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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Before : Deputy High Court Judge Muttrie in Chambers

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R U L I N G

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1.  This action arises out of a dispute between members of the Ming family over the control of their family company, J.C. 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.  

2. 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 I.G. Robinson as receiver of the 2^nd defendant and its subsidiary companies.  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.  Mr Robinson was duly appointed receiver with general duties to carry on the business of the companies as far as is necessary for the protection and preservation of the companies’ assets and to do all things reasonably necessary to preserve the value of the assets and the business.  Among his powers is a power, with the leave of the court, to sell or enter into binding commitments to sell any of the assets of the receivership companies. 

3. By a summons dated 12 April 2005 the receiver now applied for directions as follows :

1:	for leave to sell some or all of the properties owned by one of the companies, Iseday Ltd so as to repay its indebtedness to the Standard Chartered Bank, and consequential powers;
2:	for leave to commence legal proceedings against the 1st defendant for recovery of payments made by any of the receivership companies on his behalf in respect of his legal fees, and recovery of loans made by any of the receivership companies to him;
3:	for delivery up of documents;
4:	for leave to lease such properties owned by Iseday Ltd as are not sold;
5:	for leave to appoint an estate duty expert advice on the liability for estate duty of J.F. Ming Inc;
6 and 7:	for leave to sell two motor vehicles.

4. By a summons dated 3 May 2005 the receiver applied to amend the earlier summons by substituting for paragraph 2 an application for leave to execute a share mortgage document with the 1^st defendant and by adding a paragraph 8, applying for leave to provide Mrs Bernadette Ming (who claims to be the administratrix in the USA of the deceased, Ming Shiu Wah Kenneth) or her representatives with such information and documents relating to the receivership companies and the affairs as he may deem fit.

5. The application is made against the background of the fact that the appeal against the judgment of To DJ is to be heard on 24 May 2005, i.e. 20 days from the hearing of this summons. 

6. Having heard argument I amended the summons and allowed the plaintiffs’ application to adjourn all the applications in the amended summons, but heard the applications in paragraphs 1 and 4 as being urgent.

7. The position is this.  Iseday Ltd (“Iseday”) owes an outstanding debt of about $34 million to the Standard Chartered Bank (“SCB”) which is secured by an all monies first legal charge over various properties in Jade Centre, 98-102 Wellington St, Central, Hong Kong.  In January 2005 the SCB indicated to representatives of the receiver that it was unlikely that a formal renewal of the facilities extended to Iseday would be granted when they expired in January 2005.  Various communications followed.  The SCB in March 2005 indicated that the Jade Centre properties should be disposed of, and it would appoint a receiver to dispose of them if Iseday’s debt remained outstanding at the end of May 2005.  The SCB later extended this time limit to 30 June 2005.  From the terms of the e-mail message it appears that this was done in the knowledge that the receiver would, on 4 May 2005, apply to the court for permission to sell the properties. 

8. Iseday has, it appears, property holdings valued by the surveyor, Mr Paul Varty at $83 million.  While Iseday is asset-rich, the return on its assets is low.  It has about $288,244 per month coming in from rents but its loan repayments amount to about $415,000 per month.  In addition it apparently owes about $17 million to other group companies.

9. The receiver says that he has tried without success to obtain re-financing from four different banks.  It would not be appropriate for other related companies to lend Iseday the money and in any event, the reserves are insufficient.  The only way to avoid action by the SCB to recover the debt is to sell properties within Jade Centre. 

10. The 1^st defendant concurs with this plan.  In fact, it appears that he wants all the assets to be liquidated.  The same apparently applies to Bernadette Ming.  The 4^th defendant and the plaintiffs do not agree that any of the properties should be sold at least until the outcome of the appeal is known.  The plaintiffs say that they want to continue the business of property holding, if they win the appeal.  They also point to the fact of the currently rising property market. 

