RE PEREGRINE INVESTMENTS HOLDINGS LTD AND OTHERS

CACV 39, 40 & 41/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 39, 40 & 41 OF 1999

(ON APPEAL FROM HCCW 20, 22 & 32 OF 1998)

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J U D G M E N T

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Mortimer V-P:

1. In these three appeals, the Provisional Liquidators seek to challenge Le Pichon J's order of 25 November 1998. This was one of a series of orders made by the judge in connection with the taxation of the Provisional Liquidators' fees and disbursements in the winding-up of the three companies, Peregrine Investments Holdings Limited, Peregrine Fixed Income Limited and Peregrine Derivatives Limited.

The background

2. The brief history of these matters is that the Provisional Liquidators were appointed for the three companies by the judge on 13 January 1998. These companies were wound up by the court on 18 March 1998.

3. By the original order of 13 January 1998, the remuneration of the Provisional Liquidators was to be calculated "according to the standing hourly rates charged by Price Waterhouse for the services of the Provisional Liquidators and other grades of staff employed by them".

4. On 19 March 1998, the fees of the Provisional Liquidators were first raised before the judge. She became concerned at the level of fees and disbursements for which approval was sought. Consequently, she heard counsel for the Provisional Liquidators, a representative of the Official Receiver and Mr Benjamin Yu SC as amicus to consider the principles that applied in allowing this remuneration. The disbursements of the Provisional Liquidators included the fees of two firms of solicitors instructed by the Provisional Liquidators.

5. In her judgment, the judge expressed her concern:

"The aggregate amount of fees and disbursements for which approval is sought is of the order of $76 million for the period of 9 weeks or 63 days which elapsed between the provisional liquidation and the winding-up orders. I am greatly troubled by the amount involved."

In this clear and erudite judgment which broadly followed the principles enunciated by Ferris J in Mirror Group Newspapers plc v Maxwell & Ors [1998] BCC 324, the judge set out the principles to be applied in this jurisdiction. These principles are not challenged. The judgment demonstrates that the judge had a full and detailed grasp of the fees and disbursements claimed together with the supporting documentation which was then available.

6. On 19 March 1998 the judge ordered an interim payment to the Provisional Liquidators including the disbursements to their solicitors of 25% of the fees claimed. When she gave judgment on 25 June 1998 - known as Peregrine No.1 - she increased that interim payment to 33% and gave indications as to what steps the two firms of solicitors should take if further interim applications were made.

7. On 23 October 1998 the judge increased the interim payment for the solicitors' fees to 50% but the Provisional Liquidators' application on 10 November 1998 for a similar increase was refused "pending further detailed billing information being provided to this court".

8. At this last hearing, the judge expressed concern about the lack of effective opposition to the Provisional Liquidators at hearings when the costs and disbursement were being considered. The Provisional Liquidators and the solicitors asked for payment of their fees against undertakings to repay or alternatively, so far as the solicitors were concerned, it was suggested that the moneys could be paid into a client's account. Neither of these suggestions found favour with the judge.

9. As to how her concerns were to be addressed, the judge invited written submissions, following which she received letters from those involved including one of importance from the Official Receiver dated 24 November 1998. This is part of the background to the orders appealed against. The letter first repeats proposals put forward by the judge:

"(1) that the Official Receiver should be a party to the taxation of the solicitors' bills. He should be served with copies of the bills and should have the right to object; and

(2) that the Official Receiver is the appropriate person to assist the Master appointed to review the bills of the provisional liquidators."

On this the Official Receiver pointed out:

"Whilst there is consensus that long term, reviewing provisional liquidators remuneration is an area where the Official Receiver's Office should be involved, traditionally it is not a task that has been undertaken by this office."

The Official Receiver continues that his office could not undertake this task without further resources. He makes then a number of suggestions including that of exercising his functions under s.204 of the Companies Ordinance (Cap. 32) but he concludes as follows:

"To summarize, I am of the view that my office should not be involved in the taxation of the solicitors' bills. On the second proposal put forward by Her Ladyship, I accept the need for assistance to the Court in relation to the bills of the Provisional Liquidators but feel that further directions are required from the Court as to the precise form such assistance should take. If appointed to assist the Court, I would require to appoint an independent third party with experience in insolvency matters to assist me."

This immediately preceded the directions hearing on 25 November 1998 at which the judge made the orders appealed against.

