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

Cited by 28 cases · Cites 16 cases

Case No.HCA 1661/2014[2021] HKCFI 893
Court
High Court CFI
Date01 Apr 2021
Judge
Case Document
100%Judiciary

HCA 1661/2014, HCA 1766/2014,
HCA 2191/2014, HCA 623/2015,
HCA 939/2015 & HCA 1564/2015
(Consolidated)

[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

____________________

BETWEEN    
  張才奎所託管中國山水投資有限公司股份相關員工 第一批原告人
  Relevant employees whose shares in China Shanshui
Investment Company Limited were held by
ZHANG CAIKUI on trust
1st Group of
Plaintiffs
  李延民所託管中國山水投資有限公司股份相關員工 第二批原告人
Relevant employees whose shares in China Shanshui
Investment Company Limited were held by
LI YANMIN on trust
2nd Group of
Plaintiffs

and

  張才奎 (ZHANG CAIKUI) 1st Defendant
  李延民 (LI YANMIN) 2nd Defendant

____________________

(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:

Registered Shareholder Number of Shares
Receivers 383,803
Jinan Co 38,470
趙東偉, 劉現良, 劉樹清
(Zhao Dongwei, Liu Xianliang, Liu Shuqing)
34,052
Total 456,325

7.In relation to their remuneration, the order for the appointment of the Receivers in each of the 6 actions (before consolidation) provides:[8]

“ Subject to the approval of this Court, the remuneration of the Receivers be charged on a time‑cost basis and approved by the Court and, subject to leave of the Court, be paid out of the Shares (and/or dividends derived therefrom) in the first instance.”

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:

Nature Amount
Fees for the services of the Receivers and their staff $16,899,454.22
Recoverable disbursements $250,187.23
Fees of Hong Kong legal advisers $11,042,315.50
Total $28,191,956.95

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:

3. … Thirdly, [counsel] contends that it is inevitable that the receiver will be entitled to a certain sum by way of remuneration and expenses on the following detailed assessment, and that in consequence there is no reason why he should not be paid in part at this stage.

4. In this context, she invited my attention to the judgment of Jacob J, as he then was, in Mars UK Ltd v Teknowledge Ltd [2000] FSR 138. The passage upon which she relied is to be found at page 153 to 154. It is the first paragraph of that passage that is of particular relevance in the context of her third argument. It is in the following terms:

‘ I now turn to the second issue, whether or not there should be an order for interim payment. The first thing to do is to consider what the general rule should be, interim payment or not. There is no guidance given in the Rules other than that the court may order a payment on account. There is no guidance in the Practice Direction. So I approach the matter as a question of principle. Where a party has won and has got an order for costs the only reason that he does not get the money straightaway is because of the need for a detailed assessment. Nobody knows how much it should be. If the detailed assessment were carried out instantly he would get the order instantly. So the successful party is entitled to the money. In principle he ought to get it as soon as possible. It does not seem to me to be a good reason for keeping him out of some of his costs that you need time to work out the total amount. A payment of some lesser amount which he will almost certainly collect is a closer approximation to justice. So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount.’

5. Jacob J was of course addressing a different question in a different context.  But nevertheless, I am satisfied that the passage to which I have just referred reflects a general principle which is applicable to the application now before me as it was to the application before him.”

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:

(1)  On 22 September 2015, P C Woo & Co (“PCW”), the Receivers’ solicitors, wrote to K&L Gates, solicitors for all the plaintiffs then, requesting funding for the receivership.  (This letter itself is not in the evidence.)

(2)  In response, on 19 October 2015, Wong & Lawyers, solicitors acting for 7 minority shareholders of CSI at the time, sent a cheque for $8 million payable to PCW, stating:

“ Your request has been related to our clients, the minority shareholders of [CSI], given the relevant plaintiffs’ financial constraints to do so. At the request of the relevant plaintiffs, our client is prepared to provide funding for and on their behalf regarding the Receivers’ works; and in this connection we enclose a cheque for HK $8 million payable to P. C. Woo & Co.

However, we are instructed to emphasise the following:-

1. The payment is made solely at the request of the relevant plaintiffs.

2. Such payment is not meant and should not in any event be meant to influence any works or decision of the Receivers.

3. Notwithstanding the said payment, the Receivers should remain independent and should acting continue to act fitfully and diligently for the best interests of CSI, as their directors and for preservation of the values of those shares as received by the Receivers.”

(3)  On 22 October 2015, PCW wrote again, apparently to Wong & Lawyers, requesting a further funding for the Receivers’ work.  (This letter itself is not in the evidence.)

