Re Wing Fai Construction Co Ltd

CACV 244/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 2004

(ON APPEAL FROM HCCW 735 OF 2002 )

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Before: Hon. Tang V-P, Yeung and Yuen JJA in Court

Date of hearing: 6 May 2008

Date of Judgment: 13 May 2008

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J U D G M E N T

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Hon.  Tang V-P:

1.I agree with the judgment of Yuen JA.

Hon Yeung JA:

2.I agree with the judgment of Yuen JA and have nothing to add.

Hon Yuen JA:

Committal hearing before Kwan J

3.In July 2004 Kwan J heard an application by two directors of Wing Fai Construction Co Ltd (“the Directors”) for an order of committal against the liquidator of the company (“the Liquidator”) for contempt on the ground that he had supplied transcripts of their private examinations ordered under s.221 Companies Ordinance, Cap. 32 to the Commercial Crime Bureau without leave of the court.

4.The hearing took 4 days.  The Liquidator advanced a number of grounds in support of his application that he had no case to answer.  The most important ground was that the Liquidator was not required by law to obtain leave of the court. 

Kwan J’s order

5.Kwan J held that the Liquidator was not obliged at law to obtain leave of the court and held that he had no case to answer.  On 23 September 2004 the judge gave a number of orders consequential upon that decision.  One of the orders was that the Directors were to pay the Liquidator’s costs on an indemnity basis.  Another order was that the Liquidator was entitled to recover any shortfall in costs out of the assets of the company.

Payment of costs

6.In November 2004 the Directors paid a sum of about $1.3 million for the Liquidator’s costs and in September 2005, they paid a further sum of about $0.7 million, making up a total sum of $ 2,046,900.

Judgment on appeal: August 2006

7.The Directors appealed against Kwan J’s decision.  In a judgment handed down in August 2006 this court held that the Liquidator was obliged at law to obtain the court’s leave before disclosing transcripts of the private examinations to the CCB. 

8.However, we held that Kwan J was nevertheless right to find that the Liquidator had no case to answer as we were then under the impression that Barma J had in June 2004 given leave to the Liquidator to disclose the same or similar statements to the police (“the Barma Order”).  That impression was received as a result of certain submissions made on behalf of the Liquidator which have been reproduced in paras. 17 and 21 of our judgment dated 12 October 2007.  (The materials actually presented to Barma J were sealed and thus noone, except the Liquidator, had access to them). 

9.As we considered that consequently there would have been no significant or adverse effect on the administration of justice which was a necessary element of contempt of court, we upheld Kwan J’s order that the Liquidator had no case to answer and the appeal was dismissed.

10.We gave a costs order nisi that the Liquidator should pay the costs of the Directors and the Official Receiver up to the date of the Barma Order and thereafter the Directors should pay the costs of the Liquidator and the Official Receiver.

December 2006 hearing

11.In September 2006 the Directors applied to vary the costs order nisi and for leave to appeal to the Court of Final Appeal.  One of the grounds of appeal concerned this court’s mistaken belief that the subject-matter of the Barma Order included the transcripts of the private examinations.  The Directors had a “strong suspicion” that that was not so.  

12.A few days before the hearing, on 17 December 2006 the Liquidator’s solicitors wrote to the Directors’ solicitors with instructions to confirm that the materials provided to Barma J did not in fact refer to or contain transcripts of the private examinations of the Directors.  It should be noted that this had not been drawn to the attention of the court at any time after the judgment was handed down in August 2006 even though the court’s order had not been sealed, neither party having submitted a draft order for approval.

13.On 21 December 2006, we reviewed the submissions made during the appeal which led to the impression we had received, and the hearing was then adjourned to enable transcripts of those submissions to be provided.

Variation of  the court’s order on appeal: October 2007

14.After reviewing those submissions, the Directors then applied to this court to vary the order we had made in August 2006 on the ground that the court’s decision had been reached on an incorrect premise.

15.For reasons given in our judgment handed down on 12 October 2007, we varied our order of August 2006 so as to allow the Directors’ appeal from Kwan J’s order, set aside the judge’s order that there be no case to answer, and remitted the motion for committal to Kwan J for resumption of the hearing. 

16.We also gave an order nisi that the Liquidator should pay the costs of the Directors and the Official Receiver of the appeal, including the December 2006 hearing and the application for variation of our order in October 2007.

Consent Order for repayment of costs

17.On 28 November 2007, a Consent Summons was filed for an order that the costs order made by Kwan J be set aside and that the sum of $2,046,900 be repaid by the Liquidator to the Directors forthwith.  A Consent Order was given the same day.

Applications to vary costs order nisi

18.There are now a number of applications before us.  I shall deal first with the Directors’ application (by an Amended Notice of Motion) that the costs order nisi we gave in October 2007 be varied so that:

(1) their costs and the Official Receiver’s costs for the Liquidator’s submission of no case to answer before Kwan J be paid by the Liquidator in any event;

(2) their costs for the hearing in December 2006 and for the application for variation in October 2007 be taxed on an indemnity, alternatively, common fund basis;

(3) the Liquidator be ordered to pay interest on the sum of

$2,046,900 which he has repaid to the Directors.  (Strictly speaking this may not be relevant to our costs order nisi, but no point has been taken by the Liquidator on this).      

