Re Ck

HCMP 1150/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1150 OF 2006

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Before: Hon Lam J in Chambers (Not open to public)

Date of Hearing: 30 June 2006

Date of Ruling: 4 August 2006

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R U L I N G

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1.CK was born in 1987 with chromosomal anomalies that made him severely mentally handicapped.  He had to study at a special school and in 1998, whilst he was at school he met an accident.  He suffered spinal cord injuries in the accident.  In HCPI No.1259 of 2003, CK sued by his next friend, namely his mother, for damages arising from the accident.  The parties in the Personal Injuries Action reached a settlement in the sum of $1.7 million and approval was sought from the court under Order 80. 

2.The Master hearing the Order 80 application invited those acting for the plaintiff to consider whether an application should be made under Part II of the Mental Health Ordinance [“MHO”] in view of the mental incapacity of CK.  The approval of settlement was adjourned.

3.The mother applied by an Originating Summons on 8 June 2006 for an inquiry under Part II and the appointment of her as the committee of CK.

4.The matter came before this court on 30 June 2006.  At the hearing, this court discussed with those representing the mother whether upon appointment of the committee, the committee should apply to this court for sanction in the context of the Part II proceedings before it could go ahead with the settlement.  In this regard, this court had previously expressed the view in Re L HCMP 1120 of 2003, 12 May 2006 that it is generally desirable for a committee to seek directions from court in the context of Part II proceedings before it enters into a settlement of legal proceedings.

5.I discussed some problems that might arise if a committee is not appointed to deal with the settlement proceeds when substantial amounts are to be released to the next friend in Re LWO  [2005] 3 HKC 174 and Re YCK  HCMP 2878 of 2004, 9 February 2006.  In Re LWO, I said the following in Para. 20,

“Hence, it is important before a large sum is authorized to be paid out from the Suitors’ Fund to a family member, consideration should be given as to proper legal documentation to record the interest of the person under disability.  One option is to direct an application be made under Part II of the Mental Health Ordinance.  In England, the practice is that before a compromise involving a patient is sanctioned, the approval of the Court of Protection is required and the settlement sums or damages awarded would be transferred to the Court of Protection, see The Supreme Court Practice 1999 Paras. 80/11/20 and 80/11/21.  It is a moot point as to whether payment out to a next friend can be authorized in the light of Order 80 Rule 12(3) and Leather v Kirby [1965] 1 WLR 1489.  I am not going to express any conclusion in that regard since I have not heard arguments.  That point would have to be decided on another occasion.  However, putting aside the question whether a next friend is functus after the litigation have been concluded by a judgment of the court, I wish to point out that on its face, Rule 12(3) only authorizes payment to the next friend “in respect of moneys paid or expenses incurred”.  The next friend therefore has to show that the money has been spent before he could apply for reimbursement.  From a practical point of view, although we do not have a separate Court of Protection in Hong Kong, practitioners are well advised to consider whether it is necessary to apply for direction under Part II of the Mental Health Ordinance in cases involving substantial awards in favour of a plaintiff suffers from mental incapacity.”

6.Hence, the Master was correct to invite those acting for the plaintiff to consider an application under Part II. 

7.I wish to add that payment out to the next friend under Order 80 Rule 12(3) is confined to payments on behalf or for the benefit of the patient or for his maintenance or in respect of costs.  Maintenance or gifts for family members or friends should not be an object of such payment out and the court cannot authorize the same under Order 80 Rule 12(3).  If payments of such nature are sought, they can only be considered and sanctioned under Part II proceedings, see The Supreme Court Practice 1999, Vol 2 Para. 10A-119.  See also the case of Re A Patient December 13, 1984 cited at Para. 80/12/15 at p.1524 of Supreme Court Practice 1999, Vol 1.

8.As regards the respective role of the court and that of the committee in the conduct of a piece of litigation in which a mentally incapacitated person is involved, I have made some observations in Re LHY HCMP 869 of 2005, 23 December 2005 Paras. 8 to 12,

9.In a simple personal injury claims seeking recovery for damages for the benefit of a mentally incapacitated person, absent special circumstances, there is no need to have the sanction of the court under Part II with regard to the conduct of the proceedings.  A next friend is obliged to act by a solicitor and the solicitor has a duty to protect the interest of the mentally incapacitated person [“MIP”].

