THE JOINT AND SEVERAL PROVISIONAL LIQUIDATORS OF MOULIN GLOBAL EYECARE HOLDINGS LTD v. ERNST & YOUNG

HCCW 470/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 470 OF 2005

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D E C I S I O N

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1.  On 13 June 2008, I made an order by consent to deal with the amended summons of the liquidators dated 19 March 2008 (“the Amended Summons”).  The original summons which was amended by the Amended Summons was issued on 10 September 2007 to ensure full and proper compliance by the respondent of two consent orders I made on 5 March 2007 and 11 July 2007 under section 221 of the Companies Ordinance, Cap. 32.

2.  The outstanding matters which require determination today are the matters set out in paragraph 9 of the consent summons issued on 13 June 2008.

3.  In respect of the direction sought in paragraph 9(b) of the summons, which is non-controversial, I order the liquidators to return to the respondent the confidential documents in the custody of the liquidators referred to in paragraphs 52 to 57 of the 9^th affidavit of Mr Sutton sworn on 7 September 2007, whether in printed or documentary or any other form including computer generated records and information.

4.  I turn to paragraph 9(a) of the summons.

5.  The liquidators seek an order that the respondent be ordered to pay the costs incurred by the company to the liquidators arising out of or in connection with the matters referred to in the Amended Summons and the summons dated 10 September 2007.  In the consent order I made on 13 June 2008, I have already provided that the legal costs of the liquidators of and incidental to these summonses are to be paid by the respondent in the agreed sum of $1.4 million.  So the costs that the liquidators are presently seeking relate to their own costs.

6.  The liquidators claim that the costs in respect of work done which was wasted was due to the deficiencies in the production of electronic documents by the respondent under the consent order dated 11 July 2007.

7.  I have reviewed the affidavits filed, the bundle of the correspondence and two chronologies prepared by the parties.  I do not propose to set out the details except to set out my findings pertinent to the claim for the liquidators’ costs on the basis of wasted work :

(1) The respondent initially used an inappropriate computer programme called Forensic Tool Kit (“FTK”) to extract relevant electronic documents.  The resulting documents provided to the liquidators do not comply with the order for production in that the liquidators were denied full access to documents as they were unable to open an attachment to any email.  The FTK software does not support Lotus Notes emails or Chinese characters.  So the electronic documents produced cannot be accessed through or managed in a document management system, and this would make it difficult if not impossible for the liquidators to consider and evaluate the voluminous documents produced.  Substantial work was undertaken by the liquidators and their expert personnel in forensic information technology in examining and analysing the hard drives delivered by the respondent, which had significant defects in the methodology employed, and in liaising and discussing with their solicitors and forensic personnel of the respondent to sort out technical problems and agree on an acceptable methodology.  An outside expert was engaged by the liquidators to prepare a report to address the problem of extracting electronic files.

(2) The respondent extracted electronic files with the FTK software by using a list of eleven search words to attempt to identify documents falling within the scope of the production order.  That had two unsatisfactory results.  Firstly, some of the search words have returned a large number of documents which fall outside the scope of the production order.  Of 15,541 electronic documents provided, over 50% were not related to the Moulin Group.  Substantial time was wasted by the liquidators in sorting through irrelevant documents.  Secondly, the limited search terms used would not catch all documents falling within the scope of the production order.  Some obvious omissions are mentioned in the 9^th affidavit of Mr Sutton at paragraph 51c.

(3) It was only on 21 April 2008 that the respondent submitted a hard drive in compliance with the production order of July 2007 by which 11,500 electronic files were delivered.  It was only by this production that the flaws in paragraphs (1) and (2) above were addressed.

8.  I am of the view that under these circumstances, good grounds are made out that the costs incurred by the liquidators in respect of their work which would not otherwise be undertaken, had the production of electronic documents been carried out in a proper manner, should be borne by the respondent and should not be borne by the estate of the company.  The information provided on 21 April 2008 showed what could and should have been done much earlier by the respondent.

9.  I have considered the submission of Mr Smith, SC on the respondent’s behalf.  I do not think he has an adequate answer why such costs should not be borne by the respondent.  The test is not as high as submitted by Mr Smith that a party should be ordered to pay the liquidator’s own costs only when he has behaved in a manner calculated to increase the costs of the liquidator or when he has conducted himself contumaciously.  I do not agree with Mr Smith that the costs incurred by the liquidators after 31 July 2007 could not be regarded as wasted time or expense.  The correspondence after 31 July 2007 has shown otherwise, negotiation between the parties continued after that date on an acceptable methodology and there were various meetings of forensic personnel to agree on methodology and logistics after October 2007.  I fully recognise there were technical difficulties to be overcome in extracting electronic files, but the 1^st consent order for production was made in March 2007.

10.  The liquidators seek to recover their wasted costs from 11 July 2007 to 21 April 2008.  They have only provided a schedule of the costs incurred and alleged to have been wasted between 2 September 2007 to 29 February 2008. 

11.  I see no problem with awarding the liquidators costs for the extended period, provided that the costs to be paid by the respondent are attributable entirely to wasted and unnecessary work.  I order the respondent to pay the liquidators’ costs of unnecessary work done and wasted between 11 July 2007 and 21 April 2008 on a trustee basis, to be taxed if not agreed.

12.  I reserve the costs of today’s hearing.