RE BONDFIELD INTERNATIONAL LTD

HCCW 99/2002
HCCW 711/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 99 OF 2002

COMPANIES WINDING-UP NO. 711 OF 2002

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J U D G M E N T

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Background

2.  In the event, I dismissed the liquidators’ summons, and made a limited order in respect of the Official Receiver’s summons.  In essence, I did not consider that I was in a position to make a determination as to whether or not the liquidators should be removed on the basis of the material then before me.  I left open the possibility that the Official Receiver might seek to restore his application at a later date.  I did, however, disallow the liquidators’ fees in those liquidations in which there were assets out of which such fees would otherwise be payable, insofar as such fees represented charges by Nelson Wheeler.

3.  The background to the applications, the arguments advanced and the reasons for my decision are set out in my judgment of 27 January 2005.  At the end of that judgment, I ordered that the liquidators should pay the Official Receiver the costs of their unsuccessful application for dismissal of the Official Receiver’s summons and half the costs of the Official Receiver’s application, in each case with certificate for two counsel.

4.  Before the order embodying this decision was drawn up, both sides issued summonses seeking variations of the orders which I made.

The liquidators’ application

5.  On 7 February 2005, the liquidators applied for:-

(1)	the dismissal of the Official Receiver’s summons, as amended, on the grounds that:-
	(a)	this summons and the liquidators’ summons had been directed to be and were heard together;
	(b)	no order was made on the Official Receiver’s application other than in relation to one of the companies, Redbridge Holdings Limited, under paragraph 2B of the summons (disallowing part of the liquidators’ fees as described above); but
	(c)	in relation to Redbridge, the court had no jurisdiction to make that order;
(2)	a direction to the effect that the court had no jurisdiction to make the order in relation to Redbridge referred to above, or alternatively, a direction that such jurisdiction as the court might have should not be invoked so as to abrogate the Official Receiver’s duty to decide such matters under section 196(1A) of the Companies Ordinance (Cap. 32), and/or the liquidators’ right of appeal against any such decision of the Official Receiver pursuant to rule 199 of the Companies (Winding-Up) Rules;
(3)	further or alternatively, an order that the applications in relation to the 17 companies of which Mr McKellar had been a liquidator be dismissed;
(4)	further or alternatively, an order that the applications in relation to 5 named companies, in respect of each of which releases had been granted to the liquidators should be dismissed, and a direction that pending release applications should either be approved or directed to proceed;
(5)	sanction (retrospectively) for the arrangement by which staff of Nelson Wheeler were engaged to provide services in respect of the various liquidations;
(6)	a variation of the costs order nisi which I made so as to provide for the entirety of the liquidators’ costs of both sets of summonses to be paid by the Official Receiver, such costs to include the reserved costs of hearings on 25 July 2003 and 17, 23 and 26 September 2003 - at the hearing, Mr Barlow (appearing for the liquidators) also submitted that even if I were not with him as to this, the costs order nisi should be varied so as not to certify the matter as having been fit for two counsel; and
(7)	restrictions on the drawing up of the formal order and publication of the judgment until after determination of the application (this last item was not pursued at the hearing in March 2005, it being no longer necessary at that stage).

The Official Receiver’s applications

6.  By a summons dated 8 February 2005 (which was proposed to be amended pursuant to a further summons of 2 March 2005), the Official Receiver sought to vary the costs order nisi so as to provide for the payment of the whole of the costs of the two applications by the liquidators personally to the Official Receiver, to deal with the costs of a summons issued by the liquidators on 20 September 2003, and to provide for the reserved costs of hearings on 25 July 2003, and 17 and 23 September 2003.  Leave to amend the 8 February 2005 summons was not opposed, and I deal below with that summons as amended.

Should the Official Receiver’s application have been dismissed?

7.  I shall deal first with the suggestion that the Official Receiver’s summonses dealt with at the hearing in October and November 2003 should be dismissed in respect of each of the 63 liquidations.

