JOINT AND SEVERAL LIQUIDATORS OF YES! E-SPORTS ASIA HOLDINGS LTD (IN LIQUIDATION) v. HOLMAN FENWICK WILLAN (A FIRM)

HCCW 208/2021

[2024] HKCFI 1197

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 208 OF 2021

____________________

____________________

____________________

________________

DECISION

________________

1.  There are 2 summonses (“the Summonses”) before the Court:

(A)  the summons dated 19 April 2023 taken out by the Joint and Several Liquidators (“JSL”) for document production against Holman Fenwick Willan (“the Respondent”) pursuant to section 286B(1)(d) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“CWUMPO”), and costs on an indemnity basis (“the JSL Summons”); and

(B)  the Respondent’s Summons dated 19 July 2023 for (i) costs of the JSL Summons, JSL to show cause why they should not personally be liable for the said costs: (ii) security for costs in the sum of approximately $1.2 million and consequential relief; and (iii) costs (“the Respondent’s Summons”).

2.  By consent, on 19 March 2024, the Court ordered that

(1)  the Summonses be heard together on 23 April 2024 at 10 am;

(2)  no order be made as to paragraph 1 of the JSL Summons; and

(3)  no order be made as to paragraphs 2, 3 and 4 of the Respondent’s Summons.

3.  Thus, the only issues left for determination relate to the costs of the Summonses.

Background facts

(A) Events pre-dating the JSL Summons

4.  Yes! E-Sports Asia Holdings Limited (“the Company”) was incorporated in October 2018. Shen Ka Yip, Timothy (“TS”) and Lai Sze Yau, Vivien (“VL”) were its first directors.

5.  On 8 November 2018, Capital Creation (BVI) Limited (“CCBVI”) and NGCH Hong Kong Limited (“NGCH”) entered into a joint venture agreement to invest in and establish the Company, their respective interests therein being 60:40.

6.  CCBVI nominated TS and VL as its directors whilst NGCH nominated Ohishi Akinori (“Ohishi”) as its director. At all material times, TS and VL were responsible for the business operation in Hong Kong while Ohishi resided in Japan.

7.  In early January 2021, Ohishi requested the Company to disclose various documents.

8.  On 12 January 2021 CCBVI engaged HFW to provide legal services in relation to the shareholder dispute with NGCH including advising the Company and issuing a reply letter to Deacons (solicitors for NGCH), and handling the shareholder disputes and potential litigation on behalf of CCBVI and/or the Company.

9.  VL resigned her directorship on 7 March 2021.

10.  On 8 March 2021, Ohishi issued an originating summons in HCMP 297/2021 (“HCMP 297”) against the Company, TS and VL (collectively “the 297 Respondents”) for inspection of various documents of the Company.

11.  On the following day, TS and VL also engaged the Respondent to act for them in relation to HCMP 297.

12.  A document inspection took place on 29-30 March 2021 with the Respondent representing the 297 Respondents. Ohishi was provided with copies of all requested documents.

13.  TS resigned as director on 4 May 2021.

14.  On 1 June 2021, a creditor presented a petition to wind up the Company. The Company was wound up on 15 September 2021 with the Official Receiver as provisional liquidator of the Company.

15.  On 6 July 2022, Chan Mei Lan[1] and Lee Lai Ha were appointed joint and several liquidators of the Company.

16.  On 10 August 2022, JSL notified the Respondent of their appointment and requested, inter alia, books and records, documents or other property held by the Respondent for the Company and copies of 11 bills issued by the Respondent covering the period from 12 March 2021 to 31 December 2021 listed in the Respondent’s letters to the Official Receiver which list JSL replicated in the letter (“the August 2022 request”).

17.  The Respondent did not respond to the August 2022 request until 20 December 2022. Whilst accepting that the Respondent were the Company’s former solicitors, the Respondent required, inter alia, (i) JSL to agree to pay $40,000 as costs on account to secure fees for work in reviewing the files and extracting the information requested; and (ii) the express consent of TS and VL (for whom they also act) before releasing the requested documents, albeit that the Respondent had tried, but was unable, to reach TS and VL.

