Pinemill Co. Ltd. v. Lai Hong San and Others

HCCW000019D/1998

HCCW 19/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 19 OF 1998

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Coram: Hon Kwan J in Chambers

Dates of Hearing: 9 and 10 July 2002

Date of Handing Down of Decision: 11 February 2003

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DECISION  ON  COSTS

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1.On 10 May 2000, an order was made under section 221 of the Companies Ordinance, Cap. 32 by Yuen J (as she then was) for the examination of the 1st to 5th respondents, on the application of Pinemill Company Limited ("Pinemill"), the creditor that had presented a petition to wind up Weihong Petroleum Company Limited ("WHP") on a judgment debt of over HK$19 million. Pinemill is the only creditor that has submitted a proof of debt in the liquidation of WHP. The 2nd, 3rd and 4th respondents are the former directors of WHP. The 1st respondent was and is the majority shareholder and a director of Weihong (Holdings) Company Limited ("WHH"), which had later changed its name to Weihong Investment (Holdings) Limited. WHH and the 2nd respondent owned beneficially the entire issued share capital of WHP and WHH remained as a director of WHP when WHP was wound up on 18 March 1998. The 5th respondent is a firm of solicitors acting for, inter alia, the 3rd and 4th respondents, at the material time.

2.I have related part of the background of the affairs of WHP leading to the order for examination in a Ruling handed down on 21 February 2002 and I do not propose to repeat this. I also refer to the Reasons for Decision of Yuen J on 18 May 2000 for making the order for examination. Suffice it to say that the books and records of WHP were incomplete, substantial sums had passed through the bank accounts of WHP with large amounts paid to the five respondents or to companies controlled by one or more of the respondents. Discrepant versions were given to the liquidators by some of the respondents regarding the whereabouts of the books and records and the business of WHP. No assets have apparently been realised in the liquidation so far.

3.The private examination of the respondents commenced on 10 July 2001 and took 20 days to complete. As the applicant for the order of examination, Pinemill had the conduct of the examination through its counsel, as provided in the order. Pinemill was represented by leading and junior counsel throughout. The liquidators of WHP had also obtained an order from Yuen J on 10 May 2000 for leave to retain solicitors to assist them in the performance of their duties as liquidators and to remunerate those solicitors out of the assets of WHP, subject to the leave of the court. The liquidators, by their solicitors, Messrs Holman Fenwick & Willan, took part in the examination as well, although counsel was not engaged. The liquidators themselves also attended court throughout to give assistance as and when required.

4.At the conclusion of the examination of the last of the respondents on 5 February 2002, I heard an application made by the liquidators against the 3rd and 4th respondents for disclosure of their assets and liabilities on 6 and 7 February 2002. A ruling was handed down on 21 February 2002 refusing the liquidators' application. I adjourned the argument on the costs of the examination of all five respondents, as well as the argument on costs of the application on 6 and 7 February 2002, to a date to be fixed with two days reserved. This hearing took place on 9 and 10 July 2002. Save for the 1st respondent, who filed a Notice to act in person on 6 July 2002, the other respondents were represented by counsel. The 1st respondent did not attend court and gave no explanation in his letter to the court dated 6 July 2002 why he was not in Hong Kong for the dates of the adjourned hearing, which were fixed well in advance. I decided to proceed in his absence.

5.I will first set out the various applications for costs by Pinemill, the liquidators and the respondents.

The application of Pinemill and the liquidators

6.Pinemill and the liquidators seek two sets of costs (as they are represented by separate teams of lawyers) in an order along these lines: (1) against all five respondents, that they should be jointly and severally liable for the costs of the preparation of the examination proceedings; (2) against the 1st to 4th respondents individually, that each of them should pay the costs involved during the days when that individual respondent was examined in court; and (3) that the costs awarded against the respondents should be on an "enhanced" basis, namely, that costs should either be taxed on a trustee basis under O. 62 r. 28(5) of the Rules of the High Court (as in In re Nation Life Insurance Co. Ltd. [1978] 1 WLR 45), or on a common fund basis under O. 62 r. 28(3), with a direction to the taxing master under O. 62 r. 32(2) to allow items not mentioned in the scale, or to allow costs at higher rates than prescribed by the scale (as in American Express International Banking Corporation & Ors. v. Johnson & Anr. [1984] HKLR 372 at 389 to 390 and Re Irish Shipping Ltd. [1985] HKLR 437 at 446 to 447).

