RE BOLDWIN CONSTRUCTION CO LTD

HCCW 340/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 340 OF 2002

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AND

HCCW 345/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 345 OF 2002

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AND

HCCW 346/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 346 OF 2002

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____________

AND

HCCW 691/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 691 OF 2004

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D E C I S I O N

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1.  This is an appeal of the provisional liquidators from the decision of Registrar Chan on 7 July 2006 giving leave to the company concerned, Boldwin Construction Company Limited (“Boldwin”), to participate in the hearing for taxation of a bill of costs of the provisional liquidators dated 10 March 2006.  It is the provisional liquidators’ contention that the hearing for taxation should be held in the absence of Boldwin or its contributories.

2.  The provisional liquidators have also taken out summonses in related proceedings concerning 3 other companies – Myriad Gold Corporation (“MG”), Maintain Profits Limited (“MP”) and BF Construction Company Limited (“BF”), seeking an order that the taxation hearing of the debit notes of the provisional liquidators for each of these companies be determined by the court without the presence of the company concerned or its contributories.

3.  The main contention in the appeal and the summonses is whether the determination of the provisional liquidators’ costs should be heard ex parte.  Other matters I need deal with are the interim payment to be made to the provisional liquidators for their costs and the order of the Registrar requiring the provisional liquidators to bear the costs of the hearing on 7 July 2006 personally.

4.  I will give a brief background necessary for an understanding of this decision.

5.  Provisional liquidators were appointed for Boldwin, MG and MP on 31 October 2002.  The background leading to their appointment arose out of the matrimonial dispute between Madam Law Wai Duen and Dr Chan Shiu Chick, being the individuals beneficially interested in these companies.  Serious allegations of mismanagement were made by Madam Law against Dr Chan.  I found that a prima facie case of the allegations in the petition was made out and provisional liquidators were appointed.  The orders for the appointment of provisional liquidators for these 3 companies provided that:

“The basis of the remuneration of the Provisional Liquidators be calculated according to the standard hourly rates charged by the Official Receiver for the services of the Provisional Liquidators and other grades of staff and employed by them and be paid out of the Assets of the Company.”

6.  On 18 June 2004, on the application of the provisional liquidators of MG and MP, which held all the shares in BF, I made an order appointing provisional liquidators for BF.  The order for their appointment provided “the basis of the remuneration of the provisional liquidators be charged and paid out of the assets of [BF] subject to approval of the Court”.

7.  In March 2005, Dr Chan and Madam Law reached a settlement of their matrimonial dispute, a term of which was that Madam Law would consent to the dismissal of the winding-up petitions and the transfer of her interests in the 4 companies and related companies to Dr  Chan.

8.  The winding-up petitions of all 4 companies came before me on 8 February 2006.  I dismissed all the petitions, for the reasons given in the judgment of the same date.  I ordered the provisional liquidators to be discharged from their office in respect of each of the companies.  In paragraph 23 of my judgment, I stated that I would deal with the consequential orders to be made on the discharge of the provisional liquidators, after the provisional liquidators had considered the draft orders proposed by Dr Chan and Madam Law.

9.  On 10 March 2006, I made an order by consent in each of the proceedings.  By this order, the provisional liquidators were allowed to retain out of monies held by them the aggregate sum of $25 million, out of which would be paid the proper fees, costs and expenses of the provisional liquidators and agents engaged by them in accordance with the earlier orders.  It was provided in this order that “such fees, costs and expenses if not agreed by [the company concerned] are to be taxed and allowed by the Court”.

10.  No agreement was reached between the provisional liquidators and the companies regarding their fees, so the provisional liquidators submitted debit notes for taxation in respect of Boldwin in March 2006 and of the other 3 companies in August 2006.

11.  On 18 May 2006, the Registrar gave a direction that there be a hearing of the determination of the remuneration of the provisional liquidators of Boldwin with 2 hours reserved, and that Boldwin be served by the provisional liquidators with their report and a notice of hearing as well as the provisional liquidators’ bill.  The provisional liquidators objected to the latter part of this direction.  They sought a determination from the Registrar that the taxation hearing should be held ex parte.  This was determined by the Registrar as a preliminary issue on 7 July 2006.  As mentioned earlier, he held against the provisional liquidators.  Hence this appeal and the summonses issued by the provisional liquidators subsequently in relation to the other proceedings.

