COSIMO BORRELLI AND ANOTHER v. THE OFFICIAL RECEIVER

HCAL67/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO.67 OF 2003

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J U D G M E N T

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1. This is an application for judicial review by the applicants to challenge a decision by the respondent in not complying with a duty alleged to be imposed by rule 171 of the Companies (Winding-Up) Rules, Cap.32 to lodge the invoices of the applicants with the taxing master. Leave to issue these proceedings was granted by Hartmann J on 16 July 2003.

Background

2. The factual background to these proceedings are not in dispute. They are as follows.

3. Luen Cheong Tai Construction Co. Ltd ("LCTC") was a construction company licensed to do construction work for the HKSAR Government.

4. On 15 July 2002 the Companies Court made an order for the winding-up of LCTC. It also ordered the official receiver, being the respondent herein, to be the provisional liquidator of LCTC's affairs. At the time of the winding-up order, LCTC had several outstanding contracts with the HKSAR Government which had not been completed.

5. On 6 August 2002 the respondent appointed the applicants to be his agents. The applicants are from RSM Nelson Wheeler Corporate Advisory Services Ltd ("NWCASL"). They were to novate LCTC's outstanding contracts.

6. On 14 November 2002 the Companies Court made an order appointing Yeo Boon Ann and Stephen Liu Yiu Keung, both of Messrs Ernst & Young Transactions Ltd as joint and several liquidators of LCTC in the winding-up. Upon the appointment of the liquidators, the applicants' appointment as agents of the provisional liquidator terminated.

7. From September to November 2002 the applicants lodged six invoices with the respondent for work done as agents of the respondent. After adjustments, the applicants' invoices totalled $541,839.70. On 18 November 2002 the applicants submitted their final report.

8. On 9 December 2002 the applicants informed the respondent that their invoice bearing no.15063 for November 2002 was their final invoice in the matter unless further instructions were given to them by the liquidators.

9. Three of the six invoices from the applicants had been lodged with the taxing master by the respondent. The rest were not lodged.

10. Between January and May 2003 there were discussions and correspondence between the parties as to the invoices and the lodging of them with the taxing officer. From these correspondences it can be seen that the reason put forward by the respondent for their refusal to lodge the rest of the applicants' invoices with the taxing officer is that a complaint had been lodged with the Hong Kong Society of Accountants by the respondent against the applicants on 15 April 2003 in respect of two matters connected with the appointment of the applicants to deal with the novation of the LCTC contracts.

11. Firstly, it is alleged by the respondent that RSM Nelson Wheeler Certified Public Accountants ("NWCPA"), an accountant firm connected or related to NWCASL, were the former auditors of LCTC but that this was not disclosed to the respondent by the applicants when they were appointed as agents to deal with the novation of LCTC's outstanding contracts in the winding-up.

12. Secondly, that there was a confidential consultancy agreement reached between NWCASL and Horvath & Giles Services Ltd ("H&G"), in respect of Panel T insolvency cases. It further appears that H&G figures in this matter because at a creditors meeting held on 19 August 2002 in respect of the winding-up of LCTC, it was resolved by a majority of the creditors present that William Giles and Alan Day both of H&G be appointed liquidators, the two of them being one of the two nominations put forward at that meeting as liquidators. That matter however was overtaken when the Companies Court appointed Kenneth Yeo and Stephen Liu to be the liquidators on 14 November 2002.

13. It was not until 23 October 2002 that it came to the knowledge of the respondent that there was such an agreement between NWCASL and H&G relating to Panel T insolvency cases.

14. The respondent takes the view that the confidential consultancy agreement between NWCASL and H&G not only is a breach of tender by H&G, but is also a breach of liquidator's fiduciary duty, inconsistent with the duties and obligations of an officer of the court, as well as being unprofessional, unethical and wholly unacceptable conduct. As such the respondent complains that NWCASL has aided and abetted such breaches and unprofessional conduct by H&G.

15. As a result of such complaint made by the respondent to the Hong Kong Society of Accountants, in a letter dated 2 June 2003, the respondent informed the applicants that their six invoices will not be processed further until :

(a) the applicants have clarified to the satisfaction of the liquidators of LCTC all the queries raised by the liquidators about the novation;

(b) the liquidators have advised that the fees claimed under the six invoices are reasonable;

(c) the Hong Kong Society of Accountants have concluded its enquiries into the respondent's complaint in this matter; and

(d) the (Companies) Court has directed that the respondent and the liquidators can discharge the applicants' bills despite their non-disclosure as being the former auditors of LCTC when they were appointed agents of the respondent for the novation.

