MA PO CHIM, PERCY AND OTHERS v. LEE TUNG HAI, LEO AND OTHERS

CACV 160/2007 & CACV 161/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 160 AND 161 OF 2007

(ON APPEAL FROM HCMP NO. 3253 OF 2004)

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D E C I S I O N

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1.  CACV 160 of 2007 is the 3^rd respondent’s appeal from the order of Reyes J of 4 April 2007.

2.  CACV 161 of 2007 is the 3^rd respondent’s appeal against Kwan J’s order of 24 May 2006.

3.  Leave to appeal out of time was given in both appeals by Le Pichon JA on 4 June 2007.

4.  Under Reyes J’s order of 4 April 2007, the 3^rd respondent was required to make full payment, within 21 days of the order, of Horwath Corporate Advisory Services Limited’s costs (“Horwath”) as taxed and allowed by the court pursuant to 4 allocaturs all dated 22 February 2007.  The amount of the 4 allocaturs is HK$4,108,096.30.  The 3^rd respondent was also ordered to pay into court a further sum of $1 million on account of and security for Horwath’s costs.

5.  There was also liberty to levy execution against the 3^rd respondent’s assets in respect of such costs.

6.  The 3^rd respondent’s application for a stay pending appeal was dismissed by Chung J on 13 June 2007.  His reasons were handed down on 20 June 2007.

7.  On 15 June 2007 the 3^rd respondent applied to this court for a stay pending appeal and Le Pichon JA ordered an interim stay pending the hearing of this application before me.

8.  This is not an appeal from Chung J, however, I find his reasons for refusing a stay helpful.  As Chung J has explained in his reasons, the sole basis of this application is that these appeals are almost bound to succeed.

9.  A little background may be helpful.

10.  This was a section 168A petition brought by 10 members of the 3^rd respondent in a dispute over the conduct of the affairs of the Association.

11.  Initially, there were 3 respondents.  The 1^st respondent was the chairman of the 3^rd respondent, and the 2^nd respondent the company secretary, the 3^rd respondent was the Association.

12.  On 7 November 2005, at the trial of the petition, the petitioners and the 1^st and 2^nd respondents compromised their dispute and as a result, a consent order was made by Kwan J.

13.  The consent order provided as follows:

“(1) An extraordinary general meeting and/or annual general meeting is to be held on 18 February 2006 at the office of the 3^rd respondent at 5:30 p.m. with the following agenda and not otherwise:

(i)    election and appointment of the 18^th term directors of the 3^rd respondent;

(ii)   approval of provision for legal expenses in these proceedings;

(iii)  confirmation and ratification of all actions taken by the board of directors of the 17^th term as de facto board of directors of the 3^rd respondent during the period between 1 January 2004 and 18 February 2006;

(iv)  considering and approving the financial statements of the 3^rd respondent of 2003/2004 and 2004/2005 respectively; and

(v)   appointment of auditors of the 3^rd respondent.

(2)  For the purpose of giving effect to and/or for the preparation of convening the above meeting, a Preparatory Working Committee shall be formed consisting of 12 individuals as named, they included 4 of the petitioners in these proceedings and the 2^nd respondent.  A convenor and a deputy convenor were appointed.

(3)  The Preparatory Working Committee shall within 2 months from the date of the Order:

(i)    verify the register of members of the 3^rd respondent;

(ii)   prepare a list of candidates in accordance with the provisions of the Articles of Association for election of directors; and

(iii)  convene the extraordinary general meeting and/or annual general meeting by giving notice of the same with accompanied voting tickets.

(4)  Save as aforesaid, no further order be made on the reliefs sought in the amended petition.

(5)  The question of costs be adjourned sine die.

(6)  There will be liberty to apply.”

