be reversed even if the plaintiff was ordered to return such documents in the event of the appeal being successful.

25.  This, of course, suffers from the same evidential difficulty as is referred to above, namely the non-identification of the “relevant” documents or categories of documents.  Moreover, it cannot be said that the appeal will rendered nugatory “merely” because (ex hypothesi) the principal may be provided with documents in respect of which it has no “true” entitlement.  As observed in Equitas Ltd v Horace Holman & Co. Ltd [2007] Lloyd's Rep. I.T. 567, at para 27, if the agent's means for extracting the irrelevant materials "cannot be devised with sufficient expedition, the principal will have to see the irrelevant material in so far as it is inseparable from the relevant".  As is noted above, and below, the Former Liquidators have had considerable time to identify documents which they say should not be “returned” but have not done so.

26.  Further, the Former Liquidators contend that the appeal would be rendered nugatory without a stay in the sense that the failure to grant a stay would have a serious deleterious effect.  If the appeal turns out to be successful, the substantial time, resources and costs involved in complying with the Judgment would be completely wasted. Further, there would be an issue as to whether the Former Liquidators would be able to recover such costs from the Company in the event of the appeal being successful.

27.  For my part I am not persuaded that the appeal would be rendered nugatory in the event that the stay is not ordered. The Former Liquidators have not established what documents will be disclosed that should not be disclosed, nor is it clear what damage would be suffered.

28.  So far as that “prejudice” is concerned, three matters are canvassed by the Former Liquidators.  First, the Company has already been given 95 boxes of documents, so there is “little prejudice that would be caused to the Company if the handing over of the Schedule 1 Documents” were to be deferred until after the determination of the appeal.

29.  Second, since “the process required for the handing over of the Schedule 1 Documents is extremely time consuming, costly and burdensome and that the Former Liquidators would be required to state on oath that all documents have been handed over, the balancing exercise is clearly in favour of granting a stay pending appeal”.

30.  Third, with a view to increase the efficiency and cost effectiveness of compliance with the Judgment, the Former Liquidators have invited the plaintiff to agree on a set of search terms to be applied to their email inboxes for the period covering the liquidation so as to avoid a full review of the so-called Category B and Category C Documents. The plaintiff has, however, rejected the same and the Former Liquidators submit that “In light of the Company’s unreasonable refusal to the constructive proposal put forward by the Former Liquidators, the balance is also tilted in favour of granting stay pending appeal.”.

31.  The plaintiff submits that the successful party is "entitled to expect the Order to be complied with by [Ds] within the time limit stipulated".[2] Moreover, it is trite that "the risk of wasted or irrecoverable costs is inherent in our system of litigation and cannot by itself justify a stay of execution pending appeal".[3]

32.  The plaintiff naturally also draws attention to the fact that it is now more than 3 years since the Former Liquidators’ removal as liquidators, in which time they have had ample time to collate and process the relevant documents.

33.  In addition, it is submitted that the Former Liquidators have failed to put forward any evidence to show that compliance would result in a "serious deleterious effect", and I think it to be reasonable for me to take judicial notice of the Former Liquidators status as respectively managing director, and former managing director, of Ernst & Young, a firm of considerable size and stature.  They have considerable resources at their disposal.  The judge found, as a fact that the Former Liquidators were "handsomely remunerated" for their work (including the handling or maintaining the documents), and in respect of which the fees were in excess of $18 million[4]. In that context, I agree with the submission that "D’s recent allegations that "the emails are scattered across Ernst & Young's employees' computers and email inboxes", and that the process for processing such emails would cost HK$980,000 over 5 to 6 weeks” give rise to an inference that “the present shambolic state of affairs are entirely self-induced."

34.  I reject the suggestion that the proposed appeal would be rendered nugatory in the absence of a stay.  In light of the above, I have no hesitation in concluding that the balancing exercise leans heavily against the grant of a stay.

Time

35.  In the event that this Court refuses to grant such stay, the Former Liquidators for an extension of time of 56 days for them to comply with the Judgment.

36.  The exercise required of the Former Liquidators is clearly substantial, but equally clearly should have been in progress since the Order was made.  It appears to me that the documents should be handed over within a period not longer than was originally ordered, that is, within 28 days of the date of this Decision.

