Ma Po Chim, Percy and Others v. Lee Tung Hai, Leo and Others

HCMP 3253/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3253 OF 2004

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BETWEEN

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Before : Hon Chung J in Chambers

Date of Hearing : 13 June 2007

Date of Decision : 13 June 2007

Date of Handing Down Reasons for Decision : 20 June 2007

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REASONS FOR DECISION

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Introduction

1.At the end of the hearing on 13 June 2007, I dismissed the application of the 3^rd respondent (“the Association”) to stay the execution of the orders respectively made by Kwan J on 24 May 2006 (“Kwan J’s order”) and Reyes J on 4 April 2007 (“Reyes J’s order”) (collectively “the Horwath fee orders”).  The following are the reasons for the decision.

The Background

2.This action was commenced by several of the Association’s members seeking relief pursuant to s. 168A, Companies Ordinance (Cap. 32).  Apart from the Association, the respondents were other members of the Association.

3.The parties reached agreement before trial and, by a consent order dated 7 November 2005, they agreed to convene a general meeting for the purpose of appointing the Association’s directors, and for approving matters relating to the Association’s affairs.

4.A Preparatory Work Committee (“PWC”) was to be formed to handle those matters.  Unfortunately, the PWC’s work proved to be unsuccessful.  Independent professionals have to be appointed to carry out the PWC’s work (the scope of work was subsequently expanded).  That was the reason why Horwath Corporate Advisory Services Ltd. (“Horwath”) became involved in this action.

5.Kwan J’s order says this about the fees of Horwath:-

“	The costs, charges and expenses of Horwath for carrying out the functions in paragraph 2 of the Order dated 17th February 2006 and the functions in the aforesaid provisions of this Order, be taxed by a Master of the High Court on a trustee basis and be paid by the Association” (para. 10 thereof).

6.In the Association’s appeal against that order (for which leave to appeal has been given) (CACV 161/2007), the Association sought to vary the basis of taxation from trustee to common fund.

7.Reyes J’s order says this as regards the fees of Horwath:-

“	The costs of Horwath incidental to this application be taxed on a trustee basis and be paid by [the Association] in accordance with the provisions in paragraph 10 of the Order dated 24 May 2006” (para. 5 thereof).

The appeal (CACV 160/2007) seeks to set aside that order (and other orders).

8.Despite the above difference, for the purpose of this application, the Horwath fee orders are given the same treatment in the parties’ submissions before me.

The Applicable Legal Principles

9.The applicable legal principles are undisputed:-

(a)	the power to stay execution of judgment pending an appeal is a discretionary power;
(b)	the court’s practice is that, unless an applicant can justify a stay of execution (by showing the existence of good reasons for doing so), it will not be granted;
(c)	common good reasons justifying a stay are whether an appeal will be rendered nugatory if no stay is ordered, and whether there are merits in the appeal;
(d)	by itself, a mere arguable appeal is insufficient.  The applicant must demonstrate the appeal is almost bound to succeed.

See, for example, Wenden Engineering Service Co. Ltd. v. Lee Shing Yue Construction Co. Ltd., HCCT 90/1999 (17 July 2002), para. 5 to 7.

The Issues in This Application

10.Very little has been said by the Association with regard to the appeal being rendered nugatory.  The Association expressly states that it does not rely on any financial inability to pay the judgment sum, or any serious financial consequence resulting from payment.  The Association’s argument that Horwath may not be able to repay any sum paid over is met by Horwath’s offer of a satisfactory bank guarantee.  The Association says, however, it is not interested in Horwath’s offer.

11.In view of the above, I do not find the Association to be able to establish the first of the two common good reasons for ordering a stay (see para. 9(c) above).

12.The only other common good reason is that the appeal is almost bound to succeed.  Indeed, this appears to be the main thrust of the Association’s case put forth during the hearing of this application.

13.In essence, three grounds are advanced in support of the Association’s case:-

(1)	it is wrong in principle for the Horwath fee orders to direct that Horwath’s fees be taxed on trustee basis;
(2)	the Association has been deprived of its right to be heard before the Horwath fee orders were made;
(3)	the court has failed to take into account a binding fee agreement between Horwath and the Association when making Kwan J’s order.

14.I shall deal with these grounds below.

(1) Wrong Basis of Taxation

15.Reliance is placed by the Association on decisions regarding fees payable to:-

“	Administrators, liquidators, receivers, trustees in bankruptcy or other officers (office-holders) … charged with the duty of protecting, getting in, realizing and ultimately passing on to others assets and properties which belong … to creditors or beneficiaries of one kind or another”.

See, for instance, Re Peregrine Investments Holdings Ltd. [1998] 2 HKLRD 670, 679-80; Mirror Group Newspaper plc v. Maxwell & Others [1998] BCC 324, 333.

16.The Association contends it is beyond argument Horwath falls within the category “other officers” referred to in those decisions.  These are not regarded as trustees by the court.  Hence, it is wrong for the Horwth fee orders to direct taxation on trustee basis because only someone in the position of a trustee should be afforded such privilege.

17.For the reasons given below, I agree with Horwath it is arguable if Horwath falls within the category of “other officers”.

18.As can be discerned from the Horwath fee orders (and the proceedings leading to Horwath’s appointment as well as the evidence relating to Horwath’s work thereafter), Horwath’s work has nothing whatsoever to do with:-

“	…protecting, getting in, realizing and ultimately passing on to others assets and properties which belong … to creditors or beneficiaries of one kind or another”.

