Re Performance Investment Products Corporation Ltd

HCCW 348/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 348 OF 2007

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D E C I S I O N

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Introduction

1.I have before me a summons issued by the Liquidator of the Company, Roderick Sutton, (“Liquidator”) for the following orders.  I shall adopt the abbreviations used in the draft order in the remainder of this judgment:

(1)   The Liquidator has sanction of the Court to enter into a Cross‑Border Protocol in the terms of the draft annexed as Annex A to the Summons, between himself as the Liquidator of the Company and the Joint Liquidators of Performance Investment Products Corporation (“PIPC BVI”) and that the terms of the Protocol is approved in all respects.

(2)   It is declared that the entirety of the assets held by the Company (which are in turn held by the Liquidator and/or the Official Receiver) are trust assets (“the Subject Funds”), and the Subject Funds are to be distributed to the parties beneficially entitled thereto on a pari passu ex post facto basis, and consequential directions will be given for such purpose upon the Liquidator making further application in respect of the same.

(3)   Prior to the distribution referred to in paragraph 2 above, the reasonable and proper remuneration of the Liquidator, the Joint and Several Liquidators of PIPC BVI, and the Joint and Several Provisional Liquidators of both the Company and PIPC BVI be paid out of the Subject Funds (hereinafter together called “Joint Liquidators”)[1].  For such purpose, the time spent and expenses incurred by the Liquidator and Provisional Liquidators of the Company and the Joint and Several Liquidators and Provisional Liquidators of PIPC BVI are to be treated as having been done equally in the liquidation and the Provisional liquidation of the Company, and vice versa.

(4)   In relation to the fixing of the Joint Liquidators’ reasonable and proper remuneration:-

(a)   The assessed remuneration payable to the Liquidators as taxed and assessed by Master Ko on 26 March 2012 be paid forthwith.

(b)   Any remaining remuneration payable to, and the expenses incurred by, the Liquidator do be taxed in due course and paid thereafter.

(5)   In relation to the Order of the Regional Trial Court of the City of Muntinlupa dated 22 March 2012, the Liquidator is directed not to pay any assets held by the Company (that is, the Subject Funds) into the control and custody of the Philippines Court[2].

2.The hearing before me was attended by a number of representatives of the Committee of Inspection (“COI”).  The COI was not legally represented before me.  A number of its members spoke on its behalf, principally, Mr. Manapat, who had submitted lengthy submissions and evidence prior to the hearing.  These were amplified during the hearing by Mr. Manapat and two other members of the COI who attended the hearing, Ms. Lopez and Ms. Son.  Another group of investors, which have come to be referred to as the Abbas Group, were represented by Christina Hong-Garcia. Ms. Hong-Garcia submitted written submission, which appeared to have been prepared by a Philippines’ lawyer who attended the hearing with her.  Ms. Hong-Garcia also made oral submissions.  The Liquidator was represented at the hearing by Ms. Rachel Lam.

The Applications

3.The Joint Liquidators has recovered approximately US$2.2 million that was held in the Company’s bank accounts.  These are the Subject Funds referred to in the draft order.  The Subject Funds were recovered by October 2007.  The large majority are held in Hong Kong by the Official Receiver.

4.Following investigations and analysis, the Joint Liquidators have come to the view that the Subject Funds are trust assets derived from payments made by investors in what the Joint Liquidators believe was a Ponzi scheme and that it is impossible for any individual investor to trace his or her own funds, given the manner in which these were paid into the Company’s bank accounts and then mixed with other funds.  The Joint Liquidators believe that any attempt to do so would be time consuming, prohibitively expensive, and most likely produce inaccurate conclusions.  In the circumstances, the Joint Liquidators propose that distribution of the Subject Funds should be carried out on a pari passu ex post facto basis[3].

5.There is no dispute between the interested parties that the Subject Funds are trust assets.  The Company had no legitimate transactions and no assets to speak of.  Whatever subsidiary transactions had been carried on with the funds in question, these were all products of the original trust assets, and originate from the same wrongfully obtained funds.  In the circumstances the Liquidator considers that all the tasks carried out by the Joint Liquidators, which included investigation, consideration of potential claims, and ascertainment of genuine investors are properly characterised as involving administration of trust assets, namely, the Subject Funds.  The only issues that remain for consideration are, first, how the Subject Funds are to be distributed amongst the various “creditors/investors” and, secondly, whether the Liquidator[4] is entitled to have their remuneration and out of pocket expenses (disbursements such as the payment of other professionals engaged by them) paid out of the Subject Funds before their distribution.

6.The Liquidator submits that the most cost-effective and fair approach is pari passu ex post facto distribution.  They do so for the following reasons:

(1)   There is only one class of claimant;

(2)   There is no means of accurately applying any other analysis to the Subject Funds given the level and degree at which they have been mixed; and

(3)   In all the circumstances, this would be the fairest way to deal with the sums recovered to date.

7.They further seek an order that their remuneration for administering the said assets be paid out of the trust assets by way of a Berkeley Applegate order.  The Court is, at present, only asked to make the Berkeley Applegate order, but not to proceed to an actual assessment of which items or categories of fees need to be recognised or taxed.  Insofar as taxation is concerned, Master Ko has already undertaken part of the exercise of taxing the Liquidator’s fees, but this was carried out as if he were taxing fees that were to be paid out of the Company’s free assets.  As to the assessment of whether all of those fees belong within the ambit of the Berkeley Applegate order, the Liquidator’s primary position is that all actions undertaken by the Joint Liquidators were in order to ascertain the scope of the trust funds, whether any further such trust funds could be collected in from the wrongdoers, and generally investigating the “Ponzi scheme” and determining all factors relevant thereto.  As a consequence, says the Liquidator, the entirety of the Joint Liquidators’ fees ought properly to be paid by way of the Berkeley Applegate order.

8.As I have already noted the Liquidator did not seek an immediate assessment of his fees.  I am invited to make appropriate directions depending on my decision as to the application of the Berkeley Applegate principle in the present case.

9.The COI’s position in respect of the applications is object to the Liquidator being paid anything at all out of the Subject Funds or otherwise, to suggest that he should be removed (although there was no application to remove him) and to object to the Protocol.  Understandably as they are not lawyers their submissions and objections were largely a narrative of individual complaints rather than a structured argument developed to fit within the relevant legal framework.  They are also frustrated that considerable fees have been incurred which will deplete the Subject Funds.  In so far as the Philippines Order is concerned, their position was this.  As Philippines’ citizens they do not feel that they can suggest that the Philippines Order should not be complied with, but they are very troubled at the consequences if it were to be so.

10.The Abbas Group objects to the payment of the Joint Liquidators’ fees out of the Subject Funds which they have recovered as they argue that they are their assets.  They object to the Protocol.  They say that the Liquidator should comply with the Philippines Order.