14.  However, on 7 February 2006, 3 other members of the 3^rd respondent applied by summons for leave to have themselves joined as the 4^th, 5^th and 6^th respondents to the petition, and they also applied for:

“(2)   one of 2 named certified public accountant practices or any other independent party as the court shall think fit be appointed to replace the Preparatory Working Committee to carry out the functions of the Preparatory Working Committee in paragraph (3) of the Order; and

(3)     the extraordinary general meeting and/or annual general meeting of the 3^rd respondent fixed to be held on 18 February 2006 at 5:30 p.m. be adjourned or cancelled pending the determination of this application or until further order of the court.”

15.  As a result of that application, by order made on 17 February 2006, the 4^th, 5^th and 6^th respondents were added as parties to the petition.  And Horwath was appointed to carry out the functions of the Preparatory Working Committee under para. 3 of the order of 7 November 2005.

16.  In Kwan J’s decision of 17 February 2006, she gave as one of the reasons for the appointment of Horwath that:

“7(1) The members of the Preparatory Working Committee have not been able to contain their differences.  There were serious confrontations.  Some did not participate actively in the work of the Committee.  Both the convenor and the deputy convenor have resigned.  There is considerable mistrust between a faction of the Preparatory Working Committee and a large number of members in Section 2 of the Association (84 in number) who supported this application.”

17.  She also said:

“7(3) It has been raised by two members of the Preparatory Working Committee, the 2^nd respondent and Cheng Hon Shing, at the discussion in January 2006 that there was a discrepancy of about 600 members.  They suggested appointing independent third party professionals to verify the register of members in view of this large number of discrepancies.  It seems prudent to appoint independent professionals, as the work involved in this exercise may well be considerable.  This is a matter that should be resolved before the extraordinary general meeting/annual general meeting. …”

18.  On 28 April 2006, Horwath applied by summons which was supported by an affirmation of Mr Jackson Ip filed on 28 April 2006.  In para. 12 he said:

“12.   As anticipated by the Honourable Madam Justice Kwan in her Decision dated 17^th February 2006, Horwath has encountered various difficulties in the course of carrying out the Functions, in particular the exercise of verifying the Register of Members. …”

19.  That was then followed by several pages dealing with the various difficulties that Horwath had encountered.

20.  In the 2^nd affirmation of Mr Jackson Ip filed on 18 May 2006, he stated that his professional fees and expenses up to 30 April 2006 was HK$1,616,068 which was made up of:

“The time costs of HK$1,616,068 comprises:

(1)     HK$1,035,162 for 3 general tasks anticipated in the engagement letter but with a wider scope of work in respect of the task of verifying the register of members or the Association; and

(2)     HK$580,906 for extra work undertaken.”

21.  On 24 May 2006, Kwan J made the order which is the subject of the 3^rd respondent’s appeal in CACV 161 of 2007.

22.  Para. 10 of that order is relevant:

“10.   The costs, charges and expenses of Horwath for carrying out the functions in paragraph 2 of the Order dated 17^th  February 2006 and the functions in the aforesaid provisions of this Order, be taxed by a Master of the High Court on a trustee basis and be paid by the Association;”

23.  This is the subject of several objections.  First, that this ignored the capping of fees under the engagement letter, in relation to the 3 general tasks identified in para. (3) of the consent order of 7 November 2005 (“the 3 general tasks”).  Secondly, that the costs should have been taxed on a common fund basis instead of on a trustee basis.  Thirdly, that the order was made without giving the 3^rd respondent an opportunity to be heard.

24.  This morning, Mr Kenneth Chan, who appears on behalf of the 3^rd respondent, raised a new argument namely that Horwath’s right to remuneration was contractual and as such they should sue for their fees in contract.  It is said that the contract was made at the latest on 27 March 2006 when HK$200,000 was paid by the 3^rd respondent.  It is submitted that that being the case, the court should not have made the order for taxation at all.  However, Mr Chan said that he would not go so far as to say that Kwan J had no jurisdiction to make the made order.  Mr Chan said that the 3^rd respondent is entitled to amend the Notice of Appeal by raising this point.

25.  I will proceed on the basis that this point is available to the 3^rd respondent.  I am also prepared to proceed on the basis that this point may succeed on appeal.