(4)  By a letter dated 29 October 2015, Wong & Lawyers sent a cheque for $20 million to PCW, stating:

“ We are instructed that upon further discussion with the relevant plaintiffs in the Trust Action and at their request, our client is prepared to provide the further funding as requested for and on their behalf regarding the Receivers’ works; and in this connection, we enclose a cheque for HK$20 million.” (The three points in the letter of 19 October 2015 were then repeated.)

(5)  According to the Receivers, the client of Wong & Lawyers who provided the funding was Mr Zhao Yongkui.  He was one of the 7 minority shareholders in CSI but fell out with the other 6 in around December 2016.[10] He died in mid‑2019.

(6)  The $28 million had been applied as follows:

-  $12.75 million was paid to the Receivers towards their remuneration.

-  $10.44 million was used to pay PCW’s bills, of which only $607,177.75 remained unpaid (as at May 2018).

-  $4.82 million was used to settle in part the legal fees of $6,153,750 charged by Mayer Brown JSM to CSI in around January 2016.  The sum of $4.82 million was apparently treated as a loan from a shareholder to CSI.

(7)  There is no suggestion that Zhao Yongkui or any representative of his estate after his death had made any demand to the Receivers for repayment of the $28 million or any part of it.

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:

(1)  a copy of the Receivers’ invoice dated 7 May 2018 which stated the 3 “headline” figures mentioned in §8 above;

(2)  a 13‑page “source document” giving background information on the case and the receivership;

(3)  a 2.5‑page “Summary of work done by the Receivers and their staff for the period from 10 May 2015 to 31 January 2018” which set out the nature of work done in bullet points, together with 3 appendices, namely, (i) 8 Receivers’ reports to the court of various dates between 12 June 2015 and 15 February 2017; (ii) a 6‑page “Details of the work‑done of individual actions” setting out in chronological order items of work done in 4 different sets of proceedings, namely, the consolidated actions; HCMP 2498 of 2015; HCA 1282 of 2017; and HCA 2648 of 2017; (iii) a 7‑page chronological list of correspondence;

(4)  a 2‑page summary headed “Analysis of the Receivers’ time costs and disbursements for the period from 20 May 2015 to 31 January 2018”, setting out, by person, the total number of hours billed, the hourly rates, and the total amounts billed for the period;

(5)  a 3‑page spreadsheet headed “Detailed analysis of the Former Receivers’ time costs for the period from 20 May 2015 to 31 January 2018”, which set out information similar to that in the above 2‑page summary, but on a month‑to‑month basis; and

(6)  the solicitors’ bills from PCW, attaching counsel’s and law costs draftsmen’s fee notes.

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:

(1)  54 pages were a tabular document headed “Detailed bill of costs of the Former Receivers and their staff for the period from 20 May 2015 to 31 January 2018”, setting out chronologically the date, the individual who worked, his or her rank, the hours charged, the hourly rate, and a narrative, such as, for example:

Date Employee Name Rank Hours charged Hourly Rate Narrative
27-May-15 Wong, Michelle Senior Accountant – Grade 1 8.00 1,430.00 Read emails.  Read correspondences.  Read case legal docs and decisions.  Prepare summary of correspondences. Administrative work and filing

(2)  53 pages were the time records of PCW for its bills, setting out the nature of the work, the date, the individual who worked, the time spent, the hourly rate, and the total costs charged by PCW for that day.

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:

(1)  The ex parte assessment by the Master by making a 10% reduction across the board should be reopened.

(2)  The amount of fees and expenses claimed in the Ex‑Parte Bill and the New Bill, approximately $28.2 million, is very high.  The Receivers have apparently incurred further fees of approximately $2 million and expenses of approximately $2.2 million since February 2018.  Even so, the fees charged by the Receivers as such represent only a fraction of the total fees charged by the Receivers or their firm for work flowing from or connected with the receivership.  In particular, Ernst & Young had charged CSI $17.2 million as at April 2019 apparently for work done while the Receivers were directors of CSI, and charged CSCG another $62 million for work done up to around 2018.  The amounts billed by the Receivers and their firm thus totalled some $111.6 million.

(3)  The amount of $17.2 million charged to CSI has apparently not yet been paid, and was the subject matter of a statutory demand served by Ernst & Young on CSI in April 2019.  That claim may still have to be resolved, although Ernst & Young had apparently given an undertaking not to present a winding-up petition against CSI without advance notice.  The $62 million charged to CSCG had apparently been paid, but is subject either in whole or in part to a claim for recoupment by CSCG in HCA 548/2019 alleging breaches of fiduciary duty and duty of care and conspiracy.

