張才奎所託管中國山水投資有限公司股份相關員工 and Others v. 張才奎 and Another
Read the full judgment text of HCA 1661/2014 on BabelCite. This High Court CFI judgment was delivered on 1 April 2021.
1. There are 2 summonses issued in these 6 consolidated actions [1] before the court, both of which concern the fees of the court‑appointed receivers (“ Receivers ”) [2] of certain shares in China Shanshui Investment Co Ltd (“ CSI ”). The first is an application by the Receivers for interim payment of their remuneration and disbursements; the second is an application by those of the plaintiffs who are represented by Stephenson Harwood (“ SH plaintiffs ”) for, among other things, a more detailed
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HCA 1661/2014, HCA 1766/2014, [2021] HKCFI 893 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NOS 1661, 1766 & 2191 OF 2014 AND 623, 939 & 1564 OF 2015 ____________________
____________________ (Consolidated pursuant to the Order of The Honourable Mr Justice G Lam dated 20 August 2015) Before: Hon G Lam J in Chambers Date of Hearing: 21 January 2021 Date of Decision: 1 April 2021 ________________________ D E C I S I O N ________________________ 1.There are 2 summonses issued in these 6 consolidated actions[1] before the court, both of which concern the fees of the court‑appointed receivers (“Receivers”)[2] of certain shares in China Shanshui Investment Co Ltd (“CSI”). The first is an application by the Receivers for interim payment of their remuneration and disbursements; the second is an application by those of the plaintiffs who are represented by Stephenson Harwood (“SH plaintiffs”) for, among other things, a more detailed bill from the Receivers and disclosure of all underlying books and papers in support of the Receivers’ bill of costs. Background 2.The background to the appointment of the Receivers is a dispute between the plaintiffs, who were employees in the Shanshui group, and Mr Zhang Caikui (“Zhang Snr”), who was a senior officer in the management of that group, in relation to the beneficial interest in the shares in CSI registered in Zhang Snr’s name representing 45.6325% of its issued share capital. CSI in turn holds shares in a listed company, China Shanshui Cement Group Ltd (“CSCG”), representing originally 25.09% of the issued shares and, after an allotment in October 2018, 19.47%. The plaintiffs contended that the shares were held by Zhang Snr on trust for them absolutely in specified proportions, while Zhang Snr contended that the shares were held by him on discretionary trusts with the plaintiffs being members of the class of discretionary beneficiaries under those trusts. 3.Three professional accountants, namely, Mr Liu Yiu Keung Stephen, Mr David Yen Ching Wai and Mr Koo Chi Sum, all of Ernst & Young Transactions Ltd (“Ernst & Young”), were appointed Receivers by orders of the court dated 20 May 2015[3] and 14 July 2015[4] respectively, and were discharged by order dated 31 January 2018, for reasons stated in the decisions handed down on those dates.[5] The detailed background can be seen from those decisions, as well as the judgment in the trial of the consolidated actions[6] and numerous other decisions of the court in related litigation, and will not be repeated here. 4.The plaintiffs in the consolidated actions were originally all represented by K & L Gates. To maintain the unity of representation of the plaintiffs in an action, the SH plaintiffs (there being 2,019 of them) withdrew from the consolidated actions in 2017 and, through Stephenson Harwood, commenced a parallel action in HCA 1282/2017 with substantively identical claims which was then tried together with the consolidated actions.[7] Strictly speaking, therefore, the SH plaintiffs are no longer parties to the consolidated actions in which the Receivers were appointed, but nothing turns on this for present purposes. 5.The plaintiffs eventually succeeded against Zhang Snr in the actions. Declarations were made accordingly, and the Receivers were ordered to take steps to transfer the 456,325 CSI shares under receivership to the plaintiffs or to persons nominated by them. 6.Notwithstanding the judgment in those actions, however, there are still disputes over the beneficial ownership of some of the shares. In particular, 369,002 CSI shares have become the subject of an ownership dispute between Mr Chen Hongqing (“Chen HQ”) and Jinan Industrial Development Investment Group Co Ltd (“Jinan Co”) in High Court Action No. 2648/2017, both of whom claiming to have acquired those shares from the employee-plaintiffs. As at 25 January 2019, the registered shareholders of the 456,325 CSI shares are as follows:
7.In relation to their remuneration, the order for the appointment of the Receivers in each of the 6 actions (before consolidation) provides:[8]