Background to the Liquidation

11.The background to the application is as follows.  PIPC BVI was incorporated in the British Virgin Islands on 14 January 1999.  The Company was incorporated in Hong Kong on 21 September 2001.  The Company had two shareholders, Michael Liew and Albert Chua, both of whom were directors of the Company.  The two companies formed part of a Group which operated what is generally referred to as “Ponzi scheme”.  Investors were generally instructed to deposit their investments into bank accounts where their funds would be mixed with those of other investors.  Those funds would be then circulated through various other entities worldwide before purported profits were paid out bi‑monthly. Investors were introduced to the Group by “information agents” acting for the Group, who would encourage the investors to execute the agreements with PIPC BVI and forward their funds to the Company or PIPC BVI. 

12.The Group did not have a holding company.  Rather, the various companies which formed it (totaling at least 23 in number) were incorporated in various jurisdictions and held by the same shareholders; principally Michael Liew and Albert Chua.  The main companies involved in the fraud appear to have been:

(1)   PIPC BVI, which was the main contracting party with investors.

(2)   The Company, which was the recipient of investment monies.

(3)   PIPC Corporation, Philippines, which was the recipient of monies from the Company, which it distributed to investors as “profit” payments.

(4)   Performance Asset Management Pte Ltd, Singapore, which provided back office support.

13.Michael Liew appears to have been the beneficial owner of the Group, as well as being a 60% shareholder of the Company, a director and the person who had the sole control over the Group bank accounts.  He  disappeared in about July 2007.  Albert Chua held 40% of the Company’s shares and was a director until 30 May 2005. He was located in Australia by the Liquidator in October 2007.  Cristina Gonzalez-Tuason was the General Manager of PIPC Philippines and attended meetings with the Liquidator from the early stages of the liquidation.

14.Michael Liew absconded, apparently with the Group’s funds, in or about July 2007.  Investigations indicated a significant deficit in the funds held in the Company’s main bank account with ABN Amro, which  should have held approximately US$138 million.  Following meetings between Mr. Sutton, a group of about 40 investors and Ms. Tuason, it was agreed that an application should be made to appoint provisional liquidators to investigate the Company’s affairs.  The Petition was presented on 3 August 2007 and provisional liquidators were appointed on 6 August 2007.  Provisional liquidators were appointed over PIPC BVI on 13 August 2007.

15.At around the same time, on 1 August 2007, Harvie de Baron and Alfonso Martin Eizmendi decided to pursue HCA 1652/2007 in Hong Kong against the Company and also launched similar proceedings in the BVI against, amongst others, PIPC BVI, Michael Liew, Albert Chua and the Company.  They then sought an injunction against those parties on 3 August 2007.  The application was later withdrawn on 10 August 2007 when the provisional liquidators were appointed.

16.On 23 August 2007, Harvie de Baron and Alfonso Martin Eizmendi brought an application to remove the provisional liquidators. The application was found to be unmeritorious and it was dismissed by Kwan J for the reasons explained in her judgment of 4 October 2007, with costs to the provisional liquidators on an indemnity basis.

17.In another and unattractive attempt to interfere with the provisional liquidation a criminal complaint was lodged by a creditor against the provisional liquidators, their solicitor Mr. Jamie Stranger and Ms. Tuason in the Philippines.  The provisional liquidators and Mr. Stranger were as a consequence unable to leave the Philippines after a meeting with the investors on 16 August 2007.

18.The provisional liquidators in Hong Kong, subsequently the Liquidator, proceeded to investigate the affairs of the Company, focusing on two lines of inquiry:

(1)   Investigations into key officers and associates of the Group, and potential action which could be taken against them to recover assets which the Investors had paid; and

(2)   Tracing of funds and investigations into banking records.  Associated work included ascertaining who were genuine investors and how much they had paid into which account.  The Liquidators say, credibly, that given the number of investors and the nature of the fraud this involved considerable work.

19.Action was also taken to secure assets.

(1)   In Singapore action was taken against Performance Asset Management Pte Ltd.  This was ultimately settled on the basis of legal advice.  However, it resulted in further documentation and information being obtained.  It was not until the settlement of this action in 2009 that the Liquidators were able to obtain a comprehensive list of investors in the PIPC Group.

(2)   Steps were taken against ABN Amro, including obtaining an examination order, which produced documents and the opportunity to interview ABN Amro’s employees.  Advice from counsel was also obtained, which indicated that any claim against ABN was unlikely to be successful.

20.The investigations established that the PIPC Group had been operating a Ponzi scheme and that assets had been transferred outside of the Group.  The Liquidators say that from their First Report they sought information from Investors in order to understand the extent of likely claims.  Investors were not as forthcoming with the necessary information as the Liquidators would have liked and this required them to undertake other forensic activities to obtain the information that they required.  It was only in 2009 following the settlement of the Singapore action that the Liquidators were able to compile what they believed was a relatively comprehensive list of Investors.

21.The other major task the Liquidators undertook involved the flow of money.  This was necessary in order to identify assets and their possible ownership.  Essentially the Liquidators were trying to reconstruct what had taken place there being no single source of information that explained what those in control of the Group had being doing.  Formal proofs of debt were called for on 25 October 2010 and are being assessed.

The Third Application: the Philippines Order

22.I have already mentioned instances in which certain investors have tried to interfere with the progress of the liquidation.  Another was instigated by the Abbas Group. 

23.The Hong Kong provisional liquidators sought to enforce their taxed costs in the sum of HK$374,214.00 in respect of the unsuccessful application to remove them from Harvie de Baron and Alfonso Martin Eizmendi by way of a Complaint dated 30 September 2009.  At that time Mr. de Baron and Mr. Eizmendi were prominent members of the Abbas Group.  Subsequently an application was made by members of the Abbas Group to a court in the Philippines seeking declaratory relief to the effect that the funds in the Company’s bank accounts, including those held by the Liquidator and the Official Receiver (“the Subject Funds”), are trust assets belonging to creditors and are not part of the assets of the Company.  The Decision was made in the absence of the Liquidator, who was and is contesting service.  In the Answer to the Liquidator’s Complaint of 30 September 2011 Mr. de Baron seeks an order that the Liquidator do liquidate and render an account of the Subject Funds and that deposit the same with the Philippines Court for distribution.

24.This was followed, on 1 February 2012, by an application for an injunction ordering the Liquidator immediately to render an account of the Subject Funds and to deposit the funds with the Philippines Court for distribution.  The application was granted on 22 March 2012. The  Philippines Order is being appealed, and pending such appeal, the Liquidator has not complied with the said order.  It is this order which the Liquidator seeks the Court’s directions in respect of.  On 8 May 2012, the Abbas Group filed a further motion to try and compel the Liquidator to appear in person in the Philippines Court.  On 3 July 2012, the Abbas Group filed a Motion to appoint Harvie de Baron as Receiver of the Subject Funds.  This was granted on 20 December 2012, subject to certain conditions which have yet to be met.

