LEE CHEUNG LAU v. THOMAS LEE HOK LAU AND OTHERS

HCCW 289/2012

[2021] HKCFI 1386

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 289 OF 2012

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REASONS FOR DECISION

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1.  In February 2014 the Company, which was the subject of a shareholders’ dispute, was wound up by consent. The Company was solvent and the Liquidators have realised over HK$2 billion of assets. In early 2016 there was a dispute amongst shareholders about how to realise the value of a subsidiary in the Mainland. The Liquidators issued a summons seeking directions from the Court confirming that the method they proposed should be used could be adopted.

2.  I heard the application on 25 August 2016 and gave a 5-page ex tempore Decision.  I granted an order substantially in the form sought by the Liquidators for the reasons explained in my Decision.  I ordered that the costs of both the Petitioner and the 1^st Respondent be paid out of the assets of the Company.  In late 2019 the Petitioner asked the Liquidators to agree its costs, which it claimed to be HK$1,853,946.  The Liquidators say that they reviewed the supporting material carefully and after negotiating agreed to settle the Petitioner’s costs for HK$1,483,156.80.

3.  The 1^st Respondent objected to the amount to which the Liquidators were prepared to agree.  The 1^st Respondent says that the amount is manifestly excessive.  The 1^st Respondent has issued a summons challenging the Liquidators’ decision and seeking an order that the Petitioner’s costs be taxed and that the 1^st Respondent be authorised to conduct the taxation.

4.  It is uncontroversial that a liquidator’s decision is only be interfered with if it is reached in bad faith or falls outside the range of decisions that a liquidator, applying the relevant legal principles and giving proper weight to factual matters could reasonably be expected to make [1]. There is no suggestion that the Liquidators’ decision was made in bad faith. This means that I should not grant the 1^st Respondent’s application unless I am satisfied that the Liquidators did not apply the relevant legal principles and/or give proper weight to relevant factual matters: which for shorthand I shall refer to as a “manifestly unreasonable” decision.

5.  In the present context this involves, initially, me taking a preliminary view as to whether or not the costs look manifestly excessive and, if they do, secondly, whether or not the evidence suggests that despite my initial impression on a more informed consideration the decision is, or is not, a manifestly unreasonable one.

6.  The Liquidators had conduct of the Application.  It was not necessary for the Petitioner to take any steps actively to support it.  He chose to and filed a 20-page affirmation.  He did not instruct counsel for the hearing that was set down for three hours.  The Petitioner was represented by a partner, Mr Norridge from Herbert Smith Freehills (“HSF”) on 25 August 2016.  The order that I made allowed the Petitioner to claim his costs of the Application.  Necessarily this meant costs of the magnitude that would be likely to be recoverable on a party and party taxation.  The costs did not have to be taxed if they could be agreed, but in agreeing them the Liquidators needed to have regard to roughly what might be recoverable on a taxation.  My preliminary view on reading the evidence was that in excess of HK$1,400,000 was manifestly excessive.

7.  The Liquidators filed a 2^nd affirmation of Mr Darach Haughey in response to the Application.  Mr Haughey explains in [37] that the HSF had sent the Liquidators a costs schedule, which was reviewed by the Liquidators.  I asked for an affirmation to be prepared exhibiting the costs schedule (“Schedule”) and the internal documents the Liquidators alluded to in the affirmation.  Shortly before the commencement of the hearing the affirmation was provided.  The Schedule claims that various solicitors at HSF spent between then 390 hours dealing with the Application.  In my view, and having had the benefit of studying the Schedule, there is no conceivable way in which there could be any justification for the Petitioner recovering anything remotely like that level of time costs pursuant to my costs order. 

8.  As an example I take the way in which HSF dealt with the preparation for the hearing on 25 August 2016.  It would appear that preparation began on 27 July 2016, by which I time all evidence had been filed.  The Schedule records six solicitors working on preparation for the hearing including drafting a skeleton argument between 27 July and 24 August 2016 (the day before the hearing).  Between them they record a total of 137 hours.  The skeleton argument that was filed on behalf of the Petitioners was 15 pages, generously spaced and other than the Companies Ordinance only cited one authority.  As any experienced advocate would have predicted given that it was the Liquidators’ application, which was opposed by the 1^st Respondent in person, Mr Norridge did not have to say much.  If the Schedule had shown 20 hours being charged for preparation it would in my opinion have been high given the work that was involved.

