HO CHOR MING v. HONG KONG CHIU CHOW PO HING BUDDHISM ASSOCIATION LTD

HCMP 506/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 506 OF 2013

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D E C I S I O N

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1.  The Hong Kong Chiu Chow Po Hing Buddhism Association Limited (“Association”) is a company limited by guarantee incorporated on 25 March 1975 and has been recognised as a charitable body within the meaning of section 88 of the Inland Revenue Ordinance Cap 112 since 1981.  The primary purpose of the Association is to advance Buddhism and carry out charitable works.  Amongst other things, the Association operates a place of Buddhist worship at the Association’s premises in Wong Tai Sin and an old age centre in Shatin. 

2.  On 5 November 2012 the Association held its 2012 Annual General Meeting, it having been adjourned from 28 October 2012 due to lack of a quorum.  One of the items on the agenda was the election of the 13^th Board of Directors, the 2-year term of which was to commence in December 2012.  Two Purported Boards, each consisting of 20 directors, claim to have been duly elected.

3.  One Board is referred to in the evidence in submissions before me as the “Nominated Board” consisting of members who were nominated by the outgoing 12^th Board of Directors to become the 13^th Board in accordance with established practice of the Association.  The names of the individuals constituting the Nominated Board were announced but were opposed by some of the attendees at the 2012 Annual General Meeting.  Secondly, what has been referred to as the “Purported Board”, members of which were purportedly elected by attendees at the 2012 Annual General Meeting.  However, the following is relevant in relation to this purported election:

(1) The Purported Board was purportedly elected by members who stayed behind after the 2012 Annual General Meeting had been announced to have been closed and some members had left.

(2) More importantly a number of attendees who had purportedly elected the Purported Board do not appear to be members of the Association, arguably rendering some faults in the Purported Board’s election invalid.

(3) There is a substantial overlap between the Nominated Board and the Purported Board, having 11 common individuals between them and 9 individuals who are different.

(4) Of the 9 members who are different from the Nominated Board, 7 of them do not appear to be members of the Association, thus failing the 1-year membership requirement of article 17(e) of the Articles of the Association and rendering the election invalid.

4.  On 14 March 2013, in the light of the above events, namely, the dispute over the validity of both the Nominated Board and the Purported Board, and the dispute over the membership of certain attendees at the 2012 Annual General Meeting who purportedly voted for the Purported Board, Mr Ho Chor Ming, a member of the Nominated Board but not a member of the Purported Board, commenced HCMP 506 of 2013 seeking the following relief:

“1. An extraordinary general meeting of the Respondent (the “Association”) be convened on such date as the Court thinks fit to consider, and if thought fit, passing a resolution to elect or re-elect the directors of the Association (the “said EGM”).

2. Pending the holding of the said EGM, Mr Vincent Fok of FTI Consulting be appointed as receiver and manager of the Association, with the general powers and duties set out in the Schedule herein (the “Receiver”).

3. The Receiver further be directed and ordered to:

(1) Verify the register of members of the Association;

(2) Notify in writing all members (and all those who claim to be members) of the Association of the names on the verified register;

(3) Prepare a list of candidates in accordance with the provisions of the Articles of Association for election of directors; and

(4) Convene the said EGM of the Association by giving notice of the same in accordance with the Articles of Association.

4. Any person who claims to be a member but is not included in the verified register, or any member who disputes whether a person on the verified register is in fact a member, do have liberty to apply to the Court for determination of such issues within 28 days of the notification in paragraph 3(2) above.”

5.  On 5 April 2013 the Purported Board acting through their solicitors Messrs Alan Ho & Co commenced HCA 543 of 2013 in the name of the Association against the 9 members of the Nominated Board who are not also members of the Purported Board seeking inter alia an injunction to restrain them from holding themselves out as the 13^th Board and an order that they deliver up to the Association certain property of the Association.

6.  On 22 April 2013 the Defendant issued a summons to set aside or strike out the writ and statement of claim in the High Court Action on the basis that they were issued without the valid authority of the Association.

7.  On 26 April 2013 I ordered that the Miscellaneous Proceedings and the strike out summons be heard and determined together and granted certain interim relief that was agreed by consent.

