Re Tai Sun Plastic Novelties Ltd

HCMP 401/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 401 OF 2006

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Before: Hon Barma J in Chambers

Date of Written Submissions on Costs: 18 and 22 August 2006

Date of Ruling on Costs: 6 September 2006

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RULING  ON  COSTS

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1.On 4 August 2006, I handed down judgment in relation to an application by Full Grand Enterprise Limited (“the Applicant”) to remove Mr Lui Wan Ho Stephen (“Mr Lui”) and Mr Ha Man Kit Marcus (“Mr Ha”) as liquidators of Tai Sun Plastic Novelties Limited (“the Company”) and to have Messrs Stephen Briscoe and Kelvin Flynn appointed liquidators of the Company in their place.

2.Mr Ha took no part in the proceedings, having indicated at an early stage that he would abide by whatever order the court made.  Mr Lui, although adopting a neutral stance at the hearing, had filed evidence intended to answer the complaints that were made against him, and had in his evidence suggested that the question of whether or not he should be removed was one for consideration and decision by the creditors as a whole.  Apart from the Applicant, one other creditor, Messrs. Norman M.K. Yeung & Co. (“NMKY”) appeared, and while not opposing the removal of the liquidators, contended that it was inappropriate to appoint Messrs. Briscoe and Flynn in their place.

3.By my judgment, I ordered that Mr Lui and Mr Ha should be removed as liquidators the Company.  However, I did not accede to the application to have Messrs. Briscoe and Flynn appointed in their place, for the reasons given in paragraphs 33 to 38 of my judgment.  Instead, I ordered that a meeting of creditors should be held to determine the identity of the new liquidators to be appointed.  I directed that the parties should lodge written submissions as to costs, which they duly did.

4.In addition to making submissions on costs, the Applicant’s solicitors also sought clarification as to whether, in the light of my views as to the weight to be given to the views of another creditor, Mr Lo Wai Shing, a former director of the Company, a number of whose actions might well be the subject of further investigation by the replacement liquidators, Mr Lo should be permitted only to attend, but not to vote, at the meeting of creditors to be held to consider who should be appointed as liquidators of the Company in place of Messrs. Lui and Ha.

5.I do not think that it would be appropriate to make any such direction.  Mr Lo was not represented at the hearing before me, and while I was of the opinion that his views on the question of removal of the present liquidators and as to who should be appointed in their place, if they were removed, are likely to carry little weight, it seems to me that it would not be right to pre-judge the circumstances which might obtain at the creditors meeting which will be held to determine the identity of the replacement liquidators.

6.Turning to the question of costs, the Applicant proposes that Mr Lui should pay the Applicants’ costs of the application, and that no order should be made as to the costs incurred by NMKY.  However, as Mr Ha took no part in the application, it is not suggested that he should bear any of the costs.  Mr Lui, however, contends that the Applicant should pay his costs, as the application was (he says) unnecessary, and the Applicant should have agreed to have the matter resolved by a creditors’ meeting.  He also complains that the Applicant did nothing to consult the other creditors, and did not make the other creditors parties to, or serve them with, the application.  NMKY contends that as it succeeded on the point which it argued, it should be entitled to its costs, and that these should be paid by the Applicant.

7.I shall deal first with the position as between the Applicant and Mr Lui.  I am unable to agree with Mr Lui’s submission that the application was unnecessary.  The background leading up to the making of the application is set out in paragraphs 8 to 17 of my judgment.  It is clear from that background that the Applicant did invite Mr Lui to resign, which he initially declined to do.  It also appears that when Mr Lui eventually agreed to submit his resignation, he did not pursue the matter after this was rejected by the majority of the creditors (i.e. Mr Lo and NMKY).  Despite being invited by the Applicant to seek directions from the court pursuant to rule 154 of the Companies (Winding-Up) Rules, Mr Lui did not do so.  In those circumstances, I do not think that the Applicant can be criticised for having taken out this application in order to have the impasse resolved.

8.Further, although Mr Lui complains that the Applicant did not notify the other creditors of the application, it is quite clear from correspondence exhibited to his second affirmation that he himself did so soon after it was taken out.  In the circumstances, I do not think that the Applicant should be criticised for the way in which it approached the application.

9.Even after the application was made, Mr Lui sought to exculpate himself, and justify his conduct as liquidator of the Company.  However, as is apparent from my judgment, I concluded that his conduct of the liquidation fell short of the standard to be expected of him, and justified his removal as a liquidator, finding that all of the Applicant’s principal complaints were justified.  While it is entirely proper that Mr Lui should have been entitled to ventilate the propriety or adequacy of his conduct as liquidator in the context of the application, it seems to me that having failed to exonerate himself, he is to be regarded as having failed on the issues arising for consideration in the application.

10.In the circumstances, I am satisfied that as between Mr Lui and the Applicant, the proper order to make would be that Mr Lui should bear the Applicant’s costs of the application, to be taxed on the party and party basis if not agreed.

11.So far as Mr Ha is concerned, as he has not taken any part in the proceedings, I shall not make any costs order against him.

12.As for NMKY’s costs, it is fair to say that it was successful in its submission that the identity of replacement liquidators should be put to a meeting of creditors for consideration.  However, I do not think that the Applicant should be unduly criticised for not having notified NMKY of the application.  So far as the Applicant was concerned, it seems to me that it was entitled to proceed on the assumption that NMKY’s views were as indicated at the earlier creditors’ meetings, where it rejected the suggestion that Mr Lui and Mr Ha should resign or be removed.  Moreover, NMKY’s evidence was to the effect that it was entirely satisfied with the performance of the present liquidators.  Further, although not served with the application, NMKY was informed of it by Mr Lui shortly after the application was taken out, but did not make its position known until very shortly before the hearing.

13.In my view, as between the parties involved at the hearing, it is Mr Lui who bears the brunt of the responsibility for the application having to be made.  Had it not been for the approach which he had taken, the application would not have had to be brought by the Applicant.  In the circumstances, I am of the view that while NMKY should be entitled to recover its costs of attending the hearing, those costs should be borne by Mr Lui and not the Applicant.  I shall therefore order that Mr Lui is also to pay NMKY’s costs in relation to the application, also to be taxed on the party and party basis if not agreed.

14.For the avoidance of doubt, none of the costs incurred or to be paid by Mr Lui or Mr Ha (if any) are to be recoverable by them out of the assets of the Company.  I see no reason why such costs should in effect be borne by the Company’s creditors.

15.Finally, although I have given consideration to the Applicant’s suggestion that its costs should be made the subject of a lump sum costs order, I am not of the view that such an approach would be particularly helpful in this case, as it will be necessary to consider the costs of the entire proceedings, and I decline to order a gross sum assessment of such costs.

Messrs. Holman, Fenwick & Willan for the Applicant

Mr Lui Wan Ho, Stephen, the 1^st Respondent, in person

Mr Ha Man Kit, Marcus, the 2^nd Respondent, not represented

Messrs. Deacons for a Creditor, Norman M.K. Yeung & Co.