Re Bondfield International Ltd

HCCW 99/2002
HCCW 711/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 99 OF 2002

COMPANIES (WINDING-UP) NO. 711 OF 2002

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Before: Hon Barma J in Chambers

Date of Hearing:  20-23 October and 15 November 2003

Date of Judgment: 27 January 2005

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J U D G M E N T

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1.During 2001 and 2002, among the many companies that were placed into compulsory liquidation were the 63 companies which are the subject matter of the two applications now under consideration.  Mr William Nicholas Giles (“Mr Giles”), a partner in the solicitors’ firm Messrs Horvath & Giles (“H&G”), and a director of its corporate services company H&G Services Limited (“HGSL”), was appointed as a provisional liquidator of each of these companies pursuant to section 194(1A) of the Companies Ordinance (Cap. 32) (“the Ordinance”).  In respect of 46 of these companies, the other provisional liquidator appointed was Mr Alan Hubert Day (“Mr Day”), a partner of Mr Giles’ at H&G, and also a fellow director of HGSL.  In respect of the remaining 17 companies, the other provisional liquidator was Mr David McKellar (“Mr McKellar”), an assistant solicitor with H&G, who was also an employee (although not a director) of HGSL. 

2.Of these applications, the first in point of time was made by the Official Receiver pursuant to a summons dated 27 June 2003.  The summons was a single summons bearing the winding-up proceeding numbers in respect of two of the 63 companies which I have mentioned, namely Bondfield International Limited (“Bondfield”) (HCCW 99/02) and The Fitness Centre Limited (“Fitness Centre”) (HCCW 711/02), although it described itself as being in the matter of the summary liquidations of the other 61 companies (which were listed in a schedule to the summons) as well.  Although in point of form it would seem to have been more appropriate for a separate summons to have been issued in each of the 63 liquidations, I do not think that anything turns on this, since it was tolerably clear from the form of the summons and the relief sought that orders were sought in respect of each of the 63 liquidations.

3.The summons was issued pursuant to sections 191, 196 and 204 of the Ordinance and also pursuant to what was said to be the inherent jurisdiction of the court, and sought orders for the examination of Messrs Giles and Day, who were described as the liquidators of the 63 companies which I have mentioned (although, as I have noted, Mr Day was not in fact a liquidator of 17 of those companies, where Mr Giles’ fellow liquidator was Mr McKellar), in respect of a number of matters, namely:-

(1)     the number and grade of staff employed by HGSL who were available for insolvency work between 26 June 2001 and 31 March 2003;

(2)     whether the liquidators’ fees and charges had been properly or necessarily incurred;

(3)     whether HGSL’s professional indemnity policy in force during the years ending 31 March 2002 and 31 March 2003 could have been avoided as a result of delegation of work by them to RSM Nelson Wheeler Corporate Advisory Services Limited (“Nelson Wheeler”);

(4)     whether cause was shown to remove Messrs Giles and Day as liquidators of Bondfield and Fitness Centre.

Orders for the production of books, correspondence and documents in the custody or power of Messrs Giles and Day in relation to these matters were also sought, together with any other directions that might seem appropriate to the court.

4.On 25 July 2003, during the course of a directions hearing, in response to a query by Kwan J as to the position of the Official Receiver was in relation to his application, it was indicated that the Official Receiver intended to seek the removal of Messrs Giles and Day as liquidators of the 63 companies, as the Official Receiver considered that they had a conflict of interest, arising out of a claim that they had made to be privileged against self-incrimination, for reasons which I will briefly explain later.  Kwan J then indicated that if such relief were to be sought, the summons would require amendment.  Following a brief adjournment, leave was given for the summons to be amended in terms of a draft that was produced.  As amended, the summons sought, in addition to the orders for examination and discovery mentioned above, orders to:-

(1)     remove Messrs Giles and Day as liquidators in the Bondfield and Fitness Centre liquidations, or alternatively in all 63 liquidations, pursuant to section 196(1) of the Ordinance - the grounds for this application were that:-

(a)     they had a personal interest which conflicted with their interest as liquidators of the companies; and/or

(b)     they were not fit and proper persons to be liquidators.

(2)     disallow those parts of the liquidators’ fees which represented the charges of Nelson Wheeler, pursuant to rule 179(2) of the Companies (Winding-up) Rules (“the Rules”);

(3)     prevent the payment of further fees to the liquidators pending the determination of the application for disallowance of parts of their fees.

5.On the last day of the hearing before me, an application was made to re-amend the Official Receiver’s summons, by amending the reference to section 191 of the Ordinance in the opening part of the summons so as to become a reference to section 194, adding section 194(1)(d) of the Ordinance and the inherent jurisdiction as additional bases on which the order for removal was sought, and adding rule 178 of the Rules as a further basis on which the order for disallowance of the liquidators’ fees was sought.  Although the application was opposed by Mr Barlow, appearing for the liquidators, I have concluded that, as the matters which were raised had been foreshadowed in the written submissions and argument addressed by Mr Strachan, who appeared for the Official Receiver, and I could see no real prejudice to the liquidators in allowing the amendment to be made (as it did not appear that their evidence would have been different had the amendment been made earlier), the application to amend should be allowed.  To the extent that the amendment to the summons might affect the outcome of the hearing of the liquidators’ application to dismiss the Official Receiver’s application, this is a matter that can be taken into account when considering question of costs, and does not, therefore, require leave to amend to be refused.

6.As I have noted, however, whereas the Official Receiver’s summons (in its original and amended forms) sought orders against Messrs Giles and Day, and was addressed to them, no orders were sought against Mr McKellar, nor was the summons (or the amended summonses) addressed to him.  This would appear to be a matter of more substance, since if orders were to be sought removing McKellar as liquidator, or seeking disallowance of part of his fees, he should clearly have been made a party to these proceedings.  As it happens, the Official Receiver initially sought to re-amend his summons so as to seek relief against Mr McKellar as well.  However, when that application to re-amend was heard on 17 September 2003, the Official Receiver elected not to pursue the application rather than to risk the hearing of the applications being put back to later dates so as to enable Mr McKellar to catch up.  Thus, although Mr McKellar gave evidence at the hearing for Messrs Giles and Day, he was not a party to these applications, and no orders are made against him by this judgment.   

7.The other application which was before me was an application by the liquidators (by an amended summons also dated 25 July 2003) for the summary dismissal of the Official Receiver’s summons on the grounds that it was, when read with the Official Receiver’s report of 27 June 2003, embarrassing, vexatious, and an abuse of process.  This application was supported by a number of affidavits made by Messrs Giles, Day and McKellar, Mr Nicholas Hill and Mr Stephen Briscoe of Nelson Wheeler, Mr Ryan Ford (formerly of Nelson Wheeler and later employed by HGSL), Mr Martin Rogers of Messrs Clifford Chance, and Mr Andrew Hart of Messrs Barlow Lyde & Gilbert, the solicitors for Messrs Giles and Day.  The amended summons provided details of the matters relied on to suggest that the Official Receiver’s summons was liable to be dismissed on the grounds stated.  This application was responded to by a second report by the Official Receiver.  Having regard to the matters raised in support of the application for dismissal, and the conflict of evidence that appeared to arise as between the Official Receiver and Messrs Giles and Day on those matters, on 23 September 2003 I directed, on the application of Mr Barlow, that all deponents should attend for cross-examination if required by the other party to do so, and that the Official Receiver should attend for cross-examination upon his reports.  In the event, Mr Eamonn O’Connell, the Official Receiver, and all of the deponents with the exception of Mr Rogers and Mr Hart (whose attendance for cross-examination was not required by Mr Strachan) attended the hearing and were cross-examined.  I should note that the cross-examination was restricted to matters relating to the liquidators’ application for dismissal of the Official Receiver’s summons, and not in relation to matters arising on the Official Receiver’s application itself, although there were some aspects of the cross-examination that were relevant to both applications.

8.I propose in this judgment first to set out the background to these proceedings, and then to go on to consider the application by Messrs Giles and Day for summary dismissal of the Official Receiver’s application, before coming to deal with the substance of that application itself, assuming that I do not accede to the application for its dismissal.

9.Under section 194(1)(a) of the Ordinance, upon the making of a winding up order in respect of a company, the Official Receiver becomes, by virtue of his office, the provisional liquidator of the company until such time as he or another person becomes liquidator and is capable of acting as such.  There are two exceptions to this provision.  The first is that, where a provisional liquidator has been appointed by the court pursuant to section 193 of the Ordinance prior to the making of a winding up order, the provisional liquidator so appointed shall, by virtue of section 194(1)(aa) continue to act as provisional liquidator pending the appointment of a liquidator.  The second, which is the situation relevant to these proceedings, is provided for by section 194(1A), which provides that where the Official Receiver has become the provisional liquidator of a company by virtue of section 194(1)(a), but forms the view that the property of the company is not likely to exceed HK$200,000, he may appoint another person or persons to be provisional liquidator in his place.

10.Section 194(1A) came into effect on 1 July 2000.  Prior to then, there had since 1996 or 1997 been in place a scheme established by the Official Receiver known as the “Panel B” scheme under which insolvency practitioners from the private sector acted as agents for the Official Receiver in cases in which he was the liquidator.  This scheme was operated by the Official Receiver pursuant to a purported exercise of his power under section 199(2)(g) of the Ordinance “to appoint an agent to do any business which the liquidator is unable to do himself”.  However, on 17 November 1999, Rogers JA, as he then was, wrote to the Official Receiver expressing concern about this practice, since it involved the use of section 199(2)(g) to appoint third parties to act, in effect, as liquidators in substitution for the Official Receiver.  Rogers JA pointed out that under section 199(2)(g), the agency was intended to be “an agency for a specific purpose” and that it “could not involve the handing over of responsibility for acting as a provisional liquidator [or liquidator] to a third party”.

