CHEN YUNG NGAI KENNETH AND ANOTHER v. HO YUK WAH DAVID (A BANKRUPT) AND OTHERS

HCA 971/2012

[2024] HKCFI 2783

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 971 OF 2012

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JUDGMENT

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1.  This is the hearing of the Summons dated 28 October 2024 (“Leave Summons”) where the joint and several liquidators of the 6th Defendant ie Ms Hou Chung Man and Mr Tang Chung Wah (“Ls”) apply for an Order that:

a.  The Ls be granted leave to appeal to the Court of Appeal against the Costs Order of the Hon Mr Justice Ng J dated 14 August 2024 (“Costs Order”) on the basis of the draft grounds of appeal annexed hereto.

b.  There be a stay of execution of the Costs Order pending determination of the Ls’ appeal to the Court of Appeal.

2.  The 3 draft grounds of appeal are:

a.  The Judge failed to take into consideration of the Plaintiffs’ poor litigation conduct in the Decision[1]. (“Ground 1”)

b.  The Judge erred in principle to order costs against a non-party, the Ls, without finding impropriety or bad faith on their part. (“Ground 2”)

c.  The Judge erred in principle to order that the Ls cannot recoup their costs from the 6^th Defendant’s assets. (“Ground 3”)

3.  At the hearing, Mr Chan, for the Ls, told this court he would not be pursuing Ground 3. This was after this court had reminded him there was nothing in this court’s Judgment of 14 August 2024 which ordered the Ls could not recoup their costs from the 6^th Defendant’s assets.

4.  Before dealing with the draft Grounds, one must set out the background in order to make this Judgment comprehensible.

5.  On 28 September 2020, this court handed down a Judgment in this Action in Chen Yung Ngai Kenneth & Anor v Ho Yuk Wah David (a bankrupt) & Ors [2020] HKCFI 2518 (“Judgment 1”).

6.  In Judgment 1, this court found:

a.  At para 164, David Ho beneficially owned and controlled the 2nd Defendant as his nominee.

b.  At para 171, David Ho continued to beneficially own and control the 6th Defendant via his nominee the 5th Defendant.

c.  At para 172, this court found the 2nd and 5th Defendants remained the only shareholders of the 6th Defendant after 31 December 2007.  There has been no change to that since. 

7.  At para 188, this court granted inter alia the following relief to the Plaintiffs:

a.  a declaration that the 2nd and 5th Defendants held and hold all the shares of the 6th Defendant registered in their names on behalf and for the benefit of David Ho;

b.  an order that the 2nd and 5th Defendants do take all necessary steps to transfer their respective shareholdings in the 6th Defendant to the Plaintiffs within 56 days.

8.  At para 190, this court granted “Liberty to Apply”.

9.  The transfer of the 6th Defendant’s shares to the Plaintiffs had indeed been done, not by the 2nd Defendant and the 5th Defendant as such, but by a partner of the Plaintiffs’ solicitors firm under section 25A of the High Court Ordinance, Cap 4 (“HCO”).

10.  By Summons dated 27 March 2024 (“Summons”), the Plaintiffs apply for orders that:

a.  The joint and several liquidators of the 6th Defendant ie Ms Hou Chung Man and Mr Tang Chung Wah (“Ls”) do take all necessary steps to register the Plaintiffs as the sole shareholders of the 6th Defendant within 14 days.

b.  The Ls do provide the Plaintiffs with: (i) copies of the 6th Defendant’s Register of Members; and (ii) the share certificate of the 6th Defendant, within 14 days.

c.  In default of the Ls’ compliance with the above, a solicitor of at least 25 years’ standing from the Plaintiffs’ solicitors firm be directed under section 25A of the HCO to take all necessary steps and execute all necessary documents to cause the Plaintiffs  to be registered as the sole shareholders of the 6th Defendant.

11.  The Summons was first heard on 30 May 2024 and then substantively on 14 August 2024. Another Judgment (“Judgment 2”) was handed down on the same day.