The 17 companies of which Mr McKellar was a liquidator

8.  Mr Barlow submitted that in respect of the 17 summonses involving companies of which Mr McKellar was a liquidator, these had been summarily dismissed as a result of the failure to join Mr McKellar.  I do not agree with this submission.  Although in paragraph 6 of my earlier judgment, I acknowledged that the Official Receiver did not pursue his application to join Mr McKellar as a respondent insofar as those companies were concerned and that it would therefore be inappropriate to make orders against Mr McKellar, I did not suggest that no orders should be made against Mr Giles in relation to such companies should it prove appropriate to do so.  Mr McKellar had indicated, in the course of the application to join him, that he was content to give an undertaking that he would resign as a liquidator in the event that a removal order was made against Mr Giles, and this formed (at least in part) the basis on which the application to join him was not pursued.  Even though Mr McKellar should ideally have been made a party to the applications, I do not consider that the failure to join him affects the court’s ability to deal with the applications so far as Mr Giles is concerned, particularly in the light of Mr McKellar’s undertaking.

The 62 companies other than Redbridge

9.  Mr Barlow submitted next that in any event, in relation to all the companies except for Redbridge, no orders had been made in relation to them, so that it followed that the applications by the Official Receiver should be dismissed in relation to at least 62 of the 63 companies.  Again, I do not agree with this submission.  As appears from paragraph 117 and 125 of my earlier judgment, the direction in relation to disallowance of the liquidators’ fees insofar as they represented charges of Nelson Wheeler during the period that the companies were in provisional liquidation will have effect in relation to those companies in respect of which sufficient assets had been realised to permit payment of such fees out of the assets recovered.  At the time that my earlier judgment was delivered, it was not entirely clear how many companies were in this position.  Redbridge was the only company which was the subject of a summary liquidation out of which the liquidators’ fees had been paid out of realised assets of the company.  The evidence subsequently put before me indicated that there were in fact some 39 companies in respect of which realisations had been made, but that, because it was only where realisations exceeded HK$60,000 that fees would become payable out of assets (and not by the subsidy), there were in fact only six cases in which fees might be paid out of the assets of the companies concerned (these being Chang’s Restaurant Limited, Bondfield International Limited, Thai Boon Rong Company Limited, Redbridge, Tang Kwai Kee Manufactory Company Limited and The Fitness Centre Limited).  The direction which I gave therefore has effect in relation to at least these six companies.

10.  However, it does not follow that because the direction does not have effect in relation to the other companies, the applications in relation to them should be dismissed.  This is so for the following reasons :-

(1)	First, even though the direction may not bite in relation to a particular company as a result of the particular facts relating to its asset position, it seems to me nonetheless to be an appropriate direction to give having regard to the existence of the agreement with Nelson Wheeler and the failure of the liquidators to seek the necessary sanction for the use of Nelson Wheeler’s staff during the time when the companies were in provisional liquidation.
(2)	Second, and in any event, as appears from (for example) paragraphs 106 to 111 of my earlier judgment, I understood Mr Strachan (who appeared for the Official Receiver)’s position to be that I should consider making the removal orders suggested on the basis of the material before me, but in the event that I was not with him in this respect, the matter should be stood over for a further hearing if the Official Receiver felt it necessary to further pursue the matter.  That this was the Official Receiver’s position was confirmed at this hearing by Mr Strachan, who pointed out (as I noted in paragraphs 37 and 107 of my earlier judgment) that he had consciously sought to limit the scope of his cross-examination of the liquidators and their witnesses to matters arising out of the liquidators’ summons for summary dismissal of the Official Receiver’s summons.  Although Mr Barlow submitted at this hearing that it was not open to the Official Receiver to keep his options open in this way, I have concluded in my earlier judgment that it was, and see no reason to come to a different view now.  That being so, even if it would not have been appropriate to give the direction contemplated by the order which I made in respect of paragraph 2B of the Official Receiver’s summons in any case other than those concerning these six companies, the appropriate order would, I think, have been to make no order in relation to the other summonses, and not to dismiss them.
(3)	Finally, I think that it is also relevant to note the reasons for which no orders were made in relation to the other parts of the Official Receiver’s application:-
	(a)	In relation to the application for removal, I have already indicated that the appropriate order was to make no order, but to leave it open to the Official Receiver to determine whether or not the applications should be pursued.  As it happens, Mr Strachan indicated that having considered the position, the Official Receiver does not now intend to take the matter further.  That does not, to my mind, mean that the earlier application was without basis, or that it should have been dismissed.
	(b)	In relation to the application for leave to examine the liquidators or to obtain discovery from them, I concluded that it was not necessary to make any order because:-
		(i)	the information in relation to the number and grade of staff of HGSL available for insolvency work had been provided in the course of cross-examination of the liquidators;
		(ii)	information as to whether the liquidators’ fees were properly incurred was no longer necessary having regard to my ruling as to partial disallowance of their fees;
		(iii)	the status of HGSL’s professional indemnity policy was no longer in issue since the agreement with Nelson Wheeler had been terminated; and
		(iv)	the question of whether cause was shown for the removal of the liquidators was a matter for cross-examination if the matter proceeded further.

