SHINEWING SPECIALIST ADVISORY SERVICES LTD v. CHEN YUNG NGAI KENNETH AND OTHERS

HCCW 279/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 279 OF 2010

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HCCW 346/2010

COMPANIES WINDING‑UP PROCEEDINGS NO 346 OF 2010

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AND

HCMP 117/2014

MISCELLANEOUS PROCEEDINGS NO 117 OF 2014

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AND

HCMP 118/2014

MISCELLANEOUS PROCEEDINGS NO 118 OF 2014

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(HEARD TOGETHER)

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REASONS FOR DECISION

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1.  There were two groups of summonses before the court. The first concerned taxation issues and the second, an application for a further interim payment. Each group comprised four summonses seeking identical relief in respect of each of the four companies (respectively “Hempstone”, “De Rodeo”, “Senrich” and “Vinki”). Those companies form part of the same group of companies.

2.  This matter has a long history and has come before me on a number of occasions.  The last occasion was a year ago when taxation was ordered and provision made for an interim payment.  Despite that order, no progress has been made on the taxation front as a result of the continuing polarised, adversarial and uncooperative stance of the parties that has coloured their dealings with each other and every single court application.

Background facts

3.  A brief summary of the background to the dispute appears in §§1 to 11 of Reasons for Decision (“the 2014 Decision”) I handed down on 18 February 2014 following a hearing on 29 January 2014.  For ease of reference, they are set out below:

“1. These were applications by Shinewing Specialist Advisory Services Ltd (‘Shinewing’) …

BACKGROUND FACTS

2. The applications were made in relation to Hempstone Ltd (in compulsory liquidation), De Rodeo Catering Ltd (in compulsory liquidation), Senrich Industries Ltd (in creditors’ voluntary liquidation) and Vinki Corporation Ltd (in creditors’ voluntary liquidation).

3. Hempstone has been in compulsory liquidation since August 2011. It has about 60 subsidiaries including De Rodeo, Senrich and Vinki.

4. Chen Yung Ngai Kenneth (‘Chen’) a director of Shinewing at the material time (who had a 5% indirect shareholding in Shinewing) was a joint and several liquidator of those companies and lead partner in those liquidations.

5. Tang Chung Wah Alan (‘Tang’) is the head of Shinewing and its majority shareholder. He was a joint and several liquidator of Senrich until his voluntary resignation following an application made for his removal in August 2013.

6. A dispute between Shinewing and Chen arose in late 2012. Shinewing issued a notice of immediate suspension to Chen on 24 October 2012. This was followed by a notice of summary dismissal on 28 November 2012. Chen, while alleging that the dismissal was wrongful, left Shinewing. Since his termination Chen has been working at Zhonglei Specialist Advisory Services Ltd.

7. Suffice it to say that since Tang and Chen fell out in late 2012 they have not been on good terms. While the stakeholders of the Hempstone Group preferred to go with Chen as liquidator, there were inevitable difficulties given that Tang remained a joint and several liquidator of Senrich and all books and papers were with Shinewing.

8. Matters came to a head and on 27 August 2013, I dealt with two applications: one related to Chen’s application to remove Tang as liquidator of Senrich and the second was an application for Shinewing to provide books and records of the Hempstone Group to Chen as liquidator.

9. Prior to Chen’s departure from Shinewing, considerable unbilled and/or untaxed work had been done by Shinewing.

10. At the hearing, the parties reached an agreement which was encapsulated in the order made on 27 August 2013. Due to an oversight, the order was not expressed to be ‘by consent’. The order provided for a number of steps to be taken by both sides with a view to outstanding bills being submitted for taxation and payment made of the taxed bills to Shinewing within a stipulated timeframe.

11.     Further disputes arose between the parties but it is unnecessary to recite them here.  The end result is that 10 bills remain outstanding.”

Taxation issues

12.  As is apparent from §10 of the 2014 Decision, the order made on 27 August 2013 contained a timeframe.  That was to ensure that taxation of the outstanding fees would not be unduly delayed.  Disputes between the parties continued resulting in some slippage.  To advance matters, an order was made at the hearing on 29 January 2014 setting out a new timetable (agreed by the parties) for various steps to be taken with a view to facilitating and progressing the taxation process.  

13.  Thereafter call-over hearings took place before the taxing master.  Suffice it to say that the liquidator then raised 5 issues at the call‑over hearing on 7 July 2014.  As appears from the taxing master’s written directions dated 15 October 2014, in the intervening three months between July and October, instead of narrowing the issues, the parties squandered the opportunity to do so.  All they did was to trade accusations and complaints through acrimonious and unnecessarily lengthy and repetitive correspondence.  The taxing master therefore directed that appropriate application(s) be taken out by 21 November 2014 to resolve the issues.

14.  This culminated in Shinewing issuing the taxation summonses on 21 November 2014 to resolve the taxation issues.  The delay also accounted for the applications for a further interim payment.  Following the taxation summons, a consent order was made on the first of the 5 issues to the effect that the 2^nd to 7^th respondents being the shareholders be joined as parties solely for the purpose of taxation of Shinewing’s fees as set out in the invoices being items 6 to 10 of the bills.

