LEE SHU HANG AND ANOTHER v. KAN LAP KEE aka TERRY KAN

HCMP 2320/2020

[2024] HKCFI 2836

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2320 OF 2020

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D E C I S I O N

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1.  This is an application by the defendant (“Kan”) for stay of execution of, amongst others, costs orders.

Background

2.  The background of the dispute was set out in the judgment of this court dated 8 March 2022 (“the Judgment”). For the present purpose, this court continues to adopt the definitions and abbreviations in the Judgment.

3.  To recapitulate, the plaintiffs represent the estate of their late father who petitioned for the winding up of Pak Tat in HCCW 236/2011 in the circumstances explained in the Judgment. At one stage, the plaintiffs have applied for stay of the winding up and the discharge of Kan as the then liquidator. The plaintiffs have also taken out an application for the return and/or account by Kan of professional fees and expenses incurred in relation to a number of specific matters in the liquidation of Pak Tat on the ground of his alleged misconduct as liquidator, together with costs on indemnity basis, ie the Misfeasance Summons. The application was subsequently amended to include that for the assessment or taxation of liquidator’s bills lodged by Kan to be set aside and/or re-opened (“the Reassessment Application”).

4.  These came before Hon G Lam J (as he then was), who handed down his decision and made the order on 23 January 2020 (“the 23/1/2020 Order”). Amongst other things, His Lordship ordered that the winding up order against Pak Tat be stayed on conditions, one of which was that the plaintiffs would make to Kan interim payment of 50% of his costs as liquidator as taxed then minus the sum previously held by him on account. The Misfeasance Summons/Reassessment Application was adjourned.

5.  Pursuant to the 23/1/2020 Order, the winding up order in respect of Pak Tat was eventually stayed permanently by the order of the court on 15 December 2020 while the liquidators, including Kan, were formally discharged.

6.  The proceedings herein followed. The plaintiffs applied for committal order against Kan as the then liquidator of Pak Tat for breach of an order of the court made in the winding up proceedings of the company. By the Judgment, this court found the alleged contempt on the part of Kan was proved, and dismissed his counter-application. This court awarded costs against him on an indemnity basis.

7.  Hearing mitigation on 12 August 2022, this court sentenced Kan by way of a fine of HK$250,000 payable within 14 days (“the Sentencing”). This court awarded costs of and occasioned by the mitigation and sentencing hearing to the plaintiffs on an indemnity basis.

8.  The costs payable pursuant to the costs orders under the Judgment and the Sentencing were eventually taxed. On 20 February 2024, the Deputy Registrar issued the allocatur certifying the amount of the taxed costs (“the Allocatur”).

9.  By summons filed on 8 March 2024, Kan applies for stay of execution of the Allocatur as well as the costs orders made by this court upon the Judgment and Sentencing mentioned above until (i) his appeals against the Judgment and Sentencing (CACV 108/2022 and CACV 347/2022) have been finally disposed of; (ii) the Misfeasance Summons of the plaintiffs against the defendant has been finally determined; and (iii) taxation of all the Liquidators’ bills have been finally determined.

The plaintiffs’ summons filed on 26 June 2024

10.  In the course of the affidavit evidence for the present application, Kan made criticism by way of his affirmation in reply, causing those acting for the plaintiffs to seek leave to file a further affirmation. Hence their summons filed on 26 June 2024. The affirmation was meant to provide the most recent update of the status of the arbitration proceedings by the plaintiffs against the purchaser of the Shenzhen company owned by Pak Tat. Counsel for the plaintiffs acknowledged the limited purpose of the affirmation, but its admissibility was not strongly opposed by counsel for Kan. It is taken into account on a de bene esse basis.

Kan’s present application

11.  One should first note that the Allocatur does not exist as an order of the court directing Kan to pay the taxed costs independent of the actual orders to do so under the Judgment and the Sentencing. It follows that the Allocatur is not an order subject to stay independent of the costs orders under the Judgment and the Sentencing. Nor does the application in respect of it as lodged by Kan add anything to the application to stay the actual costs orders.

12.  The defendant indeed seeks to stay the two costs orders. For this he applies pursuant to O45, r11 or O59, r13 of the Rules of the High Court, Cap 4A or the inherent jurisdiction of the court.