25.On 4 July 2012, the Liquidator filed a Petition to the Philippines Court of Appeals seeking to challenge inter alia the Philippines Order.  On 10 September 2012, the Liquidator filed a Recusation application against the Philippines judge in the Philippines proceedings on the basis that he had exhibited bias in favour of the Abbas Group.  The Philippines Court made further various orders (including rejecting the recusal application), all of which are now subject to a motion for reconsideration filed by the Liquidator.  The proceedings are ongoing and have not concluded.  The Philippines Order, which describes itself as a “writ of preliminary injunction” purports to:

(1)   Enjoin the Liquidator from enforcing payment of his legal fees and expenses as liquidator against the US$2.2 million in his possession;

(2)   Direct the liquidator to render and account for the US$2.2 million; and

(3)   Direct the Liquidator to deposit the said sum with the Philippines Court.

26.There is no application for enforcement of the Philippines Order in Hong Kong.  The only issue arising from it before the court is raised by the question placed before it by way of the Liquidator’s own application for directions under section 200(3) of the Companies Ordinance.  This court is asked to direct whether or not the Liquidator should comply with the Philippines Order.  Ms. Lam drew the following matters to my attention, which she submitted bore on the decision the court was asked to make:

(1) The Philippines Order does not have any effect outside of the Philippines.  By definition, it is territorially limited unless it can be established that it should be recognized in Hong Kong under the settled rules of conflict of laws.

(2) From the Philippines reasons themselves, it is made clear that this is not a final injunction.  Rather, it is an injunction “pending the determination of the issues in the counterclaim”.  Therefore, it is not a final and conclusive judgment that can be afforded recognition in Hong Kong.

(3) If it is to be suggested that this is a judgment in rem against the Subject Funds themselves, then the judgment fails for the simple fact that the Subject Funds were outside the jurisdiction of the Philippines Court.

(4) The above is underscored by the principle that the situs of a chose in action (such as a bank deposit), is the country where it is properly recoverable (in this case, Hong Kong), and in those circumstances, the laws of Hong Kong will apply to determine their recoverability.  

27.Ms. Lam argued that it is clear that any argument that the Philippines Order has effect in Hong Kong is unsustainable and that the Hong Kong court, in the present proceedings, has the appropriate jurisdiction to determine how the Subject Funds ought to be dealt with.  I agree.

28.The proceedings in the Philippines have unfortunately served no purpose.  The judge in the Philippines refused to allow the Liquidators to adduce evidence of relevant Hong Kong Law and practice.  If he had admitted such evidence it would have explained to him that the funds under consideration were largely held in the account of the Hong Kong Official Receiver and that the release of such funds held in a liquidation of a Hong Kong incorporated company would require an order of the Hong Kong Companies Court.  The Philippines court would have been told the relevant principles of Hong Kong Law by reference to which the Hong Kong court would determine any dispute concerning ownership of those funds. They are as follows:

(1) A foreign judgment has no direct operation in Hong Kong, and the operation of any legal system is, necessarily, territorially circumscribed[5].

(2) For judgments in personam,a foreign judgment will only be enforced where such judgment is a final and conclusive judgment[6].

(3) For judgments in rem, a foreign court’s judgment will only be recognised where the subject matter of the said judgment is situated in that foreign country[7].

(4) In determining the situs of a chose in action (such as the balance of a bank account), the general rule is that they are situate in the country where they are properly recoverable or can be enforced[8].  The lex situs in turn, will apply when determining entitlement to the chose in action, and how such entitlement is to be dealt with[9].

(5) Thus, in Bank of Credit and Commerce International (Overseas) Ltd (in liq) v Bank of Credit & Commerce International (Overseas) Ltd – Macau Branch (in liq)[10], the Court of Appeal stated at 309 that:-

“Once such deposits, repayable in Hong Kong and subject to Hong Kong law, were made, the chose in action representing those deposits (the lex situs of which was of course Hong Kong) ceased to be an asset available to or, to put it another way, within the grasp of the Macau liquidator. The Macau liquidator is, no doubt, entitled and indeed bound to get in all assets in Macau which he can get his hands on so as to apply them for the benefit of the creditors on whose behalf he was appointed. And he is, no doubt, entitled, if he thinks he can get away with it, to attempt to get in assets which are not in Macau but situate elsewhere. Since the lex situs of the chose in action with which this case is concerned is plainly Hong Kong, and not Macau, I am quite satisfied that these assets do not fall to be treated by this court as assets situate in Macau for the purposes of the Macanese liquidation of the bank. … I have considered whether there would be any injustice done to the Macanese creditors by a finding that the Cayman liquidators now have a prior claim to the funds in court over that of the Macau liquidator. I do not think there would. … the Macanese creditors are entitled to prove in the Cayman liquidation, and indeed they have been invited to do so and some of them have done so. …

It is the law of Hong Kong, and not Macanese law, which governs the proper destination of the funds in dispute, the lex situs of which is, and always has been, Hong Kong, ever since the original deposits were made here.” (per Godfrey JA)

(6) For beneficiaries given a beneficial interest in trust property, their interest under the trust is located in the country where the trust property is situated[11].

(7) He might have been told of the Berkeley Applegate principle and that it was likely that the Hong Kong Companies Court would take the view that part of the Subject Funds should be used to pay at least part of the Liquidator’s fees and expenses. This would have enabled him to appreciate that an order in terms presumably suggested to him by the Abbas Group’s lawyers was not appropriate.

29.It follows that any dispute concerning ownership of the Subject Funds has to be determined by reference to Hong Kong Law and in practice has to be determined by this Court.

30.Ms. Hong-Garcia’ssubmissions assume that this Court should as a matter of comity act consistently with the Philippines Order.  This is far too simplistic an approach to the matter.  The Court will normally try to act in a way consistent with the orders of courts of other competent jurisdictions, but this does not justify a departure from the normal rules of conflict of laws whether in the insolvency context or more generally.  This is explained in the recent decision of the Supreme Court in Rubin v Eurofinance[12].  As I have explained the question of the ownership of the Subject Funds is a matter to be determined by a Hong Kong Court.  No attempt has been made to enforce the Philippines Order in Hong Kong and no attempt has been made to demonstrate that as a matter of established practice and procedure what appears to be an in personam order is enforceable against the Liquidator in Hong Kong.  If the Liquidator did not voluntarily submit to the jurisdiction of the Philippines Court then on the assumption that the law of Hong Kong is consistent with Rubin v Eurofinance it would not be.

