LAU CHUN MING v. DELOITTE TOUCHE TOHMATSU (a firm)

CACV 545 /2019

[2022] HKCA 10

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 545 OF 2019

(ON APPEAL FROM HCCL NO 24 OF 2013)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  On 23 April 2021, this court handed down a judgment ([2021] 2 HKLRD 706) (“CA Judgment”) dismissing the plaintiff’s appeal against the judgment of Peter Ng J in HCCL 24/2013 on 1 November 2019 ([2019] HKCFI 2722).

2.  The plaintiff’s action against the defendant, a firm of certified public accountants, was for damages for breach of contract contained in a Chinese letter, by which the defendant agreed to arrange two of its partners to seek appointment as the joint and several trustees of the estate of a bankrupt. The partners became joint and several trustees between 2002 and 2009 (“1^st Trustees”) and were granted an order for release (“Release Order”) under section 94 of the Bankruptcy Ordinance, Cap 6 when they were removed and replaced. The new trustees brought recovery actions against the bankrupt and the actions were challenged on the ground they were time-barred. The plaintiff eventually received a sum in a settlement. In the present action, the plaintiff alleged there was an implied term in his contract with the defendant that it would ensure that its partners would perform their duties as trustees in bankruptcy with proper skill and competence and in a reasonable manner and/or with reasonable skill and care (“the Implied Term”)^[1] and the defendant had breached the Implied Term. The plaintiff’s action was dismissed by the judge in a trial on liability.

3.  By a notice of motion filed on 20 May 2021, the plaintiff applied for leave to appeal against the CA Judgment to the Court of Final Appeal. The plaintiff relies on both the ground that the questions involved in the proposed appeal are of great general or public importance and the “or otherwise” limb.

4.  Having considered the written submissions, we take the view that the application can be properly disposed of without an oral hearing.

5.  In the notice of motion, the plaintiff raised the following questions which he contended to be of great general or public importance:

(a)  Question 1: “whether the Implied Term should be implied in law into this class of relationship where a professional firm contracted with the creditor to put the firm’s partner(s) in as trustee(s) in bankruptcy”;

(b)  Question 2: “whether the protection to creditor under the Bankruptcy Ordinance and the law of partnership in respect of wrongful acts of the trustees prevents the necessity of contractual duty from running in parallel and/or precludes the necessity of implying the Implied Term”;

(c)  Question 3: “whether the duty to advise client of any potential claim when the information pertaining to such potential claim has already been available and/or obtained by the firm themselves ought to be constrained or otherwise left in abeyance by limited funds (not admitted by [the plaintiff] in trial and in the Court of Appeal) or creditor’s refusal to provide necessary funding (not admitted by [the plaintiff] in trial and in the Court of Appeal)”;

(d)  Question 4: “whether the effect of the Release Order extends to a sole owner of the firm or partner(s) of the firm or employee(s) of the firm even if the Trustee is a person from the firm which entered into a separate contract with the creditor to put himself in as trustee”;

(e)  Question 5: “whether the effect of the Release Order has the effect of expunging the contractual duty owed by the firm to the creditor arising from the said separate contract when the creditor was separately charged by the firm for the services rendered by the firm”.

Questions 1 and 2

6.  Questions 1 and 2 are concerned with whether the Implied Term should be implied in law (in contradistinction to implying a contractual term in fact) in the contract between the plaintiff and the defendant^[2].

7.  We do not consider that Questions 1 and 2 would raise any question of great general or public importance for the following reasons.

8.  First, the applicable legal principles for determining whether a term should be implied in law have been set out in the CA Judgment at §§21, 33, 39 to 41. There was no disagreement by the plaintiff to those principles. What was in issue is the application of those principles to the particular contractual relationship in the present case.

9.  Second, the question of whether the Implied Term should be implied in law was not argued before the judge. Notwithstanding that, and despite our reservations, this court proceeded to consider the questions of “reasonableness, fairness and the balancing of competing policy considerations”^[3] in relation to the kind of contract entered into between the plaintiff and the defendant, including the remedies under the Bankruptcy Ordinance and the law of partnership against the trustees in bankruptcy and against the partnership in respect of any wrongful acts of the trustees. We were not persuaded that the Implied Term should be implied in law in all the circumstances^[4].

10.  The plaintiff’s criticism of our decision in this regard is essentially that we have missed the following two points in considering the statutes and finding that the Implied Term was not necessary:

(a)  while the 1st Trustees owed duties to the bankrupt’s estate and its creditors, the defendant, by entering into a separate contract, owed separate and independent duties towards the plaintiff only; and

(b)  whatever remedy that may be obtained under the Bankruptcy Ordinance benefits the entirety of the estate and its creditors, whereas breach of the Implied Term entitles only the plaintiff to seek compensation against the defendant.

11.  We do not consider these contentions raise any question of great general or public importance or have any arguable merits. These points have been considered in the CA Judgment at §§30, 31 and 38. Further, the plaintiff’s submissions in this regard are based upon A&J Fabrications Ltd v Grant Thornton [1998] 2 BCLC 227, which we have found to be of limited assistance for the reasons given in §§34 to 36 of the CA Judgment. The plaintiff has not referred to any further authorities in support of his contention.

