RE GTI HOLDINGS LTD

HCCW 51/2020

[2022] HKCFI 3430

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 51 OF 2020

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HCMP 1556/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1556 OF 2020

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D E C I S I O N[1]

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1.  By Summons dated 10 May 2022, the JOLs apply for leave to appeal against §(1) of the costs order made by this Court on 26 April 2022 (“Costs Order”) and seek an order that “the Applicants’ costs of and occasioned by this appeal and below be paid out from the assets of the Company”.

2.  The order made on 26 April 2022 is in the following terms:

“(1) The remuneration of the [JOLs], and costs of and occasioned by the [Application] be paid by the [JOLs] personally, and the [JOLs] are not entitled to recover such costs and remuneration from the assets of the Company; and

(2) The costs of the OR including the costs of the hearing in the sum of HK$29,000 be paid by the JOLs forthwith.”

3.  The principles governing an application for leave to appeal against a costs order are well-established:

(1)  Leave to appeal will not be granted unless the court is satisfied that the intended appeal has a “reasonable prospect of success”.  That means a prospect that is more than “fanciful” but without having to be “probable”.   

(2)  The Court of Appeal will not interfere with the exercise of a judge’s discretion in the award of costs unless it is shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially.  An appeal against the exercise of discretion will not be entertained unless it is shown that the discretion was not exercised at all, or that the judge made some error of law or facts or that the decision was “plainly wrong” or was “outside the generous ambit within which a reasonable disagreement is possible” (Waddington Ltd v Chan Chun Hoo Thomas & ors, HCMP 1326/2017, 18 October 2017, §§3-4, per Kwan JA (as she then was)). 

4.  Mr William Wong SC (leading Mr Look Chan Ho) cites Excellent Investment (Group) Ltd (in liq) v Sin Yuk Ling, HCMP 292/2017, 28 March 2017, §7, in support of his contention that where the costs order is made against the liquidators who are non-party, there is an element of public interest in that liquidators should be able to perform their duties without being exposed to personal liability for costs.  I do not think that the principle applies to the JOLs as they are the party who made the Application.   

5.  The ground of appeal, as stated in the original draft Notice of Appeal appended to the Summons (“1^st NOA”), is that in making the Costs Order, this Court “erred in principle and as a matter of law in holding that the [JOLs] are not entitled to recover their costs and remuneration from the assets of the Company” in view of the following circumstances: (1) the JOLs had not proceeded with the Application; (2) the JOLs were properly appointed by the Cayman court and acted “reasonably” in seeking the court’s direction in respect of the Application; and (3) there was no abuse of process.

6.  At the hearing of the Summons on 25 May 2022, Mr Ho was asked to identify the basis for contending that the Costs Order was wrong in principle and law in view of:

(1)  the JOLs’ stated position on costs and remuneration in CL’s letter dated 14 April 2022 (§13 below), Lai 3^rd (§14 below), Mr Ho’s Note (§16 below) and his submissions at the hearing on 26 April 2022 (§17 below); and

(2)  the fact that there was no opposition to or submission on why the court should not make the Costs Order. 

7.  As far as I understand his submissions, Mr Ho made 3 points in support of the JOLs’ application for leave to appeal:

(1)  Notwithstanding the statement in §15 of Lai 3^rd and his Note, in fact, it had always been the intention of the JOLs that they would recoup their own costs and remuneration from the estate of the Company;

(2)  Mr Ho did not resist the Costs Order because the JOLs had not given any instructions for him to do so at the hearing on 26 April 2022; and 

(3)  The JOLs relied on the same evidence and submissions adduced at the hearing on 26 April 2022 in contending that the court erred in making the Costs Order.

8.  After the Decision was handed down, on 19 August 2022, this Court gave leave to the JOLs to file further evidence/submissions if they still want to pursue the Summons. On 29 August 2022, the JOLs are reminded that the evidence shall comply with the conditions stipulated in Ladd v Marshall. 