Costs

37.  The costs order made by the deputy judge was an order for the Former Liquidators to pay the costs of the Amended Originating Summons on an indemnity basis.  The plaintiff seeks indemnity costs in respect of the stay application also, on the footing that the application is “wholly unmeritorious” and that the Former Liquidators have previously been held to have conducted themselves “disgracefully”. 

38.  A Statement of Costs for Summary Assessment is provided by the plaintiff.

39.  The Former Liquidators do not accept the premise that the application is unmeritorious, and submit therefore that no order for indemnity costs should be made.  No submission is made as to the Statement of Costs.

40.  In my judgment there is no basis on which to award indemnity costs in respect of this discrete application.  The Former Liquidators have shown, in my view, arguable, but certainly not strong, grounds of appeal.  I do not accept that the conduct held to have taken place in other stages of the litigation is automatically to be held against the Former Liquidators in the context of this application, and I decline to order the higher scale of costs.

41.  As regards the Summary Assessment, I have had regard to the time taken in attendances, perusal, and the involvement of counsel.  The assessment I make is that the plaintiff’s recoverable costs shall be in the sum of $180,000.00.

	(Anthony Houghton SC)
	Recorder of the High Court

Written submissions by Mr William Wong, SC, Mr Alan Kwong and Mr Martin Kok, instructed by Joseph S C Chan & Co, for the plaintiff

Written submissions by Mr Anson Wong, SC and Mr Thomas W K Wong, instructed by Hogan Lovells, for the 1^st & 2^nd defendant

HCMP 1071/2018

[2020] HKCFI 2610

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1071 OF 2018

_____________

BETWEEN
	LUEN TAT WATCH BAND MANUFACTURER LIMITED	Plaintiff
and
	STEPHEN LIU YIU KEUNG	1st Defendant
	DAVID YEN CHING WAI	2nd Defendant

_____________

Before: Deputy High Court Judge Le Pichon in Court

Date of Hearing: 18 September 2020

Date of Judgment: 7 October 2020

________________________

J U D G M E N T

________________________

1.  This is an application by Luen Tat Watch Band Manufacturer Limited (“the Plaintiff”) by an amended originating summons (“the AOS”) dated 26 September 2018 for an order that Stephen Liu Yiu Keung (“Liu”) and David Yen Ching Wai (“Yen”) (collectively “the Defendants”) hand over the documents set out in Schedule 1 to the AOS. At the conclusion of the hearing, judgment was reserved which I now give.

Background

2.  The Plaintiff was part of the Luen Tat Group of companies (“the Group”) founded by the late Lee Sai Nam (“Lee Senior”) in the 1970s. Within the Group was a company called Pak Tat.

3.  Prior to his death in 2014, Lee Senior was the sole beneficial owner of the Plaintiff and the Group including Pak Tat. However, from about 2008, his eldest son (“Ken”) started disputing Lee Senior’s ownership resulting in 2 sets of proceedings:

(1) In HCCW 497/2009 commenced on 5 July 2009, Lee Senior sought to wind up the Plaintiff on the just and equitable ground. He obtained a winding-up order on 6 July 2010 and, consequently, the Defendants were appointed joint and several liquidators of the Plaintiff in October 2010; and

(2) On 6 August 2009, Lee Senior commenced HCA 1711/2009 (“the HCA action”) for a declaration that he was the sole beneficial owner of all the shareholdings in the Plaintiff and Pak Tat. On 9 December 2015, the judge decided in his favour. Ken’s appeal (CACV 2/2016) was dismissed by the Court of Appeal on 19 January 2017.

4.  The proceedings above resolved all ownership dispute issues, confirming Lee Senior’s ownership of the entire Group.

5.  On 27 November 2017, DHCJ To (“the judge”) permanently stayed the winding-up, removed and discharged the Defendants as liquidators of the Plaintiff and ordered Ken and the Defendants to personally pay the Plaintiff’s costs on an indemnity basis (“the Removal Decision”).

6.  On 7 December 2017, solicitors for Lee Senior’s other children, namely, Lee Shu Hang (“Richard”) and Li Sin Man (“Seline”) requested the Defendants to release and deliver the documents kept by them in their capacity as liquidators of the Plaintiff.

7.  On 13 December 2017, the Defendants indicated that they would return the books and documents relating to the Plaintiff’s affairs which are the Plaintiff’sproperty in phases. Implicitly, the Defendants considered that not all the documents they have retained relating to the Plaintiff’s affairs are the Plaintiff’s property.

