ACROPOLIS LTD v. W&Q INVESTMENT LTD AND OTHERS

HCCW 218/2017

[2024] HKCFI 482

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO. 218 OF 2017

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DECISION

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I. INTRODUCTION

1.  There are three summonses before me: (1) a summons (Summons 1) to amend a List of Objections in a taxation review, (2) a summons (Summons 2) to join Acropolis as a party to the taxation review, and (3) a summons (Summons 3) for preliminary issues to be determined in conjunction with the taxation review.

II.  Background

2.  In 2017, Acropolis petitioned for the winding up of the company Aeso Holding (the 14^th Respondent) on unfair prejudice and just and equitable grounds.  Provisional liquidators (Mr Terry Kan and Ms Anita Hou) were appointed by Deputy High Court Judge Le Pichon in May 2018.  Acropolis’ petition was dismissed in April 2019 by consent.  By that dismissal, the provisional liquidators were released from their duties and their remuneration was to be charged to Aeso Holding on a time-cost basis.  The order provided for such remuneration to be taxed by the court (along with the provisional liquidators’ disbursements) and then paid out of Aeso Holding’s assets. 

3.  The provisional liquidators submitted five bills for taxation.  On taxation, Master Hui allowed a total amount of HK$4,485,959.90, plus taxing fees of HK$112,527.  Aeso Holding having paid HK$689,772.76, a sum of HK$3,908,714.14 remained outstanding.  Since then, there have been court orders for Aeso Holding to pay some $2,872,838.50 to the provisional liquidators by way of interim payment.

4.  In February 2020, Aeso Holding applied for a review of the taxation by Master Hui.  For the purposes of such review, it submitted a List of Objections that it wished Master Hui to consider.

5.  There is a dispute between Acropolis and Aeso Holding on the one part and the provisional liquidators on the other as to whether, prior to the provisional liquidators’ appointment, they agreed with (or represented to) Acropolis that their remuneration would be capped at HK$800,000.

6.  In August 2022, Aeso Holding applied by Summons 1 to amend its List of Objections to include two “General Objections” to the effect that the provisional liquidators are:

(1)  bound by their fee quote of HK$800,000 given on or around 25 April 2018 to Mr Jones Chan of Acropolis, from asserting any claim for remuneration exceeding HK$800,000; and

(2)  barred from claiming items which are classified in the existing List of Objections as "internal administration" work, in light of an oral agreement reached with Acropolis on or around 25 April 2018 that the provisional liquidators were not expected to be actively or heavily involved in Aeso Holding’s management or operation following their appointment.

7.  At the same time, Acropolis applied by Summons 2 to be joined as party to the review before Master Hui.

8.  On 29 August 2022, by consent of the parties, Master Hui adjourned Summons 1 and 2 to a judge for directions.

9.  On 17 February 2023, Acropolis and Aeso Holding applied by Summons 3 for certain preliminary issues relating to the alleged fee cap to be determined in connection with the taxation review.  Summons 3 also asked for consequential relief against the provisional liquidators in light of the determination of the preliminary issues.

10.  On 2 May 2023 by consent, Harris J ordered Summons 3 to be heard substantively “not earlier than 19 July 2023”.  He also gave Acropolis and Aeso Holding leave to amend the proposed preliminary issues and consequential relief sought by Summons 3.

III.   Discussion

11.  Mr Patrick Siu for the provisional liquidators opposes all three summonses.  He submits as follows:

(1)  Only Master Hui has jurisdiction to determine the three summonses

(2)  Even if I have jurisdiction, the alleged Fee Cap Agreement has not yet been raised in the review proceedings, so there can be no preliminary issue regarding the Fee Cap Agreement. 

(3)  It is premature to order a trial of the preliminary issues, since Master Hui has not yet granted Aeso Holding leave to raise this argument and it is unlikely that Master Hui would give such leave because of the following matters:

(a)  The evidence “overwhelmingly” shows that there has never been any Fee Cap Agreement.

(b)  Even if there had been a Fee Cap Agreement, it has nothing to do with the Company and the Company cannot enforce it.

(4)  If the Company is to enforce the Fee Cap Agreement, it has to do so in a forum other than the review proceedings before Master Hui.

