XCHRX PEREGRINE INVESTMENTS HOLDINGS LTD.

1998, No.CWU 20

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP

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D E C I S I O N

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1. This is an application by the Provisional Liquidators in relation to the further conduct of the action instituted in the name of Peregrine Investments Holdings Limited ("PIHL") and its subsidiary Peregrine Infrastructure Investments Limited ("PIIL"). By Summons dated 30 March 1998, the Provisional Liquidators sought directions as to whether a receiver ad litem or a special manager should be appointed to take over an action (HCA No.A2853 of 1998) commenced on behalf of and in the name of PIHL and PIIL by the Provisional Liquidators pursuant to leave granted on 24 February 1998. Leave was also granted on that occasion to serve the writ out of the jurisdiction under Order 11 on the 1st to 8th Defendants who are overseas entities.

2. PIIL had substantial shareholdings in two management companies, namely the 1st and 7th Defendants. The action was brought against these companies and the other shareholders. The 1st to 8th Defendants, through their solicitors, have intimated that they intended to challenge the Hong Kong court's jurisdiction over them. In this connection, they have raised a conflict of interest issue. This appears to have been first raised at a meeting on 27 February 1998 between Mr Ted Rule of Asian Infrastructure Fund Advisers Limited, the 9th Defendant, and the senior partner of Price Waterhouse as appears from the correspondence passing between Price Waterhouse and Mr Rule during the period 3 to 20 March, copies of which are exhibited to Mr Hague's affidavit dated 31 March 1998 filed in support of the present application.

3. As disclosed in Mr Hague's affidavit made in support of the application for leave to commence the action, Price Waterhouse was the auditor and tax adviser of two Funds, i.e. the Asia Infrastructure Fund ("the A Fund") and the AIF Telecommunications Fund ("the T Fund") as well as the two management companies of the two Funds, namely the 1st and 7th Defendants. As such tax adviser, Price Waterhouse has given advice in the past to the AIF Group in relation to the residence of the companies within the Group with reference to Hong Kong tax liabilities. The 1st to 8th Defendants take the view that the Provisional Liquidators who are members of the firm of Price Waterhouse should stand down and not have any direct involvement in those proceedings. The basis appears to be that the issue whether the 1st and 7th Defendants are resident in Hong Kong for jurisdictional purposes, i.e. whether they are subject to the jurisdiction of the Hong Kong court, and the issue whether the 1st and 7th Defendants are resident for tax purposes are one and the same, or substantially the same. The 1st and 7th Defendants have intimated that should either the Funds or the management companies be liable to Hong Kong tax, they would seek redress through a negligence claim against Price Waterhouse. Suffice to say that at first blush the issues appear to be quite different but, as will become apparent below, it is unnecessary for present purposes to come to any conclusion about the conflict of interest issue.

4. In addition to the correspondence referred to above, exhibited to Mr Hague's affidavit are the affidavit of Philip Wedgwood Wallace as well as letters from Herbert Smith dated 11 and 30 March. According to their letter dated 31 March which was placed before the court at the hearing, the Defendants' solicitors (who were given notice of the ex parte application) are still finalising their evidence in support of an intended application for the removal of the Provisional Liquidators from further involvement in the action and to set aside the order of 24 February granting leave to commence the action. It is their position therefore that not all material evidence in support of their contention on the conflict of interest issue is before the court.

5. Whilst the court has not reached any conclusion as to the validity or otherwise of the conflict of interest issue raised by the Defendants, not least because there is apparently other material relevant to the issue not before the court, it is nonetheless appropriate to appoint a receiver ad litem to take over the conduct of the action from the Provisional Liquidators. Considerations such as the fact that the threat of legal proceedings against Price Waterhouse might be perceived by the creditors of PIHL as possibly affecting the ability of the Provisional Liquidators to conduct the litigation effectively and in the best interests of the creditors and the possibility of minimising costs which a protracted dispute on the conflict of interest issue would engender are, of themselves, sufficient to warrant the exercise of the court's discretion in favour of an appointment of a receiver ad litem.

6. Subject to the court being satisfied as to the fitness of the proposed receiver to act and his consent, an order will be made in terms of the draft order.