7.Pinemill and the liquidators also seek the following orders against these respondents in respect of various applications made in the course of the examination in which Pinemill and the liquidators were successful:

(1) against the 2nd respondent, in a ruling sought by the 2nd respondent on 13 July 2001 that certain questions put to him should be disallowed because of the privilege against self-incrimination;

(2) against the 2nd respondent, in an application of the liquidators on 14 July 2001 for disclosure of assets and liabilities;

(3) against the 3rd respondent, in an application of Pinemill on 10 July 2001 for a warrant of arrest; and

(4) against the 5th respondent, in a ruling sought by the 5th respondent on 5 February 2002 that the 5th respondent should not be required to disclose the name and address of a client unless ordered by the court.

8.Further, and regardless of whether the liquidators should obtain an order that the respondents should pay their costs, the liquidators seek an order (1) that the liquidators' costs allowed by the court should cover the time costs and disbursements of the liquidators themselves in preparing for and attending the examination, in addition to the costs of their solicitors, as their presence is necessary in addition to that of their solicitors, having regard to r. 145 of the Companies (Winding-up) Rules; and (2) that the liquidators' costs should include the costs of the stenographer in the examination and of the certification of the transcript by the stenographers, under the provisions of r. 60 of the Companies (Winding-up) Rules.

The 2nd respondent's application

9.The 2nd respondent seeks an order of costs against Pinemill and against the estate of WHP for the first day of the examination, which was adjourned on the 2nd respondent's application, as wasted costs.

The 3rd and 4th respondents' application

10.These respondents seek an order of costs against the estate of WHP in the unsuccessful application by the liquidators against them on 6 and 7 February 2002 for disclosure of assets and liabilities. They also seek an order of costs against Pinemill as Pinemill had supported that application.

The 5th respondent's application

11.The 5th respondent seeks an order of costs (1) against the estate of WHP for the costs of preparation of the examination including the costs of engaging counsel, from 14 January 2000 (when the 5th respondent served answers to the questionnaire of the liquidators) up to the hearing of the costs application in July 2002, on the ground that the liquidators had failed to seek a waiver of legal professional privilege from the 5th respondent's clients, i.e. the 3rd and 4th respondents, much earlier; and (2) against the estate of WHP and Pinemill for the costs of the 5th respondent's application for a ruling on 5 February 2002 that the 5th respondent should not be required to disclose the name and address of a client without a court order.

The jurisdiction to award costs

12.It is not in dispute that the court does have jurisdiction to award costs in proceedings for examination under section 221. Under section 52A(1) of the High Court Ordinance, Cap. 4, it is provided that "subject to the provisions of rules of court, the costs of and incidental to all proceedings in the Court of Appeal in its civil jurisdiction and in the Court of First Instance, including the administration of estates and trusts, shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid." R. 210 of the Companies (Winding-up) Rules provides that "in all proceedings in or before the court, ... or over which the court has jurisdiction under the Ordinance and rules, where no other provision is made by the Ordinance or rules, the practice, procedure and regulations shall, unless the court otherwise in any special case directs, be in accordance with the rules and practice of the court."

13.An examination under section 221 is a proceeding in the Court of First Instance (see In re Appleton, French & Scrafton, Ltd. [1905] 1 Ch, 749 on section 115 of the Companies Act 1862, the equivalent to section 221). Thus, the general rules and practice applicable to the costs of proceedings in the High Court should apply in this instance. There is no doubt about the power to award cost. The question is how the discretion should be exercised.

14.There is no express provision in Cap. 32 or the rules regarding the costs of the examination proceedings, unlike the situation in England. Under r. 9.6 of the Insolvency Rules 1986, there are these provisions on costs:

"(1) Where the court has ordered an examination of any person under the applicable section [this includes section 236 of the Insolvency Act, which is equivalent to section 221 of Cap. 32], and it appears to it that the examination was made necessary because information had been unjustifiably refused by the respondent, it may order that the costs of the examination be paid by him.

...