31.It follows that the Liquidators should not comply with the Philippines Order, and I so direct. I also think it is appropriate for those Investors who applied for it now to apply for it to be set aside.  As I made clear during the hearing if the Liquidators continue to be subject to what seems to me to be harassment I will invite them to apply to be discharged.  The result will be that the Official Receiver will take over the conduct of the liquidation.  She might choose to appoint another liquidator from the private sector which would only serve to increase costs.

32.Although there is no application before me by any of the investors for release of any part of the funds in the Official Receiver’s accounts I think it may be helpful if I say this: it is unlikely that I would make an order of the sort made in the Philippines. 

Allegations against the Liquidators by the COI

33.As I have already noted Mr. Manapat has filed evidence and submissions making various allegations against the Liquidators.  In his affirmation Mr. Manapat divides them into eight heads of complaint:

(1)    A suggestion that there has been a failure to take action against the former directors and managers of the Company, including Ms. Tuason.

(2)    Complaints as to the level of costs and the manner of billing by the Liquidator. 

(3)    The allegation that there has been a failure to investigate Battery Asset Management (“BAM”).

(4)    The Liquidator’s failure to hold accountable those who perpetrated the fraud on the investors.

(5)    The suggestion that there is a conflict of interest in that the Liquidator’s company had previously worked on matters with ABN Amro.

(6)    A complaint about the Liquidator’s dealings with Kroll and the engagement of other professional parties. 

(7)    The Liquidator’s refusal to share a report prepared by the Wong Partnership, the lawyers used by them in Singapore, with the COI.

(8)    Complaint about a non-disclosure agreement.  This was required by the Liquidator because of what he thought were a series of breaches of confidentiality and veiled threats to him.

34.I have mentioned Mr. Manapat’s complaints as a discrete point, because that is how they have come to feature in the present applications.  However, it is necessary to consider how, if at all, they are relevant to the decisions that I have to make. 

35.Viewed broadly, Mr. Manapat’s complaints divide into two parts.  The first is that the Liquidator has done such a poor job that he should not be paid anything and that is the relevance of the eight heads of complaint I have referred to above. The second is that as his actions have not increased or maintained the value of the funds he has located the Berkeley Applegate principle does not apply.  I shall deal with each of these arguments in turn.  I would, however, note that Mr. Manapat’s complaints are arguably premature as they tend to go to whether if a Berkeley Applegate order is made anything is payable rather than whether in principle in this case a Berkeley Applegate order is appropriate.

36.Mr. Manapat’s complaints are directed at the quality of work and whether anything should be allowed.  For the most part Mr. Manapat’s concerns regarding the fees have already been considered as part of a taxation and Master Ko gave a decision on 26 March 2012.  I am not hearing an appeal from that decision and I will proceed on the basis that Master Ko’s assessment of the costs and disbursements properly payable in respect of the work covered by the bills submitted for taxation was correct.

37.I note that I was not being invited by Mr. Manapat to reduce the costs allowed and he did not undertake an analysis of what adjustments should be made.  He was suggesting that nothing should be allowed because the Liquidator had done such a bad job. As I explained to Mr. Manapat during the hearing it is unrealistic to suggest that if the Berkeley Applegate principle applies the Liquidator should be paid nothing for the considerable amount of work that has been undertaken.  Clearly much work has been carried out that was necessary and contributed to the progress of the liquidation process.  It is also clear in my view that a considerable amount of time and money has been incurred by the Liquidator in dealing with the legal proceedings in the Philippines and other activities of creditors aligned with the Abbas Group and this is manifestly not the Liquidator’s fault.  It is, therefore, not helpful to suggest that the Liquidator be paid nothing at all.  Clearly something should bepaid.  I see no basis for interfering with Master Ko’s assessment. This addresses Mr. Manapat’s second objection.

38.So far as the other matters are concerned before addressing them in detail I would address the Liquidator’s general objection to the COI’s position.  The Liquidator explains in his affirmation that all the complaints made by Mr. Manapat have been made previously and in particular to the Official Receiver.  He exhibits the relevant and extensive correspondence with the Official Receiver, which starts with a detailed 20 page schedule of complaints submitted to the Official Receiver in, it would appear, early October 2010.  A further 9 page list of complaints was sent on 14 October 2010.  The Official Receiver concluded after considering the submissions made to him that he had “not found evidence of wrongdoing that would lead me to report to the court on the liquidators’ conduct”.  It is apparent from a cursory reading of the documents forward to the Liquidator by the Official Receiver that it is a tendentious document.  Whilst some of the complaints considered out of context may sound legitimate when they are considered in context they fall away.

39.For example, the first matter of which Mr. Manapat complains, namely, the Liquidator’s failure to pursue a claim against Ms. Gonzalez-Tuason is framed in paragraph 2.1 of his affirmation in language which suggests that it is clear that Ms. Gonzalex-Tuason stole at least US$5,700,000.  However, this is not borne out by the evidence.

40.The Liquidator explains that Ms. Gonzalez-Tuason has been helpful to his investigations.  She personally paid the costs of appointing provisional liquidators after, it is her position, she realised that PIPC was operating a fraudulent scheme.  The Liquidator takes the view that although she has not been able to answer all his questions about the transfer of assets through accounts opened in her name there is not a viable claim to be made against her.  Obviously Mr. Manapat does not accept this and seem to think that the Liquidator is protecting her.  I asked Mr. Manapat why the Liquidator would do this.  If I understood his explanation correctly it can be summarised as this.  If they pursued a claim against her in the United States where she now resides the legal costs would deplete the estate and there would be nothing left to pay the Liquidator.  As I pointed out during the hearing this is to misunderstand the position.  If a claim against Ms. Gonzalez-Tuason were to be pursued this would generate work for the Liquidator who would be entitled to be paid for his work.  The lawyers would not be entitled to be paid in preference to the Liquidator.  In practice they would work in tandem and be paid in tandem until the estates’ assets were depleted to the point where there was nothing left.  I can see no reason to conclude that the Liquidator’s decision not to pursue Ms. Gonzalez-Tuason was made in bad faith.  It may be that a different view could have been taken, but this is not the issue.  In order to justify depriving the Liquidator of his fees or removing him from his office something rather more serious is required.  I can see no basis for concluding that the way in which the Liquidator has dealt with the matter justifies depriving him of his fees or removing him.

41.The third complaint relates to prospective claims against BAM.  The Liquidator’s response is that he decided not to pursue the suggested claims as a result of legal advice that suggested there were jurisdictional complexities and difficulties in substantiating a claim owing to the inability of the Liquidator to identify any transactions involving the flow of cash from the Company or PIPC BVI to PIPC USA.  I can see no reason to doubt the bona fides of this view or to conclude that it was an obviously unsound one to form.

