FONG SHUI HIN AND OTHERS v. LAM KIT SING AND OTHERS

HCMP1989/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1989 OF 2004

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R U L I N G

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Introduction

1. This is the adjourned hearing of the outstanding items in the two Bills of Costs of the former Receivers of the 7th Respondent dated 26 April 2006 and 6 June 2007. 

2. The 7th Respondent is the Hong Kong Chung Shan Lung Chan Clan Association (“the Association”) and the former joint and several Receivers were Derek K.Y. Lai and Darach E. Haughey, both of Deloitte (“the Receivers”).  The Receivers were appointed by Barma J on 15 October 2004 to act as receivers to discharge certain administrative functions for the Association, it lacking effective and proper management at the material time.  It is common ground, or at least not in dispute, that the Receivers’ duty and function were intentionally circumscribed and of limited duration, their appointment to last until such time that the Association convened an AGM to elect a board of directors for the Association.

3. At all material times, the Association was wholly solvent and its winding-up was not contemplated.  This we will see is an important feature in the case.

4. On 29 June 2005, Barma J ordered the release of the Receivers.  He also directed that HK$1.4 million be released from the Association’s assets to the Receivers to be held in a separate interest bearing account to cover the Receivers’ remuneration for services rendered. 

5. Barma J’s order further stipulated that the Receivers’ remuneration be calculated on a time-cost basis at the standard scale of fees as may be agreed from time to time between the Official Receiver and the Hong Kong Society of Accountants under the Administrative Scheme of contracting-out of non-summary court winding-up cases to professional accountants experienced in insolvency matters to be taxed if not agreed and to be paid out of the assets of the Association. 

6. The order of the court therefore fully envisaged inter partes taxation of the Receivers’ claim for remuneration and recovery of disbursements failing agreement of same between the Receivers and the Association. 

7. In the event and somewhat latterly, a compromise was struck between the parties in respect of a significant portion of the Bill of Costs dated 26 April 2006.  Items No. 765 to the end of that bill, principally involving the costs of taxation, remain contentious.  They amount to some $418,000, of which a sum of $361,600 was for the Law Costs Draftsman’s fees.  I am given to understand that one half of the Law Costs Draftsman’s fees has been paid.  Outstanding is also the Supplemental Bill of Costs dated 6 June 2007.  It sets out the work that had been undertaken between March and September 2006, after the receivers had been discharged. 

The Issue

8. In very broad outline, Mr Vaughan, counsel for the Association, submitted that the court should decline to tax the remaining items in both bills.  It is contended that the Receivers, despite their formal release in June 2005 following discharge of their administrative functions and duties, continued to owe a legal and fiduciary duty to the Association.  Mr Vaughan describes it as a duty to account in so far as they had continued to carry out their work and performed their duties incidental to their capacity as receivers now forming the subject matter of their claim for remuneration and reimbursement.  As such, it follows that the principles set out in Re Peregrine Investment Holdings Ltd. [1998] 2 HKLRD 670apply, requiring the Receivers to account in order to justify their claim for remuneration and recoupment of the disbursements made.  There being no indication or any evidence whatsoever that the Receiver had properly and critically scrutinised the relevant fees and disbursements or had satisfied themselves that the various matters were properly undertaken and the disbursements properly incurred, taxation should be refused.

9. Mr Tibbo, counsel for the Receivers, countered that the Peregrine principles were of no application to the instant case.  In sum, he argued that the legal obligations of his clients were at an end following their discharge as Receivers.  He professed to be at a great loss to ascertain how it was that somehow a duty to account would persist in the circumstances of the case.  In his submissions, all that remained extant for ventilation were matters for proper scrutiny in the usual way in a taxation hearing, the order of Barma J being that there be taxation failing compromise of the Receivers’ fees and disbursements paid.  Further, the costs of and related to inter partes taxation were incurred by the Receivers not in their capacity as Receivers of the Association.  Such costs and disbursements he cannot see as falling within the ambit of Barma J’s order.  Accordingly, there was no room for the application of the Peregrine Investment Holdings cases and the Companies (Winding-up) Rules, Cap. 132.  The case remains one of simple taxation to be conducted in the usual fashion. 