18.  Tanner De Witt (“TDW”), solicitors for JSL replied on 3 March 2023 to the effect that (i) JSL were seeking the Company’s own documents[2]; (ii) TS and VL (for whom the Respondent also acted) as directors of the Company could not withhold any confidential information from the Company in respect of their dealings as directors and that no duty of confidentiality could arise that displaces the Company’s entitlement to delivery of the papers and documents.

19.  Further correspondence ensued with both sides maintaining their respective stances. That impasse resulted in the JSL Summons being issued on 19 April 2023.

(B) Events subsequent to the JSL Summons

20.  The JSL Summons which was issued on 19 April 2023 pursuant to section 286B(1)(d) of the CWUMPO[3] (“section 286B application”), was returnable on 6 June 2023.

21.  On 15 May 2023, TDW sought to ascertain the Respondent’s position, inquiring whether, and if so, which part would be contested.

22.  On 16 May 2023, while disclosing that on 9 May 2023, they had obtained TS and VL’s consent to release the documents and information relating to them and the Company to JSL, at the same time the Respondent reserved the right to seek security for costs in the JSL Summons unless JSL agreed to bear all the costs of and occasioned by the JSL Summons.

23.  The evidence shows that on an unspecified date prior to 3 May 2023, the Respondent was able to make contact with TS and VL and arranged a videoconference with them that was held on 3 May 2023.

24.  On 23 May 2023, the Respondent provided a list of the pleadings, documents, correspondence between parties’ lawyers, correspondence between the Respondent and the 297 Respondents and other parties (“the 2023 List”). The Respondent reiterated that no copies of documents to answer that document production would be produced before receiving funds to secure their costs and expenses.

25.  In response to JSL’s request for original documents, on 27 June 2023, the Respondent informed TDW that TS and VL refused to give their consent for the release of original documents.

26.  On 3 July 2023, on a without prejudice basis to the scope of the documents sought in the JSL Summons, TDW requested copies of 9 items from the 2023 List, agreeing to bear the Respondent’s reasonable costs of supplying a USB device and reasonable copying charges.

27.  On 5 July 2023, the Respondent agreed to provide the copies sought. At the same time they gave a final notice that they would issue a cross summons seeking costs unless JSL agree to bear/secure the Respondent’s costs as well as the costs of the JSL Summons.

28.  The Respondent issued the Respondent’s Summons on 19 July 2023 which, until the March 2024 consent order, included an application for security for costs.

29.  Further correspondence ensued with the parties maintaining their respective stances.

30.  On 19 October 2023, JSL offered to withdraw the JSL Summons if the Respondent’s Summons were also withdrawn, with no order as to costs on the Summonses. TDW repeated that offer on 26 October 2023.

31.  On a without prejudice basis, on 26 February 2024, the Respondent accepted the Liquidators’ offer of 19 October 2023 if it were still open for acceptance. Alternatively, they made a similar settlement proposal with a view to vacating the hearing scheduled for 23 April 2024.

32.  On 29 February 2024, TDW explained that because JSL have incurred not insignificant costs since their offer of 19 October 2023, JSL would only accept the settlement proposal put forward by the Respondent only if the Respondent agreed to pay costs of $200,000 to JSL.

33.  Further negotiations ensued but to no avail.

Costs of the Summonses

34.  The Respondent’s conditions (raised in their letter of 20 December 2023 ) for complying with JSL’s request were twofold: (i) JSL’s agreement to pay $40,000 as costs on account to secure fees incurred in providing information; and (ii) the express consent of TS and VL to the release of the requested documents.