12.  It seems to this court self-evident that it would be meaningless to order the transfer of the shares of the 6th Defendant to the Plaintiffs without registering them as the 6th Defendant’s shareholders or issuing them with a certificate.  All necessary steps must include registration of the Plaintiffs as the shareholders of the 6th Defendant and issuing a share certificate to them after the transfer of the shares.  That’s the whole point of providing for liberty to apply in Judgment 1, which is to enable the parties to work out the implementation of this Court’s Order in Judgment 1 in case of disagreement.

13.  There was indeed disagreement and more than 3 years had elapsed and the spirit and the terms of Judgment 1 had still not been fully complied with.

14.  According to the skeleton of Mr Chan, Counsel for the Ls, filed for the hearing on 30 May 2024, the Ls submitted that while they recognised the effect of Judgment 1 was for the Plaintiffs to be recognised as the shareholders of the 6th Defendant, they did not agree with the Plaintiffs’ contention that, pursuant to the Order made in Judgment 1, the Ls had to take all necessary steps to register the Plaintiffs as the sole shareholders of the 6th Defendant.

15.  At para 3 of Mr Chan’s skeleton, the grounds of the Ls’ opposition were as follows:

a.  The Summons was not pursued under the proper forum; and

b.  The costs of registering the Plaintiffs as shareholders of the 6th Defendant had not been provided for.

16.  At para 30 of Mr Chan’s skeleton, the Ls sought to dismiss the Summons with indemnity costs.

17.  At the hearing on 30 May 2024, Mr Chan indicated in no uncertain terms to this court that the Ls objected to the entirety of the Summons. In view of the Ls’ stated position, Mr Chan had expressly been warned by this court of the costs consequences of taking this position.

18.  On the other hand, according to the skeleton of Mr Wong, Counsel for the Plaintiffs, filed for the 30 May 2024 hearing, it was made clear that the Plaintiffs invited the court to grant the substantive Orders sought in the Summons and warned that they would seek costs against the Ls personally if they unsuccessfully opposed the grant of the substantive Orders.

19.  Notwithstanding the above, Ls maintained their opposition to the Summons at the 14 August 2024 substantive hearing. According to Mr Chan’s skeleton filed for that hearing at para 4, the Ls claimed they were forced to defend the Summons and their grounds were:

a.  The Summons was not pursued under the proper forum.

b.  Under the “liberty to apply” provision, Judgment 1 could not be worked out as requiring the Ls to do all necessary steps to register the Plaintiffs as the sole shareholders of the 6th Defendant without the expenses and fees relating to the registration process being provided for.

20.  These were substantially the same grounds of opposition stated in Mr Chan’s skeleton filed for the hearing on 30 May 2024.

21.  At para 5 of Mr Chan’s skeleton, for purpose unclear to this court, the Ls submitted that: “In fact, under [Judgment 1], there was only one order made against [the 6^th Defendant] which is that “the 6^th Defendant do take all necessary steps to cancel the allotment of its shares to the 3^rd and 4^th Defendant on 31 December 2007”. The Liquidators have duly complied with such Order.”

22.  In Mr Chan’s skeleton at para 46, Ls still maintained the Summons was pursued under the wrong forum and lacked any merits, thus stood to be dismissed. Ls also sought indemnity costs against the Plaintiffs.

23.  Perhaps in order to hedge their position in relation to costs, at para 7(1) of Mr Chan’s skeleton, the Ls submitted that they did not in principle object to the Plaintiffs’ requests to be registered as shareholders of the 6th Defendant, although their position remained that the Plaintiffs had pursued the matter in the wrong forum. The concern of Ls was the allocation of expenses and costs related to the handling the Plaintiffs’ requests.

24.  The long and short of it all is that the Ls could have made their position clear at the 30 May 2024 hearing that they were not in fact objecting to the Summons in its entirety. At any rate, well before the 14 August 2024 hearing or in Mr Chan’s skeleton for that hearing, the Ls could have made their position less equivocally – did they or did they not seek the dismissal of the Summons with indemnity costs?

25.  If the real differences between the parties were the costs and expenses relating to the handling the Plaintiffs’ requests and costs of the Summons, they could and should have made their position clear. The real issues could then have been argued and resolved by the court either at a short hearing or on paper.

