HO YUK LUN ALAN v. CHAN YUI HANG (LIQUIDATOR OF LECO WATCH CASE MANUFACTORY LTD)

CACV 59/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 59 OF 2015

(ON APPEAL FROM HCMP NO 1013 of 2013)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  On 13 February 2015, Harris J made an order admitting the proof of debt of the Applicant, reversing the decision of the liquidator of Leco Watch Case Manufactory Limited. The proof of debt was in respect of a loan of $580,000. The company was put in liquidation by a creditors’ voluntary winding up. The liquidator was appointed by a resolution passed at the first creditors meeting on 14 December 2012. The liquidator is the respondent in the proceedings.

2.  On 12 March 2015, the liquidator through solicitors served a Notice of Appeal against the decision of Harris J. Solicitors for the liquidator also applied to set down the appeal on 17 March 2015.

3.  Apart from 2 successive consent orders for extending time to file and serve a Respondent’s Notice till 30 June 2015, there was not much progress in the appeal.

4.  On 8 March 2016, the liquidator filed a Notice to Act in Person.  The Registrar therefore on 9 March 2016 gave the standard directions for the preparation of an appeal in cases where an appellant acted in person.  Such directions provide for the preparation of appeal bundle.

5.  The liquidator failed to comply with such directions.  He did not lodge any draft appeal bundle.  On 5 April 2016, the Registrar directed the solicitors for the Applicant to prepare the draft index for appeal bundle.  Solicitor for the Applicant complied with that direction on 18 April 2016.  The Registrar commented on the draft index on 6 May 2016. Solicitor for the Applicant revised the index accordingly and it was lodged on 16 May 2016.

6.  On 31 May 2016, the Registrar directed the liquidator to file an application to fix a date for the hearing of an appeal within 14 days.  No action was taken by the liquidator to do so. 

7.  On 16 December 2016, the Registrar directed the liquidator to file such application by 6 January 2017 and stated that if he failed to do so the appeal shall be referred to a Vice-President or Justice of Appeal for dismissal.

8.  Notwithstanding that, the liquidator did not file any application to fix date.

9.  The matter was therefore brought to the attention of Lam VP who directed the appeal be listed for hearing on 16 February 2017 to consider its dismissal.

10.  The liquidator did not appear at the hearing of 16 February 2017.  Nor did he offer any excuse for his repeated defaults in the prosecution of the appeal in accordance with the directions of the Registrar.

11.  Repeated defaults in complying with the directions of the court and substantial inaction on the part of an appellant may lead the court to infer that he has no further interest in prosecuting the appeal: see Antonythasan Sajeeth Prasanth CACV 273 of 2012, 13 August 2014; Dipankar Joshi CACV 39 of 2013, 13 August 2014.  In such event, the court may dismiss an appeal for want of prosecution or make an unless order with the dismissal of the appeal as sanction for non-compliance.

12.  In the present circumstances, ample opportunities had been given to the liquidator to proceed with the appeal or to offer an explanation (if any) for his defaults. It is clear to us that he has no interest in prosecuting the appeal. There could be all sorts of reasons for his lack of interest. We are not going to speculate as he has simply ignored directions from court and has been absent from hearings. The only reasonable inference is that he no longer has any intention to proceed with the appeal. We therefore order the appeal be dismissed.

13.  On behalf of the Applicant, Mr Chiu sought costs against the liquidator personally on the basis of gross negligence on the part of the liquidator. The liquidator had notice of such application as the skeleton submissions of Mr Chiu had been duly served on him by personal delivery to his address well before the hearing. The liquidator chose not to attend the hearing and make no submission regarding that application. 

14.  The common law position regarding a liquidator’s liability for costs was examined in Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274. There are two different levels of consideration: (a) the position between the liquidator and an adverse litigant; and (b) the position between the liquidator and the estate. It was decided in that case that as far as (a) is concerned, a liquidator should be personally liable for costs of the adverse litigant if he institutes proceedings in his own name (instead of proceeding in the name of the company) and such liability would not be limited to the assets of the company.

15.  A determination in (a) would not prejudice the right of the liquidator to recoup such costs from the assets of the company which should be determined by the court which has control over the winding-up. In the past, the position was that a liquidator would be entitled to recoup such costs from the assets of the company as the expense of liquidation except in case of misconduct. That position has been subject to doubts in recent cases: Re M C Bacon Ltd (No 2) [1991] Ch 127; Re R S & M Engineering Ltd [2000] BCC 445; Re Floor Fourteen Ltd [2002] BCC 198. 

16.  However, in the present instance, we need not be involved in this interesting question. The common law position is subject to Rule 24 of the Proof of Debts Rules, Cap 6E, which is applicable to proof of debts in companies winding-up by virtue of Section 264 of the Companies (Winding-Up and Miscellaneous Provisions) Ordinance (Cap 32).  Rule 24 provides that: “ … The [liquidator] shall not be personally liable for any costs in respect of the rejection by him in whole or in part of any proof unless it is proved to the satisfaction of the court that he has acted mala fide or with gross negligence.”

17.  Giving Rule 24 a purposive construction, we are of the view that the expression “costs in respect of the rejection … of any proof” should be given a wide interpretation to cover the costs of an appeal arising from proceedings challenging a liquidator’s rejection. The right of appeal is inherent to such proceedings. The rationale for protecting a liquidator from personal liabilities for costs in defending such proceedings is equally applicable to the reasonable exercise of such right of appeal by the liquidator.   

18.  In the court below, Harris J ordered costs of the proceedings be paid out of the assets of the company. We also do not see any basis for holding the liquidator to have acted mala fide or with gross negligence in bringing the appeal in the first place. He had apparently acted on legal advice and the notice of appeal was drafted by counsel.

19.  Yet, for whatever reasons, after the solicitors ceased to act for the liquidator, he appeared to pay no heed to directions from the court and did not attend any hearing. Such irresponsible attitude and conduct in prosecuting an appeal, in our view, amounted to gross negligence. If he had good reasons for not proceeding with the appeal notwithstanding his belief in its merit, he should have taken timely steps to inform the court and the Applicant of his decision and to procure the dismissal of the appeal by consent. The failure to take such steps in the wake of repeated reminders from the court to proceed with the appeal is gross negligence. Thus on the basis that Rule 24 is applicable, the liquidator in the present case should be held liable for the costs incurred which are attributable to his gross negligence. 

20.  We therefore hold the liquidator to be personally liable for such costs for the period of his inaction. Having considered the statement of costs (in the sum of $70,244) prepared by solicitors for the Applicant and taking out costs which were not attributable to the gross negligence of the liquidator and deducting items which we regard as excessive or unnecessary, we fix the costs payable by the liquidator personally to the Applicant at $40,000.

21.  Over and above that, the Applicant should be able to get the balance of his costs from the assets of the company (if he so wishes) and we make an order to that effect and such costs would have to be taxed if not agreed.