11. It appears that the plaintiffs have obtained an offer of a credit facility from the Bank of America (“BOA”).  Its term is longer than that of the facility originally granted by the SCB and the monthly repayments less though the receiver says that there will still be a shortfall, at least as long as the units at the 14^th and 21^st floors of Jade Centre remain vacant.  The shortfall will however be small; about $4,000 per month.  The terms are more advantageous than those of the SCB but the problem is that the BOA facility will only be obtainable in the event that the plaintiffs succeed on the appeal. 

12. It is argued for the plaintiff that the whole point of having a receiver appointed is to preserve the assets for the parties ultimately successful on appeal.  There should only be sale of assets if it is really necessary; and it is not, because the SCB has already extended the period from January to the end of June.  Further, the application is premature on the receiver’s own evidence; he says that it looks highly likely that it will be necessary to sell some, though hopefully not all of the property.  There is no immediate urgency. 

13. I take into account that the effect of the judgment of To DJ is that there are seven shareholders, of which only two, namely the 1^st defendant and Bernadette Ming, if she is indeed the 7^th shareholder as administratrix of the estate of Kenneth Ming, wish to dispose of any of the assets.  The majority are against it.  Of course if the 1^st defendant succeeds on the appeal, he will be the majority shareholder so he can do as he pleases.  But the receiver is not there to follow the wishes of the majority of the shareholders; he is appointed by the court to preserve the assets and if that means disposing of some of them, so as to prevent a greater loss, then it may be necessary to allow him to do that. 

14. I realise that the appeal is to be heard by the Court of Appeal in less than three weeks’ time.  Realistically, the Court of Appeal will take time to hand down its judgment and there is certainly no guarantee that it will do so before 30 June 2005.  In any event, as I noted in dealing with the application to adjourn, we do not know if the losing side will seek to appeal to the CFA.  Given that this is a dispute between family members it seems not unlikely that whoever loses will fight all the way.  So the final solution as to the share ownership may be far ahead. 

15. I accept that there is a serious risk that the SCB will exercise its powers under the mortgages.  It may have allowed extensions of time but there is no guarantee that it will continue to do so after 30 June 2005. 

16. I accept also that the receiver will only — as the terms of the order he seeks require — sell units in Jade Centre so as to repay the outstanding indebtedness of Iseday to SCB.  I also accept that he will not sell unless and until he has to and I am sure that he is as alive to the fact of the rising market as any of the parties.  I do not think it is practical to say that he should simply come back to the court if and when he finds a buyer or buyers.  That may lose a necessary sale or sales.  I do not think the receiver’s hands should be tied, and I do not think the application is premature. 

17. I will accordingly make an order in terms of paragraph 1 of the summons. 

18. I turn to paragraph 4.  The object of this is to enable the receiver to lease Unit 21, which is vacant since one of the subsidiaries ceased trading there, without further recourse to the court.  Unit 14 is also vacant.  No tenant seems to want it. 

19. The plaintiffs and the 4^th defendant do not want to see Unit 21 leased, partly for sentimental reasons but mainly because, if the plaintiffs win, they intend to carry on business there.  I do not think anyone is much concerned about Unit 14.

20. It would be useful, though apparently not essential, to have money coming in from rent but obviously, if the plaintiffs win on the appeal and Unit 21 is leased for two years, which is the usual term, they will have to find somewhere else to use as an office for the rest of the term.  That would be inconvenient and costly. 

21. I have already allowed adjournment of the rest of the paragraphs on the basis that directions given before the outcome of the appeal may be premature and could be, in the words of Lord Scott in the Nina Wang appeal case “a pointless and inexcusable waste of money, time and judicial resources”.  I think the power to lease is not so urgently required as to the power to sell and so I propose also to adjourn consideration of paragraph 4, for hearing along with the remaining directions. 

Mr G. Wong of Messrs Richards Bulter, for the Plaintiffs

Mr Patrick Hui of Messrs Robin Bridge & John Liu, for the 1^st Defendant

The 4^th Defendant, in person

Mr Robert Pe of Messrs Koo & Partners, for the Receiver

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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Before : Deputy High Court Judge Muttrie in Chambers

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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.