RE WING FAI CONSTRUCTION CO LTD

HCCW 735/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 735 OF 2002

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D E C I S I O N

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1. This is an appeal from an order made by Master Woolley dated 17 February 2004 as to the costs of an examination conducted under s. 221 of the Companies Ordinance, Cap. 32.

2. I will first give the relevant background matters.

3. On 6 July 2002, provisional liquidators were appointed for Wing Fai Construction Company Limited ("the Company"). The Company was ordered to be wound up on 9 December 2002 and liquidators were appointed by the court on 28 February 2003.

4. As early as 2 August 2002, the provisional liquidators had written to three former directors of the Company, Yip Kwong Robert, Cheng Kit Yin Kelly and Kam Shing, requiring each to attend an interview to assist the provisional liquidators in their investigation of the affairs of the Company.

5. Cheng and Yip declined to do so on 6 August 2002. The provisional liquidators informed these individuals by letter the next day that they would apply for an examination under section 221 and seek costs against them.

6. On 12 August 2002, the solicitors for Cheng and Yip (who also acted for Kam subsequently) suggested that written answers be provided to a questionnaire in lieu of an interview. This was turned down by the provisional liquidators.

7. On 27 August 2002, the provisional liquidators supplied to the solicitors for the former directors a list of questions they intended to ask at the interviews and proposed dates for the interviews on 3 and 4 September 2002. No response was received from the solicitors until after the proposed dates had lapsed. Eventually, the solicitors agreed with the provisional liquidators for the former directors to attend interviews on 7 and 8 October 2002.

8. Only Cheng attended the interview on 7 October 2002. Kam did not attend, citing ill health. He also failed to attend on the alternative date on 11 October 2002, and sent a message that he was not in Hong Kong. Yip's interview was postponed by agreement to 11 October 2002 but he did not attend and no notification was given for his absence.

9. On 15 October 2002, the provisional liquidators wrote to the solicitors for Yip and Kam stating that if there was no confirmation these persons would attend interviews, they would apply under section 221.

10. On 3 March 2003, a summons was issued by the liquidators against all three for examination under section 221 and production of documents relating to the Company.

11. An order for an examination was made by Deputy Judge To on 25 March 2003. He also ordered costs of and occasioned by that application to be paid by the three persons to the liquidators.

12. The examination took place before Master Woolley on 4 July 2003 and on 30 July 2003, it was adjourned part-heard to dates to be fixed and costs were reserved. Only the examination of Cheng was completed.

13. On 15 January 2004, the former directors issued a summons to stay the execution of the examination order before the examination was to resume before the Master on 16 and 17 February 2004, on the basis that because of litigation since commenced by the liquidators in which the former directors would be material witnesses, it would be oppressive for the examination to be continued. On 9 February 2004, Deputy Judge To made these orders on certain undertakings given by the liquidators to restrict the scope of the examination:

(1) the summons for stay be dismissed;

(2) the examination of Yip and Kam was to resume on 16 February 2004;

(3) the examination of Cheng should not proceed; and

(4) the costs of the application for stay be reserved until after reasons for decision in the application have been handed down.

14. On 16 February 2004, the examination resumed before Master Woolley and at the conclusion of the examination on 17 February 2004, he made these orders as to costs:

(1) the legal costs of the examination including the previous hearing carried out pursuant to the Order of Deputy Judge To dated 25 March 2003 be paid by Kam and Yip jointly and severally to the liquidators, to be taxed if not agreed; and

(2) no order as to costs in respect of the examination of Cheng carried out pursuant to the said Order of Deputy Judge To.

15. Kam and Yip have appealed against that order. They contended there should be no order as to the costs of their examination.

16. Mr Maurellet, who appeared for the liquidators, referred me to the following passage in Hong Kong Civil Procedure 2004, Volume 1, paragraph 58/1/6 as to the principle the court should apply in an appeal on costs from a master:

"In general, a judge in chambers will not allow an appeal from a master's costs order unless it is unreasonable or the master erred in law: Hoddle v. CCF Construction [1992] 2 All ER 550 Morland J; see also Lessy S.A.R.L. v. Pacific Star Development Limited and Another [1997] HKLRD 1248; China Venturetechno International Company Limited v. New Century Chain Development Company Limited (trading as Century Chain Property Agency) [1996] 2 HKLR 18; see also Paul Y - ITC Construction Limited v. Kin Shing Company Limited [1999] 1HKC 511 at 515 per Sakhrani J: 'as this is an appeal as to costs only from the discretion of the master, such application should not be allowed unless it can be shown that the order made by the master was unreasonable or erred in law, i.e. if he either failed to take into account proper matters or took into account matters that should not have been taken into account.'"

17. Mr Smith, SC, who appeared for the appellants, has not submitted that these principles are incorrect. So it is for him to show that the costs order of the Master was unreasonable or that the Master had erred in law in that he had failed to take into account proper matters or had taken into account irrelevant matters.

18. As I understand his submission, Mr Smith has not contended that the court has no power to order costs of the examination to be borne by an examinee. I was referred to my previous decision in Re Weihong Petroleum Company Limited, HCCW No. 19 of 1998, 11 February 2003. I stand by the ruling there that the court does have jurisdiction to award costs in this situation, notwithstanding there is no provision in our legislation equivalent to Rule 9.6(1) of the Insolvency Rules 1986 in the United Kingdom. The jurisdiction to award costs in proceedings for examination is founded on section 52A(1) of the High Court Ordinance, Cap. 4, which applies to this situation by virtue of Rule 210 of the Companies (Winding-up) Rules. I have noted section 52A(2) which provides that: "Subject to specific provision made in this or any other Ordinance (other than subsidiary legislation) nothing in subsection (1) shall authorize an award of costs against a person who is not a party to the relevant proceedings." It cannot be disputed that the court has jurisdiction to award costs in an application for an order under section 221 against a person sought to be examined under that provision and who has opposed the application unsuccessfully. The examination conducted pursuant to the order made merely flows from the application to examine the person concerned. It is part and parcel of the same proceedings. I note also in the interpretation provision in section 2 of Cap. 4 that "party" is defined to include "every person served with notice of or attending any proceeding, although not named on the record".

