Ho Chor Ming and Others v. Hong Kong Chiu Chow Po Hing

HCMP 506/2013

[2018] HKCFI 1812

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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DECISION ON COSTS

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1.In my decision dated 8 June 2018, I made orders pursuant to the Association’s application, which was opposed by the Receiver, that (1) the Receiver do provide the Association with copies of his and the Solicitors’ bills; (2) the Association do file and serve a statement of objections within 28 days thereafter; (3) the assessment in relation to the items to which objection is taken be re‑opened and be referred to a Master for assessment in which the Association do have leave to participate; and (4) there be liberty to apply. As regards costs, I directed the Association and the Receiver, failing agreement, to lodge written submissions. This is my decision on costs based on the submissions made as directed.

2.The Association seeks an order that the Receiver do pay the Association’s costs (without indemnity from the Association’s assets) with a certificate for two counsel.  In contrast, the Receiver submits that his costs should be paid out of the assets of the Association and that, in any event, he should not be required to pay the Association’s costs. 

3.On behalf of the Association, it is acknowledged that it is a basic principle of receivership that a receiver is entitled to be indemnified in respect of his costs and expenses out of the assets in his hands as receiver: Capewell v Revenue and Customs Commissioners and Another [2007] 1 WLR 386, at para 21.  This is the general position applicable where the receiver is going about his business of performing his functions and duties as a receiver. A receiver is entitled to an indemnity in respect of expenses incurred in the due discharge of his duties, and that includes the expenses of defending a legal proceeding brought against him as receiver and which is defended by him for the benefit of the estate.  Butwhere a receiver has sought to set up or defend his own private interest against the estate, the position, as in the case of a trustee, is in my view different: Lewin on Trusts (19^th ed) para 27‑114.  It is stated in Kerr & Hunter on Receivers and Administrators (20^th ed) at para 10-10 (footnotes omitted):

“If any extraordinary expenses have been incurred by the receiver without the approbation of the court, allowances for them will not generally be sanctioned, unless the estate has been benefited thereby. … A receiver, appointed and acting in proceedings for the administration of an estate, is not entitled to indemnity in respect of the costs of defending a purely personal action against the receiver, having no relation to the estate, except so far as the acts complained of were done by the receiver while acting as an officer of the court: for no benefit to the estate can result from defending such an action.”

4.Thus it has been said in Seagar v Seagar [1950] NZLR 376 at 378:

“ … if the trust estate has not benefited, or if the litigation has been instituted or defended by a trustee in order to have a point relating to his private interest decided at the expense of the trust estate, the trustee does not obtain an indemnity as to costs.”

5.The present case, it seems to me, is a fortiori.  The Receiver’s opposition to the Association’s application was against the Association’s interests, did not benefit the Association in any way, was intended only to protect the Receiver’s own personal interests as well as those of his solicitors, and, of course, ultimately failed as being unfounded in principle or authority.  On the basis that what the Association sought was an account of the relevant charges and expenditure (see paras 28-29, 37 and 47 of my decision dated 8 June 2018), the opposition to the Association’s application was undertaken not in performance of but in resistance to performance of the Receiver’s duties to account.

6.In Hirani v Rendle [2003] EWHC 399 (Ch), Mrs Hirani was adjudged bankrupt and, following her discharge, applied inter alia for the annulment of her bankruptcy and for production by the trustee in bankruptcy of an itemized breakdown of his remuneration, costs and expenses.  Davis J ordered disclosure, adjourned the application for annulment, and ordered the trustee to pay the costs of the application.  When the matter later came before Lawrence Collins J (as he then was) ([2003] EWHC 2538 (Ch); reported at [2004] BPIR 274), the learned judge held that the trustee should not be indemnified out of the estate for the personal costs ordered against him, stating at para 49:

“The trustee, as an officer of the court with a duty to deal with Mrs Hirani fairly, should not be able to argue that Mrs Hirani should pay these costs by the back door when he has been ordered to pay them by the front door.”

7.Similarly, in Re Cooper [2006] NI 103, after successfully obtaining the annulment of his bankruptcy, the applicant applied to the court for orders inter alia that the court determine the appropriate fees and expenses of the trustee in bankruptcy.  Weatherup J held that the court had jurisdiction to do so, referred the assessment to a Master, and ordered the costs of the application to be borne by the trustees without any indemnity by the applicant or from the estate (see para 21). 

8.I note that in Re Boldwin Construction Co Ltd (unrep HCCW 340/2002, 7 November 2006) at paras 38 and 39, Kwan J (as she then was) ordered that the costs of the hearing both before the Registrar and her Ladyship be paid out of the assets of the companies, noting:

“ this provision [referring to a clause in an order by consent that the company shall indemnify the provisional liquidators from and against all costs and expenses incurred by them in performing their powers and duties in a proper and reasonable manner] would seem to reflect the position at law that liquidators rarely incur personal liability for their costs. Such an order would only be made if the court considers the liquidator personally blameworthy in some way so as to deprive him of the right of relief against the assets of the company (Palmer’s Company Law, paragraphs 15.696 and 15.696.1).”

9.However, it is not apparent that the argument advanced by the Association here based on the authorities cited to me was addressed to her Ladyship in that case.  Likewise, in Lu Jun v Yu Qi [2017] 2 HKC 327, upon granting the company’s application for disclosure of the taxation package, Harris J ordered that the provisional liquidators’ costs of the hearing be paid out of the assets of the company.  Again, however, it does not appear that the same argument as addressed to me here was raised before his Lordship. 

10.On behalf of the Receiver Ms Lam relied on certain passages in Palmer’s Company Law, paras 15.696 and 15.696.1 to suggest that a liquidator is deprived of his right of relief against the assets of the company only if his conduct is in some way blameworthy.  I have to say it is not clear to me that those passages are intended to refer to the expenses of litigation between the liquidator and the company itself.  In fact, in Re The Grande Holdings Ltd [2018] HKCFI 507, referred to at §37 of my decision dated 8 June 2018, I have ascertained from the court file of that case that Harris J actually made an order that the provisional liquidators “shall personally pay” the investor’s and the company’s costs of the appeal from the Master to be taxed if not agreed.

11.It seems to me there is no usual rule in the present kind of case that the receiver should be indemnified as to all costs. Nor is there a general rule that a fiduciary can litigate unsuccessfully against the beneficiary at the latter’s expense.  Contrary to my initial impression, the point of principle is not entirely novel, having regard to the authorities referred to in my decision.  In all the circumstances of this case I fail to see why costs should not follow the event.  Taking into account, however, that none of the authorities relied upon in paras 28 to 33 and 35 to 38 of my decision nor Order 30 r 5 was cited by counsel or drawn to the attention of the Receiver earlier by the Association, and the lateness of the Association’s application due to its own internal problems, I consider that the Association should only have half of its costs. 

12.There will accordingly be an order that the Receiver do pay half of the Association’s costs of the application including the costs of the argument on costs (without indemnity from the Association’s assets), with a certificate for junior counsel, to be taxed if not agreed.

Written submissions by Mr Douglas Lam SC and Mr David Chen, instructed by Messrs T.H. Wong & Co, for the Respondent (the Association)

Written submissions by Ms Rachel Lam, instructed by Messrs So Keung Yip & Sin, for the Receiver and Manager of the Association