Tang Chung Wah also known as Alan Chung Wah Tang and Others v. on Sky Enterprise (HK) Ltd
Read the full judgment text of DCCJ 4190/2020 on BabelCite. This District Court judgment was delivered on 24 August 2021.
1. There are two summonses before this Court:-
Cites 3 cases
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DCCJ 4190/2020 [2021] HKDC 925 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 4190 OF 2020 --------------------
--------------------- Before: Deputy District Judge Rebecca Lee in Chambers Date of Hearing: 8 July 2021 Date of Decision: 24 August 2021 -------------------- DECISION -------------------- 1.There are two summonses before this Court:-
2.Miss Lee for the plaintiffs and Mr Chan for the defendant agreed that the defendant’s summons should only be dealt with if I refused the plaintiffs’ application for summary judgment. 3.In any event, the proposed amendment was considered by the Court when dealing with the O.14 Summons. Undisputed Background 4.The 1st and 2nd plaintiffs (“P1 and P2”) are certified public accountants specializing in insolvency and corporate restructuring work. They were at all material times and are under the employment of and provided professional services through the 3rd plaintiff (“P3”). 5.A debenture was executed by Lanco International Holdings Limited (“Lanco”) as chargor in favour of the defendant as lender on 11 July 2000, incorporating first floating charge over the undertaking, property and assets of Lanco to secure the loan under a loan agreement dated 11 July 2000 (“the Debenture”). 6.An event of default(s) had occurred in or around May 2012 as defined under the Debenture and the defendant was entitled to enforce its rights and powers thereunder, including the appointment of receivers and managers. 7.By an engagement letter dated 15 May 2012 (“the Engagement Letter”), signed by P1 on behalf of P3 and the defendant, it is stated that P3 would provide experienced insolvency practitioners to act as receivers of Lanco. P1 and P2 are the proposed Appointment Takers on a joint and several basis. 8.The Engagement Letter provides, inter alia:-
9.The Engagement Letter also stated that the key asset of Lanco is a 70% equity interest in a PRC joint venture entity, which owns a piece of land in Guangxi, and that there would unlikely be any available assets for réalisation from Lanco in Hong Kong apart from the said asset. P3 required “an initial retainer of HK$300,000 from [the Defendant] to cover [their] out of pocket expenses and the time costs to be incurred for the necessary statutory compliance to commence receivership, as well as for a site visit and preliminary review of the current status of the PRC investment”. 10.It is further stated that “should there be any material change in the scope of work throughout our engagement which will impact on costs estimate, we will discuss with you as soon as practicable. Before we draw any fees from assets of Lanco and/or the mortgaged (charged) properties, we shall seek you approval of such fees, which approval should not be unreasonably withheld.” 11.Pursuant to a deed of appointment dated 15 May 2012 (“Deed of Appointment”), P1 and P2 were formally appointed as the joint and several receivers and managers of the charged assets of Lanco. 12.On the same day, the defendant executed the Deed of Indemnitywhich gave P1 and P2 express indemnities to cover inter alia all costs, expenses and remuneration due to them as receivers for the work performed or done in respect of the receivership. See: Clause 1.1(c) and 1.3. The indemnity is effective from commencement of the appointment of the receivers, and in addition to any other rights of indemnity and it shall remain in full force notwithstanding termination of the receivership, and survive the resignation of the Receivers from the appointments. See: Clause 4. 13.Lanco was ordered to be wound up on 2 April 2014 under HCCW21/2014 and provisional liquidators were appointed. 14.The appointment of the P1 and P2 was terminated by the defendant on 30 October 2015 pursuant to the provision in the Engagement Letter. 15.During the course of the receivership, the plaintiffs had issued fee notes to the defendant which had been settled:-
16.Taking into account the HK$300,000 initial retainer and the part-payment of HK$124,218 in respect of the fee note of 90140S, the defendant had paid a total sum of HK$2,426,682. 17.The fee-notes issued after the above-mentioned fee notes were not paid and are subject of the plaintiffs’ claims. The same is particularized in paragraph 9 of the Statement of Claim dated 12 August 2020:-
18.The defendant filed and served its Defence on 21 September 2020. The defendant contends that:-
19.The defendant filed its Affirmation in opposition to the O.14 application (ie Chu’s Affirmation) on 31 December 2020 and introduced new grounds of Defence:-
20.The proposed amendments attached to the defendant’s summons added the following:-
21.Mr Chan did not pursue the “No Locus Standi Defence”, the “Unnecessary Work after Winding Up Defence” and the “Miscellaneous Defence” at the hearing. The Plaintiff’s case 22.Miss Lee pointed out at the outset that the remuneration and expenses of the Receivers are expressly spelt out in the Debenture, the Engagement Letter and the Deed of Indemnity. 23.Miss Lee referred to the following:-