35.  Unless the Respondent could validly impose those conditions, JSL would be justified in issuing the JSL Summons.

36.  In their written submissions, the Respondent cited, inter alia,

(1)  Re Aveling Barford Limited [1989] 1 WLR 360, 366C-G which held that the Court has the discretion to award the respondent its cost of compliance although there is no presumption that costs would be awarded;

(2)  Re BCCI SA [1997] BCC 561, 578-579 which held that the court has jurisdiction to award costs but that such application should be made at the appropriate time (when compliance has been fully achieved or at any rate is well on the way to achievement); and

(3)  Re British & Commonwealth Holdings Plc (Nos 1 and 2) [1992] Ch 342, 392G-H which, according to the Respondent, is a case where the administrators were ordered to pay the respondent auditors’ “considerable” costs of compliance with a section 236 order.

37.  It is common ground that the Court has a discretion to award costs in a section 286B application and the propositions set out in §36 (1) and (2) above are not controversial. However, neither Aveling Barford nor BCCI is authority for the proposition that liquidators must agree to meet/secure the costs of the respondent to a section 286B summons before the requested documents would be made available.

38.  In his judgment in Re British & Commonwealth Woolf LJ stated as follows (at 392G-H):

“I did have considerable reservations about the width of the order. I have, however, come to the conclusion that it is not either practical or necessary to cut down the width of the order. It will be a considerable burden to S. & O. to comply with the order, but that burden must be viewed in the context of the scale of S. & O.’s normal activities. There is no issue that it is in a position to deploy the necessary resources. It was not disputed before us that the court has power to make an order of costs which would cover the deployment of those resources and on the evidence and argument which is before the court, I take into account that the appropriate order for costs will be made.”

39.  Mr Anthony Chan SC, senior counsel for the Respondent, submitted that that passage is authority for the proposition set out in §36 (3) above[4].

40.  Mr James Wood, counsel for JSL, disagreed and submitted that the English Court of Appeal was not asked to deal with the issue of the costs of complying with the order. That was made clear in the judgment of Ralph Gibson LJ (at 383E):

"… I have not included in these matters the specific cost of complying with the order because no particular reliance was placed upon that consideration and it is common ground that the court has powers to deal with such costs, although we have not been asked to examine or to determine the limits of those power": per Ralph Gibson LJ at 383E (italics supplied).

41.  That case concerned an application made by the administrators of a company (“B & C”) that had acquired the holding company of a worldwide group of companies (“A”) in 1998 for an order that the accountants who had been auditors of A produce documents relating to the acquisition and audits of A for 1987 and 1988. The administrators’ appealed the order of Hoffmann J setting aside the registrar’s order. The issue before the Court of Appeal was whether the administrators were entitled to require production of those documents from the respondent auditors. Until the outcome of the appeal was known, the respondent auditors had no obligation to produce any documents. Therefore when the appeal was heard, no documents had yet been produced.

42.  How the Respondent could possibly have read the passage cited from Woolf LJ’s judgment as ordering “considerable” compliance costs and responsibly make the submission in §36 (3) above defies rational explanation.

43.  In the absence of authority, I do not accept that the Respondent could legitimately require JSL to make any payment on account before it would return to the Company its own files.

44.  Turning to the condition that prior express consent of TS and VL be obtained for the release of the requested documents, the Respondent relied on the decision in Duffield Harrison LLP v Michael Colin John Sanders and Georgina Marie Eason (the liquidators of GP Cars (Herts) Limited) [2018] EWHC 2639 (Ch D) for the proposition that “sometimes[5] the solicitors could not, in terms of both regulatory and legal positions, simply hand over all the documents sought in a section 236 application, and less with the protection of the court order[6]”.

45.  The critical word is ‘sometimes’ which qualified the statement and requires a closer examination of the facts in GP Cars. In that case, after the respondent auditors were appointed joint administrators of GP Cars (“the company”) in February 2017 and before the company’s liquidation, they had identified 3 payments made to the appellant[7] in November 2016 out of the company’s bank account. The sole director of the company was a Mr Ewing.

46.  The respondent auditors requested supporting documentation for those payments including the delivery up of the company’s file(s) if the appellant had been instructed to act for it.