12.  Ms Mckenna for the Official Receiver is here today because the provisional liquidators’ solicitors took the view that the Official Receiver should attend the appeal, on account of the observations of Mayo JA in Re Peregrine Investments Holdings Limited [1999] 3 HKLRD 59 at 67G to 68A on the statutory functions of the Official Receiver under section 204 of the Companies Ordinance, Cap. 32 and rules 169, 171 and 172 of the Companies (Winding-up) Rules.  As pointed out by Ms Mckenna, the provisions referred to by Mayo JA do not apply to a company which is not being wound up by the court.  I agree with her that as no winding-up order was made on any of the petitions, the Official Receiver is not concerned with the determination of the provisional liquidators’ bills.

13.  Ms Mckenna has nevertheless made written submissions on the issue whether the determination of the provisional liquidators’ bill should be heard inter partes or ex parte.  She is in agreement with the stance of the provisional liquidators that the determination be heard ex parte.

14.  On 1 April 2004, I made a general direction under rule 6(a) of the Companies (Winding-up) Rules, that with effect from 3 May 2004, being the effective date upon which the Procedural Guide for Taxation and Determination of Bills in Liquidation Process (“the Procedural Guide”) will be implemented, applications for the determination of remuneration and disbursements of provisional liquidators, liquidators, special managers and receivers may be heard and determined by a master in chambers.

15.  The Procedural Guide, as its name suggests, gives guidance to practitioners on the preparation of documents to be lodged with the court for the determination of bills, and the steps to be followed after the necessary documents are lodged with the court.  The practical and pragmatic approach adopted in the Procedural Guide is designed to streamline the documents required to be submitted by provisional liquidators and liquidators for the assessment of their fees, to ensure that a sufficient amount of information is placed before the taxing master and that the court would not be overburdened with unnecessary materials.  So time sheets are not required to be produced to the court in the first place, in the interests of cost-effectiveness, and would only be called for if the master needs to query any point (paragraph 3.1).  As Mr Harris, SC pointed out, the documents and information required to be provided under the Procedural Guide would not be as detailed and comprehensive as those envisaged and discussed in Re Peregrine Investments Holdings Limited [1998] 2 HKLRD 670 at 684F to J.

16.  Paragraph 4.1 of the Procedural Guide reads:

“After the documents referred to in paragraph 3 have been lodged, the Listing Officer shall designate a hearing time for the taxation/determination of the bill lodged.  At the hearing, the master will hear representation and deal with the bill summarily if possible.  The representative attending the hearing is expected to be familiarized with the bill lodged for taxation/determination and be able to answer queries raised by the Court. If it is unlikely that the taxation/determination can be finished within the allotted time, the case will be adjourned to a date to be fixed with such estimated length of time as the master may consider appropriate.”

17.  It seems to be common ground that the procedure for the determination of provisional liquidators’ bills envisaged in the Procedural Guide is an ex parte procedure in the sense that only the provisional liquidator is present.  In most situations, and if a winding-up order is made on the petition, it is not expected that the company or any one else would take part in the determination of the provisional liquidators’ fees.  Nevertheless, the Procedural Guide is only for guidance, it is not law.  I would need to consider if cogent reasons are made out why the application should be heard ex parte, without the presence of the party that is to pay the costs to be assessed.  I agree with Mr Grossman, SC, for the companies, that one instinctively recoils at the notion that any one may be financially encumbered without the opportunity to be heard, as natural justice demands it.

18.  Mr Harris has put the case for the provisional liquidators in this way to justify an ex parte determination:

(1) The provisional liquidator is not a party to adversarial litigation.  The function of the provisional liquidator is to look after the assets of the company pending determination of the winding-up petition.  He is an officer of the court.  The remuneration of the provisional liquidator is only a matter between him and the court which appointed him.  The fact that assets are those of the company in itself should have no bearing on the procedure for assessing the provisional liquidator’s fees.  There is conceptual justification for determining the remuneration of the provisional liquidator in the absence of the company or its contributory.

(2) If an inter partes hearing is ordered in this instance, this would be a departure from the procedure followed in other cases, since the general direction came into force in May 2004.

