MING SHIU CHUNG AND OTHERS v. MING SHIU SUM AND OTHERS

HCA18407/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.18407 OF 1999

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R U L I N G

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1. By an order dated 7 May 2004, Suffiad J appointed Mr Ian Grant Robinson, Receiver of the 2^nd 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 the court.  By summons dated 8 March 2005, the plaintiffs further applied to amend their earlier summons, to apply for discharge of Mr Robinson 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’s cost, 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 cost by way of professional indemnity cover to the satisfaction of the court within 21 days, and that the plaintiffs be at liberty to withdraw 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 2^nd defendant and its subsidiaries, collectively known as “the MHD Group”.  On 30 April 2004, To DJ gave judgment after trial in favour of the plaintiffs, finding that certain purported allotments to the 1^st defendant of shares in the 2^nd defendant were void and that a shareholders’ resolution to remove the 1^st defendant as a director of the 2^nd defendant was valid and effective, and restraining the 1^st defendant from continuing to act as a director of the 2^nd defendant. 

5. The 1^st defendant, it appears, refused to relinquish control.  He appealed, and applied for stay of execution pending appeal.  The plaintiffs then 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 solicitors of breaches of duty by Mr Robinson in his capacity as Receiver and asked him what insurance arrangements he had in place to guard against 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 the court.

7. A good deal of correspondence followed, between solicitors and directly between the 1^st plaintiff and the 4^th defendant and Mr Robinson’s company.  On 14 January 2005 Mr Robinson confirmed that although he is a fellow of the Hong Kong Institute of Certified Public Accountants, he does not practise as an audit principal and therefore is not required to hold, and does not hold a practising certificate.  Nor is he required to carry, and he does not carry, professional indemnity (“PI”) insurance.  These requirements 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 before Gill 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 adjourned for 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.  At that stage the plaintiffs were looking for a guarantee in the sum of $25 million; Mr Robinson in his 4^th 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 did not make commercial sense for him to continue as Receiver if he had to do this.

10. Mr Robinson however in a 5^th affidavit, which was only drafted the day before the hearing before me, deponed that it was wrong that he should be discharged as Receiver in circumstances where neither he nor his agents were in breach of his duties and there was no finding by the court of any breach, 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 the question of costs.  The plaintiffs, the 1^st and 4^th defendants all say that the Receiver should pay their costs.  The Receiver says that his costs of and incidental to the applications should be paid out of the assets.

12. The 3^rd plaintiff in his affirmation refers to a meeting with Mr Robinson in the presence of senior counsel.  He says that he was told that Mr Robinson was an accountant and so assumed that the latter would hold a practising certificate and be carrying PI insurance.  There was no discussion of security.  Mr Robinson depones that he was never asked to provide security; if he had been he would have insisted that the cost of it be treated as a cost of the receivership; and although he is an experienced Receiver with a history of nearly 50 years as an accountant he has never once had to provide security.  The 1^st defendant says that although he wanted to have two Receivers appointed from the firm of Deloitte Touche Tohmatsu, he agreed to the appointment of Mr Robinson to save time and costs and instructed his leading counsel to agree the terms of the order.  The 4^th defendant complains that Mr Robinson was not at the hearing, and that he did not have the chance to interview Mr Robinson but it is not clear whether he considered the need for security.  Being in person, of course, he probably simply went along with what was agreed between those parties who had legal representation.

13. The 1^st defendant does not agree that there has been any breach of duty on the part of Mr Robinson.  Further he says that under the terms of the order Mr Robinson cannot sell any of the companies’ assets without the leave of the court.  Two signatures are required to effect any bank transaction, so Mr Robinson cannot effect any transaction on his own.  In the circumstances, according to the 1^st 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 for that reason, and in any event only sought his discharge and replacement with another Receiver who was prepared to give security at his 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 plaintiffs and the 1^st defendant were represented by senior and junior counsel and solicitors.  They agreed the terms of the order.  They must have considered the 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 am not however prepared to say that if there was such a mistake it was the fault of Mr Robinson.  His controlling professional body does 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 about it. 

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, 17^th Edn, in which it appears at pages 123-124 that :

“The costs incurred with reference to the completion of the security of the receiver and subsequent thereto, are in the first instance paid by the receiver, and will be allowed him on passing his first account.  Premiums paid by the receiver to a guarantee society which had become his surety were formerly not allowed, unless he was acting without salary; under modern practice, they are usually allowed in all cases.”

18. However, here the parties all agreed that there be no security.  Now, for whatever reason, they want the order changed.  I think the starting point must be that they should pay their own costs of the change unless fault for the original situation can be laid at 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 authority quoted above appears to support the position originally taken by Mr Robinson, that if he had to give security the cost of providing it 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 1^st and 4^th 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.