8.It is common ground that the Receivers’ remuneration (and disbursements) are subject to assessment[9] by the court (see RHC Order 30 rule 3), usually carried out by a Master of the High Court. The Receivers did not submit any bill for assessment during their appointment. A few months after their discharge, on 8 May 2018, the Receivers submitted a bill for the sum of $28,191,956.95 (“Ex‑parte Bill”) together with supporting documents to the court for assessment. The broad breakdown is as follows:
9.On 24 July 2018, the assessing master proposed a global 10% reduction on the fees and disbursements of the Receivers. For present purposes it is accepted, however, that the assessment can be re‑opened and, by consent, an order was made on 3 September 2018 for all 2,019 SH plaintiffs to be joined in the assessment of the Receivers’ bill. 10.On 9 November 2018 the Receivers applied by summons for interim payment of 60% of their remuneration and disbursements. 11.On 24 January 2019, the SH plaintiffs took out a summons for an order that the Receivers provide a detailed bill of costs and disclose all underlying books and papers. 12.The KLG plaintiffs (ie those of the plaintiffs represented by the solicitors firm of K & L Gates) take a neutral stance on the present 2 summonses and did not appear at the hearing. The Receivers have written to Chen HQ and Jinan Co giving notice of the application for interim payment, but have not received any response. The SH plaintiffs have also given notice of their summons to Chen HQ and Jinan Co. Jinan Co has indicated that it supports the SH plaintiffs’ summons. Interim payment 13.The Receivers’ summons seeks an order that “there be interim payment to the Receivers representing 60% of the Receivers’ remuneration, disbursements and expenses”. Mr David Chen, who appeared for the Receivers, explained that the summons was advisedly formulated in this way without being directed against any specific party personally. He accepted that the Receivers can only look to the assets placed under the receivership for payment of their fees and expenses, and that (absent an undertaking to do so, which had not been given in this case) the court cannot make an order against the SH plaintiffs (or, for that matter, any other party) requiring them to pay any sum to the Receivers in respect of their fees and expenses, which is the position according to the English cases of Boehm v Goodall [1911] 1 Ch 155 and Evans v Clayhope Properties Ltd [1988] 1 WLR 358. He submitted, relying on Secretary of State for the Home Department v C [2011] EWHC 2513 (Admin), that if the court makes an order for interim payment in terms of the summons, it will then be incumbent upon the beneficial owners of the CSI shares, including the relevant SH plaintiffs, to make proposals as to how such interim payment may be paid to the Receivers, failing which the Receivers may apply to the court for an order for sale of a sufficient number of CSI shares for that purpose. Mr Chen recognised that in that event, there could arise disputes as to whose shares should be sold, which would potentially require further litigation to resolve. 14.Mr Chen submitted that the Receivers had done work and were therefore entitled to remuneration, subject only to an assessment of the proper quantum. It follows as a matter of principle, he submitted, that there should be interim payment of a portion of their fees and expenses as soon as possible, pending the assessment. He relied again on the approach adopted in Secretary of State for the Home Department v C, where it was said, in the context of an application for interim payment of the remuneration and expenses of a receiver:
15.Assuming that the court has jurisdiction to order interim payment of the remuneration of a receiver, as has been assumed on behalf of the SH plaintiffs, it seems to me that the power is a discretionary one and that the court’s unfettered discretion is to be exercised having regard to the circumstances of the case. 16.Often the reason for ordering interim payment in favour of office-holders is that a considerable amount of work has been done but the assessment of their bills will take time and it would be unrealistic to expect professionals to carry out significant work without payment within a reasonable time period: see eg Re MF Global HK Ltd (No 2) [2012] 3 HKLRD 56, §6, per Harris J; Re Lehman Brothers Securities Asia Ltd (No. 1) [2010] 1 HKLRD 43, §§22 & 24, per Barma J. 17.In the present case, however, the Receivers had been put in funds to a large extent at an early stage. The evidence available so far shows:
18.In Mr Stephen Liu’s 8th affirmation made in March 2019, it was said that the funding had been provided to the Receivers by way of loan. In his 10th affirmation made in February 2020, it was said that despite Zhao Yongkui’s death, the Receivers remained liable to repay the funds, and would do so via Wong & Lawyers as and when the Receivers recovered their remuneration in these proceedings. It is, however, unclear what the basis is for saying that there is a loan, and the Receivers have not explained it. The mere fact of the payment does not give rise to a presumed legal obligation to repay: Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd & another (2015) 18 HKCFAR 364, §106. There is no suggestion that there was any written loan agreement. No relevant documents other than the 2 letters from Wong & Lawyers mentioned above have been disclosed. Those letters do not seem to me to evidence any loan by Zhao Yongkui to the Receivers or any payment made by him at the request of the Receivers. Instead, they expressly stated that the funding was provided at the request of, and for and on behalf of, the plaintiffs. 19.There is in fact an allegation made against the Receivers (in HCA 86/2018, an action brought by 5 of the SH plaintiffs against Mr Stephen Liu and Mr David Yen) that the above funding came ultimately from Tianrui (International) Holding Co Ltd, a major shareholder of CSI. In that action, K Yeung J has held, based on evidence similar to that before me, that the allegation was not obviously unsustainable and should not be struck out.[11] 20.It is not necessary for present purposes to investigate from where the funding originated. It is sufficient to say that, on the available evidence, the Receivers have been put in funds since 2015, by payment made apparently for and on behalf of the plaintiffs, to the tune of over 60% of their fees and expenses, whether as at the time of the summons or as at the time of Mr Liu’s 14th affirmation which referred to additional fees having been incurred since. For this reason, I do not think there is any justification for making the order for interim payment sought. That summons is consequently dismissed, with an order nisi that the Receivers do pay the costs of the SH plaintiffs to be taxed if not agreed. The SH plaintiffs’ summons 21.The Ex‑parte Bill lodged by the Receivers with the court on 8 May 2018 included, among other things, the following:
22.On 8 June 2018, Master Lui raised certain general requisitions on the Ex‑parte Bill, such as asking for justification for the time spent personally by the 3 Receivers. The Receivers provided their response on 10 July 2018. 23.By a letter dated 24 July 2018, Master Lui proposed adopting a broad‑brush approach and making a 10% reduction to the fees of the Receivers and the profit costs of PCW. The reply came on 31 July 2018 that the Receivers and PCW accepted the proposed reduction on a global basis. On the same day, however, the SH plaintiffs took out their summons to be joined in the taxation of the Receivers’ bills. An order was made by consent on 3 September 2018 for the SH plaintiffs to be joined. 24.On 24 January 2019, the SH plaintiffs took out the summons under consideration, seeking, among other things, an order that the Receivers provide a detailed bill of costs for taxation and disclose all underlying books and papers in support of the Ex‑parte Bill, including but not limited to copies of all correspondence, emails, faxes, letters, messages, memorandum, advice, notes (and their drafts) evidencing and/or constituting the work for which fees were charged by the Receivers and/or their advisers in the Ex‑parte Bill. 25.In Mr Liu’s 8th affirmation filed on 27 March 2019,[12] it was stated that the Receivers and PCW were agreeable to providing more detailed bills of costs, which were exhibited to that affirmation (“New Bill”). The Receivers, however, opposed the application for disclosure and production of “all underlying books and papers” in support of the Ex‑parte Bill. In his skeleton argument for the hearing, Mr Chen indicated that the Receivers were prepared to produce all external correspondence relating to the Ex‑parte Bill and the New Bill. 26.The New Bill comprised a total of 107 pages of which:
27.On behalf of the SH plaintiffs, Mr Maurellet SC submitted that the New Bill was still inadequate, and pressed for a detailed bill of costs as well as an order for disclosure of all related underlying documents. His submissions may be broadly summarised as follows:
28.On behalf of the Receivers, Mr Chen submitted broadly as follows:
29.In my view it is unnecessary to make a formal order for reopening the assessment of the Receivers’ fees and expenses. The Master indicated a proposed approach and Receivers expressed their agreement, but there has not yet been an actual assessment by the Master. In the circumstances, there is no dispute that the SH plaintiffs may raise objections in the inter partes assessment that has yet to take place. 30.As regards the requisite level of details and information in respect of the bills of office‑holders to be assessed, the leading authority in Hong Kong is the decision of Le Pichon J in Re Peregrine Investments Holdings Ltd [1998] 2 HKLRD 670. Although that case concerned the remuneration and disbursements of provisional liquidators, the broad principles set out there (at pp 679B-680A) and quoted as follows are also applicable to receivers. Indeed, the English case of Mirror Group Newspapers plc v Maxwell & others [1998] BCC 324, from which the principles were drawn, was a decision concerning the remuneration of court‑appointed receivers.