The judge's order

10. The judge made the following order.

"1. the Official Receiver shall appoint such Law Costs Draftsman as the Registrar of the High Court shall approve to prepare a report the purposes of taxation for submission to the Court on remuneration sought by the Provisional Liquidators of Peregrine Investment Holdings Limited (the "Company"), and the disbursements incurred by them, having regard to the Order of 13th January, 1998 governing the terms of their appointment, the principles set out in the judgment herein dated 25th June 1998 and (more particularly, on the question of the basis of taxation) in Mirror Group Newspapers Plc. v. Maxwell [1988] BCC 324 at such time as the Provisional Liquidators have produced revised bills and supporting documents in accordance with the judgment dated 25th June, 1998;

2. the Official Receiver shall appoint the same Law Costs Draftsman as appointed under paragraph 1 to prepare a report for the purposes of taxation for submission to the Court on the costs of and disbursements (including Counsel's fees) incurred by the Provisional Liquidators' solicitors (namely Clifford Chance and Deacons Graham & James) on a solicitor and own client basis of taxation in respect of the Provisional Liquidation, without the need for the preparation of new itemised bills;

3. the Official Receiver, the Provisional Liquidators, and the Provisional Liquidators' solicitors shall assist the Law Costs Draftsman by, inter alia, the provision of all relevant information and documentation and be at liberty to apply to the Court on short notice for directions for the purposes of carrying out the orders herein made;

4. the interim payment on account to the Provisional Liquidators' solicitors, referred to in the Judgment dated 25th June, 1998 by the Honourable Mrs. Justice Le Pichon, be increased to 90% of their costs incurred in respect of the Provisional Liquidation, on provision by the respective firms, the satisfaction of the Registrar of Bank Guarantees issued by Standard Chartered Bank or such other bank and in such form as shall be acceptable to the Court;

5. the application of the Provisional Liquidators' solicitors for an interim payment to Counsel; pending taxation, is dismissed;

6. the Provisional Liquidators' solicitors be at liberty to make application for taxation of the costs respectively incurred in connection with the Provisional Liquidation, without the need for the preparation of new itemised bills provided that the substantive taxation hearing shall not take place until further order (if any) after the report under paragraph 2 has been submitted to the Court;

7. the costs of the Law Costs Draftsman appointed under paragraph 1 or 2 hereof (as the case may be) shall be paid out of the assets of the Company subject and without prejudice to any order that may be made by the taxing master on the taxation (if any), of the charges of the Provisional Liquidators and of the Provisional Liquidators' Solicitors respectively. the costs of and occasioned by this application and subsequent Order incurred by the Provisional Liquidators' solicitors be costs of the Provisional Liquidation and be taxed on a solicitor and own client basis."

The issues

11. At the outset of the hearing, there were three issues for our decision:

(1) Whether the judge had jurisdiction to order the appointment of a law costs draftsman to assist the Official Receiver.

(2) If so, whether the judge wrongly exercised her discretion in appointing a law costs draftsman on the basis that:

(a) His expertise would not assist in the issues on taxation;

(b) His appointment would involve unacceptable delay;

(c) The additional expense would not be justified; and

(d) There is at the time of this hearing no law costs draftsman prepared to undertake the task who is acceptable to the Registrar.

(3) Whether the judge manifestly erred in principle in not allowing interim payments to the Provisional Liquidators' solicitors of up to 90% of the amounts claimed when undertakings had been offered by the partners to repay or to pay the sums into a client's account.

12. A similar issue is raised in the grounds of appeal upon the level of interim payments to the Provisional Liquidators but this forms no part of the order appealed against. It is difficult to see how this came into the notice of appeal.

The first issue

13. Mr Geoffrey Ma SC appears for the Provisional Liquidators. In early discussion between counsel and the Bench, it appeared that the effect of the judge's order had been misunderstood by the appellants. In the context of the written submissions made by the Official Receiver, it is clear that the judge's order requires the Official Receiver, as an officer of the court, to appoint a law costs draftsman to assist him in a task for which he contends he is not equipped by either experience, practice or expertise. It is clearly envisaged that the Official Receiver will appear on the taxation, having obtained the assistance of the draftsman who will prepare a report for the purposes of this taxation. The Official Receiver will submit the report and, by means of the report, the issues on taxation will be defined. Of course, it may be necessary for the judge or master to give further directions.

