Re Days International Ltd

HCCW 299/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 299 OF 2011

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DECISION
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1.On 11 November 2013, I delivered Reasons for Decision in respect of two summonses that had been issued in these winding up proceedings.  The  material one was an application by the Joint and Several Liquidators for directions as to whether or not they should convene a further meeting of creditors and if they were to do so, whether or not the debt of Global Empire Limited (“Global”) should be valued at $1 as it had been at the first meeting, or valued at its full value as claimed, of $419,645,000.

2.I determined the application in the liquidators’ favour, in other words, I found that they did not need to convene another meeting and that they had properly admitted the Global proof at $1.  I made a costs order that the liquidators’ summons be paid by Global.

3.I have three applications before me in respect of costs.  The first, issued by Global, is for an order that the liquidators’ costs be paid out of the assets of the company.  The second has been issued by the liquidators and is for an order that the costs be paid by Global on an indemnity basis.  The third also issued by the liquidators, was for an order that Mr Kirpalani, the sole shareholder of Global, be liable for such costs order as the court makes against the company.

4.At the outset of the hearing, Mr Kirpalani, who appeared in person, very fairly accepted that he should pay any costs order against Global, and that matter can be disposed of by an undertaking to that effect.

5.So far as the application made by Global is concerned, in my opinion the position is as follows: Mr Chain argued on behalf of Global that the liquidators’ application was a common type of administrative application made in liquidations, the costs of which should be borne, at least the costs of the liquidators should be borne, out of the assets of the estate.  In other words, I should not approach costs on the basis that this was adversarial litigation. Mr Chain referred me to the decision of Mr Justice Richards in Riddell v McGrath.

6.I accept, of course, that this is an accurate statement of the court’s common practice, however it does seem to me, for reasons which will be apparent on the reading of my November Reasons for Decision, that the character of this particular dispute was adversarial in nature and in my view, it is appropriate that the unsuccessful party, namely Global, pays the costs.

7.So far as the remaining application is concerned, namely that the costs be paid on an indemnity basis, in my opinion the position is more complicated.  As is apparent from paragraph 13 of my Reasons for Decision, the principal reason for me determining the liquidators’ summons in their favour was because of the contents of the third affirmation of Mr Fok Hei Yu which was filed and served on 8 July 2013.  This, for the first time, provided information that the liquidators had been given by the CCB which explained why they took the view that it was strongly arguable that the underlying debt, which had been assigned to Global, was not genuine.

8.The court has a broad discretion to order indemnity costs although the authorities establish that in order for that discretion to be exercised, some special or unusual feature must be identifiable: Town Planning Board v Society of Protection of the Harbour (No. 2) (2004) 7 HKCFAR 114 at 123 to 124 per Li CJ; also Libertarian Investments Ltd v Thomas Alexej Hall (unreported, FACV 14/2012, 11 March 2014) at para 6 per Ribeiro PJ.

9.Pursuit or defence of a claim which a party has been properly advised should be understood to have minimal prospects of success, is capable of constituting an unusual feature which justifies making an indemnity costs order, (see for example re Fountain Selected Meats).

10.Although, for the reasons explained in my November Reasons for Decision, I accept the liquidators’ submissions that there was some reason to be sceptical about the nature of the agreement entered into by Global to purchase debt from the company’s shareholder, Mr Dayaram, it does not seem to me that the evidence justifies the court concluding that, in the early stages of this application, Mr  Kirpalani would have been told enough by Mr Dayaram to appreciate that  the  liquidators’ view that the debts might be bogus, was quite probably correct.  I  accept, however, that once Mr Fok’s third affirmation had been served, its contents had been digested by Global’s legal advisers and communicated to Mr Kirpalani, it should have been appreciated that the prospects of establishing that the liquidators’ approach to the valuation of the debt was wrong, was minimal.

11.I do, however, also accept that there is some force in Mr Chain’s submission that Mr Fok’s third affirmation, which was served on 8 July, was sufficiently close to the hearing date (the hearing lasted from 23 to 25 July) that it was unsurprising that Global continued to contest the summons.  The short point being that by that stage, the matter had proceeded so far that it was not unreasonable for Global to take the view that it might as well “have a go”, as Mr Chain put it.

12.In my view, the correct way to deal with this particular issue is as follows.  It seems to me that it would not be appropriate to penalise Global by ordering indemnity costs up to the date on which Mr Fok’s third affirmation was filed. It seems to me that a certain amount of time has to be allowed for the contents of that affirmation to be digested and for instructions to have been taken.  I accept that the process of determining whether or not to continue to contest the liquidators’ application in the face of Mr Fok’s third affirmation would probably have been difficult and was, no doubt, complicated by the fast approaching hearing date and the fact, for example, that it may have been that counsel’s brief had already been delivered.

13.I think, taking into account those factors, the correct order is that the costs of the liquidators’ summons up to and including 20 July is paid on a party and party basis and the costs thereafter, paid by Global on an indemnity basis. So far as today’s hearing is concerned, I will order that the costs are paid by Global on a party and party basis.  It would seem to me that that last order is probably appropriate in the round.

Mr David Chen, instructed by Allen & Overy, for the Provisional Liquidators

Mr Christopher Chain, instructed by CWL Partners, for the Creditor,Global Empire Limited

Mr Surendar Mangharam Kirpalani, shareholder of Global Empire Limited,appeared in person