11.The vice with the Panel B scheme was that, under it, the Official Receiver effectively sought to delegate all of his functions as liquidator to the private sector agent whom he had appointed.  This is not permitted under the Companies Ordinance.  As the Federal Court of Australia pointed out in Ah Toy v Registrar of Companies for the Northern Territory (1986) 10 ACLR 630, in respect of statutory provisions equivalent to those contained in the Ordinance:-

“The Companies Act contains no provision for the delegation of the functions of a provisional liquidator.  In relation to liquidators there is a limited provision.  Section 236(2)(j) [equivalent to section 199(2)(g) of the Ordinance] provides that a liquidator may “appoint an agent to do business which the liquidator is unable to do himself”.  That provision falls well short of authorising the type of wholesale delegation undertaken in this case.  The purpose of s.236(2)(j) is to enable the delegation of specific tasks which the liquidator, for one reason or another, is not able to undertake.  The scheme of the Act is that the liquidator remains generally responsible to the court and to the creditors and contributories of the company for the conduct of the liquidation.  We agree with the comment by Marks J made in relation to a similar general delegation in Harvey at 754, that if a liquidator is so disabled in some way that he cannot perform the duties to which he has been appointed, his duty is not to appoint an agent but to seek leave to resign his office.  See also the acceptance by Kelly J in Re Bridal Centre Co Pty Ltd (1985) 9 ACLR 481 at 493; 59 ACTR 1 at 14 of the words ‘alarming and improper’ as a description of the delegation by a liquidator of the whole of his functions as liquidator to his firm.”

12.Shortly after receiving Roger JA’s letter, the Official Receiver discontinued the Panel B scheme.  However, it appears that he did not seek to terminate the agencies which had purportedly been created pursuant to it in respect of ongoing liquidations, choosing to leave the agents whom he had appointed in place to see such liquidations through to their conclusion.

13.As I have noted, the Ordinance was amended with effect from 1 July 2000 by the introduction of section 194(1A).  The amendment permitted the Official Receiver to appoint someone else as provisional liquidator in respect of liquidations in respect of which it was thought that there were unlikely to be any significant assets.  In such cases, an application would generally be made for the company to be wound up in a summary manner, pursuant to section 227F(1) of the Ordinance, with a view to minimising the expenses of the liquidation.  However, the powers of a provisional liquidator appointed pursuant to section 194(1A) are circumscribed, in that section 199(5) of the Ordinance provides that he may only exercise the powers granted to a liquidator by sections 199(1) and (2) with the sanction of either the court or the Official Receiver.  Thus, where a provisional liquidator appointed by the Official Receiver under section 194(1A) wishes to appoint an agent to do some business for him which he is unable to do for himself, he must first obtain the sanction of the court or the Official Receiver before he does so, failing which he will have acted in excess of his powers.  However, it would appear that once a summary procedure order has been obtained under section 227F(1) and the provisional liquidator so appointed becomes the liquidator, he will have the powers that any liquidator has under sections 199(1) and (2), without the need for any sanction to be obtained, whether from the Official Receiver or the court (the court’s sanction which would otherwise have been required in respect of the section 199(1) powers being dispensed with as a consequence of section 227F(1)(b)(ii)).

14.None of this, however, affects the principle referred to above that no provisional liquidator or liquidator may effect a wholesale delegation of his functions to a third party.  This principle was not disputed by Mr Barlow.  However, its applicability to circumstances of this case was very much in issue between the parties.

15.Following the introduction of section 194(1A), the Official Receiver introduced a tender process by which it was open to all firms of accountants, solicitors or company secretaries with relevant insolvency expertise to tender for appointments under that section.  Tenders were in respect of one year periods, and tenderers could tender for appointment to a pre-set maximum number of cases in that period, either 90 cases (Group A) or 20 cases (Group B).  According to the Official Receiver (and I accept this), one objective of this system was to permit both larger and smaller firms to tender for work under the scheme, and to prevent the larger firms from monopolising the work available.  As appointments would be made in relation to cases in which there were not expected to be substantial assets, successful appointees’ remuneration would be paid out of the assets of the company in liquidation where possible, but to the extent that such assets were insufficient, would be met out of a subsidy to be provided by the Hong Kong Government, which was to be administered by the Official Receiver’s office.  Firms tendering for appointment were required to indicate, among other things, the charging rates (in respect of the different grades of staff to be used by the tenderer) which would be applied on a time cost basis for work done on each liquidation, the amount of the required subsidy (which would form the limit of the payment to be made by the Government where the assets of the company concerned were insufficient to meet the fees of the provisional liquidator or liquidator), and the number and grades of staff available to carry out work if the tender was successful.

16.On 30 March 2001, the Official Receiver advertised for tenders for appointment as provisional liquidators pursuant to section 194(1A) of the Ordinance.  On 2 April 2001, the Law Society issued a circular to its members, advising them of the advertisement.  Mr McKellar says that he became aware of the circular, and mentioned it to Mr Giles, as he thought that it might be an area into which H&G might expand, given that the firm had had experience of dealing with other (contentious) insolvency matters.  Mr Giles confirms this, and says that he then spoke to Mr Hill, with whom he was personally acquainted, to find out more about the tender process, what was involved in the work of a provisional liquidator appointed under section 194(1A) and the way in which the scheme administered by the Official Receiver operated.  As a result, a lunch meeting was arranged with Mr Ford, who was then working for Nelson Wheeler, on 11 April 2001.  It appears that a copy of the tender documents was brought along to that meeting (it is not entirely clear who brought it, but that does not appear to me to be material), and there was a discussion about the matter, in the course of which it became apparent to Mr Giles and Mr McKellar that while H&G had experience of contentious insolvency work, it was not sufficiently experienced in the administrative and accounting aspects of the work to be done by provisional liquidators appointed under section 194(1A).  In the course of the conversation, the possibility was raised (but it was unclear who brought it up - Mr Ford said in his affidavit that he thought it was raised by Mr Giles, but Mr Giles did not recollect having brought it up himself) that Nelson Wheeler might be willing to assist H&G if they were to tender successfully for appointment under section 194(1A) by making available some of Nelson Wheeler’s staff to carry out some parts of the work that would have to be done.  I accept this evidence, and am satisfied that the initial discussions and contact between H&G and Nelson Wheeler were along the lines set out above.

17.There followed a further meeting at Nelson Wheeler’s offices on 18 April 2001.  This was attended by Mr Giles, Mr McKellar, Mr Ford and Mr Hill.  The operation of the section 194(1A) scheme run by the Official Receiver was further discussed, and it appears that Mr Hill indicated that Nelson Wheeler would be prepared to assist, although he wished to speak to the Official Receiver, Mr O’Connell, first to ascertain whether or not there might be any objection to an arrangement by which Nelson Wheeler would assist H&G by doing the administrative work in relation to liquidations in respect of which H&G might successfully tender for appointment as provisional liquidators under section 194(1A).

18.In his affidavit, Mr Hill says that he was aware that one of the objectives of the scheme operated by the Official Receiver was to increase the pool of available liquidators.  He says that he considered that as long as there was no wholesale delegation of the liquidator’s powers and functions, so that the liquidators appointed retained control over the steps taken in the course of any liquidations in respect of which they were appointed, there was no problem with what H&G and Nelson Wheeler had in mind.  He says that he was satisfied, from his discussions with Mr Giles and Mr McKellar, that this was not what they had in mind.  He therefore thought that there was no problem with what was intended.

19.Mr Giles and Mr McKellar also said, in their evidence, that it was never the intention of H&G, if they were appointed provisional liquidators pursuant to section 194(1A), to delegate the whole of their duties and work as liquidators to staff of Nelson Wheeler.  Mr Giles says that it was always his intention to retain overall control of any liquidations in respect of which he might be appointed a provisional liquidator, and to take all decisions in respect of such liquidations himself, although the administrative work, and preparation of standard documents (which he understood from his discussions with Mr Hill and Mr Ford usually accounted for a substantial amount of the time spent on such liquidations) was to be dealt with by Nelson Wheeler’s staff.  Mr Giles said that this was, in fact, how things operated in practice.  In this, his evidence was supported by Mr Hill, who said that Mr Giles personally involved himself in approving everything that was done in the liquidations where Mr Giles was the provisional liquidator or liquidator, to a greater extent than Mr Hill would usually involve himself where he was a liquidator, often in more substantial liquidations than those in which section 194(1A) appointments were made.

20.Nonetheless, Mr Hill says that he thought it prudent to speak to Mr O’Connell first.  In his affidavit, he gives a fairly detailed account of his conversation with Mr O’Connell.  He says that he spoke in very general terms, and on a no-names basis, as he did not wish to influence the outcome of the tender which might be put in.  He says that he told Mr O’Connell that Nelson Wheeler had been approached by a firm of solicitors who wished to have them do the administrative work on liquidations for which the solicitors wished to tender for appointment under section 194(1A), and that he was satisfied from Mr O’Connell’s response that Mr O’Connell had no objection to this, and that what was proposed was proper and consistent with the objectives of the scheme operated by the Official Receiver.

21.At the hearing, however, Mr Hill’s evidence as to the conversation with Mr O’Connell had a somewhat different emphasis.  He said that he was not, by this conversation, seeking Mr O’Connell’s confirmation that the proposed arrangement between H&G and Nelson Wheeler was acceptable, but that he was only seeking to bounce off Mr O’Connell a proposal that Nelson Wheeler should do the administrative work on behalf of H&G in liquidations in which the latter were appointed, to see if it drew an immediate negative response, or, to use a phrase used by Mr Hill, “set alarm bells ringing”.  Mr Hill also said at the hearing that the conversation was not limited to this matter, but that a number of matters would have been discussed in the course of the conversation, including certain matters relating to a substantial liquidation on which Mr Hill was working with the Official Receiver’s office at the time.

22.Mr Hill says that following his conversation with Mr O’Connell, he mentioned it and its outcome to at least Mr Giles, Mr Ford and Mr Briscoe, each of whom confirmed that he had done so.  Mr McKellar also said that he recollected Mr Giles telling him that Mr Hill had spoken to the Official Receiver, and that there was no problem with what was proposed.

23.For his part, Mr O’Connell said in his Affidavit, and confirmed at the hearing before me, that he had no recollection of any conversation in which the proposed arrangement between Nelson Wheeler and H&G was discussed.  He also stated that he thought it very unlikely that any such conversation did take place.

24.I should also note that both Mr Giles and Mr McKellar said, in their evidence at the hearing, that for their part, they were entirely satisfied that the arrangements proposed were proper and lawful, and were consistent with the terms of the tender.  They both said that they would have been prepared to go ahead with the arrangements which they had in mind and put in a tender without having the arrangements run past the Official Receiver for his comment or approval.  Mr McKellar also said that he would not himself have thought it necessary to run it past the Official Receiver.  They both said, however, that Nelson Wheeler’s agreement to assist H&G was essential if H&G were to put in a tender, and therefore as Mr Hill had wanted to speak to the Official Receiver, they had to accept this.