42.The fourth complaint is the failure of the Liquidator to hold those responsible for the fraud.  This is, with respect, so vague as to be unhelpful.  It also overlooks the principal function of the Liquidator, namely, to collect in assets for the benefit of the creditors of the Company.  The Liquidator should report unlawful acts or infringements of regulations to the relevant authorities, but he is not some sort of investigatory or regulatory authority.

43.The fifth complaint is that the Liquidator was conflicted because his firm had previously worked for ABN Amro.  The Liquidator says the investors were told this and in particular Mr. Manapat was told this in emails as far back as June and July 2009.  The Liquidator points out, in my view fairly, that his firm, like other specialist insolvency practices, has done work for most major banks operating in this Region.  The Liquidator appreciates his duties to the court and the fact that his firm has previously worked for ABN Amro would not affect his work.  This is I accept.  It is common for the court to appoint liquidators who have done work for major financial institutions over companies in whose liquidation the institution has an interest.  It does not seem to me that there is any merit in this complaint.

44.The sixth complaint concerns the Liquidator’s refusal to share Kroll’s investigation reports. The Liquidator says that this decision was made because previously a member of the COI, who he believes to have been Mr. Manapat, had provided copies to a number of creditors outside of the COI a lengthy document given to the COI in September 2010 which includes a detailed narration of the work the Liquidator has undertaken.  One of the reasons the document had been provided was to assist in discussions with the COI about the Liquidator’s outstanding fees.  The unauthorised release of the document resulted in threats being made by a member of the Abbas Group, Mr. Francis Yuseco, to the COI.  I will quote an email that Mr. Yuseco wrote because it illustrates the type of conduct that the Liquidator, and in this case the COI, have had to deal with from members of the Abbas Group:

“We maintain our position that the COI should respect the Makati court decision that the funds left at the ABN AMRO and Standard Chartered Bank do not belong to PIPC but remain the funds of the PIPC investors. If COI will not respect this decision, all of you can face the criminal charge of contempt of court or worst, malversation. If you are a foreign national but are permanent residents here, you can be stripped of your residency and be deported. If you are a Filipino citizen and found disrespecting this decision and accordingly charged, you can expect to spend the rest of your life in our miserable jails. As repeatedly stated, had it not been for the interference of FH which was appointed by Tina herself, we would have gotten back our investments as early as 2007. If you release a single cent to FH, you will definitely be liable as these funds never belonged to PIPC.”

45.It was this event that caused the Liquidator to decide to have his costs assessed by the Court because he took the view that the COI had been put in a compromised position. It also caused him to conclude that it was not prudent to provide sensitive material to the COI because of the risk of it being circulated to other creditors who were hindering, in the Liquidator’s view, the orderly progress of the liquidation.  It does not seem to me that in these circumstances the Liquidator’s withholding of the Kroll reports can possibly be a justification for depriving him of his fees.

46.The seventh complaint concerns the Liquidator withholding from the COI copies of advice from the Wong Partnership in Singapore.  I would, however, note that the import of the advice and the Liquidator’s proposed course in the light of it were explained in a letter from the Liquidator to the Investors dated 13 January 2010.  The Liquidator’s reasons for not provided the actual advice are the same as those for withholding the Kroll reports: he was concerned that it would not be kept confidential.  I can see no reason why this decision justifies depriving the Liquidator of his fees.

47.The eighth complaint is that the Liquidator insisted that the COI members sign a confidentiality agreement.  Mr. Manapat complains that this prevented him carrying out his duties.  Mr. Manapat’s complaintsare framed in wide and florid terms, but he does not identify, or identify correctly, a specific example of what he legitimately wanted to do but was prevented from doing by the agreement.

48.The agreement provides in clause 6 that “proprietary and confidential” information “should be kept confidential and should not be used “for any other purposes other than in my role as a member of the Committee”.  Mr. Manapat was not prevented, as he states in his affidavit, from, for example, taking legal advice at his own cost on any matter described in information provided to him if it was done bona fide for the purposes of the COI.  I do not see that in the difficult position in which the Liquidator found himself requiring members of the COI to sign a confidentiality agreement was improper.

49.In conclusion I do not think that Mr. Manapat’s complaints whether taken in isolation or together of themselves justify depriving the Liquidator of his fees and recovering his out of pocket expenses.

50.The other objection, which is also advanced by the Abbas Group concerns the application of what is generally referred to as the Berkeley Applegate principle, which I now turn to consider.

Berkeley Applegate Applications & Distribution of Assets

51.In Re Berkeley Applegate (Investment Consultants) Ltd (No 2)[13]the court allowed a liquidator to be paid his proper expenses and remuneration incurred in connection with the administration of assets held by a company on trust where a company’s own assets were insufficient to meet those expenses and remuneration.  In his judgment Edward Nugee QC considered the relevant authorities in some detail and concluded at page 50G of his judgment that they establish the following:

“……. a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in In re Marine Mansions Co., L.R. 4 Eq. 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v. Nesbitt, 14 Ves. Jun. 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v. Boardman [1964] 1 W.L.R. 993). In my judgment this is a case in which the jurisdiction can properly be exercised.”

And at page 53D/E he said this:

“But the liquidator is entitled to know at this stage that his proper expenses and remuneration will be paid if necessary out of the trust assets, and that he will not be left at the end of the winding up with the possibility of receiving no recompense for his work or of having to bear part of the expenses out of his own pocket.”

52.The Hong Kong courts have accepted this principle and applied it in a number of cases[14]. In Re CA Pacific Finance Ltd & Anor[15], Yuen J, as she then was, considered various methods of allocation of costs where there is a “shortfall” of total assets available for allocation to the owners of those assets held on trust by a company and creditors of a company.  Yuen J concluded the following:

(1) There would be substantial injustice in applying the rule in Clayton’s Case (“First In First Out” or “Last In Last Out”), and it was in any event inapplicable and impractical[16]:

(2) The alternative “pari passu ex post facto” approach[17] was rather more attractive in that the total quantum of assets available would be shared on a proportionate basis among all investors who could be said to have contributed to the acquisition of those assets, ignoring the dates on which they made their investment.  This was relatively simple and economical.  Where the positions of all claimants and beneficiaries were equal, this approach would be preferable[18].

(3) Where there are different classes of claimants and beneficiaries, then a distinction would be drawn between those classes, and priority given to that class which was more deserving, with clients in the same class sharing pari passu in the event of deficiency[19].