9.  I find it difficult to think of any justification for HSF claiming the amounts shown in the Schedule.  In my view the Liquidators should have appreciated that the fees claimed were manifestly excessive and should be taxed.  Let me take another more detailed example to illustrate that the costs claimed by the Petitioner are in my view, unprofessional and entirely unjustified.  The Schedule records 56 hours being spent by various fee earners on drafting the skeleton.  The skeleton was filed on Friday 19 August 2016.  Between Monday 22 August 2016 and Wednesday 24 August 2016 (the day before the hearing on 25 August) the Schedule records three fee earners spending 30.31 hours preparing for the hearing.  This includes the following item on 24 August 2016 for an assistant solicitor, who did not do the advocacy.  “First draft of speaking notes; email from Deloitte re fees; discussing speaking notes with RN; comments from RN on speaking notes; extensive amendment and further drafting re speaking notes; call to Jeffrey re outcome of latest relisting; preparing bundles of documents for hearing tomorrow”, 6.92 hours. Mr Norridge who actually did what little advocacy was required spent 5.5 hours on 24 August 2016 “Finalising speaking notes for tomorrow’s hearing.  Preparing for tomorrow’s hearing”.  It is difficult to understand how even inexperienced, intellectually mediocre, inefficient solicitors with a client requiring an aggressive approach to the prosecution of his case and no stone left unturned, preferably twice, could have racked up this amount of time let alone thought it reasonable for the Liquidators to pay for it.

10.  In my view the Liquidators’ decision to pay the Petitioner HK$1,483,156.80 was manifestly unreasonable and this is one of those rare cases in which the court should intervene.  Having heard my initial views the parties agreed that I should stand the matter down to allow them to discuss agreed terms for the disposal of the application in the following terms:

(1)     The assessment of the Petitioner’s costs be referred to taxation;

(2)     The Liquidators provide to the 1^st Respondent a copy of the Schedule;

(3)     Seven clear calendar days before the taxation the Liquidators shall provide a copy of their list of objections to the 1^st Respondent;

(4)     The 1^st Respondent has agreed that both his own and the Liquidators’ costs of this application be paid out of the assets of the Company, such costs to be taxed if not agreed, subject to one qualification that the costs of the Liquidators’ affidavit are largely disallowed because the contents were unnecessary.  I agree and allow 15% of the costs of the preparation of Mr Haughey’s 2^nd affirmation for the reasons explained in [12]–[14] below.

I consider the 1^st Respondent’s position on costs to be extremely reasonable.

11.  I would before ending make these observations.  I appreciate that the Liquidators wished to try and avoid the delay and expense of a taxation if possible.  I understand that the HSF were insistent that a figure in the order of that eventually agreed was reasonable and that the Liquidators may have considered that paying more than it would appear from some of the internal emails some of the team thought reasonable, was justified on the basis that they might end up spending as much on the costs of a taxation as they would recoup in any saving they would obtain following a taxation.  For the reasons that I have explained I consider that they were wrong in that view, because they appear not to have appreciated just how excessive HSF’s costs were.  This begs the question why?  An answer is suggested by the way in which the Liquidators’ own solicitors dealt with this application.

12.  The Liquidators have filed a 30-page affirmation in opposition to the application.  This was entirely unnecessary. All I needed by way of evidence was details of the costs claimed by the Petitioner and how the Liquidators went about assessing them and agreeing to pay HK$1,483,156.80.  Only two pages of the affirmation dealt with this.

13.  One reason why the court is frequently presented with excessively long affirmations is, I suspect, that the drafter, who will commonly be a junior solicitor, lacks the confidence or experience to determine with any precision what evidence is required.  By the time a lengthy affirmation reaches the desk of a lawyer, who may have the experience to recognise that the affirmation is too long and commonly full of inadmissible argument, it is thought easier to leave it as it is than amend it. In this case that explanation is impossible to justify, although it may have been present, because the court already had the background evidence it needed in the evidence filed for the substantive application.  I suspect that the explanation for foisting the court with such an unnecessarily long document is a combination of ignorance of what is the proper scope and purpose of affirmation evidence filed for interlocutory hearings and a culture, which encourages excessive time being spent on matters in order to achieve time recording targets rather than skilful, cost effective litigation.

14.  The affirmation filed on behalf of the Liquidators goes on at length about the background to the substantive dispute, information which not only is unnecessary in order to determine the application, but could be gleaned from the previous evidence if it was thought otherwise.  Much of the affirmation consists, as is becoming all too common, of long winded expressions of inadmissible opinion, argument and submission.  It may be suggested that the evidence was simply a response to the 1^st Respondent’s lengthy and argumentative affirmation. That is not, however, an excuse.  It simply shows ignorance of the law of evidence and poor litigation judgment.  Particularly as the Liquidators are officers of the court and themselves professionals they need to be alert to poor practices by law firms resulting in the escalation of legal fees.