BEST TRI PRINTING COMPANY LTD AND OTHERS v. TAM CHI LEUNG NOLAN AND OTHERS

HCA 756/2022

[2025] HKCFI 2098

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 756 OF 2022

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D E C I S I O N

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Introduction

1.  By summons dated 5 June 2024, the Plaintiffs seek leave to adduce the forensic accounting reports dated 25 October 2021 and 14 January 2022  (the “Accounting Report”)  made by Mr Yeung Kwok Kuen (“Mr Yeung”)  pursuant to Order 38, rules 36 and 37.

2.  On 11 December 2024, a master (the “Master”)  dismissed the Plaintiffs’ application with costs.

3.  This is the Plaintiffs’ appeal against the Master’s decision on 11 December 2024.

4.  It is trite that an appeal from a master to a judge in chambers is a de novo hearing, and the judge will deal with the matter in question as if it came before him or her for the first time: see Hong Kong Civil Procedure (2025)  (Vol 1) at para 58/1/2.

Material Background

5.  The 1^st Plaintiff is a company that has been carrying on business in the printing industry.

6.  It is not seriously in dispute that the 1^st and 2^nd Defendants (who are a married couple)  have been exercising control over the 1^st Plaintiff.

7.  The 3^rd Defendant is another company controlled by the 1^st and 2^nd Defendants.

8.  It is the 2^nd Plaintiff’s case that pursuant to a joint venture agreement, the 1^st Defendant held 40% of the shareholding in the 1^st Plaintiff on trust for him. In HCA 1439/2012, the court accepted the 2^nd Plaintiff’s case. Pursuant to judgment dated 19 February 2021, the 1^st Defendant was ordered to cause the 3^rd Defendant to transfer 40% shareholding in the 1^st Plaintiff to the 2^nd Plaintiff’s nominee, namely the 3^rd Plaintiff (who is the 2^nd Plaintiff’s wife).

9.  In the present action, the 2^nd and 3^rd Plaintiffs complain that the 1^st and 2^nd Defendants wrongfully caused the 1^st Plaintiff to enter into transactions (i)  with the 3^rd Defendant; (ii)  some unspecified related third parties; and (iii)  the 1^st Defendant and some directors:-

(1)  Insofar as the transactions with the 3^rd Defendant were concerned, the 1^st Plaintiff was caused to pay the 3^rd Defendant management fees of HK$9,694,584 from 2004 to 2016 and machinery rental fee of HK$49,536,000 from 2005 to 2020. Further, whilst the 1^st Plaintiff was caused to pay interest of HK$247,038 to the 3^rd Defendant in respect of various loans from 2018 to 2020, the 1^st Plaintiff was also caused to advance various loans to the 3^rd Defendant from 2005 to 2011.

(2)  As regards the dealings with unspecified related parties, the 1^st Plaintiff was caused to pay sales commission of HK$126,071 in 2011, costs in respect of good and services acquired in the total amount of HK$4,800,871 from 2010 to 2013, costs in respect of purchase of materials in the total amount of HK$2,508,930 from 2005 to 2009 and expenses paid in the total amount of HK$468,389 from 2005 to 2011.

(3)  As regards the dealings with directors, the 1^st Plaintiff was caused to advance various loans to the 1^st Defendant and to pay salaries and allowance in the total amount of HK$2,776,832 from 2004 to 2020.

10.  The 2^nd and 3^rd Plaintiffs say that they only discovered the aforesaid matters upon instructing Mr Yeung, who is a certified public accountant, to study the books and records of the 1^st Plaintiff. They heftily rely on the findings made by Mr Yeung, which are set out in his Accounting Reports dated 25 October 2021 and 14 January 2022.