8.  On 22 December 2017, Richard and Seline were appointed directors of the Plaintiff.  

9.  The Defendants’ initial indication was that all documents that are the Plaintiff’s property (which they referred to as “Luen Tat Documents”) would be prepared for delivery by 28 February 2018. However, documents returned as of that date did not include a single item generated after 6 July 2010, the date of the winding-up order.

10.  From an initial study of the documents delivered and the lists prepared by the Defendants, by 20 April 2018, the Plaintiff became aware of missing documents: see §22 below.

11.  The following exchange of correspondence took place between the respective solicitors for the parties:

(a) On 20 April 2018, the Defendants’ solicitors were specifically asked to specify “the categories (or nature) of documents which [the Defendants] have withheld and refuse to release to the Company” within 7 days.

(b) On 4 May 2018, the Plaintiff’s solicitors repeated their earlier request at §13[1] . For good measure, §15 read:

“We invite your clients to be honest and state categorically which category(ies) is/are not going to be released or returned to the Company …”.

(c) In their reply on 15 May 2018, after referring to Gomba Holdings UK Ltd and Others v Minories Finance Limited [1989] 1 All ER 261 and Hanley v JC & A Solicitors Ltd (Case No: SCCO REF JJ 1706056), the Defendants’ solicitors stated[2] that the general principles in Hanley apply to liquidators including that

“working papers and other documents intended solely for the liquidator’s (sic) own use to enable them to fulfil their duties are the property of the liquidators themselves.”

(d) On 28 May 2018, the Plaintiff’s solicitors sought confirmation within 3 working days that the working papers described in (c) above constitute “the only category of documents which the [Defendants] have withheld or refuse to release”.

(e) The Plaintiff’s solicitors’ letter of 5 June 2018 recorded that “the letter dated 4 June 2018 received in reply did not provide an unequivocal answer as requested”.

12.  Meanwhile the Defendants continued with batch deliveries of Luen Tat Documents but more than 7 months after the Plaintiff’s initial request, in relation to email correspondence, at least another 5 years’ worth of emails had yet to be returned to the Plaintiff.

13.  Despite the Plaintiff’s repeated requests[3] , apart from a reference to working papers in the 15 May 2018 letter, at no stage did the Defendants specify or list the categories of documents withheld.

14.  On 12 July 2018, the Plaintiff commenced the present action for the return of the “Schedule 1 Documents”.

15.  Prior to its commencement, between 26 February and 5 July 2018, the Defendants caused 8 batches of Luen Tat Documents to be delivered to the Plaintiff followingrepeated requests from the Plaintiff.

16.  After the issuance of the Originating Summons, 3 further batches[4] were delivered to the Plaintiff.

Schedule 1 Documents

17.  The documents sought are described in Schedule 1 as documents

“generated in the course of the liquidation of the [Plaintiff] and/or in the course of acting as the liquidators of the [Plaintiff] … but excluding documents subject to legal professional privilege that are solely in respect of the Defendants’ personal liabilities (if any)”.

The Plaintiff’s case

18.  Mr William Wong SC leading counsel for the Plaintiff submitted that the relationship between a company and its liquidators is essentially that of principal and agent, citing McPherson & Keay, The Law of Company Liquidation, 4^th Ed., §9-003[5] :

“[u]pon winding up, the directors of the company are displaced and their functions assumed by the liquidator, who, in exercising his or her powers, acts as the agent of the company. All the normal consequences incidental to the agency relationship are therefore present: the acts and transactions into which they enter bind the company, not the liquidators personally, and this is so whether the company is being wound up voluntarily or compulsorily.”

19.  It was submitted that the Plaintiff has a broad entitlement to the documents or records retained by the agent in the course of the agency in so far as such documents or records concern or relate to the principal’s affairs.

20.  Fox LJ considered as correct in general terms the statement of principle that

“as between principal and agent, all documents concerning the principal’s affairs which have been prepared or received by the agent belong to the principal and have to be delivered up on the termination of the agency”: see GombaHoldings Limitedv Minories Finance Limited [1989] 1 All ER 261 at 263a.

21.  A similar view is stated in Bowstead and Reynolds on Agency, 21^st Ed at §6-093. Further, it is not necessary for the principal to prove that he owns the documents or records in question: Bowstead & Reynolds at §§6-090 and 6-093.