8.  On 27 August 2013 brief written submissions were filed on behalf of the Respondents in the Miscellaneous Proceedings and the Plaintiff in the High Court Action which for all practical purposes conceded the substantive relief sought in the Originating Summons and the strike out application in the High Court Action.

9.  The position of the Purported Board before me today has been as follows.  The Purported Board accepts that the manner in which both the Nominated Board were purportedly elected and the Purported Board were purportedly elected, is inconsistent with the Articles of the Association, and as a result neither Board was properly elected.  It follows that steps need to be taken in order to rectify these matters.  It is accepted that the relief sought in the Originating Summons is an appropriate way in which to do so. 

10.  The only matters which were in dispute before me today concerned, firstly, the identity of the Receiver and the manner of the Receiver’s appointment, and, secondly, costs.  I shall deal with each of these in turn. 

11.  As is apparent from the second paragraph of the Originating Summons, the Applicant in the Miscellaneous Proceedings has sought the appointment by the court of Mr Vincent Fok as receiver and manager of the Association with the powers set out in the schedule appended to the Originating Summons.  Those powers I do not understand to be in issue.  

12.  The Purported Board’s position is that they accept a receiver should be appointed but would like, in the absence of agreement, the Receiver to be appointed by the Chairman of the Hong Kong Institute of Certified Public Accountants.  The only reason advanced for not agreeing to Mr Fok is that the Purported Board would like a procedure adopted which ensured that whoever is the Receiver is completely neutral. 

13.  There is no issue about Mr Fok’s competence, indeed Mr Fok is an experienced insolvency practiser who is regularly appointed by this court as a liquidator and as a receiver.  Not only is there no reason to think that Mr Fok would not approach his duties as a receiver of the Association independently, it seems to me that it is desirable that somebody is appointed as soon as possible and that such an appointee is somebody the court is comfortable has the kind of experience which makes it likely that he will be able to carry out the tasks required of him effectively.  It seems to me that the court appointing somebody suitable is more likely to result in that happening than leaving it to a random selection by the Chairman of the Hong Kong Institute of Certified Public Accountants. 

14.  I will therefore make an order that Mr Fok is appointed as a Receiver and Manager on the terms set out in the Originating Summons and on the basis that his costs will be charged in the way set out by him in the letter to the Applicant’s solicitors dated 27 August 2013.

15.  The issue of costs is more complex.  The Applicant seeks the following costs orders.  In respect of the costs that would have been incurred by him up to and including issue and service of the Originating Summons, the Applicant accepts that those costs should be borne by the Association as they are costs incurred in taking action to remedy the internal difficulties the Association has run into in the management of its affairs. The Applicant says, however, that particularly given the position that has been taken before me today, the costs of having to continue to progress those proceedings and the costs of defending the High Court Action should be paid to him.  It is not suggested that the assets of the Association should be depleted by a costs order against the Association itself, rather the Applicant seeks a costs order against the Purported Board’s solicitors on the basis that they did not have authority either to defend the Miscellaneous Proceedings on behalf of the Association on the instructions of the Purported Board or to commence the High Court Action. 

16.  Mr Douglas Lam, who appeared on behalf of the Applicant, drew my attention to 2 letters which he says clearly put the Purported Board and their solicitors on notice of this issue at the earlier stages of the Miscellaneous Proceedings.  First, there was a letter dated 19 March 2013 sent to each of the individual members of the Purported Board with the Originating Summons pointing out to them that if they wished to intervene in the proceedings they should do so personally, and Mr Lam points out reasonably that one must presume that at least one of them passed that letter to the solicitors.  A further letter was also written by the Applicant’s solicitors on 16 April 2013 to the Purported Board’s solicitors expressly pointing out to them that objection was taken to their authority to represent the Association.

17.  It does seem to me quite clear that right at the outset, the Purported Board’s solicitors should have been alive to the issue of whether or not the Purported Board was in a position properly to instruct them to act for the Association.  Indeed before me Mr Sio who purportedly appeared for the Association but, in fact appeared for the Purported Board, accepted that his solicitors had not been properly appointed by the Association.