47.  It transpired that the 3 payments were advanced by the company to the appellant “on the date indicated for a transaction by a third party and not[8] the [c]ompany”: see the letter dated 10 March 2017 from the appellant to the liquidators set out in GP Cars at §12.

48.  Relevantly, in the same letter of 10 March 2017, the appellant further stated as follows:

“You will appreciate our duties of confidentiality. In the meantime you have asked for copies of GP Cars (Herts) Limited files. We have one file which concerns a Facility Agreement which we are instructed to draft on behalf of the [c]ompany and we enclose a copy of that file.”

49.  That fact is reflected in the statement in §109 of GP Cars that the appellant “had not refused to hand over files where it had acted for the [c]ompany[9]”.

50.  While the Respondent mentioned §109 in passing as background to the decision in GP Cars, that critical sentence was never drawn to the Court’s attention. It would suggest that the Respondent did not pay attention to §§9[10], 11-12 of GP Cars.

51.  The Respondent cited GP Cars for the proposition that a respondent law firm to an application for production of documents cannot just hand over documents concerning other clients, and in this case former directors of the wound up company unless there is a consent order or there is the protection of a court order: they could not simply hand over to JSL the “files” because apart from the Company, they also acted for third parties, namely, TS and VL in HCMP 297.

52.  In the present case, the Respondent were retained as the Company’s solicitors following and in relation to Ohishi’s request for documents on 12 January 2021[11]. TS and VL who were directors of the Company engaged the Respondent to act for them 2 months later, after they were joined as 2^nd and 3^rd respondents to HCMP 297.

53.  JSL (who stood in the shoes of the Company upon its liquidation) requested the Respondent to return to the Company its own files. As is clear from GP Cars[12], there can be no question but that the Company is entitled to the return of those files.

54.  Bearing in mind that the Respondent began advising the Company 2 months before being retained by TS and VL, at the very least, file(s) relating to work undertaken for the Company must have existed and which could not have concerned TS and VL[13].

55.  As regards TS and VL, the only evidence of retainers was in relation to HCMP 297 as only they and the Company were the 297 respondents. In so far as any file related to HCMP 297, TS and VL were made respondents because of their role as directors of the Company.

56.  There is no evidence that they were joined as respondents in HCMP 297 because of a transaction in respect of which the Company was not a party. There is no evidence that they retained the Respondent to act for them in other matters that did not concern HCMP 297 or the Company. In those circumstances, the observations as to third-party transactions and issues of confidentiality made in GP Cars can have no application in the present case as the factual scenario is different and distinguishable.

57.  It is clear from §§109-110 of GP Cars that the appellant’s difficulties arose in relation to the files in a transaction that did not concern the company but where the appellant had acted for third parties who happened to be Mr Ewing and/or Mrs Ewing[14].

58.  In GP Cars, the judge used the generic reference “the Ewing Documents” to refer to the documents which are (i) related to matters where the appellant had acted for Mr Ewing and/or Mrs Ewing, as opposed to the company, and (ii) were the subject of the duty of confidentiality owed by the appellant to Mr Ewing and/or Mrs Ewing[15].

59.  Pertinently, those difficulties did not arise because Mr Ewing was a director of the company but because they related to a transaction for a third party and not the company.

60.  The fact that the Respondent made no reference to any of those matters must mean either a lackadaisical reading or a serious misreading of GP Cars on their part.

61.  In any event, JSL were not seeking third-party documents which could have entailed work in retrieving/extracting relevant documents from third-party files.

62.  In my view, there is no legitimate basis upon which the Respondent could have imposed the 2 conditions set out in their letter of 20 December 2022. It follows that JSL had every reason to issue the JSL Summons and, prima facie, JSL would be entitled to the costs of the JSL Summons.

63.  As paragraph 1 of the Respondent’s Summons concerns the costs of the JSL Summons, it would be convenient at this stage to address the Respondent’s Summons ostensibly taken out pursuant to “section 286B(1)(d) of Cap 32, Order 23 rule 1 of the RHC and inherent jurisdiction of the Court” before addressing the costs of the JSL Summons.