12.  Third, the plaintiff contended that it is common for privately engaged trustees in bankruptcy to be appointed via the engagement of a professional firm, and the refusal of the Implied Term would have wide impact on the appointment of trustees via a professional firm. Even assuming such engagement is common as suggested by the plaintiff, this in itself is not a ground of appeal. The real issue is the application of the well-established principles on implied terms in law to the present situation. The importance of looking at the particular contract in question cannot be over emphasised^[5].

13.  Fourth, as to miscellaneous points raised for the first time in §§12 to 15 of the plaintiff’s written submissions dated 2 June 2021, we do not think they advance the plaintiff’s case any further.

14.  We are also inclined to agree with Mr Manzoni, SC for the defendant that Question 2 as framed does not appear to arise from the CA Judgment. Whilst this court found that the judge made a valid point doubting the necessity in having the Implied Term in light of the extensive remedies under the statutes (at §38 of the CA Judgment), we did not find that the protection to creditor under the Bankruptcy Ordinance and the law of partnership in respect of wrongful acts of the trustees “prevents the necessity of contractual duty from running in parallel and/or precludes the necessity of implying the Implied Term”.

15.  For the above reasons, we decline to grant leave to appeal to the Court of Final Appeal with respect to Questions 1 and 2.

Question 3

16.  Question 3 concerns the finding that the plaintiff has not shown the defendant failed to act with reasonable skill and care.

17.  Our decision in this regard is set out in §§48 to 54 of the CA Judgment, which was by reference to the plaintiff’s complaints (1) to (7) as summarised in §§48(1) to (7) of the CA Judgment.

18.  The plaintiff contended that this court erred in ruling against him on complaints (2) to (7). It was also submitted that as a matter of public policy, the duties of trustees to identification of potential claim should not be hindered by the alleged lack of or limited funding or the creditor’s purported refusal to provide funding, and there was no evidence of any attempt by the 1^st Trustees or the defendant to raise any money.

19.  These are all fact-sensitive complaints. While the plaintiff submitted that this is a matter of public policy, whether the duties of trustees should or should not be hindered by any issue of funding is also a fact-sensitive matter depending on the specific circumstances of the case. As such, no question of great general or public importance is raised.

20.  For this reason, no leave to appeal to the Court of Final Appeal should be granted in respect of Question 3.

Questions 4 and 5

21.  As to Questions 4 and 5, the plaintiff essentially repeated the arguments which we have addressed in §§55 to 58 of the CA Judgment on an obiter basis^[6]. We do not consider they are reasonably arguable.

22.  The plaintiff also argued that if the defendant were a corporation and the 1^st Trustees were its employees, the argument of joint and several liabilities of partners could not be relevant. The fact that the defendant happened to be a partnership and the 1^st Trustees were its partners could not be any different in principle.

23.  This is not reasonably arguable either. The present case does involve a partnership with no separate legal personality and with the partners having joint and several liabilities under sections 12 and 14 of the Partnership Ordinance, Cap 38. It is distinct from the scenario involving a corporation and its employees, and any analogy between the two is inappropriate.

24.  The plaintiff further contended that the arrangement in the present case where there is a separate agreement between a major creditor and an accountant firm for appointment of persons nominated by the firm to be trustees in bankruptcy, or liquidator or receiver, is common. Again, even if such an arrangement is common, this is not in itself a ground of appeal.

25.  We note also that Questions 4 and 5 are similar to question 2^[7] and question 3^[8] proposed by the plaintiff in his application for leave to appeal to the Court of Final Appeal in CACV 22/2015, in which the Court of Appeal (Cheung JA and Yuen JA) struck out the plaintiff’s claim against the defendant in negligence on 12 October 2015 as disclosing no reasonable cause of action. On 12 April 2016, the Court of Appeal refused to grant leave in respect of those questions on the basis that the issue is “simply the application of the well-established principle on the effect of release of liability of one partner on the rest of the partnership”, and it did not see the engagement of the great general or public importance ground (at §3). The Appeal Committee also refused leave, albeit on the ground that these issues were not necessary on that occasion ((2016) 19 HKCFAR 448 at §§11 to 12).

26.  We are of the view that in the present application, the issue is also the application of the well-established principle on the effect of release of liability of one partner on the rest of the partnership. This does not raise any question of great general or public importance.

27.  For the above reasons, no leave to appeal to the Court of Final Appeal should be granted with respect to Questions 4 and 5.

“Or otherwise” limb

28.  No mention was made in the notice of motion or the plaintiff’s submissions why leave to appeal should be granted on the “or otherwise” limb. In any event, it is not the practice of the Court of Appeal to grant leave on this ground but to defer to the views of the Appeal Committee.

Conclusion

29.  Accordingly, the plaintiff’s application for leave to appeal to the Court of Final Appeal is refused with costs to the defendant. Having considered the statement of costs lodged by the defendant for summary assessment, we assess the amount of reasonable costs allowed to the defendant at $95,710. We have disallowed the costs claimed for the drafting and preparation of the statement of costs for summary assessment, pursuant to Practice Direction 14.3 para 13.