19.The functions of Horwath included the following:-

(a)	pursuant to Kwan J’s order:-
	(1)	to verify the register of members;
	(2)	to compile a preliminary membership list;
	(3)	to publish and circulate the said list by letter and by newspaper advertisement to all members, or anyone claiming to be a member;
	(4)	(subject to any information which may be provided to Horwath) to compile a finalised membership list;
	(5)	to publish and circulate the said list by letter and by newspaper advertisement to all members, or anyone claiming to be a member;
	(6)	to convene a general meeting;
	(7)	to prepare a list of candidates for electing the directors;
(b)	pursuant to another order (dated 19 January 2007) also made by Kwan J:-
	(1)	to remove the names of 116 persons in the finalised membership list already published by Horwath;
	(2)	to attend and conduct a general meeting.

20.Thus, Horwath’s functions were specific and expressly spelt out in the above court orders.  Those functions have nothing to do with the Association’s assets or properties.  Horwath was in effect asked to put the Association’s management and affairs back on track.

(2) Depriving Right to be Heard

21.The Association complains that it has not been afforded an opportunity to be heard before the Horwath fee orders were made.  It claims that the board of directors was only appointed around March 2007.

22.I also agree with Horwath that this is only an arguable point.

23.As Horwath points out, the Association has been operating its daily affairs without much difficulty (for example, paying its employees and landlord).  No reason has been given by the Association why it was impossible for the Association to attend the earlier court hearings.

24.Further, one of the reasons for the petitioners to commence this action was because of their dispute with other members (including the respondents other than the Association) with regard to the identity of the members, and the internal management of the Association.

25.It is almost inherent in litigations of this kind that the organisation in question (companies in most cases, and the Association in this action) would not be in a “functional” state.  Further, the appointment of an independent body (such as Horwath in this action) to “re-vitalize” that organisation almost always require the court to make provisions for the fees payable to the independent organisation for doing so.

26.In such kind of litigation, it is arguable whether the law should inflexibly require that the court must ensure the “defunct” organisation should be afforded a chance to be heard with regard to fees.

27.It is rather more often the other parties appearing before the court will sufficiently look after the interest of the “defunct” organisation.  In this action, the petitioners were the Association’s members, the 1^st respondent its latest chairman, the 2^nd respondent its latest company secretary and the 4^th to 6^th respondents its 3 other members.

28.Horwath’s appointment was proposed by the 4^th to 6^th respondents when they sought to join as parties: see the 6^th respondent’s affirmation filed on 7 February 2006.  Among the matters deposed to, the 6^th respondent said:-

“	The Applicants … support all matters relating to the Association so long as they are intended for the welfare and in the interest of each and every member of the Association and of the Association as a whole” (emphasis supplied) (para. 11 thereof).

(3) Ignoring Binding Fee Agreement

29.The Association asserts that there was a binding fee agreement between itself and Horwath.  This assertion is denied by Horwath.

30.It is undisputed that Horwath has prepared two written fee agreements but none of them has been signed by the Association.

31.The Association argues that, despite the lack of an executed written agreement, its subsequent conduct was consistent with those written agreements having been agreed to.

32.Clearly this aspect is arguable as a matter of fact.  But even if the Association’s argument relating to the facts be correct, whether Kwan J has ignored those facts is also arguable.

33.The transcript of the hearing on 24 May 2006 before Kwan J contains an exchange between the judge and counsel for the 1^st and 2^nd respondents with regard to fees specified by Horwath to be payable (a sum of $400,000).  The following is an extract of the exchange:-

“	Court:	… Does anyone have anything to say? All right.  No. 10 [of Kwan J’s order].
	Counsel:	My Lady, on that, I wonder whether your Ladyship will think it appropriate that – whether it be at least the basis of the order or provided for in the order that – regard to have – to the original retainer of $400,000.
	Court:	There is no need for that because when the taxing master is to do his taxation, he would have to have regard to that. …
		… Firstly to the letter, and secondly, to any time costs basis of additional work done.
	Counsel:	I’m obliged.  I’m obliged.
	Court:	Why should I tie his hands?
	Counsel:	I’m grateful”.

Other Matters

34.Apart from the above matters, which I consider to be arguable (and not overwhelmingly in the Association’s favour), two other matters have been considered.

35.The court (quoting para. 9(1) of the decision in Star Play Development Ltd. v. Bess Fashion Management Co. Ltd., HCA 4726/2001 (7 June 2002)) observed in Wenden Engineering Service that (among other things) the court should have regard to:-

“	the nature of the order that is the subject matter of the appeal”.

The Association will not argue in the upcoming appeal that Horwath should not be entitled to any fee.  It merely seeks to vary Kwan J’s order to the extent that the direction to tax the fees on trustee basis be varied to taxation on common fund basis.

36.Further, Horwath, not being one of the litigants to this action, was not obliged to take up the task specified in the orders made by Kwan J.  It is arguable whether to upset the taxation basis now will cause prejudice to Horwath in that the fees charged were for work already undertaken by it based on the fees specified in the Horwath fee orders.

Conclusion

37.For the above reasons, I am not satisfied the Association has demonstrated good reasons to justify this application.

Costs Order

38.There is no valid reason to depart from the usual rule that costs should follow the event.

39.The Association argues that costs should be in the cause of the appeal.  That may be the appropriate order only if the Association had been successful in this application.

Mr Leo Remedios and Mr Frederick H F Chan, instructed by Messrs Peter Mo & Co., for the 3^rd Respondent

Mr John Scott, SC leading Mr Douglas Lam, instructed by Messrs Kennedys, for the Horwath Corporate Advisory Services Ltd.