25.Thereafter, Mr Ford prepared a draft of an agreement to be entered into between Nelson Wheeler and H&G, which would set out the terms on which Nelson Wheeler would make some of its staff available to assist H&G in fulfilling the requirements of H&G’s intended tender.  This was eventually signed on 24 April 2001.  It provided that:-

(1)     Nelson Wheeler staff would undertake all the tasks described in an attached “Checklist for Summary Compulsory Liquidation (under section 194(1A)”.  This checklist was said to be the one which Nelson Wheeler used for the purpose of administering liquidations in respect of which members of Nelson Wheeler were appointed as liquidators under that section.  The checklist itself contained an introductory section which described it as being “very much based on the Official Receiver’s guidelines”.

(2)     Nelson Wheeler staff would prepare all written correspondence required to complete the tasks on the checklist, to be printed on letterhead nominated by H&G and signed by Mr Giles or his joint appointee as provisional liquidator (or, in limited cases, by a member of Nelson Wheeler’s staff who had been expressly authorised to do so).

(3)     The correspondence prepared by Nelson Wheeler would nominate a person from H&G as contact for telephone enquiries.  All return correspondence would be to H&G’s office.  A system of regular pick up and delivery of correspondence between Nelson Wheeler’s office and that of H&G was envisaged.

(4)     Interviews of directors would be conducted at H&G’s office with a member of Nelson Wheeler’s staff in attendance.

(5)     Books and records recovered would be catalogued and stored by Nelson Wheeler.

(6)    Nelson Wheeler would maintain a separate bank account for each job allocated to H&G, the signatories of which would be H&G or its nominees.  H&G was to forward all cheques and monies received in relation to each company to Nelson Wheeler for banking and accounting.

(7)     Nelson Wheeler staff would maintain detailed timesheets in respect of work done on behalf of H&G, and H&G would complete and provide Nelson Wheeler with timesheets for work done by H&G on a weekly basis.

(8)     H&G would be charged for work done by Nelson Wheeler’s staff at hourly rates which were specified.

(9)     Nelson Wheeler would be remunerated for services provided by its staff according to billable hours spent at the specified rates, the determination of billable and unbillable hours spent by Nelson Wheeler’s staff being made by Mr Hill.  These would be paid out of realisations of the assets of the company concerned, but where such assets were insufficient to cover Nelson Wheeler’s remuneration and disbursements, an additional amount of two thirds of whatever was received by way of subsidy from the Official Receiver’s office would be paid, subject to a limit of HK$16,000.

(10)   Where the assets of a particular company were expected to exceed HK$200,000, the allocation of work to be done in respect of that company would be agreed between H&G and Nelson Wheeler.

(11)   The contents of the agreement were stated to be confidential and were not to be disclosed without the agreement of both Nelson Wheeler and H&G.

26.It is also pertinent to note that the introduction to the checklist referred expressly to the fact that the former Panel B scheme was considered illegal by Rogers JA as it provided for the improper wholesale delegation of a liquidator’s powers to an agent.

27.The following day, 25 April 2001, HGSL (rather than H&G) submitted a tender seeking to be placed in Group B for the period commencing from the date of appointment (if successful) until 31 March 2002.  The tender was signed by Mr Giles on behalf of HGSL and put forward Mr Giles and Mr McKellar as the persons proposed to act as provisional liquidators.  The tender specified a required subsidy of HK$24,000.

28.Clause 2 of the Work Specification in the Schedule to the tender provided that the successful tenderer should “keep under its employment sufficient staff resources to ensure that all [cases] allocated to [it] are handled in a professional and expeditious manner”.  The tender specified a range of grades of staff said to be available ranging from Partner/Director down to Office Clerk.  HGSL’s tender stated that the available staff would consist of 17 persons, spread among the various grades.  Mr Giles and Mr McKellar said that of the 17 persons referred to, 12 were employees or directors of HGSL, while 5 were to be staff of Nelson Wheeler who would be made available to HGSL under the agreement between Nelson Wheeler and H&G.  These included those referred to under the grades of Manager, Senior I and Senior II.  Mr Giles also thought that perhaps one of the staff listed under Accountant I/Company Secretary and one of the Administration Accountants might have been staff of Nelson Wheeler, rather than HSGL.

29.The last page of the tender contained a note to the following effect:-

“Subject to the terms and conditions set out in the Terms of Tender and the Schedule, tenders will be considered for acceptance to award to the tenderer who tenders the lowest Required Subsidy per case.  Where two or more firms tender the same lowest subsidy per case, the number and grade of staff in the tenderer’s firm or company available for insolvency work will be the determining factor.”

30.Clause 2 of the Special Conditions of Contract, by which HSGL agreed to be bound, provided that if successful, HGSL was prohibited from assigning or otherwise transferring the contract to be entered into with the Government or any part share or interest therein, and that the performance of the contract by HGSL should be deemed personal to it.

31.Mr Giles acknowledged these terms, but said that he had interpreted clause 2 of the Work Specification as meaning not that the staff listed in the tender had to be available to HGSL, and not that they actually had to be employees of HGSL.  As the Nelson Wheeler staff were available to HGSL under the terms of the agreement he had reached with Mr Hill, Mr Giles felt that it was in order for him to fill in the tender as he did.  While acknowledging that he must have seen the note at the end of the tender, he did not recall giving it any special consideration, and did not think that it caused him to change his view, or think again about this point.

32.When submitting the tender, HGSL did not disclose the existence of the agreement between H&G and Nelson Wheeler.  Mr Giles accepted that this was the case, but did not think that there was any particular reason for him to have done so, since he was himself satisfied that everything was in order.  He denied that he had consciously decided against disclosure of the agreement in order to conceal it from the Official Receiver.

33.On 26 June 2001, the Official Receiver accepted HGSL’s tender and agreed to allocate up to 20 liquidations to HGSL, and duly awarded 20 summary cases to HGSL during the period up to 31 March 2002.  One of those cases, relating to a company called Gwen Construction Engineering Company Limited, was subsequently converted to a non-summary liquidation, as the assets realised exceeded HK$200,000.  This has since been carried on as if it were a creditors voluntary winding up, pursuant to section 209A of the Ordinance.  This liquidation was therefore not the subject of the applications before me.

34.Shortly after acceptance of the tender, Mr Giles and Mr McKellar attended two meetings at the Official Receiver’s offices, at which they were briefed as to the operation of the scheme that was administered by the Official Receiver.  It is common ground that the agreement between Nelson Wheeler and H&G was not disclosed at these meetings.  Mr Giles said that these were simply briefing meetings, and that in any event, he saw no reason to disclose the agreement.  Nor was the agreement disclosed when applications were made for summary procedure orders in respect of the liquidations.

35.In February 2002, Mr McKellar left H&G and ceased to be employed by HGSL.  On 22 February 2002, HSGL wrote to the Official Receiver asking that henceforth Mr Giles and Mr Day should be appointed as provisional liquidators under section 194(1A) of the Ordinance.  However, Mr McKellar remained a liquidator in relation to the cases in which he had already been appointed.

36.On 23 February 2002, HGSL submitted a tender to be placed in Group A for the period from date of acceptance of the tender until 31 March 2003.  The terms and conditions were substantially the same as the previous year, and the same required subsidy was stated.  However, as Mr McKellar had left H&G and HGSL, Mr Day was proposed as a potential provisional liquidator in his place.  Again, no mention was made in the tender of the agreement between Nelson Wheeler and H&G.  On 18 March 2002, the tender was accepted, and the Official Receiver agreed to allocate up to 90 liquidations to HGSL under section 194(1A) of the Ordinance.  Between 3 April 2002 and 16 October 2002, the Official Receiver awarded 45 summary liquidations to HGSL.  Of these, three have been converted into non-summary liquidations, these being those in respect of Bondfield, Fitness Centre and a company called Century Honour Development Limited.  The latter liquidation is the subject of an order that it be conducted as if it were a creditors’ voluntary liquidation, and is not the subject of these applications.

37.On 8 April 2002, the Official Receiver invited HGSL to apply for interim payment of its time cost charges out of the subsidy.  HGSL thereupon submitted its bills seeking such payment.  However, by letters dated 11 and 18 July 2002, the Official Receiver’s office queried the format of the bills submitted, and asked for fresh bills to be submitted in a format which included the name of the staff used by HGSL.  Mr Giles initially disputed the entitlement of the Official Receiver to be told the names of the persons working on the summary liquidations.  In a letter of 26 July 2002 to the Official Receiver’s office, Mr Giles stated that he had incurred significant costs to establish a billing system to comply with the requirements of the tender.  However, it appears that HGSL did not itself have a billing system, but that information was provided to Nelson Wheeler in respect of time expended by staff of HGSL for inputting into Nelson Wheeler’s billing system, which was used as the basis for producing bills for submission to the Official Receiver.  Mr Giles says in his third affidavit that although initially the inputting for time spent by HGSL staff was done (presumably by Nelson Wheeler) on the basis of time sheets completed by HGSL, it was later done directly by HGSL through the internet, and that time and expense was incurred in setting up this capability.  Mr Giles says that HGSL also incurred the expense of having to pay a licence fee to Nelson Wheeler to use their time recording system.  This was not, however, an area on which Mr Giles was cross-examined, as it was not relevant to the liquidators’ application to have the application against them dismissed on the grounds stated in their amended summons of 25 July 2002.

38.In about late September 2002, in the course of an application for the reconsideration of the appointment of Mr Giles and Mr Day as liquidators of a company called Luen Cheong Tai Construction Company Limited, the Official Receiver received a complaint about an alleged business relationship between HGSL and Nelson Wheeler.  As a result of this, Mr Giles was asked to attend a meeting at the Official Receiver’s office, in the course of which the relationship between HGSL and Nelson Wheeler was disclosed.  It seems that at the meeting, the Official Receiver expressed concerns about there having been a delegation by Mr Giles and his fellow liquidators of their powers to Nelson Wheeler, in breach of their duties and in breach of clause 2 of the Special Conditions of the Tender, and that the arrangement with Nelson Wheeler constituted a breach of the terms of the tender.  The Official Receiver asked for a copy of the agreement between HGSL and Nelson Wheeler.  Mr Giles agreed to provide this, and did so under cover of a letter from HGSL dated 30 October 2002.  In that letter, Mr Giles stated his position that there had been no delegation of the liquidators’ powers to Nelson Wheeler, and insisted that the liquidators had throughout maintained personal supervision and control over all of the liquidations in which they were appointed, and had not passed any of the liquidations assigned to them to Nelson Wheeler to conduct.  He also pointed out that there had been no complaints about their performance, or the quality of their work.  He said that in these circumstances, there had been no breach of clause 2 of the Special Conditions of Tender, as there had been no assignment or transfer of the contracts under the tenders.  Mr Giles also expressed the view that there had been no breach of the spirit of the tender.