12.  I am unable to accept Mr Siu’s submissions.

13.  First, on jurisdiction, Mr Siu refers to Order 62, Rule 33(1).  That provides:

(1)  Any party to any taxation proceedings who is dissatisfied with the allowance or disallowance in whole or in part of any item by a taxing master, or with the amount allowed by a taxing master in respect of any item:

(a)  may apply to the taxing master to review his decision in respect of that item; and

(b)  may not apply to a judge for an order to review the decision until after its review by the taxing master.

14.  Mr Siu also draws my attention to Order 62, Rule 34(1) in the following terms:

(1)  A review under rule 33 shall be carried out by the taxing master to whom the taxation was originally assigned.

(2)  On reviewing any decision in respect of any item, a taxing master may receive further evidence and may exercise all the powers which he might exercise on an original taxation in respect of that item, including the power to award costs of and incidental to the proceedings before him; and any costs awarded by him to any party may be taxed by him and may be added to or deducted from any other sum payable to or by that party in respect of costs.

15.  Mr Siu argues that, in consequence of the two provisions, a party may not apply to a judge for an order to review a taxing master’s decision until after its review by the taxing master.  The review before Master Hui not having so far taken place, Mr Siu suggests that Aeso Holding can only raise the fee cap before Master Hui as part of the taxation review.  At that point Master Hui can decide whether to hear evidence on the fee cap and decide what procedure to adopt to resolve the dispute.

16.  My difficulty with Mr Siu’s argument is that neither Acropolis nor Aeso Holding are seeking to second guess the outcome of Master Hui’s review.  They are not suggesting that I carry out a taxation review in lieu of Master Hui.  They are simply proposing directions as to how Master Hui should conduct his forthcoming review.  More specifically, Acropolis and Aeso Holding are seeking:

(1)  by Summons 1, a direction that Master Hui take account certain matters when conducting the taxation review,

(2)  by Summons 2, a direction that Master Hui allow Acropolis to take part in the taxation review, and

(3)  by Summons 3, a direction that certain preliminary issues be determined in conjunction with the taxation review.

17.  It would be odd if I was precluded from making one or more of those directions when, at the behest and with the consent of Aeso Holding and the provisional liquidators, Master Hui adjourned Summons 1 and 2 to a judge (such as myself) for directions.  Summons 3 merely builds on Summons 1.  Logically, if certain matters (such as a fee cap agreement or representation) should be considered in the taxation, then at some point (ideally sooner rather than later) there should be a determination whether such matters actually took place.

18.  Second, Mr Siu notes that no leave has been granted to amend the List of Objections to date.  He contends that only Master Hui can decide whether to give such leave to Aeso Holding.  He suggests that it would be “premature” to consider whether to order preliminary issues since Master Hui may not even allow preliminary issues to be raised.  I do not believe that this argument is tenable for the reasons already articulated.  Master Hui adjourned Summons 1 to a judge for directions.  By determining at this stage whether the List of Objections should be revised, I would simply be giving the directions which Master Hui has requested.

19.  Third, I am unable to determine summarily that the evidence “overwhelmingly” militates against the existence of a fee cap agreement or an understanding that the provisional liquidators’ duties would only be light.  The existence or otherwise of a fee cap or understanding can only be determined at a trial, at which witness evidence from both factions is tested by cross-examination.  Some documents may on their face cast doubt on the existence of a fee cap arrangement.  But this by itself would not be a basis for concluding that there was no such arrangement.  I cannot rule out the possibility that, read in their proper context, the documents upon which Mr Siu relies have no bearing on the outcome of the preliminary issues.

20.  Fourth, the parties disagree on the extent (if at all) that Aeso Holding can rely on the fee cap arrangement, even if it existed.  Mr Siu’s argument is that any fee cap agreement or understanding would have been solely between Acropolis and the provisional liquidators.  Since the court has ordered that the provisional liquidators’ taxed fees are to be paid out of Aeso Holding’s assets, the existence of an agreement or understanding between Acropolis and the provisional liquidators would be an irrelevant consideration as between the provisional liquidators and Aeso.  To counter this, Acropolis and Aeso Holding rely on the Contracts (Rights of Third Parties) Ordinance (Cap 623) (the Ordinance).  Mr Siu says, however, that such reliance is misplaced.

