Re China Fishery Group Ltd

HCCW 367/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 367 OF 2015

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AND

HCCW 368/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 368 OF 2015

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(HEARD TOGETHER)

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D E C I S I O N

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1.On 24 August 2016 the Companies issued a summons for leave to disclose all documents produced in HCCW 367/2015 and HCCW 368/2015. In particular, the Companies wished to be able to use the decision of Deputy High Court Judge Kenneth Kwok, SC made in January 2016, in proceedings in the United States Bankruptcy Court, Southern District of New York, and also proceedings in Singapore and the British Virgin Islands.

2.The matter, after a preliminary hearing in December 2016, came to be set down for a 3-day hearing before me commencing on 23 May 2017.  The reason why such a substantial period was allotted was because the application was contested by HSBC on the grounds that:

(1)  the proceedings in Hong Kong had been terminated in accordance with a deed of undertaking dated 20 January 2016; and

(2)  it had been found by the Honorable James L Garrity in a judgment dated 28 October 2016 in proceedings in the Southern District of New York that (and it is convenient to quote the relevant passages from Judge Garrity’s decision):

“…

b. on June 30, 2016, the Debtors deliberately breached all aspects of the Deeds of Undertakings by commencing these Chapter 11 cases and numerous foreign insolvency proceedings, and terminating or causing the resignations of all of the professionals hired under the Deeds of Undertakings for the express purpose of providing lenders with independent oversight over management and the agreed sale process (see December 2015 Deed [Movants’ Ex. 10]; January 2016 Deed; Hr’g Tr. 224:21-225:2);

…

Instead, the Court finds that the Movants have shown that they have lost all confidence in the Debtors’ management for a number of good reasons, including:

• management’s deliberate and premeditated breach of the Deeds of Undertakings (see Hr’g Tr. 208:25-209:12);

…”

3.Some weeks before this hearing the Companies through their solicitors Lipman Karas informed HSBC’s solicitors Linklaters that they did not intend to proceed with the summons.  The reason given in a short affirmation made on 22 May 2017 by Stephen Chiang Chi Kin, the senior legal counsel of Pacific Andes International Holdings Limited, is that the documents that were sought by the Companies have now been sought by the United States trustee in a motion filed on 27 December 2016 in the United States Bankruptcy Court, Southern District of New York.  The parties could not, however, agree how the costs of the summons should be dealt with.  The Companies sought no order as to costs.  HSBC sought its costs on an indemnity basis. 

4.Prior to the hearing it appears that the Companies were not aware of my decisions in Re Lucky Ford Industrial Limited [2013] 3 HKLRD 550 or Re Sino Pacific Corporation Limited, HCCW 257/2015 (unreported, 20 January 2016).  I said this in paras 4-5 of Re Sino Pacific Corporation:

“4. In Re Lucky Ford a winding‑up order was made, and the consideration of the relevant approach to the assessment of costs was made in that context. I shall not repeat the majority of my earlier decision but I would quote para 12 and 14:

‘12. If judgment is entered for relief sought by a petitioner pursuant to a consent order, as was the case in Re Chinese United Establishments Ltd, or the respondent has withdrawn his objection to the relief sought by a petitioner resulting in judgment in his favour, costs will follow the event.

…

14. In my view having regard to O.1A r.1 the correct approach to determining costs in cases which do not involve the court granting substantive relief is for the court first to consider the terms of settlement and assess whether the petitioner has obtained substantially what he sought in his petition. If he did it will not be necessary or appropriate for the court to consider evidence and arguments directed to the merits of the case and whether or not the petitioner would have been successful if the petition had gone to trial. The petitioner will be treated as having been successful and entitled to his costs.’

5. In short, in my view, where it can fairly readily be said that a petitioner has either been successful or unsuccessful in attempting to obtain what was sought by issue of a petition, costs should be determined by reference to whether or not the petitioner has been successful.  The court should not be required or need to spend time dealing with speculative arguments about what might or might not have happened if one or other of the parties had dealt with the matter differently.”

5.The Companies have decided not to proceed with its summons for its own reasons.  There is no suggestion that the application has become unnecessary as a result of any concession made by HSBC.  In the circumstances it seems to me that the Companies should pay HSBC’s costs.  The precise reasons why the Companies have decided not to proceed with the application are of no material significance.

6.HSBC’s grounds for seeking costs on an indemnity basis are as follows: there is a clear finding of Judge Garrity that at the time HSBC agreed to withdraw its appeal of the decision of Deputy Judge Kenneth Kwok in return for the various undertakings contained in the deed of 20 January 2016 made between the Companies and HSBC, including an undertaking expressly given to this Court and referred to in the recitals to the order bringing the proceedings to a close, namely, that steps would be taken to sell the Peruvian business of the group of which the Companies form part, that the Companies’ management did not intend to comply with that undertaking: see the passage from the decision referred to above.  The relevant undertaking to this Court is contained in an order that I made on 1 February 2016 and reads:

“… AND UPON undertakings of China Fisheries International Limited (the ‘Company’) providing to the Court as set out in Clauses 2.3 and 2.4 of the Deed of Undertaking dated 20 January 2016 entered into between the Petitioner, the Company and China Fishery Group Limited, a copy of which is appended at Schedule 1 to this Order (the ‘Deed of Undertaking’) …”

7.HSBC argues that the Companies’ conduct in securing the abandonment of the appeal by entering into a settlement, material parts of which were contained in an express undertaking to this Court,  when the management of the Companies had already formed the intention not to comply with material parts of the undertaking was an affront to the Court and in these circumstances it was appropriate for this Court to signify its displeasure with the Companies’ conduct by ordering costs on an indemnity basis: see Hong Kong Civil Procedure 2017, vol 1, para 62/App/12.  HSBC further argues that it is not necessary for the Court to conclude that it was likely that this would have been sufficient to lead to the dismissal of the summonses, it is sufficient for the Court to take note of the Companies’ conduct and, if it forms the view the conduct is sufficiently reprehensible, to order costs on a higher basis.

8.It is clear from Judge Garrity’s findings in his decision of 28 October 2016 that the Judge has found as a fact that the Companies’ management gave undertakings to this Court that at the time they did not intend to comply with.  This is, of course, unacceptable and does represent an affront to the Court.  I am satisfied that in the circumstances it is appropriate to order costs on an indemnity basis including the costs of today and I so order.

9.As I have mentioned there is an application made to the United States Bankruptcy Court, Southern District of New York, by the United States trustee for an order that documents including those sought in the summonses in these proceedings be provided to him.  As matters currently stand neither party is able to use the documents for any purpose other than the conduct of these proceedings.  It seems to me that before any of the parties release the documents they should first obtain an order of this Court.  If the Court in New York considers that it is desirable that they are released to the United States trustee this is a matter to which I would have regard and, if it were considered helpful, the parties can consider a protocol for expediting this process.  They might have regard to the JIN Guidelines.  I will, therefore, make the following order:

“The parties whether themselves or through their agents or employees must not without order of the Honourable Mr Justice Harris or such other judge as he directs provide to any person any of the documents or copies thereof referred to in the summonses dated 24 August 2016. There be general liberty to apply.”

Mr David Kidd, of Linklaters, for the petitioner (in both actions)

Mr James Wood, solicitor advocate, of Lipman Karas, for the respondent (in both actions)