13.  O59 r13 provides for the stay of execution of the judgment or order pending appeal. Kan’s appeals against the Judgment and the Sentencing were lodged on 12 April 2022 and 25 August 2022 respectively. However, the appeals were dismissed by the appellate court after hearing on 9 April 2024. Reasons for decision, according to the parties, would be handed down at any time soon. In the circumstances, O59 r13 ceases to provide the relevant jurisdictional basis for the present purpose.

14.  O45, r11 provides that a party against whom a judgment has been given or an order made may apply to the court for a stay of execution on the ground of matters occurring since the date of the judgment or order. Such have also been construed to refer to matters which impact on the validity of the judgment or order which, if established before the court, might justify the court in saying that this is not a judgment which on the material placed before it, it would allow to be exercised: see Credit Lyonnais v SK Global Hong Kong Ltd [2003] 4 HKC 104 (citing Tam Ho Man v Wong Kwok Tai, HCA 4736/1985 (20 October 1986).

15.  The matters raised by Kan and discussed above are not matters which occurred only after the Judgment and the Sentencing, let alone impacting the validity of the orders made: see for instance Baosteel Engineering & Technology Group Company Limited v China Zenith Chemical Group Limited [2022] HKCFI 2343. The fact was that stay of execution of the costs orders in these proceedings was not perceived until after the plaintiffs have issued demand for their taxed costs as certified by the Allocatur. That was 2 years after the costs order was made under the Judgment. Notwithstanding the appeals against the Judgment and the Sentencing, there has been no application for stay of execution of the costs orders until nearly 2 years after the first of these appeals was lodged as mentioned.

16.  The stance of Kan in the present application, as will be discussed below, is that the balance of his professional fees as liquidator payable by the plaintiffs are expected to exceed the plaintiffs’ costs. Such stance could have been taken even prior to the Allocatur. Yet Kan did so only now. Insofar as the delay had to do with the outstanding Misfeasance Summons and the Reassessment Application, those proceedings were admittedly adjourned because of Kan’s appeals against the Judgment and the Sentencing. If Kan attempts further appeals to the final court, as he indicated, one expects further delay will be engineered as a result.

17.  The above very much sets the scene behind how the present application came about.

18.  The application boils down to Kan’s appeal to this court to exercise the inherent jurisdiction to stay. Exercise of such jurisdiction however does not detract from the starting point that a judgment creditor should be able to take all legitimate measures to enforce the judgment instead of being deprived of its fruits: see for instance Credit Lyonnais (above) at §4. Discretion to stay remains to be exercised in special, if not exceptional, circumstances.

19.  Essentially, the defendant refers to the outstanding proceedings in respect of the Misfeasance Summons, and argues that he is potentially entitled to the balance of his professional fees as liquidator payable by the plaintiffs which would exceed the amount certified by the Allocatur to be payable to them. Further, he projects the risk that the plaintiffs, if allowed to execute the costs orders, will not be good for recovery which he may eventually be entitled to seek from them.

20.  The plaintiffs disagree.

21.  In principle, mere existence of a cross action by the debtor against the judgment creditor will not ordinarily suffice for justifying a stay. This was what the court in Baosteel Engineering (above) said (at §18), referring to Burnet v Francis Industries PLC [1987] 1 WLR 802. Whilst the court in Baosteel Engineering said so with in mind the context of the parties not being the same or in the same capacities, the relevance of the principle in my judgment is not compromised. It requires more than the mere existence of a cross claim by the debtor against the judgment creditor to be special circumstance justifying the deprivation of the judgment creditor of the fruits of the judgment. The same should apply to costs orders which are recompense for the receiving party for the money expended in litigation with the party found to be liable to pay such costs: see Perotti v Watson [2001] EWCA Civ 506 (at §§12; 15).

22.  In fact, it is common ground that pursuant to the 23/1/2020 Order, Kan has received 50% of his liquidator’s fees according to the amount as taxed by then apparently on an ex parte basis. That was receipt by Kan of a total sum of HK$4.47 million. However, whether Kan is entitled to keep the entirety of the payment received and any further liquidators’ fees as well as the quantum are now fluid.