11.  The 2^nd and 3^rd Plaintiffs say that whilst the 1^st and 2^nd Defendants breached their fiduciary duties owed to the 1^st Plaintiff as directors, the 1^st Defendant also, with the dishonest assistance of the 2^nd and 3^rd Defendants, breached the fiduciary duties owed to the 1^st Plaintiff as a trustee. In particular, they failed to, inter alios,:

(1)  render a complete and accurate account in respect of the affairs of the 1^st Plaintiff;

(2)  act in the best interest of the 1^st and 2^nd Plaintiffs;

(3)  avoid conflict of interest;

(4)  disclose the full nature of their personal interest; and

(5)  cause the 1^st Plaintiff to comply with statutory rules.

(6)  cause 40% of any dividend declared by the 1^st Plaintiff be paid to the 2^nd Plaintiff; and

12.  In the premises, the 2^nd and 3^rd Plaintiffs, in their personal capacity and in the name of the 1^st Plaintiff, sue the Defendants for breaches of the aforesaid duties. They seek an order for account and an order for payment in respect of the sums found due upon taking such an account.

13.  Insofar as the claims that are vested in the 1^st Plaintiff are concerned, the 2^nd and 3^rd Plaintiffs have obtained leave to commence a statutory derivative action in the name of the 1^st Plaintiff pursuant to the order dated 20 June 2022 made by DHCJ Kenneth Wong under HCMP 110/2022.

14.  For present purposes, it is unnecessary to set out the details of the lines of defences advanced by the Defendants. It suffices to say that whilst they put forward various explanations in regard to the transactions in question, they generally deny the 2^nd and 3^rd Plaintiffs’ allegations in relation to these transactions[1].

Legal Principles

15.  In Man King Chuen v Hong Lok Yuen International School Association Ltd [2018] 4 HKLRD 294 at para 17, Recorder Yvonne Cheng SC (as Cheng J then was)  summarized the legal principles on adducing expert evidence as follows:-

(1)  In deciding whether proposed expert evidence should be received, there is a two-stage test.

(a)  First, the evidence has to be admissible as ‘expert evidence’ for the purpose of section 58 of the Evidence Ordinance Cap 8. It will be so admissible in any case where the court accepts that there exists a recognized expertise governed by the standards and rules of conduct capable of influencing the court’s decision on any of the issues which it has to decide, and the witness to be called satisfies the court that he has a sufficient familiarity with, and knowledge of, the expertise in question, to render his opinion potentially of value in resolving any of those issues.

(b)  Second, evidence meeting this test can still be excluded by the court if the court takes the view that calling it will not be helpful to the court in resolving any issue in the case justly. Such evidence will not be helpful where the issue to be decided is one of law or is otherwise one on which the court is able to come to a fully informed decision without hearing such evidence.

(2)  It is for the party seeking to adduce expert evidence to satisfy the court that expert evidence is available which would have a bearing on the issues which the court has to decide and would be helpful to the court in coming to a conclusion on those issues.

(3)  The court’s discretion as to whether to grant leave to a party to adduce expert evidence is to be exercised within the ambit of the court’s case management powers, exercised in the light of the underlying objectives of the CJR.

(4)  Where the proposed expert evidence is plainly inadmissible or irrelevant, the court ought to exercise its discretion to refuse the admission of such evidence.

(5)  But where the court cannot form a clear view of the relevance of the proposed expert evidence or where it considers that the proposed evidence is clearly relevant, then it should grant leave for the evidence to be adduced at trial.

16.  In Shenzhen Futaihong Precision Industry Company Ltd and Others v BYD Company Ltd and Others, [2019] 2 HKC 175, the Court of Appeal stated:-

“4. In the Final Report on Civil Justice Reform, the Working Party identified the following as conditions for admissibility of expert evidence at paragraph 596:

(a)  The subject matter of the opinion must fall within an area in which expert evidence may properly be given;

(b)  The witness must be qualified as an expert to give the evidence of the type in question;

(c)  His evidence must be relevant to the issues being litigated.

