Shearman & Sterling (A Firm) and Others v. Asia-pac Infrastructure Development Limited (in Creditor’s Voluntary Liquidation) and Others

HCMP 2719/2017

[2022] HKCFI 218

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2719 OF 2017

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BETWEEN

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DECISION

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A. The application

1.The 1^st defendant (the “Company”) is a company in creditors’ voluntary liquidation. The 2^nd and 3^rd defendants (“Tang” and “Hou” respectively) are the liquidators of the Company. The Company is one of the 4 plaintiffs in HCA 806/2006 (collectively the “806 Ps”, and the “806 Action”). The plaintiffs herein (the “Shearman Parties”) are 8 of the 9 defendants in the 806 Action (the 9 defendants collectively as the “806 Ds”). By originating summons dated 18 December 2017 (the “Originating Summons”, and the proceedings arising the “Removal Proceedings”), the Shearman Parties seek an Order for the removal of Tang and Hou as liquidators of the Company pursuant to section 252 of the Companies (Winding up and Miscellaneous Provisions) Ordinance Cap 32 (“Cap 32”) and inherent jurisdiction of the Court. The main issues before me are (1) whether the Shearman Parties have locus standi to make this application; (2) whether Tang’s and Hou’s conduct (and in particular that of Tang) have been such that a case has been made out for their removal; and (3) even if a case has been made out for Tang’s removal, whether Hou should also be removed.

B. The Originating Summons

2.By the Originating Summons, the Shearman Parties seek an Order that:

“ 1. Some other fit and proper persons be appointed jointly and severally as liquidators (‘the New Liquidators’) of [the Company], in replacement of [Tang] and [Hou] generally in [the Company’s] liquidation;

2. The powers of the New Liquidators be the same as those of [Tang] and [Hou].”

3.As can be seen from the Originating Summons, the Shearman Parties have not so far proposed any specific persons as the New Liquidators. The reason, as explained by Mr Man SC[1] (who together with Mr Wilson Leung appeared for the Shearman Parties), is to forestall any suggestion that they are seeking to appoint someone who would be more favourable to them. The intention was that, if I am to accede to the application, I will give directions on how the New Liquidators are to be decided.

C. The affirmatory evidence

4.As at the dates of the hearing, I had the following main affidavits/affirmations before me:

(a) 5 affidavits of Mr David Gerard Harrington (respectively “Harrington#1” to “Harrington#5”) in support of the application; and

(b) 2 affirmations each of Tang (respectively “Tang#1” and “Tang#2”) and Hou (respectively “Hou#1” and “Hou#2”) in opposition.

5.Mr Harrington is a partner of Messrs Reed Smith Richards Butler, solicitors for the Shearman Parties. He said[2] that as he had the conduct of the 806 Action and had direct knowledge of the matters relevant to the application, it was justified for him rather than any of the Shearman Parties to swear the affidavits in support.

6.Mr Patrick Siu, counsel for the Tang and Hou, originally took issue with that. He submitted that partners of the Shearman Parties should have filed their own affidavits in support of the Originating Summons. He submitted that all the evidence from Mr Harrington should not be accepted and that the application should be dismissed on that basis.

7.On the day of the hearing, Mr Man on behalf of the Shearman Parties informed the court that in the light of the objection, a partner of the Shearman Parties would swear and file an affidavit to confirm the evidence of Mr Harrington. Mr Siu was content with that. Subsequent to the hearing and on 2 September 2019, Mr Henry Weisburg, a partner of P2, did so.

D. Background facts

8.The 1^st to 4^th plaintiffs in the 806 Action are respectively (1) the Company; (2) Asia-Pac Infrastructure Finance Limited (“APIF”), (3) Asia-Pac Group Investments Limited (“APGIL”) and (4) Greater Beijing Region Expressways Limited (“GBRE”) (on behalf of itself and as assignee of Greater Beijing First Expressways Limited (in liquidation) (“GBFE”)).