39.Thereafter further correspondence was exchanged between the Official Receiver and HGSL, in which the Official Receiver maintained his view that there appeared, having regard to the terms of the agreement between Nelson Wheeler and H&G, to have been a wrongful delegation of the liquidators’ functions to Nelson Wheeler, and Mr Giles stood by his view that this had not happened.  The Official Receiver did make it clear, however, that he did not have any complaint about the quality of the work done in respect of the liquidations in which Messrs. Giles, Day and McKellar had been appointed, a position which was confirmed at the hearing before me.

40.The Official Receiver disclosed the agreement between Nelson Wheeler and H&G to the court in the course of the Luen Cheong Tai proceedings, in support of his objection to the appointment of Messrs. Giles and Day as liquidators of that company.  In her judgment of 14 November 2002, Kwan J, while declining to express any view as to whether or not there had been a breach by HGSL of the terms of the tender or the contract between the Government and HGSL, indicated that she felt that there was some substance to the Official Receiver’s concerns as to whether or not HGSL was adequately staffed to carry out the Luen Cheong Tai liquidation, and did not appoint Messrs Giles and Day as liquidators of that company.

41.On 2 and 6 December 2002, Mr Giles met the Official Receiver and members of his staff.  Mr Day also attended the first meeting.  Both meetings were said by the Official Receiver to be “without prejudice” and “off the record”.  Notes were, however, taken by a member of the Official Receiver’s staff, and these were put in evidence.  At the first meeting, the parties reiterated their respective positions.  Mr Giles said that he would like to complete the cases that had been assigned to HGSL, and that he felt that HGSL could complete them without the assistance of Nelson Wheeler.  The Official Receiver emphasised the need to uphold the integrity of the tender exercise.  He asked that HGSL should forward its working files to his office for review, and indicated that the matter might be reported to the Law Society and the Hong Kong Society of Accountants.  At the second meeting, the Official Receiver said that had the arrangement with Nelson Wheeler been disclosed at the time of the tender, HGSL would not have been awarded the contracts which it had been.  Although expressing the view that it might be in HGSL’s interests to complete the outstanding work on the cases assigned to them as soon as possible, the Official Receiver made it clear that the matter would have to be disclosed to the court, and an application made to the court for directions.  He also informed Mr Giles that he would be seeking independent legal advice on the matter.  Mr Giles advised the Official Receiver that the three non-summary cases being handled by him were not substantial.

42.Further correspondence ensued, with HGSL writing on 4 December 2002 to propose that the Official Receiver carry out a random check on some of the liquidations being handled by HGSL to satisfy themselves of the quality of the work done.  On 10 December 2002, HGSL, in a letter which essentially reiterated points which had been made previously, made the further point that the provision in the agreement with Nelson Wheeler relating to Mr Hill’s determination of billable hours was limited to a determination of this at the Nelson Wheeler level, after which the bills were scrutinised and reviewed by Mr Giles before being submitted for payment, at which point they were further scrutinised by the Official Receiver (and on occasion reduced as a result of such scrutiny).  HGSL also commented that the split of the subsidy agreed with Nelson Wheeler was simply a means of payment of Nelson Wheeler’s fees, and did not constitute an assignment or sharing of the contract with Nelson Wheeler.  HGSL also provided information as to three other firms whom they believed to be sharing staff in relation to appointments as liquidators under section 194(1A) of the Ordinance.

43.On 18 December 2002, the Official Receiver requested a summary of the position in relation to each of the cases allocated to HSGL to enable his office to decide which case files should be inspected.  These were provided by HGSL on 14 January 2003.  The Official Receiver then sought details of all bank accounts opened in respect of the liquidations and these were provided a few days later.

44.In the meantime, on 21 December 2002, the Official Receiver obtained the advice which he had told Mr Giles he would be seeking.  The advice received was to the effect that regardless of whether or not there had been a complete or wholesale delegation by HGSL of its duties to NWSL, there had been a breach of Clause 2 of Part I of the tender, since the use by HGSL of Nelson Wheeler staff meant that HGSL did not keep, under its employment, sufficient staff to ensure that cases allocated to it were handled professionally and expeditiously.  The advice noted that the construction of this clause was not free from difficulty, acknowledging that there was some force to the argument that that clause did not require that staff resources were available from staff whom the tenderer actually employed itself under contracts of employment, as opposed to outsourced staff.  Nonetheless, for reasons explained in the advice, the conclusion was that there had been a breach of the clause.  It appears that as a result of the advice, this clause was amended in subsequent tenders to make it clear that tenderers had to be the employers of the staff whom they said were available to work on liquidations if their tender proved to be successful.  The advice went on to state that there had also been a breach of special condition 2 in Part III of the tender, i.e. of the prohibition against assignment or transfer of any part of the contract, as part of the functions to be done qua liquidators had been transferred to Nelson Wheeler.  The view was expressed that these breaches entitled the Official Receiver to terminate the contract.

45.So far as the question of whether there had been complete delegation was concerned, the advice was that it was not possible to come to a conclusion one way or another, without actual investigation of what had happened in each liquidation.

46.On 24 February 2003, the Official Receiver wrote to HGSL indicating that in view of the limited assets available in 62 of the 65 cases, it was his opinion that it would be more cost effective and clearly in the interest of the creditors for HGSL to continue as liquidators, subject to HGSL confirming that the business arrangement with Nelson Wheeler was at an end and that HGSL staff alone would finish off the work on these cases.  In relation to the three non-summary cases, the Official Receiver asked for the estimated assets and liabilities, and said that it might be necessary to revisit the question of whether or not HGSL was adequately staffed and resourced to carry out such liquidations.  The Official Receiver repeated his concerns at what he considered to be a breach of the terms and spirit of the tender scheme, and indicated that he would be formally complaining to the Law Society.  No mention was made in this letter of an application to the court.

47.On 17 March 2003, HGSL supplied information as to the assets and liabilities in the non-summary cases (which had by now increased to four), expressing the view that they were not substantial cases and that HGSL were able to deal with them.  Having reviewed the information supplied, the Official Receiver decided to conduct an audit of HGSL’s accounts.  Arrangements were then made for this to be done, and an audit was carried out between about 26 and 28 March 2003.  During the course of the audit Mr Giles informed Ms McKenna of the Official Receiver’s office that the contract with Nelson Wheeler would be terminated on 1 April 2003.

48.As a result of the audit, the Official Receiver formed the view that HGSL were not adequately staffed to carry out the non-summary liquidations.  This view was, it seems based on observations by the Official Receiver’s staff carrying out the audit, and from information obtained from time sheets recording the work that had been done on the four non-summary cases, which showed that the percentage of the total time billed that had been billed by Nelson Wheeler ranged from 62% to 87%, and averaged 77%.  Further, it appeared that the only HGSL staff who had actually billed for their time on these liquidations were Mr Giles and his secretary.  This information was also relied upon by the Official Receiver as evidence that there had been a wholesale delegation of their duties by HGSL to Nelson Wheeler.

49.On 28 March 2003, the OR wrote to HGSL to suggest that they should not put themselves forward as proposed liquidator for Fitness Centre at a forthcoming creditor’s meeting, and should confirm that they had no objection to being removed in relation to the other three non-summary cases.  This proposal was rejected by HGSL on 2 April 2003, who pointed out that they had terminated the agreement with Nelson Wheeler on 1 April 2003, and had taken on an accountant (Mr Ford) to work for them on the liquidations.  HGSL reiterated their view that their replacement as liquidators would not be in the interests of the creditors, as it would be likely to result in an increase in costs.  On 7 April 2003, the Official Receiver responded, saying that while he “had agreed to allow [HGSL] to retain the 61 summary cases due to their very advanced stage and lack of assets” he could not agree to HGSL retaining the non-summary cases where the recoveries were more significant.  It was said that the costs claimed by the liquidators would be opposed, and it was noted that these costs were high compared to the recoveries that had been made.

50.Thereafter, on 15 April 2003, the Official Receiver lodged complaints against Mr Giles and Mr Day with the Law Society, and on 27 June 2003, he filed his summons now under consideration, supported by his 1^st Report.  It is to be noted that even at this stage, it does not appear to have been suggested that the liquidators should be removed in relation to the 61 summary liquidations.  Having been advised by counsel that a criminal offence might have been committed, the summons and report were sent by the Official Receiver to the Secretary for Justice the same day.  On being advised by the Secretary for Justice that any investigation of the possible criminal offence was a matter for the police, the summons and report were sent to the Commercial Crimes Bureau.

51.Following the issue of the Official Receiver’s summons, the liquidators issued their summons for the dismissal of the Official Receiver’s summons.  In correspondence leading up to the hearing before Kwan J on 25 July 2003, it was indicated by the liquidators’ solicitors that the liquidators would invoke the privilege against self incrimination if they were ordered to be examined as the Official Receiver sought.  This led the Official Receiver to indicate that an application for the liquidators’ removal would be sought in light of the conflict of interest that was considered to have arisen from their invocation of the privilege against self incrimination, and to the consequent amendment of the Official Receiver’s summons.

52.Having set out the background to the applications, I turn to deal with the applications before me.  I deal first with the liquidators’ application for the dismissal of the Official Receiver’s summons.  As I have noted, this was made on three grounds - that the summons was embarrassing, vexatious and/or an abuse of process.  I shall consider each of these in turn.

53.Mr Barlow initially contended that the Official Receiver’s summons was embarrassing because:-

(1)     it sought in respect of 63 sets of liquidation proceedings to invoke conflicting or inconsistent statutory jurisdictions on grounds which were incomprehensible or incompetent to form a basis for the relief sought.  As to this, Mr Barlow’s submission was that:-

(a)    section 191 of the Ordinance did not apply to liquidators, because section 204 existed to confer on the Official Receiver a general supervisory role in relation to all compulsory winding ups;

(b)   even if it did, a report could only be made under section 191 if the liquidator or Official Receiver were able to state that in his opinion, “a fraud had been committed ... in relation to the company” - it was only then that the court’s power to order a public examination under section 222 of the Ordinance arose.  In this case, the Official Receiver’s 1^st Report stated only that it was his opinion that a fraud may have been (not was) committed.  This, Mr Barlow contended, was not good enough.

(c)   although accepting that section 196 of the Ordinance would found an application for removal if cause for removal were shown, Mr Barlow submitted that no cause had in fact been shown, since the initial application was simply for an examination under section 204 to see if cause could be shown for the removal of Messrs Giles and Day as liquidators.  In Mr Barlow’s submission, no material had been placed before the court from which the court could assess the seriousness of the matters alleged in respect of each liquidation, or the impact (if any) of the alleged misconduct on the various liquidations, or to assist the court in considering how its discretion whether or not to remove the liquidators in any or all of the liquidations should be excercised.  This submission was, I think, tied to the further submission that it was not open to the Official Receiver to rely on a report, rather than an affidavit in support of an application under section 196.

