Re Up Energy Development Group Ltd

HCCW 91/2016

[2022] HKCFI 1917

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 91 OF 2016

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REASONS FOR DECISION ON COSTS[1]

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1.At the hearing, I dismissed the PLs’ summons seeking a variation of the “Costs Order” (as defined in §2 below)  and ordered the PLs to pay the costs of the summons to the Petitioner, to be taxed if not agreed with certificate for 2 counsel. These are the reasons for my decision.

2.In the Judgment dated 6 May 2022, I made a costs order nisi (“Costs Order”)  that:

(a)  the costs of and occasioned by the hearings on 14 February 2022 and 1 April 2022 be paid by ICA and the PLs to the Petitioner and the OR, with certificate for 2 counsel, to be taxed if not agreed;

(b)  For the purpose of Order 62 rule 6(2)  of the Rules of the High Court, I direct that the PLs are not entitled to recover their costs from the estate of the Company; and

(c)  Save as aforesaid, the costs of and occasioned by the Petition including one set of costs payable to the supporting creditors, shall be paid out of the assets of the Company.    

3.By summons dated 20 May 2022 the PLs apply to vary the Costs Order in 3 aspects:

(1)  in place of §(a), there be no order as to costs in respect of the hearing on 14 February 2022;  

(2)  delete §(b)  in entirety; and

(3)  in §(c)  add “and the OR’s costs” before the words “shall be paid out of the assets of the Company”.

4.I do not see any basis for the PLs to ask the court to vary §(a)  and §(c)  of the costs order insofar as they concern ICA and the OR.  Neither ICA nor the OR have sought to vary the Costs Order. 

§(a)  of the Costs Order

5.Ms Rachel Lam SC (leading Ms Tinny Chan)  argues that there should be no order as to costs in respect of the hearing on 14 February 2022 in light of the procedural history of the matter.  Reliance is placed on:

(1)  Harris J’s “finding” on 31 August 2021 that the second core requirement was not satisfied;

(2)  the consent summons dated 7 January 2022 whereby the Petitioner and the PLs (but not any of the creditors)  sought an order from the court to dismiss the Petition with no order as to costs;

(3)  this Court directed the PLs “to file evidence on various questions of foreign law”, such that the costs of the hearing on 14 February 2022 “were necessitated by reason of the Court’s directions, with which the [PLs] duly assisted”;

(4)  the PLs’ stance at the hearing on 14 February 2022 was “neutral” and they filed evidence as directed by this Court “to assist the Court by highlighting obstacles to the exercise of jurisdiction to wind up a foreign company in this case”.  At the Court’s request and based on the “independent expert evidence (also filed at the Court’s indication)” the PLs indicated that they opposed the Petition on jurisdictional grounds; and

(5)  this Court also directed the Petitioner to file further evidence on the same expert questions of foreign law as set out in the order of 10 January 2022.

6.The matters set out in §5(3)-(5)  above are based on a mis-characterisation of what actually happened at the hearings on 10 January 2022 and 14 February 2022.  Dealing with points in the same order as they appear in §5 above:

(1)  The contention that Harris J made a “finding” that the second core requirement had not been satisfied was a point I dealt with and rejected for the reasons stated in §§50-51 of the Judgment. 

(2)  The consent summons dated 7 January 2022 is irrelevant to the costs of the hearing on 14 February 2022.  In the letter dated 7 January 2022, this Court indicated to the parties that it was not minded to dismiss the Petition and the proper course would be to make a winding up order against the Company, in light of its insolvent state and the absence of a viable scheme to compromise its indebtedness.  Despite this intimation, the PLs still chose to argue that the Petition should be dismissed on jurisdictional grounds. 

(3)  The suggestion that the court “directed” the PLs to file “evidence on various questions of foreign law” and that the costs of the hearing on 14 February 2022 “were necessitated by reason of the Court’s directions” is plainly wrong.  At the hearing on 10 January 2022, this Court observed that the Company should be wound up but was prepared to give one more chance for the parties to make further submissions.  In response, Ms Tinny Chan stated that the PLs would seek leave to file affirmation in support of their contentions.  To ensure that the further affirmation to be filed by the PLs would be relevant to the issues raised by them, this Court directed the PLs to file evidence to deal with the specific questions set out in §1 of the order dated 10 January 2022.  Thus, far from filing evidence to assist the court, it was the PLs’ own decision to file further evidence in support of their contentions.  As it transpired, much of the further evidence filed by the PLs did not assist the determination of the legal issues and, therefore, were not referred to in the Judgment. 

(4)  At the hearing on 14 February 2022, it was clear from Ms Chan’s submissions that the PLs were not “neutral” as they claimed.  At this Court’s request, Ms Chan clarified that the PLs’ stance was to oppose the Petition on jurisdictional grounds.  The evidence filed by the PLs was no more than evidence filed in support of their contentions which were ultimately rejected by the Court. 

(5)  Contrary to the PLs’ suggestion, this Court did not direct the Petitioner to file further evidence on the “same expert questions” of foreign law set out in the order of 10 January 2022.  Instead, at the hearing on 14 February 2022, it was Mr Brown who indicated that the Petitioner wanted to apply for leave to file affirmation in reply to the evidence filed by the Company. 

7.At the hearing, Ms Lam contends that the PLs did not act for their own interest but to advance the view of some creditors who had indicated their opposition to the Petition.  I do not think it is right for the PLs to take such course, even assuming that was their motivation (there is no evidence in support of such contention).  The opposing creditors had the opportunity to express their view at the hearing of the Petition by filing the requisite notice of intention to appear and attending the hearing.  Indeed, that was one of the reasons why this Court did not consider it appropriate to dismiss the Petition without the consent of the creditors who had filed notices of intention to appear in the Petition (whether as supporting or opposing creditors).  It was not necessary and, indeed, inappropriate for the PLs to advance the view of the opposing creditors. 

8.In short, the costs of and occasioned by the hearing on 14 February 2022 (and the hearing on 1 April 2022)  were necessitated by the stance taken by the PLs.  Having decided to oppose the Petition and failed in their opposition, the PLs should be required to bear the costs of and occasioned by their opposition. 

§(b)  of the Costs Order

9.The principle is not in dispute.  As Mr Brown submits, the court may deprive a party acting in a representative capacity of his costs where it is unreasonable for that party to adopt an excessive role in the proceedings or to contest claim which ought not to have been contested.  The principle is stated in Lewin on Trusts, 20^th ed., §48-007 in this way:

“A trustee may be deprived of costs, or ordered to pay costs, not only by reason of his conduct which occasioned the proceedings, but also by reason of his unreasonable conduct in bringing unnecessary trust proceedings, or his conduct in the proceedings themselves, for example by taking procedural steps which needlessly increase costs, by acting in a partisan manner to some beneficiaries against others, by adopting an excessive role in trust proceedings by contesting claims which ought to be contested by others, not the trustees, or which ought not to be contested at all.”

10.Ms Lam submits that the court should not deprive the PLs of the right to recover their costs out of the assets of the Company for the following reasons:

(1)  The issues regarding cross-border insolvency and the second core requirement and the discussion in the Judgment “differed from the finding previously given by” Harris J on 31 August 2021;

(2)  Throughout January to April 2022, the PLs “endeavoured to assist the Court on the complex jurisdictional issues involved” and provided “relevant information and submissions” to further the process.  The Judgment “appeared to depart from” the previous decisions given by Harris J in Re G Ltd [2016] 1 HKLRD 167 and Re China Huiyuan Juice Group Ltd [2021] 1 HKLRD 255;

(3)  The recent judgment of the Court of Final Appeal in Re Shandong Chenming Paper Holdings Ltd [2022] HKCFA 11, §70, left open the possibility of the issue of comity arising where the benefit relied upon depends on the liquidator exercising his authority in a foreign jurisdiction.  It was “not unreasonable” for the PLs to take the view they did;

(4)  The Bermuda court already made an order to wind up the Company in March 2022 and it was “not wholly unreasonable” for the PLs to “place before the Court the relevant considerations as to comity and to highlight the complexities in the approach to winding up of foreign companies”; and

(5)  The PLs “cannot be said to have acted at all unreasonably or to have acted for their own benefit rather than for the benefit of the Company, such steps having also been taken in furtherance of their duties to the Supreme Court of Bermuda”. 

11.The matters set out in §10(1)-(4)  are no more than repetitions of the same contentions raised by the PLs which were considered and rejected by this Court for the reasons stated in the Judgment.   

12.More importantly, the suggestion that it was not unreasonable for the PLs to have opposed the Petition or that such opposition was for the benefit of the Company flies against the fundamental principle that provisional liquidators (like liquidators)  should maintain an even and impartial hand between all persons having interests in the winding up and they should have no leaning for or against any persons whatever (Re Contract Corp; Gooch’s Case (1871)  7 Ch. App 207 at 211; Re Sir John Moore Gold Mining Co (1879)  12 Ch.D 325). It is also inconsistent with the function of provisional liquidators, as described in Fletcher, The Law of Insolvency, 5^th ed., §21-055:

“The primary object of appointing a provisional liquidator is to preserve the assets and maintain the status quo, and to prevent anybody from getting priority ahead of the general body of creditors. The appointment is thus made for the purpose of protecting the company’s property for equal distribution in the event of an order for winding-up being subsequently made; if no such order is made, the appointment ought not then to interfere with the rights of third parties. A further reason for seeking the appointment of a provisional liquidator is to enable the extensive investigative powers of the Insolvency Act to be activated at the earliest opportunity, with a view to ascertaining whether the company’s affairs have been conducted in a manner which may amount to fraudulent or wrongful trading, or to have involved the commission of fraudulent or criminal activity such as the evasion of tax liability…..The scope for a provisional liquidator to utilise the statutory investigative powers may be of particular significance in relation to an application to wind up a foreign company because the existence of possible claims against persons responsible for the management of the company may reinforce the case for the exercise of the court’s discretionary power to make a winding-up order if the company is shown to have a ‘sufficient connection’ with this jurisdiction…..” (underlined added)

13.As for the suggestion that the PLs opposed the Petition “in furtherance of their duties to the Supreme Court of Bermuda”, it is a novel suggestion advanced by the PLs for the first time.  Ms Lam has not pointed to any evidence which lends support to such suggestion. 

14.None of the matters identified by Ms Lam goes anywhere near to show that §(b)  of the Costs Order was made on an erroneous basis.  Without §(b)  of the Costs Order, the PLs would be able to recover the costs they are liable to pay to the Petitioner (under §(a)  of the Costs Order)  from the assets of the Company.  There is no reason why the Company’s assets should be used for such purpose.   

15.Lastly, lest it be suggested that the costs of and occasioned by the Company at the previous hearings (that is, all the hearings before 14 February 2022)  are not covered by §(c)  of the Costs Order, it is incorrect.  Prior to the hearings on 14 February 2022, various steps were taken by the Company (acting through the PLs), such costs are covered by §(c)  of the Costs Order.   

Mr Toby Brown and Ms Jacquelyn Ng, instructed by Lam & Co, for the Petitioner

Ms Rachel Lam SC leading Ms Tinny Chan, instructed by Chungs Lawyers, for Joint Provisional Liquidators of the Company

Fan Wong & Tso, for the opposing creditor (Integrated Capital (Asia)  Limited), is absent

White & Case, for the opposing creditor (China Minsheng Banking Crop., Ltd.), is absent

Chiu & Partners, for the opposing creditor (Hao Tian Development Group Limited), is absent

Clifford Chance, for the supporting creditor (Credit Suisse AG, Singapore Branch), is absent

The Official Receiver is absent