9.The Shearman Parties are the 1^st to 8^th defendants in the 806 Action. The 9^th defendant (“D9/806”) is another law firm.

10.The 806 Action was commenced in April 2006. As at the dates of the hearing, neither witness statements nor expert reports had been exchanged.

11.In relation to the general background of the 806 Action, I respectfully refer to the outline at §§4 to 7 of the Decision of Anthony Chan J dated 31 May 2019 in that action. In gist, and as summarized by Mr Man[3], the 806 Action is brought by the 806 Ps against the 806 Ds for having provided allegedly negligent advice in 1999 to 2000 concerning the restructuring of certain exchange notes that had been issued by GBFE in the US bond market.

E. Locus standi

12.The sufficiency of the Shearman Parties’ interest to bring the present application is in dispute. Mr Man submits that they have locus to apply by virtue of (1) their status as creditors of the Company, and/or (2) their status as defendants in the 806 Action. Mr Siu submits that neither gives them sufficient interest in the relief sought under the Originating Summons, such that they do not have standing in making the present application.

13.I consider the Shearman Parties’ locus first.

E.1. The applicable law

14.Section 252 of Cap 32 stipulates that:

“ Court may appoint and remove liquidator in voluntary winding up

(1) If from any cause whatever there is no liquidator acting, the court may appoint a liquidator.

(2) The court may, on cause shown, remove a liquidator and appoint another liquidator.”

15.Mr Man highlights the fact that the section does not contain any limitation on who may make an application to remove a liquidator, while there are other sections of Cap 32 which do expressly delimit the categories of persons who may apply thereunder.

16.I do not find that significant. As we will see later, that factor has been considered before in some authorities which I am going to discuss.

17.In Re Corbenstoke Ltd (No. 2) (1989) 5 BCC 767 at 768G-H, Harman J observed that:

“ … in my judgment, an application to the court under sec. 172 of the Act of 1986 for the removal of a liquidator can only properly be made by a person having an interest in the outcome of the liquidation. If the company be insolvent, the only persons with an interest must be creditors for the dividends which may be paid upon their debts in the liquidation and cannot be a contributory who, by definition, will receive nothing.”

18.In Deloitte v Johnson [1999] 1 WLR 1605, Lord Millett, delivering the judgment of the Privy Council, approved Re Corbenstoke Ltd (No. 2). His Lordship observed at 1611 A-F that:

“ In their Lordships’ opinion two different kinds of case must be distinguished when considering the question of a party’s standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by the statute to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint …

Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application. This does not mean, as the plaintiff submits, that he ‘has an interest in making the application or may be affected by its outcome’. It means that he has a legitimate interest in the relief sought. Thus even though the statute does not limit the category of person who may make the application, the court will not remove a liquidator of an insolvent company on the application of a contributory who is not also a creditor: see In re Corbenstoke Ltd (No. 2) [1990] B.C.L.C. 60. This case was criticised by the plaintiff: their Lordships consider that it was correctly decided.

The standing of an applicant cannot therefore be considered separately and without regard to the nature of the relief for which the application is made. Section 106(1) does not limit the category of persons who may make the application. The plaintiff, therefore, does not lack a statutory qualification to invoke the section. But the question remains whether it has a legitimate interest in the relief which it seeks. It is not asking the court to appoint a liquidator to fill a vacancy. It is asking the court to remove incumbent liquidators for cause. The English cases relied upon by the plaintiff show that an interest which is sufficient to support an application of the former kind may not be sufficient to support an application of the latter kind.”

19.Lord Millett approved In re Corbenstoke even though, as expressly observed by His Lordship, the statute does not limit the category of person who may make the application.

20.Lord Millett observed further at 1611E-F that:

“ The company is insolvent. The liquidation is continuing under the supervision of the court. The only persons who could have any legitimate interest of their own in having the liquidators removed from office as liquidators are the persons entitled to participate in the ultimate distribution of the company’s assets, that is to say the creditors. The liquidators are willing and able to continue to act, and the creditors have taken no step to remove them. The plaintiff is not merely a stranger to the liquidation; its interests are adverse to the liquidation and the interests of the creditors. In their Lordships’ opinion, it has no legitimate interest in the identity of the liquidators, and is not a proper person to invoke the statutory jurisdiction of the court to remove the incumbent office-holders.”

21.I do not accept Mr Man’s reading of Deloitte v Johnson. The consideration of the Privy Council was in my respectful view based on broad principles and authorities. It was not confined to the case of conflict of interest as Mr Man was trying to narrow it down to. My reading and understanding are in my view further supported by the following passages from the speech of Lord Millett at 1610 B-F, that:

“ The plaintiff concedes that not everyone is a proper person to make the application. It submits that any person who has an interest in making the application or who may be affected by its outcome is a proper person to make it. It says that it is such a person since it is critically affected by decisions which the liquidators will make in the conduct of the proceedings which the company has brought against it. The real question is whether it can establish due cause for the removal of the liquidators as liquidators. This, it is submitted, is a separate question which can only be determined after a full investigation of the grounds upon which the removal of the liquidator is sought. Unless obviously ill founded, it submits, an allegation of impropriety could not be summarily dismissed without investigation; and an alleged conflict of interest is in like case. It is not to be supposed that the court would lightly permit its own officers to place themselves in a position where their interest conflicts with their duty.

The plaintiff has cited numerous authorities on the circumstances in which the English court will exercise its power to remove a liquidator for cause. Their Lordships do not find them helpful to the plaintiff. They show that impropriety is not necessary; that it is sufficient to satisfy the court that the removal of the liquidator will be for the general advantage of the persons interested in the liquidation; that in the absence of impropriety the court will have regard to the wishes of the majority of those interested; but that where impropriety is shown the court may override their wishes. They do, however, show that the court has consistently regarded the creditors (in the case of an insolvent liquidation) and the contributories (in the case of a solvent liquidation) as the proper persons to make the application, being the only persons interested in the liquidation. Their Lordships have not been shown any case in which the court has removed a liquidator who is able and willing to act on the application of anyone who is not a creditor or contributory as the case may be.”

22.The position is summarized in Fletcher, The Law of Insolvency (5^th ed, 2017) at 22-068 as follow:

“ … Standing to apply for removal of a liquidator is restricted to persons who have ‘a legitimate interest in the relief sought’. Even though the Act itself does not expressly limit the category of person who may make the application, the court will not remove a liquidator of an insolvent company on the application of a contributory who is not also a creditor. A fortiori, an applicant who is a debtor, or alleged debtor, to the company in liquidation is not a proper person to invoke the jurisdiction of the court to remove the office-holder.”

23.Deloitte v Johnson was applied by Chu J (as she then was) in Wang Din Shin v Nina Kung HCAP 8/1999 (unrep, 20 August 2004), at §§26 to 30.

24.Deloitte v Johnson and Wang Din Shin were applied by G Lam J (as he then was) in Re Lee Siu Fung Siegfried [2018] HKCFI 939 at §§14 to 16. His Lordship observed in particular at §16 that:

“In seeking to remove the Trustees on the allegation that they had employed funds that originated from an undischarged bankrupt, the Applicants seem to me equally to be strangers to the estate concerned. Insofar as the Applicants fear the Trustees might bring claims against them, they would in such claims be alleged to be debtors of, or nominees holding assets for, the estate. Their interest is not aligned with that of the estate, but is opposed to it. Their representations concerning the Trustees’ conduct are inherently coloured by their position by reason of which it enures to their advantage to cause maximum obstruction and disruption to any proceedings that might be brought against them.”

25.In Re Lee Siu Fung Siegfried, Mr Man appeared for the applicants. He tried to distinguish Deloitte v Johnson. His submissions were rejected by G Lam J (as he then was), that:

“ 22. Mr Man SC also sought to distinguish Deloitte & Touche AG v Johnson. He pointed to the fact that the ground relied upon by the plaintiff in that case was that the liquidators had a conflict of interest and duty, not that they were guilty of misconduct. He pointed out that Lord Millett said there (at p 1612A):

‘ The plaintiff’s case is not advanced by alleging that the liquidators have a conflict of interest. This is not the same as impropriety or want of probity. Their Lordships observe that the expression ‘conflict of interest’ is an abbreviation for ‘conflict of interest and duty’. The rule is that a fiduciary may not without the informed consent of his principal place himself in a position where his interest may conflict with his duty to the principal. The danger is that his interest may affect him in the discharge of his duty to the prejudice of his principal. The only persons with a legitimate interest in complaining of a breach of the rule are the persons to whom the duty is owed; and they may waive the breach. The plaintiff does not allege that the liquidators have an interest which conflicts with any duty owed to it. It does not plead any such duty. It alleges that the liquidators have an interest which conflicts with their duty to the company and its creditors. If such a conflict exists, it is for the creditors alone to decide what if anything to do about it.’

23. This passage set out the precise basis for the decision on the facts of that case but it does not follow, nor in my view did Lord Millett intend to say, that if impropriety or want of probity is alleged, then a person such as the Applicants here necessarily has sufficient legitimate interest in seeking the removal of liquidators and trustees. It should be noted that the court held in Wang Din Shin, supra, that Mrs Wang had no standing to complain that the administrators misused their power or behaved in an abusive and offensive manner. The principle is not confined to a complaint about conflict of interest and duty.

24. This is not to say the court is not interested in or may not inquire into the conduct of its officers, but that a stranger to the estate has no standing to impugn the way in which its administration is funded and, a fortiori, to obtain orders requiring trustees or third parties to produce documents to enable him to probe into the funding arrangements. To hold otherwise would in my opinion be a dangerous precedent.”

26.Before this Court, Mr Man sought similarly to distinguish Deloitte v Johnson. He made the same submissions before this Court as he did before G Lam J. He submitted that this Court is in any event not bound by the decision of G Lam J in Re Lee Siu Fung Siegfried (or indeed Deloitte v Johnson), and that G Lam J’s interpretation of Deloitte v Johnson was obiter and too narrow.

27.The applicants in Re Lee Siu Fung Siegfried appealed against the decision of G Lam J. The appeal was heard and dismissed by the Court of Appeal on 3 April 2019. At the time of this hearing, the reasons for the dismissal of the appeal (the “Reasons for Judgment”) had not been handed down. I indicated to the parties that I might consider inviting further submissions when the Reasons for Judgment becomes available.

28.On 25 November 2021, the Reasons for Judgment was handed down (Li Xiao Yi v Alan Chung Wah Tang and Hou Chung Man [2021] HKCA 1735). Upon receipt of the same, this Court gave parties directions to file further submissions on the effects of the same, which they did on 17 and 24 December 2021[4].

29.At §29 of the Reasons for Judgment, Barma JA observed that:

“ I am further unable to agree with the distinctions which Mr Wong[5] sought to draw between Deloitte v Johnson and the present case. I do not read Lord Millett in Deloitte v Johnson as suggesting that every person who is ‘within the bankruptcy process’ (to adopt Mr Wong’s terminology) has standing to make an application to remove a bankruptcy trustee. On the contrary, Deloitte v Johnson is authority for the proposition that the only persons who have a legitimate interest to remove a liquidator from office are the creditors, they being the persons entitled to participate in the ultimate distribution of assets (see per Lord Millett at 1611H). Further, as Lord Millett noted (at 1610E-F), their Lordships were unaware of any case in which the court had removed a liquidator on the application of a person who was not a creditor or a contributory, as the case may be.”

30.I do not accept Mr Man’s submissions that the Court of Appeal decided Li Xiao Yi on its facts and has laid down no general principle. In my view, Barma JA clearly has done so at §29 of the Reasons for Judgment. In this regard, it is pertinent to note, as Mr Siu has submitted at §§2 and 5 of his Reply Written Submissions which I accept, that:

(a) the appellants in Li Xiao Yi have made a number of wide-ranging submissions which the Court of Appeal has all rejected:

“ 20. … that the gravamen of the applicants’ complaint was that they were to be subjected to a private examination conducted by the trustees under section 29 of the Ordinance, and therefore had a legitimate interest in making the removal application by reason of their need to protect themselves from the risk of being treated unfairly in the private examination by trustees who (they say) are unfit to hold office …”;

“ 21. … that a bankruptcy trustee was required to act reasonably in his dealings with the debtor and that a debtor could apply to remove the trustee from office if the trustee failed to do so … [and] that the same approach should apply to the applicants, who [Mr Wong] said were in the same position as the bankrupt …”;

“ 22. … that the Judge was wrong to consider that the applicants were ‘strangers’ to the bankruptcy in the sense explained by Lord Millett in Deloitte v Johnson. While the applicants were not creditors of Mr Lee’s estate, they were participants in the bankruptcy process as subjects of the trustees’ exercise of the coercive powers conferred on them by the Ordinance …”; and

“ 23. … that it would be wrong as a matter of policy to deprive the applicants of standing on the basis of their opposing stance alone, given that they were more likely to be aware of misconduct on the part of the trustees. In any event, he said, the court’s discretionary power to control and remove its officers on grounds of misconduct exists not only to protect the interests of the parties, but also serves to safeguard the public’s confidence in the court and its officers.”

(b) the Court of Appeal considered and endorsed the view of G Lam J (as he then was) that interests adverse to the estate could not ground a removal application – see §§19 and 35 of the Reasons for Judgment.

31.In my view, the decision of the Court of Appeal in Li Xiao Yi is binding on this court. In any event, and even if it were not, based on my reading of Deloitte v Johnson as explained above, and the reasoning of the Court of Appeal as set out in the Reasons for Judgment, I respectfully agree to the views expressed by Barma JA in Li Xiao Yi (and in particular §29 of the Reasons for Judgment).

32.Mr Man relies on Re AJ Adams (Builders) Ltd [1991] BCLC 359:

(a) In that case, and as summarized by Mr Man, the former liquidator of a company, who had been automatically terminated from that position due to disciplinary proceedings against him, was permitted to apply to have another insolvency practitioner appointed as liquidator. At 364 e-f, Warner J observed that “[i]f the test be whether the court considers a former liquidator in [the previous liquidators’] position to be a proper person to make that application, it seems to me that the test is satisfied”. That approach is in my view consistent with the considerations explained by Lord Millett in Deloitte & Johnson, which I repeat, that “Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application”;

(b) In any event, as observed by Lord Millett in Deloitte & Johnson which I again repeat “The English cases relied upon by the plaintiff show that an interest which is sufficient to support an application of the former kind [namely appointment of a liquidator to fill a vacancy] may not be sufficient to support an application of the latter kind [namely removal of incumbent liquidators for cause]”.

33.I apply the approach and considerations explained by Lord Millett in Deloitte v Johnson as applied by G Lam J in Re Lee Siu Fung Siegfried, and as endorsed by the Court of Appeal[6].

E.2. The Shearman Parties as defendants in the 806 Action

34.I consider first of all Mr Man’s submissions that the Shearman Parties’ capacity as defendants in the 806 Action gives them locus to bring the present application.

35.In gist, Mr Man’s submissions are these. As defendants in the 806 Action, the Shearman Parties are substantially affected by, and hence have an interest in, whether the liquidation (especially the conduct of the 806 Action) is conducted in a sensible, fair, and impartial manner. It is proper for the Shearman Parties to make the present application, so that the Court would have an opportunity of considering whether Tang and/or Hou are indeed suitable to continue acting as liquidators with regard to the Company.

36.Apply the law as analyzed above, I hold that the Shearman Parties in their capacity as defendants in the 806 Action do not give them locus to make the present application. Amongst others, and as observed by Lord Millett at 1611 A-F in Deloitte v Johnson, which observations are equally apposite here, the Shearman Parties must show that they are proper persons to make the application. That does not just mean that they have an interest in making the application or may be affected by its outcome. It means that they need to have a legitimate interest in the relief sought. I repeat further the observations made by Barma JA at §§17, 24, 28 and 29 of Li Xiao Yi. The Shearman Parties’ interests are also, as submitted by Mr Siu at §5 of his Reply Written Submissions, clearly adverse to those of the Company. In my view, and on the authorities discussed above, the Shearman Parties have failed to show that they are proper persons to make the application by simply relying on their capacity as defendants in the 806 Action.

E.3. The Shearman Parties as creditor

37.In deciding this point, it is necessary to understand the nature of the debts which the Shearman Parties are relying on and the facts surrounding them.

38.The Shearman Parties are creditors of the Company in the sum of approximately HK$2.6 million.  That is by reason of three allocaturs for costs in the 806 Action (dated 7 March 2013, 6 June 2016 and 9 August 2016)[7].

39.Upon applications of the Shearman Parties, the Company was on 6 December 2011 and 19 November 2014 ordered to provide security in the total sum of HK$4.4 million for the Shearman Parties’ costs in the 806 Action up to and including exchange of witness statements and expert evidence[8]. The Company has made the payment-in as ordered.

40.On 3 April 2017 and 10 April 2017, D9/806 and the Shearman Parties respectively applied to uplift the funds paid in by the Company to satisfy their costs of HK$2 million and HK$2.4 million respectively.  Whilst D9/806 continued with their application and was eventually paid in full, the Shearman Parties withdrew their application on 10 November 2017.

41.At §§27(iii) and (iv) of Harrington#3, Mr Harrington said that the reason why the Shearman Parties did not continue with their application was that they could not be certain that the 806 Ps would then “top up” the amount paid into Court to cover the payment out.  He further said that the Shearman Parties had spent to the date of Harrington#3 (27 June 2018) on the 806 Action up to completion of discovery costs far exceeded the amount of payment-in.

42.In my view, the reason why a creditor has locus to apply to remove a liquidator is not because of the label that it is a creditor.  It is because, as explained by Harman J in Re Corbenstoke, that “[i]f the company be insolvent, the only persons with an interest must be creditors for the dividends which may be paid upon their debts in the liquidation and cannot be a contributory who, by definition, will receive nothing”.  I repeat and apply also the observations of Barma JA at §29 of Li Xiao Yi.

43.I accept Mr Siu’s submissions that the position of the Shearman Parties in respect of the total debts of about HK$2.6 million is akin to that of a secured creditor.

44.Creditors who are fully secured are largely unaffected by the liquidation process - Goode on Principles of Corporate Insolvency Law (5^th ed, 2018), §8-51.

45.I do not accept the relevance of Mr Man’s submissions[9] that the Shearman Parties are significantly under-secured in respect of the costs of the 806 Action as they have already spent far more than HK$4.4 million.  Any costs that might have been spent in excess, as submitted by Mr Siu in the course of the hearing, had not yet become payable.

46.On the facts of this case, I accept Mr Siu’s submissions[10] that the Shearman Parties will not be interested in any dividends which may be paid in the Company’s liquidation.  They do not have sufficient interest in the relief sought.

47.I accept Mr Siu’s submissions in this regard[11].

E.4. Conclusion on the Shearman Parties’ locus

48.For the above reasons, I accept Mr Siu’s submissions that the Shearman Parties have no sufficient interest in the relief sought, such that they do not have standing in making this application.

F. Removal of liquidators

F.1. The relevant legal principles

49.In the light of my conclusions on the issue of the Shearman Parties’ locus, there is no need for me to consider the substantive grounds put forward by the Shearman Parties in support. In deference to the submissions made, I made the following core observations.

50.Under section 252(2) of Cap 32, the court may, on cause shown, remove a liquidator and appoint another liquidator in a voluntary winding up. I note that the wording of section 252(2) is very wide.

51.I have been referred to M & T International Ltd v Winspower Ltd HCMP 621/2006 (unrep, 20 June 2006) per Kwan J (as she then was) at §§6-7, the principles explained by Fok JA (as he then was) in Re Legend International Resorts Ltd HCCW 1139/2004 (unrep, 7 March 2011) at §§27-35, and the further explanations made by Deputy Judge To in Re Luen Tat Watch Band Manufacturer Ltd HCCW 497/2009 (unrep, 27 November 2017) at §§3-7, 9 and 11. I note and apply them, which are not disputed by Mr Siu.

52.Although a liquidator in a voluntary winding up is not an officer of the court, much of the above can be applied to them, and the Court would hold them to the same high standard as a liquidator in compulsory winding up - see Lehman Commercial Conduit v Gatedale Limited [2012] EWHC 848 (Ch), per Vos J at §29, McPherson & Keay: The Law of Company Liquidation, (4^th ed., 2018) at §8-039.

53.In considering the removal of a liquidator, fair play to the liquidator is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation - Re Liote Property Management Limited [2006] 2 HKLRD 106, per Kwan J (as she then was) at §6.

F.2. The grounds put forward

54.The main grounds put forward by Mr Man for the removal of Tang and Hou may be summarized as follows:

(a) Tang’s conviction for contempt in HCMP 450/2016[12];

(b) Tang’s conduct having been criticized by the Courts in:

(i) HCB 345/2001[13] in respect of Siegfried Lee;

(ii) certain proceedings relating to his dispute with Grant Thornton (his former accounting firm)[14];

(iii) HCCW 209/2016 in respect of JV Fitness Ltd[15];

(c) Tang’s alleged lack of independence from David Ho[16];

(d) Tang’s alleged lack of diligence in dealing with the 806 Action;

(e) Hou’s position being aligned with Tang, so that if Tang is to be removed, so should Hou.

55.In so far as the grounds set out in paragraphs 54(a) and (b) above are concerned:

(a) Mr Man has set out in sections D and E of his written submissions (over 20 pages) details of the related facts which I will not repeat;

(b) The first point to note is that those matters did not arise from any conduct of Tang or Hou in the 806 Action;

(c) Materials aspects thereof were considered by L Chan J in Re Chan John Loong Fai[17];

(d) In Re Chan John Loong Fai:

(i) the Official Receiver sought directions from the Court as to whether Tang was a fit and proper person whom the creditors in general meeting might consider appointing as trustee of the property of the Bankrupt, and if not, for direction that the appointment of Tang passed at the first meeting of creditors of the Bankrupt was invalid and ineffective;

(ii) the grounds of the application were summarized by L Chan J at §63 of the Decision, that:

“ The grounds of this application did not arise from anything Mr Tang did or did not do in this bankruptcy. It is not because of his conduct or misconduct committed as trustee in this bankruptcy. It is because of his contempt of court in HCMP 450/2016, his refusal to acknowledge his wrong in the contempt and his failure to disclose his contempt to the court in Re JV Fitness Ltd. The OR also referred to miscellaneous grounds of his stubbornness and unnecessarily confrontational behaviour in court which also did not arise from and were not peculiar to this bankruptcy. The OR said that these matters rendered Mr Tang unfit as a trustee or liquidator generally.”

(iii) For reasons set out at §§63-71 of the Decision, L Chan J dismissed the application. In particular, His Lordship was of the view that:

(1) for Tang’s failure to disclose his contempt in Re JV Fitness Ltd, objectively speaking, if Tang had just overlooked his duty to ensure disclosure of his contempt, it was a matter of negligence rather than dishonesty [§66];

(2) “insistence or stubbornness will lead to frustration of those affected. Mr Tang might well have committed such errors and perhaps repeatedly too. But nobody has suggested that he acted out of dishonesty or malice.” [§69]

(3) “Regarding unnecessarily confrontational behaviour, I am of the view that such behaviour in the conduct of litigation can be annoying and even frustrating. It should be met with judicial rebuke. But such behaviour cannot be equated with lack of honesty or integrity.” [§70]

(4) For his contempt, he has been punished [71];

(e) If necessary, I would accept Mr Siu’s submissions[18] that there is no reason for this Court to depart from the findings and rulings of L Chan J in Re Chan John Loong Fai, which I in any event do not disagree.

56.In so far as the grounds set out in paragraph 54(c) above:

(a) Different from the matters considered in Re Chan John Loong Fai, these are matters that relate to the 806 Action;

(b) Mr Man has set out in section G of his written submissions (some 15 pages) details of the related facts which I will not repeat them in full. They fall within the following headings and areas:

(i) David Ho used to control all of the 806 Ps, and there is prima facie reason to believe that David Ho, while being an undischarged bankrupt, has been using various nominee companies to hide his assets from his creditors;

(ii) David Ho supported Tang’s appointment as liquidator of GBFE (June to October 2000);

(iii) Tang’s appointment as liquidator of CWT Textiles Supplies Company Limited (“CWT”), and that there is at least prima facie reason to believe that CWT’s litigation with its former auditors was one of David Ho’s surreptitious investments in distressed assets;

(iv) David Ho’s renewed support for Tang to be appointed as liquidator of GBFE (July 2002);

(v) Tang’s evidence on behalf of the 806 Ps in resisting the Shearman Parties’ application for security for costs (June to December 2008);

(vi) Tang and Hou’s appointment as liquidators of the Company (April 2013);

(c) However, the Shearman Parties’ case in these regards is at best inferential. Mr Man described Tang being “under a cloud of suspicion of being involved in David Ho’s surreptitious schemes”[19]. In other places, it is said that the facts “gives rise to serious doubts as to whether Mr Tang is independent from David Ho”[20], and that Tang’s failure to express doubts or concerns about the Ontrade Share Purchase Agreement and the King Ocean Subscription Agreement in the context of the security for costs application “gives rise to serious questions about whether Mr Tang was giving such evidence impartially”[21]. There are other examples;

(d) I have on the other hand Hou’s evidence at Hou#1 §16 that when the Company commenced its liquidation, the creditors were aware of Tang’s previous involvement in the 806 Action. The appointment of Tang as a liquidator was duly approved by the creditors in April 2013. No creditor has raised any complaint against Tang;

(e) I have also the evidence that when the action brought by CWT was settled in 2009, it was two years earlier than the time when David Ho filed for his bankruptcy;

(f) If necessary, I would have serious concern as to whether the totality of the evidence is sufficient to establish “reasonable grounds for thinking that the objectivity and impartiality of the liquidators may be seen to be compromised” - see M & T International Ltd §7.

57.In so far as the ground set out in paragraph 54(d) is concerned, I accept Mr Siu’s submissions that any concern in that regard by the Shearman Parties should be addressed by taking out appropriate applications in the 806 Action (eg application to strike out for want of prosecution if deemed necessary). I also take into account the various steps which Tang and Hou have in fact taken since their appointment in 2013, as highlighted by Mr Siu at §91 of his written submissions.

G. Disposition

58.On the basis of my finding that the Shearman Parties lacks sufficient interest in the relief sought, I dismiss the Originating Summons. If necessary, for the main reasons discussed in section F above, I would also have dismissed the same on merits.

59.I make a costs order nisi that the Shearman Parties shall bear the costs of the Originating Summons, to be summarily assessed. 

Mr Bernard Man SC, leading Mr Wilson Leung (on 28-29 August 2019), instructed by MinterEllison LLP, for the 1^st to 8^th Plaintiffs

Supplemental Submissions and Supplemental Reply Submissions by Mr Bernard Man SC, leading Mr Justin Ho, instructed by Kirkland & Ellis, for the 1^st to 8^th Plaintiffs

Mr Patrick Siu, instructed by ONC Lawyers, for the 2^nd and 3^rd Defendants

Written Submissions and Reply Written Submissions by Mr Patrick Siu, instructed by ONC Lawyers, for the 2^nd and 3^rd Defendants

The 1^st Defendant, was not represented and did not appear