(4)  The Receivers purportedly wore different “hats” at different times (i.e. as receivers of the CSI shares, as directors of CSI and as directors of or external consultants to CSCG).  The New Bill does not explain the purpose of the steps done.  Without such information, it is not possible to understand whether the work billed is correctly attributed or apportioned to the receivership, as opposed to the other capacities of the Receivers.  The Receivers should provide details of the time spent in their various capacities, and their methodology of apportionment (“apportionment policy”).

(5)  There are discrepancies between the Ex‑parte Bill and the New Bill.  Examples were given in the skeleton argument.

(6)  The New Bill is inadequate in any event, in that (for certain entries) it does not provide sufficient breakdown of the time spent on individual items, but instead groups multiple items on a particular date together giving an aggregate time of, say, 8 or 10 hours.

(7)  The Receivers are fiduciaries.  Their obligation to provide disclosure in aid of an assessment of their remuneration arises out of the fiduciary character of their office and a concomitant duty to account. The Receivers should be required to provide a more detailed and particularised account of the receivership, which may take the form of a further and more detailed bill.  This should be organised such that line items can be grouped by tasks, each task being for a specific purpose for the receivership.  Where a task potentially involved the Receivers wearing different “hats”, explanation should be provided as to how much time was spent on the task overall and how the time spent was apportioned to the different capacities, with reference to the parallel bills issued against CSI or CSCG.  Inconsistencies between the Ex‑parte Bill and the New Bill should be clarified with particulars.  Breakdown should be given for aggregate items.

(8)  The Receivers should provide disclosure of the bills issued to CSI and CSCG as well as any documentation setting out the apportionment policy applied.  Further, instead of disclosing all underlying documents, the Receivers should disclose the internal timesheets or billing sheets.

(9)  The SH plaintiffs’ application for more details and disclosure is directed against the Receivers’ own fees, not PCW’s bills which are accepted to contain sufficient information.

28.On behalf of the Receivers, Mr Chen submitted broadly as follows:

(1)  There is no dispute that the ex parte assessment by the Master can be re-opened and that the SH plaintiffs, so long as they are legal or beneficial owners of the CSI shares formerly in receivership, are entitled to participate in the re-opened assessment.

(2)  The Ex‑parte Bill and the New Bill are adequate to inform the court and the SH plaintiffs of what work was performed and why it was done.  A further bill is unnecessary.

(3)  The Ex‑parte Bill was accompanied by the “Summary of work done by the Receivers and their staff for the period from 10 May 2015 to 31 January 2018”, “Analysis of the Receivers’ time costs and disbursements for the period from 20 May 2015 to 31 January 2018”, “Detailed analysis of the Former Receivers’ time costs for the period from 20 May 2015 to 31 January 2018”, and the Receivers’ reports. The “Summary of work done” and the Receivers’ reports set out in detail the work performed in the course of the receivership, from which the purpose may be seen.  The tasks undertaken should be understood in that context.

(4)  A degree of proportionate and practical commercial sense must be imported into the requirement to account: Best v Ghose [2018] IEHC 376, §§93-87; Snell’s Equity (34th ed), §20‑017.  In the UK, a “remuneration statement” in brief form submitted by the receiver would be sufficient: Atkin’s Court Forms (Vol 33, 1993 issue) at pp 73-74, 157-158; (Vol 33, 2003 issue) at §§117, 157.  The Ex‑parte Bill and the New Bill provide far more details than the template in Atkin’s Court Forms

(5)  If the SH plaintiffs are content with PCW’s bills, there is no reason for them to require further details of the Receivers’ bills.

(6)  The SH plaintiffs are entitled only to the materials submitted by the Receivers to the court for assessment and no more.  The burden is on the Receivers to justify to the assessing master their fees and expenses.  If a receiver provides insufficient particulars and records in his bill, he runs the risk of any doubts about his entitlement resolved against him. 

(7)  The concern arising from the fact that the Receivers acted also as directors of CSI and CSCG is more apparent than real. The SH plaintiffs have only referred to the example of “dilution proposals” (proposals for the allotment of shares by CSCG which would have the effect of diluting CSI’s shareholding in CSCG) but the time costs incurred by the Receivers personally were minimal for the months relating to these proposals. Further, Mr Liu has confirmed that the Receivers’ fees and expenses cover only the work performed by them as receivers, and not their work in other capacities such as CSI directors and CSCG directors.

(8)  Any inconsistencies between the Ex‑parte Bill and the New Bill can be clarified by a supplemental affirmation, without the need for a further revised bill.

(9)  As to the aggregate items, it would be disproportionate and impractical to require the Receivers to give any further breakdown.

(10)  It would be disproportionate, impractical and uncommercial to require the Receivers to provide “all underlying documents” that relate to their bills.  There might be various drafts of the same document, numerous internal communications by email or instant messaging services.  A receiver is not the agent of the parties who applied for his appointment.