15.  By the time of the hearing on 27 January 2015, the remaining 4 issues were no longer controversial.  Nevertheless, almost an entire year has elapsed with no progress having been made on the taxation front.  That is unacceptable.  The parties and their legal representatives have a duty under the Civil Justice Reform to assist the court to further the underlying objectives: Order 1A, rule 3 of Hong Kong Civil Procedure 2015.  They have a duty, inter alia, to ensure that the matter is dealt with as expeditiously as is reasonably practicable and to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.  The parties’ conduct highlighted in §16 above falls far short of those duties.  In my view, they need to overcome their instinctive mistrust of each other and advance the taxation process so that it can be brought to a conclusion sooner rather than later. 

16.  At the conclusion of the hearing the following order was made:

“1. The Claimant’s Bills, which have been lodged for taxation by the 1^st Respondent on 9 April 2014, do stand as the bills to be taxed by the Court.

2. The taxation of the Claimant’s Bills be conducted in accordance with the Procedural Guide for Taxation/Determination of Bills of Provisional Liquidators or Liquidators by Masters and on the basis of the ‘Maxwell Principles’.

3. Leave be granted to the Claimant to set down the taxation of the Claimant’s Bills to be heard before a taxing master, with 5 days reserved and an early date to be fixed.

4. There be no order as to costs between the Claimant and the 1^st Respondent and costs be reserved for the 2^nd to 7^th Respondents.”

17.  As to the order of costs made, I considered that both Shinewing and the liquidator were to blame for the impasse created.  In those circumstances, as between them,a fair order would be no order as to costs.  The same considerations do not apply as regards the 2^nd to 7^th respondents who have been joined as parties solely for the purpose of taxation of bills 6 to 10.  Accordingly their costs were reserved.

18.  Given the relentless bickering that has beset this case, it is as well that I should state for the record the parties’ stance in relation to the following matters:

(a) Joinder of shareholders

As earlier noted the 2^nd to 7^th respondents (who are the shareholders) have been joined as parties solely for the purpose of taxation of bills 6 to 10.  Their counsel confirmed to the court that the shareholders do not require and so do not seek further information from Shinewing in connection with the taxation although there had been some suggestion to the contrary in the hearing bundles.

(b) Estoppel concerning the $8.66 million of write‑offs/ provision

At §22 of the 2014 Decision, I mentioned the conflicting affidavit evidence between the Liquidator and Shinewing concerning the existence or otherwise of a “write‑off practice” at the firm.  By the time of the July call‑over hearing that had developed into an estoppel issue.

Then by letter dated 16 July 2014, the Liquidator through his solicitors stated that he “has no view on the estoppel” and that it is up to the shareholders to take out an appropriate application should they wish to pursue it.  The shareholders have not made any application.  Their stance is that they are willing to abide by the determination of the taxing master.

(c) Basis of remuneration

It is no longer suggested or maintained by any of the parties that there is uncertainty or doubt concerning the basis of remuneration, namely whether work done in the liquidation should be charged on a basis other than a time-costs basis.

Miscellaneous

19.  In perusing the hearing bundles in preparation for the hearing of the summonses, a number of matters appeared to call for further clarification/explanation.  The taxing master may wish to note that:

(1) While the liquidator asserts that he had ‘written off’ approximately $8.66 million in 2011 and 2012 in respect of the work-in-progress recorded for the liquidation work, nowhere is his methodology explained. 

(2) The items written off have not been identified. 

(3) In his 14^th affirmation dated 6 January 2015 at §54, the liquidator criticised Shinewing’s bills. He highlighted a number of entries in the time records grouped under three specific heads: (a) non‑chargeable items; (b) uncategorised work; and (c) duplication of work. 

The liquidator has not explained whether and, if so, how those items correlate to work written off.  Further, it is unclear whether the items highlighted were by way of example only or whether they are exhaustive.  This needs to be clarified.  Anything short of a comprehensive exercise is unlikely to be of much assistance in the taxation process. 

20.  It should not be overlooked that the Liquidator was a partner at Shinewing until his departure in late October 2012.  The bills in question cover work done from 2011 through till December 2012.  The bulk of the work appears to have been carried out during the period while he was still a partner at Shinewing and the partner in charge of the Hempstone liquidation.  Criticisms of the shortcomings of the timekeeping system and practice at Shinewing is to be viewed against the backdrop that the liquidator along with his then partners were collectively responsible for the system and practice in place at the firm until 24 October 2012.

Further interim payment

21.  Shinewing sought a further interim payment in the amount of $3.5 million.  That would take the total amount of interim payments to $10.25 million, representing a little less than 40% of the aggregate amount of the bills.

22.  In the event, there was no objection to a further interim payment of $3.5 million being made.  I considered it appropriate for the order to be made: after payment of the further sum, a comfortable margin remains available to cater for items that may be disallowed on taxation.