(3) Subject to paragraphs (1) and (2) above, the applicant's costs shall, unless the court otherwise orders, be paid out of the insolvent estate.

(4) A person summoned to attend for examination under this Chapter shall be tendered a reasonable sum in respect of travelling expenses incurred in connection with his attendance. Other costs falling on him are at the court's discretion."

15.On behalf of the 4th respondent, Mr Paul Shieh submitted that notwithstanding that we have no express statutory provision as to how the power to award costs may be exercised, the court should be guided by the basic principle that costs are generally awarded in the situation where the applicant for costs has been forced to go to court and incur costs to obtain something (such as some information, documents or order) which the applicant has asked for and which the paying party has unjustifiably declined to provide or failed to do so earlier. He submitted that this is the broad effect of r. 9.6(1) of the Insolvency Rules, which could well have been a codification or modification of the existing law. Where an order under r. 9.6(1) is not made, the effect of r. 9.6(3) is that the applicant's costs of the examination will be paid out of the insolvent estate. Mr Shieh's submission was adopted by counsel for the other respondents.

16.Mr Ambrose Ho, SC submitted on behalf of Pinemill that unlike the English position, the court has an unfettered discretion to award costs and that the court's power to do so should not be confined to the situation as envisaged in r. 9.6(1) of the Insolvency Rules.

The basis for seeking costs against the respondents

17.Mr Ho has referred me to dicta in various cases on why there is a need for an order for examination, the purpose of such an examination and the duty of those who are being examined, particularly former officers who owe fiduciary duties to the company. These cases include In re Rolls Razor Ltd. (No. 1) [1968] 3 All ER 698 at 700, per Buckley J; In re Rolls Razor Ltd. (No. 2) [1970] 1 Ch 576 at 591 to 592, per Megarry J; In re British & Commonwealth Holdings Plc. [1992] Ch 342 at 371, per Ralph Gibson LJ, at 384 and 392, per Woolf LJ and [1993] AC 426 at 438, per Lord Slynn; and In re Jeffrey S Levitt Ltd. [1992] Ch 457 at 472 to 473, per Vinelott J. The purpose of an examination under section 221 is best encapsulated in these words of Buckley J in In re Rolls Razor Ltd. (No. 1):

"The powers conferred by section 268 [of the Companies Act 1948, equivalent to section 221 of Cap. 32] are powers directed to enabling the court to help a liquidator to discover the truth of the circumstances connected with the affairs of the company, information of trading, dealings, and so forth, in order that the liquidator may be able, as effectively as possible and, I think, with as little expense as possible and with as much expedition as possible, to complete his function as liquidator, to put the affairs of the company in order and to carry out the liquidation in all its various aspects, including, of course, the getting in of any assets of the company available in the liquidation. It is, therefore, appropriate for the liquidator, when he thinks that he may be under a duty to try to recover something from some officer or employee of a company, or some other person who is, in some way, concerned with the company's affairs, to be able to discover, with as little expense as possible and with as much ease as possible, the facts surrounding any such possible claim."

18.I accept that a person who is examined under section 221 owes a duty to furnish information sought and there is public interest in ensuring that the examination is carried out thoroughly and expeditiously. As stated by Megarry J in In re Rolls Razor (No. 2), supra at 592A, this process for examination is sui generis and the examinees are not in any ordinary sense witnesses.

19.On the basis of the above dicta, which were made in the context of whether the court should make an order for examination or for production of documents or whether the privilege against self-incrimination is available in such an examination, Mr Ho submitted that in exercising the discretion as to costs in proceedings of this kind, the court should do so in a manner to protect and preserve the efficacy of this process for examination as provided by statute. Effective investigation under this process would necessarily be hampered unless liquidators should be able to pursue the examination with the confidence that those guilty of misconduct, which rendered the examination necessary, should be ordered to pay for the costs incurred in conducting the examination. Otherwise, if the costs were to be paid out of the insolvent estate, the creditors would have to suffer for the misconduct of those responsible and liquidators would be deterred from invoking the statutory procedure because of prohibitive costs.

20.Further, it was submitted that all five respondents had unjustifiably refused to give the information sought by the liquidators, and as a result an examination was rendered necessary, so costs of the examination process should be borne by them along the similar principle in r. 9.6(1) of the Insolvency Rules.