Findings

11. I have no difficulty in upholding Mr Tibbo’s contentions.  The Peregrine Investment Holdings Ltd. line of cases requiring liquidators and receivers to justify their own costs and disbursements concerns companies in liquidation that were ill-equipped to safeguard their own interests.  Mildly put, they and possibly creditors of the failed companies would be at the mercy of the liquidators over the fees that the liquidators may charge.  Any scrutiny or taxation of the liquidators’ remuneration would necessarily be ex parte.  Hence the exacting obligation cast upon the liquidators and receivers in their capacity as fiduciaries vis-à-vis the companies in liquidation.

12. Mr Tibbo adumbrated a number of distinguishing features, as a result of which he contends that the Peregrine principles should not be applied to the instant case.  That appears at paragraph 31 of his written submissions, which he also alluded to in his oral submissions.  I find all those matters therein stated to be aptly highlighted.  They are pertinent to this case and would fully justify why one should not allow this case to be unnecessarily complicated.  I shall set out in extenso paragraph 31 of the submissions.

“	The Re Peregrine cases can be distinguished from the present case, namely:
	(a)	The judgment concerned a company that was under winding-up order;
	(b)	The winding-up procedure falls squarely under the Companies Winding-up Rules, Cap. 32;
	(c)	The applications made and taxation all occurred in the costs of winding-up where the Provisional Liquidator stood in that position;
	(d)	All taxation and remuneration application took place ex parte with the Official Receiver as Amicus Curiae;
	(e)	The ex-parte taxation took place during the winding-up of the companies;
	(f)	The advisers (Solicitors) to the liquidators were court appointed during the course of the winding-up;
	(g)	The Law Costs Draftman approved by the court to be appointed by the court to assist the Official Receiver in ex-parte taxation proceedings;
	(h)	The Law Costs Draftsman would work during the course of winding-up;
	(i)	The Law Costs Draftsman’s purpose would be to assist the Official Receiver and court to submit a report on the Provisional Liquidator’s disbursements (Solicitors), such that it could be “. . . subjected to satisfactory scrutiny. . . ” in the ex-parte taxation proceedings;
	(j)	The Provisional Liquidator was charged with the duty of not just protecting the companies’ assets under its control but “. . . getting in, realising and ultimately passing on to others assets and properties which belong not to themselves but to creditors or beneficiaries of one kind or another”;
	(k)	The Provisional Liquidator was an officer of the court in the case of ex-parte taxation;
	(l)	No opportunity for the insolvent companies to be represented, nor creditors/other beneficiaries to be represented in any meaningful way.”

13. All these features are clearly absent from the present case where both litigants are meeting each other on a level playing field.  The Association since the discharge was in management of its own affairs.  For the purpose of negotiating or disputing the Receivers’ claims for remuneration and disbursements they have instructed their own Law Costs  Draftsman after instructing their own firm of solicitors to represent them. 

14. This is not a case where the Association is in need of any particular protection.  It is a wholly solvent entity and had been so even during the short period when it was in receivership.  I agree with Mr Tibbo that the Peregrine principles are not applicable and I so hold. 

15. It was contended by Mr Vaughan that a continuing fiduciary duty was left with the Receivers, even following their discharge by Barma J in June 2005.  Try as I have, I cannot see what that duty is.  It has been described, as I have indicated, as a duty to account.  On the facts of the case, it is my view that no such duty exists.  The appointment of the Receivers was for a very limited purpose.  They had fully and wholly discharged their duties and obligations prior to being released.  I cannot discern any continuing duty or obligation of the sort which has been urged upon me by Mr Vaughan.

16. This case as far as it began and continues before me remains purely and simply one for taxation in the normal fashion.  I therefore reject the application of the Association.  The taxation shall continue and I will deal with the question of costs as well as any further directions that may be required to complete this taxation.

(Discussion re costs)

17. The Receivers shall have their costs of this application, including the costs reserved in respect thereof, with certificate for counsel.

(Discussion re adjourned taxation of remaining items)

18. The continued taxation to be fixed for one hour.  Early date requested.