9.  On 9 September 2022, the JOLs lodged a new NOA which runs to 28 pages including an Annex[2] (“2^nd NOA”) challenging all findings and holdings in the Decision insofar as they are contrary to their views. 

10.  The 2^nd NOA falls foul of the requirement of a notice of appeal.  As stated by Lam VP (as he then was) in China Gold Finance Ltd v CIL Holdings Ltd & ors, CACV 11/2015, 27 November 2015, §§25-29, notice of appeal should be “a concise document setting out clearly and succinctly why the Court of Appeal should intervene with the judgment of the judge”, and “[i]t is an abuse to canvass submissions at length in a notice of appeal.  Such a practice proliferates unhelpful arguments and escalates the costs of the process.  It also causes wastage in judicial resources which should be more fruitfully utilised for other purposes.”

11.  Nevertheless, I shall consider the broad grounds set out in Mr Wong’s Skeleton and the 2^nd NOA. 

Ground 2: JOLs never agreed not to recoup their costs and remuneration

12.  Mr Wong contends that “the JOLs never voluntarily agreed that they could not recoup their costs and remuneration from the assets of the Company”.  The contention is surprising. Prior to reading the Summons and the 1^st NOA, this Court was under the impression that the JOLs would not seek to recover the costs of and occasioned by the Application and their remuneration from the assets of the Company, in light of the following representations made by the JOLs, CL and Mr Ho to the court.

13.  First, in their letter dated 14 April 2022, CL informed the court that the JOLs abandoned the Application because the Investor had “decided not to fund the Application due to commercial concerns”.  In the same letter (in the context of answering the 3^rd question), CL stated that “Since the JOL’s costs of and occasioned by the Application are to be recovered from the investor”, the JOLs invited the court “to make no order as to costs for the Application” (Decision §25).

14.  Second, in §15 of Lai 3^rd filed for the purpose of the hearing on 26 April 2022, the JOLs said this:

“With regard to the issue of costs, the JOLs (as the applicants withdrawing the [Application] agree to bear all the costs of and occasioned by the Application in any event. Further, if this Honourable court considers it appropriate for the JOLs to pay the [OR’s] costs, the JOLs agree to forthwith pay all the costs of and occasioned by the Application to the [OR], to be taxed if not agreed.” (underlined added)

15.  The reference to the JOLs agreeing to “bear all the costs of and occasioned by the Application in any event” was intended to convey to the reader that the JOLs would not seek to recover their own costs and remuneration occasioned by the Application.  This is reinforced by the next sentence, which deals with the costs of the other party to the Application, that is, the OR. 

16.  Third, in Mr Ho’s 2-page Note lodged for the purpose of the hearing on 26 April 2022, the JOLs “confirm” that they “agree to bear all the costs of and occasioned by the Application in any event (including any costs of the [OR])”.

17.  Fourth, at the hearing on 26 April 2022, in response to this Court’s concern that if the JOLs were granted the powers sought in the Application, they would be able to use the Company’s assets to pay their costs and remuneration without being bound by the statutory scheme under CWUO, Mr Ho submitted that the JOLs’ costs and remuneration had since 2020 been funded by the Investor, and that they would not have recourse to the assets of the Company:

“COURT:  But this -- then the JOL will be waving and using this order and say, “Well, I have the right to use the assets of the company to pay my own remuneration and expenses...”

  MR HO:  That was not the intention.

  COURT:  ‘...because I obtained the sanction from the Cayman court’.  Never mind that in Hong Kong you actually need taxation there are actually rules governing priority of payment.  You can then wave this order and say, ‘Well, I stand above the Hong Kong law because I were appointed by the place of incorporation and I got the sanction from the Cayman court.  I can do what I want with the asset and to pay myself’.

  MR HO:  Well, that is...

  COURT:  That is the reason why your client wants to get this order.

  MR HO:  That clearly was not the intention.  The intention was in fact...