21.Lastly, it was submitted that to award costs against the 1st to 4th respondents is consistent with the principle in equity that a trustee who is guilty of "gross neglect and indefensible refusal" to furnish accounts would be ordered to pay for all the costs of the application for an administration order which were rendered necessary, including the costs of taking and vouching the account, as beneficiaries have a right to expect the performance of their duty by trustees (see Underhill and Hayton, Law Relating to Trusts and Trustees, 15th ed, page 658; In re Skinner [1904] 1 Ch 289 at 292; In re Holton's Settlement Trusts [1918] WN 78). In this instance, the examination was rendered necessary because of the paucity of the information made available to the liquidators. The background leading to the order for examination has been canvassed in the earlier decisions referred to in paragraph 2 above. It was submitted that the paucity of information was a direct result of each of the former directors or shadow directors' failure to keep proper books and accounts and the obscure way in which the affairs of WHP had been conducted by the former directors and that their failure was a "gross and indefensible neglect". Mr Kinnison for the liquidators submitted that there was breach by the 1st to 4th respondents of their obligations under section 121 to keep proper books of account at the registered office or such other place as the directors think fit and under sections 161 and 161B to show in the accounts laid before the company in general meeting the required particulars regarding directors' emoluments and loans to officers. Hence, the burden is on these respondents to justify why the expenses incurred in their examination should not be borne by them. Unless each of these respondents could show that either his examination was not necessary (this issue had already been decided against them when the order for examination was made) or that his examination had been conducted in an improper manner, each should bear the costs of his examination.

22.Complaint was made against the 1st to 4th respondents that they had produced limited documents to the liquidators in purported compliance with the court orders and that they had not done enough to assist the liquidators notwithstanding that they would have access to the documents of WHP and other related companies of which they were directors. It was further submitted that the answers given by each of these respondents in their examination were unsatisfactory in material respects in that they were either unwilling to co-operate in the investigation, or withholding information, or were evasive, contradictory, unconvincing, illogical or economical with the truth. In making this submission, Mr Ho made clear that he is not asking the court to make any finding on the "ultimate issue", e.g. whether the 1st to 4th respondents were guilty of misfeasance or if they were culpable in bringing about the insolvency. In exercising the discretion as to costs, it is necessary for the court to form a "broad view" over "all relevant circumstances" and for that purpose, the court should form a view if the respondents were evasive or whether they have discharged their positive duty to co-operate with the liquidators in the examination process.

23.In respect of the 1st respondent, he gave cursory answers to the liquidators' questionnaire of 8 December 1999. On 21 June 2000, in purported compliance of the order of Yuen J dated 10 May 2000, he filed a list of documents disclosing only five documents. Pursuant to an order I made on 19 July 2001 in the course of the examination, the 1st respondent caused to be provided an affirmation from the accounts clerk of WHH and an affirmation from the financial controller of WHH, and disclosed some further documents in July and August 2001. A further order for discovery was made by consent on 3 December 2001 and the 1st respondent had, in his affirmation made on 30 November 2001, purported to deal with the discovery ordered. He merely stated that he had no control over various companies (Grand Petroleum Company Limited, Grand Petroleum Holdings Limited, Weizhou Daya Bay Import and Export Corporation and Weizhou Weihong Petrochemical Storage and Pier Company Limited - in which he was a director or chairman or would appear to have control) and that he did not at any time retain any documents relating to such companies.

24.As for the 2nd respondent, he filed a list of documents on 8 June 2000 with 73 items and disclosed further documents during his examination in July 2001. He gave an undertaking to provide to the liquidators further documents after his examination, but by a letter of his solicitors dated 27 July 2001, he stated that various documents could not be found, including the accounts of Grand Petroleum Company Limited, of which the 2nd respondent was a director. The 2nd respondent did write to the solicitors who acted for other directors of Grand Petroleum Company Limited seeking copies of the accounts and received a reply that the solicitors did not have in their possession any company documents or accounts of Grand Petroleum Company Limited or Grand Petroleum Holdings Limited.

