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CACV000067/1991
| IN THE COURT OF APPEAL |
1991, No. 67
(Civil) |
BETWEEN
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EXTRAMONEY LIMITED |
1st Plaintiff |
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(1st Respondent) |
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CARRIAN HOLDINGS LIMITED |
2nd Plaintiff |
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(In Liquidation) |
(2nd Respondent) |
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AND
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CHAN, LAI, PANG & CO. (a firm) |
Defendants |
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(Appellants) |
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Coram: Hon. Kempster & Penlington, JJ.A., & Nazareth, J.
Date of hearing: 20 & 25 September 1991
Date of handing down judgment: 13 December 1991
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JUDGMENT
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Penlington, J.A.:
1. The plaintiffs in this matter claim against the defendants for breach of their duty as the plaintiffs' auditors in that they had failed to qualify the annual accounts of Extramoney Ltd (Extramoney) (a wholly owned sub-subsidiary of Carrian Holdings Ltd (CHL)) for the year ended 31st December 1980 by pointing out that there were no documents to support a claim contained in those accounts that Extramoney had made a profit of $101,668,640.10 on the sale of some shares in CHL to one George Tan, a director of both Extramoney and CHL. The statement of claim has now been amended to include a further ground of claim which, however, does not concern this appeal.
2. On the 1st of February 1991 Master Jones made an order that the plaintiffs provide within 14 days further and better particulars of the statement of claim as set out in paragraphs 14(i) (a) and (b) and 14 (ii) (c) of a request for particulars from the defendants dated the 30th of June 1991. The plaintiffs appealed against that order and by a further order of the 25th of March 1991 Sears, J., allowed the appeal to the extent that the master's order as regards the particulars requested in paragraph 14(1) (a) and (b) was set aside, with costs to the plaintiffs. The plaintiffs now appeal against that decision.
The particulars: Paragraphs 12 to 16 of the statement of claim set out the alleged breaches of duty owed to the plaintiffs by the defendants. Paragraph 17 sets out the loss suffered by the plaintiffs as a result. It reads as follows :
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"17. |
In consequence of the Defendant's breaches pleaded in paragraphs 12 to 16 above Extramoney, without objection, submitted to and thereafter caused to be paid an assessment to Profits Tax based upon the over-stated 1980 profits. Extramoney's losses, resulting from the Defendants' breaches, were tax paid of HK$16,778.625 plus a surcharge imposed by the Commissioner of Inland Revenue for late payment of HK$838,931 (or 5%), that is, a total of HK$17,617.556." |
The particulars sought are:
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"14 |
(i) |
Of the allegation 'In consequence of the Defendant's breaches pleaded in paragraphs 12 to 16 above Extramoney, without objection, submitted to and thereafter caused to be paid an assessment of profits tax'
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--Give the following particulars, namely:-
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(a) |
State whether it is the Plaintiffs' case that had an audit qualification been made, the directors of Extramoney would have withdrawn the sum of HK$101,688,640.10 from their said accounts;
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(b) |
If the answer to (a) is yes, give full particulars of all facts and matters and identify all documents relied upon in support of that averment." |
The response from the plaintiffs was that this request was inexigible.
3. Sears, J., said in respect of this request:
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" In my judgment the master was wrong to order the particulars to be given of this paragraph. I accept that the plaintiff's cause of action will, of course, not be complete unless they satisfy the trial judge that they have suffered damage as a result of either a breach of duty and/or negligence, but nevertheless, it is not necessary for them to say what they would have done had an audit qualification been made. Their case is that no audit qualification was made and, therefore, they paid a sum more than they should have. What the answer to this hypothetical question might be is a matter of conjecture.
In my judgment, I can see that the answer could be far-reaching and I can see no prejudice caused to the defendants, not knowing what the plaintiffs might have done in different circumstances.
The Plaintiff's case, essentially, is that because of the failure to qualify the accounts, this sum of money was paid. It may well be, at a later time, when the appropriate directions are given and the experts, who are giving evidence in this case, prepare their reports on the general issue of liability, i.e. whether or not auditors, in these circumstances, should have qualified the accounts, that the expert will then go into the position of the monies which should have been withdrawn from the account. For example, it mightbe the defendant's case that even though they failed to qualify, nevertheless, a lesser sum would have been withdrawn. That is a matter for them to put forward and the judge will have to examine those matters when he comes to give his judgment. Of course, it is incumbent upon the plaintiffs to satisfy the judge that they have suffered this particularised loss. If they do not satisfy the judge on evidence, then they will fail, but this is a matter of evidence to be given at the trial, therefore, in my judgment the master was wrong to order these particulars under this paragraph and I would allow the appeal."
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4. It was argued before us by Mr. Charles Ching, Q.C., leading counsel for the defendants, that the particulars sought were not a hypothetical question and in any event matters for expert evidence. The plaintiffs say they have sustained damage because of the alleged breaches of duty. The defendants are entitled to know exactly how that failure caused loss to the plaintiffs i.e. is it their case that if the accounts had been qualified they would not have paid the tax.
5. Leading counsel for the plaintiffs, Mr. Richard Mills-Owens, Q.C., says that the paragraph is clear. The amount of profit shown in the accounts was not qualified and as a consequence the tax was paid when it should not have been and thus a loss was suffered. What would have been the position if the accounts had been qualified must be hypothetical and a matter for evidence. He does however say that it is clear from the claim that it is the plaintiffs' case that if the accounts had been qualified, tax should not have been paid on the alleged profit.
6. I agree with the view taken by Sears, J. This will essentially be a matter for evidence. The defendants know the allegation made - their failure to qualify the accounts - and that this failure caused the plaintiffs to pay tax to which otherwise they would not have been liable. I do not consider there is any need to add to the reasons given by Sears, J.
7. I would dismiss this appeal and make an order nisi that the plaintiffs should have the costs.
Kempster, J.A.:
8. I too would dismiss this appeal for the reasons given by my Lord.
Nazareth, J.:
9. I also agree that this appeal should be dismissed.
Representation:
R. Mills-Owens, Q.C., and C. Smith (Simmons & Simmons) for respondents/plaintiffs
Charles Ching, Q.C., and R. Faulkner (Chan & Cheng) for appellants/defendants
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