  COURT:  But that is the effect, right?

  MR HO:  Of course, if there were questions to be asked later, even assuming this order was granted, if there were future questions about having any discrepancies sorted out that of course would need to be sorted out, for example, getting a further order from the court.

  COURT:  Well, it’s not necessary.  I think you were at pains to emphasise that well, if they were agents appointed by the Cayman court they got the sanction.   That’s all they need.

  MR HO:  No, no, sorry, I...

  COURT:  They can help themselves with the assets of the company, never mind what the winding up rules said.

  MR HO:  I was not going to...

  COURT:  And Cap 32 said about priority.  Well, that must be the effect because they were never appointed as liquidators of this company, therefore they would be saying they are not bound by the statutory scheme in Hong Kong and they can continue to make ex parte application to the Cayman court for sanction which will readily be granted without even looking at the evidence.

  MR HO:  I do not believe that was the intention.  Certainly I am not aware of any such intention.

  COURT:  Well, that is what the affirmation said without even considering the evidence the application the order was granted.

  MR HO:  If I may go back to the sole intention behind the application which was to progress the scheme, there was no attempt to do other things unrelated to the restructuring, the scheme.

  COURT:  But then there is no mechanism to ensure that they cannot.   

  …

  MR HO:  Well, the thinking behind there was no inconsistency with the Hong Kong regime.  It’s that the cost incurred -- if the court grants, if the court allows the liquidators to progress the scheme the costs would be incurred.  So therefore, it does not matter whether it is the foreign office-holders who are running a scheme or whether it is the Hong Kong liquidators running a scheme, the same costs would be incurred, so therefore, it would be proper for the same costs to be paid.

  The issue of gathering assets and so on that is simply to ensure that there is a way to collect the assets, if any.  But in this case I think the evidence is clear, in fact, there wouldn’t be assets in Hong Kong.  Everything -- if anything -- if the scheme can proceed everything is actually funded from only one source which is the investor.  So to the extent that the court is concerned about inconsistency between the regimes of our assets in Hong Kong that is unlikely to have any practical consequences because everything is actually funded by the investors.

  COURT:  So it is not limited to the funding provided by the investors.  It was stated in terms that they had the power to collect assets of the company and to use the assets to pay the remuneration and expenses.  There was no such limit as you suggested.

  MR HO:  No, I do accept on the face of it that there is not such a reference to investors’ funding.  To some extent the wording in the order or draft order is to reflect the usual order and the express departure was to cut down all those powers that the liquidators clearly do not want to exercise, despite the Cayman letter of request. 

  COURT:  Right, I think in the affirmation there was reference to 30 millions of fund provided by the investors had already been used.  Now, presumably that 37 million was applied to pay the remuneration of the Cayman liquidators and the professional fee in connection with the preparation of the scheme, is that correct?

  MR HO:  Let me just double check.  So that as your Ladyship knows, this Cayman proceedings the JPLs started back in 2020, so the investors’ funding was to fund the whole operation since 2020, the business operation and all the advisers in Cayman, in Hong Kong, working capital for the business.

  COURT:  So it’s not just the professional fee...

  MR HO:  No, no, of course.”[3] (underlined added)

18.  Fifth, when the question of the JOLs’ costs and remuneration was canvassed at the hearing, the JOLs did not make any submission on, let alone oppose, the Costs Order.  This can be seen from the following exchanges:

“COURT: To be paid by the Cayman liquidators. So I make an order that the costs of the Official Receiver in the amount of $29,000, including the costs of today’s hearing to be paid by the Cayman liquidators to the Official Receiver forthwith.

In terms of the costs of the application do you require a formal order? I think it’s better that we make a formal order.

MR HO: No, because I believe the technical position is that no application has been issued so no order is needed.

COURT: No, but costs has been incurred in terms of the preparation of the application.

MR HO: Those are the...