18.  Both parties accept that the law dealing with the liability of solicitors in the position of the Purported Board’s solicitors in terms of liability for costs is accurately set out in the decision of Mr Justice Poon in Grand Field Group Holdings Ltd v Tsang Wai Lun Wayland & Ors [2010] 5 HKC 441.

19.  In short the position is as follows.  When the solicitor purports to act for a client in an action, he impliedly warranted that he has the authority to represent the client.  If it later transpires that he did not have such authority, he had acted in breach of the implied warranty, and in these circumstances the court would normally order him personally to pay the costs needlessly incurred by the opposing party.  It matters not whether this solicitor had acted bone fide and in reasonable reliance on the instructions; or that he had been deceived into believing that he had the authority to act for the client; or that quite innocently he did not know that there was no authority or the authority once existed had ceased to exist[1].

20.  However, it is not an inflexible rule and might on occasions yield to special circumstances.  The solicitors for the Purported Board argue that in the circumstances of this particular case, it is not appropriate to make an order for costs against them.  Mr Sio had some difficulty in identifying precisely what matters might justify departing from the general rule.  He did put some emphasis on the fact that he understood that the Companies Registry by early 2012 shows the Purported Board as being the Board of the Association.  It seems to me from the documents that I have seen, and in particular a letter from the Companies Registry dated 22 January 2013 that this may not be the case, but be that as it may, it does not seem to me to make any difference. 

21.  The fact of the matter is that quite clearly the Purported Board’s solicitors must have known shortly after the Originating Summons was issued and before the High Court Action was issued that objection was being taken to their authority, and on mature consideration they should have recognised that the Purported Board was unlikely to have authority to instruct them, and that if its members wished to intervene in the Miscellaneous Proceedings, or take any action themselves in relation to this matter, they would have to do so in their own name with the attendant risk that if unsuccessful, they would have to pay the other party’s costs.

22.  I can see no reason, therefore, in these circumstances why the costs incurred to date in the High Court Action should not be paid to the Defendants by the Purported Board’s solicitors and why they should not pay the costs of the Applicant incurred in the Miscellaneous Proceedings after the date on which the acknowledgement of service was filed, and I so order.

23.  Mr Lam in his submissions in relation to the issue of costs took me to a recent authority of Deputy High Court Judge Pow SC in Kim Lung Transportation Co & Ors v Ip Man Fai & Anor (unreported HCA 271/2012  6 June 2012).

24.  I think it would be helpful if I say something about this decision. 

25.  A similar question as to solicitors’ liability to pay the costs of the opposing party in proceedings where they had not been properly instructed arose.  In paragraph 33 of the Deputy High Court Judge’s judgment, paragraphs 11 - 15 of Mr Justice Poon’s judgment in Grand Field Group Holdings Ltd is set out.  The Deputy High Court Judge recorded in paragraph 34 of his judgment that there was no dispute about the accuracy of the principles summarised in Poon J’s judgment or the applicability of the Grand Field decision to the facts of the case before the Deputy High Court Judge.

26.  However, the Deputy High Court Judge goes on in paragraphs 35 - 37 to consider one particular aspect of the principle, namely, that it arises from an implied warranty of the authority.  The Deputy High Court Judge finds that in order for it to operate, it is necessary that the other party has relied on the warranty.  The Deputy High Court Judge goes on in paragraph 37 apparently to find that where an application is made to strike out a High Court Action by Defendants on the grounds of want of authority, it necessarily follows that there cannot have been any reliance by the Defendants on the warranty, the principles described in Grand Field Group Holdings Ltd are not applicable, and, therefore, the solicitors for the Plaintiffs cannot be made personally liable for costs.  With respect I disagree. 

27.  It seems to me to be clear that where solicitors purportedly act for a company which instigates legal proceedings, if those solicitors are not properly instructed, then absent special circumstances they will prima facie be liable to pay the costs incurred by the Defendant of a successful application to strike out the proceedings based on an absence of authority.  The fact that by making the application to strike out, the Defendants are necessarily indicating that they do not accept that the solicitors have authority in my view cannot be a reason for a solicitor avoiding responsibility for having commenced proceedings without proper authority.  Such an approach would in most cases render the principle inapplicable.