RE SHUNFENG PHOTOVOLTAIC INTERNATIONAL LTD

HCCW 194/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 194 OF 2012

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JUDGMENT

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1.  I have before me a petition issued on 5 June 2012 by Allen & Overy seeking a winding-up order against the Company on the ground of insolvency. Allen & Overy relied to prove insolvency on a statutory demand issued in respect of alleged outstanding professional fees incurred in connection with the initial public offering of the Company which was listed on the Stock Exchange of Hong Kong Limited on 13 July 2011.

2.  At the commencement of the hearing I granted the Company leave to file two further affirmations of Mr Tse Man Kit Keith and Zhu Chunxiao in the face of opposition from the Petitioner although as matters transpired nothing turned on the contents of the new affirmations. 

3.  Allen & Overy’s claim arises in the following circumstances.  In 2010 the Company had plans for listing in Hong Kong.  It engaged Macquarie Capital Securities Limited (“Macquarie”) to assist it.  The Petitioner was engaged by Macquarie.  An engagement letter was prepared by Allen & Overy which is dated 13 January 2011 which was signed by Macquarie as client and the Petitioner.  The Company also signed on the engagement letter to confirm its agreement to pay the Petitioner’s fees as set out in the engagement letter.  The material provisions of the engagement letter are as follows:

“6. Fees

We will charge for our services on an hourly basis at our discounted rates set out below but have agreed to cap our professional fees at US$850,000 (excluding disbursements), subject to our scope of work and principal assumptions as set out below.

We will charge for disbursements as set out in paragraph H of the General Terms of Engagement. The principal categories of disbursements are normally travel and accommodation, photocopying, international telephone and facsimile charges and support staff overtime payments.

…

9. Principal assumptions

9.1 Our fee cap is subject to the following assumptions:

(a) the Company will be listed on the Stock Exchange by the end of June 2011;

(b) other professional parties involved in the transaction will have appropriate experience and will devote sufficient attention and resources to the transaction;

(c) we will not be required to advise on any pre-listing reorganisation;

(d) the Company will fully cooperate and promptly provide relevant documentation and assistance for due diligence and verification (the Sponsor will lead and drive the Practice Note 21 due diligence compliance);

(e) there will be no unusual or unforeseen structural or legal issues;

(f) we will not be required to deal with unusual taxation or accounting issues nor have primary responsibility for any non-Hong Kong law or non-US securities law aspects;

(g) the Company is not an “investment company” for purposes of the United States Investment Company Act of 1940, as amended;

(h) prospectus drafting will take place in Changzhou, Beijing and/or Hong Kong and due diligence documents will be made available electronically;

(i) PRC counsel of the Company or the Sponsor will take primary responsibility in the due diligence review of documents governed by PRC law and will issue any due diligence report or legal opinion required;

(j) we will not review or comment on the Chinese version of the prospectus other than the section headed “Underwriting” in the prospectus; and

(k) we will not be responsible for local counsel fees as well as VAT and other taxes and disbursements.

Please let us know promptly if any of these assumptions are, or become, incorrect.”

“These General Terms of Engagement are to be read with the cover letter which accompanies them – together, the two documents set out the terms of our engagement for the matter described in that cover letter. However, where the cover letter is inconsistent with these General Terms, the cover letter applies.

Nothing in the terms of our engagement limits your right to challenge our invoices in accordance with the law or the Law Society’s rules.”

…

D  Scope of matter

During the matter, the scope of our work may change if, for example, you choose to add other areas of work, the commercial terms alter, the laws of another jurisdiction become relevant or an assumption we have made is or becomes incorrect.  If the change expands the scope of our work, this may affect the fee arrangements or estimate described in the cover letter, and may also affect the timing of the matter.

Where we have agreed to cap or fix our fees, the cap or fixed fee:

(a) applies only to the scope of work set out in the cover letter for that cap or fixed fee;

(b) is based on the cover letter assumptions for that work; and

(c) does not apply to any work carried out beyond any end date specified in the cover letter for that capped or fixed fee work.

If we carry out any work in addition to the scope of work for which a cap or fixed fee applies or beyond the end date for that work, we may charge you for all additional work and work after the end date at our standard hourly rates then applying.  If any other assumption for capped or fixed fee work is or becomes incorrect, we may review the cap or fixed fee and renegotiate it with you as appropriate or agree an alternative charging basis.”

4.  As can be seen the engagement letter provided for a cap to Allen & Overy’s fees of US$850,000.  In April 2011 Macquarie withdrew as sole bookrunner for the IPO.  The Company then secured CMB International and Daiwa as joint bookrunners.  In May 2011 the Petitioner produced a draft supplementary agreement which included an increased fee cap.  There is no dispute that the Company refused to sign it.  Nevertheless, after the Company’s successful listing on 13 July 2011, in October 2011 Allen & Overy sent its last invoice to the Company.  The total amount billed was US$1,250,000 which exceeded the fee cap by US$400,000.

5.  The Company refused to pay more than the agreed fee of US$850,000.  It is the difference of US$400,000 which is the debt referred to in the statutory demand.  During the course of argument, both counsel accepted that the petition falls to be determined on the construction of the terms of agreement I have referred to above.  Allen & Overy argued that if any of the assumptions referred to in clause 9 applied for any reason, the fee cap no longer applied and Allen & Overy was entitled to charge for its professional services on a time charge basis at the rates set out in clause 7 of the engagement letter.

6.  As will be apparent from what I have said above the listing took place 13 days after the date assumed in clause 9.1(a). Therefore, Allen & Overy argues that it is entitled to charge for its professional services on a time charge basis.  The Company argues that the fee cap only ceased to apply if one of the assumptions ceased to apply and resulted in Allen & Overy having to do materially more work.  It does not accept that Allen & Overy had to do materially more work although it accepts that assumption 9.1(a) on its face ceased to apply.

7.  Ms Eva Sit who appeared for the Petitioner accepted that if I found the Company’s construction was clearly arguable, a bona fide dispute on substantial grounds would have been demonstrated and the petition should be dismissed.  Conversely Mr Bernard Man who appeared for the Company accepted that if I was persuaded that the Petitioner’s construction was clearly correct, as the assumption in clause 9.1(a) had clearly ceased to apply, Allen & Overy were entitled to charge for their professional services on a time charge basis and the Company would pay the outstanding sum claimed of US$400,000.

8.  Lord Hoffman considered how the court should approach the construction of the terms of a written agreement in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913B:

“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: …”

9.  The question is therefore what should the parties be reasonably have taken to have intended by the relevant terms of the Agreement.  Both counsel accept that I do not have to make final determination of the issue, what I should do is to determine whether the Company’s construction has sufficient substance that the matter should go to trial.  In my view it does.  Clause 6 provides that Allen & Overy would not charge more than US$850,000 “subject to our scope of work and principal assumptions” which are set out in clause 9.  It seems to me that it is at least arguable that the parties would have understood this to mean that the fees were capped as long as Allen & Overy did not have to do more work than was anticipated at the time the agreement was made and that this is to be assessed by reference to the scope of work and the assumptions.  It is therefore arguable that only if an assumption ceased to apply and as a result materially more work had to be done does the fee cap cease to apply.

10.  It seems to me far from clear that any deviation from the assumptions, however small, would have been understood by the parties to allow Allen & Overy to charge for all its work on a time basis and I find nothing in the language used in clauses 6 and 9 that compels such an interpretation of the agreement.  I will therefore dismiss the petition.  The Petitioner shall pay the Company’s costs.