26.  Previously, the Ls’ then solicitors had in their letter dated 5 April 2024 suggested the Plaintiffs to bear their chosen secretarial firm’s costs and their own remuneration to handle the Plaintiffs’ relatively simple requests which added up to HK$53,400. In response, by letter dated 22 April 2024, the Plaintiffs’ solicitors said they would arrange for the work to be done at their own costs and withdraw the Summons, provided that the Ls paid for all the legal costs so far incurred and to undertake to keep good record of the Register of Members and issue the share certificates on behalf of the 6th Defendant upon receiving the Register of Members and share certificates from the Plaintiffs. That suggestion was rejected by the Ls’ solicitors by letter dated 29 April 2024 on the ground inter alia that it was unacceptable for the Plaintiffs themselves to arrange for the work to be done. The Ls’ solicitors also threatened to seek indemnity costs against the Plaintiffs personally if the Summons was not withdrawn with no order as to costs.

27.  Ultimately, in a letter dated 12 August 2024, just 2 days before the 14 August 2024 hearing, from the Ls’ solicitors to the Plaintiffs’ solicitors, the Ls managed to obtain a quotation of HK$15,000 plus disbursements from another secretarial firm to handle the Plaintiffs’ requests. At the hearing, Mr Chan told this court the Ls were willing to waive their own remuneration in complying with this court’s Order, if this court was minded to grant the orders sought in the Summons.

28.  In the end, this court rejected the Ls’ request for the dismissal of the Summons. Instead, it granted an Order in terms of paras 1 and 2 of the Summons save that (i) 14 days be replaced by 28 days and (ii) the Plaintiffs were to reimburse the costs of the secretarial firm to be incurred by the Ls not exceeding HK$15,000 plus disbursements.

29.  It was in these circumstances that this court ordered costs of the Summons be to the Plaintiffs and paid by the Ls personally forthwith to be assessed summarily but not on an indemnity basis, at HK$110,000.

30.  This court now turns to the draft Grounds of Appeal.

31.  As far as Ground 1 is concerned, this court is not satisfied that the Plaintiffs’ litigation conduct was poor though not impeccable. By comparison, the Ls’ litigation conduct in this case was really poor and the Costs Order would still be the same. Additionally, the Ls unjustifiably and hence unsuccessfully opposed the Summons. They should bear the costs.

32.  The only criticism this court had of the Plaintiffs’ litigation conduct was their unwillingness to bear the costs of the secretarial firm given the task to deal with their requests, when the Ls made it clear they were not prepared to deal with them. This was recorded at para 18 of Judgment 2. The sum of HK$53,400 initially proposed by the Ls, consisting of the costs of the chosen secretarial firm and the Ls’ own remuneration, was no doubt excessive. And the Plaintiffs were right to resist paying the Ls’ remuneration if they were to outsource the task to a secretarial firm. But that did not preclude the Plaintiffs from agreeing to pay for another firm willing to undertake the task at much lower costs. As it turned out, a firm was found who was willing to take up the job at HK$15,000.

33.  Ground 1 is hereby rejected.

34.  As far as Ground 2 is concerned, Mr Wong had already warned the Ls in his skeleton for the 30 May 2024 hearing that if they did not succeed in opposing the Summons, the Plaintiffs would seek costs against them personally. One would have expected both parties to make submissions along the line of Ground 2 that the court should not make a costs order against the Ls as a non-party without finding impropriety or bad faith[2] on their part for the purpose of the 14 August 2024 hearing. As it turned out, that did not happen. In consequence, there was no opportunity for this court to hear the parties’ submissions on this point or to consider whether or not to make any finding of impropriety.

35.  In the skeleton submission of the Ls’ counsel, he for the first time raised the point that the Ls could not be made liable for costs personally unless there was some impropriety. In this respect, he relied on Anthony Chan J’s decision in Super Speed Ltd (in liquidation) v Bank of Baroda unrep., HCCW 273/2012, 11 November 2015 at [20] – [29] and [34] in which the learned Judge adopted the approach of the English Court of Appeal’s decision of Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613[3]. At [30] – [33] the learned Judge disagreed with a subsequent English Court of Appeal’s decision of Dolphin Quays Developments Ltd v Mills & Ors [2008] 1 WLR 1829[4].