31.A central notion in these principles, as applied to the present case, is that the Receivers are fiduciaries, and their claim for fees involve an inherent conflict between their own interests and their duty to protect the interests of the owner of the CSI shares, the property put in receivership, against unnecessary expenditure. They must therefore justify the tasks undertaken and their extent by the standard of “the care and anxiety of a prudent businessman acting in his own affairs at his own costs and risk”: Peregrine, at pp 682F & 686D-E. The assessment is not simply an exercise of assessing, for example, whether it was reasonable to take 2 hours to read a particular document. 32.Le Pichon J set out the questions that the assessing court should ask (at p 684) as follows:
33.The SH plaintiffs have so far pointed to a few discrepancies between the Ex‑parte Bill and the New Bill but it seems to me they can be explained in an affirmation. Such inconsistencies do not necessarily warrant an entire revised bill, unless the discrepancies are so numerous, substantial and pervasive as to call into question the whole basis of preparation of the 2 existing bills. 34.Of greater concern, however, is that the 2 existing bills have not been produced in such a form as to reveal readily the purpose of the acts charged for or the tasks for which they were carried out or of which they formed part. By looking at the line items with a brief description of the work, one can hardly assess whether they were done for a task that was worth undertaking, what the overall costs associated with that task were, and whether the costs incurred were proportionate and commercial with regard to the value of that task. For an example, see the entry quoted in §26(1) above: what tasks did the various acts done by Michelle Wong relate to? What was her function in reading the documents? It may be that, with the disclosure of external correspondence, one can more easily put any items relating to reading and drafting letters into their proper context, but this is only one step in the right direction. It may also be that some or even most of the tasks performed by the Receivers have been set out in the Receivers’ reports, but there has been no attempt by those who prepared the bills to link them to any available narrative information, which is not an exercise that should be left to the court or to the SH plaintiffs themselves to undertake on the basis of guesswork. 35.The form of “remuneration statement” in Atkin’s Court Forms, relied upon by Mr Chen, does not in my view take matters very far. It seems to be a rough and general template for a run‑of‑the‑mill case, not an authority indicative of a settled practice. Indeed, in Maxwell, Ferris J was also referred to that form (in the 1993 edition), but stated (at p 338G) that it was not to be concluded from this precedent that, unless positive reason is shown for taking a more stringent course, the court will normally proceed on such broad basis. 36.I also accept the SH plaintiffs’ submission that the aggregate line entries should be broken down, as far as the underlying records permit. This should not present difficulties if the underlying time records had differentiated between the different acts, as what is required is not an ex post facto reconstruction now. If there remain aggregate line entries thereafter, I think the assessing court would be entitled to assume that the contemporaneous time records fail to make such differentiation and proceed accordingly. 37.I bear in mind the need for proportionality and commercial practical common sense. Having regard to the high amount of fees claimed, I do not think that the further information required would be disproportionate. It has not been established by the Receivers that it would be an oppressive or unduly difficult exercise for the further details to be supplied or for the bills to be revised in a way that enables critical scrutiny to be carried out along the lines stated in Peregrine. Any claim to that effect would mean that proper records had not been kept in the way they ought to be in light of the Peregrine principles. 