For these reasons, too, it seems to me that it was appropriate for me to have made the direction which I did.

11.  Alternatively, even if I am wrong as to that, in my view, having regard to the matters which I have mentioned (and in particular paragraph 10(2) above) the appropriate order would (at best, from the liquidators’ point of view) have been to make no order on the Official Receiver’s summons at this stage.

The Calderbank offer by the liquidators

12.  Nor do I think that any different costs order should be made as a result of the Calderbank correspondence between the parties shortly before the hearing.  The proposal put forward by the liquidators was materially different to the outcome of the hearing, in that the costs order proposed was very different from that made (it being suggested that there should be no order as to costs, whereas I have concluded that the Official Receiver should have his costs of the liquidators’ summons and half his costs of his own summons; that Nelson Wheeler’s fees should be paid, whereas I have directed that they should be disallowed in part; and that the summons should be dismissed, which I have declined to do).

Whether the court had jurisdiction to give the direction given in relation to disallowance in part of the liquidators’ fees

13.  Given that I am of the view that it would not have be appropriate to dismiss the Official Receiver’s summons even in relation to those cases in which no question of disallowance of any part of their fees would appear to arise, the question of whether or not I had jurisdiction to give that direction would appear (for present purposes at least) to be largely academic.

14.  As to this, however, I would observe that the question of payment of fees to Nelson Wheeler arose in the context of the argument that the liquidators were in a position of conflict of interest in respect of any fees paid or payable to Nelson Wheeler.  It was in this context that I considered the position in relation to such payments, and concluded that while such payments could not be objected to after an order had been made under section 227F of the Ordinance, they were objectionable during the period in which the liquidators were acting as provisional liquidators appointed under section 194(1A).  It seems to me therefore that I would have expressed such views regardless of whether or not any direction should have been given.

15.  Further, having given the direction which I did having considered the decision of Master A Ho dated 28 October 2004 in Gold Delta Development Limited, it is clear that I was of the view that I had jurisdiction to give the direction, and in these circumstances, there being no new matters which have arisen since my judgment was handed down, I do not think that this is an appropriate case for me to reconsider or recall my order under paragraph 2B of the Official Receiver’s summons.  It is clear that the power to do this is one which is to be exercised only in exceptional circumstances, and I can see none here.

16.  I would only add that it seems to me that, on the natural reading of the section, the power reserved to the Official Receiver by section 196(1A) of the Ordinance relates not so much to the assessment of remuneration or as to whether or not particular items should be allowed, but the fixing of the basis of such remuneration, and that I therefore had jurisdiction to give the direction sought.

17.  I therefore decline to dismiss the Official Receiver’s summons, as Mr Barlow invited me to do.

Should there be a direction that the court has no jurisdiction to give the direction which was given in the earlier judgment, or should not exercise such jurisdiction (if any)?

18.  So far as the proposed directions sought under paragraph 2 of the liquidators’ summons is concerned, in the light of the order which I made under paragraph 2B of the Official Receiver’s summons, and the reasons which I have given for declining to vary that order, I do not think it appropriate to give either of the directions sought.

Should the Official Receiver’s application be dismissed in respect of the companies of which Mr McKellar was a liquidator?