19. Here, I am concerned with whether the Master has rightly exercised his discretion in making the costs order.

20. Mr Smith prayed in aid the dictum of Hoffmann J (as he then was) in In re Aveling Barford Limited [1989] 1 WLR 360 at 366F, in which he said that an order under section 236 of the Insolvency Act 1986, which is equivalent to our section 221, would seem to have "stronger analogies with a subpoena duces tecum or ad testificandum", by which a citizen is required to perform a public duty in aid of the administration of justice, than with a Norwich Pharmacal order or Mareva injunction affecting a third party at the instance of a private litigant. From that dictum, Mr Smith argued that the court does not ordinarily order costs against witnesses, or against a person not a party to the proceedings. He also referred to the Hong Kong Civil Procedure, Volume 1, paragraph 62/2/5 in which section 52A(1) of Cap. 4 was cited.

21. The dictum in In re Aveling Barford, which was to the effect whether an order under section 236 of the UK Act has closer analogy with a subpoena or with other forms of order, was said in the context whether it should be presumed that a respondent in proceedings under section 236 is entitled to be indemnified against his costs of complying with the order. I do not think anything more should be read into it.

22. Mr Smith also referred me to the commentaries in Muir Hunter on Personal Insolvency at paragraph 7-1203, Butterworths's Annotated Ordinances of Hong Kong (Cap. 32), paragraph 221.15 and Hong Kong Company Law by Tomasic & Tyler at paragraph [10555-10575], to make the point that Rule 9.6(1) was introduced into the insolvency legislation in the UK as a new provision. He suggested that this showed it was not the usual or general practice to award costs of the examination against a person who had failed to co-operate and thus rendered it necessary for an examination order to be sought.

23. I am unable to regard that as a matter of great weight. I am uncertainly not prepared to draw any inference as to whether that was the general practice as to costs in the examination proceedings in the UK or in Hong Kong as contended by Mr Smith. What matters is that the court has an undoubted discretion to award costs in this situation, and provided that the discretion is exercised judicially according to rules of reason and justice, whether this conforms with the general practice is, in my view, a matter of secondary consideration.

24. Next, Mr Smith submitted that if any order as to costs of the examination should be made, it should be made by the tribunal seized with the application for an examination order, as envisaged in Rule 9.6(1) of the Insolvency Rules. I do not think there should be any hard and fast rule when such an order should be made, whether at the conclusion of the hearing of the application for an examination order, or at the conclusion of the examination itself. Even if an application for the costs of an examination is made to the judge when the order for examination is made, the judge may wish to reserve this to the tribunal hearing the examination. It would all depend on the circumstance of each case. In the present case, I do not think Master Woolley was disadvantaged in any way in dealing with the submissions made to him regarding costs, as the history of the matter was set out clearly and extensively in the correspondence placed before him.

25. Mr Smith then submitted that the Master had taken matters he should not have taken into account. This is a variant of the point he has made earlier. The decision to award costs against the appellants was not based on anything that occurred in the course of the examination but was based on the appellants' conduct in failing to attend interviews with the liquidators which led to their application for an examination order. Mr Smith submitted that such conduct was a matter for the judge who heard the application for an order to examine the appellants, and Deputy Judge To in his order dated 25 March 2003 had already ordered the costs of and occasioned by the application to be paid by the examinees to the liquidators.

26. I fail to see why the appellants' conduct, which necessitated the examination proceedings, was an irrelevant matter when the court came to consider the costs in respect of the examination. The liquidators had to come to court to obtain an order for examination, because of the failure of the appellants to co-operate and attend interviews on a voluntary basis. I have already set out the events leading to the application for the examination order. Only the legal costs incurred in respect of the examination were awarded against the appellants. The liquidators did not seek their own costs and expenses, which would have to be incurred even if the appellants had co-operated, and that would be met out of the assets of the estate.

27. Mr Smith also argued that the Master had taken irrelevant matters into account in that Mr Maurellet, who also appeared before the Master, had taken the Master to correspondence that had to do with the undertaking eventually provided by the liquidators when Deputy Judge To dealt with the stay application. I have read the transcript of the proceedings before the Master, and noted that Mr Smith had submitted that such correspondence was irrelevant to the application before him. From the reasons given by the Master for his decision, it did not appear he had taken into account the correspondence relating to the undertaking.

28. Lastly, Mr Smith submitted that why the liquidators were required to have their own lawyers at the examination of the appellants in February 2004 was because of the undertaking given by the liquidators as a result of the stay application in January 2004, not because of the appellants' failure to attend interviews on a voluntary basis, as otherwise the liquidators could have conducted the examination without counsel. I do not think I should conjecture if the liquidators could or could not have done the examination on their own if they had not given the undertaking. The fact remains that they had to obtain a court order for an examination, and it is not unusual or improper for liquidators to instruct counsel to conduct an examination in court on their behalf.

29. For the above reasons, I dismiss the appeal with costs. I make a gross sum order in respect of the liquidators' costs in this appeal, and I have assessed their costs at HK$31,500.