19.On the first issue, as we have ordered that the matter be remitted to Kwan J for resumption of the committal hearing, I do not consider it appropriate for this court to give an order for costs regarding a part of the matter only.  Any decision as to the allocation of costs should best be left to the judge seized of the matter. 

20.On the second issue, the principles governing an award of costs on the indemnity basis have been set out by the Court of Final Appeal in Town Planning Board v Society for Protection of  the Harbour Ltd (No. 2) [2004] 7 HKCFAR 114 paras. 16-18 and are not disputed.  The fact of the matter in the present case is that as a result of certain submissions made on behalf of the Liquidator (reproduced in para. 17 of the judgment handed down in October 2007), this court proceeded on a false premise.  That the court received that false impression was apparent from the “no harm done” exchange between the court and Leading Counsel for the Directors (reproduced in para. 21 of the same judgment), which did not meet with clarification or rectification on behalf of the Liquidator. 

21.Mr Jonathan Harris SC who now appears for the Liquidator stated on instructions that the Liquidator’s solicitors and leading counsel at the appeal were “fully aware of the terms of the Barma Order and the fact that the Barma Order did not cover the transcripts that were passed to the CCB and which were the subject-matter of the appeal and previously the committal application”.  No doubt that statement was made to show that it was not a situation where the Liquidator had misled his own legal advisers.  But the fact was that the court was misled.  The fact that the Liquidator’s team knew of the true position does not improve and depending on the circumstances may exacerbate the situation.

22.In any event it is not material for present purposes whether it was simply an unfortunate misunderstanding of ill-chosen words or something more serious.  We are now dealing only with the basis of taxation of the costs of hearings which were required to rectify the situation.  In this respect even if the court’s understanding of the Liquidator’ s submissions had not been apparent at the appeal, it would have been obvious from the judgment handed down in August 2006 as well as the costs order nisi where the cut-off date for the Liquidator’s liability for costs was the date of the Barma Order.

23.However the Liquidator made no attempt to disabuse the court of that false premise so that it could rectify the position as soon as possible.  This was regrettable particularly as the Liquidator is an officer of the court and was the only party who knew for a fact that the Barma Order did not include transcripts of the private examinations.   

24.Despite the passage of time since the handing down of the judgment in August 2006 and the Directors’ filing of an appeal in September 2006, it was not until a few days before the December 2006 hearing that the Liquidator confirmed that the Barma Order did not include the transcripts of the private examinations.  The Liquidator also actively resisted the application in October 2007 to vary the order even though by then the transcripts of the submissions on appeal had been provided.  Those hearings would not have been necessary had the Liquidator been more forthright in his approach.  The court is entitled in the exercise of its discretion to take this conduct into account.  In my view this is a situation which merits an order that the appellants’ costs of the hearing in December 2006 and of the application for variation in October 2007 be taxed on an indemnity basis.

25.Finally, as to the interest on the costs which have been repaid by the Liquidator to the Directors, Mr Harris does not dispute that interest is payable and made submissions only on the rate of interest.  I see no reason not to follow the Court of Final Appeal’s approach in Man Ping Nam v Man Fong Hang [2007] 1 HKLRD 763 and would order that interest be paid at the rate of 1% over the HSBC best lending rate from the dates the sums were respectively received by the Liquidator to the date of the Consent Order (28 November 2007) and thereafter at judgment rate until the date of repayment.

26.Dealing now with the Liquidator’s application to vary the costs order nisi, he has asked that the order that he bear the Official Receiver’s costs be removed and that the Official Receiver bears his own costs of the appeal and the application for variation.

27.I see no reason to make that variation.  The question whether leave of the court was required before a liquidator disclosed transcripts of private examinations is an important issue which applies generally to this area of company law.  No doubt it was for that reason that Kwan J gave an order on 20 May 2004 that both parties in the committal application were to serve their documents on the Official Receiver, thereby making the Official Receiver a party under s.2 High Court Ordinance, Cap.4.  The Official Receiver was served with the papers for the appeal as well as for the hearings in December 2006 and October 2007.  No objection was raised by the Liquidator to the presence of lawyers representing the Official Receiver at any stage.  There is no reason why the losing party should not bear the Official Receiver’s costs. 

28.Finally there is the Official Receiver’s suggestion that para. 1 of Kwan J’s order dated 23 September 2004 be set aside.  That was an order that the Liquidator is entitled to recover any shortfall in his costs of the committal application out of the assets of the company.  Obviously that order was made consequential upon the judge’s order that the Directors pay the Liquidator’s costs.  Now that we have given an order that the committal application is to resume before Kwan J, it must logically follow that this order should be set aside so that the judge can exercise her discretion as to costs afresh at the conclusion of that hearing.

29.As for the costs of this hearing, costs should follow the event, and taking a global view of the issues, I would give an order nisi that the Liquidator pay the costs of the Directors and the Official Receiver on a party and party basis.

Mr John Jarvis QC and Mr Eugene Yim instructed by Barlow Lyde & Gilbert for the Appellants (Applicants)

Mr Jonathan Harris SC instructed by Clifford Chance for the Respondent (Respondent)

Miss Linda Chan instructed by the Official Receiver