(11)  The request for disclosure of the bills charged against CSI and CSCG and the apportionment policy is not part of the summons and appeared for the first time in the SH plaintiffs’ skeleton argument.  They are documents concerning different entities and different subject matters, and the SH plaintiffs have no right to these documents.  To ascertain whether the Receivers charged for work performed in a different capacity, one could review the “Summary of work done” and the Receivers’ reports.  It is disproportionate and unnecessary to require production of the bills issued to CSI and CSCG.

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.

“ (1) Administrators, liquidators, receivers, trustees in bankruptcy or other officers (‘office‑holders’) are fiduciaries charged with the duty of protecting, getting in, realizing and ultimately passing on to others assets and properties which belong not to themselves but to creditors or beneficiaries of one kind or another. They are appointed because of their professional skills and experience and they are expected to exercise proper commercial judgment in the carrying out of their duties. Their fundamental obligation is a duty to account, both for the way in which they exercise their powers and for the property which they deal with.

(2) The allowance of remuneration to officer‑holders represents an exception to the rule that a trustee must not profit from his trust which rule applies to all kinds of person who are in a fiduciary position. This exception inevitably involves a conflict between the interests of the fiduciary who is to receive such remuneration and the interests of those to whom the fiduciary duties are owed, who will bear whatever remuneration is allowed.

(3) It is for the office-holder who wishes to be remunerated at a particular level to justify his claim:

(a) Office‑holders must give full particulars to justify the amount of any claim for remuneration. Where they seek to be remunerated upon the basis of time spent, they must do significantly more than list the total number of hours spent by them or other fee earning members of their staff and multiply this total by a sum claimed to be the charging rate of the individual whose time was spent. They must explain the nature of each main task undertaken, the considerations which led them to embark upon that task or to persevere in it. The time spent must be linked to this explanation so that it can be seen what time was devoted to each task.

(b) Office‑holders must keep proper records of what they have done and why they have done it. Without contemporaneous records of this kind, they will be in difficulty in discharging their duty to account. Retrospective reconstructions are unlikely to be as reliable as contemporaneous records. Office‑holders whose records are inadequate are liable to find that doubts are resolved against them because they are unable to fulfill their duty to account for what they have received and to justify their claim to retain part of it for themselves by way of remuneration.

(c) The test is whether a reasonably prudent man, faced with the same circumstances in relation to his own affairs, would lay out or hazard his own money in doing what the office‑holders have done.  It is not sufficient for office‑holders to say that what they have done is within the scope of the duties or powers conferred upon them.  They are expected to deploy commercial judgment, not to act regardless of expense.  Transactions carried out at a high cost in relation to the benefit received will be subject to close scrutiny.”

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:

“ - have the Provisional Liquidators adduced sufficient evidence to explain the nature of each task undertaken and the considerations which led them to embark upon that task?

- have the Provisional Liquidators linked the time spent to the explanation?

- is the court satisfied that a reasonably prudent man faced with the same circumstances in relation to his own affairs, would have laid out or hazarded his own money in doing what the Provisional Liquidators have done?

- have the Provisional Liquidators produced contemporaneous records of what they have done and why they did it?

- have they produced contemporaneous records of all items of expenditure and of services rendered, how they were calculated and how they were justified?

- should the fees for any item of work be disallowed as being unnecessarily incurred?

- should the fees for any item of work be disallowed as being incurred in breach of duties?”

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:

(1)  The Receivers do within 42 days hereof file and serve on the SH plaintiffs a revised bill of costs in relation to the receivership that (i) discloses the tasks for which the particular line items were done, each task being for a specific purpose for the receivership, (ii) is organised in such a way that line items can be grouped by tasks, (iii) as far as practicable contains only single billable events in each line entry.

(2)  Insofar as any particular task involved the Receivers acting in more than one capacity, the Receivers do within 42 days hereof provide an account as to how much time they spent on the task overall, how the time spent was apportioned to the different capacities, with reference to copies of the relevant bills issued to CSI and/or CSCG.

(3)  The Receivers do within 42 days hereof disclose and produce to the SH plaintiffs all the bills they and/or Ernst & Young issued to CSI and CSCG after 20 May 2015 and the documentation (if any) recording their apportionment policy.

(4)  The SH plaintiffs do, within 42 days thereafter, file and serve on the Receivers a list of objections in relation to the fees and expenses billed.

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.

(Godfrey Lam)
Judge of the Court of First Instance
High Court

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.

[6]   [2018] HKCFI 195.

[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.

Other Judgments in This Case

Further hearings and rulings under HCA 1661/2014

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