25.The 3rd, 4th and 5th respondents each filed a list of documents on 27 June 2000, which are identical in all respects save for two additional items in the 4th respondent's list and one additional item in the 5th respondent's list. These respondents were represented by the same solicitors at that time. Although quite a number of documents were disclosed, by and large, the disclosure was limited to formal corporate documentation of various companies.

26.The 3rd respondent filed a supplemental list of documents on 17 January 2002 disclosing only one further item. He also filed an affirmation dated 27 February 2002 stating that he had written to various companies of which he was a director to seek production of relevant documents and the request was apparently to no avail.

27.The 4th respondent filed further lists of documents on 7 November 2000, 30 June 2001, 23 August 2001 and 21 January 2002 and provided additional documents at the beginning of the hearing of the examination in July 2001. The complaint of Pinemill and the liquidators was that production of documents was in a piecemeal manner and that the documents disclosed are still incomplete.

28.As for the 5th respondent, Pinemill and the liquidators sought an order that the 5th respondent should bear the costs of the preparation of the examination proceedings as the 5th respondent had not been "fully prepared" to provide information to the liquidators. I was asked to note the limited information provided by the 5th respondent in answer to the questionnaire and that it was only on 27 August 2001 that the 5th respondent filed a substantial supplemental list of documents, pursuant to a further order for discovery on 19 July 2001, after the 5th respondent had obtained a release from a former client, who is not a respondent herein, to disclose such documents.

29.I do not propose to set out the specific aspects in which Pinemill and the liquidators have criticised and attacked the evidence given by each of the respondents in their examination as unsatisfactory. I have considered those parts of the evidence as set out in the joint written submissions of Pinemill and the liquidators for each respondent and read the relevant parts of the transcript.

The arguments against awarding costs against the respondents

30.Mr Shieh submitted that the appropriate order in this instance is that there should be no order as to costs in respect of both the preparation for and the actual conduct of the examination.

31.Firstly, there should be no presumption or bias in favour of the applicant for the examination that once an order for examination is made under section 221, then prima facie the applicant's costs of the examination should be paid by the respondent.

32.Secondly, for the purpose of exercising the discretion as to costs of the examination, one should distinguish between (1) the standard of corporate governance and the conduct of directors during the lifetime of a company (which is irrelevant for the limited purpose of the present application); and (2) the conduct of the respondents during investigation which was causative of unnecessary costs (which is relevant).

33.Thirdly, as to the need for the examination in the present case, this was not solely due to the absence of proper books and records. As stated in the Reasons for Decision of Yuen J on 18 May 2000, the 1st to 4th respondents had given discrepant versions as to the locations of the books and records and the business transactions. Pinemill had shown a prima facie case for an examination "so that the truth about the affairs of the Company can be ascertained". Besides, the sort of information sought by Pinemill and the liquidators is of a wide-ranging nature in the complex affairs of WHP and related companies. The discrepant versions given by the 1st to 4th respondents did not change in the course of their respective examinations, with each trying to shift blame or responsibility on to the others. Even if such books and records as required by statute had been kept, it would still have been necessary to examine the respondents orally although the examination might not have been as protracted.

34.Fourthly, the fact that discrepant answers had been given before and during the examination does not mean that a view could and should be taken at this stage that any particular respondent or respondents were at fault for the absence of proper books and records and so should bear the costs of the examination. It is not the function of the court to find out the cause or the blame for that state of affairs during the lifetime of a company with a view to awarding costs of the examination. The ascertainment of the truthfulness or otherwise of the answers given in respect of the way that a company had been run should await an adjudication at a different time, by a different tribunal, in a different context, and under different procedural rules, for instance, when proceedings are brought against the directors for a disqualification order or at common law for breach of fiduciary duty. The examination process does not entail a fact-finding exercise by the court as to whether an examinee was or was not telling the truth. There is no "event" at the end of the day. It is not an adversarial trial but merely an information gathering exercise by the applicant, who is usually the liquidator, and it is up to the liquidator to decide what to do afterwards with the information obtained.

35.Fifthly, as for the failure to keep proper books and records, one must not overlook the fact that the 3rd and 4th respondents held office as directors of WHP for less than a month, from 29 October 1996 to 20 November 1996.