36.  At [25], Anthony Chan J explained his understanding of the ratio of Metalloy Supplies as follows.

“…It is reasonably clear that Waller LJ held that impropriety is a necessary ingredient to be satisfied before a non-party liquidator will be made liable for costs.  The learned judge found that the first instance court had erred by applying the lower standard of “unreasonableness”.  The rationale is based on (a) the public interest in liquidators being able to perform their duties and (b) the party sued by the insolvent company can protect himself with an application for security for costs.” (emphasis added)

37.  At [30 (b) and (c)], Anthony Chan J explained his understanding of Dolphin Quays as follows.

“(b) The court considered that the decision in Metalloy did not require that before a costs order can be made against a liquidator or receiver there be impropriety or unreasonableness, but that these are elements in the discretion (Collins LJ at §§63 to 69 and 76).

(c) Para 65 of the judgment of Collins LJ stated as follows:

‘I do not consider that this decision requires that before a costs order can be made against a liquidator or receiver that there be impropriety (Waller LJ) or unreasonableness (Millett LJ).  On the facts Metalloy required impropriety or unreasonable behaviour because it was concerned with the personal liability of a liquidator where the costs would come out of his own pocket.’ ”

38.  At [34], Anthony Chan J expressed his preference to follow Metalloy Supplies. 

39.  It is not the intention of this court to express a preference between the approach in Metalloy Supplies and the approach in Dolphin Quays. The reason is that it does not matter in the present case which approach should be adopted for reasons which will become apparent. 

40.  Counsel for the Ls also rely on the Hong Kong Court of Appeal decision of Excellent Investment (Group) Ltd (in liquidation) v Sin Yuk Ling unrep., HCMP 292/2017,  28 March 2017 at [7] for the proposition that there is an element of public interest in that liquidators should be able to perform their duties without being exposed to personal liability for costs.

41.  This court obviously accepts that sensible and well-established proposition in Excellent Investment. In the majority of cases when a liquidator is actually performing his statutory duties e.g. to collect or preserve the assets of an insolvent company by pursuing or defending a claim for and on behalf of the company, there must be an element of public interest that he should not be exposed to personal liability for costs unless there is bad faith, impropriety or unreasonableness on his part.

42.  The present case is totally different from the normal case where a liquidator is performing a statutory duty.  There is no statutory duty or any element of public interest in favour of the Ls in the present case for them to obstruct the Plaintiffs from seeking to implement the judgment of the court (i) to get themselves registered as the sole shareholders of the 6th Defendant and (ii) to request for the 6th Defendant’s Register of Members and the issuance of a share certificate of the 6th Defendant in their names.

43.  In this court’s view, there is no need for the Plaintiffs to establish impropriety or unreasonableness on the part of the Ls in order to make them personally liable for costs. In case this court is wrong in taking that view, the Ls’ conduct in the present case can be considered as improper or unreasonable.

44.  In the Plaintiffs’ skeleton for the 30 May 2024 hearing, Ls had already been warned that the Plaintiffs would seek costs against Ls personally if they persisted in objecting to the Summons. At that hearing, counsel for the Ls had also been warned by this court of the costs consequences if they persisted in their objection to the entirety of the Summons. Yet, in their Counsel’s skeleton filed for the 14 August 2024 hearing, the Ls still maintained the same position as in the 30 May 2024 hearing. In these circumstances, whether the Ls’ conduct should be described as improper or unreasonable does not matter. This court is of the view that their conduct fits in with either description.

45.  As Mr Chan accepts in his skeleton, as he must, that costs is very much a matter of discretion of the Judge of the  Court of First Instance. The Court of Appeal will not disturb an exercise of discretion by the Judge as to costs unless his decision is either wrong in principle or is plainly wrong: Industrial and Commercial Bank of China (Asia) Ltd v Tse Ching [2022] HKCA 1342 at [27].

46.  The Costs Order is neither wrong in principle nor is plainly wrong. For the above reasons, the appeal does not have a reasonable prospect of success. Nor is there some other reason in the interests of justice why the appeal should be heard.

47.  The Leave Summons is hereby dismissed. Since both parties agreed that costs should follow the event, costs of the Summons be to the Plaintiffs to be summarily assessed and paid forthwith.

48.  Both parties have submitted to this court a Statement of Costs for summary assessment and a Statement of Objection. Costs are summarily assessed at HK$90,000.