(d)   as to section 204, Mr Barlow submitted that this section required the Official Receiver to inquire into apparent misconduct by liquidators, and that such misconduct had to relate to the performance by the liquidator of his duties in the liquidation.  Mr Barlow contended that in this case, the Official Receiver’s concerns were in respect of the administration of the scheme of tenders for appointments as liquidators under section 194(1A) of the Ordinance, and the impact of the HGSL/Nelson Wheeler agreement on that scheme.  This was not within the scope of section 204.

54.Mr Barlow also submitted that there was a further element of embarrassment in that the liquidators were left in doubt as to whether or not fraud was actually alleged against them, particularly in the light of a submission by Mr Strachan to the effect that it did not matter whether the conduct complained of, which was set out in the various reports made by the Official Receiver, was characterised as fraud or not (although Mr Strachan suggested that it could be), since the conduct was clearly reprehensible.

55.Mr Strachan’s response was essentially that there was no real embarrassment, since the relief sought and the basis of the application for that relief was clear from the summons, the reports and the skeleton argument filed on behalf of the Official Receiver prior to the hearing.  The Official Receiver’s primary position was that an order for removal should be made pursuant to section 196 (or, by the re-amendment to the summons pursuant to section 194(1)(d) or the inherent jurisdiction) in respect of all the liquidations, or alternatively in respect of such of them as the court thought fit.  Further or alternatively, an order disallowing payment of such part of the liquidator’s fees as represented the charges of Nelson Wheeler was sought, pursuant to rules 178 and 179(2) of the Rules.  Finally, if the court was not minded to make either an order for removal or disallowance of fees, the Official Receiver sought to examine the liquidators in respect of the matters identified in the summons and obtain production of documents in relation to those matters.  Mr Strachan made it clear (as had been indicated in his skeleton argument) that reliance was not placed on section 191, it being unnecessary to do so since no order for public examination was sought.  So far as the question of fraud was concerned, his position was as I have indicated in the preceding paragraph.

56.It seems to me that in order for a summons or an application to be embarrassing, it must be such that it leaves the respondent in genuine doubt as to what is being sought, so as to leave him unable to know how to respond to it.  In this case, Messrs Hill and Day do not appear to have had any difficulty in responding to the allegations made by the Official Receiver, and have been able to marshal a substantial amount of evidence in an attempt to support their application, and meet the case against them.  While it is fair to say that the summons in its original form may have been somewhat confusing in referring, unnecessarily and inaptly, to section 191 of the Ordinance, any confusion that arose from that was removed by the skeleton argument (and eventual re-amendment of the summons).

57.The arguments advanced by Mr Barlow in relation to the unavailability of the relief sought under the various statutory provisions relied upon appear to me to go, not so much to any submission of embarrassment, but to the merits of the application (subject to the possibility that the arguments advanced by Mr Barlow should prove to be unanswerable, in which case it might be appropriate to seek to have the Official Receiver’s application summarily dismissed on the grounds that it is bound to fail, and thus vexatious or an abuse of process).  I shall therefore consider these arguments later in this judgment.

58.As for the argument that the application was embarrassing because it was not clear to the liquidators whether or not fraud was alleged against them, Mr Barlow submitted that a party to litigation was entitled, as of right, to know whether or not he faced an allegation of fraud, and if so, to have full particulars of the allegation (see Davy v Garrett (1877) 7 Ch D 473 and Aktieselskabet Dansk Skibsfinansiering v Brothers [2000] 1 HKC 511 at 531H-I).  He submitted further that the party facing an allegation of fraud is entitled, again as of right, to have any such allegation “put squarely to the witness in cross-examination, so that he can have the opportunity to offer an explanation” (ADS v Brothers, supra, at 532B).

59.In relation to the first of these points, it seems to me that the Official Receiver’s position is clear enough.  It is that he puts forward certain matters, which are identified in his reports and expounded upon in the skeleton argument filed on his behalf, as constituting cause for the court to exercise its jurisdiction to remove Mr Giles and Mr Day as liquidators pursuant to section 196 of the Ordinance.  These matters are that (as stated in the amended summons) they have a conflict of interest between their personal interests and those of the creditors of the companies concerned and that they are not fit and proper persons to act as liquidators.

60.In relation to the alleged conflict of interest, it was, I think, clear from the circumstances in which the summons was amended that one aspect of this, at least, related to the liquidators’ invoking the privilege against self-incrimination.  The other aspect of this was identified in Mr Strachan’s skeleton argument, and arose in relation to the claim to disallowance of the part of the liquidators’ fees representing Nelson Wheeler’s charges - as these represented potential assets of the companies in liquidation (where the fees had been or were to be paid out of their assets) it was submitted that there was a clear conflict of interest in that the liquidators’ personal interest in getting such fees paid, so as to enable them to fulfil their obligations to Nelson Wheeler, were inconsistent with the interests of the creditors of the companies concerned, which required that such fees should not be paid.

61.So far as the allegation of unfitness is concerned (and it is this which might give rise to a question as to whether or not fraud is alleged), it is clear that the Official Receiver relies on the matters stated in his report, in particular his view that there has been wholesale delegation of duties, contrary to the principles established by the Ah Toy case, as one basis for this allegation.  The other bases for the allegation are that there has been a conscious attempt to conceal the agreement between HGSL and Nelson Wheeler, that there was a misrepresentation as to the number of staff in HGSL’s employment capable of undertaking liquidation work, and the concealment of Nelson Wheeler’s involvement in the liquidation work carried out by HGSL by the submission of bills which did not make it clear that such work had not been carried out by HGSL, combined with Mr Giles’ initial refusal to provide the names of the staff in respect of whose work the bills were submitted.  As to whether or not fraud is alleged, the Official Receiver’s position is, as I understand it, that it is not necessary for him to do so, since these matters, if established, would (in Mr Strachan’s submission) be cause for removal.  That being the case, it seems to me that Mr Strachan is entitled to say that while the conduct (particularly in relation to the alleged concealment of the agreement) could be characterised as fraudulent or dishonest, it is not something that needs to be established in order for an order of removal to be made, and that the liquidators are aware of the case that is being made against them.

62.So far as the second of Mr Barlow’s points is concerned, given that the cross-examination at the hearing before me was limited to the matters relevant to his clients’ application, I do not see that it arises at this stage.  To the extent that the cross-examination may have strayed beyond this, the questions were put to the witness and were answered, without any objection being raised until after they had been answered.

63.I therefore do not consider that the Official Receiver’s application to be embarrassing, and would not, therefore, dismiss it on this ground.

64.I turn next to consider whether the Official Receiver’s application is vexatious.  In the liquidators’ amended summons, eight matters are advanced in support of this ground.

65.The first of these is the allegation that the arrangement between Nelson Wheeler and HGSL was approved or sanctioned by the Official Receiver before it was entered into.  As to this, I have no doubt that the arrangement in the terms set out in the agreement of 24 April 2001 was not sanctioned by the Official Receiver prior to its being made.  On its face, that agreement clearly provided for the possibility that the entirety of the work to be done in any liquidation would be left to Nelson Wheeler’s staff to carry out.  Although there were indications that in non-summary cases, there would be discussion as to the relative roles to be undertaken by HGSL and Nelson Wheeler’s staff, the impression created by the agreement (whether or not this was what was actually intended, and I bear in mind the evidence of Mr Giles, Mr McKellar, Mr Ford and Mr Hill to the effect that it was not what was envisaged) is that there is to be (or at least could be) a wholesale delegation of the liquidators’ duties.  Had the agreement been presented to the Official Receiver for his approval, I have no doubt that he would have refused to approve it.

66.As it was, the Official Receiver was not shown the agreement in the form that it was entered into.  He was not shown any document.  On the liquidators’ case, putting it at its highest, he was asked by Mr Hill whether there was any objection to Nelson Wheeler assisting an unnamed firm of solicitors in relation to some aspects of the work to be done in summary liquidations to which the solicitors would be appointed as provisional liquidators pursuant to section 194(1A).  This is far short of what the agreement, by its terms, provided.  In the event, Mr Hill’s evidence at the hearing was somewhat different from the impression given by his affidavit.  He said that rather than seeking confirmation of the proposed arrangement (in the terms in which it is put in his affidavit), he was merely seeking to bounce the concept of Nelson Wheeler doing administrative work for HGSL (although they were not named) off the Official Receiver informally, simply to see if it elicited an immediate adverse reaction.  This falls well short of seeking, let alone obtaining, approval for the agreement that was entered into.

67.Mr O’Connell’s position was that he did not recollect any conversation along the lines of that deposed to in Mr Hill’s affidavit, and did not believe that any such conversation took place, although he accepted in his second report that there might have been a general conversation of some sort, which he might have understood to be referring to the possibility of an application for sanction for the appointment of an agent pursuant to section 199(5) of the Ordinance.

68.While I would accept Mr Hill’s evidence that there was a conversation between himself and the Official Receiver between 18 and 24 April 2001, particularly in the light of the evidence of the other witnesses who said that they were told of the conversation by Mr Hill, it seems to me that it is scarcely surprising that the Official Receiver should have no recollection of it, if the point was raised in the very general terms deposed to by Mr Hill in his oral evidence, in the course of a conversation in which Mr Hill said that he discussed a number of other matters with the Official Receiver, including a substantial liquidation in relation to which they were working together at the time.

69.In these circumstances, it seems to me that even on the basis that there was a conversation between Mr Hill and Mr O’Connell, given the nature of that conversation as Mr Hill now describes it, it cannot in any real sense be described as an approval or sanction of the arrangement that was actually entered into between Nelson Wheeler and HGSL.

70.Further, it is pertinent to note that none of Mr Giles, Mr McKellar or Mr Hill actually suggested in their oral evidence that the supposed approval of the Official Receiver for the arrangement in fact caused them to enter into it.  Both Mr Giles and Mr McKellar said that they were completely satisfied that the arrangement was in order, and would have entered into it even if the Official Receiver’s supposed approval had not been obtained.  While Mr Hill’s evidence in his affidavit did suggest that there was a causal connection between his conversation and the entry into of the agreement, it seems to me that in saying in his oral evidence that the purpose of the discussion was nothing more than to try to ascertain whether a very generalised suggestion of assistance being provided to a firm of solicitors would elicit disapproval, he was not in fact maintaining that there was such a causal connection.