Applicants' contention

16. In making this application for judicial review, under the applicants' Notice of Application for Leave to Apply, the relief sought originally included damages under Order 53, rule 7. However, I am told by counsel for the applicants at the hearing that the applicants no longer pursue damages as a relief.

17. The applicants now seek an order of Mandamus to compel the respondent to discharge its duty under rule 171 of the Companies (Winding-Up) Rules to lodge the invoices with the taxing officer forthwith.

18. At the start of the hearing, counsel for the applicants emphasized that this application is only limited to compelling the respondent to lodge the invoices with the taxing officer for the purpose of taxation of them. It does not go beyond lodging the invoices for taxation and it is not intended in any way by this application to compel payment of those invoices. Taxation and payment are separate matters.

19. Rule 171 of the Winding-Up Rules is central to this application and is relied upon by the applicants as imposing a duty on the respondent to lodge the invoices with the taxing officer. Rule 171 reads as follows :

"The bill or charges, if incurred in a winding-up by the court prior to the appointment of a liquidator, shall be lodged with the provisional liquidator, and if incurred after the appointment of a liquidator, shall be lodged with the liquidator. The provisional liquidator or the liquidator, as the case may be, shall lodge the bill or charges with the taxing officer."

20. It is contended by the applicants that the decision of the respondent not to lodge the rest of the invoices and not to process the six invoices further until those four conditions set out in their letter of 2 June 2003 (set out above) has been met is unlawful and unreasonable.

21. It is unlawful because that decision goes against the clear and simple wording of rule 171 which imposes a concrete duty upon the respondent to lodge the bills with the taxing officer once the bills are received by the respondent. The respondent does not have any discretionary power not to comply with rule 171 nor can the respondent impose any conditions before complying with that duty imposed.

22. It was submitted by the applicants that it was unreasonable for the respondent to require the applicants to answer "all the queries raised by the Liquidators" as a condition precedent to lodging the invoices with the taxing officer. In this context, it is said that the applicants owe no duty to the liquidators, their appointment as the respondent's agents having been terminated on 14 November 2002.

23. Moreover, although the liquidators are entitled to see the applicants' invoices and may attend the taxation of same and object to any of the items at such taxation, the respondent has no duty to first obtain the liquidators' advice on the reasonableness of the applicants' fees before the respondent lodges those invoices with the taxing officer. Nor does rule 171 require the invoices to be reasonable before they can be lodged with the taxing officer. Any matter contained in the invoices which is unreasonable can and should be raised with the taxing officer at the taxation of same.

24. As for the complaint made to the HKSA, it was submitted that the fact that NWCPA were the former auditors of LCTC is irrelevant. The applicants were appointed by the respondent as its agent to novate the contracts after the winding-up order whereas NWCPA was appointed as LCTC's auditors before the winding-up order. There is no evidence of any real or apparent conflict of interests on the applicants as the agent of the respondent for the novation of the contracts.

25. As for the H&G agreement, that agreement concerned Panel T insolvency cases whereas the novation of LCTC's contracts was not such a Panel T case.

26. Furthermore, it was submitted that the respondent had known of both these matters, the subject matter of the complaint to the HKSA, even during the appointment of the applicants as the respondent's agent in this case but said nothing to the applicants about them. It was only months after the applicants' termination as agents that these matters were raised as an excuse for not lodging the invoices with the taxing officer.

Respondent's contention

27. It is the respondent's contention that judicial review is either not available in this case or that it should not be ordered for the following reasons.

28. Firstly, the respondent submits that if there is a duty under rule 171 relied upon by the applicants on their application for judicial review, then that duty is imposed on the liquidator or provisional liquidator. However, it is well established that liquidators including provisional liquidators are officers of the court. So too is the official receiver, even when not himself a liquidator.

29. It is also well established that the High Court (including when it is acting by its officers) is not subject to control by judicial review.

30. Therefore the respondent says that any decision of a liquidator or provisional liquidator not to comply with rule 171 cannot be subject to review by judicial review.

31. Secondly, it was submitted that rule 171 is procedural and no substantive rights are created by that rule between the liquidator or provisional liquidator on the one hand and the person submitting the bill or invoice on the other hand.

32. Thirdly, the respondent says that there are alternative remedies open to the applicants and therefore it is only in exceptional cases that the jurisdiction to grant judicial review will be exercised.

33. Such alternative remedies exist in the form of section 200(5) of the Companies Ordinance which provides :

"If any person is aggrieved by any act or decision or the liquidator, that person may apply to the court, and the court may confirm, reverse, or modify the act or decision complained of, and make such order in the premises as it thinks just."