53.Yuen J made a Berkeley Applegate order on 8 April 1999 in the same proceedings allowing the liquidators to recover their proper costs out of the trust property before handing over the trust assets to the clients.  Yuen J described why she had done so in a later judgment:

“In the present case, I made a Berkeley Applegate order as it was clear that but for the intervention of provisional liquidators (and later, liquidators), an orderly presentation of the various issues which have arisen, as to title, order of distribution and (later) classification of clients – and implementation of the decisions made by the Court would not have been possible.”[20]

54.The above-mentioned decision was then followed by a decision dated 28 August 2012, in which the judge gave a detailed account of the manner in which the liquidators’ remuneration for administering the trust assets had been carried out[21].

(1) An assessor was appointed to assist the Court;

(2) The liquidators provided reports which detailed the work carried out; and

(3) The Court considered whether the items in the reports should be allowed or disallowed.

55.In Re MF Global HK Ltd [22], I described the court’s approach to the assessment of payment of liquidators in cases involving the administration of mixed trust assets and company assets as follows:

(1) Where the monies of beneficiaries could not be distinguished, and it would not be in their best interests to attempt a forensic tracing exercise of their respective beneficial entitlements (owing to concerns of costs, time, and uncertainty as to the result), a pari passu ex post facto approach to the distribution of trust funds would be appropriate[23]; and

(2) The liquidators’ costs and expenses in administering, collecting in and dealing with the client money should be paid out of the said trust assets[24].

56.The underlying logic of the Berkeley Applegate principle is straightforward.  There will be cases in which it is difficult, and sometimes impossible, to identify what part of a group of disparate assets held in the name of an insolvent company are assets which other people have entrusted to the company and which part are assets which form part of a company’s own estate.  A liquidator faced with liquidating such a company will have to undertake tasks necessary to locate all assets and assess whether it is possible to identify if some of them belong to third parties who are asserting claims as beneficial owner to assets held by the company.  The costs of undertaking those tasks are generally fairly attributable to both the assets held on trust and those of the company.  It would be artificial and probably impossible to apportion them precisely between the two.  It would also be very expensive.  In such circumstances the court proceeds on the basis that the fairest and most practical way to proceed is to apportion the costs between the two interest groups in proportion to the total value of their respective claims.

57.There may be cases in which it is quite clear over which assets a beneficial interest is asserted.  This will be the case if particular assets have been charged by way of security[25].  In those cases a liquidator will not, subject to limited exceptions, be able to have recourse to the assets over which a proprietary claim is asserted to pay his fees.  This is not the present case.  Working out whether or not it is possible to identify which part of the assets which have been collected in are, in accordance with Hong Kong Law, held on trust for particular investors is a very difficult and not, it would appear, practical.  This is why, in my opinion, the Berkeley Applegate principleapplies.  In fact I did not understand either Mr. Manapat or Ms. Hong-Garcia to be suggesting that if the Joint Liquidators are to be paid out of the Subject Funds an attempt should be made to apportion the fees and costs between individual owners.  There was an exchange between me and Ms. Hong-Garcia about whether or not it was possible from scrutinising the bank account statements and records of transfers to establish whether or not any of the later investors (and Ms. Hong-Garcia was one of the last to subscribe) to see if it could fairly be said that any of the Subject Funds were derived from particular late transfers.  Initially it seemed that it might be possible.  However, having heard Ms. Lam in reply it seems that the circulation of money between bank accounts, which was part of the mechanics of operating the Ponzi scheme, make it unlikely that any tracing exercise could be carried out for even subscriptions made shortly before the PIPC Group ceased business. It is also relevant that subscriptions seem to have been quite modest.  For example, Ms. Hong-Garcia made a transfer on 10 July 2007 of US$24,968. The costs of establishing whether or not Ms. Hong-Garcia’s initial transfer can be traced into the Subject Funds would be relatively complex and even if successful the costs of the Liquidator carrying it out would properly be payable under the Berkeley Applegate principle out of Ms. Hong-Garcia’s funds.  It is not clear that Ms. Hong-Garcia and other late investors would be better off.

58.Mr. Manapat seemed to understand the Berkeley Applegate principle as only applying to activities that add to or maintain the value of trust assets.  An example of what I understood he had in mind would be maintaining real property in good repair or, perhaps more germanely, ensuring that money is placed in interest bearing accounts with a bank.  This is to misunderstand the principle.  The principle extends to identifying and locating assets.  The reason is practical.  A liquidator is appointed over a Hong Kong company to collect in assets in which it appears to a liquidator it has a proprietary interest.  An obvious example would be a bank account opened in the name of a company.  It may become apparent during the course of a liquidation that some of those assets may be held on trust for third parties.  The liquidator may discover this from his own investigations or because claims are asserted by third parties; as in the present case.  To continue with the example of the bank account, a third party may assert a beneficial interest in funds derived from transfers made to a subsidiary of the company in liquidation, and the liquidator is in a position to know that the subsidiary transferred parts of its receipts from third parties over time to a bank account of the company in Hong Kong.  He will need to investigate the flow of transfers and the liquidator and lawyers will need to consider whether or not any part of the money in the company’s account, as a matter of Hong Kong law, is properly treated as money in which the third party has a beneficial interest.  Those tasks do not add to or maintain the value of the asset, but they are tasks which it is necessary and proper for the liquidator to carry out.  The Berkeley Applegate principleprovides that the cost of such work is payable out of trust assets.  This of itself does not prejudice the third party.  Without the assistance of the liquidator he would probably find it impossible to demonstrate that he had a beneficial interest in any part of the assets of the company in liquidation.

59.Another related issue arose during Ms. Hong-Garcia’s oral submissions that was not raised in either the COI’s written submissions or those of Ms. Hong-Garcia.  It was this.  The Subject Funds were recovered by the Liquidator in December 2007.  No further monies were recovered after the end of December 2007 but a considerable proportion of the fees and the disbursements that are now claimed were incurred after that date.  How, asked Ms. Hong-Garcia, can it fairly be suggested that the work done after the Subject Funds were recovered was carried out prudently and for the purposes of the administration of those funds?  This seems to me to be a reasonable question to ask.  It might fairly be suggested that an experienced liquidator should have sat down with the COI and discussed with them the cost and likely benefits of carrying out further work given the fact that they were faced with unraveling a fraud and there was reason to be skeptical about the prospects of substantial additional recoveries.  This is not, however, an issue to be resolved purely by reference to hindsight.  Regard must be had to how matters appeared to the Liquidator and the COI at that time and about that I do not have detailed information.  It does, however, appear from the evidence and submissions filed by Mr. Manapat that the COI wanted action and much of his criticism is directed to the lack of it.

60.It is not a question that I have to answer at this stage because I am not asked to do more than determine whether or not a Berkeley Applegate order should be made.  I am not asked to determine how much, if such an order is made, should be paid to the Liquidator.  The question is relevant to the framing of any order that the court makes with a view to assessing how much should be paid and this I address in paragraphs 61 to 62.