26.  The order of Reyes J, the subject matter of CACV 160 of 2007 was made as a result of the application of Horwath made on 22 March 2007 which was supported by the 5^th affirmation of Mr Jackson Ip dated 22 March 2007.  Basically, Mr Jackson Ip’s complaint was that notwithstanding the allocaturs, no payment had been received apart from the interim payments in the sum of HK$500,000 which had been previously made.

27.  Reyes J also ordered that the costs of that application be taxed on a trustee basis.  The same objections were taken to Reyes J’s order.

28.  Mr Kenneth Chan accepted that a mere arguable appeal is insufficient for his purpose.  He submitted, however, that the 3^rd respondent could demonstrate that the appeal was almost bound to succeed, and that would be the basis for a stay.

29.  He accepted and I would add that even so, it remains a matter of discretion whether a stay of execution should be granted.

30.  In my opinion, the court should be slow to encourage applications for a stay of execution based on the submission that the appeal is in the opinion of the appellant almost bound to succeed.  The time and costs involved in such an exercise would be a wasteful use of resources.  Since ex hypothesi, refusal of a stay would not result in any prejudice to the appellant, I see little advantage in encouraging such applications.

31.  In this case, there is no suggestion that the 3^rd respondent is unable to pay or that payment would cause the 3^rd respondent any hardship.  Nor is there any suggestion that when paid, there is any risk that Horwath would not be in a position to repay.

32.  In such circumstances, in the exercise of my discretion, I would not grant a stay unless it is absolutely clear that the appeal is bound to succeed.

33.  Here, a firm of public accountants have been appointed by the court because of serious differences between warring factions in order to resolve a deadlock.  The court must be careful to ensure that the deep seated animosity within the Association should not spread to and embroil the public accountant.  For that purpose the court must take a common sense view of the matter.

34.  Chung J has dealt fully with each of the submissions relied on by the applicant, with the exception of the new argument which was raised before me.  I agree with Chung J and do not propose to repeat those reasons.

35.  Sufficient it is for me to say, that I am far from satisfied that the appeals are bound to succeed.

36.  Mr Scott SC, who appeared for Horwath, has, in his well-prepared skeleton submissions, pointed out that the difference between a common fund taxation and a trustee taxation is likely to be small.  Nor am I satisfied that it was not within the learned judge’s discretion to order costs on a trustee basis.

37.  Looking at section 168A of the Companies Ordinance, the court has wide power under that section to make such orders as it sees fit.  Mr Chan made no submissions on the ambit of Kwan J’s power under section 168A and whether that would have entitled her to make the order which she did.

38.  As for capping the fees at HK$400,000, I believe, it is arguable that it was not binding or that it had been overtaken by Kwan J’s  order.  And more importantly, I am not satisfied that it is an argument on which the 3^rd respondent is bound to succeed, either standing on its own or when taken together with other submissions.

39.  As for the argument that the 3^rd respondent had no opportunity to be heard, I wish only to add to what Chung J has already said that as a result of the appointment of Horwath, it was possible for a proper meeting of the 3^rd respondent to be held and officers elected.  The appointment was obviously in the interest of and for the benefit for the 3^rd respondent.  I think such an order would have been made, with or without the benefit of hearing the 3^rd respondent, with costs to be borne initially by the 3^rd respondent.  The 3^rd respondent may have a claim for an indemnity against other persons in respect of such costs.  That is not a matter that I need to address today.

40.  As for the new argument, as I have said I am prepared to proceed on the basis that the argument is open to the 3^rd respondent, and that it is an argument which may succeed.  But I am not satisfied that it is an argument which is almost bound to succeed.  Far from it, in fact, but in any event, as I have said, in my discretion, I would not grant a stay on this basis in the circumstances of this case.

41.  As I have said, It is a matter of discretion.  I would exercise my discretion against a stay in the circumstances of this case.

42.  Therefore I would dismiss this application.