71.Finally, I think that Mr Strachan was right in his submission that even if the Official Receiver had been shown and agreed to the arrangement set out in the agreement between Nelson Wheeler and HGSL, it could not have been an effective authorisation of such an arrangement which would have bound him or (more pertinently) the court, insofar as it amounted to an approval or authorisation of what was potentially a wholesale delegation by the liquidators of their functions.

72.In these circumstances, I do not consider that there is any real substance to this point.

73.The second matter relied upon is that all enquiries that were made by the Official Receiver and all documents requested were supplied.  This appears to be the case, and Mr O’Connell did not suggest that requests made prior to the issue of the summons had not been complied with.  However, it seems to me that even so, this does not make the Official Receiver’s application vexatious.  The Official Receiver’s concern, which he seeks to ventilate by his application, is that an agreement was entered into which had the appearance of providing for a complete delegation of the liquidators’ functions by HGSL to Nelson Wheeler.  I do not see that the fact that enquiries or requests for documents have been complied with, or general cooperation on the part of HGSL,  provides a basis for suggesting that such an application can be vexatious.  This point will, however, be of more relevance when considering the merits of the Official Receiver’s application under section 204 of the Ordinance.

74.The third matter relied upon is that the Official Receiver requested and obtained various “off the record” meetings with the liquidators to discuss the matter, after being reminded of his approval or sanction of the arrangement.  Given that I have found that the Official Receiver did not approve or sanction the arrangement entered into, this point does not arise.  In any event, it seems to me that there was nothing improper in the Official Receiver seeking to discuss the matter with the liquidators with a view to seeing if the matter could be resolved by coming to an agreement which both felt was acceptable, and which could properly be presented to the court for its consideration.

75.The fourth to sixth matters relied upon essentially make the point that there was a settlement of the matters complained of at a meeting on 20 February 2003, evidenced by the Official Receiver’s letter of 24 February 2003, to which I have referred in paragraph 46 above.

76.As pointed out by Mr Strachan, Mr Giles did not, in his evidence, provide any account of a settlement that was said to have been reached on 20 February 2003.  At the hearing, Mr Barlow accepted that there had been no settlement in relation to the non-summary liquidations, having regard to the fact that in respect of these, the Official Receiver’s position even in his letter of 24 February 2003 was that these could only be retained by HGSL if the Official Receiver was satisfied that they were adequately staffed to carry them out.  However, Mr Barlow maintained that there had been a settlement in relation to the remaining 61 summary liquidations, since the OR had indicated, in the 24 February 2003 letter, that the liquidators should retain those cases, subject to the termination of their agreement with Nelson Wheeler.  As this was subsequently done, said Mr Barlow, the result was that there had been a binding agreement between the liquidators and the Official Receiver to permit the liquidators to retain the 61 summary liquidations.  Indeed, the Official Receiver’s letter of 7 April 2003 referred to his having agreed to leave the summary liquidations with the liquidator, a stance that was in fact reflected in his 1^st Report.

77.It seems to me that having regard to the fact that from as early as December 2002, the Official Receiver had indicated that any recommended course of action would have to be approved by the court, the Official Receiver could not, in February 2003, be regarded as having somehow settled the matter with HGSL in any way that meant that he was thereby disabled from bringing the matter to the court’s attention and seeking its directions.  Mr Day accepted in cross-examination that, so far as he was concerned, he understood that an application to the court would be necessary, and did not understand the matter to have been settled.  Given the Official Receiver’s statutory duty to supervise liquidators, imposed by section 204(1) of the Ordinance, I think that this must be the position.

78.It seems to me that the most that could be said would be that the Official Receiver had indicated that he was agreeable to the summary liquidations being retained by HGSL.  But that is precisely what he put forward for the court’s consideration when the application was first brought.  As I have noted, the 1^st Report did not seek to suggest that the liquidators should be removed in respect of the summary liquidations.  It would appear that it was only as a result of the liquidators’ indication of their intention to claim privilege against self-incrimination that the Official Receiver came to the conclusion that they were thereby in a position of conflict of interest, so as to make it appropriate to apply for their removal.  That was something that arose only after the Official Receiver’s summons was issued, and I do not see how this could result in the summons being vexatious in the first place.  So far as the amended summons is concerned, it having been prompted by a change of circumstances, it does not seem to me that the Official Receiver’s decision to seek the removal of the liquidators can fairly be characterised as vexatious.

79.The seventh matter relied upon is that the Official Receiver acted oppressively and vexatiously by bringing this application on the basis of a report which was not impartial and balanced, reporting the liquidators to the Law Society, the Secretary for Justice and the Commercial Crimes Bureau.  In the course of cross-examining Mr O’Connell, it was suggested to him that he had a particular antipathy or vendetta against HGSL, linked to their association with Nelson Wheeler, with whom he had fallen out.  It was sought to make this allegation good by drawing a contrast between this case, and the apparent lack of action taken by the Official Receiver in respect of the other allegedly similar cases to which HGSL had drawn his attention.

80.In my view, this complaint is not well founded.  While it is true that the Official Receiver’s 1^st Report did not put forward every item that might have been put forward in exculpation of the liquidators, I do not think that it was necessary to do so, having regard to the fact that it was always the intention to permit the liquidators to have the opportunity to respond to the matters raised by the Official Receiver.  Nor do I accept that there was anything improper in the reports made by the Official Receiver to the various authorities.  The intention to report the matter to the Law Society was made known to Mr Giles from the outset.  It is also clear from Mr O’Connell’s evidence that the reports to the Secretary for Justice and the Commercial Crimes Bureau were made as a result of advice received from counsel.  In those circumstances, I do not think that it can be said that the reports evidence a vendetta or personal animus on the part of Mr O’Connell against HGSL or Mr Giles.  I do not accept Mr Barlow’s suggestion that Mr O’Connell picked what advice he wished to follow - the contention that he chose not to follow the advice of London counsel as to the uncertainty as to whether there had been wholesale delegation is not, I think, a fair criticism, as Mr O’Connell did seek to find out more about the workings of the relationship between Nelson Wheeler and HGSL by reference to the information obtained on the audit of the work done by HGSL on the non-summary cases.  Similarly, the suggestion of a vendetta against Mr Hill or Nelson Wheeler does not appear to be borne out - the concern which Mr O’Connell clearly felt on being apprised of the actual agreement between Nelson Wheeler and HGSL was, in my view, entirely reasonable, having regard to the terms of that agreement.

81.In relation to the other allegedly similar cases, Mr O’Connell said that in each of those cases, the firms concerned are in any event no longer obtaining work from his office in respect of summary liquidations.  Moreover, he said that the investigations were ongoing, and that their progress would in part be guided by the outcome of this application.  He also drew attention to the fact that in each of those cases, the staff used, although not employees of the tenderer, were employees of the firms which were associated with the tenders, by whom they were seconded to the tenderers.  Finally, he pointed out that there was no agreement in the terms of the HGSL/Nelson Wheeler agreement in those cases.  It seems to me that those matters (particularly the last two mentioned) are relevant differences between those cases and the present one, and it would therefore not be right to conclude that the Official Receiver has acted inappropriately in pursuing this application against the liquidators.

82.The final matter referred to was the suggestion that the application under section 204 was not an attempt to obtain information about the 63 liquidations, but to obtain information for the purposes of the complaints to the Law Society or the police.  I reject this suggestion.  It is, to my mind, clear that the purpose of the proposed examination under section 204 is to obtain information as to the conduct of the liquidations so as to assist the court in determining how to deal with the applications for removal, if such further information is necessary before the applications can be disposed of.

83.The third ground relied upon by the liquidators’ summons was that the summons is an abuse of process because it is concerned with the efficacy of the tendering scheme operated by the Official Receiver rather than the conduct of the various liquidations in which Mr Giles and his fellow liquidators were appointed.  This was said to have been demonstrated by the alleged fact that the creditors in the various liquidations have suffered no disadvantage, and that there is no complaint about the quality of the work that has been done.

84.I do not think that this is right.  The applications are made so as to inform the court of matters which the Official Receiver in the performance of his duties under section 204 of the Ordinance considers ought to be brought to the court’s attention.  They involve what, on the face of the agreement, appears to be a potentially wholesale delegation of the duties of Mr Giles and his fellow liquidators to the staff of Nelson Wheeler.  This is clearly a matter of which the court ought to be apprised.  The other matters raised which are said to demonstrate personal unfitness on the part of the liquidators are also, I think, matters which it is proper to bring to the court’s attention.  The fact that some of those matters arise in the context of the way in which the scheme for awarding appointments under section 194(1A) was operated does not mean that they should be regarded solely in that, and no other context.

85.I turn now to deal with the other points raised by Mr Barlow, which I have identified in paragraph 53 above.

86.So far as the points in relation to section 191 of the Ordinance are concerned, these do not arise as this provision is not relied upon.

87.As to the suggestion that no material had been placed before the court in order to enable it to exercise its discretion under section 196, this was I think tied to Mr Barlow’s submission that the Official Receiver’s report did not constitute admissible evidence for the purposes of an application under section 196.  Mr Barlow submitted that it was necessary for an application under section 196 to be supported by affidavit, even if the application were brought (as I think he accepted it could be) by the Official Receiver.  Mr Barlow contended that under rule 200 of the Rules, a report was only admissible in evidence in support of an application under section 204 or 277(3) of the Ordinance.

88.Mr Strachan suggested that this was incorrect, since it was conventional for matters to be brought before the court for its consideration by way of report, and that in any event, since there was here an application under section 204, it was appropriate for the application to be supported by a report rather than an affidavit, notwithstanding that there was also an application under section 196.  It seems to me that this is right - an application under section 204 might (as in the present case) be just as much resisted as an application made by the Official Receiver pursuant to section 196.  That being so, it is not clear to me why it should be possible to rely on a report as evidence for the purpose of a contested application under section 204, but not under section 196.  I therefore conclude that the reports of the Official Receiver in the present case are admissible in evidence in support of all aspects of the application.  However, for reasons which will become clear below, I do not think that, at the end of the day, anything turns on this point.

89.As to Mr Barlow’s point in relation to section 204, it is in substance the same point as he made in respect of the abuse of process ground, and I reject it for the same reasons as I gave in respect of that ground in paragraph 84 above.

90.I therefore conclude that the liquidators’ application to have the Official Receiver’s application dismissed is without merit, and I dismiss that application.

91.I turn now to the Official Receiver’s applications under his re-amended summons, and deal first with the application for the removal of the liquidators.