14. In this regard, the powers and duties of the Official Receiver under s.204 of the Companies Ordinance are in point. The section provides:

" (1) The Official Receiver shall take cognizance of the conduct of liquidators of companies which are being wound up by the court, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by statute, rules, or otherwise with respect to the performance of his duties, or if any complaint is made to the Official Receiver by any creditor or contributory in regard thereto, the Official Receiver shall inquire into the matter, and take such action thereon as he may think expedient.

(2) The Official Receiver may at any time require any liquidator of a company which is being wound up by the court to answer any inquiry in relation to any winding up in which he is engaged, and may, if he thinks fit, apply to the court to examine him or any other person on oath concerning the winding up.

(3) The Official Receiver may also direct an investigation to be made of the books and vouchers of the liquidator."

Rule 172 of the Companies (Winding-Up) Rules is also relevant. This provides:

"Every person whose bill or charges in a winding up by the court is or are to be taxed shall, on application either of the Official Receiver or the liquidator, furnish a copy of his bill or charges so to be taxed, on payment at the rate of 75 cents per folio, which payment shall be charged on the assets of the company. The Official Receiver shall call the attention of the liquidator to any items which, in his opinion, ought to be disallowed or reduced, and may attend or be represented on the taxation."

The consequence is that the Official Receiver has an important role to play in the taxation of Provisional Liquidators' fees and disbursements. The judge may give directions to the Official Receiver as the court's officer, but quite apart from such directions, the Official Receiver has the right to attend or be represented on the taxation. This has long been the position, see In re Nash & Sons ex parte Crofton, Craven & Worthington [1896]1 QB 13.

15. Having appreciated that there had been a misunderstanding by his clients on the effect of the order, with his usual realism, Mr Ma did not pursue the first issue.

16. On this, one matter remains. Having regard to previous practice, the Official Receiver does not have the resources to fulfil his duties and powers on the taxation of Provisional Liquidators' fees. The public importance of his role in this regard is made abundantly clear from the applicable principles in the Maxwell case and the judge's judgment of 25 June 1998 now reported as Re Peregrine Investments Holdings Ltd [1998]3 HKC 1. Steps should be taken, in my judgment, by those concerned to ensure that in future the Official Receiver has the resources and the expertise to fulfil his duties.

The second issue

17. In exercising her discretion to make the direction that the Official Receiver should appoint a law costs draftsman to assist him, there can be little no doubt that the judge had all the factors in mind which Mr Ma now seeks to advance. No doubt, a law costs draftsman does not have all the expertise that is desirable and his appointment may have been a compromise. Nevertheless, no grounds have been made out, in my judgment, for challenging the exercise of the judge's discretion on this direction. The matters raised all concerned the weight the judge ought to have given to the various factors, save for the last which is a practical matter of availability.

18. This last point is raised in an interim report of the Official Receiver "re appointment of a law costs draftsman pursuant to the orders of 25 November 1998" which has been shown to us. There are difficulties in obtaining a draftsman who is both prepared to act and is acceptable to the court. In these circumstances it may well be necessary for this matter to be referred again to the judge for her further directions. The certainty is that save in the most exceptional circumstances, this Court will never interfere with case management directions. There are no grounds demonstrated here upon which we should do so.

The third issue

19. Mr Ma submits that the judge erred in principle in not ordering interim payments of up to 90% of the fees. He rightly submits that all concerned are professional persons who provide a service and they have been kept out of a considerable proportion of the claimed fees for about 18 months. He submits that when the partners of such firms give undertakings to repay, the judge ought to accept those undertakings and make the appropriate order. Alternatively, she ought to order the solicitors' fees to be paid into a secure client's account.

20. As Mr Benjamin Yu SC who appears as amicus curiae has pointed out, we are not concerned with the uplift of an interim payment to the Provisional Liquidators. The Provisional Liquidators' application for an increase was refused by the judge on 10 November 1998. There is no appeal against that order. That puts to rest this point raised. How it came to be raised is a mystery which is unexplained.

21. Turning to the orders for interim payment to the Provisional Liquidators' solicitors, the judge clearly accepted the principle that their fees should be increased to 90% of those claimed. However, she asked for the security of a bank guarantee. Mr Yu has invited our attention to the fact that one of the two firms has supplied such a guarantee - having offered it earlier - and is therefore entitled to receive 90% of the fees claimed. On behalf of the remaining firm - Clifford Chance - it is contended that the matter is one of principle and that the judge was plainly wrong in the exercise of her discretion in not accepting the undertakings of the partners. I am unable to agree. Throughout, the judge has demonstrated a formidable grasp of the detail in this case and the principles which must be applied, for my part, I see no reason whatsoever why the judge should not ask for a banker's guarantee rather than any other form of security. The benefits of simplicity and ease of enforcement are obvious. Additionally, having regard to what was put before us in argument, there can be no question but that a banker's guarantee can be provided if the solicitors so choose. Of course, it is open to them to choose otherwise.

