LAU CHUN MING v. DELOITTE TOUCHE TOHMATSU (A FIRM)

HCCL 24/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 24 OF 2013

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J U D G M E N T

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Introduction

1.  By summons dated 15 October 2013, the Defendant applies to strike out the Plaintiff’s claim herein on the sole ground that the Statement of Claim discloses no reasonable cause of action.

2.  It is well-established that:

(1) a reasonable cause of action means a cause of action with some chance of success when only the allegations in the pleading are considered;

(2) the court will only exercise the power to strike out where it is plain and obvious that the claim in question is unarguably bad and it is impossible, not just improbable, for it to succeed;

(3) disputed facts will be taken in favour of the party sought to be struck out.

Hong Kong Civil Procedure 2015 vol. 1 paras. 18/19/4; 18/19/6.

3.  The application is opposed by the Plaintiff.

Background

4.  The Plaintiff is a creditor of Mr Ma Koon Sik (“Ma”) for an unpaid judgment sum of over HK$30 million awarded in HCCL 111 of 1996.

5.  On 6 August 2002, the Plaintiff instituted bankruptcy proceedings against Ma. On 30 October 2002, Master S. Kwang granted a Bankruptcy Order against Ma and the Official Receiver became the provisional trustee of Ma’s estate.

6.  It is pleaded at paragraph 6 of the Statement of Claim that by a contract (“Contract”) between the Plaintiff and the Defendant as evidenced by or contained in a Chinese letter issued by the Defendant (“Letter”) and signed by its senior manager 楊磊明 on 16 October 2002 and by the Plaintiff on 21 November 2002, in consideration of the payments stipulated therein including an initial payment of a non‑refundable deposit of HK$100,000 (“Deposit”), the Defendant agreed that it would have had its partner/supervisor Lai Kar Yan Derek (“Lai”) and Darach E. Haughey (“Haughey”) to seek appointment as the Joint and Several Trustees of the estate of Ma (“Trustees”) and to assist the Plaintiff to handle or otherwise deal with the property of Ma already charged by the Plaintiff.

7.  At paragraph 7 of the Statement of Claim, the Plaintiff pleaded the payment of the Deposit pursuant to the Contract and the appointment of Lai and Haughey as the Trustees at a general meeting of creditors on 21 November 2002.

8.  At paragraph 8 of the Statement of Claim, the Plaintiff pleaded an implied term of the Contract that the Defendant covenanted that Lai and Haughey would carry out their duties as Trustees with proper skill and competence and reasonable care in inter alia tracing and recovering the property of Ma, keeping the Plaintiff informed of possible claims for recovering and/or realizing the property of Ma and bringing claims for recovering and/or realizing the property of Ma.

9.  At paragraph 9 of the Statement of Claim, it is pleaded, further or in the alternative, that by reason of the relationship between the two arising from the facts stated in paragraphs 6 and 7, the Defendant owed a tortious duty of care towards the Plaintiff (“Duty of Care”) which is coterminous with the duties of the Trustees as those pleaded in paragraph 8.

10.  After reciting a series of events which tend to suggest Lai and Haughey have been derelict in their duties, the Plaintiff pleaded at paragraph 44 that the Defendant was in breach of the Contract and the Duty of Care and was negligent. While most of the failures particularized under that paragraph were in substance failures of Lai and Haughey, it is reasonably clear from paragraph 44 (t) that chief among the Plaintiff’s complaint against the Defendant is its failure to ensure the two would act with reasonable skill and care in their position as Trustees of Ma’s estate.

11.  To complete the picture,

(1) by a resolution passed at the general meeting of creditors on 29 June 2009, Lai and Haughey were removed as Trustees and replaced by Messrs. Yat Ming Cheung and Rainier Hok Chung Lam;

(2) on 11 December 2009, Lai and Haughey applied to the Court for an order for release (“Release Order”) under section 94(1) of the Bankruptcy Ordinance, Cap 6 (“BO”);

(3) On 28 January 2010, Master Hui granted the Release Order to Lai and Haughey.

Deliberation

12.  The Defendant’s argument is straightforward.

13.  Section 94(3) of BO provides that:

“An order of the court releasing the trustee shall discharge him from all liability in respect of any act done or default made by him in the administration of the affairs of the bankrupt, or otherwise in relation to his conduct as trustee...”

14.  The intention of section 94(3) is “to wipe the slate completely clean so far as the trustee is concerned, so that he may thereafter pay no thought to the previous course of his actions as the trustee in bankruptcy”: In re Munro [1981] 1 WLR 1358, 1362F-H.

15.  There is no allegation of fraud or suppression or concealment of material facts which would enable the Release Order to be revoked under section 94(3) and the Plaintiff has thus far made no such application.