(3) Even if a departure from the general practice were to be ordered, so that the companies may take some role in the determination of the provisional liquidators’ fees, this should be ordered only in an appropriate case.  The present case is not appropriate for these reasons.  Dr Chan and his solicitors have no knowledge of the nature of the work undertaken by the professional accountants as provisional liquidators, they would not be able to make useful comments on the reasonableness of the work done and to assist the Registrar in the determination of fees.  Further, Madam Law had made serious allegations of misconduct against Dr Chan and the court had found a prima facie case on those allegations when provisional liquidators were appointed.  The provisional liquidators had issued a writ in the name of BF against Dr Chan and another director in March 2005, although the writ was not served.  The provisional liquidators had made a report to the court in August 2005 on the misfeasance allegations against Dr Chan, they have declined to provide a copy of it to Dr Chan’s solicitors without a court order after an order was made for the discharge of provisional liquidators.  A substantial part of the debit note in respect of BF concerns investigations of misfeasance against Dr Chan.  It is highly unsatisfactory that he should be allowed to take part in the process to determine the fees of provisional liquidators who had investigated the allegations against him, as he cannot be expected to be anything other than obstructive and would contend that much of work done was unnecessary.

(4) To allow the determination to be conducted in an inter partes hearing will lead to costly, cumbersome and adversarial inter partes taxation.  This would be unfair to the provisional liquidators.  They were appointed on terms set out in the orders in the expectation that their fees would be assessed in accordance with the general practice and with the minimum of delay and inconvenience.  The provisional liquidators are concerned that the companies may wish to make the process of determination difficult for them to put pressure on them to discount their fees.

19.  Ms Mckenna supported the position of the provisional liquidators for these reasons:

(1) If the application for determination of provisional liquidators’ fees is heard inter partes, this may introduce an element of uncertainty into the process.  Professionals should not be dissuaded from acting as provisional liquidators by reason of the uncertainty of their remuneration.

(2) It is not appropriate for a contributory of a company to take part in the taxation process, where the conduct of the contributory is the subject of investigation by the provisional liquidator.

20.  I do not find the above reasons, separately or cumulatively, sufficient to justify an order that the application to determine the provisional liquidators’ fees should be held without the presence of the companies concerned or their contributories.

21.  I agree with the Registrar that the court reserves the power to direct any interested person to take part in the hearing for taxation, if the demands of justice require it.  This too is accepted by Mr Harris.  I do not readily see why the proper fees of provisional liquidators should be treated as a matter only between the provisional liquidators and the court, to the exclusion of the party who would be ordered to pay such fees and would have an apparent interest in the outcome of the determination.  In a typical situation, because the company is wound up by the court, the company cannot be expected to take part in the determination of the provisional liquidators’ fees.  I am not concerned with a typical situation.  The companies are not the subject of any winding-up order.  The provisional liquidators had been discharged from their office in respect of each of the companies.  The management and control of these companies have been re-vested in the board of directors.  Each of the companies, acting by the board of the directors, has asked for an opportunity to be heard before an order is made on the proper fees of the provisional liquidators that should be paid by the company concerned.  I see no objection in principle why they should not be heard.

22.  Furthermore, as Mr Grossman pointed out, Dr Chan and Madam Law are not the only parties interested in the companies.  At the time of the appointment of provisional liquidators for Boldwin, only 60% of the shares was owned beneficially by Dr Chan and Madam Law combined.  As for BF, there is an outstanding loan agreement between BF and a company not connected with Dr Chan or Madam Law called Bomina Limited, under which 30% of the profits of BF would go to Bomina Limited.

23.  In the orders by consent on 10 March 2006, it was expressly provided that fees are to be taxed and allowed by the court, if not agreed by the company concerned.  Mr Grossman submitted it is implicit in these orders that the taxation process should be inter partes, otherwise it would be pointless to provide for the agreement of fees by the companies.  I am inclined to agree with this.

24.  Mr Grossman also sought to rely on rule 170 of the Companies (Winding-up) Rules, which provides that:

“Where a bill of costs or charges in any winding up has been lodged with the taxing officer, he shall give notice of an appointment to tax the same, in a winding up by the court to the Official Receiver, and in every winding up to the liquidator, and to the person to or by whom the bill or charges is or are to be paid (as the case may be).”

