RE MICHAEL CRYSTAL QC

HCMP598/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 598 of 2005

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J U D G M E N T

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1. The Applicant seeks admission for the purposes of representing Morgan Stanley Emerging Markets Inc (“MSEMI”) in winding-up proceedings in relation to a Hong Kong company, Legend International Resorts Limited (“Legend”).  The particular applications for which the Applicant seeks to be admitted are a summons for the appointment of provisional liquidators for Legend and a summons taken out by Legend seeking to strike out the Petition to wind up the company.  The Petition (HCCW 1139/2004), presented on 2 November 2004, seeks an order winding-up Legend on the ground that the company is unable to pay its debts.  The two summonses are due to be heard before Kwan J on 21 and 22 April 2005.

2. I now briefly deal with the factual background to the present motion.  They are probably largely uncontentious but of course are not findings of fact in the winding-up proceedings.

3. Legend is a company registered in Hong Kong but apparently carrying on business not here but principally in The Philippines.  There, at Subic Bay in Zambales, it operates a casino known as the Legends Resort & Casino, under a licence issued by the Philippine Amusement and Gaming Corporation (“Pagcor”) in premises leased from the Subic Bay Municipal Authority (“SBMA”).  There does not appear to be much dispute that Legend is insolvent.  In the Philippine proceedings, to which I will presently turn, Legend has stated its indebtedness to be approximately HK$1.3 billion or US$176 million.  The debt owed by Legend to MSEMI is said to be in the region of nearly US$61 million.  These are debts that have been acquired by MSEMI from various lenders of Legend.  It had borrowed from some (if not all) of these lenders under a Facility Agreement dated 22 July 1997 (“the FA”).  Legend now challenges the entitlement of MSEMI to acquire these debts under the FA (specifically whether it is an “Eligible Transferee” as defined in that agreement) and this forms the basis of the strike-out application to be heard on 21 and 22 April 2005.

4. The majority shareholder of Legend is Metroplex Berhad (“Metroplex”), a company listed on the Malaysian Stock Exchange.  Metroplex holds 59.99% of the paid up issued share capital of Legend.  The other two shareholders are a Philippine and a Malaysian company.  The four directors of Legend reside either in Malaysia or in The Philippines.  The registered office of the company in Hong Kong is that of its company secretary which appears to be a company providing corporate secretarial services.

5. Since about 2000, Metroplex (who is also the guarantor of Legend’s debts under the FA) has been attempting to arrive at a restructuring of Legend’s and its own indebtedness to lenders.  Initially, Metroplex proceeded with this in Malaysia with the assistance of a quasi-Government organization known as the Corporate Debt Restructuring Committee, but this organization has since been dissolved.  After its dissolution, Metroplex’s attempts of restructuring were carried on through private negotiations.  To date, no agreement has been reached between Metroplex and Legend, and their creditors (which include MSEMI).

6. Litigation was inevitable : -

Malaysia
(1)	In October 2002, Metroplex obtained a restraining order from the High Court of Kuala Lumpur preventing all creditors from taking any legal action against Metroplex.  After four extensions having been granted, on 30 November 2004, the Court rejected Metroplex’s application for a fifth extension, in the process casting much doubt on the viability of the then existing scheme of compromise or arrangement.
(2)	In October 2004, MSEMI presented a petition in Malaysia to wind up Metroplex and also sought the appointment of provisional liquidators.  The petition was withdrawn on 12 January 2005 following an application made by Metroplex to strike out the petition on the basis that MSEMI had no locus standi by reason of its not being entitled to acquire debts under the FA.
(3)	I am told that a second petition to wind up Metroplex will be presented as early as tomorrow and when that is done, a fresh application will also be made for the appointment of provisional liquidators.  The position as of today, however, is that there are no on-going proceedings in Malaysia.
The Philippines
(4)	On 5 November 2004 (3 days after the winding-up petition of Legend was presented in Hong Kong), Legend filed a petition for its corporate rehabilitation in Olongapo Court in The Philippines.  This petition seeks relief similar to what is commonly known as “Chapter XI” relief in the United States.  On 9 November2004, the Philippine Court ordered on an ex parte basis the appointment of a rehabilitation receiver and a stay of all legal proceedings against Legend.  It was because these orders had been made that persuaded Kwan J on 10 November 2004 to adjourn the first hearing for the appointment of provisional liquidators since this might unduly interfere with the Philippine proceedings (as well as the Malaysian proceedings which were afoot at that time).
(5)	On 17 November 2004, MSEMI applied effectively to strike out the rehabilitation petition, primarily, it would appear, on the ground that there was no jurisdiction to allow the corporate rehabilitation of a non-Philippine company.  On 6 January 2005, the Philippine Court adjourned the hearing of the rehabilitation petition pending the determination of the question of jurisdiction.  To date, no decision has been reached on this aspect.
United Kingdom
(6)	On 11 January 2005, proceedings were instituted by Legend in the Commercial Court in London claiming a declaration that the transfer of debt from one of Legend’s creditors (OCBC Bank in Labuan) was ineffective.  This is apparently the same issue as the jurisdiction issue before the Hong Kong courts in the strike-out application.

