IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO.18407 OF 1999
Before : Deputy High Court Judge Muttrie in Chambers
Dates of Hearing : 15 March 2005
Date of Ruling : 22 March 2005
R U L I N G
1. By an order dated 7 May 2004, Suffiad J appointed Mr Ian Grant Robinson, Receiver of the 2nd defendant, J.F. Ming Inc. and seven other companies and gave him leave to act forthwith without giving security.
2. By summons dated 21 February 2005, the plaintiffs applied for an order that the Receiver give security to the satisfaction of thecourt. By summons dated 8 March 2005, the plaintiffs further applied to amend their earlier summons, to apply for discharge of MrRobinson and the appointment of a Mr Alan Chung Wah Tang as Receiver, giving security in the sum of $35 million at his or his firm’scost, or alternatively that Mr Robinson give security in the same sum or be discharged as Receiver.
3. On 15 March 2005, having heard the parties, I ordered that the Receiver give security in the sum of HK$35 million at his own costby way of professional indemnity cover to the satisfaction of the court within 21 days, and that the plaintiffs be at liberty towithdraw their summons dated 8 March 2005. This ruling deals with the costs of the summonses.
4. This action arises out of a dispute between members of the Ming family over the control of their family company, J.F. Ming Inc.,the 2nd defendant and its subsidiaries, collectively known as “the MHD Group”. On 30 April 2004, To DJ gave judgment after trial infavour of the plaintiffs, finding that certain purported allotments to the 1st defendant of shares in the 2nd defendant were void and that a shareholders’ resolution to remove the 1st defendant as a director of the 2nd defendant was valid and effective, and restraining the 1st defendant from continuing to act as a director of the 2nd defendant.
5. The 1st defendant, it appears, refused to relinquish control. He appealed, and applied for stay of execution pending appeal. The plaintiffsthen applied for the appointment of Mr Robinson as Receiver, and when the two matters came before Suffiad J on 7 May 2004 the parties,after adjournment, came to agreement on the terms of the order.
6. In September 2004, the plaintiffs, having instructed new solicitors, Messrs Richards Butler, complained through those new solicitorsof breaches of duty by Mr Robinson in his capacity as Receiver and asked him what insurance arrangements he had in place to guardagainst claims against him. Mr Robinson instructed Messrs Koo and Partners and replied through them denying any breaches of duty,adverting to the fact that Mr Robinson had not been ordered to give security and confirming that he would do so if ordered by thecourt.
7. A good deal of correspondence followed, between solicitors and directly between the 1st plaintiff and the 4th defendant and Mr Robinson’s company. On 14 January 2005 Mr Robinson confirmed that although he is a fellow of the Hong Kong Instituteof Certified Public Accountants, he does not practise as an audit principal and therefore is not required to hold, and does not holda practising certificate. Nor is he required to carry, and he does not carry, professional indemnity (“PI”) insurance. Theserequirements are confirmed by a letter from the Institute dated 18 February 2005.
8. On 19 January 2005, Mr Robinson took out a summons for interim payment of 65% of the costs of the receivership. This came beforeGill DJ for hearing on 22 February 2005, as did the summons for the Receiver to give security, which had been taken out the day before. After discussion the parties agreed that the Receiver should have 50% of his interim costs and the summons for security was adjournedfor further hearing.
9. The position taken by Mr Robinson was that he was prepared to give security but that it should be a cost of the receivership. Atthat stage the plaintiffs were looking for a guarantee in the sum of $25 million; Mr Robinson in his 4th affidavit deponed that that would cost him $375,000.00, that his own costs to 31 December 2004 were about $400,000.00 and it didnot make commercial sense for him to continue as Receiver if he had to do this.
10. Mr Robinson however in a 5th affidavit, which was only drafted the day before the hearing before me, deponed that it was wrong that he should be discharged asReceiver in circumstances where neither he nor his agents were in breach of his duties and there was no finding by the court of anybreach, and that in order to resolve the issue he was prepared to obtain PI cover at his own cost for $35 million.
11. Before me the parties accepted this offer subject to the terms of the insurance being found satisfactory to a Master but argued thequestion of costs. The plaintiffs, the 1st and 4th defendants all say that the Receiver should pay their costs. The Receiver says that his costs of and incidental to the applicationsshould be paid out of the assets.
12. The 3rd plaintiff in his affirmation refers to a meeting with Mr Robinson in the presence of senior counsel. He says that he was told thatMr Robinson was an accountant and so assumed that the latter would hold a practising certificate and be carrying PI insurance. Therewas no discussion of security. Mr Robinson depones that he was never asked to provide security; if he had been he would have insistedthat the cost of it be treated as a cost of the receivership; and although he is an experienced Receiver with a history of nearly50 years as an accountant he has never once had to provide security. The 1st defendant says that although he wanted to have two Receivers appointed from the firm of Deloitte Touche Tohmatsu, he agreed to theappointment of Mr Robinson to save time and costs and instructed his leading counsel to agree the terms of the order. The 4th defendant complains that Mr Robinson was not at the hearing, and that he did not have the chance to interview Mr Robinson but itis not clear whether he considered the need for security. Being in person, of course, he probably simply went along with what wasagreed between those parties who had legal representation.
13. The 1st defendant does not agree that there has been any breach of duty on the part of Mr Robinson. Further he says that under the termsof the order Mr Robinson cannot sell any of the companies’ assets without the leave of the court. Two signatures are requiredto effect any bank transaction, so Mr Robinson cannot effect any transaction on his own. In the circumstances, according to the1st defendant there is little need for security.
14. In fact although the plaintiffs allege breach of duty against Mr Robinson, it appears that they do not now seek to remove him forthat reason, and in any event only sought his discharge and replacement with another Receiver who was prepared to give security athis own cost. It is not necessary therefore to consider whether any breach of duty is made out.
15. The parties all agreed that Mr Robinson be appointed Receiver without giving security. The principal players, namely the plaintiffsand the 1st defendant were represented by senior and junior counsel and solicitors. They agreed the terms of the order. They must have consideredthe question of security and concluded that it was not necessary.
16. It may be that this conclusion was reached because everyone expected Mr Robinson to carry PI insurance; they made a mistake. I amnot however prepared to say that if there was such a mistake it was the fault of Mr Robinson. His controlling professional bodydoes not require that he carry PI insurance and he has a long history of receiverships in which he was not required to give security. He is personally liable anyway. He may well not have thought security was necessary either. No one seems to have asked him aboutit.
17. It appears that normally the costs of completion of security of the Receiver come out of the assets. I have been referred to Kerr on Receivers and Administrators, 17th Edn, in which it appears at pages 123-124 that :
18. However, here the parties all agreed that there be no security. Now, for whatever reason, they want the order changed. I thinkthe starting point must be that they should pay their own costs of the change unless fault for the original situation can be laidat the door of Mr Robinson. As I have remarked above, I do not think it can.
19. It is, of course, said that Mr Robinson should have agreed to provide security earlier; and the delay is his fault. The authorityquoted above appears to support the position originally taken by Mr Robinson, that if he had to give security the cost of providingit should be paid out of the assets. In the light of this, I do not think he can be blamed for not making the concession earlier.
20. Accordingly, I will make no order for costs in respect of the plaintiffs and the 1st and 4th defendants, and order that the Receiver’s costs of the summonses be paid out of the assets, such costs to be taxed if not agreed.
Mr Wong of Messrs Richards Butler, for the 1st to 4th Plaintiffs
Mr Patrick Hui of Messrs Robin Bridge & John Liu, for the 1st Defendant
The 4th Defendant in person, present
Mr Pe of Messrs Koo & Partners, for the Receiver