61.Ms. Hong-Garcia’s principal objection to an order was that the Philippines Court had decided that the money in the Official Receiver’s account should be transferred to the Philippines and it would be inconsistent with that order for any part of those funds to be released to pay the Liquidator’s fees and out of pocket expenses.  As I have explained earlier in this decision ownership of the money recovered by the Liquidator is to be determined by Hong Kong law and in practice by this court.  The Philippines Order has no bearing on the matter.

62.In conclusion in my view the Liquidator is entitled to a Berkeley Applegate order in respect of his fees and out of pocket expenses[26].  I now turn to consider its terms.

63.At the second day of the hearing I produced a draft order for consideration by the Parties setting out the basis upon which I was inclined to direct a further taxation of the Joint Liquidators’ costs pursuant to a Berkeley Applegate order.  I gave them time to consider the draft.  I then explained its terms and then invited comments.  I have taken into account those comments and amended the order that I intend to make which is in the following terms:

(1)   The Joint and Several Liquidators and the Joint and Several Provisional Liquidators’ fees and disbursements incurred in:

· identifying, securing, obtaining, administering and maintaining the assets which the Company as at 3 August 2007 held on trust for third parties or which it should if it had been conducting its affairs lawfully have been holding on trust for third parties as at 3 August 2007;

· communicating with persons purporting to be beneficial owners of the aforementioned assets;

· considering and advancing claims for the benefit of the persons purporting to be beneficial owners of the aforementioned assets;

· dealing with claims and legal proceedings by persons purporting to be beneficial owners of the aforementioned assets;

(“relevant purposes”), shall be paid out of the amount as at the date hereof in the Company’s liquidation account with the Official Receiver (“Fund”).  

(2)   Such fees and disbursements are to be assessed by a taxing master.

(3)   The taxing master is to assess whether or not the fees and disbursements claimed by the Joint and Several Liquidators and Joint and Several Provisional Liquidators pursuant to order (1) hereof have been for the relevant purposes.  Only fees and disbursements incurred for relevant purposes and which the taxing master is satisfied on the balance of probabilities a person with the level of professional knowledge of the Joint and Several Liquidators and the Joint and Several Provisional Liquidators would have considered it prudent to undertake if deciding what action to take or not to take to protect or advance their own financial interests shall be allowed by the taxing master.

(4)   The taxing master may refer any matter arising in the taxation to the Honourable Mr. Justice Harris for determination or direction.

(5)   Any person claiming to be beneficially entitled to any part of the Fund shall be entitled to attend the taxation and make representations either in writing or orally to the taxing master.

(6)   Any person claiming to be beneficially entitled to any part of the Fund shall be entitled on payment of the Liquidator’s reasonable charges to a copy of documents submitted to the court for taxation.

64.In formulating order (1) have had regard to the issue identified by Ms. Hong-Garcia, namely, that by December 2007 the Liquidators had recovered approximately US$2,200,000 and that nothing has been recovered since that date as I understand the position.  I have also borne in mind the observation of Judge Nugee QC quoted above that a liquidator was entitled to know at the outset that he would be able to recover if needs be his costs out of trust assets.  In Berkeley Applegate the liquidator had prudently made an application at the commencement of the liquidation.  It should be borne in mind that this was an option available to the Liquidator when it became apparent to him that the funds recovered might be trust assets.  If he had done so it would have focused minds on what further work it was worthwhile doing.  This is a consideration to which the taxing master should have regard in making the assessment referred to in paragraph 3 of the order recited above.

Cross Border Protocols

65.The final order that the Liquidator seeks is the court’s approval to a cross-border protocol with the BVI in order to allow the orderly liquidation of the Company and PIPC BVI, which have a common liquidator and share a common and indivisible pool of assets and creditors and third parties asserting proprietary claims.  In other words the affairs of the two companies are so intertwined that it is not practical to try and separate them and the work carried out by the Liquidators relates to the affairs of both of them.  What is required is a protocol that allows the Liquidator, and I adopt the language of recital G of the draft protocol, which is appended to the summons before me, “to resolve the issue of allocation of assets and liabilities and to provide a framework for the efficient and effective administration of the liquidation of both PIPC BVI and the Company.”

66.Cross-border protocols are an increasingly common feature of international insolvency.  The Hong Kong Companies Court has considered how they should be approached in a number of authorities in particular Re Kong Wah Holdings Limited & another [27] and Re Jinro Ltd [28]. In  Re Kong Wah Holdings Limited, Kwan J summarised the Court’s approach to applications to approve protocols is as follows:-

“6. The general approach of the Court in this kind of application is to adopt a limited supervisory role. The Court will of course not approve whatever protocol is placed before it without the exercise of its own discretion. Having said that, in ordinary situations, there is no reason why the court should not accept the professional judgment of insolvency practitioners appointed to act as liquidators who have put together the protocol as a pragmatic solution to harmonise and co-ordinate concurrent liquidations (see Cross-Border Insolvency by Philip Smart, 1998 ed, pages 336 to 337). …

7. In this instance, there are concurrent liquidations proceeding in Hong Kong and Bermuda with the Bermudian liquidation being the principal liquidation as the Companies were incorporated in Bermuda. As mentioned, the same individuals were appointed as liquidators for each of the Companies in the two jurisdictions. Most, if not all, of the creditors have already submitted proofs of debt in one or other of the jurisdictions. The insolvency laws in Hong Kong and Bermuda are largely identical.

8. The objective of the protocols is that whilst acknowledging Bermuda as the primary liquidation, both the Hong Kong liquidation and the Bermudian liquidation are to be administered simultaneously from Hong Kong, which was the principal place of business of the Companies. The protocols are drafted to take into account the relevant provisions of Hong Kong and Bermudian insolvency laws and rules, to be consistent with generally accepted notions of comity, not to infringe on the jurisdictions of either of the two courts, and to enable the liquidators to administer both liquidations in the most economical way, reducing the conflicts and complications which may arise in cross-border insolvency matters.

9. I am satisfied that the protocols do not conflict with any principle of comity. In the situation of a liquidation or some other form of collective insolvency process, the principle of comity has been expressed by the United States Court of Appeals, Second Circuit, in Cunard Steamship Company Limited v. Salen Reefer Services AB 773F 2d 452(1985) at 458 as follows:

“The granting of comity to a foreign bankruptcy proceeding enables the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic or piecemeal fashion.  Consequently, American courts have consistently recognised the interest of foreign courts in liquidating or winding up the affairs of their own domestic business entities. … It has long been established that foreign trustees in bankruptcy were granted standing as a matter of comity to assert the rights of the bankrupt in American courts.  Although the early cases upheld the priority of local creditors’ attachments … the modern trend has been toward a more flexible approach which allows the assets to be distributed equitably in the foreign proceeding.”