22.  The 2^nd and 3^rd affirmations respectively dated 7 January 2019 and 8 May 2019 filed by Seline on behalf of the Plaintiff highlighted certain categories of “missing documents” following a review of the documents delivered to the Plaintiff.

23.  For example, omitted from delivery are (a) the 1^st, 3^rd, 5^th and 7^th drafts of the liquidators’ report[6] ; and (b) missing documents in the adjudication files[7] , specifically “Adjudication Summaries” in relation to proofs of debt (“PODs”) 45, 46, 49-51.

The defence

24.  Mr Anson Wong SC leading counsel for the Defendants took issue with the formulation in Schedule 1, namely, documents “generated in the course of the liquidation … and/or in the course of acting as the liquidators …”. It was said to be problematic in that it is premised on everything done by the liquidator being done in his capacity as agent.

25.  It was submitted that as a liquidator also performs other functions, the Plaintiff is only entitled to documents generated when the liquidator is acting as agent for the company and not when he is performing another function, and that it is wrong for the Plaintiff to say that everything done in the course of liquidation is done by the liquidator qua agent.  

26.  The Defendants submittedthat the Plaintiff has 2 hurdles to surmount: first, a liquidator does not always act as agent for the company; and second, even when he is acting as agent, the principal is not entitled to all the documents brought into existence by the work in question and it is necessary to see for what purpose the documents had been brought into existence.

(1) The first hurdle

27.  It is common ground that a liquidator is a creature of statute and on assuming office, he assumes the functions of the board and acts as the company’s agent. Hemust carry out the duties imposed on him by statute to give effect to the statutory scheme for the realisation of the company’s assets and the distribution of the proceeds among the creditors. The liquidator’s fiduciary obligations are owed to the company and the body of creditors.

28.  As stated in McPherson & Keay at §8-038:

“In general one can say accurately that the liquidator is a hybrid composite with elements of fiduciary trustee, agent, and (in some instances) officer of the court”.

The learned authors noted the difficulty of categorising what a liquidator is but had no difficulty in stating that “he or she is a fiduciary with all of the accompanying duties”.

29.  The Defendants referred to Tanning Research Laboratories Inc v O’Brien (1987) 11 ACLR 778 (NSWSC) where Cohen J analysed the role of a liquidator (when considering and dealing with PODs). He held (at p 791) that

“when he considers each proof of debt … he is not the company; he is acting as an officer of the court in carrying out a duty to ascertain the creditors, a duty which is of an administrative nature … He is exercising a quasi-judicial position. It is because he is not, for that purpose, the company, that he can go behind a judgment or a stated account which, before the winding up, would have been binding upon the company.”

30.  The Defendants submitted that it is therefore necessary to focus on the specific activities of the liquidator and that Tanning is authority for the proposition that not everything done by the liquidators in the course of liquidation is done in the capacity as the agent of the company.

31.  That is all very well but the first hurdle is a statement of fact rather a test to be applied. It is unclear if it is the Defendants’ contention that the company is only entitled to documents generated when the liquidator is acting exclusively as the company’s agent[8] but not otherwise despite being a “hybrid composite” and that it is not entitled to documents generated when the liquidator is performing a dual role, wearing 2 hats (as it were) at the same time.   

32.  While the liquidator when adjudicating a POD is not acting as the company’s agent inasmuch as he is not bound by the company’s account stated but may go behind it, an adjudication when made binds the company and plainly relates to the company’s affairs. It affects the company’s assets and the amount available for creditors generally.  

33.  That aside, Tanning was not concerned with the question whether upon the discharge of the liquidators from office, the liquidators are entitled to retain all documents generated in relation to the PODs. Tanningis not an authority on that issue.

34.  The other authority relied on was In re Southern Pacific Personal Loans Limited [2014] Ch 426 where (at §17) David Richards J opined that

“Some of the duties of a liquidator are undertaken by him as principal in that capacity and not on behalf of the Company of which he is the liquidator. For example, where he receives and adjudicates on proofs of debts submitted by those claiming to be creditors of the company, he does so as the liquidator and not as an agent of the company.”

35.  But in that case the issue was whether property of the company was delivered to the liquidators as principal rather than as agent. It did not concern the adjudication of PODs or the company’s entitlement to documents so generated.