22. I see no error in the judge's exercise of her discretion on this matter which could possibly entitle this Court to interfere.

General

23. I would make one or two general points. Had the judge exceeded her jurisdiction in making the order on a directions hearing, it would be a matter which it is the duty of this Court to remedy. However, the jurisdiction point was never arguable and was not pursued. If a party is in doubt as to the effect of an order on a directions hearing, the proper procedure is not to take the matter on appeal, but first to return to the judge to ventilate the problem.

24. As to directions hearings generally, it is only in the most exceptional cases that this Court will interfere with a judge's discretion exercised in order to assist in the proper trial of relevant issues. In my judgment, no such exceptional circumstances have been demonstrated to apply to this order which is one of a series made by the judge following her statement of principle in Peregrine No. 1 which I have referred.

25. For my part, I would dismiss this appeal without hesitation.

Mayo JA:

It appears to have been accepted that the Judge did have jurisdiction to make the Order she did. This is if we proceed upon the basis that the Official Receiver continues to exercise the powers and functions exercisable under s.204 of the Companies Ordinance, Cap. 32 and Rules 169, 171, and 172 of the Companies Winding-Up Rules.

26. Although the Official Receiver has given us details of the difficulties he labours under I do not consider that there can be any question of the Official Receiver being released or excused from performing his statutory functions. If he finds that the resources available to him are inadequate for him to discharge his duties in a satisfactory manner he should as a matter of urgency apply to the relevant authorities to make good any deficiencies.

27. Whatever the practice may have been in the past it is clear that it is the responsibility of the Official Receiver to assume an active role in ensuring that any bills or charges which are rendered by liquidators and their professional advisers are subjected to satisfactory scrutiny. This contemplates that where any bill is taxed by a Taxing Master the Official Receiver should attend the taxation and oppose any items which appear to him to be either unjustified or excessive in amount.

28. It is accepted by all parties concerned that the principles governing the remuneration of liquidators were those propounded by Ferris, J. in Mirror Group Newspapers PLC v. Maxwell & Others [1998] BCC 324.

29. Adopting these principles it is clear that a liquidator is obliged to justify any bill he submits relating to professional services rendered by him.

30. Where as in the present cases the work involved is very substantial indeed and of a highly complex nature this is no small task.

31. I have no doubt that the Judge was fully mindful of the problems which were likely to arise in ensuring that all of the accounts which were submitted for approval or taxation were prepared in a manner in which they could be subjected to satisfactory scrutiny.

32. Her initial approach to the problem was to order that the services of a Law Costs Draftsman should be secured. With the greatest respect to the Judge I believe that this approach was mistaken.

33. I do not think that the skills of a Law Costs Draftsman are likely to be of much assistance to the Official Receiver, the Taxing Master or the Judge. His skills are essentially of a mechanical nature. He is unlikely to possess sufficient knowledge or experience to enable him to make a judgment as to whether any particular task which was performed was necessary or appropriate and more particularly whether the extent of the work undertaken was excessive adopting the criteria of how much time would need to be expended by a person or persons competent and proficient in the profession. In my view only an experienced professional in the field of Insolvency Practice who also has some experience of the business activities conducted by the companies would be able to make these assessments and give appropriate advice on them.

34. It comes as no surprise to me that the Official Receiver experienced the difficulties he has in securing the services of a Law Costs Draftsman.

35. The question then arises as to what should now be done.

36. I have no doubt that the Order made by the Judge has built into it sufficient scope for any party encountering difficulties to make further application to the Court for Directions. Equally I have no doubt that the correct course to adopt in the present cases is for a further application to be made to the Judge. She would be able to consider the whole matter at large and give such directions as may be required.

37. That then leaves outstanding the questions of the increases in interim payments both to the Provisional Liquidators and to the Solicitors. What has to be said immediately is that questions of this nature fall squarely within the discretion which is exercised by the Judge.