36.Sixthly, as for the complaint that documents were produced late and that the documents and information provided by the respondents in answer to the questionnaires are incomplete and inconsistent, it would not have made much difference to the course of the examination. Many questions were asked for the first time during the oral examination. Realistically, the respondents could not be expected to volunteer information to the liquidators in addition to responding to specific requests. Besides, a great deal of the questioning during the examination was directed not at eliciting information but was repeated challenging of the answers given by the respondents orally and in writing. In conducting the examination, Pinemill and the liquidators are entitled to probe and test the respondents' evidence and approach all their answers critically. This, however, does not mean that they could point to such parts of the evidence where the examiner had refused to accept the answers given to say that the respondents were being uncooperative.

37.Seventhly, even if some of the documents were disclosed late by the respondents, there is no rational basis to inflict upon the respondents the substantial costs involved as sought by Pinemill and the liquidators (i.e. the days when the individual respondent was examined in court, plus the time spent in the preparation of the examination proceedings), as the time and costs relating to the obtaining of such documents must have been relatively insignificant compared to the rest of the examination. The discretion of the court to award costs should be exercised with a sense of proportion.

38.Lastly, ordinarily the costs of investigation incurred by the liquidators would be borne by the estate and to that extent, the absorption of the liquidators' costs by creditors is an intrinsic element of insolvent liquidations. In this case, the position would have been the same if the liquidators had conducted a long and thorough investigation into the affairs of WHP and the former directors had voluntarily attended the liquidators' offices for interviews conducted by the liquidators assisted by their lawyers, without an order for examination under section 221. This was similar to the case of the 5th respondent, whose principal later agreed to be interviewed by the legal representatives of Pinemill and the liquidators on 31 January 2002, to avoid the necessity of an examination in court pursuant to the order made against the 5th respondent. The costs of such investigation would simply have formed part of the expenses of liquidation and would have been paid out of the estate. The only difference between such a case and the present situation of the 1st to 4th respondents is that the examination was conducted in court pursuant to an order. As to this, the respondents have already paid the price in that they were ordered to bear the costs in the application for an order of examination for having unjustifiably opposed that application.

If costs of the examination should be awarded against the respondents

39.These are powerful reasons why costs of the preparation of the examination and costs of conducting the examination against the respondents individually should not be ordered against the respondents.

40.I am inclined to agree with Mr Shieh that the real need for the examination is the complexity of the affairs of WHP and the desire of Pinemill and the liquidators to test the information provided by the respondents with follow up investigations. The lack of proper books and records is but a contributory factor. As for the cases cited by Mr Ho where a trustee guilty of gross and indefensible neglect to furnish accounts was ordered to pay all the costs of an application for an administration order which were rendered necessary, including the costs of taking and vouching the account, one must bear in mind that in these cases the charges against the trustee were properly ventilated and the defence of the trustee to such charges was adequately articulated, after which findings were made by the court. It does not seem to me that these cases would provide an apposite analogy to the situation that I am concerned with.

41.Besides, the statutory obligations of directors to comply with sections 121, 161, 161B or 274 are not absolute obligations. There are built in defences such as reasonable steps that have been taken to secure compliance by the company or having acted honestly or establishing that the default was excusable in the particular circumstances. The 1st to 4th respondents may be prosecuted for having contravened any of these statutory provisions or disqualification proceedings may be brought against them, in which event they may wish to rely on the built in defences. The examination proceedings is not an appropriate occasion to make a finding or to form a "broad view", as I was invited by Mr Ho to do, if any of the respondents were in breach of these statutory provisions. I am alive to the undesirability of seeming to affect how the issues of fault and responsibility ought to be dealt with in future proceedings by expressing a broad view on the evidence given in the examination proceedings, which may not be the complete picture. Likewise, in respect of other aspects of misconduct involving breach of fiduciary duty, it does not seem to me that the objections against weighing up the evidence and making findings could be resolved by asking the court to take a broad view on the unsatisfactory nature of the evidence so as to found an adverse costs order against the respondents.

42.I wish to make clear that I am not saying that in no circumstances should the court be taking an overall view of such aspects of the conduct of a respondent that had necessitated an examination, with the view of ordering costs of the examination to be borne by the respondent instead of the estate. I am only holding that in the present circumstances, I am not persuaded that the cases against the respondents for having failed to comply with the statutory obligations or other aspects of their duty as directors are so clear that the court should not hesitate in forming a broad view in the present proceedings for the purpose of exercising its discretion as to costs.