36.  The purpose for which a liquidator exercises his powers is to give effect to the statutory scheme and in an insolvent winding up the liquidators are primarily acting in the interests of creditors. In In re Southern Pacific it was held (at §33) that in exercising his powers and fulfilling his duties in respect of the property of the company, the liquidator does so as agent for the company, in whose ownership the property remains vested, albeit not for the benefit of the company but in order to give effect to the statutory scheme.

(a) PODsin the present case

37.  As earlier noted[9] , documents relating to PODs 45, 46, 49-51 (“the missing PODs”) were missing from the documents delivered. The list of proofs filed by the Defendants under Rule 101 showed 51 PODs and a dividend of over $34 million distributed to creditors. The missing PODs are of particular concern to the company in view of §§43-64 of the Removal Decision where the judge was highly critical of the admission of debt made in respect of 3 of the missing PODs.

38.  It is clear from the evidence that except for the missing PODs (including their adjudication summaries), the Defendants had returned to the Plaintiff all documents relating to the remaining PODs. At the hearing, the Court sought an explanation from the Defendants for their rationale in withholding documents pertaining to the missing PODs since, prima facie, it defied all logic.

39.  Mr A Wong’s reply was: “We are not withholding them. They are all there.” When asked specifically about the adjudication summaries in relation to the missing PODs, the reply was “there is (sic) no such documents”, notwithstanding the fact that they do exist in respect of all the remaining PODs.

40.  To assuage the Court’s near-exasperation, Mr A Wong referred to Yen’s 3rd affirmation dated 4 March 2020 which, inter alia, stated as follows:

“6. … I confirm that all the documents relevant to those PODs to which the Plaintiff is entitled have been provided to it by the Defendants.

7. Secondly …

(a) I specifically confirm that the Defendants have provided to the Plaintiff all the documents the subject matter of paragraphs 21-23 to which the Plaintiff is entitled, and that the defendants have nothing further to provide to the Plaintiff.” (Emphasis added)

41.  That evidence is as unhelpful as the earlier answers from counsel. The Defendants’ stance remains that the decision as to what documents are to be returned to the Plaintiff is entirely a matter for the Defendants. In other words, the Defendants have arrogated to themselves the exclusive power to make that decision.

42.  In my view, the Defendants’ stance is wrong and unsustainable in law.

43.  In the course of the hearing, there was some suggestion that the inclusion of the remaining PODs in the batch deliveries should not be taken as any recognition or acknowledgment of the Plaintiff’s entitlement to them.

44.  That approach is undermined by the Defendants’ own evidence throughout which is that documents delivered to the Plaintiff are Luen Tat’s property, ie they belong to the Plaintiff. That is a clear admission that the Plaintiff is entitled to them.

(b) Working papers

45.  The Defendants relied on the general principles stated in §47 of the Hanley case (concerning solicitors retained on a professional basis to provide services) as equally applicable to liquidators such that working papers and other documents intended solely for the liquidators’ own use to enable them to fulfil their duties are the property of the liquidators themselves.

46.  Pausing here, as noted in §23 above, several of the draft reports have been delivered to the Plaintiff. The same absence of logic infects the retention of 4 of the 12 drafts as with the retention of the missing PODs.

(2) The second hurdle

47.  The Defendants submitted that the fact that a document was brought into existence in connection with work done for a principal is not a sufficient basis for the Court to draw the conclusion that the principal is entitled to it citing, inter alia, the Gomba case.  

48.  In Gomba the company was put into receivership by the debenture holder. Afterthe receivership was discharged, the receivers were ordered to deliver up documents belonging to the plaintiff. The issue was whether the receivers were entitled to decline to deliver up various categories of documents set out in a letter[10] .

49.  The relationship set up by the debenture and the appointment of the receiver was not simply between the mortgagor and the receiver but tripartite, involving also the debenture holder.

50.  The Defendants submitted that by parity of reasoning, when a liquidator is discharging his duties as an officer of the court, the company is not entitled to the work product unless he is also doing it as the company’s agent. Hence it was said that it is important to consider the circumstances in which the document was brought into existence: see Bowstead & Reynolds (at §6-093).

51.  I do not consider the authorities concerning the position of a professional (such as an auditor or a solicitor) and client is of assistance in this regard. In those cases, the auditor/solicitor is engaged to act as principal. The liquidator’s composite role as agent, fiduciary and officer of the court is not a principal in any true sense.

