COMPANIA SUD AMERICANA DE VAPORES S.A. v. HIN PRO INTERNATIONAL LOGISTICS LTD

HCMP 1449/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1449 OF 2014

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D E C I S I O N

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Introduction

1. This is the plaintiff’s summons for an order that:

(1)  The receivers be allowed remuneration, costs and expenses (collectively “the receivers’ remuneration”) from the assets of the defendant (“Hin-Pro”) and/or Soar International Logistics Limited (“Soar”); and

(2)  That there be a declaration that the receivers are entitled to a lien over the assets of Hin-Pro/Soar.

Background

2. From 16 June to 30 July 2014, Deputy High Court Judge Saunders made a series of orders on the application of the plaintiff against each of Hin-Pro and Soar (referred to below as “the HK Mareva Orders” and “the HK Receivership Orders” respectively).  Those orders were granted in support of foreign proceedings and a world-wide freezing order in England, pursuant to section 21M of the High Court Ordinance, Cap 4.

3. Those foreign proceedings related to Hin-Pro’s alleged breach of an exclusive jurisdiction clause in the bills of lading issued by the plaintiff which required the contractual dispute between them to be litigated in England.  The plaintiff has obtained an interim anti-suit injunction from the English court.

4. Notwithstanding the exclusive jurisdiction clause, Hin-Pro issued 75 actions in the PRC against the plaintiff.  The plaintiff had contested the jurisdiction of the PRC courts by reference to the exclusive jurisdiction clause.  The PRC courts applied PRC law in rejecting the challenge and some actions proceeded to trial.  The plaintiff is taking steps to appeal against those judgments.

5. On 15 October 2014, Deputy High Court Judge Wilson Chan (“DHCJ Chan”) discharged the HK Mareva Orders and HK Receivership Orders, primarily on the ground of judicial conflict.  His decision was upheld by the Court of Appeal by its judgment dated 11 March 2015.

6. On 8 April 2015, the plaintiff applied for leave to appeal to the Court of Final Appeal.

7. The English Court of Appeal has recently upheld the validity of the exclusive jurisdiction clause by its judgment dated 23 April 2015, which the plaintiff says will increase its prospects of success in the Court of Final Appeal.

8. The HK Receivership Orders did not expressly provide for the receivers’ remuneration.  However, the plaintiff has provided indemnities to the receivers for their work after their appointment.

9. There is no dispute that the receivers are entitled to remuneration.  The only question is who should pay.

10. The plaintiff (applicant for the now defunct Receivership Orders) asks that the receivers’ remuneration be borne out of the assets of Hin-Pro/Soar.

11. Hin-Pro/Soar rely on the matters in paragraph 8 above.  They contend that there is no jurisdiction for the court to require a party to pay the costs of receivers at an interlocutory stage.  The plaintiff, having failed in securing the HK Receivership Orders, cannot ask the defendant to foot the bill of the now defunct receivers.  The plaintiff is engaging in satellite litigation, causing as much damage as possible to Hin-Pro/Soar, commencing proceedings after the receivership order is discharged.

12. The receivers have, on their own volition, appeared to make representation and support the plaintiff’s summons.  As they ought to maintain a neutral stance and in any case, will receive remuneration one way or the other, I have declined to hear them.

B.  Legal principles

13. A receiver appointed by the court is entitled, in respect of his remuneration, to an indemnity out of and a lien over the assets that are subject to the receivership: Mellor v Mellor & ors [1992] 1 WLR 517, at 526B-E; Kerr & Hunter on Receivers and Administrators (19^th ed) at §10-8.

14. The indemnity exists regardless of whether the order for the receivers’ appointment was rightly made or the receivership proved beneficial. Absent any evidence that the receiver was in some way complicit in the non-disclosure or other impropriety on behalf of the applicant in obtaining the order, the receiver is entitled to act and be remunerated for acting on the footing that his appointment is valid: Mellor, at 525C-D, F-G.

15. A receiver takes on heavy responsibilities when he accepts appointment, and he is entitled to the security of knowing that the terms of his appointment will not be changed retrospectively – even if an appellate court later decides that the receivership should have been terminated at an earlier date: Capewell v Revenue and Customs Commissioner and anor [2007] 1 WLR 386, at 396B-C.

16. Where the order appointing the receiver was silent on his remuneration, this does not amount to a decision that he is to have no remuneration, even though he be a trustee, who as a general rule receives no remuneration: Kerr and Hunter on Receivers and Administrators (19 ed) at §10-4.

17. The receiver may insist, as a condition of accepting appointment, that the person seeking his appointment or someone else be personally responsible for his remuneration and indemnify him. In default of some such agreement, the receiver can only look to the assets the subject of the receivership.  Lightman & Moss, The Law of Administrators and Receiver of Companies (2011 ed) paragraph 29-017; Mellor, at 526F.

18. As for the receiver’s lien, it covers not only assets in his actual possession but all assets bound by the receivership.  His right does not terminate on discharge of the receivership, nor on the return or delivery of assets to the parties entitled to them: Kerr & Hunter on Receivers and Administrators(19^th ed) at §10-8; Mellor, at 527D-G.

19. The court has power under Order 30, rule 3 to determine the receivers’ remuneration:

“A person appointed receiver shall be allowed such proper remuneration, if any, as may be authorized by the Court and the Court may direct that such remuneration shall be fixed by reference to such scales or rates of professional charges as it thinks fit.”