23.  First, the 23/1/2020 Order was made pursuant to, amongst other things, undertaking by the plaintiffs to jointly and severally pay Kan’s liquidator’s fees to be determined, adjudicated, assessed and/or re-determined, re-adjudicated and/or re-assessed by the court under and/or pursuant to the Misfeasance Summons and the Reassessment Application. In line with that, Kan’s cross undertaking to repay any amount found by the court to have been paid to him in excess of his entitlement was recorded by His Lordship in his decision. Kan’s entitlement to his fees and their quantum will now hinge upon the findings and reassessment which the court may make in the pending proceedings.

24.  Actual merit of the plaintiffs’ challenge against Kan in those proceedings aside, reference by Kan to the taxed liquidator’s fees or its balance, as if this is what the plaintiffs should expect to owe to him, now becomes neither here nor there. Nothing said by His Lordship in his decision in making the 23/1/2020 Order may be borrowed to cast light on the likelihood of the eventual existence of a net balance in favour of Kan so as to justify stalling the plaintiffs from recovering their taxed costs. The court in Perotti (above) expressed (at §13) similar sentiment in such circumstances.

25.  Second, apart from the costs certified by the Allocatur, there are now the further costs of the appeals against the Judgment and the Sentencing, which Kan was ordered to pay to the plaintiffs. Whether or not Kan intends to attempt final appeal is neither here nor there insofar as such adjudged costs liability is concerned at least as of this stage.

26.  The circumstances, in my judgment, are distinguishable from those in Re Lehman Brown Ltd (No 2) [2015] 5 HKLRD 1, as the court there found them to be both unusual and sufficient in demonstrating the highly likely practical result of a one sided net liability, and hence special circumstance to justify a stay.

27.  Third, where the potential state of the alleged potential set-off between the parties’ respective entitlements contended by Kan is not so clear as alleged, the premise for considering the worthiness of the plaintiffs to meet any recovery action by Kan in due course becomes relatively weak. Further, worthiness of the plaintiffs in this respect would have been the concern when their undertaking was offered, which Hon G Lam J accepted and upon which His Lordship decided to make the 23/1/2020 Order. No issue was ever taken as to whether such undertaking would be worthless without fortification. In any event, it is incorrect to suggest that the plaintiffs have not adduced any evidence in respect of their assets, albeit held by overseas corporate vehicles but traceable in the form of substantial landed properties within the jurisdiction.

28.  Fourth, even assuming this court somehow considers that in principle the execution of the costs orders may be stayed pending the outcome of the Misfeasance Summons and Reassessment Application on the basis of a possible net balance between the parties’ liabilities to costs one way or the other, the fact remains that this is adjudged liability of Kan to pay the plaintiffs’ taxed costs as opposed to the uncertain outcome of the outstanding proceedings. In view of that, the court would be quite entitled to consider as a matter of balancing in the exercise of discretion to impose condition for any stay. A fair condition would be requiring such taxed costs or part of them to be paid into court or to a stakeholder in the interim. Certainly no such offer was made by Kan. Nor did his counsel make any proposal for enabling him to address such consideration, despite the opportunity given upon the issue being raised by this court at the hearing. Counsel relayed that he had no instruction regarding that from Kan.

29.  Last, in view of the amount of the costs certified by the Allocatur and timing of when Kan perceived bringing the present application as mentioned, I am hardly impressed that execution by the plaintiffs of the costs orders as taxed or satisfaction of the same by Kan now may be categorised as abusive and manifestly unjust respectively.

Conclusion and order

30.  I allow the plaintiffs’ application by their summons filed on 26 June 2024 in relation to the further affirmation with costs in the cause of Kan’s application.

31.  All matters considered, Kan’s present application is dismissed with, on nisi basis, costs to the plaintiffs with certificate for counsel. Unless application to vary is made within 14 days from the date hereof, the nisi costs order will become absolute without further order. Upon that, the plaintiffs shall lodge and serve their statement of costs within 7 days, and Kan may lodge and serve his comment within 7 days thereafter. Costs of the application payable by Kan will be summarily assessed on paper only.