The Defendants’ proposal

52.  Headwinds encountered during the hearing gave rise to a written proposal from the Defendants in the following terms:

“1. The Defendants to file an affirmation within 14 days hereof verifying a list of categories of documents generated in the course of the liquidation of the Plaintiff and/or in the course of acting as the liquidators of the Plaintiff (in whatever form) that remain in the possession, power or custody by the Defendants and not previously supplied to the Plaintiff.

2. In respect of each of the categories of documents set out in the said list, the Defendants would give a description of the nature of the documents and the circumstances in which those documents were brought into existence.”

53.  The Plaintiff rejected the proposal as being made far too late.

Conclusion

54.  The chronology relating to the Defendants’ deliveries of the Plaintiff’s documents speaks for itself. It is now coming on to 3 years since the removal and discharge of the Defendants as liquidators of the Plaintiff and 33 months since the initial request for documents was made.

55.  Despite their reliance on Gomba, it is noteworthy that in Gombaitself, within 2 months of the court’s order[11] to deliver up to the plaintiffs documents belonging to the plaintiffs, the receivers delivered up some 268 files of documents and at the same time by a letter of 12 June 1987 to the plaintiffs’ solicitors set forth various categories of documents relating to the affairs of the companies which came into existence or received by or on behalf of the receivers during the receivership but which the receivers declined to deliver up on the grounds that such documents were not the property of the companies. That gave rise to the motion for delivery up culminating in the appeal.

56.  In the present case, by the time of the hearing, the Defendants had not even made such an offer, much less produce a list of the categories of documents retained.

57.  Moreover, as stated in Hollander, Documentary Evidence in Hong Kong, 2^nd Ed.:

Ҥ6-041 During the course of the agency, the agent is a fiduciary and owes duties of loyalty to the principal. This will give rise to an obligation to keep records of transactions entered into on behalf of the principal and to make records available.

§6-042 once the relationship has terminated, the fiduciary obligation of loyalty is at an end. But there is still an obligation to provide records in respect of the transactions entered into on behalf of the principal, and the affairs of the principal … Otherwise the principal would be left in a state of ignorance as to his affairs and the transactions entered into on his behalf.”

58.  In the circumstances, the Plaintiff was clearly entitled to reject the belated offer. The offer should have been forthcoming at the latest by May 2018, over 2 years ago.

59.  It will have become apparent that I do not regard the so-called hurdles put forward by the Defendants as entitling the Defendants to retain documents generated in the course of liquidation and/or in the course of acting as liquidators of the Plaintiff.

60.  Even if there are documents that arguably the Defendants are entitled to retain, it would not affect the ultimate outcome given the facts of the present case in view of the fact that the Defendants (unlike the receivers in Gomba) have not discharged their burden of showing what categories of documents they should not produce.

61.  Accordingly, I will make an order in terms of Schedule 1 of the AOS.

Costs

62.  The Plaintiff seeks costs on an indemnity basis in view of the manner in which the Defendants have conducted themselves since the initial request. The Defendants submitted that given the very unique role of a liquidator, they are entitled to have the legal point argued and should not be visited with indemnity costs.

63.  The Defendants were office-holders. The production of documents in dribs and drabs over a nine-month period and a ‘further’ delivery[12] made some 7 months after that is not conduct commensurate with that to be expected of office-holders. It is inexcusable. It inevitably casts doubt on their suitability for appointment as liquidators.

64.  The Defendants are the only persons with knowledge of what documents have been generated during their time in office which spanned over 7 years and in respect of which they have been handsomely remunerated[13] .

65.  It defies belief that they had the temerity to submit that “it would be incumbent upon the Plaintiff to identify the documents to which it claims to be entitled with some precision such that this Court can determine the issue in accordance with the evidence[14] .”

66.  That submission reflects badly on the Defendants who, as officeholders, should adhere to higher standards. In my view, they have conducted themselves disgracefully in this saga, and deserves sanction.

67.  Accordingly, the Defendants are ordered to pay the Plaintiff’s costs on an indemnity basis.

	(Doreen Le Pichon)
	Deputy High Court Judge

Mr William Wong M.F. SC, Mr. Alan Kwong and Mr. Martin Kok, instructed by Joseph S.C. Chan & Co., for the plaintiff

Mr Anson Wong SC and Mr Thomas WK Wong, instructed by Hogan Lovells, for the 1^st and 2^nd defendants