25.  I do not think it correct that this rule applies to a situation where no order for winding up is made on the petition.  The language of the provision is clear.  The rule deals with companies in liquidation, it has no application to any of the companies that I am concerned with.

26.  As for the objection taken on the basis that Dr Chan was the subject of investigation by the provisional liquidators and it would be inappropriate to allow him to take part in the determination of fees, the allegations of wrongdoing have been withdrawn as Dr Chan and Madam Law have settled their disputes.  The confidentiality of the investigation work against Dr Chan should not be an issue here.  And if Dr Chan should object to the reasonableness of work done merely or primarily because he was the subject of investigation, no doubt the taxing master would disregard any objection he considers unhelpful or without substance.  Similarly, if the companies should ask the provisional liquidators to provide information which is oppressive or unnecessary for the exercise of the determination of fees, the taxing master would not entertain such requests.

27.  I am not persuaded that the companies would have no or no sufficient knowledge of the nature of the work undertaken by the provisional liquidators so that they are in no position to make any meaningful objection except to ask for a reduction of their fees in vague terms.  Whether the requests of the companies for documents and information in addition to those already provided in accordance with the Procedural Guide are wholly justified is another matter.  It does not seem from the correspondence I have looked at that the companies have considered properly the information already made available to them when queries to the bills are raised, for the first time it seems, in Mr Grossman’s submissions.  This would be a matter for the taxing master.

28.  The inter partes procedure would add to expenses and the time taken to complete the exercise.  This is inevitable.  I do not think it is intrinsically unfair to the provisional liquidators.  Nor do I think if an order for an inter partes hearing is made, this may deter professionals from acting as provisional liquidators in future.  A balance has to be struck between the interests of provisional liquidators and the party ordered to pay their costs.  In this situation, I think the balance comes down in favour of the paying party.

29.  For the above reasons, I dismiss the appeal against the decision of the Registrar that the application for the determination of the provisional liquidators’ fees regarding Boldwin should be in the presence of the company concerned.  I also refuse the application sought in respect of the other 3 companies that the fees of the provisional liquidators should be determined in an ex parte hearing.

30.  The next matter relates to the interim payment made to the provisional liquidators pending the determination of their fees.

31.  Regarding Boldwin, the Registrar ordered 70% of the amount in the debit note of the provisional liquidators be paid to them as interim fees.  There is now no appeal against this part of his order.

32.  For the other 3 companies, the provisional liquidators seek an order that they be paid 70% of the amount of the debit note rendered for each company.  There is no opposition regarding the interim payment of MG and MP which is for $74,087.79 each.

33.  The only objection taken is the amount of interim payment sought for BF, which is in the region of $7 million.  The provisional liquidators have declined to offer a guarantee to repay the amount overpaid if the interim payment should exceed the proper fees allowed after taxation.

34.  In the exercise of my discretion, I would not require a guarantee from the provisional liquidators, but I would reduce the percentage of interim payment from 70% to 50%, to lessen the possibility of the provisional liquidators being required to repay any amount in excess of the fees allowed on assessment.

35.  The last matter is the order of the Registrar that the provisional liquidators should pay the costs of the hearing before him personally.

36.  Mr Harris says this order is inappropriate for these reasons.

37.  Paragraph 6 of the order by consent on 10 March 2006 provided that the Company shall indemnify the provisional liquidators and keep them indemnified on demand from and against all losses, liabilities, proceedings, claims, damages, costs and expenses incurred by them in performing their powers and duties pursuant to the previous orders and the order of 10 March 2006 in a proper and reasonable manner, provided that the indemnity shall not apply to any losses, liabilities, proceedings, claims, damages, costs and expenses incurred by reason of the negligence of the provisional liquidators.

38.  This provision would seem to reflect the position at law that liquidators rarely incur personal liability for their costs.  Such an order would only be made if the court considers the liquidator personally blameworthy in some way so as to deprive him of the right of relief against the assets of the company (Palmer’s Company Law, paragraphs 15.696 and 15.696.1).  I do not think the present situation is a case of that kind.  So I will set aside paragraph 3 of the order of the Registrar on 7 July 2006.  To that limited extent, the appeal from the order of the Registrar dated 7 July 2006 is allowed.

39.  For the costs of the hearing before the Registrar and of the hearing before me, I order the provisional liquidators’ costs and the costs of the Official Receiver be paid out of the assets of the companies.