38. Mr. Geoffrey Ma, S.C. was eloquent on this subject. It is manifest that a great deal of work has been performed by all the professional advisers and that they have been kept out of their money for 18 months. There is also no immediate prospect of full payment being forthcoming.

39. On the subject of delay in the future I believe that it could be minimised if appropriate directions are obtained from the Judge and expeditious action is then taken to tax the bills in accordance with Maxwell principles.

40. It is very difficult for us hearing this appeal to make a satisfactory assessment as to the proper amount of interim payments to the professional advisers. The Judge who has been closely involved in these cases from an early stage is in a much better position than we are. For my part I do not consider that sufficient grounds have been shown to demonstrate that the Judge has erred in the way she has exercised her discretion. I would not be disposed to interfere with her Order. In my view this appeal should be dismissed.

Rogers JA:

The jurisdiction to make an order that the Official Receiver appoint a Law Costs Draftsman

41. The question of whether there was jurisdiction to make the order that the Official Receiver shall appoint a Law Costs draftsman to prepare a report for the purposes of taxation for submission to the Court on the remuneration sought by the Provisional Liquidators soon evaporated during the course of the opening submissions of Mr. Ma S.C., who appeared on behalf of the Provisional Liquidators.

The Judge's discretion to make an order that the Official Receiver appoint a Law Costs Draftsman

42. That left the next question as to whether the Judge's discretion to order the Official Receiver to appoint a law costs draftsman was a correct exercise of the Judge's discretion. That question has now become almost academic because, for one reason or another, it has not been possible for the Official Receiver to appoint a law costs draftsman. Further application will have to be made to the Judge. In my view it was appropriate for the Judge to order that the Official Receiver appoint a law costs draftsman.

43. It is true that in considering the fees of the Provisional Liquidators and the solicitors it will be necessary to consider whether it is appropriate that some of the steps that were taken were appropriate or justified. That would or might require the assistance of a person skilled in insolvencies. It may well also involve the expertise of one skilled in derivatives or other financial instruments and financial transactions with which the Peregrine companies were concerned. However, on quite a different plane the services of a law costs draftsman were clearly appropriate.

44. In the Decision of the 25th June 1998, referred to in these proceedings as the Peregrine No.1 judgment, the Judge, as I shall also allude to below, has referred to a number of matters that were found to be troubling. These included questions of overmanning and examples of where the number of billable hours involved seemed to be high on any basis. These apparently translated, in many cases, into individuals achieving significant billable hours on a sustained basis of over 30 days. As the Judge pointed out, "billable" hours represented that part of the working day that is properly chargeable to clients. Of necessity, they represented a percentage, albeit possibly a significant percentage, of the day that is spent "working". Apparently, in many instances, the daily billable average was in double digits and, in some cases, well into them. Using her experience she said that it was "well-nigh impossible for the average mortal to maintain a high number of billable hours on a daily basis much beyond a few days if one is absolutely meticulous and honest about it." I can only concur in what she said.

45. The healthy scepticism, which the Judge expressed about such feats of working endurance, was enhanced by the absence of any mechanism in the system for checking and control. During the course of this hearing I drew Mr Ma's attention to the fact the Judge's observations with regard the basis of charging phone calls and partners time by the Clifford Chance, the solicitors. Counsel did not appear to disagree that these matters must have become apparent to the Judge in the course of her own careful consideration of the papers. They were hardly likely to have been drawn to her attention on behalf of the Provisional Liquidators.

46. In the Decision referred to as the Peregrine No.3 Decision (that of the 27th May this year) the Judge drew attention to some of the cases in the United States. There experience of difficulties that have arisen in respect of billable hours is no doubt much more extensive. Bills must be scrutinised to ensure that the practitioners have not charged for what is, in effect, educating themselves. Excessive work as well as overstaffing and inappropriate staffing is a problem that can lead to overcharging and, quite clearly, the bills here need to be scrutinised in this respect. Clients should also not pay where staff taking over work from colleagues have had to spend time familiarising themselves with work previously done by their colleagues. Scrutinising for these types of matters are tasks that are suitable for the law costs draftsman. These matters obviously need to be addressed in this case. Many of the tasks either would be unsuitable for an insolvency practitioner to undertake or it would be a waste of resources to ask him to undertake them.

47. Be that as it may it seems that the Official Receiver and the Court will probably have to manage without the benefit of a Law Costs Draftsman's scrutiny of the bills.

The Judge's allowance of interim payments

48. In my view there are a number of reasons why this Court should not interfere with the Judge's discretion as to the amounts allowed on account to the Provisional Liquidators and the solicitors pending final assessment.