43.I accept the submissions of the respondents that this is not an appropriate case to exercise the discretion to order that the costs of the preparation of the examination and of the conduct of the examination should be borne by the respondents. I make an order that there be no order as to costs of the examination.

44.That being my ruling, it is unnecessary to provide in my order whether Pinemill and the liquidators should have two sets of costs and whether each set of costs should be awarded on an enhanced basis. However, as arguments have been addressed to me, it may be appropriate to indicate briefly my views on these matters. I would not have been inclined to order two sets of costs against the respondents. It is true that there would appear to be no duplication in the work done by counsel as counsel was engaged only for Pinemill in the examination and the liquidators did not appear by counsel throughout. Nevertheless, there are two sets of solicitors' costs and I see no sufficient justification why the respondents should bear two sets of solicitors' costs. I do not think it is a sufficient answer to say that it was Pinemill that had applied for an order of examination and had obtained an order that it was to have the conduct of the examination, as Pinemill (which has been funding the liquidators' costs in the whole exercise) could have made an appropriate arrangement with the liquidators regarding the legal representation for the examination instead of having separate teams of lawyers for Pinemill and the liquidators. I would only have been prepared to award one set of counsel's fees, with a certificate for two counsel, and one set of solicitors' fees against the respondents, to be taxed on a trustee basis.

45.I make the following orders as sought by the liquidators mentioned at the beginning of this decision:

(1) the time costs and disbursements of the liquidators themselves in preparing for and attending the examination proceedings, in addition to the costs of their solicitors, would be treated as an expense in liquidation;

(2) the transcript of the examination is to be certified and signed by the stenographer appointed in these proceedings, under rule 60(3); and

(3) the fees of the stenographer would be treated as an expense in liquidation.

The costs sought against the 2nd respondent

46.Pinemill and the liquidators sought an order against the 2nd respondent in respect of two applications in the course of the examination, which were decided against the 2nd respondent:

(1) a ruling sought by the 2nd respondent on 13 July 2001 that certain questions put to him should be disallowed because of the privilege against self-incrimination; and

(2) an application by the liquidators on 14 July 2001 for disclosure of assets and liabilities.

47.In respect of these applications, I see no reason to depart from the usual rule that costs should follow the event and award costs of these applications against the 2nd respondent, on the basis that I have indicated earlier, i.e. that one set of counsel's fees (with a certificate for two counsel) and one set of solicitors' fees be allowed, to be taxed on a trustee basis.

The costs sought by the 2nd respondent

48.The 2nd respondent seeks an order that Pinemill and the estate of WHP should pay the costs of the 2nd respondent for the first day of the examination, which was adjourned on the 2nd respondent's application, as the hearing bundles were delivered late to the 2nd respondent's legal advisers and the first hearing day was wasted.

49.The first day was spent initially in dealing with various housekeeping matters affecting some or all of the respondents and lasted until 12:15 pm. The examination would have begun with the 1st respondent but he did not turn up as he was hospitalised, so leading counsel for Pinemill would have to start with the 2nd respondent, notwithstanding that he was not entirely prepared for this. I thought it best in the circumstances to adjourn the examination of the 2nd respondent to the following day. I do not think the adjournment was wholly or primarily attributable to the late delivery of bundles to the 2nd respondent, nor do I think the entire sitting on the first day was wasted.

50.I decline to award costs as sought by the 2nd respondent.

The costs sought against the 3rd respondent

51.Pinemill and the liquidators seek an order that the 3rd respondent should bear the costs of an application on the first day of the examination for a warrant of arrest against him as he had failed to appear. This was resisted by Mr Remedios on the basis that the costs incurred in relation to this would have been minimal and should be treated as part and parcel of the day's proceedings. Nevertheless, costs have been incurred as a result and I see no reason in principle why the 3rd respondent should not be liable to pay the costs of this application, which was brought about by his failure to attend court pursuant to the order made against him.

52.I order that the 3rd respondent should pay the costs of the application for a warrant of arrest against him, on the basis that one set of counsel's fees (with a certificate for two counsel) and one set of solicitors' fees be allowed, to be taxed on a trustee basis.