5. In light of the issues raised in this appeal, we need to elaborate on conditions (a)  and (c). The Working Party cited a judgment of King CJ in R v Bonython (1984)  38 SASR 45 in which condition (a)  was explained:

‘… This first question may be divided into two parts: (a)  whether the subject matter of the opinion is such that a person without instruction or experience in the area of knowledge or human experience would be able to form a sound judgment on the matter without the assistance of witnesses possessing special knowledge or experience in the area, and (b)  whether the subject matter of the opinion forms part of a body of knowledge or experience which is sufficiently organized or recognized to be accepted as a reliable body of knowledge or experience, a special acquaintance with which by the witness would render his opinion of assistance to the court.’

6. On condition (c), the observations of Evans-Lombe J in Barings plc v Coopers & Lybrand [2001] PNLR 22 at [45] have often been cited:

‘ … Evidence meeting [condition (a)] can still be excluded by the Court if the Court takes the view that calling it will not be helpful to the Court in resolving any issue in the case justly. Such evidence will not be helpful where the issue to be decided is … one on which the Court is able to come to a fully informed decision without hearing such evidence.’

7. In Hong Kong, after the implementation of Civil Justice Reform, our courts can also take account of the probative value of an expert report in exercising case management power[1], see the discussion at [3193] of Hong Kong Civil Court Practice and the authorities cited therein.

8. Gone are the days when parties are at liberty to adduce expert evidence without any control by the court. In addition to the substantive conditions discussed above, the use of expert evidence is subject to procedural requirements contained in the rules to guard against misuse or mismanagement of expert evidence . As explained in Chok Yick Interior Design & Engineering Co Ltd v Lau Chi Lun HCA 1480/2008, 5 May 2010, parties should apply for expert directions as a step in the preparation of a case. Though Order 38 , rule 36 provides for application for expert directions to be made before expert evidence can be adduced, it does not prescribe the stage at which such directions are to be applied for. In line with modern litigation ethos, generally the court expects such directions to be sought well in advance to give sufficient time to the parties to comply with the same before application is made to set down the case for trial. In the Timetabling Questionnaire to be filed after close of pleadings under Practice Direction 5.2, parties are required to inform the court if they intend to call expert evidence and provide relevant information relating to it. In the Listing Questionnaire to be filed before the case management conference or pre-trial review, a party has to confirm that expert evidence has been exchanged. In addition, if the expert directions provide for meeting of experts and filing of a joint report thereafter, they should also be complied with before the application to set down the case for trial.

9. The giving of expert directions is very much a matter of case management. In Chok Yick Interior Design & Engineering Co Ltd v Lau Chi Lun, supra, the case management role of the court in giving expert directions was explained at [7] to [9]:

‘7. I wish to stress that application for expert directions is not a mere formality. It is an integral part of the case management process. As a trial judge, I have seen far too many cases where the lack of proper preparation of expert evidence resulted in unnecessary costs and time spent on evidence which is of no help to the resolution of the dispute. And such wasteful exercise cost the parties a great deal of money, not only in terms of the fees paid to the experts, but also legal costs spent on paying for the lawyers’ reading, understanding of the reports, discussing the matter with the experts and then the time (and costs)  of the lawyers explaining and exploring the expert evidence with the judge by way of submissions and the examination nd cross-examination of the experts during trial. Very often, it is not only the party responsible for the mismanagement of expert evidence who has to pay such costs, similar costs have to be incurred (at least on an upfront basis)  by his opponent.

8. Such wastage is not consistent with the underlying objectives set out in Order 1A Rule 1. Thus, the court, in the performance of its case management duty under Order 1A Rule 4, should give expert directions to avoid the mismanagement of expert evidence. And the parties and their legal representatives have a duty to assist the court in formulating the appropriate directions (Order 1A Rule 3). Further, the parties and their legal representatives have a duty to ensure that, once given, expert directions are strictly adhered to. The experts, in accordance with their overriding duty to the court, must try their best to comply with the directions.