49. In the first place, the Orders of the 25th November against which the appeals have been launched are not the up-to date word on the matter. Clearly there have been subsequent submissions and other applications.

50. In the second place, the Judge below has undoubtedly been through the matter in some detail, albeit on a provisional basis, whereas we have not even been asked to consider any of the basic raw material.

51. In the third place, the Provisional Liquidators have received $69 million in respect of fees for the period that they were provisional liquidators i.e. 74% of the fees claimed, not 33% as has been suggested to us.

52. In respect of the solicitors' fees, one of the firms, Deacons Graham and James informed the Court on the 11th November that they had obtained approval from the bank for a bank guarantee in support of an undertaking to repay excess costs paid prior to taxation which was sufficient to justify a 90% interim payment on account. The Order of the 25th November reflects almost precisely the wording of the letter of the 11th November in which this statement and offer was made.

53. I will now examine each of these points in more detail.

Other applications by the Provisional Liquidators

54. Mr. Yu S.C. appearing as Amicus, drew our attention to the fact that there was another Order, that of the 10th November 1998, in which the Court dismissed the Provisional Liquidators' application for additional fees on account. That has not been made the subject of an appeal and certainly not this Appeal. It is a fact, therefore, that the Judge below, as part of the ongoing review of the matter and giving directions, has considered the question of the Provisional Liquidators' fees. It is also doubtful whether this Court has any basis for considering this aspect of the Provisional Liquidators' fees on this application.

55. Moreover in the Peregrine No.3 Decision given on the 27th May this year, the Judge below said:

"The 25% interim payment of the fees of the Provisional Liquidators was further increased to 33% on 25 June 1998, when judgment was given in Peregrine (No.1). In October 1998, when the Provisional Liquidators, its solicitors Deacons and Clifford Chance applied for further interim payments on account, the interim payments to the solicitors firms were increased to 50% in respect of fees for the period up to the date of the winding up orders. The Provisional Liquidators' application was refused since they had not re-submitted their fee notes in accordance with the principles set out in Peregrine (No.1). The re-submission was not made until 28 December 1998 when the Provisional Liquidators submitted eight files evidence in support of their application for approval of their own fees and disbursements and revived their application for a further interim payment."

56. One of the important parts of the Decision in Peregrine No.3 was that the Judge pointed out that under section 194(1)(aa) of the Companies Ordinance where a provisional liquidator is appointed he "continues to act as the provisional liquidator" after the making of a winding up order, until he or another person becomes the liquidator. The Provisional Liquidators had been paid 100% of the claimed fees (i.e. $57million) in respect of the period following the Winding Up Order on the 18th March 1998 until the appointment of Liquidators on the 2nd July 1998. As the Judge pointed out, during that time they remained Provisional Liquidators, as opposed to being Liquidators. The Judge concluded that since the Provisional Liquidators had thus received on account $69 million in respect of fees, or approximately 74% of the total of $93 million which they claim is due, there should be no further payment on account.

57. The Judge concluded that in view of that fact that

"... it would not be appropriate for me to exercise my discretion to make any further interim payments to the Provisional Liquidators. The application is accordingly refused."

58. In those circumstances it seems that the Judge has considered the matter of additional fees on account on at least 2 occasions separately from the Order which is the subject of these appeals.

The details

59. In being asked to consider what percentage of the fees should be paid on an interim basis to the Provisional Liquidators and the solicitors, this Court has not been asked to consider any of the background material nor have the bills and other fees been shown to us. The Peregrine No.1 Decision, disclosed that the initial submission by the Provisional Liquidators in respect of their fees had been, in round terms, of the order of $27 million. That was for approximately the first 34 days work and excluded the fees of the solicitors and overseas lawyers. The Judge recorded the fact that at the stage of the initial submission, the size fees even then was considered to be alarming.

60. It is apparent from the Decision in Peregrine No.1 that at a preliminary hearing on the 19th March 1998, the Judge raised with the Provisional Liquidators the question whether or not they accepted that the principles enunciated by Ferris J in Mirror Group Newspapers Plc v. Maxwell & Others [1998] BCC 324 applied to the fixing of their remuneration.

