RE LEGEND INTERNATIONAL RESORTS LTD

5.  Both the Company and the petitioner appealed against the decision given on 6 June 2005.  The Court of Appeal dismissed both appeals with costs on 1 March 2006.  It was held that there is no power to appoint provisional liquidators to explore a restructuring without reference to the question if assets are in jeopardy.  The Court of Appeal did not however disturb the discretion of the court below in refusing to appoint provisional liquidators.

6.  During November 2004 to June 2005, Messrs Richards Butler rendered 5 fee notes to the Company for fees and disbursements.  They came up to the total of about HK$1.55 million.  The disbursements consisted primarily of fees of counsel for appearing at the hearings in November 2004 and April 2005.  The two payments received from the Company were applied towards settlement of the fees and disbursements.  

7.  All further payments received by Messrs Richards Butler on account of fees and disbursements were received from third parties related to the shareholders and all further fee notes were rendered to those third parties.

8.  At the time the petition was presented, the Company was clearly insolvent.  It was however still operating its casino business in the Philippines.  Prior to cessation of operations due to the forced closure of the casino in 2006, I am given to understand that the Company was generating gross revenue of US$120,000.00 a day.  The situation at the time the applications were heard in 2004 and 2005 was that both the petitioner and the Company believed that the Company should be restructured.  The petitioner took the view that this should be done by independent professionals being the provisional liquidators to be appointed, and the Company sought to pursue this by the rehabilitation proceedings it brought in the Philippines.

9.  The liquidators have informed the court that cash on hand at present is about HK$1.1 million odd.  This is without taking into account the costs to be recovered from the petitioner in respect of the costs orders made in the Company’s favour in opposing the appointment of provisional liquidators.  Liabilities of the Company are over US$186 million.

10.  I think it is fair to say that the greater part of work done as covered by the two payments in question related to the efforts to resist the appointment of provisional liquidators.  The Company was successful in its opposition.  The application involved a point of difficulty or complexity which justified the admission of specialist counsel from overseas.  That part of the costs is discreet, it is not costs in opposing the petition as such.  Mr. Beresford for the petitioner accepted that the costs of opposing the appointment of provisional liquidators and the costs incurred in the striking out application were not costs of the petition.  I do not think I am functus officio in making any validation order for the payment of fees to the Company’s solicitors sought in this application. 

11.  There is delay in seeking a validation order.  I do not think any valid reason was given why there was such delay when Messrs Richards Butler were alive to the need for a validation order as early as November 2004.  This, however, is not a material consideration in the circumstances. 

12.  I was referred by counsel to a number of authorities, including three cases dealing with validation orders in respect of the payment of legal fees: In re A Company (No. 004055 of 1991) sub. nom. Re Record Tennis Centres Ltd [1991]1 WLR 1003; Re Crossmore Electrical and Civil Engineering Ltd (1989) 5 BCC 37; and Re Surplus Trader Ltd [2005]4 HKLRD 436.  I also bear in mind the relevant principles in the exercise of the discretion of making a validation order where the company is insolvent,  as conveniently set out by Fox LJ inRe S A & D Wright Ltd, Denney v John Hudson & Co Ltd [1992] BCC 503 at 504G to 505E.  I have a discretion at large, to be exercised within the broad principles as stated in the authorities.  Each case must be decided on its own facts.

13.  The payments insofar as incurred in opposing the appointment of provisional liquidators, were, in my view, incurred in the interests of the creditors of the Company as a whole.  Notwithstanding that the Company was insolvent, its opposition to the appointment of provisional liquidators was shown to be justified.  It certainly cannot be said that its opposition was improper, in the light of the judgments in the Company’s favour and that the courts had awarded costs in favour of the Company against the petitioner for successfully opposing the appointment of provisional liquidators.  Whether any creditors had expressed support for the Company’s opposition to the appointment is not to the point.

14.  The only question is whether I should refuse to validate part of the costs where such costs were incurred in the strike out application which was unsuccessful.  Mr. Barlow for the solicitors submitted that there was no question as to the genuineness and honesty of the payments to the solicitors.  That is not the only consideration.  There is no reason to validate the payment of legal fees where the application proposed to be made was ill advised or misconceived.  Mr. Barlow submitted that the situation should not be assessed by ex post facto rationalisation, citing the dicta of Sachs LJ in In re Clifton Place Garage Ltd [1970]1 Ch 477 at 493B-D, and that I should look at the situation when the payment was made.  Even if I were to approach the matter in that light, when substantial costs were incurred in the strike out application in April 2005, it should have been apparent to the Company and its legal advisers, on the state of the authorities at that time (the decision after trial in