RE AQUALITY ENGINEERING CO LTD

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NOS. 308 of 1995,
356 OF 1997, 567 OF 2000, 581 OF 2001 AND 1023 OF 2001

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HCCW308/1995

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J U D G M E N T

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Introduction

1. There are five applications before me to review the decision of the master made in the taxation of the liquidators' bills of costs respectively lodged in HCCW308/1995, HCCW356/1997, HCCW567/2000, HCCW581/2001 and HCCW1023/2001. His decision relates to photocopying charges claimed by the liquidators. They all charged a rate of HK$3.70 per copy. On taxation, the master reduced it to HK$1.50 per copy. Aggrieved, the liquidators took out five review applications returnable before the master. On 10 October 2002, the master reviewed his decision and revised the rate up to HK$3.00 per copy. Despite the adjustment, the liquidators remain dissatisfied. They therefore take out the present applications under Order 62, rule 35, Rules of the High Court. (Pursuant to rule 177 of the Winding-up Rules, the procedure and practice of the High Court shall be observed in all reviews of taxation brought under the Winding-up Rules.)

Right of audience

2. At the hearing before the master, the liquidators were all represented by Mr David Kennedy, a director of RSM Nelson Wheeler Corporate Advisory Services Ltd. He himself is one of the liquidators appointed in HCCW1023/2001. The other liquidators for other cases are partners of the same firm. Rights of audience before a taxing master are governed by Practice Directions 14.1. The relevant paragraphs provide :

"1. Apart from those persons who are specified in paragraphs 2, 3 and 4, only barristers and solicitors admitted in Hong Kong may appear before a master or taxing master.

2. The following persons employed by or under the supervision of a person having the rights, by virtue of any ordinance, of a solicitor may appear before a master in chambers on an uncontested application or on an application listed for a three-minute hearing:

(a) a trainee solicitor; including a trainee solicitor on secondment to a solicitor in Hong Kong from a firm of solicitors in England and Wales;

(b) a legal executive, who has successfully completed the Hong Kong Polytechnic University Legal Executive Course;

(c) a holder of the Associate Degree/Higher Diploma in Legal Studies from the City University of Hong Kong;

(d) a holder of the Diploma in Legal Studies from the School of Professional and Continuing Education of the University of Hong Kong; and

(e) a member of the English Institute of Legal Executives.

3. In addition to those persons mentioned in paragraph 2 above, the following may appear before a taxing master on the taxation of a bill of costs:

(a) a costs clerk employed by or under the supervision of a person having the rights, by virtue of any ordinance, of a solicitor; and

(b) a law costs draftsman, approved as such by the Law Society, who may appear on behalf of a solicitor."

3. A liquidator may appear in person before a taxing master. But pursuant to the Practice Directions, he may not represent other liquidators in cases where he himself is not appointed a liquidator. If a liquidator does not appear in person, he must be represented by one of the persons specified in the Practice Directions. He cannot appoint a partner or director of the same firm to represent him. Thus, while Mr Kennedy might act in person in HCCW1023/2001, he did not have any right to represent the other liquidators in other cases before the master. The proceedings before the master, insofar as they were related to HCCW308/1995, HCCW356/1997, HCCW567/2000 and HCCW581/2001, were irregularly constituted. If the other liquidators wish to pursue the matters further, they have to start the review applications afresh before the master.

4. At the hearing before me, Mr Kennedy also purported to represent his colleagues. After I had pointed out to him that he did not have the right to represent them, he proceeded with the review application in HCCW1023/2001 only. I then adjourned the review applications for other cases sine die. No particular difficulty arises as the subject matter that requires my determination is just the same in all cases. Hopefully, my decision in HCCW1023/2001 will in reality dispose of all the adjourned applications.

5. At the end of the hearing, I reserved my decision and indicated that I would give my decision and the reasons thereof in writing, as my decision may affect how liquidators will charge photocopying charges and how taxing master will deal with the subject matter on taxation in the future.

The rate of HK$3.70 per copy

6. The rate of HK$3.70 per copy charged by the liquidators came about thus.

7. On 3 February 1997, the Secretary for the Treasury issued a memo to the Official Receiver, revising the photocopying fee to HK$3.70 per copy as a result of a costing review. On 5 February 1997, the Official Receiver issued an internal memo, directing that a discounted rate of HK$3.70 per A4 size photocopy to be charged with effect from 1 February 1997 and that the rate was only applicable to photocopies made and chargeable to a bankruptcy or a liquidation estate account in the Official Receiver's capacity as receiver, trustee or liquidator. Since then, the Official Receiver has been applying the rate when acting in such capacity.

8. In the early part of 2000, directions were given by the then Companies Judge (namely, Le Pichon J, as she then was) on how liquidators should prepare their bills of costs. Discussions and consultation then took place between the profession and the Official Receiver. As a result, they came to a consensus that the rate of HK$3.70 for photocopying charges should be adopted. The rate was in fact included in the guidelines then submitted to the Companies Judge for approval on 21 March 2000. Ms Mckenna, appearing for the Official Receiver, advised me that while the Judge took up other matters, no comment or approval was given on the rate.

The liquidators' arguments

9. Mr Kennedy relied on a number of grounds to support his contention that the rate of HK$3.70 should be allowed. I will deal with them in turn.

10. His primary submission is that it is an agreement or understanding reached between the Official Receiver and the profession after consultation. The rate has been consistently applied by liquidators since then and accepted by taxing masters and it would be unfair if it were unilaterally altered now without justifications. His firm has not carried out any costing review to work out what the applicable rate might be. Such an exercise may well be prohibitively expensive and appeared to be unnecessary because it had already been done by the government. But he stressed that no profit element is included in charging the photocopying charges. For they are essentially disbursements.