(1) The Respondent’s Summons

64.  Mr Wood challenged its jurisdictional basis for the following reasons:

(1)  There is nothing in section 286B(1)(d) that deals with costs incurred in relation to an application made pursuant to it.

(2)  Order 23 rule 1 (1) which sets out four situations in which the Court may make an order for security for costs is inapplicable. A section 286B application is not within any of those situations.

(3)  So far as inherent jurisdiction is concerned, no precedent has been cited in support of the Court exercising its inherent jurisdiction to order security for costs.

65.  Apart from the lack of sufficient legal basis for the Respondent’s Summons, JSL invited attention to the fact that the amount of security sought was approximately $1.2 million. It was submitted that the amount sought was astronomical and a significant portion was attributable to costs of compliance based on the Respondent’s professional fees when no case law where such an award had been made had been cited in support.

66.  Mr Chan relied on section 52A of the High Court Ordinance Cap 4 as conferring the necessary jurisdiction. That section provides inter alia that the costs of and incidental to proceedings in civil proceedings in the Court of First Instance shall be in the discretion of the Court, and the Court shall have full power to determine to what extent costs are to be paid. It was submitted that the power to order security for costs is but an incidence of the Court’s discretion.

67.  However, section 52A is expressed to be “subject to the provisions of the rules of court”. Since there are specific rules governing the award of security for costs, there would not appear to be any scope to go beyond what is provided in the rules under the guise of an exercise of the court’s discretion.

68.  The compliance costs sought are professional fees incurred or to be incurred. Given the absence of legal basis for requiring security as a condition for production or case law where compliance costs were awarded based on professional fees, it is not unreasonable to infer that the application for security for costs was but a means of exerting pressure on JSL to drop their application for documents.

69.  Be that as it may, I accept the submission that the jurisdictional basis for the Respondent’s Summons is flawed. That being the case, it falls to be dismissed, with costs following the event.

(2) Costs of the JSL Summons

70.  The Respondent put forward, inter alia, the following reasons why JSL should not be entitled to costs.

(a) JSL’s application was unnecessarily and unduly wide

71.  It is salutary to bear in mind the oft-cited passage[16] from the judgment of Buckley J in In re Rolls Razor Limited [1968] 3 All ER 698, 700:

“The powers conferred by section 268 are powers directed to enabling the court to help a liquidator to discover the truth of the circumstances connected with the affairs of the company, information of trading, dealings, and so forth, in order that the liquidator may be able, as effectively as possible and, I think, with as little expense as possible and with as much expedition as possible, to complete his function as liquidator, to put the affairs of the company in order and to carry out the liquidation in all its various aspects, including, of course, the getting in of any assets of the company available in the liquidation.”

72.  The Respondent referred to the scope of the August 2022 request[17] as well as the terms of the JSL Summons and submitted that the fact that at the end of the day all that JSL were after were only 9 documents[18] evidences its unreasonableness. However, that submission glosses over the fact that the initial request was made almost a year earlier.

73.  The reasonableness or otherwise of JSL’s request/summons cannot be determined simply by having regard to what was eventually requested and what eventually was produced at the end of the day. That approach is wrong.

74.  As regards the August 2022 request, it is fully consonant with a liquidator’s role as adumbrated by Buckley J in the passage set out in §71 above. Its outcome cannot be viewed in isolation. The events that ultimately led to the issuance of the JSL Summons are also relevant.

75.  The JSL Summons came to be issued in order to resolve the impasse caused by the Respondent’s intransigence in insisting on the 2 unwarranted conditions they sought to impose on JSL. The JSL Summons simply tracks the language used in section 286B(1)(d).

76.  The issuance of the JSL Summons resulted in the 2023 List being produced. A fair reading of the inter partes correspondence for the period from 22 August 2022 to 5 July 2023 would reasonably lead to the conclusion that but for the issuance of the JSL Summons, the 2023 List would not have come into existence.