92.Mr Barlow submitted that the power of removal should only be used in cases of misconduct that was damaging to the interests of the liquidation.  With respect, I disagree.  The words of section 196 are perfectly general.  In Re Keypak Homecare [1987] BCLC 409, Millett J (as he then was) pointed out (at p.416) that the words of the English equivalent of section 196 were very wide, and that the court should not seek to define the kind of cause which is required to justify the removal of a liquidator.  Although in that case, there was no suggestion of impugning the integrity of the liquidator whose removal was sought, it seems to me that it must be open to the court to remove a liquidator on the grounds of lack of probity, regardless of the manner in which he has conducted the particular liquidation in question.

93.I propose to consider first the question of unfitness.  This has, as I indicated in paragraph 61 above, a number of facets, namely:-

(1)     whether there has been a wholesale delegation of duties to the staff of Nelson Wheeler;

(2)    whether there was a conscious attempt to conceal the HGSL/Nelson Wheeler agreement;

(3)     whether there was a misrepresentation as to the staff in HGSL’s employment capable of undertaking liquidation work; and

(4)     whether there had been an attempt to conceal Nelson Wheeler’s involvement in the liquidation work carried out by HGSL by the submission of bills which did not make it clear that such work had not been carried out by HGSL, combined with Mr Giles initial refusal to provide the names of the staff in respect of whose work the bills were submitted.

94.So far as wholesale delegation of duties is concerned, both parties accepted that if this were established, there would have been a breach by the liquidators of their obligations.  So much is, of course, clear from the Ah Toy decision.  However, Mr Barlow submitted that some delegation by a liquidator of certain of his responsibilities was both inevitable, and contemplated (indeed, effectively mandated) by the system of taxation of a liquidator’s costs which deprives the liquidator of costs at his own professional rates where the work could have been more economically carried out by a more junior person.  This was, I think, accepted by the Official Receiver in the course of his cross-examination.

95.Mr Strachan suggested that the only provision in the Ordinance permitting the liquidator to divest himself of the need to do everything himself was to make use of the power to appoint an agent under section 199(2)(g).  However, where the liquidator had been appointed under section 194(1A), he could only do so with the sanction of the Official Receiver or the court, because of section 199(5).  He submitted that while the common law permits the use of a liquidator’s own staff for ministerial matters, that is as far as it goes - to use someone else’s employees, even for ministerial matters, would require the use of the power conferred by section 199(2)(g).  Mr Strachan submitted that there were good reasons for this, since liquidators were required to provide security for their performance of their obligations, and in this case were required to provide evidence of satisfactory insurance cover.  This could be a real issue where the insurance cover obtained might not extend to acts done by non-employees.

96.Mr Barlow, however, suggested that a limitation to persons in a strictly employee relationship with the liquidator was nonsensical, since:-

(1)     the Ordinance neither sanctioned nor prohibited the use of support staff, and therefore did not provide for fine distinctions concerning their employment status.

(2)     in most cases, the support staff will not be employees of the liquidator, but of the firm of which he is a member, or the company of which he is a director.  There was, submitted Mr Barlow, no logical distinction between an employee of a firm or company with whom the liquidator was contractually linked by a partnership agreement or articles of association, and an employee of an entity with whom the liquidator was contractually linked in some other way, such as an agreement for the hire of labour. 

(3)     in any event, the attempt to distinguish between employees and agents was meaningless, since all employees are agents of their employers.  There was no reason to think that agents of one sort (employees) did not require sanction, whereas others (consultants or the like) did.

97.Mr Barlow suggested that the true principle was that while wholesale delegation was unlawful, it was permissible to use support staff to assist in the ministerial work of a liquidation.  In this case, said Mr Barlow, the liquidators did not delegate their functions, and did enlist the use of Nelson Wheeler support staff, but such support staff only carried out ministerial functions, with the liquidators (Mr Giles in particular) retaining full responsibility and exercising control and oversight over all aspects of the liquidations.

98.For my part, I am inclined to think that the use of support staff (whether employees of the liquidator himself, the firm of which he is a member or of another organisation) should be regarded as being one instance of a liquidator’s availing himself of his power to engage an agent pursuant to section 199(2)(g).  Each member of such support staff, when engaged on a particular act, will be doing that act (a specific act) as agent for and on behalf of the liquidator.  I see no objection to that, so long as the liquidator does not (as he did in the Ah Toy case) hand over complete responsibility for the conduct of the liquidation to another, and cease to concern himself with the oversight of it.

99.In general, there will be no impediment to a liquidator doing this - the section 199(2)(g) power is available (like all the other powers conferred by section 199(2)) to all liquidators.  In the case of provisional liquidators appointed prior to the hearing of a winding up petition, they will, I think, have these powers unless they are excluded by the order appointing them.  In the case of the Official Receiver (and perhaps a provisional liquidator appointed before the petition is determined), he will have the powers once he becomes provisional liquidator on a winding up order being made.  The only type of provisional liquidator who will not be able to freely make use of the section 199(2) powers will be one who is appointed pursuant to section 194(1A), because section 199(5) makes it clear that he cannot exercise such powers (or those under section 199(1)) save with the approval of the court or the Official Receiver.  But in my view, once a section 194(1A) provisional liquidator becomes a liquidator under a summary procedure order obtained pursuant to section 227F (subject to the possibility that such an order might be rescinded pursuant to section 227F(2), in which case the consequence would appear to be that the provisional liquidation will be treated as having continued throughout the period that the summary procedure order had been in effect), he is just as much a liquidator as any other liquidator, and from that point ceases to be under the constraints of section 199(5).

100.The position therefore is that during the time that the provisional liquidator appointed under section 194(1A) remains a provisional liquidator, he will not be able to employ agents without the approval of the Official Receiver.  But even in respect of such a provisional liquidator, it would appear to be implicit in the terms of the tender that he is entitled to make use of the employees of the tenderer for the purposes of carrying out various liquidation functions, since the tender expressly envisages that this will occur, calling as it does for a breakdown of the available staff and their charging rates.  The use of the tenderer’s employees would be a matter to which the Official Receiver would have no basis for objecting, and it might be said that in these circumstances, there is an implicit approval for their use as support staff and thus as agents within section 199(2)(g).

101.In my view, the terms of the tender are to be read as requiring that the available staff should be limited to employees of the tenderer, notwithstanding the contrary argument that they should be regarded as any persons who are available for the purposes of the liquidation, whether employees of the tenderer or not.  This is because it is relevant to have regard to the underlying policy behind the tendering process of spreading work among different firms, which would be undermined by permitting firms to tender on the basis of using staff from other tenderers on commercial terms involving payment.

102.All of that said, however, it seems to me that the question of whether or not there has been wholesale delegation cannot be determined simply by reference to the fact that staff of Nelson Wheeler were involved in the work done on the liquidations assigned to HGSL.  In order to reach such a conclusion, it is, in my view, necessary to consider the actual position in relation to each case, examining the nature of the work done on the case, by whom it was done, and looking to see what precisely Mr Giles’ involvement was.

103.In this regard, I do not think that one can conclude from the analysis of time spent on the non-summary liquidations that Mr Giles must have delegated the whole of his responsibilities to Nelson Wheeler’s staff.  The fact that his time (and that of his secretary) represented on average some 23% of the time spent on these cases would seem, on the face of it to indicate that he did some (apparently not inconsiderable) work in relation to the liquidations, and it would seem reasonable to think that his role was more likely to be supervisory.

104.Even if one were to assume in relation to the summary cases that this proportion would be rather lower, it does not follow that there has been wholesale delegation, since one would expect this to be the position in the summary cases, where most of the work done would be likely to be of a routine or administrative character.

105.Nor do I think that it follows from the terms of the HGSL/Nelson Wheeler agreement that there must have been wholesale delegation.  Although the agreement certainly admits of that possibility, it seems to me that it is necessary to look not at what could have been done pursuant to it, but what actually was done.

106.In these circumstances, I am not prepared to conclude at this stage that there has been wholesale delegation by Mr Giles and his fellow liquidators of their functions.

107.As to the question of whether or not there was a conscious attempt to conceal the HGSL/Nelson Wheeler agreement from the Official Receiver, this was a subject on which Mr Giles was cross-examined to some extent in the course of the hearing before me.  Mr Giles said that he did not deliberately seek to conceal the agreement from the Official Receiver.  This was not a subject on which he was heavily pressed by Mr Strachan, who was perhaps conscious of the limits to which he was entitled to cross-examine.  Having regard to Mr Giles’ evidence that he did not consider that there was anything improper about the agreement, and that he believed that it was in order for him to use Nelson Wheeler staff for administrative matters, subject to his supervision (based on an interpretation of the tender terms which I have rejected, but which I would accept was arguable), it does not seem to me to be possible at this stage to be satisfied that there was a deliberate attempt to conceal the existence of the agreement.

108.For much the same reason, I am of the view that while in the light of my construction of clause 2 of the Work Specification in the Schedule to the tender the statement in the HGSL tender as to the number and grades of available staff could be regarded as a misrepresentation, it is not possible at this stage to conclude that there was a misrepresentation of such a character as to justify the conclusion that the liquidators are unfit to continue in office.

109.As to the final point, the question of whether there had been an attempt to conceal Nelson Wheeler’s involvement in the liquidation work carried out by HGSL is not something that was canvassed in any serious manner in cross examination of Mr Giles, and it would therefore be premature for me to express any view as to this matter.

110.Moreover, it seems to me that even if one or more of these matters were established, it would still be necessary to consider whether or not it would truly be in the interests of the liquidations concerned for the liquidators to be removed at this stage.  This would involve a consideration of the stage that had been reached in the liquidations, and the costs that might be involved as a result of the removal of the liquidators.

111.I therefore would not be inclined, at this stage, to make an order removing the liquidators on the grounds of unfitness.  If this is a matter which the Official Receiver wishes to pursue, it will be necessary for the application to be restored, and for an examination to be undertaken as to this aspect of the matter.

“In this regard, I would point out that even if the evidence establishes that there are aspects of the liquidators’ conduct which merit criticism (as to which I express no views at this stage), the overall interests of the liquidations, and in particular the likely costs and benefits of an order for removal will be matters to be taken into account in deciding whether or not an order for removal should be made.”