10. Here, there is no question of one party or one court seeking to impose terms on another. The liquidators in Hong Kong and Bermuda have consensually adopted by way of contract, subject to approval by the courts in the two jurisdictions, protocols for the purpose of co-ordinating the concurrent liquidations. No issue arises of any dis-application of the Hong Kong statutory scheme of distribution, unlike In Re Bank of Credit and Commerce International SA (No. 10) [1997] Ch 213. …

12. Unlike the United Kingdom, we have no legislative provision equivalent to section 426 of the Insolvency Act 1986. In the absence of legislation to deal with matters affecting cross‑border insolvency, the pragmatic exercise proposed to be adopted by way of the protocols does seem to me to best serve the interests of creditors.” (per Hon Kwan J in HCCW 49/2000)

67.The present application is, however, opposed by the COI.  The principles by reference to which the Court determines an application in the face of opposition by a committee of inspection can be summarised as follows:

(a)   Although the Court is the ultimate arbiter of what action a liquidator should or should not take the Court will have regard to the views of a committee of inspection.  This is not only what one might sensibly expect, but is also consistent with section 200(1) of the Companies Ordinance, which provides that a liquidator should have regard to their views.  The Court is not bound by the views of a committee of inspection and will depart from it if there is good reason to do so: see Re Luen Yick Water & Drainage Works Ltd[29].

(b)   Although the court will give weight to the wishes of the creditors and contributories that will be affected by a decision, the Court proceeds on the (rebuttable) assumption that the liquidator will normally be in the best position to take an informed and objective view as to what is in the best interests of the liquidation[30].

(c)   Consistent with the previous principle the Court will generally only interfere with a liquidator’s decision if it is demonstrated that the liquidator has either:

(i) Not exercised his power in good faith or has acted in a way in which no reasonable liquidator could have acted; or

(ii) Made a ruling or decision in the course of the administration which directly affected a party’s right and has not acted impartially and even-handedly[31].

It is, therefore, appropriate for both the Liquidator and the Court to have regard to the views of the COI in deciding whether or not to sanction the proposed protocol, but the Court will proceed on the assumption that, unless there is good reason to think otherwise, the Liquidator is best placed to judge how best to advance the liquidation.  In practice I have also had regard to the views of the Abbas Group.

68.Ms. Lam submitted that the relevant factors were:

(1)   There are concurrent liquidation proceedings in HK and the BVI.

(2)   Mr. Rod Sutton is the liquidator in both jurisdictions, with Mr. Stuart Mackellar being an additional liquidator in the BVI.

(3)   It would appear that most if not all creditors have already submitted proofs of debt in the BVI.

(4)   The objective of the protocols is to harmonise the work in the liquidations, and to ensure efficient and effective administration of the liquidations.

(5)   The relevant jurisdiction and authority of the BVI and HK Courts are recognised, with a view to consistency with notions of comity of nations: see §§1-6 draft protocol.

(6)   There is provision for realisations in Hong Kong to be administered in the BVI Court: §7 draft protocol. It is noted that all proofs have, to date, been filed in the BVI Court.

(7)   There will be cooperation as to processing of claims: §§9-11 draft protocol.

(8)   The respective courts’ supervision of the respective Liquidators’ remuneration remains in the relevant jurisdiction: §§12-13 draft protocol.

69.As one would expect the Protocol is also subject to the approval of the BVI Court.

70.Mr. Manapat and Ms. Hong-Garcia object to the protocol.  The reasoning of Ms. Hong-Garcia is easy to understand.  The Philippines Order should be complied with.  If it is then there is no need for the Protocol.  In the light of my earlier findings this objection falls away.  Mr. Manapat did not voice any particular reason for objecting to the protocol.  The reason for the objection seems to be subsumed into the general complaint about the way in which the liquidation has been handled, which the COI suggest justifies removing the Liquidator, and if he is removed the protocol becomes academic.

71.In my view the proposed protocol is a fair and sensible way of proceeding to deal with the claims that have been made in respect of the funds that have been recovered.  I, therefore, approve the protocol proposed by the Liquidator.

Form of order

72.I will make an order in the terms set out at the beginning of this judgment subject to the insertion of the terms concerning costs referred to earlier.  The effect of the order, assuming that it is also approved by the court in the BVI, is to allow the Joint Liquidators to proceed to have their fees and expenses (ie both those incurred in respect of the liquidation in Hong Kong and the BVI) determined in this court and paid out of the Subject Funds.  They can also make immediate applications for an order allowing them to begin to make initial distributions to investors pending the determination of their fees and expenses.  I will also grant the parties general liberty to apply in case any issue arises in connection with the terms of the order or its implementation.

73.What remains is the liability for the costs of the Liquidator’s application.  In the normal course this would simply be paid out of the Subject Funds and to the extent that I felt that interested parties had appeared before the court and provided constructive assistance in the determination of the application I might have allowed them to recover their costs in whole or part out of the Subject Funds.  In my view this is not what happened.

74.In the case of the COI and Mr. Manapat I do not think that they did provide the court with much in the way of constructive assistance.  However, the COI is the duly authorised representative body of the investors and creditors of the Company and they were entitled to attend and make comprehensive submissions to the court if they so wished.  They did not seek an order that any part of their costs should be paid out of the Subject Funds and they will bear their own costs.  I can see no basis for making them liable for any part of the Liquidator’s costs and Ms. Lam did not seek an order that they should be. There will be no order as to the COI and Mr. Manapat’s costs.

75.Ms. Hong-Garcia’s position is different.  She actively opposed the application on grounds, which not only lack any merit, but involved relying on a court order which had been obtained in questionable circumstances.  She, and the investors she represented, adopted an adversarial position in respect of the Liquidator’s application with the consequences in my view that Ms. Hong-Garcia should pay that part of the Liquidator’s costs attributable to dealing with the arguments she unsuccessfully advanced.  I will make a costs order nisi to this effect which can be challenged by any party on giving written notice to the court within 14 clear days of the handing down of this judgment.  It is a matter for Ms. Hong-Garcia to work out how to deal with the consequences of this order with other members of the Abbas Group.

Ms Rachel Lam, instructed by Gall, for the Liquidator

Ms Christina Hong-Garcia, represented the Abbas Group and Mr Harvie de Baron, investor, appeared in person

Mr Manuel Manapat, a member of the Committee of Inspection, appeared in person

Ms Teresa C Lopez, a member of the Committee of Inspection, appeared in person

Ms Natalie Son, a member of the Committee of Inspection, appeared in person

Ms Winternitz Maria Teresa, represented the Mundo Realty and Development Corporation, appeared in person

Mr Anthony Kaufmann, a member of the Committee of Inspection, was not represented and did not appear

Mr Hans Heiz Wulff, a member of the Committee of Inspection, was not represented and did not appear

The Official Receiver did not appear