The costs sought by the 3rd and 4th respondents

53.These respondents seek an order against the estate of WHP and against Pinemill in respect of the unsuccessful application by the liquidators, which was supported by Pinemill, that the 3rd and 4th respondents be required to disclose their assets and liabilities.

54.I see no sufficient reason to depart from the normal rule that costs should follow the event, as the respondents were, to a large extent, successful in resisting the orders sought against them. I order that the costs of these respondents are to be borne by the estate of WHP. I decline to make an order for costs of this application against Pinemill, as this was not its application and it had played a minor part in supporting the application.

The costs sought against the 5th respondent

55.Pinemill and the liquidators seek an order that the 5th respondent should bear the costs of the ruling sought by the latter that the firm should not be required to disclose the name and address of a client unless ordered by the court. I had made an order of disclosure on 5 February 2002 after hearing submissions. When I came to deal with the costs of the application, the 5th respondent has claimed to be the successful party and asks for costs of the application against Pinemill and the estate of WHP.

56.In seeking such a ruling from the court, the stance of the 5th respondent was that the firm would like the protection of a court order for it to disclose the identity and address of a client as this information may be protected from disclosure by the duty of confidence owed by a solicitor to his client. Having considered the authorities cited to me, I did not think this was an unreasonable attitude. However, I did not in fact rule on the question whether such information was indeed protected by the duty of confidence, as the 5th respondent did not provide information to the court of any circumstances which might cause the firm to think that it is under a duty of confidence not to disclose the identity and address of the client concerned. I had simply ordered disclosure as a court order is clearly one of the exceptions in which a solicitor may be required to disclose information protected by the duty of confidence.

57.It does not seem to me that the 5th respondent could be regarded as a successful party in the application. I do not think the only alternative open to the 5th respondent was to seek the protection of a court order. The 5th respondent could have formed its own view if the information was protected by the duty of confidence having regard to the circumstances such information was received from the client. The 5th respondent chose not to do so and decided to seek a ruling from the court instead.

58.As for Pinemill and the liquidators, I do not think they could be regarded as the successful parties in the application either.

59.It seems to me the appropriate order in the circumstances is no order as to the costs of the application and I so order.

The costs sought by the 5th respondent

60.The 5th respondent seeks an order against the estate of WHP and Pinemill for the costs of preparation of the examination, including the advice sought from counsel, from 14 January 2000 up to the hearing of the costs application in July 2002, on the ground that the liquidators had failed to seek a waiver of legal professional privilege from the 3rd and 4th respondents much earlier. 14 January 2000 was the date when the 5th respondent provided its answers to the questionnaire and it was asserted that by then the liquidators would have known that the 3rd and 4th respondents were the clients of the 5th respondent.

61.I decline to award costs as sought by the 5th respondent. The 5th respondent was subject to the court order made on 10 May 2000 to be orally examined and to disclose documents in its custody or possession in anywise relating to WHP. It was incumbent on the 5th respondent to comply with the court order. If it is necessary for waiver of legal professional privilege to be sought from the 3rd and 4th respondents, it was for the 5th respondent to seek such waiver. If the 5th respondent claims that any document in its possession is privileged, the claim for privilege should be made in a proper manner in the list of documents filed by the 5th respondent. There is nothing to indicate why the 5th respondent had not taken such steps until well over a year after the order was made in May 2000.

Costs of the present application

62.As for the costs of the present application, I make an order nisi that there be no order as to costs.

Representation:

Mr Ambrose Ho, SC and Mr Liu Man Kin, instructed by Messrs Gary Mak, Dennis Wong & Chang, for the Applicant

The 1st respondent, acting in person, absent

Mrs Dora Chan, instructed by Messrs Herman H M Hui & Co., for the 2nd Respondent

Mr Leo Remedios, instructed by Messrs Johnny K K Leung & Co., for the 3rd Respondent

Mr Paul Shieh, instructed by Messrs Anthony Chiang & Partners, for the 4th Respondent

Mr M C Chiu, instructed by Messrs D S Cheung & Co., for the 5th Respondent

Mr Andrew Kinnison, of Messrs Holman, Fenwick & Willan, for the Liquidators