34. Moreover, if it should be argued that the decision complained of in this case was taken by the official receiver otherwise than as liquidator (and therefore section 200(5)) has no application, then an appeal from such decision would lie under rule 199 of the Winding-Up Rules which reads :

"An appeal to the court from an act or decision of the Official Receiver acting otherwise than as liquidator of a company, shall be brought within 21 days from the time when the decision or act appealed against is done, pronounced or made."

It was further pointed out by the respondent that for the applicants now to say that the decision complained of was taken by the official receiver otherwise than as liquidators would seem to be at odds with the applicants' case brought under rule 171.

35. Be that as it may, whether the decision complained of is treated as that of the liquidator or the official receiver, there are provisions for an appeal under section 200(5) or rule 199 as the case may be.

36. A further point made by the respondent is that the court exercises a comprehensive control over all aspects of a winding-up by giving directions to its officers including liquidators and the official receiver. In this respect, and in view of the complaint made to the HKSA for the alleged misconduct of the applicants, the disallowance of remuneration where agents of the liquidators have misconducted themselves is within the court's supervisory control of its own officers and are not capable of being resolved in a taxation.

37. This is yet a further reason why judicial review should not be ordered in this case but should be dealt with by the alternative remedies referred to above. Moreover, taxation of the bills would be difficult (if not impossible) before the complaint to the HKSA has been dealt with and determined.

Decision

38. I have no difficulty accepting the submission of the respondent that it is well established law that liquidators are officers of the court.

39. As for the Official Receiver, it was held by Jones J in Re Tse Lee Yuen Jewelry Ltd [1984] HKC 352 that the Official Receiver in his capacity as liquidator was an officer of the court and upon a winding-up, the Official Receiver acted as the agent of the company and exercised his powers in accordance with the Companies Ordinance subject to the control of the court.

40. In the case of Re Peregrine Investments Holdings Ltd and Others [1999] 3 HKC 291, the Court of Appeal held that the Official Receiver assumed an active role in ensuring that any bills or charges rendered by liquidators and their professional advisers were subjected to satisfactory scrutiny. He should attend the taxation of any bill of costs and oppose any item which appeared to him to be either unjustified or excessive. At page 298 of the judgment, Mortimer VP had this to say :

"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 direction, the Official Receiver has the right to attend or be represented on the taxation."

41. It is also not in dispute that decisions of the High Court are not subject to judicial review. It is only decisions of inferior tribunal which can be the subject of judicial review.

42. However, it was submitted by the applicants that the decision of the respondent complained of by the applicants and the subject matter of these proceedings are made in the respondent's capacity as a public official. Moreover, it was submitted that the respondent has not shown that the decision complained of was a decision of the High Court. In this respect it was submitted that the official receiver could have brought the matter to the attention of the Companies Judge and obtained directions from the Companies Judge, but has not done so.

43. I cannot accept that submission of the applicants. The invoices submitted by them were for work done in relation to the winding-up of LCTC. All matters in relation to winding-up of companies are within the control of the Companies Court. It is also clear from the judgment of the Court of Appeal in the case of Re Peregrine Investments Holdings Ltd that the Official Receiver, even when not himself the liquidator, but acting in relation to the winding-up of a company, is nevertheless carrying out such acts as an officer of the court. That is precisely the situation in the present case.

44. In my view the decision by the respondent not to further process the invoices submitted by the applicants is a matter which ought to have been brought to the notice of the Companies Judge in the winding-up of this matter and directions sought from that judge. If that had been done, the directions ordered by the judge would not have been the subject of judicial review (albeit that it may have been the subject of appeal in the usual way).

45. The fact that directions were not sought from the Companies Judge does not detract from the fact that the respondent was still acting as an officer of the court. Nor does it thereby allow the applicant to seek judicial review when otherwise it could not have done so. Furthermore, it is still open to the respondent to bring this matter to the attention of the Companies Judge and to seek directions from her in respect of the further processing of the applicants' invoices.

46. Moreover, I also accept the respondent's submission that rule 171 is procedural and does not create any substantive rights as between the applicants and the respondent.

47. I do not propose to make any decision on the matter complained to the HKSA. That is a matter for the HKSA to decide. Indeed it is not necessary for me to make any substantive decision on that matter here, suffice to say the fact that such a complaint has been made to the HKSA would obviously be one of the matter which the Companies Judge would have to take into account in giving directions had this matter been brought to her attention and her direction sought.

48. Having accepted those submissions made by Mr Smith on behalf of the respondent as indicated above, I am of the view that judicial review is not applicable to the applicants for the reasons given.

49. Even if I am wrong in that conclusion and that there is a duty imposed on the respondent under rule 171 for which judicial review can be granted, in all the circumstances of this case, I am of the view that this is not a case in which I should exercise my discretion to grant the relief sought.

50. Accordingly, this application for judicial review is dismissed with costs.