19.  The third order sought by the liquidators’ summons seeks dismissal of the Official Receiver’s application in relation to the 17 liquidations in which Mr McKellar was a liquidator.  For the reasons given in paragraph 8 above, I decline to make such an order.

Should the Official Receiver’s application be dismissed in respect of the companies in relation to which they have obtained their release?

20.  In relation to the five companies where releases have been granted, the applications having been argued and the direction given in relation to paragraph 2B of the Official Receiver’s summons having been given, I do not see any need to dismiss the summons.

Should releases be granted in respect of the remaining companies, or a direction given for such releases to be processed?

21.  So far as the remaining companies are concerned, I do not think it necessary to grant the releases sought, or give the direction to the Masters that is asked for.  I do not think that it would be appropriate for me to short-circuit that process by granting such releases directly.  If there are particular cases in which the Official Receiver has observations on or objections to releases being granted, he may make them in accordance with the usual procedure.  As I understand the position, the direction earlier given by the company Masters was that releases would not be processed pending the delivery of my earlier judgment.  That judgment having been delivered, there is no reason why they should not now be processed in the normal way.  If there is any residual difficulty in relation to this, it should be dispelled by this decision.

Should sanction be given for the employment by HGSL of staff of Nelson Wheeler?

22.  I turn to consider the question of whether retrospective sanction should now be given for the employment by the liquidators of Nelson Wheeler’s staff pursuant to the agreement with Nelson Wheeler.  As to this, while I would be inclined to accept that in an appropriate case, the court may permit a liquidator to recoup himself out of company assets for expenditure which was undertaken for the benefit of the company even though he had not obtained the prior sanction of the court (see Associated Travel Leisure and Services Ltd [1978] 1 WLR 547), I do not think that this is an appropriate case for sanction to be granted at this stage of the liquidations and these proceedings.  I take this view for the following reasons:-

(1)	No proper evidence has been put forward to explain why it was in the interests of the creditors of the companies concerned to have the work done by staff of Nelson Wheeler.
(2)	Even if it were the case that the work done has been of satisfactory quality, and that the cost of having it done by Nelson Wheeler staff was reasonable, it seems to me that I cannot ignore the fact that had an application for sanction been made at the appropriate time (i.e. before the employment of such staff), it would simply have exposed the fact that HGSL were not adequately staffed to carry out the duties which Messrs. Giles and Day or Giles and McKellar, as the case may be, were to undertake as liquidators under the scheme for contracting out summary liquidations, and that they were, as I have found, in breach of the terms of tender.
(3)	There is no explanation for the failure to make the application earlier - no such application was made even in the course of the proceedings before me.  It is, in my view, far too late for the application to be made now, after the conclusion of those proceedings.

Variation of costs order nisi

Costs of the liquidators’ summons –was there a single event?

23.  So far as costs are concerned, despite Mr Barlow’s attempts to persuade me that I should regard the hearing as constituting a single event for costs purposes, I do not think it right to do so.  The liquidators chose to issue and pursue to the very end their summons for summary dismissal.  Although Mr Barlow suggested that their objective in taking this approach was thwarted by the decision of Kwan J to direct that this summons be heard at the same time as the Official Receiver’s application, it is clear from the course of the proceedings before me that this application was persisted in.  Had the liquidators thought that their application no longer served any useful purpose in the light of that direction, it would have been open to them to have dropped it and simply defended the Official Receiver’s application.  This they did not do.  At the hearing, it was made clear for the liquidators that they considered that the oral evidence and cross-examination was restricted to the liquidators’ summons, and not in support of the Official Receiver’s summons.  In these circumstances, I think that the two applications are to be regarded as separate “events” for the purposes of costs.

24.  On that basis, the liquidators’ summons having failed, I can see no basis for varying the costs order nisi which I made in relation to it (I will come back in due course to the question of whether certificate for two counsel should have been granted).

25.  As to whether such costs should be borne by the liquidators personally, which the Official Receiver seeks to have made explicit, it seems to me that the attempt to have the Official Receiver’s application summarily dismissed, cannot in any sense be regarded as having been for the benefit of the companies concerned.  I can therefore see no basis for the liquidators to seek to recoup themselves in respect of such costs from the assets of the companies, and it follows that they should bear those costs personally.