61. Those principles can be summarised briefly that those in the position of receivers, or in the instant case Provisional Liquidators, are in the position of fiduciaries. Their fundamental obligation is a duty to account. They must account both for the way in which they exercise their powers and for the property with which they deal. As with all trustees, they must act in same manner as would a reasonably prudent man faced with the same circumstances in relation to his own affairs. Their acts are only proper if a reasonably prudent man would lay out or hazard his own money in doing what the office-holders have done. As an exception to the general rule that a trustee must not profit from his trust the Provisional Liquidators are allowed to receive remuneration. That exception inevitably involves a conflict between the interests of the fiduciary who is to receive such remuneration and the interests of those to whom the fiduciary duties are owed. Whatever remuneration is allowed will come from what would otherwise be theirs.

62. The conclusion in the Maxwell case was that the fiduciaries had to provide full particulars to justify the amount of any claim for remuneration. Where charges are sought to be recovered on a time basis the trustee, in this case the Provisional Liquidators, cannot simply list the total number of hours spent by themselves and the fee earning members of their staff and apply their normal charging rates. They must explain exactly what they did and why they did it and why they continued on any particularly course if it turned out not to be advantageous. For that they must keep proper records of what they have done and why they have done it. Without contemporaneous records, they will be in difficulty in discharging their duty to account. Retrospective reconstructions are unlikely to be as reliable as contemporaneous records. Office-holders whose records are inadequate are liable to find that doubts are resolved against them because they are unable to fulfil their duty to account for what they have received and to justify their claim to retain part of it for themselves by way of remuneration.

63. In this case, clearly the Provisional Liquidators did not initially accept this approach. Hence the hearing and Decision in Peregrine No.1. There the Court was assisted by My Yu acting as Amicus. The correctness of the Peregrine No.1. Decision and the application of the Maxwell principles is not now challenged.

64. By the time of the Peregrine No.1. hearing the fees claimed by the Provisional Liquidators had totalled $37,857,262 excluding the solicitors fees which themselves came to more than $38 million. This was in respect of the 63-day period from the appointment of the Provisional Liquidators to the date of the winding-up order.

65. The application for those fees was made in the face of the fact that the Provisional Liquidators did not have a time and billing system that enabled fee earners to input a contemporaneous task for each unit of time spent: the system maintained by the Provisional Liquidators did not cater for a time input nor a contemporaneous brief description of tasks performed. There were no contemporaneous records of what was done on any particular day other than under a general heading.

66. In the face of that, the apportionment of time spent by any individual to the sub-tasks comprised in any one task could only have been an ex post facto exercise. There seems to have been some confusion as to whether the supporting schedules that were submitted to the Court were subsequent reconstructions and not contemporaneous records. At the hearing the Judge was told that the Provisional Liquidators' employees filled in time sheets on a bi-monthly basis. Subsequent to the hearing, the Judge was informed that in the Provisional Liquidators' corporate recovery department, it is "the almost invariable practice to complete time sheets on a daily basis". We have not been shown those time sheets but it is clear that in any event they did not satisfy the requirements set out in Maxwell.

67. It is also clear from the Peregrine No.1 Decision that the Judge had considered the material supplied in considerable detail. A number of aspects are mentioned in her Decision. These included matters both in respect of the Provisional Liquidators' fees and those of the solicitors. For example, as was discussed with Mr. Ma S.C. in the course of the hearing, the Judge had clearly examined in some detail the time charts in relation to Clifford Chance fees and raised matters that required further investigation and consideration. As was pointed in the course of this hearing it is hardly likely that the discrepancies were drawn to the Judge's attention on behalf of the Provisional Liquidators.

68. In those circumstances it seems to me to be impossible for this Court even to begin to question the percentage of the costs and fees which should be allowed.

The requirement of a bank guarantee

69. I turn finally to the point raised by Mr. Ma that the Judge should not have required the solicitors to provide a bank guarantee for the amount of the costs advanced. The alternative argument was that the amount of the costs should be paid into Client's account of the solicitors' firms. This Court was informed that the benefit of that was that the solicitors could receive the interest. That suggestion was not however pursued with any vigour.

70. Turning to the question of whether a bank guarantee was appropriate, the first observation to be made is that this is a question of discretion on the part of the Judge. I do not see any basis on which it could be said that the Judge exercised that discretion on a wrong basis. Nor has it been suggested before us that the Judge misunderstood any of the evidence or otherwise proceeded on a wrong factual basis. There is no basis, therefore, on which this Court should interfere with the exercise of that discretion.