11. Ms McKenna raised no objection to the review application. She said that if the Official Receiver is charging HK$3.70 per copy, no exception could be taken to the private sector using the same rate. She however left the matter to the court.

12. In my view, the rate agreed between the Official Receiver and the profession, however useful that may be from their point of view, is not binding on the taxing masters or the court. It can never be. On taxation, the taxing master may take it into account as an indicator of the applicable rate. However, it should not be regarded as a starting point from which the rate can be adjusted upward or downward. This master's discretion over the matter should not be so fettered. The fundamental question that the master needs to decide is : what is the reasonable rate for photocopying charges in the particular circumstances of the case? The agreed rate is at best one of the factors that the master needs to consider in coming to a proper determination.

13. I do not consider any relevance or weight can be attached to the fact that the Official Receiver is also charging HK$3.70 per copy in his capacity as liquidator. The Official Receiver's office is a government department. It is obvious that the structure, management, resources and deployment of manpower in the Official Receiver's office significantly differ from that in an accountants' firm, although both may act in the capacity as liquidators. In effect, the Official Receiver does not decide how much his office should charge for photocopying. He had to seek authorization from the Treasury. And the Treasury set the rate after carrying out a costing review. Ms McKenna is unable to provide further details on the said costing review. But given the significant difference between a government department and the private sector, I do not think the costing review is of great assistance for present purposes.

14. Mr Kennedy next compared the rate of HK$3.70 with the rates charged by other bodies including different government departments and submitted that the rate of HK$3.70 is significantly lower. I do not find the comparison exercise meaningful or useful. Different organizations may have their own rates and the reasons in support. On taxation, the question is what is the reasonable rate the liquidators should charge for photocopying in discharging their duties and functions qua liquidators? The rates adopted by other bodies of different capacities with different functions in different circumstances are simply irrelevant.

15. Mr Kennedy further submitted that as a result of the agreement reached on the rate of HK$3.70 per copy, no time charges of the person performing the photocopying of a document would be charged. If the rate is not allowed, his firm may again charge such time charges as occurred before the agreement with the Official Receiver was reached. I am unable to accept this submission for three reasons. First, what Mr Kennedy's firm may do in the future is irrelevant. Second, it is contrary to Mr Kennedy's earlier submission (which I agree) that photocopying charges are essentially disbursements. They do not and should not include any profit element. Third, for my part, I do not consider any such time charges can be allowed on taxation even if they were claimed. Photocopying charges are there to defray the mechanical costs of photocopying. The time costs of the person performing the photocopying must be absorbed by the overheads of the office.

16. Mr Kennedy also submitted that if the agreed rate is not allowed, his firm may have to consider charging printing costs and interest on outstanding invoices. Again, these are clearly irrelevant matters. They do not arise here and if in the future they do, then the taxing master and if necessary the court will consider them.

Was the rate of HK$3.00 per copy reasonable?

17. The master imposed a rate of HK$3.00 per copy on review. He explained why he did so in his Reasons for Decision dated 6 December 2002 as follows :

"15. In this review, the Court will have to see whether there is convincing evidence to support the liquidators' contention that the rate of $3.70 per copy charged is reasonable. But having heard the arguments, I have to say that the liquidators have failed to satisfy the Court that the photocopying charge of $3.70 per copy is reasonable. Nevertheless, and having re-considered the matter, I am prepared to revise the rate allowed at $1.50 per copy to $3.00 per copy.

16. The rate of $3.00 per copy is in fact the prescribed rate allowed by the Court on the taxation of the solicitor's charge for photocopying documents (see item 1(b)), Part I of the First Schedule of Order 62, Rules of the High Court). This rate applies to the taxation of costs whether as between party and party, on the common fund basis, as between solicitor and his own client, or payable on a trustee (see para. 62/32/1 of the English Supreme Court Practice 1985). This rate also applies irrespective of whether it is a taxation of costs of contentious or non-contentious business (see O.62 r.32(3)). However, I should point out that under O.62, r.32(2), the Court has power to allow a higher rate for taxation on solicitor and own client basis or on trustee basis.

17. I adopt the rate of $3.00 per copy as I am of the view that the work and operation of a firm of accountants are akin to a firm of solicitors. Both the accountant and solicitor are professionals offering professional service to lay clients. Their setting in terms of operation and office structure are also similar. In the absence of better evidence, I am prepared to accept that $3.00 per copy is a reasonable charge. I note that Nelson Wheeler itself is a limited company but in my view and in substance it is a firm of accountants. I do not think it should be treated differently."

18. Was the rate of HK$3.00 reasonable in the circumstances? I have already rejected the reasons advanced by Mr Kennedy why the rate of $3.70 must be applied. On the materials before me, I am not persuaded that the master in coming to the rate of HK$3.00 is flawed in his reasoning. He had carefully considered all the points taken by Mr Kennedy, which are essentially the same as those argued before me, and rejected them. The comparison that he drew between an accountants' firm and a solicitors' firm may not be perfect. (Mr Kennedy had levelled some criticisms at the master's reasoning in this respect.) But it was the best that the master could do in the circumstances. He specifically pointed out that he accepted that $3.00 per copy is reasonable in the absence of better evidence. There was indeed no better evidence before him. The master was exercising his discretion when fixing the rate at HK$3.00 per copy. On a review to a judge, the master's discretion should not be disturbed unless it can be demonstrated that the master had made an error of law, failed to take into account relevant matters or taken into account irrelevant matters, or no reasonable master would have come to the conclusion as the master did in the particular circumstances. It is incumbent on the liquidator to make out the case but he has failed to do so. In any event, even if I were to exercise the discretion afresh on the materials before me, I would have come to the same rate as the master did.

19. For the above reasons, I will refuse the review.