Costs of the Official Receiver’s application

26.  So far as the costs of the Official Receiver’s summons is concerned, having regard to my decision in this judgment that the substantive order which I made should remain unaltered, I can see no basis for varying the costs order  nisi in the manner suggested by Mr Barlow.

27.  In particular, I do not think that I should make different costs orders in relation to different liquidations.  I have considered whether I should do so, in the light of the fact that the substantive order made is likely to be of fairly limited application, but am of the view that the argument in relation to the applications would have been of the same scope and extent in any event, regardless of the number of liquidations which were the subject of the application.

28.  I have also considered whether a more favourable costs order should be made in favour of the liquidators given the outcome of the application.  However, I am not persuaded that the costs order nisi was inappropriate, having regard to the fact that my conclusion was that it was still open to the Official Receiver to continue with the applications if he thought it appropriate to do so, and to the fact that some of the other aspects of the application did not require orders to be made as a result of the way in which the hearing developed (see paragraph 10(3) above).

29.  On the other hand, I am not persuaded by Mr Strachan’s suggestion that the Official Receiver should have the whole of his costs either.  Notwithstanding that I was of the view that the application was one which the Official Receiver could properly bring, it seems to me that the failure on his part to obtain all that he was seeking should be recognised in the costs order to be made.

30.  I therefore decline to vary the costs order nisi in so far as it concerns the proportion of costs (50%) awarded to the Official Receiver.

31.  As with the costs of the application by the liquidators for summary dismissal, it seems to me that the defence of the application was largely for the benefit of the liquidators, rather than the companies concerned, and in these circumstances, it seems to me that the costs should be borne by the liquidators personally.

Certificate for two counsel

32.  So far as the question of certificate for two counsel is concerned, while the matters were of some complexity and weight, I am persuaded that they were not such as to justify the instructing of two (Hong Kong) junior counsel.  In saying this, I mean no disrespect to either Mr Strachan or Mr Beresford, but it does seem to me that the application was one which, on reflection, could have been dealt with by a single counsel of sufficient seniority.  In the circumstances, therefore, I would vary my costs order nisi to the extent of removing from it the certification of fitness for two counsel to be instructed.

Outstanding reserved costs

33.  Finally, dealing with the outstanding reserved costs, it seems to me that as between the liquidators and the official receivers, the costs of the hearings on 25 July, 17 and 23 September 2003 should follow the event, as these hearings were largely in the nature of directions hearings.  So far as the hearing on 17 September 2003 was concerned, I do not think that any different order is called for by reason of the fact that the hearing dealt with the position of Mr McKellar - as far as the immediate protagonists were concerned, it remained in the nature of a directions hearing.

34.  So far as the hearing on 26 September 2003 was concerned, this was an application by the liquidators for specific discovery and production of documents, which was dismissed after a contested hearing.  In the circumstances, it seems to me that the costs of this hearing should be paid by the liquidators to the Official Receiver, such costs to be borne by the liquidators personally, and not out of any assets of the companies that might otherwise be available.

35.  Finally so far as the costs of the re-amendment of the Official Receiver’s summons are concerned, I shall make the usual order for costs, that costs of and occasioned by the amendment should be to the liquidators.  I do not think that this will make a great deal of difference, since virtually all of the costs incurred in relation to the applications would in my view have been incurred in any event, but to the extent that it does, it will be open to the liquidators to offset the costs due to them under this order against those which they will have to pay the Official Receiver.

The costs of the present applications

36.  It remains for me to deal with the costs of the summonses which were the subject of this hearing.  In the result, neither party has been completely successful.  The liquidators have failed for the most part on the points which they have argued, and have not obtained any variation of the costs orders made other than in relation to the question of certificate for two counsel.  On the other hand, the Official Receiver has not succeeded in obtaining a variation of the costs order made to any appreciable extent.  In these circumstances, while it would be possible to make separate costs orders in relation to each side’s summons(es), I think that the simpler course would be to make no order as to costs in respect of those summonses, both in relation to the hearing which took place on 8 and 11 March 2005, and in relation to the earlier hearing on 18 February 2005, the costs of which were reserved.