71. The second matter I have already mentioned, namely that Messrs Deacons Graham & James had themselves suggested a guarantee of the appropriate amount. They appear to have been the solicitors acting for the Provisional Liquidators on 25th November last year as it was that firm which drew up the order of that date. It thus seems somewhat surprising that this part of the Order should be the subject of any complaint in this Court.

72. Nevertheless looking at the matter afresh, I do not see that there is ground for complaint at the Judge's Order in this respect. The solicitors' fees are disbursements by the Provisional Liquidators. It is their duty to ensure that only proper amounts are paid out of what is, in effect, a trust fund. There is no reason at all why the creditors should be put at any risk or chance that they might not recover what can be recovered for them. As has already been demonstrated there is no apparent difficulty in obtaining a bank guarantee. The bills and debit notes were not presented in a way that met with the Court's immediate approval. A great deal still needs to be done to verify the legitimacy of the amounts claimed. If those concerned are to obtain a payment in advance of it being ascertained that they are entitled to the amounts, then they should provide proper security.

73. The fact the solicitors are officers of the Court is one consideration but it is not the only consideration. The fact that the solicitors and even accountants involved may be large partnerships cannot mean that considerations wholly different from those appropriate to smaller or less well known firms should apply. It is not part of the function of the Court to determine whether a partnership is a wholly Hong Kong partnership and whether overseas partners would be responsible for undertakings given by Hong Kong partners or indeed what the net worth is of the Hong Kong partners. The requirement of the Bank guarantee was something which in my view was well within the purview of the Judge. Her discretion, in my view, should not be interfered with.

Mortimer V-P:

The appeal is therefore dismissed.

[Counsel applies for costs on same basis as the judge's order below.]

Mortimer V-P:

In the course of these submissions on costs we have ventilated our views. The Provisional Liquidators apply for the same order as was made below - in other words that their costs of the appeal should be paid out of the assets of the company subject to safeguards. But the question arises whether that is an appropriate order on this appeal. As we have said in our judgments, the point of law which was raised as to the jurisdiction of the judge to make the order which she did evaporated at the beginning of submissions. We have expressed the view that there never was a case to be presented on appeal on that basis. That problem arose out of a misunderstanding, as we saw it, of the effect of the judge's order. If there had been a misunderstanding as to how the order should be implemented, then in directions hearings of this kind, clearly the Provisional Liquidators should have gone back to the judge to ask for her further directions.

74. The other points were on the exercise of discretion. The appeal was to challenge the judge on points which were of personal interest to the Official Receivers who in these proceedings stand in the same position as trustees. The question arises whether it was reasonable for those persons standing in the position of trustees to launch and argue this appeal. We consider on an objective view that it was not. This is not in any way - I should make it clear - to impugn the bona fides of those concerned, or of the legal advice which they may have received. That is nothing to the point. In those circumstances we will make no order as to costs.

75. One point is to be noted before leaving this matter. A Provisional Liquidator who stands in the position of a trustee, who wishes to ensure that the costs of any appeal or, indeed, any other proceedings, are to be borne by the trust funds - in this case the company - may apply to the court for a Beddoe order. This type of order is one which can be sought by a trustee or a person standing in the position of a trustee, so that he can bring proceedings with the confidence that the proceedings are justified and that he will not be called upon to pay costs personally. In In re Beddoe. Downes v Cottam [1893] 1 Ch 547 at 562 Bowen LJ said this:

"While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges, and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestuis gue trust costs which his own solicitor has unreasonably and perversely incurred merely because he had acted as his solicitor told him.

If there be one consideration again more than another which ought to be present to the mind of a trustee, especially the trustee of a small and easily dissipated fund, it is that all litigation should be avoided, unless there is such a chance of success as to render it desirable in the interests of the estate that the necessary risk should be incurred. If a trustee is doubtful as to the wisdom of prosecuting or defending a lawsuit, he is provided by the law with an inexpensive method of solving his doubts in the interest of the trust. He has only to take out an originating summons, state the point under discussion, and ask the Court whether the point is one which should be fought out or abandoned. To embark in a lawsuit at the risk of the fund without this salutary precaution might often be to speculate in law with money that belongs to other people."

That sets out the principles and in reading that passage, I am not to be thought for one moment to be making any imputation against any of the parties in this case. As I have said earlier, the bona fides of any party is not challenged here at all. It is simply a question as to whether the assets of the company which have been recovered ought to be protected from the costs of this particular appeal.

76. So there will be no order for costs.