24.Those documents never imposed a term that the plaintiffs would only be entitled to their remuneration and/or costs charged upon the defendant’s satisfaction of an “audit” (and a fortiori, “approval”) of such charges. There cannot be such an implied term as it would simply defy commercial sense as well as the purpose of obtaining a full indemnity from the defendant. 25.The respective time cost summaries of the three fee notes under the plaintiffs’ claim (nos. 90140S, 90176S and 90239S), showing details of the costs were sent to the defendant, including by email on 2 September 2014, 23 December 2014 and 16 December 2015. Each of them was prepared in accordance with the computer records of the time spent on the case with details of the employees’ activities. 26.Miss Lee argued that the defendant never took issue with settling previous fee notes issued for a total sum of HK$2,426,682 (including the initial retainer or costs on account in the sum of HK$300,000). The defendant had never at the time of settling the same, suggested that payment would be subject to conducting the auditing exercise. 27.Miss Lee submitted that the belated claim to audit the relevant fees and charges is an excuse to frustrate the plaintiffs’ claim to recover the fees and charges which have long been outstanding. Despite this claim that an “auditing” or “checking” process had started in October 2015, the defendant had never reverted with the result of such process. 28.Regarding the new allegation that approval was required prior to incurring fees in the amount beyond the initial retainer of HK$300,000, Miss Lee submitted that the HK$300,000 initial retainer or cost on account was obtained to “kickstart” the receivership. The same was not and could not be the “costs estimate” of the entire process of receivership. 29.Regarding the defendant’s assertion that the plaintiffs were told to do nothing since November 2013, Miss Lee submitted that the plaintiffs were in fact told to “push the defendant’s position in the PRC” (including engaging PRC expert), which they did. Miss Lee referred to the chain of emails between P1 and Chu of the defendant, and between P1 and Chu’s Canadian lawyer. The gist of those emails was recited in paragraph 13 of P1’s 2nd Affirmation. 30.Miss Lee argued that the various grounds of Defence now relied on by the defendant are implausible and incredible in view of:-
The Defendant’s Case 31.As said, Mr Chan did not pursue the “No Locus Standi Defence” and the “Unnecessary Work after Winding Up Defence” and the “Miscellaneous Defence” at the hearing. 32.Instead, Mr Chan concentrated on following:-
33.The Computer Printouts Defence is in essence an extension of the “Audit Defence” raised in the Chu’s affirmation in that the defendant alleged that they are unable to verify whether the fees were “necessary, fair or reasonable”. The Do Nothing Defence 34.Mr Chan said the plaintiffs have obviously ignored “the elephant in the room”, ie they were expressly told to do nothing in November 2013 and yet they kept on incurring costs. 35.Mr Chan relies on a Pro-forma Affirmation of P1 filed under HCCW 21/2014 which states:-
36.Mr Chan argued that despite being instructed to discontinue working “so as not to incur costs” and to seek approval before conducting work, the plaintiff did not send to the defendant “detailed written plans, assessments and expected results and timeline etc.” for the defendant’s approval (subsequent to the last paid fee-note 90099S and subsequent to being instructed to do so) and the defendant has never approved any such further work – despite the defendant’s expressed concerns and in addition to the terms of the Engagement Letter requiring P3 to do so. 37.The 3 fee notes in question are for work done after receiving instructions to stop work (ie after November 2013). 38.Mr Chan stressed that no recovery has been made for the benefit of the defendant by the plaintiffs and no reports of work done were ever produced by the plaintiffs or received by the defendant. 39.There is no explanation at all explaining why they were entitled or obliged to continue to work regardless of the defendant’s instructions. Contrary to Miss Lee’s submissions, it is not true that the defendant “never took issue ... after the initial retainer or cost on account was exhausted”. The defendant had become concerned with the plaintiffs fees, and the cost effectiveness of their work and were taking issue with the plaintiffs Fees. 40.Notwithstanding that lack of explanation, the plaintiffs continuation of work despite being instructed to do nothing “so as not to incur costs” is a breach of their duty to mitigate their losses, which is a triable issue in itself. Initial Retainer Defence 41.Mr Chan submitted that the terms of the Engagement Letter clearly envisaged that the plaintiffs were to provide a “costs estimate” to the defendant “throughout” the working relationship so that the defendant could retain budgetary control over the process. It is common ground that no such approval was sought from the defendant. 42.The defendant’s case is that the initial HK$300,000 retainer mentioned in the Engagement Letter (drafted by the plaintiffs) was the initial “costs estimate”. In any event, the plaintiffs have not otherwise asserted what the Engagement Letter was referring to when the phrase “the costs estimate” was used. It is a triable issue by itself. The Computer Printouts Defence 43.Mr Chan submitted that they are clearly not produced without human input but are hearsay documents containing a “narration” of the alleged tasks and time spent on work. The Court has not been provided with any explanation of how those “computer generated time records” have been collated and the authors of those narrated descriptions (including the time spent) have not been identified. 44.Mr Chan said the makers of the hearsay documents should be cross-examined at trial. 45.Although the defendants have not formally challenged the items line by line, Mr Chan submitted that the plaintiffs’ assertion is challenged in the sense the defendant is “indebted to the plaintiffs in the sum of HK$2,022,394” pursuant to the 3 fee notes, which are all in relation to work done after P1 admitted (in the Pro-forma Affirmation) that they were asked to stop works and to stop incurring additional fees. 46.In other words, it is also part and parcel of the “Do Nothing Defence”. Order 14: The Principles 47.The principles as contained in the following paragraphs in the Hong Kong Civil Procedure 2021 Vol 1 are well established:-