20. This rule makes it clear that the receiver appointed by the court is entitled to remuneration but the court retains control over the quantum or remuneration.  That control extends to disallowing claims to remuneration where they have arisen from the improper or misguided actions by the receiver in the purported discharge of the duties of his office and to moderating such claims where they are judged to be excessive in amount.  Mellor, at 524F-G.

21. The court has no jurisdiction by interlocutory order to order any of the parties to the relevant litigation personally to provide the receivers’ remuneration.  This is because a receiver is not the agent or trustee of the parties. They cannot control him. He may incur expenses or liabilities without their having a say in the matter. It would be extreme hardship in most cases to parties to an action if they were to be held personally liable for expenses incurred by receivers over which they have no control.  See Mellor, at 526C-E, following Evans v Clayhope Properties Ltd[1998] 1 WLR 358 at 362B-F (CA).

22. Mr Chu, counsel for Hin-Pro/Soar, submits that the court has power to order which party to bear the costs.  He refers to CPR r.69.7 which provides, amongst others:

“(1) A receiver may only charge for his services if the court – (a) so directs; and (b) specifies the basis on which the receiver is to be remunerated.

(2)  The court may specify – (a) who is to be responsible for paying the receiver; and (b) the fund or property from which the receivers is to recover his remuneration.”

23. In Glatt v Sinclair [2013] 1 WLR 3602 (CA) it was held that:

“47. It is to be repeated that the person against whose assets the original receivership order was made is not without remedy. He has proper protection. A receiver who has been discharged can only recover remuneration, expenses and disbursements if the court approves them. (Directions in advance can also be sought from the court where appropriate.) If they are unnecessarily or unreasonably incurred, are disproportionate or unreasonable in amount, or do not properly relate to the receivership or the concluding of the administration of the receivership affairs, the court has ample powers to disallow them. …

50.  I add, for the avoidance of doubt, that so far as litigation costs incurred in connection with the receivership, before or after discharge, are concerned, these will normally be subject to the order of the courts made at the relevant times in the litigation itself, and the appropriate order is a matter for the court’s discretion.”

24. Lord Walker held that it was wrong to suppose that CPR r.69.7 had made (or could have made) a fundamental change in the general law of receivership: Capewell v Revenue and Customs Commissioners, at §27.

25. It is not necessary to decide if CPR r.69.7 can apply to Hong Kong by analogy if it has not changed the law of receivership.  Even if it can, I do not consider that the court’s power to order a party to bear the costs of the receivership should be exercised at an interlocutory stage.

Application of the legal principles

26. The court has power after discharge of a receivership order to give directions on payment of the receivers’ remuneration, eg as in Mellor.

27. However, Mr Ah-Weng, counsel for the plaintiff, is unable to point to any authority whereby the plaintiff, as opposed to the receivers, can apply for the types of order now sought.  In Mellor, it was the receiver who obtained leave to intervene and applied on his own motion for his remuneration to be determined by the court. 

28. The HK Receivership Orders were made in an interlocutory stage on inter parte basis.  The court has no jurisdiction, before the issues in this action have been determined, to make an interim order requiring the defendant (a party) to pay the remuneration of the receivers. See paragraph 21 above. Soar is not even a party in this case against whom an order can be made; it has only been served with the summons.

29. The receivers have indemnities from the plaintiff to which they can resort: paragraph 17 above.  Clause 2.1 of the indemnities provides, “No claim may be made under the indemnity contained in clause 1 above unless [the receivers] first seek to satisfy any claim hereunder out of the assets of the company.”  If the receivers need to, they can apply to the court for directions.  It is not for the plaintiff to apply on their behalf, especially since the HK Receivership Orders have been discharged.

30. If the court does have jurisdiction to make the orders sought, this court will decline making them.  The plaintiff was the party applying for the HK Receivership Orders in the first place but those Orders have been discharged.  The scope of those Orders was criticized as much wider than the plaintiff could have sought under section 21M of the High Court Ordinance (paragraph 70 of Court of Appeal’s judgment in CACV 243/2014).  There is no reason why Hin-Pro/Soar should pay for the receivers’ remuneration.

31. Mr Ah-Weng submits that if this court were to make the orders sought now, Hin-Pro/Soar could, in turn, sue the plaintiff pursuant to the cross-undertaking as to damages (“the cross-undertaking”) under the HK Mareva Orders or HK Receivership Orders.

32. I doubt it.  The present summons is one between the plaintiff and Hin-Pro/Soar.  Once the court decides, eg that Hin-Pro/Soar is to bear the receivers’ remuneration, there is a risk that it may operate as res judicata when Hin-Pro/Soar come to exercise their rights under the cross-undertaking.

33. In summary, this court has no jurisdiction at this interlocutory stage to order a party to personally provide the receivers’ remuneration.  It is not for the plaintiff to apply on behalf of the receivers.  An order against Hin-Pro/Soar now may operate as res judicata when they exercise their rights under the cross-undertaking in future.  I therefore dismiss the plaintiff’s summons.

Costs

34. The receivers should not be entitled to recover costs under this summons from the assets subject to the receivership as their attendance was not required.  They could not recover costs from Hin-Pro/Soar who had not sent their skeleton submission to the receivers.  The plaintiff had served the summons and a copy of the defendant’s skeleton submission on the receivers, but it remained the receivers’ own decision whether to respond to the summons.

35. I do accept, however, that the receivers’ submission was not much different to the plaintiff’s.  There would have been little difference to the submission made by Hin-Pro/Soar if the receivers’ had not attended.  I therefore make no order as to costs as between the receivers and Hin-Pro/Soar.

36. On a nisi basis, costs should follow the event and be paid by the plaintiff to Hin-Pro/Soar, summarily assessed at $120,000.