COURT: So it’s either in the form of a court order or an undertaking from the liquidators and [their] legal [advisors] that they shall bear all the costs of and occasioned by the application. It can be in the form of an undertaking or an order made by the court, but I think the position ought to be put clear. So is there any preference in terms of the formal order?

MR HO: My Lady, can I just double check the order in respect of the Official Receiver of course it should be in the form of an order.

COURT: Yes.

MR HO: And as regards the liquidator’s own costs that does not need to be in the form of an order because the liquidators as applicants, as in the usual way they have [withdrawn] the application then they of course pay their own costs.

COURT: But the usual rule under the Rules of High Court is that for persons acting in the representative capacity unless the court otherwise orders they are entitled to look to the estate to pay themselves. That’s why you either require an undertaking or an express order of the court to displace that entitlement.

MR HO: I see, so I see what your Ladyship...

COURT: Yes.

MR HO: ...so your Ladyship says the liquidators paid their costs and they cannot recoup from the estate.

COURT: I want either an order or an undertaking from the liquidators themselves that the costs of and occasioned by the application will be paid by the Cayman liquidators personally and then they would not seek to recover such costs from the assets of the company.

MR HO: Then we are in the court’s hands. If the court sees fit to make such an order then of course we would have such an order that says what your Ladyship just said.

COURT: It’s up to your client. You can either give an undertaking in which case it would not be necessary for the court to make such a costs order. Let me read the wording that I have in mind that to you, it’s the remuneration and the costs of and occasioned by the application be paid by the Cayman liquidators personally and they will not seek to recover such remuneration and costs from the assets of the company.

MR HO: If that is the court’s view my instruction is that it will be proper for that to be recorded in the form of an order...

COURT: All right.

MR HO: ...because Mr Lai is only one of the liquidators. He is not able to give such undertaking without consulting the others.

COURT: I see, so I’ll make such an order as I -- anyway, the order says the remuneration of the Cayman liquidators and the costs of and occasioned by the application be paid by the Cayman liquidators personally and they are not entitled to recover such remuneration and costs from the assets of the company. It will be in the form of order.

The separate order is that the costs of the Official Receiver in the amount of $29,000, including the costs of the hearing, to be paid by the Cayman liquidators to the Official Receiver forthwith. Thank you.”[4] (underlined added)

19.  It is a matter of grave concern that the JOLs made the aforesaid representations when in fact they intended to do precisely what they said they would not do. But for the fact that this Court was aware of the wordings of Order 62 rule 6(2) and made the Costs Order to put the position clear, the JOLs would have been able to have recourse against the assets of the Company to pay their own costs and remuneration.

20.  Having made the aforesaid representations, which led this Court into believing that the JOLs would not seek to recover their costs and remuneration from the assets of the Company, I do not think that the JOLs should be allowed to change their stance and contend that the court “erred in seemingly concluded that the [JOLs] voluntarily accepted that they would not be entitled to recover their costs and remuneration from the assets of the Company” (2^nd NOA §2). 

21.  In any event, having regard to the facts and matters set out in §§13 - 18 above, it is difficult to see how the JOLs can contend that the Costs Order was “plainly wrong” or was “outside the generous ambit within which a reasonable disagreement is possible”. 

22.  The other grounds set out in the 2^nd NOA all concern the findings and holdings on the conduct of the JOLs and their legal representatives in pursuing the Application.  They are not matters which render the Costs Order to be “plainly wrong”.  I will deal with the grounds briefly.

Ground 1.5: Alleged breach of natural justice

Ground 10: Breach of duty of full and frank disclosure

23.  Mr Wong contends that in holding that the JOLs deliberately committed breaches of duty of full and frank disclosure when they made the Application on an ex parte basis, there was “a breach of natural justice and a failure to ensure procedural fairness in that it deprived the JOLs of the opportunity to address the Court and make representations with a view to demonstrating to the Court that they committed no misrepresentation”.  The contention is unarguable. 