7. It will thus be seen in the context of the Hong Kong winding-up proceedings that there are at the moment also proceedings extant in two other jurisdictions (The Philippines and the United Kingdom) dealing with similar (if not the same) matters now before the Hong Kong courts.  There is also likely to be a third jurisdiction in which such matters will be ventilated :  as stated above, a new petition to wind up Metroplex together with an application for the appointment of provisional liquidators will be launched perhaps tomorrow.

8. What are termed cross-border insolvencies have become increasingly common in recent years.  I accept that sometimes, proceedings are instituted in jurisdictions which have little or no connection with the relevant company and are brought purely for tactical purposes.  In the present instance, this does not appear to be the case.  Legend is a Hong Kong company that carries on the main part of its (if not its only) business in  The Philippines, with a parent company based in Malaysia.  I am told by counsel for the Applicant (Mr Godfrey Lam) that the link with the United Kingdom is that the proper law of the contract or the governing law of the FA is English law.  In situations where a number of competing jurisdictions exist, the courts of these jurisdictions are left with a common dilemma as to how to exercise their discretion on the correct approach : to proceed regardless of what is taking place abroad or to await the outcome of what the foreign courts have to determine and in any event to anticipate the effect of any orders that a foreign court may make.  Influencing the exercise of discretion will be considerations of comity, the conflict of laws and, perhaps most important, the practicalities and the justice of the situation confronting the court.  These are often not easy decisions for the court to make.  Mr Lam has referred to the remarks of Reyes J in Hong Kong Institute of Education & Another v Aoki Corp & Another [2004] 2 HKLRD 760 at page 809-11 at paragraphs 135-139 to illustrate some of the difficulties that may arise.

9. I am therefore convinced in the case of the Hong Kong winding-up proceedings and specifically in the context of an application for the appointment of provisional liquidators, that the matter is far from easy to determine.  The exercise of discretion on the part of the judge will have many conflicting factors weighed against each other in the scales.  The facts will not be easy to appraise either.  While MSEMI will contend that justice demands that independent professional persons (such as the proposed provisional liquidators) should be put in charge of any restructuring proposals, no doubt it would be Legend’s case that this should either be left to private negotiations or, should independent professionals be needed, this is already what is being sought and obtained (albeit on an ex parte basis) in the application in The Philippines for a receiver in the rehabilitation petition there.  And, while it may forcefully be argued that Legend is in all but name and formal legal status a Philippine company, there are nevertheless difficult issues to be resolved as to whether a corporate rehabilitation in The Philippines will provide as much protection and benefit to creditors as a liquidator or provisional liquidator in Hong Kong would (albeit the rehabilitation receiver appointed in The Philippines is an officer of the court : - see the Interim Rules of Procedure on Corporate Rehabilitation published by the Supreme Court of The Philippines).  Yet, the Philippine connection is strong : - MSEMI regards the only worthwhile asset of Legend to be the casino at Subic Bay and at the moment there are, in its view, worrying disputes between Legend and Pagcor and SBMA.

10. With this background in mind, I now approach the present application.  The applicable principles are those contained in Re Flesch QC & Another [1999] 1 HKLRD 506 and in Re McGregor QC [2003] 3 HKLRD 585.  It is unnecessary for me to repeat them here.  In my view, the present application should be granted.  My reasons, essentially, are as follows : -

(1)	Decisions of the court dealing with the appointment of provisional liquidators are sparse, even rarer are any decisions on such applications in the context of cross-border insolvencies.  I believe that the applications due to be heard by Kwan J on 21 and 22 April 2005 may well provide a good opportunity for the court to give some useful guidance on the applicable principles governing the exercise of discretion in this important area.  It is also worthwhile remembering in this context that the court does have the power to appoint provisional liquidators for the purpose of supervising a corporate rescue : see Re Keview Technology (BVI) Ltd [2002] 2 HKLRD 290.  Without doubt, and it has not been suggested otherwise, the Applicant has much experience and expertise in dealing with cross-border insolvencies, quite apart from his general insolvency expertise.  In Re McGregor QC, in a passage that I shall presently quote, the court posed the rhetorical question whether it could be said that specialist overseas counsel could add a significant dimension to a very complex or difficult case.  The same question can of course be appropriately asked in relation to a point of law or determination of principle that would or might impact substantially on the development of Hong Kong law.  In the present case, I am in no doubt that the Applicant will add a significant dimension to the case and that his contribution will be invaluable.
(2)	The application for provisional liquidators is also, for the same reasons, one that is of unusual difficulty or complexity justifying the admission of specialist counsel.
(3)	I am prepared on these grounds alone to grant the application to admit the Applicant.  I ought, however, to make it clear that if the Applicant had been required only for the strike-out application, I would not have been minded to admit him only for that.  Although I accept that the entitlement or otherwise of MSEMI to purchase the debts and thus obtain the necessary locus standi to petition for Legend’s winding-up may no doubt be an important point in the banking world, the resolution of this question ultimately depends on the true construction of the FA and the facts of the case.  There is neither an important point of law nor any unusually difficult or complex point involved here.
(4)	I ought also to mention a point made by Ms Fung in her helpful submissions on behalf of the Secretary for Justice.  She points out, rightly, that the two applications for which the Applicant is required to be admitted are what can be termed interlocutory applications.  Reference was made to Re Holgate QC [2001] 2 HKLRD 425.  However, the labels “final” or “interlocutory” are somewhat unhelpful in enabling the court to determine whether any particular case merits the admission of overseas counsel.  In Re Mostyn QC, unreported, HCMP 3552/2003, decided on 17 September 2003, the Court said at paragraph 10 : -
		“The court’s basic approach to admissions as set out in cases like Re Flesch QC applies to all hearings, irrespective whether the hearings are final or interlocutory.  It is true that there are fewer applications for admission in relation to interlocutory hearings compared to final hearings.  However, the reason for this is that interlocutory hearings (which cover a very wide spectrum of types of hearings) are less likely to involve very complicated issues or important points of principle than final ones.  This is not always true of course because sometimes interlocutory matters do involve weighty issues, particularly when the outcome may dispose of or significantly affect the action as a whole.  Each case has to be looked at individually and no real assistance can be derived from the label ‘final’ or ‘interlocutory’.  As I remarked in Re Pannick QC, unreported, HCMP 2374 of 2003, 9 June 2003, at paragraph 18, ‘However, the court must always look at the nature of the application and the issues that arise from it’ ”.