10.However, the position may change upon the conclusion of the claim with a substantial award in favour of the MIP.  First, as I have mentioned previously, there are limitations as to the authority of the next friend in dealing with such award.  Second, the solicitor would usually cease to have any role to play and it cannot be assumed that the interest of the MIP in the disposal or use of the monies awarded would be safeguarded by legal representation.  Third, insofar as the monies remaining in court are subject to control in terms of administration of the suitors’ funds, the court’s powers are limited.  Apart from the limitations mentioned in Paragraph 7, the court may encounter difficulties in its supervision over the use of funds released to a next friend in the absence of clear statutory coercive powers to prevent or rectify misapplication of funds (intentional or otherwise) or other abuses. 

11.In this connection, it should be borne in mind that very often the funds in court would have to be administered for a long period of time and the Master in charge of the suitors fund usually has to deal with piece meal applications for release of funds without the benefit of sufficient up-dating as to the current condition of the MIP.  The next friend will generally be unrepresented and he or she might not appreciate his or her duty towards the MIP in terms of the use of such funds.      

12.Whilst this court will face similar practical difficulties with regard to the monitoring of the management of the affairs and properties of a MIP by a committee, it can exercise tighter control in terms of selection of proper person to be appointed as the committee and removal of unsuitable person.

13.The committee, being a statutory agent appointed by the court, owes a legal duty to account to this court as regards the affairs and properties he administered (see Re P HCMP 136 of 1981, 7 February 2006).  In case of serious mismanagement, the court may direct proceedings against a former committee to recover loss occasioned to the estate of the MIP by reason of mismanagement.  In less serious cases, the court may, without removing the committee, direct the committee to take some remedial actions (for an example, see Re LWO  [2005] 3 HKC 174).

14.It is less clear whether the Master in administration of suitors’ fund has the same power.  At the moment, it would appear that the only sanction that the Master can impose against a next friend who does not comply with the directions of the Master in the administration of monies received is to withhold further release of funds or to reduce the monthly payment.  That may not be in the interest of the MIP.  In a more serious case, the Master would have to invite the Official Solicitor to intervene and Part II proceedings would have to be instituted.

15.On the other hand, it might not be cost effective to require the appointment of a committee in each and every case involving settlement fund paid into court for the benefit of a MIP.  I have no doubt that there are cases where funds could adequately and suitably be managed by the Master as suitors funds with monthly payments to a designated person for the maintenance of the MIP.

16.Given the varieties of cases and the differences in the circumstances that may arise in each case, I doubt if it is useful for the court to lay down a test to be applied universally in determining whether a committee should be set up.  Therefore, what I said below should only be regarded as general remarks for reference.  It should not be taken as inflexible catechism to be applied slavishly without regard to the special facts and circumstances of each case.  In considering whether Part II proceedings should be required when approving a settlement under Order 80 involving MIP, the court will exercise its discretion by reference to what is in the best interest of that particular MIP in the context of the factual matrix of the case before the court.

17.What is important is that not only will this question be considered by the court, but it will also be at the forefront of the minds of those representing the next friend who brought the claim on behalf of the MIP.  Although they are lawyers engaged by the next friend, they should regard it as their duties to protect the interest of the MIP in dealing with the disposal of the settlement monies.  In the settlement terms presented to the court for approval, the lawyers should include measures and mechanism to ensure that the monies will be used for the benefit of the MIP.

18.It is also their duties to advise the next friend that monies paid out pursuant to Order 80, unless the court otherwise directs specifically, should only be used for the maintenance of the MIP.  The next friend should also be advised of his duty to keep the court informed about any material changes in circumstances that could have a bearing on the monthly sums to be paid out, e.g. reduction or increase in expenditure required for maintenance of the MIP, recovery or deterioration of the MIP, accumulation of surplus from monies paid out, acquisition of properties of a capital nature with monies paid out and the use of such capital assets, changes in the relationship between the MIP and the next friend, changes in the needs of the MIP.  The next friend should keep account of the monies paid to him or her and if the court requests, such account should be produced for inspection.  If monies were paid for a specified purpose, it should not be used for other purposes without any prior approval from the court.

19.In my view, good practice demands a solicitor acting for a next friend to render such advice both orally and in writing before recommending a settlement to the court for approval.  In appropriate cases, the court may require assurance from the solicitor having the conduct of the case that such advice has been given before approving a settlement under Order 80.