Since the Release Order has the effect of discharging Lai and Haughey from all liability in connection with the administration of the affairs of Ma, the Defendant, as a firm, cannot have any residual or separate liability for their acts or omissions while acting as Trustees. It follows that no reasonable cause of action lies against the Defendant at the hands of the Plaintiff.

16.  I cannot agree.

17.  As presently pleaded, the duties of the Defendant towards the Plaintiff arose from the Contract and/or in tort, not pursuant to the provisions in the BO governing the office of a trustee in bankruptcy e.g. Part V of BO. The Defendant, as a firm, was never appointed as the trustee in bankrupt of Ma. Only Lai and Haughey were. The Release Order was made at the behest of Lai and Haughey and served only to discharge the two gentlemen from liability. Neither the terms of section 94(3) nor the Release Order purport to affect the legal position of the Defendant as a firm, albeit Lai and Haughey were partners of it.

18.  In my view, the present position is not dissimilar to what happened in A & J Fabrications Ltd v Grant Thornton [1998] 2 BCLC 227.

19.  In that case, the plaintiffs, who were the majority creditors of a company in liquidation, entered into a contract with the defendant accounting firm, whereby in consideration of payment of the defendant’s fees up to a certain amount, the defendant agreed that an insolvency practitioner from its firm would seek appointment as liquidator of the company.  An insolvency practitioner from the defendant was duly appointed liquidator. He was subsequently replaced by another practitioner from the defendant firm. The Plaintiffs claimed that in breach of the contract and a duty of care, the defendant had failed to supply the services required of it.

20.  The defendant applied to strike out the plaintiffs’ statement of claim as disclosing no reasonable cause of action. One of the arguments was that the plaintiffs should have sued the liquidators personally and not the firm because only the liquidators had the necessary powers to inter alia sue the directors for misfeasance and so on (which the plaintiffs complained were not exercised). The firm did not have any such powers and therefore could not have been in breach of any duty to the plaintiffs. 

21.  Jacob J (as he then was) rejected the defendant’s argument and observed at 230g-i that:

“I think the point is misconceived. It is true that it is employees of the firm who were the liquidators, but they only took their position as such by virtue of the contract between the plaintiff and Grant Thornton. Grant Thornton, in accepting the consideration of £5,000, were contracting to put their man in as liquidator. Of course once in as liquidator he would owe his duties to the company. But there is nothing inconsistent between the pleaded contract and the employee having duties to the company. The pleaded contract is, in short, that the employee/liquidator undertakes to do a proper job as liquidator. That is what Grant Thornton contracted would happen.”

22.  At 232f, Jacob J rejected the defendant’s further argument that the plaintiffs had got the wrong party:

“Mr. Collings says, again, that the plaintiffs have got the wrong party. If there was a duty at all in tort it was a duty on the individual liquidators, and they should be the defendants. No doubt they could be, but it seems to me that once those defendants were put in as Grant Thornton men, Grant Thornton owed a duty coterminous and dependent upon the duties of the individual liquidators to these plaintiffs.”

23.  In light of the indication by Jacob J in that passage at 232f, but for the Release Order, Lai and Haughey could conceivably have been made defendants in the present action on account of their alleged dereliction of duties.  However, as submitted by Mr Coleman SC which I accept, once Lai and Haughey were appointed Trustees as the Defendant’s men, the Defendant owed a separate duty to the Plaintiff the breach of which he is entitled to take legal action to pursue.

24.  A subsidiary point raised by Mr Brock at the hearing concerns the identity of the parties to the Contract. The suggestion appears to be that any contract which the Defendant might have entered into was with Sam Woo Marine Works Limited (“Sam Woo”) and not the Plaintiff, since the Letter was addressed to Sam Woo. On the evidence before this court, it would appear what had happened was that the Plaintiff crossed out the name Sam Woo and countersigned the Letter personally. It is certainly the Plaintiff’s case that he acknowledged his agreement to the terms of the Letter by signing and returning it to the Defendant.

25.  I do not see how this is a point which can be taken by the Defendant in a striking out application. As I said in paragraph 2 above, all disputed facts will be taken in favour of the Plaintiff for the present purpose. Hence, even if the Defendant disputes having entered into the Contract with the Plaintiff, that would not form a proper basis to strike out the claim.

26.  For these reasons, I see no merits in the striking out application. It therefore serves no useful purpose for me to express a view on the Plaintiff’s alternative argument that section 94(3) of the BO is inconsistent with Article 35 of the Basic Law and is unconstitutional.

Disposition and costs order nisi

27.  The Defendant’s summons dated 15 October 2013 is hereby dismissed.

28.  There shall be an order nisi that costs be to the Plaintiff, to be taxed if not agreed, and paid forthwith, with certificate for one senior counsel.

(Peter Ng) Judge of the Court of First Instance High Court