11. One aspect that Ms Newall (for the Hong Kong Bar Association) highlighted was that it had not been shown that there was no counsel in Hong Kong who was qualified or competent to deal with the application for the appointment of provisional liquidators.  Indeed, this was not shown but it need not be.  Where the court is required to determine principles that might impact substantially on the development of Hong Kong law or the case for which specialist counsel seeks to be admitted is one of unusual difficulty or complexity, these factors by themselves can sometimes justify the admission of specialist overseas counsel notwithstanding the availability of counsel in Hong Kong who are able competently to do the case.  This is of course provided that the overseas counsel is of sufficient high quality and standing so as to be able to add a significant dimension to the case.  In Re McGregor QC at 591 paragraph 11(3), the court said : -

“It is clear from the passage just set out that it is not necessary to demonstrate that no senior counsel exists in Hong Kong who would be able to do the case. That must be an extremely rare situation anyway. However, where the degree of difficulty or complexity is such that the court is of the view that specialist counsel would be highly desirable, the pool of suitable local counsel will necessarily be limited. In the past, complex cases involving tax or patent law have come under this category. The question is not so much whether counsel in Hong Kong is able to do the case competently or even skilfully, but whether the specialist overseas counsel can add a significant dimension to a very complex or difficult case. Having said this, I think it must also be recognised that in other cases of unusual difficulty or complexity, the pool may be larger and the court may be less receptive to the admission of overseas counsel. These involve matters of degree from case to case.”

Although this passage refers to a case of unusual difficulty or complexity, it equally applies to a case involving important principles the determination of which might impact substantially on the development of Hong Kong law.

12. However, I wish to stress that what has been stated just now does not absolve solicitors from the duty to make inquiries of the availability of Hong Kong counsel.  There are at least two reasons for this.  First, this will show the size of the “pool” of suitable local counsel.  Sometimes, it may show that the “pool” does not exist.  Secondly, even if suitable counsel does exist in Hong Kong, timeous inquiries will demonstrate the availability (or non-availability) of such counsel.  All this will enable the court to arrive at an informed decision taking into account all relevant facts as to whether or not to admit overseas counsel for any particular case.  At times, this can be a difficult balancing exercise involving questions of degree.  Accordingly, it is important that the court is provided with all the necessary facts.

13. In the present case, regardless of availability, the pool of Hong Kong counsel with sufficient expertise to handle the type of application and the issues therein with which we are concerned must be very small anyway.  This morning, I was provided with an affidavit from the Applicant’s solicitors detailing the inquiries that had been made of the availability of Hong Kong counsel.  Following the criteria laid down in cases like Re Flesch QC and Re McGregor QC (which followed Re Kosmin QC & Another [1999] 1 HKLRD 641), I am satisfied that due inquiries have been made in the present case.  These inquiries in fact reinforce the conclusion I have reached that the “pool” of suitable counsel for the requirements of the case at hand is very small indeed and that the Applicant would be able to provide the significant dimension to which I have earlier referred.

14. For the above reasons, there will be an order in terms of paragraph (1) of the Notice of Motion.  Paragraph (2) of the Motion seeks the admission of the Application in relation to “any appeals arising from (1) above”.  As was said in Re Mostyn QC at paragraph 7 : -

“On a general note, this form of wording is not acceptable in applications for admission.  The function of the court under section 27(4) of the LPO is to consider the application for admission against the specific matter for which his admission is required.  Where court hearings are concerned, the particular hearing or hearings should be identified.”

15. I also order that there be no order made as to costs.