20.Given the nature of the exercise, the next friend should give full and frank disclosure to the court as regards the intended application of the monies released to him or her pursuant to the terms to be approved.  This would reduce the recurrence of the problem that arose in Re YCK  HCMP 2878 of 2004, 9 February 2006.

21.When an application for approval comes before the court under Order 80, I venture to suggest (without being exhaustive) the following factors could be relevant in deciding whether Part II proceedings should be pursued,

(a)	The condition of the MIP including his or her age and prognosis;
(b)	The future needs and requirements of the MIP;
(c)	The quantum of the award;
(d)	The background and experience of the next friend including the relationship of the next friend with the MIP and the ability of the next friend to keep proper account and to appreciate his duty;
(e)	The adequacy of advice regarding the duty of a next friend as canvassed above;
(f)	The needs and resources of the MIP’s family;
(g)	The likelihood of applications to use the funds in court for acquisitions of a capital nature;
(h)	The attitude of the primary carer of the MIP and to a lesser extent, the attitude of the immediate family members of the MIP;
(i)	The possible alternatives in terms of investment of the funds as opposed to leaving the monies in court.

22.Recently, Suffiad J ruled in Sin Kam Hei v Transward Ltd  HCPI 293 of 2004, 14 July 2006 that Part II application is appropriate on the facts of that case and in the circumstances, the defendant in the PI action should bear the costs of the Part II application and the setting up of a committee.

23.If the court comes to the conclusion that Part II proceedings should be instituted to protect the interest of the MIP, the next question is when should it be done.  If a committee is appointed before the settlement is sanctioned under Order 80, the committee should obtain the approval of the court in the context of Part II proceedings before committing the estate of the MIP unconditionally to a settlement, see Re L HCMP 1120 of 2003, 12 May 2006.  That may lead to unnecessary duplication of applications for approval.

24.Having reflected on the matter, I am of the view that in cases where Part II proceedings are desirable but have yet to be commenced, it is possible to obtain approval under Order 80 without requiring a committee to be in place as a prerequisite.  The terms to be approved under Order 80 should provide for,

(1)	Funds remaining in court pending Part II proceedings; and
(2)	The disposal of the funds in court shall be in accordance with the directions of the court in the Part II proceedings.

I understand this is the procedure adopted by Suffiad J in Sin Kam Hei v Transward Ltd  HCPI 293 of 2004 although that order was not recited in the Ruling of 14 July 2006.

25.Generally, this would be the appropriate way to proceed with the matter.  There could of course be exceptional cases where circumstances dictate Part II proceedings should be on foot before any settlement.

26.For cases where a committee has been set up before settlement, the principle set out in Re L HCMP 1120 of 2003, 12 May 2006 shall apply.  To minimize the costs implications stemming from duplicating applications for approval under Part II and Order 80, the application under Part II will be dealt with in the following manner.  The committee shall file the application in the context of the Part II proceedings in which the committee was appointed and the papers will be passed to the Registrar for a report under Section 13 of the MHO.  Based on the report of the Registrar, the court will usually deal with the application on papers.  A hearing will only be required if the court so directs.  The committee should only apply for Order 80 approval after it has obtained sanction under Part II.  The committee should also draw the court’s attention to the Part II approval in the Order 80 application.  In that sort of cases, it is likely that Order 80 approval could be dealt with in a cost effective manner.

27.Coming back to the facts of the present case, the MIP is 19 years old and the award is a substantial sum of $1.7 million.  The fund has to be administered for a long period of time.  There is a proposal for $520,000 to be released to the next friend who is also his primary carer for a number of purposes.  I am of the view that it is a suitable case for Part II proceedings to be commenced.

28.Having said that, this court has yet to appoint a committee.  Bearing in mind what I said above as to the appropriate procedures, approval should be obtained under Order 80 before the matter is brought back to this court for directions as to the disposal of the monies in court under Part II.

29.Therefore, I will adjourn the application for the appointment of committee with liberty to the applicant to restore the same after Order 80 approval has been obtained.  Since there has not been any clear guidance in the past as to the appropriate procedures to be adopted, I will order that the costs of the adjournment be costs in the cause of the Part II application.

30.I intend to release this judgment for circulation.  The applicant may write to this court within 5 days if she has any comments in that regard. 

Mr M. C. Chiu, instructed by Messrs Boase Cohen & Collins, assigned by DLA, for the Applicant

Mr Li Chi Keung of Official Solicitor