21.  I do not think that I need to decide whether the Ordinance is applicable.  There is a simpler way (I suggest) of looking at the matter.  The provisional liquidators were discharging their duties as officers of the court.  If there was an agreement or understanding with Acropolis that they would limit their fees to HK$800,000 if appointed as provisional liquidators, it would be strange (whatever the niceties of privity of contract) if the court could not at the very least take such fact into consideration in the taxation of the provisional liquidators’ fees.  Otherwise, the court would arguably be facilitating unconscionable conduct by its officers, in allowing the provisional liquidators to resile from their agreement.  Thus, in deciding what to do with Summons 1 and the related Summons 3, the pertinent question is not whether Aeso Holding can enforce any arrangement or understanding between Acropolis and the provisional liquidators.  The crucial question is whether the existence of an arrangement or understanding should be a factor for the Master to take into account in the taxation review.

22.  Fifth, Mr Siu cites Companies (Winding-Up) Rules (Cap 32H) Section 28(3) which stipulates:

“ Subject to any order of the court, if no order for the winding up of the company is made upon the petition, or if an order for the winding up of the company on the petition is rescinded, or if all proceedings on the petition are stayed the provisional liquidator shall be entitled to be paid, out of the property of the company, all the costs, charges, and expenses properly incurred by him as provisional liquidator, including such sum as is or would be payable under the scale of fees in force for the time being where the Official Receiver is appointed provisional liquidator, and may retain out of such property the amounts of such costs, charges, expenses, and fees.”

23.  He comments that the provisional liquidators were not appointed pursuant to any contract with Acropolis or Aeso Holding, as opposed to under Section 28(3).  He posits that, normally, in assessing the remuneration due to provisional liquidators, the court will apply what are known as the Maxwell principles.  Under those principles, a court essentially asks itself whether reasonably prudent individuals, faced with similar circumstances in their affairs, would lay out their money in doing what the provisional liquidators have done.  Mr Siu suggests that Master Hui’s task in the review is simply to assess the reasonableness of the provisional liquidators’ costs by reference to the Maxwell principles.  He contends that Master Hui cannot deal with any contractual claim under the alleged Fee Cap Agreement. 

24.  My problem is that Section 28(3) refers to a provisional liquidator being “entitled to be paid, out of the property of the company, all the costs, charges, and expenses properly incurred ... as provisional liquidator” (emphasis supplied).  I do not see why in a taxation review a master cannot consider whether, given a fee cap agreement or understanding, a provisional liquidator is properly claiming more than the cap.  In the premises posited, I do not see how the Maxwell principles prohibit Master Hui from taking the agreement or understanding (is such exist) into account.  A reasonable person would arguably not continue incurring charges and expenses beyond amount X, if he or she has agreed to limit charges and expenses to amount X.

25.  In my view, it makes sense to order that there be a trial of preliminary issues along the lines suggested in Summons 3.  If there has been some sort of agreement or understanding, it is better to know that at the earliest opportunity, as it may have a bearing on the taxation review.  I will therefore make an order for preliminary issues under Summons 3.  But I have doubts whether the preliminary issues and consequential relief as currently drafted by Acropolis and Aeso Holding should be those which I order.  I will discuss with the parties in a moment: (1) whether the preliminary issues can be simplified and made more rigorous and precise, (2) what procedure should be followed for the determination of any preliminary issues ordered, and (3) what relief (if any) should be directed at this stage in consequence of any determination of the preliminary issues. 

26.  As already noted, Summons 1 and 3 are related.  Summons 1 will fall away if it is determined following the trial of the preliminary issues that there was no such agreement or understanding as Acropolis and Aeso Holding allege.  I will give an order along the lines of Summons 1.  But that would be on the understanding that, if Acropolis and Aeso Holding fail on the preliminary issues, the General Objection amendments to the List of Objections will fall away.  I say an order “along the lines” of Summons 1, because I am not satisfied with the wording of the current proposed amendments to the List of Objections.  I will also be discussing the wording of the proposed amendments with counsel shortly.

27.  On Summons 2, I do not think that there is a need for an order joining Acropolis to the taxation review.  The taxation review is part of (and bears the same case number as) the petition which Acropolis brought. Acropolis is thus already a party to the taxation review.  I would dismiss Summons 2.

28.  Following my discussions with counsel on the precise form of my order for preliminary issues and on the amendment to the List of Objections, I shall hear counsel on costs.