112.So far as the alleged conflicts of interest are concerned, I do not think that the threatened assertion by the liquidators of the privilege against self-incrimination is a matter that justifies their removal.  If the Official Receiver wishes to pursue the question of removal, it will be for him to do so on the basis of the material that he is able to put forward.  If there is further evidence put forward by the Official Receiver, the liquidators will have the opportunity to respond, if they think it appropriate.  I would envisage that if a hearing on the question is then held, it will be necessary for the Official Receiver to cross-examine the liquidators in order to try to establish his allegations, and undermine their case.  At that time, if any question of privilege against self incrimination should arise, it can be dealt with by way of ruling, and the parties will have to proceed on the basis of the evidence that emerges at the hearing.

113.As for the alleged conflict of interest in respect of the portion of the liquidators fees representing Nelson Wheeler’s charges, the contention on behalf of the Official Receiver is that this portion of the fees is, if paid, recoverable by the company and if unpaid, should not be paid by the company concerned.  Reliance is placed by the Official Receiver on rules 178(1) and 179(2) of the rules.

114.Rule 178(1) provides:-

“Where a liquidator ... in a winding up by the court receives remuneration for his services as such, no payment shall be allowed on his accounts in respect of the performance by any other person of the ordinary duties which are required by Ordinance or rules to be performed by himself”

115.Rule 179(2) provides:-

“No payments in respect of bills or charges of ... accountants ... or other persons, other than payments for costs and expenses incurred and sanctioned under rule 43 [which is not applicable], and payments of bills which have been taxed and allowed under orders made for the taxation thereof, shall be allowed out of the assets of the company without proof that the same have been considered and allowed by the Registrar.  The taxing officer shall satisfy himself before passing such bills or charges that the employment of the ... person in respect of the matters mentioned in the bills or charges has been duly sanctioned ...”

116.Mr Strachan submitted that the appointment of Nelson Wheeler was outside the powers of the liquidators, since it had not been made with the sanction of the Official Receiver under section 199(5) or for a specific purpose under section 199(2)(g).  For the reasons which I have explained (see paragraphs 98-100 above), this argument holds good only in  respect of the period that the liquidators were acting as provisional liquidators.  To that extent, so far as fees have been charged in respect of work done by Nelson Wheeler, I would agree that such fees are not properly chargeable, and should not be allowed.  After the liquidators became liquidators, however, I think that it was open to them to engage Nelson Wheeler to provide administrative staff, to carry out administrative tasks in the liquidations, so long as there was no wholesale delegation of their functions, and that sanction for this, whether from the Official Receiver or the court, was not required.

117.Moreover, it seems to me that this will primarily affect the liquidations in which there have been assets realised, to which it is sought to have recourse to meet such fees.  At this stage, that seems to be the case only in relation to Bondfield, Fitness Centre and one summary liquidation, that in respect of Redbridge Holdings Limited.  In cases in which no assets have been recovered, and recourse is had to the subsidy, the question of whether or not payment of the subsidy should be made will turn on the terms of the contract between the Government and HGSL, and does not give rise to a conflict of interest between the liquidators and the companies in respect of which they have been appointed.

118.I would add that I was informed by letter dated 12 January 2005 that the assessment of the remuneration of provisional liquidators under appointed under section 194(1A) of the Ordinance is carried out, not by way of taxation, but by the Official Receiver.  I do not, however, think that this affects the views which I have expressed above.  If I am right in those views, the Official Receiver should, when assessing the remuneration of the provisional liquidators during the period that they acted as provisional liquidators appointed under section 194(1A), disallow such part of the fees claimed as represent payments to agents in respect of whom no sanction for their appointment had been obtained as required by section 199(5).

119.Mr Barlow also took the point that insofar as the conflict of interest related to pecuniary matters, it was one which affected only the interests of the creditors of the companies, so that matter should be left to the creditors to determine.  It was therefore not a matter which would justify a removal order being made against the liquidators otherwise than on an application for removal brought by the creditors of the companies concerned.  In support of this proposition, he relied on the decision of the Privy Council in Deloitte & Touche A.G. v Johnson [1999] 1 WLR 1605, in which it was observed (at p.1612B-C) that where there was a conflict of interest and duty on the part of a liquidator in an insolvent liquidation, the only persons with a legitimate interest in complaining about a breach of the rule (and thus to seek removal of the liquidator on the basis of such a conflict) were the persons to whom the duty was owed, such persons being, in an insolvent liquidation, the company and its creditors.

120.Although I think that this submission is right, it seems to me that it is of limited relevance in the context of the present application.

121.This is because, in the cases of Bondfield and Fitness Centre, which are now no longer the subject of summary procedure orders, the position seems to me to be that the approval of the provisional liquidators’ remuneration during the time when they acted as provisional liquidators (i.e. up to their appointment as liquidators by a meeting of creditors), such remuneration will have to be approved by the Official Receiver.  In approving such remuneration, the Official Receiver will be in a position to disallow payments which represent fees payable to Nelson Wheeler for which sanction under section 199(2)(g) had not been obtained.  Insofar as any payments made to date included payments in respect of such fees, they can be set off against fees which have not yet been paid.  It will only be in relation to any remaining overpayment arising from payments made in respect of fees paid or to be paid to Nelson Wheeler, that any question of a conflict between the interests of the liquidators and their duty to the creditors could arise.  In such a case, if HGSL were unwilling to give credit for any such overpayment, it would, in my view, be for the creditors to decide (it being their interests which are affected) whether or not to pursue the matter by seeking the removal of HGSL as liquidators.

122.In the case of Redbridge, the position would seem to be different, since there is no committee of inspection, so that the creditors will not be in a position to decide the matter for themselves.  Nonetheless, it seems to me to be pertinent to know the extent of the fees paid out of the assets in respect of work done by Nelson Wheeler during the period when the liquidators were still provisional liquidators, in order to assess whether or not it would in fact be in the interests of the liquidation for the liquidators to be removed.  Although this figure is not available, the amount involved seems likely to be small (having regard in particular to the fact that the assets recovered amount only to HK$24,360), so that it would seem unlikely that a change of liquidators would be worthwhile, since the costs of recovering the wrongful payment would almost certainly exceed the amount likely to be recovered, leaving aside the additional costs which would be occasioned by a change of liquidator.

123.So far as the cases in respect of which payments have been made out of subsidy are concerned, as I have indicated, these would not appear to have any impact on the companies in liquidation, but would be a matter to be resolved as between the Government and the liquidators.

124.In these circumstances, I do not think that it would be appropriate to remove the liquidators on the basis of a conflict of interest arising out of the possibility that there has been an overpayment of fees by reason of the employment of staff of Nelson Wheeler.

125.Turning to the alternative relief sought, namely the disallowance of fees paid in respect of the charges of Nelson Wheeler, it seems to me that it would be appropriate to make such an order, having regard to the conclusions which I have reached as to the absence of the required sanction of the court or the Official Receiver for the appointment by the provisional liquidators of agents pursuant to section 199(2)(g) of the Ordinance.  However, as I have indicated, such an order should be limited to such charges in respect of the period during which the liquidators were provisional liquidators of the companies concerned, in respect of companies which have assets out of which such fees have been paid or are to be paid.  Where such fees are yet to be paid, the consequence will be that they will not be payable to that extent.  Where fees have been paid, but further fees are to be paid, as indicated above, the amount in question can be set off against future payments.

126.Finally, as I have indicated that I am not prepared to make an order removing the liquidators at this stage, it is necessary to consider whether or not an order should be made as prayed for under section 204.  Mr Barlow submitted that no such order should be made, as there had been no request for the information sought under paragraphs 1(1) to (3) of the re-amended summons, and there was no justification for the order sought under paragraph 1(4), as it amounted to no more than an attempt to fish for grounds on which to base a removal application.

127.In my view, it is not necessary for a prior request for information to be made as a precondition to the court’s exercise of its discretion to order an examination of a liquidator pursuant to section 204 of the Ordinance.  However, the absence of a prior request will usually be a relevant factor in that exercise.  In the present case, quite apart from the absence of a prior request, the information sought under paragraph 1(1) has, to my mind been provided in the course of the cross-examination of Mr Giles and Mr McKellar, both of whom indicated that HGSL had 12 staff, identifying the relevant grades, who were available for insolvency work in the period in question.  Moreover, this information is relevant to the question of whether there has been wholesale delegation, and is a matter on which they can be further cross-examined if necessary, if the Official Receiver decides to pursue his application for removal.  As for paragraph 1(2), subject to the possibility that no fees should have been charged if there had been wholesale delegation, this issue has, I think, been substantially resolved by the views I have expressed above.  So far as paragraph 1(3) is concerned, this is premised on there having been delegation of work or duties, which has yet to be determined.  Even if it were to be determined that there had been such delegation, it is not clear to me what purpose would be served by obtaining such information, as the agreement between Nelson Wheeler and HGSL has now been terminated, and there is no suggestion of any claim possibly arising in relation to the work which was done on the liquidation prior to its termination.  In these circumstances, I am not inclined to make any order under paragraphs 1(1) to (3) of the re-amended summons.

128.Dealing finally with paragraph 1(4) it seems to me that the Official Receiver has already identified the bases on which he considers that there might be a case for removal of the liquidators.  I did not understand it to be suggested that there might be some other basis for removal, and do not think it appropriate to permit an examination simply for the purpose of trying to find possible further grounds for removal.  Such an examination would properly be described as a fishing expedition, which in my view would not be permissible.  On the other hand, insofar as it is sought to examine the liquidators in respect of the case that has already been made, I would have thought it more appropriate for this to be done by cross-examination at the hearing of the Official Receiver’s application, if he decides to proceed with it.  I therefore decline to make an order in terms of paragraph 1(4) of the re-amended summons.

129.For the foregoing reasons, I propose, on the Official Receiver’s re-amended summons only to make a order disallowing the fees of the liquidators in those liquidations in which there are assets out of which such fees are to be paid insofar as they represent the charges of Nelson Wheeler during the period from the making of the winding up order until the obtaining of a summary procedure order under section 227F of the Ordinance.

130.So far as costs are concerned, the liquidators application for summary dismissal having failed, I propose to make an order nisi that the costs of the liquidators’ application to dismiss the Official Receiver’s application shall be paid by the liquidators to the Official Receiver, to be taxed on the party and party basis if not agreed, with certificate for two counsel.  In respect of the Official Receiver’s application, having regard to the limited order that I have made, I propose to make an order nisi that the liquidators should pay half of the Official Receiver’s costs, to be taxed on the same basis if necessary, also with certificate for two counsel.

Mr. Mark Strachan, Q.C. and Mr Roger Beresford instructed by Messrs    Stephenson Harwood & Lo for the Official Receiver

Mr Barrie Barlow instructed by Messrs Barlow Lyde & Gilbert for the Liquidators