24.  Prior to the hearing, the JOLs were told in clear terms that the court was concerned about the manner in which they made and abandoned the Application.  At the beginning of the hearing on 26 April 2022, this Court stated the concern about lack of full and frank disclosure and the purpose of the hearing in this way:

“Court: Leaving aside the fact that there has been quite clearly a complete lack of full and frank disclosure, if you read the affirmation it’s almost as if this court has not given any reason as to why the company should be wound up. Instead, it was dressed up as a case where, well, in fact the preparation of the audited accounts had been ongoing and would be published in November and then, well, the proposed scheme had the requisite support of the creditors. Why didn’t it draw to the attention of the judge dealing with the ex parte application what I said even in summary form in the judgment?”[5] (underlined added)

25.  It was open to the JOLs to address the court’s concern about lack of full and frank disclosure at the hearing and made all the submissions they wanted to make.  In any event, contrary to the JOLs’ suggestion, at the hearing on 26 April 2022, this Court did ask the JOLs to address the correctness of the 1^st and 2^nd Representations[6], the 3^rd Representation[7], the 4^th and 8^th Representations[8], the 5^th  Representation[9], the 6^th and 7^th Representations[10]. 

Ground 3: Issue estoppel

26.  The JOLs’ argument that the Judgment “created no issue estoppel in the Cayman Proceedings” flies against the principles discussed in §§11-12 of the Decision and is unarguable. 

Grounds 4-5: Forum shopping

27.  The contentions raised under Ground 4 are matters which could have been raised by the JOLs but they chose not to do so. 

28.  As for the arguments raised under Ground 5, they are the same arguments advanced by Mr Ho at the hearing, which have already been considered under section C3 of the Decision. 

Ground 6: Evidence in support of “sanction” from Cayman court

29.  The JOLs assert that “the relevant evidence before the Cayman Court in support of the Cayman Letter of Request Order” is in the hearing bundle.  There is no evidence in support of the assertion.  If and to the extent that the JOLs now say that the evidence they relied on was Lai 5^th and Lai 7^th, such evidence was misleading or untrue for the reasons stated in section C2 of the Decision.   

Ground 7: Possibility of appointing JOLs as special managers

30.  The argument that it is “a pure speculation on the Judge’s part” that it was possible for the JOLs to request the OR to appoint them as special managers for the purpose of pursuing the Scheme is misplaced.  The point is the JOLs, Mr Chan and Mr Ho, who professed to have substantial experience in insolvency matters, ought to have been aware of the avenue under s.216 of the CWUO.  They were under an obligation to satisfy themselves that there was no other clear or more costs effective avenue available before they embarked on making the Application which was both costly and wholly unprecedented. 

Ground 8: Bypass the CWUO

31.  No reason has been articulated as to why the Application, if granted, “could in no way bypass the statutory scheme under CWUO”.  To the contrary, in contending that the Costs Order “unduly trampled” on the orders made by the Cayman court (under Ground 9), the JOLs are seeking to bypass the statutory scheme. 

Ground 9: JOLs’ right to recover costs and remuneration is a matter for Cayman court

32.  The argument has never been raised by the JOLs.  If correct, it would mean that the intended appeal is academic as the JOLs would be entitled to recoup their costs and remuneration from the assets of the Company notwithstanding the Costs Order. 

33.  In any event, the question as to how the Company’s assets should be used, at least insofar as they are located in or recovered by the liquidators appointed in Hong Kong, falls to be determined according to the CWUO.  The JOLs have not identified any basis as to why they are entitled to stand above the statutory scheme.

34.  For the above reasons, I do not think that the JOLs have demonstrated that there is any reasonable prospect of success in reversing the Costs Order. 

35.  The Summons is dismissed. 

36.  As for costs, I make a costs order nisi that the JOLs are not entitled to recover the costs of and occasioned by the Summons from the assets of the Company.  There is no reason why the JOLs should be allowed to use the assets of the Company to pay the costs of an application made for their own benefit.