48.The above principles are encapsulated in the authorities cited by both Miss Lee and Mr Chan in this regard. 49.More recently, Deputy High Court Judge Jin Pao SC in Treasure Chain (HK) Holdings Ltd v Treasure House Venture Ltd, HCA 1789/2018 & HCA1790/2018 has succinctly summarized the position as follows:-
50.I shall respectfully adopt the above principles. Discussion The Do Nothing Defence 51.The question is whether the defendant can show a bona fide defence that the plaintiff was expressly told to do nothing since November 2013. 52.In this regard, Miss Lee referred to an email from Chu’s Canadian legal counsel Mr Daryl Fridhandler dated 12 May 2014:-
53.Miss Lee argued that by asking the plaintiffs to “push his position forward in PRC”, clearly the defendant still instructed the plaintiffs to “do something” after November 2013. 54.In later emails it can be discerned that P1 made a number of trips during October 2013 to June 2014 to Nanging and Shanghai to meet with consultants and P1 offered not to charge the defendant the time costs for these trips. Chu in fact went with P1 to Nanging. See: email dated 27 November 2014 from P1 to Chu & email dated 29 November 2014 from Chu to P1. 55.Quite contrary to Mr Chan’s argument that the plaintiffs were told to do nothing since November 2013, the defendant did ask the plaintiffs to “push its position in the PRC” which the plaintiffs in fact did and costs were incurred as a result. 56.In the circumstances, I find that the defendant’s assertions in relation to the “Do Nothing Defence” are not believable and it is not a bona fide defence. The Initial Retainer Defence 57.Miss Lee submitted that the initial retainer of HK$300,000 was used to kickstart the receivership and it cannot mean to be the “costs estimate” for the entire procedure as argued by Mr Chan. 58.It is useful to recite in full the fee structure as contained in the Engagement Letter:-
59.Reading the above “fee structure” in its entirety, while I agree with Miss Lee that the initial retainer of HK$300,000 was meant to be utilized to “kickstart” the receivership and does not mean to be the “costs estimate” for the entire receivership procedure, I also agree with Mr Chan that the Engagement Letter does not tell us what the “costs estimate” was. 60.It follows that one cannot tell when or whether the defendant’s approval should be sought. 61.I agree with Mr Chan that the meaning of “costs estimate” is a triable issue. It is not something which the Court can decide on affidavit evidence in a summary judgement application. 62.I am satisfied that the defendant has raised a bona fide defence in this regard. The Computer Printouts Defence 63.This Defence is linked to the “Audit Defence” as raised in Chu’s Affirmation and also the “Initial Retainer Defence”. 64.Mr Chan spent quite some time on attacking how the sums under the 3 fee notes were compiled and that they are hearsay evidence. Those are essentially matters of quantum (which is in fact stated by Mr Chan in his skeleton argument). 65.As to whether the plaintiffs were entitled to be paid or reimbursed for the work done under the 3 fee notes, I am satisfied, on the strength of the documents relied on by Miss Lee, the plaintiffs were indeed entitled to be paid or reimbursed. 66.However, such entitlement depends on the meaning of “costs estimate” and also whether the defendant’s approval should be sought. 67.It is, in essence, the “Initial Retainer Defence”, which I have found to be a bona fide defence. Conclusion 68.I am satisfied that the Defendant has a bona fide defence in relation to the “Initial Retainer Defence”. There are triable issues as to the meaning of “costs estimate” under the Engagement Letter and whether the defendant’s approval should be sought. Those issues are determinative of the plaintiff’s entitlement under the 3 fee notes. 69.It is therefore not necessary for me to deal with the other grounds of Defence not pursued by Mr. Chan at the hearing. 70.It follows that this is not a suitable case for summary judgment and leave to defend should therefore be granted. 71.Miss Lee urged the Court to impose a condition on the defendant to pay all the money claimed into Court, as the amount has been outstanding for almost 6 years. 72.It is trite that conditional leave should be imposed where there is good ground in the evidence for believing that the defence set up is a sham defence or that the court is prepared very nearly to give judgment for the plaintiff. If there is no sign of bad faith or anything to show that the defence raised is a sham nor that there are suspicious circumstances as to the mode of presenting the case, leave to defend should not be made conditional: 14/4/16, Hong Kong Civil Procedure 2021 Vol.1. 73.As I have found that the defendant has shown a bona fide defence (as supposed to a sham one), the correct approach should be unconditional leave to defend. 74.It follows that the Amendment Summons should also be allowed. Order 75.In relation to the O.14 Summons and the Amendment Summons, I make the following order:
76.I also make the following costs order nisi :
77.The above costs nisi will become absolute unless parties apply to Court in writing within 14 days from the day of this Decision. 78.I am grateful for Counsel’s assistance.
Ms Connie Lee, instructed by Chow, Griffiths & Chan, for the 1st, 2nd and 3rd plaintiffs Mr Chan Pat Lun, instructed by Ng & Partners,for the defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment