Acropolis Ltd v. W&Q Investment Ltd and Others
Read the full judgment text of HCCW 218/2017 on BabelCite. This High Court CFI judgment was delivered on 19 April 2024.
1. The underlying facts were set out in section II of my Decision of 6 February 2024 in these proceedings. I will not repeat that background here. By my Decision, I ordered the following preliminary issues to be tried before me today:
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HCCW 218/2017 [2024] HKCFI 1065 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING UP) NO 218 OF 2017 ______________ BETWEEN
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______________ JUDGMENT ______________ I. INTRODUCTION 1.The underlying facts were set out in section II of my Decision of 6 February 2024 in these proceedings. I will not repeat that background here. By my Decision, I ordered the following preliminary issues to be tried before me today:
2.I directed, for the purposes of the preliminary issues trial, that the affidavit evidence already filed by the parties in these proceedings should stand as their respective deponents’ evidence-in-chief. In this way, counsel could proceed directly to cross-examination of each side’s witnesses. In this Judgment, I shall refer to Acropolis and Aeso Holdings collectively as “the Applicants”. II. BACKGROUND 3.The Applicants called evidence from Mr Chan Siu Chung (also known as Mr Jones Chan, a director of Aeso Holding), Mr Sherman Yan (a solicitor and partner of ONC Lawyers), Mr Samuel Ngo (a solicitor), and Mr Donald Chiu Fu Keung (Aeso Holding’s then Financial Controller). Ms Anita Hou and Mr Terry Kan (both of Shinewing Specialist Advisory Services Limited) gave evidence of what they believed to be the position on their fees as joint provisional liquidators. In this section, I will summarise the affidavits which the foregoing witnesses submitted before the preliminary issues hearing. 4.Mr Chan founded Aeso Holding. He is Acropolis’ sole director and shareholder. Acropolis holds shares in Aeso Holding. Between June 2017 and April 2019, Aeso Holding went through a bitter dispute between two factions of shareholders, Acropolis on the one part and W&Q Investment Limited on the other. During that dispute, Acropolis petitioned to wind up Aeso Holding for unfair prejudice and on just and equitable grounds. Acropolis then applied for the appointment of provisional liquidators in respect of Aeso Holding. 5.Mr Chan’s version of events as deposed in his affirmation evidence is summarised in [6] to [9] below. Quotations are of Mr Chan’s words. 6.Being unfamiliar with provisional liquidation, Mr Chan asked Mr Yan to suggest whom to nominate as provisional liquidators. Mr Yan arranged meetings between Mr Chan and possible candidates. The candidates included Mr Kan. On 25 April 2018, Mr Chan and Mr Yan met Mr Kan to discuss fees. At the meeting, Mr Chan told Mr Kan that the sole purpose for the appointment of provisional liquidators was to preserve Aeso Holding’s assets. Mr Chan said that he did not expect the provisional liquidators to be actively involved in managing Aeso Holding. Mr Chan explained that Aeso Holding was neither sizeable nor profitable. So, the company could not afford expensive provisional liquidators. Mr Chan “explicitly asked for an accurate estimate of fees to be charged” if Mr Kan were appointed as provisional liquidator. 7.Mr Kan replied that his fees would primarily be based on the time spent on the job and his scope of work would be dictated by the company’s circumstances since provisional liquidators owe a duty to the court. But, based on what Mr Kan understood about the Aeso Holding case, Mr Kan “anticipated that his work or involvement would be minimal”. Mr Kan told Mr Chan about a previous experience as provisional liquidator for a “cafe restaurant”. Mr Kan’s main responsibility then had been to "keep an eye" on the restaurant. Mr Kan had not been actively involved in its operations and the fee charged were only about HK$500,000. Later in the meeting, Mr Kan “orally provided ... a fee quotation in the range of HK$500,000 to HK$800,000 for acting as the provisional liquidators”. Relying on the fee quotation, on the following day Mr Chan caused Acropolis to apply for Mr Kan and his associate Ms Hou to be appointed as provisional liquidators of Aeso Holding. 8.Mr Kan issued draft fee quotations on 7 and 8 May 2018 for Ms Hou and himself. He produced a finalised written fee quotation on 11 May 2018. This was the same as the oral fee quotation given on 25 April 2018. Mr Chan was later informed by his counsel (Mr Clifford Smith SC and Mr Kerby Lau) that the proposed fees were on the low side. Counsel’s concern was that the respondents might suggest that the proposed appointment was not genuine. On 14 May 2019 Mr Kan sent a revised fee quotation in the range of HK$1.5 to HK$2.5 million to Mr Chan through ONC Lawyers. Mr Chan understood that Mr Yan had spoken with Mr Kan over the telephone at about the same date. In that conversation, Mr Kan had confirmed to Mr Yan that the revised quote was “given upon our [that is, Mr Chan’s] request in order to satisfy the counsel team's concern” and Mr Kan would stick to the HK$500,000 to HK$800,000 that he had previously quoted. 9.Both before and after their appointment as provisional liquidators, Mr Kan repeatedly reminded Mr Kan that Mr Kan “had to keep the fees within the Fee Quote [of HK$500,000 to HK$800,000]”. To help the provisional liquidators to achieve that, Mr Chan said that members of Aeso Holding’s senior management (Mr Chiu, the Chief Operation Manager (Julienne Cheng), and Mr Chan himself) were willing to assist them and share their workload. Mr Kan and Ms Hou accepted this arrangement. Mr Chan and his colleagues thus worked closely with the provisional liquidators to reduce their workload and minimise their fees. 10.Mr Chan and Mr Yan have known each other for several years. They first met when Mr Yan acted as Mr Chan’s lawyer. Mr Yan submitted an affirmation in support of Mr Chan’s account. Mr Yan’s version of events is contained in [11] to [16] below. Quotations are of Mr Yan’s words. 11.The reason for appointing provisional liquidators was to ensure that none of Aeso Holding’s directors would be able to exercise any of their powers, pending the resolution of the dispute between the two shareholder factions. In this way, Aeso Holding’s senior management could continue to bring in business for the company, without interference from one or other faction, while the dispute was being resolved. Once Acropolis gained control of Aeso Holding, the provisional liquidators could then resign with Aeso Holding’s assets having been preserved in the interim. Mr Yan thus understood that Mr Chan was looking for a provisional liquidator who would be “willing to play a rather passive role and charge a small fee”. Some candidates whom Mr Yan suggested to Mr Chan as potential liquidators, refused to take up the role as they were concerned that the fees would be too small. This was despite Mr Yan explaining that there “would not be any real liquidation work as the Company was not anticipating liquidation”. 12.Mr Yan approached Mr Kan whom Mr Yan had known since about 2004. Mr Kan expressed interest. Therefore, Mr Yan arranged several meetings among Mr Chan, Mr Kan, and himself, including the meeting on 25 April 2018. At the latter meeting, Mr Chan and Mr Yan told Mr Kan “in the most unequivocal language about the objectives of Mr Chan, his budgetary constraints, and the bases upon which Acropolis would apply to appoint Mr Terry Kan and Ms Anita Hou as the provisional liquidators”. Mr Chan and Mr Yan observed that Aeso Holding was “still operating as an on-going concern” and the provisional liquidators were “not expected to embark on tasks like collecting assets for the Company or distributing them to the Company’s creditors and so on”. Mr Chan and Mr Yan stressed to Mr Kan that it was “crucial to have an accurate budget of fees to be charged” given Aeso Holding’s limited financial resources. It was observed that “the role and work of the provisional liquidators should be kept to a minimal as Mr Chan and his colleagues would continue to run the Company pending the resolution of the Shareholders’ Dispute”. This meant that the “provisional liquidators’ main responsibility was to keep an eye on the Company”. 13.After asking more detail about Aeso Holding’s situation, Mr Kan said that he understood that “his work or involvement in the Company would be minimal”. At the end of the meeting, Mr Kan orally quoted a fee in the range of HK$500,000 to HK$800,000. Mr Kan “assured Mr Chan that the total costs for the entire period of provisional liquidation would be no more than HK$800,000”. There was no discussion of solicitors' fees “because none of us expected the matter would require the assistance of solicitors”. Mr Chan and Mr Yan took Mr Kan’s quotation to be for a fixed fee and they believed that Mr Kan had understood “where we were coming from”. 14.Mr Yan noted that Mr Kan’s finalised fee quote of 11 May 2018 expressly stated that the quotation there was "based on limited information and ... would have to be adjusted depending on the actual circumstances”. But Mr Yan made “some more phone calls” to Mr Kan in May 2018 “to seek assurance that the Former Provisional Liquidators would strictly adhere to the Fee Quote notwithstanding the terms stated in the said written Fee Quotation”. Mr Kan “expressly assured [Mr Yan] (and asked [Mr Yan] to inform Mr Chan) that the contents were only standard terms of their company and they would stick to the Fee Quote notwithstanding the terms in the written fee quotations”. Mr Yan conveyed Mr Kan's reassurance to Mr Yan. 15.Mr Kerby Lau later telephoned Mr Yan. Mr Lau understood from Mr Chan that the fee quote of 11 May 2018 had been agreed upon through Mr Yan’s involvement. Mr Lau said that he was worried that the fee quote was on the low side and the respondents might challenge the appointment of the provisional liquidators as a sham. Mr Lau “suggested, if possible, we [that is, Acropolis] better state a higher fee quote in the application for provisional liquidation”. Mr Yan told Mr Chan about this. Mr Chan “then agreed to increase the Fee Quote ‘on paper’ to address the counsel team's concerns on the condition that the Former Provisional Liquidators would nevertheless stick to the Fee Quote”. 16.On 14 May 2018, Mr Yan telephoned Mr Kan to convey Mr Chan's message. Mr Kan confirmed that he understood counsel's concerns and agreed to revise the fee quote "on paper" whilst still sticking to the fee quote. Mr Yan reminded Mr Kan (and Mr Kan agreed) that “such revision was not intended to change the true agreement of both parties regarding the Fee Quote”. The revision was “only done to address the counsel team's concerns”. Mr Yan informed Mr Chan of Mr Kan’s response. After the telephone conversation with Mr Kan, the latter sent a revised fee quote in the range of HK$1.5 million to HK$2.5 million to Mr Chan through ONC Lawyers. 17.Mr Kan denies that there ever was any agreement or understanding that his fees and those of Ms Hou would be capped to HK$800,000. He is adamant that he never gave an assurance that the total fees of the provisional liquidation would not exceed HK$800,000. The account in his affirmation evidence is summarised in [18] to [22] below. Quotations are from his affirmations. 18.Prior to the meeting on 25 April 2018 to which Mr Chan refers, there was an initial meeting on 16 April 2018 among Ms Hou, Mr Chan, and Mr Ngo which discussed the appointment of provisional liquidators for Aeso Holding. Mr Chan and Mr Ngo told Ms Ngo that the provisional liquidators were not expected to play an active role in the running of the company. The provisional liquidators were instead only being appointed to prevent the dissipation of Aeso Holding’s assets and to maintain the status quo. No details of the disputes between the shareholders of Aeso Holding were disclosed to Ms Hou. Mr Chan pressed Ms Hou for a fee quote without providing a single piece of paper regarding the company’s affairs. Ms Hou made it clear during the meeting that any fee quote would be a wild guess as no document has been provided to her, and actual work done by the provisional liquidators would be subject to circumstances. 19.The draft fee quotations which Mr Kan and Ms Hou sent to Mr Chan were based on what Mr Chan and his lawyers had told them and the very limited documents and information provided by Aeso Holding. The draft fee quotations were only fee estimates. The drafts made it clear that the fee quotations therein were based on limited information and would have to be adjusted depending on actual circumstances. The drafts stated that, subject to the court’s approval, the provisional liquidators’ remuneration would be charged on “a time-cost basis”. At the time of the first draft fee quotation, Mr Kan and Ms Hou had been informed by Mr Chan and Mr Yan that no active role would be required from the provisional liquidators to deal with the company’s shareholder disputes and their roles would be limited to preventing the dissipation of assets and maintaining the status quo. 20.On 7 May 2018, there were further discussion on issues relating to Aeso Holding and the provisional liquidators’ role. Those discussions were among Acropolis, ONC, and the provisional liquidators. The scope of the provisional liquidators’ work was revised to take account of the powers proposed in Acropolis’ summons dated 26 April 2018 for the appointment of Mr Kan and Ms Hou as provisional liquidators. That resulted in a revised draft fee quote of 8 May 2018. Based on additional comments from ONC, the second draft fee quote was then finalised on 11 May 2018. 21.Mr Kan recalls a conversation with Mr Yan on 14 May 2018. He says that Mr Yan relayed counsel’s concerns that Mr Kan and Ms Hou’s quoted fee was unrealistically low and “may create a wrong impression that the proposed ... Provisional Liquidators would take little active role in discharging their duties”. Mr Yan asked for an amendment and that request led to the revised fee quote of between HK$1.5 million and HK$2.5 million. But all fee quotes included the caveats mentioned in the foregoing paragraph to the effect that fees would be charged on a time-costs basis depending on actual work done, subject to taxation by the court. The fee quote of 14 May 2018 was “a fee estimate based on the information available” and was accepted as such by Aeso Holding. 22.There were no further discussions on the proposed appointment until ONC informed Mr Kan and Ms Hou that their appointment had been granted by the court on 31 May 2018.The court’s order appointing Mr Kan and Ms Hou accurately reflected the position, namely, that "the remuneration would be “charged on a time-cost basis and upon the assessment by the Court ". 23.Ms Hou’s affirmation evidence confirms Mr Kan’s recounting of what happened (see [18] above) when she met Mr Chan and Mr Ngo on 16 April 2018. 24.In these proceedings, Mr Ngo (then a partner of K & L Gates) acted for Dragon Success Enterprises Limited, a creditor of Aeso Holding. Mr Ngo submitted two affirmations in support of Mr Chan’s account. Mr Ngo’s evidence is summarised in [25] to [27] below, with quotations being Mr Ngo’s words. 25.At the 16 April 2018 meeting mentioned by Mr Kan and Ms Hou, Mr Ngo was in attendance along with a representative from Dragon Success. The meeting had been arranged on a “without prejudice” basis and was meant to discuss how the outstanding debt due to Dragon Success would be paid off. As the end of the meeting, the Dragon Success representative and Mr Ngo were asked to stay for a short while, as Mr Chan was to interview, shortlist and decide whom to nominate as provisional liquidators of Aeso Holding. Mr Chan hoped that this would give comfort to Dragon Success that Mr Chan was on the right course to resolving Aeso Holding’s issues and the loan due to Dragon Success would soon be settled. 26.Ms Hou was interviewed. Mr Chan together and his lawyers outlined the potential role of the provisional liquidators and stated that they were “keen to secure a budget from Ms Hou”. Mr Chan expressed his key concerns that Aeso Holding’s operations were not substantial and could not possibly afford substantial provisional liquidators' fees. In response, Ms Hou explained that “their overall cost should not exceed HK$800,000 for such small operation company”. 27.Mr Chiu also submitted an affirmation in support of Mr Chan’s version of events. Mr Chiu described a meeting in April 2018 in which Mr Chan, Ms Hou, Mr Yan, and he were present. Mr Chan informed Ms Hou of Aeso Holding’s financial situation and asked Ms Hou for a fee quotation if appointed as provisional liquidator. In reply, Ms Hou informed Mr Chan that Aeso Holding’s case was not complicated and was like a prior case in which she had acted as the provisional liquidator of a “cafe restaurant”. Ms Hou then told Mr Chan that Mr Kan and her fees for acting as Aeso Holding’s provisional liquidators would be in the range of HK$500,000 to HK$800,000, much as in the case of the “café restaurant”. III. DISCUSSION A. Preliminary issue (1): Whether agreement or understanding that remuneration would be capped at HK$800,000? A.1 Matters arising from the oral evidence 28.From the parties’ affidavit evidence, it will be seen that there is a large measure of agreement among the parties as to what outwardly transpired among them. The oral evidence at the preliminary issues trial added context to the matters deposed by the parties. I highlight six matters that emerged from the oral evidence. 29.First, in addition to Titus who have been acting on the record as solicitors for Acropolis, Mr Yan has been advising Mr Chan behind the scenes. Mr Yan and Mr Kan knew each other professionally for at least a decade prior to April 2018. As a result of that acquaintance, ONC regularly worked with Shinewing (Mr Kan’s firm) in liquidations. Mr Yan recommended Mr Kan to Mr Chan as a possible provisional liquidator on the strength of ONC’s years of relationship with Shinewing. Prior to his appointment in these proceedings, Mr Kan had not actually worked with Mr Yan on a case. 30.Second, it is unclear whether there was a connection between the meeting with Ms Hou on 16 April 2018 and the later meeting with Mr Kan on 25 April 2018. It is difficult to believe that that meetings were unrelated. On the balance of probability, a meeting had been set up for the 16 April 2018 among Mr Kan, Ms Hou, Mr Yan, and Mr Chan. But, at the last minute, for some reason or other, neither Mr Kan nor Mr Yan was able to attend. So, the meeting on 16 April 2018 proceeded without Mr Kan and Mr Yan. Mr Chiu recalls a meeting in April 2018 in which he insists that Mr Chan, Ms Hou, Mr Yan, and he were all present. But this is doubtful, as there does not seem to have been a meeting in April 2018 at which Ms Hou, Mr Kan, Mr Yan and Mr Chan all attended. It is more likely that Mr Chiu was referring to the meeting on 25 April 2018 which Mr Kan (but not Ms Hou) attended. I note, in this connection, that Mr Chiu left Aeso Holding about three years ago and is now self-employed. 31.Third, at the meeting on 25 April 2018, Mr Chan went directly to the point. Having explained why Aeso Holding’s provisional liquidation would not involve much work, Mr Chan asked Mr Kan how much roughly Mr Kan would be charging for the same. It would have been apparent to Mr Kan that Mr Chan wished to keep the costs of provisional liquidation down to a minimum. 32.Fourth, Mr Kan referred to his previous experience as provisional liquidators with a “café restaurant”. This was a reference to a third-floor restaurant in Kwun Tong. Mr Kan arrived at the figure of HK$800,000 mentioned to Mr Kan on 25 April 2018 on the basis that, if the provisional liquidation of Aeso Holding would not involve much work, then the matter would be like the provisional liquidation of the restaurant. Mr Kan was aware that Aeso Holding was a listed company since he was so informed by Mr Chan at the 25 April meeting. From his prior work with listed companies, Mr Kan knew that the provisional liquidation of Aeso Holding would involve compliance work. Taking the fee earned for the provisional liquidation of the restaurant (HK$500,000) and adding a generous margin (HK$300,000) on top of that to cover compliance work (among others), Mr Kan arrived at the estimate of HK$800,000 which he gave to Mr Chan at the 25 April meeting. 33.Fifth, counsel having communicated their concern that HK$800,000 for Aeso Holding’s provisional liquidation might be regarded as too low, Mr Yan called Mr Kan to convey counsel’s view. Mr Yan suggested revising the fee quotation from a range of HK$500,000 to HK$800,000 to a range of HK$1.5 million to HK$2.5 million to address counsel’s concern. Mr Kan accepted Mr Yan’s suggestion then and there. Mr Kan did not ask for any time to do a re-calculation of his 11 May fee quotation. 34.Sixth, during their cross-examination, it was pointed out to Mr Chan and Mr Chiu that there were several email exchanges between Aeso Holding and Shinewing in which the former simply asked the latter for more time to pay invoices for provisional liquidation fees. This was despite the fees sought exceeding HK$800,000. Nowhere in the correspondence mentioned does Aeso Holding deny that Shinewing was entitled to any fees above HK$800,000. In answer, Mr Chan stated that Aeso Holding was then adopting an “ostrich strategy”. The priority at the time was for Aeso Holding to be re-listed. That required Aeso Holding’s provisional liquidation to be ended and Mr Kan and Ms Hou to be released from acting as provisional liquidator as soon as possible. Mr Chan calculated that, if he were to insist on the fee cap arrangement at that juncture, there would inevitably be disagreements and disputes with the provisional liquidators. This would only delay the company’s release from provisional liquidation and defer its re-listing for an indefinite period. Therefore, until the company was re-listed, it was thought more prudent simply to delay payment on some pretext or other and for Aeso Holding, like an ostrich, to bury its head in the sand. Some payment was in fact made, but not more than the cap of HK$800,000. The company was re-listed on 31 July 2019. A.2 Analysis 35.I am not persuaded that Mr Kan and Ms Hou contractually agreed to cap their fees for the provisional liquidation of Aeso Holding at HK$800,000. In my view, however, there was an understanding among Mr Kan and Ms Hou on the one part and Mr Chan on the other that Mr Kan and Ms Hou would be keeping their fees at HK$800,000 as much as possible. 36.First, there is no dispute that, at the meeting on 25 April 2018, Mr Chan met with Mr Kan to stress the importance of keeping the costs of the provisional liquidation low. Mr Chan stated that it would be possible to keep costs low, because all that was needed would be to “keep an eye” on the company. Senior management would essentially be running the day-to-day business of the company under the provisional liquidators’ oversight. Although Mr Kan did not have much more information to go by, Mr Chan insisted that he give a rough estimate of how much the provisional liquidation would cost. Mr Kan said that the provisional liquidation would be charged on a time-cost basis, but nonetheless gave a range of HK$500,000 to HK$800,000. 37.In those premises, from an objective standpoint, the ordinary reasonable person would have understood that the estimated range given was a serious one. There would have been an understanding that the upper end of the range (HK$800,000) was to be adhered to as much as possible. Such understanding would not have ruled out the possibility of the provisional liquidators charging more than HK$800,000. But there would have to be compelling or extraordinary circumstances, justifying exceeding the limit of HK$800,000. Given the understanding, as a matter of common sense, the provisional liquidators should at the very least have (1) reverted to Mr Chan if they foresaw the possibility of exceeding the HK$800,000 limit and (2) explained why it was necessary to incur additional charges beyond HK$800,000. In this way, it would be possible to explore whether the additional charges envisaged could be mitigated or dispensed with completely. Given that Aeso Holding was a listed company, Mr Kan factored in what he regarded on 25 April 2018 as a generous estimate to cover compliance work. Consequently, the HK$800,000 would also have covered any standard compliance work which provisional liquidators would normally be expected to conduct in connection with a listed company. 38.On the strength of that understanding, on the day after his meeting with Mr Kan, Mr Chan caused Mr Kan and Ms Hou to be put forward as provisional liquidators for Aeso Holding. Given Mr Chan’s concern over keeping costs down, if there had been no such understanding, it is difficult to explain why he acted as he did in that respect. In other words, while the provisional liquidators made it clear that they would be charging on a time-cost basis, that was not supposed to be the equivalent of a blank cheque. 39.Second, the documentary evidence militates against the existence of an oral contract between Mr Chan and the provisional liquidators that fees would be capped at HK$800,000 with no room for adjustment, come what may. 40.According to Mr Chan and Mr Yan, an oral agreement to charge no more than HK$800,000 was in place as from the meeting on 25 April 2018. 41.However, on 5 May 2018 ONC emailed Shinewing: “As advised by Counsel, we have to submit a quotation for the services to be provided as provisional liquidators or receivers. We should be grateful if you could also let us have the same on Monday, 7 May 2018.” On 7 May 2018, Shinewing responded to ONC: “Please see the attached fee quote and proposed work scope for services to be provided by the PLs or Receivers, together with the hourly professional fees scale for Administrative Panel of Insolvency Practitioners for Court Winding-up (the Panel A Rates) for your consideration.” The attached fee quote put forward a fee range of between HK$500,000 and HK$800,000. 42.Later that day, ONC emailed back:
43.On the following day, Shinewing wrote back: “Please note that we are still working on the revised scope of work and fee quotation with reference to Schedules 1 & 2 of the Summons. Will send it to you as soon as possible. Thanks.” On the same day, ONC replied: “Since we have to file the affirmation tomorrow morning. We should be grateful if you could let us have the revised quotation before that.” Some six minutes later, Shinewing emailed: “Please note that our fee quote remains unchanged. Thanks.” 44.If a fee cap had been contractually agreed on 25 April 2018, one asks rhetorically why ONC (Mr Yan’s firm) was asking whether Shinewing would be revising its fees in light of the more extensive scope of powers and work in Schedules 1 and 2 of the Summons? By similar token, if there had been a binding agreement, why would Shinewing have to consider whether the revised scope of powers and work necessitated a change in its fee quotation? The email exchange suggests instead that there was simply an understanding that Shinewing would be capping its fees to the range of HK$500,000 to HK$800,000. Shinewing having put in a fee quote on that basis on 7 May 2018, ONC was in effect asking by its emails whether the enhanced scope of the provisional liquidators’ powers and work in Schedules 1 & 2 of the Summons meant a corresponding increase in the fee range quoted by Shinewing. After consideration, Shinewing reverted that it would be sticking to the fee range originally quoted. It seems to me that Shinewing was thereby adhering to the understanding reached on 25 April 2018. I regard the foregoing email exchange as fortifying the inference of an understanding, as opposed to an iron-clad contract. 45.Third, the circumstances underlying the later revision of the fee range to between HK$1.5 million and HK$2.5 million, strengthen the inference that there was an understanding. The evidence is that Mr Yan was in regular contact with Mr Kan prior to the appointment as provisional liquidator. That was for the purposes of emphasising the need to keep costs down and stick to the estimated range. When counsel expressed concerns about the range of HK$500,000 and HK$800,000 being too low, Mr Yan suggested to Mr Kan that the range be increased to improve the optics of the application for the provisional liquidation of Aeso Holding. Mr Kan straightaway agreed to Mr Yan’s proposed range. He did not ask for time to re-calculate Shinewing’s quotation of 11 May. This suggests that Mr Kan was simply accommodating counsel’s concerns as expressed to him by Mr Yan. The increased range was for external appearance (“on paper”) only. Internally, as far as Mr Kan was concerned, Shinewing’s original range of HK$500,000 to HK$800,000 remained the understanding. I shall more to say about this at the end of this Judgment. 46.Fourth, I am unable to infer from the correspondence mentioned in [34] above, that no understanding had been reached between Mr Chan and Mr Kan on 25 April 2018. It seems to me entirely plausible that, given the importance of re-listing Aeso Holding as soon as possible, it decided to adopt an “ostrich” strategy, delaying any payment beyond HK$800,000 on some excuse or other as long as possible. I also accept that Mr Chan wanted further and better particulars of the provisional liquidators’ charges before making any payment above the cap of HK$800,000 and such details were slow in coming from Shinewing. When cross-examining Mr Chan and Mr Chiu, Mr Patrick Siu (appearing for the provisional liquidators) observed that the detailed grounds of objection which Aeso Holding initially submitted to the Taxing Master did not refer at all to an agreement or understanding that fees were to be capped at HK$800,000. Mr Siu suggested that the reason for this was because there was no such agreement or understanding. However, I do not think that I can infer the absence of an understanding from the failure to mention the same in the list of objections. Mr Chan responded (and I accept) that at the time Aeso Holding was pursuing a two-pronged approach. On the one hand it was querying the provisional liquidators’ bill item by item, while on the other it was pursuing the fee cap in correspondence with the provisional liquidators through Titus. 47.In summary, for the foregoing reasons, I answer Preliminary Issue (1) as follows: Mr Kan and Ms Hou had on or about 25 April 2018 reached an understanding with Acropolis that, upon Mr Kan and Ms Hou being appointed as the joint provisional liquidators of Aeso Holding, they would cap the remuneration which they would be entitled to receive in respect of the said appointment at HK$800,000. Such understanding was along the lines set out in [37] above. B. Preliminary Issue (2): If the answer to Preliminary Issue (1) is in the affirmative, whether the agreement or mutual understanding should be taken into account by the Court in determining Aeso Holding’s Application for Review of Taxation dated 17 February 2020? 48.Provisional liquidators are officers of the court. Therefore, the fact that there was an understanding between the provisional liquidators and Mr Chan does not automatically mean that the court is bound by the understanding. The understanding cannot fetter the court’s discretion as to what would be a fair remuneration for the provisional liquidators as officers of the court. Nonetheless, the understanding will inevitably be a weighty factor to be considered in the court’s taxation of the provisional liquidators’ charges. 49.As a general approach, when evaluating whether the fees charged by provisional liquidators are justified, the court asks itself the following questions (see Le Pichon J in Re Peregrine Investment Holdings Ltd [1998] 2 HKLRD 670, at 684G-J, applying the principles (sometimes referred to as “the Maxwell principles”) articulated by Ferris J in Mirror Group Newspapers Plc v Maxwell & others [1998] BCC 324):
50.But the Maxwell principles are not an exhaustive list of the factors that a master can or should consider. As I pointed out at [24] in my Decision of 6 February 2024, Companies (Winding-Up) Rules (Cap 32H) Rule 28(3) states that a provisional liquidator is “entitled to be paid, out of the property of the company, all the costs, charges, and expenses properly incurred ... as provisional liquidator” (emphasis supplied). The Maxwell principles do not constrain what a court may examine when determining whether charges claimed by a provisional liquidator have been “properly incurred”. On the contrary, it would be odd if an officer of the court in the position of a provisional liquidator could simply disregard the understanding reached with Mr Chan and incur charges and expenses on a time cost basis, without reference to the estimated fee range provided. As a matter of principle, the master must be entitled to assess whether, given the understanding that their charges should to the extent possible be capped at HK$800,000, the provisional liquidators are properly claiming more than the cap. 51.The provisional liquidators never approached Mr Chan to alert him to the possibility that their charges were likely significantly to exceed HK$800,000 and to explain why. No attempts were made (1) to discuss possible ways of minimising the ballooning of costs and (2) to scrutinise with Mr Chan which charges and expenses were truly necessary or unavoidable, and which could be mitigated in whole or part by taking particular measures. Thus, in taxing the provisional liquidators’ costs in light of the understanding, it seems to me that the master will have to assess the reasons for the cost overrun. More specifically, the master would have to determine whether the specific activities for which charges or fees are being claimed were truly necessary and the extent to which (if at all) such activities could have been mitigated or dispensed with altogether. 52.In short, I would answer Preliminary Issue (2) as follows: The mutual understanding among the parties should be taken into account by the court in determining Aeso Holding’s Application for Review of Taxation. Taking account of the understanding would entail an evaluation along the lines sketched out in [37] and [51] above. C. A matter of deep concern 53.Before concluding, I express deep concern with the arrangement reached among Mr Chan, Mr Yan, and the provisional liquidators in relation to the revision of the liquidators’ fees to a range of HK$1,5 million to HK$2.5 million. This was done purely as window dressing. The fee quotation was “revised” to forestall any submissions by the opposing shareholders that (1) the original fee range was too low to be credible and (2) Acropolis was not intending for there to be a genuine provisional liquidation. Acropolis’ own senior and junior counsel were not told that, despite the apparent upward revision to the fee quotation, it remained Acropolis’ understanding that the provisional liquidators would not be charging more than the HK$800,000 upper limit that Acropolis’ counsel had queried. Certainly, the opposing shareholders were not told of the true position. More disturbingly, the understanding reached with the provisional liquidators was kept secret from the court itself. 54.The court was thus misled, when appointing the provisional liquidators, into thinking that the latter were likely to cost more than the understanding reached with Acropolis. This lack of transparency is unacceptable. It should never have happened. In finding that there was an understanding and in holding that the master should take account of the same in taxation, I should not be taken to condone the misleading of the court. I have considered whether, since the court was misled, the understanding should be disregarded. But I have found the existence of the understanding to be a factual reality. I do not think that it can be ignored as a matter of law or discretion. 55.Mr Jeff Yau (appearing before me for Acropolis and Aeso Holding) unreservedly accepted on behalf of his clients that the decision not to inform the court was entirely wrong. On instructions, Mr Yau only submitted by way of mitigation that, in acting as they did, Acropolis and Mr Chan were only thinking of the company’s best interests. But such consideration can never excuse a lack of frankness with the court. The court should have been informed of the real position from the outset. I hasten to add that Mr Yau was not himself involved in any way with the decision to conceal from the court the understanding between Acropolis and the provisional liquidators. D. Costs 56.The Applicants have essentially prevailed on the preliminary issues before me. They should in principle have the costs of the preliminary issues trial, including those of the hearing before me on 6 February 2024. The Applicants have incurred total legal costs of HK$343,279 in connection with the preliminary issues. That compares with total legal costs of HK$494,430 incurred by the provisional liquidators. The Applicants’ legal costs being approximately 70% of the provisional liquidators’ legal costs, I regard the Applicants’ legal costs as reasonable and proportionate. In those premises, there will be an order nisi that the provisional liquidators are to bear the Applicants’ costs of HK$343,279 in these proceedings. IV. CONCLUSION 57.I answer Preliminary Issue (1) as stated in [47] above and Preliminary Issue (2) as stated in [52] above. As to costs, there will be an order nisi as stated in [56] above.
Mr Jeff Yau, instructed by Titus, for the petitioner and the 14th respondent Mr Patrick Siu, instructed by Chow, Griffiths & Chan, for the former provisional liquidators of the 14th respondent |
Cases cited in this judgment
Further hearings and rulings under HCCW 218/2017