38.I agree also with the SH plaintiffs that the various capacities in which the Receivers had acted give rise to an extra dimension in this case that requires special consideration in the assessment of their fees. There may be tasks that were peculiar to the Receivers as receivers and separate tasks peculiar to the CSI directors and CSCG directors as such directors, but it is likely that there are also tasks in respect of which the same individuals would have done work in multiple capacities. For example, where one of the Receivers spent 4 hours reading documents concerning one of the dilutions proposals, it would be fair to ask whether he read them as a receiver of CSI shares (and as CSI shareholder), or as a CSI director, or as a CSCG director. Since his mind obviously cannot be compartmentalised, how was the cost actually apportioned and charged? And without knowing the overall amounts involved including any portions attributed to CSI and CSCG, how can one assess whether and to what extent a particular time‑cost stated in the Receivers’ bills should be allowed? The same problem may not arise in relation to the lawyers’ bills because the Receivers, CSI and CSCG retained different solicitors. It seems to me that given their various capacities the Receivers should provide an account that meets these concerns. 39.As part of the assessment exercise, and as part of their general responsibility to account, the Receivers should in my view produce their bills issued to CSI and CSCG for the assessing court to have an understanding of their work in those capacities and the extent of such work, and to be able to assess the application of their apportionment policy. I reject the argument that these documents should not be disclosed because they are documents created outside the receivership. The Receivers became directors of CSI and CSCG only because of and by virtue of their appointment as receivers of the CSI shares. Their income as such directors (or consultants) are in my view the fruits of their office of receivers and fall within the accounts that the court may direct the Receivers to submit under RHC Order 30 rule 5. Whilst the CSI and CSCG bills were not specifically singled out for disclosure in the SH plaintiffs’ summons, the affirmation evidence exchanged (in particular, Zhao Dongwei’s 11th affirmation filed on behalf of the SH plaintiffs on 20 January 2019) should have left the Receivers in no doubt what the SH plaintiffs were seeking. 40.Other than the above, however, the SH plaintiffs have not, in my opinion, made out a case for disclosure of “all underlying books and papers”. I do not consider the assessment exercise to be a reason for requiring the Receivers to hand over to the SH plaintiffs every page of documents generated in the course of the receivership. Nor do I think there is sufficient reason for ordering the Receivers to produce to the SH plaintiffs all the primary timesheets. The case of Luen Tat Watch Band Manufacturer Ltd v Stephen Liu Yiu Keung [2020] HKCFI 2610 relied upon by Mr Maurellet SC is a different kind of case where a company asked its former liquidators to hand over the documents generated in the course of its liquidation after the winding-up had been permanently stayed. It provides no support for the SH plaintiffs’ application here. 41.For the above reasons, there will be the following orders on the SH plaintiffs’ summons:
42.At the moment I see no reason why the matter should not thereafter proceed before the assessing master. It is not necessary for this court to give case management directions in that connection which should be sought from the assessing master. 43.The SH plaintiffs have been successful to a substantial extent on their summons. I make an order nisi that the Receivers do pay the SH plaintiffs 60% of the costs of and relating to their summons.
Mr José Antonio Maurellet SC, Mr Alexander Tang and Mr Kevin Lau, instructed by Stephenson Harwood, for 2019 of the Plaintiffs Mr David Chen, instructed by P C Woo & Co, for the Receivers (Liu Yiu Keung Stephen, Yen Ching Wai David, and Koo Chi Sum) K & L Gates, for 612 of the Plaintiffs, was excused from attendance [1] HCA 1661, 1766 & 2191 of 2014 and HCA 623, 939 & 1564 of 2015, consolidated pursuant to an order dated 20 August 2015. [2] I shall continue to refer to them as “Receivers” even though their office as such has already been terminated. [3] In the first five actions. [4] In HCA 1564/2015. [5] For the decision appointing the Receivers, see Decision in HCA 1661, 1766, 2191 of 2014 and 623 & 939 of 2015, 20 May 2015. For the decision discharging the Receivers, see [2018] HKCFI 194. [7] See paragraphs 39-43 of the judgment in the actions: [2018] HKCFI 195. [8] At paragraph 6 of the order. [9] Although the term “taxation” has been used in some of the documents, the process is strictly speaking not a taxation of costs as such: see Re Hong Kong Chiu Chow Po Hing Buddhism Association Ltd (No 2) [2018] 3 HKLRD 270, at §25. [10] See §§45-47 of the Decision in the consolidated actions for the discharge of the Receivers dated 31 January 2018: [2018] HKCFI 194. [11] Li Ming & others v Liu Yiu Keung & another [2020] HKCFI 2708, at §§111-116. [12] At §16. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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