77.  Given the lapse of time since the making of the initial request in August 2022, in my view, having regard to the rationale underpinning section 286B the number of documents produced in July 2023 does not render either the JSL Summons or the initial request unnecessary and unduly wide.

(b) The Respondent have acted reasonably

78.  The Respondent submitted that they were entitled under the law to impose the 2 conditions on JSL in their letter of 20 December 2022 before providing the requested documents.

79.  I reject that submission for the reasons set out in §§34-62 above.

(c) The Court’s power to award the Respondent its costs of compliance for an order under section 286B

80.  On the basis of the passage from Woolf LJ’s judgment in Re British & Commonwealth set out in §38 above, the Respondent submitted that as the documents in response to this section 286B application have been produced, this Court has a discretion to order costs in favour of the Respondent including the costs of compliance.

81.  As earlier noted, nothing in that passage remotely supports the notion that in responding to section 286B summons, the responding party is entitled to require to agree/secure payment on account of the costs of compliance.

82.  Put at its highest, the observations of Woolf LJ recognised that in GP Cars, compliance with the order would impose a considerable burden on the respondent given its width (which in his view was neither practical nor necessary to cut down). In the context of the particular facts of that case, Woolf LJ opined that as and when an application for compliance costs is made, he considered that an “appropriate” order for costs would be made. What “appropriate” meant was left at large.

83.  Ralph Gibson LJ took a different view as is clear from the passage set out in §40 above. That passage was preceded by the following comments in his judgment (at 383D):

“ As to oppression, I have no doubt that compliance by S. & O. with the order will be burdensome and disagreeable … there are elements increasing the burdensome nature of the order … such as the risk to S. & O. of revealing some negligence on their part …”

84.  Then (at 383F-G), he made following observations:

“The decisive factor on this issue, oppression, in my view, is that all such burdens upon S. & O. in complying with the order are plainly and comprehensively outweighed by the reasonable requirements of the administrators upon the facts of this case to have access to the documents listed in the order. It is indeed unfortunate for S. & O. that they find themselves caught up in the necessary investigation of the collapse of [A] ... That misfortune of S. & O. is no more than one of the possible consequences of the practice of the profession in which S. & O. are engaged. No doubt, for the services which they rendered to [A] and which have brought upon them this misfortune, S. & O. were remunerated suitably having regard to the large responsibilities which they undertook in rendering those services.”

85.  While, in an appropriate case, it is open to the Court to make an order for the costs of compliance, it has not been shown that the facts of the present case justify the exercise of the Court’s discretion in favour of the Respondent.

Conclusion

86.  As JSL were justified in issuing the JSL Summons and have prevailed, costs must follow the event. The only outstanding matter is whether costs should be awarded on an indemnity basis.

87.  The Respondent’s conduct in this matter deserves deprecation as is evident from §§40-60 above. As a result, considerable judicial time had to be spent on verifying the accuracy of the proposition advanced based on GP Cars.

88.  Practitioners should ensure the accuracy of propositions they advance based on case law. That is the least the Court would expect.

89.  JSL’s request for documents was nothing out of the ordinary given their role as liquidators as explained in Rolls Razor. The Respondent’s insistence on the 2 unwarranted conditions was unduly wasteful of resources and time when all that was required was the return to the Company of its files.

90.  Moreover, repetitive posturing and needless vitriol in correspondence serve no useful purpose except to antagonise the opponent.

91.  In the present case, I do not consider that the Respondent’s conduct in this case was conducive to furthering the objectives of the CJR.

92.  In all the circumstances, I consider this an appropriate case to order that JSL be paid their costs with certificate for counsel on an indemnity basis.

Order

93.  Accordingly, I make a costs order of the Summonses in favour of JSL, such costs to be with certificate for counsel and summarily assessed on an indemnity basis.

94.  It is directed that (1) the JSL do lodge their statement of costs within 14 days; (2) the Respondent do lodge their list of objections (not exceeding 2 pages) within 14 days thereafter; and (3) the JSL do lodge their reply (not exceeding 2 pages if any) within 7 days thereafter.