9. When parties come to the court to seek expert directions, the court shall first consider whether expert evidence is required for the just resolution of the issues before the court. If the court is satisfied that expert evidence is required, it would then consider what directions should be given in order to further the underlying objectives in the circumstances of the case. Gone are the days when the court only directed exchange of expert reports before trial as condition for admission of expert evidence. Nowadays, whilst there should be flexibility in the light of the circumstances of each case, in order to narrow down the expert issues, the court will usually consider giving directions for expert meeting and joint report. Further, the court has the option of ordering the appointment of a single joint expert under Order 38 Rule 4A.’

10. In light of the great varieties of issues that may arise and the areas of expertise for which expert evidence may be considered by the court, the time and the manner in which an application for expert directions is to be made must vary depending on the circumstances of the case. In an ordinary run of the mill situation, like medical reports in personal injury litigation or valuation reports in compensation cases in the Lands Tribunal, there are established protocols for seeking expert directions and parties are expected to follow those protocols. In a piece of complex litigation, particularly where the area in which expert evidence is sought to be adduced is unconventional or more controversial, the party who seeks expert directions (who also bears the burden of persuading the court that expert evidence is helpful and appropriate)  should consider the timing of the application and the materials to be presented to support the application more carefully. There are cases where it may be more helpful to have the evidential issues more clearly identified with the exchange of documents and witness statements before expert directions are sought. Also, in some cases it may be useful to have the intended expert report at hand to explain to the court the nature of such evidence and to demonstrate the necessity for having such evidence. These observations are applicable to some of the contested issues in the present case.

…

12. With respect, we do not regard those observations as militating against the duty of a judge in exercising the case management function when giving expert directions as discussed above. In other words, the court will not give directions for expert evidence to be adduced (carrying with it the incidence of substantial costs being incurred on its preparation and court time spent on the same)  simply on the basis that the court cannot rule out a possibility of such evidence being relevant and helpful in the sense as discussed above. If the applicant for expert directions fails to persuade the court on relevance and necessity of such evidence, the application should be dismissed.

13. Ultimately, it is a case management decision of the court based on its assessment of whether expert directions should be given and if so on what terms. Like other case management decisions, the Court of Appeal will be circumspect in interfering with such decisions. We would not do so unless the decisions were not made in accordance with established principles or were otherwise plainly wrong.”

17.  As pointed out by DHCJ Maurellet SC (as he then was)  in Yip Sau Ching v Yip Che Shing & Ors [2021] HKCFI 1315 at para 6:-

“…whatever might have been the position before, leave will not be granted if the court is simply persuaded it could not rule out the possibility such evidence being relevant and helpful.  As recognised by the Court of Appeal, “the time and manner in which an application for expert direction is to be made must vary depending on the circumstances of the case” and is pre-eminently a matter for case management.  Limited reliance therefore can be placed on authorities for the purpose of determining whether the court should, or should not grant  leave  as the exercise is, by definition a very fact specific one.”

Deliberation

18.  There is no question that Mr Yeung, who is a qualified and experienced accountant, has expertise in the field of accounting. In his Accounting Reports, he succinctly and helpfully identified and explained the questionable transactions. He also expressed his professional opinion that the disclosure in regard to the related parties fell short of meeting the applicable accounting standard required of the 1^st Plaintiff.

19.  In fact, the findings made by Mr Yeung (which are set out in his Accounting Reports)  constitute the basis of the Plaintiffs’ claims in the present action.

20.  I accept that the contents of Mr Yeung’s Accounting Reports are relevant to the issues in dispute in these proceedings and that the opinion expressed by Mr Yeung is of value in assisting the court to resolve the issues in dispute.

21.  In his submissions, Mr Simon Chiu (for the Plaintiffs)  emphasized that Mr Yeung had studied and analyzed no less than 600 pages of accounting records and he summarized his findings and observations in his Accounting Reports.

22.  I see the force of Mr Chiu’s submissions.

23.  If Mr Yeung’s Accounting Reports are excluded from the evidence, it appears that the trial judge as well as trial counsel will have to go through the raw accounting materials (which are substantial)  in order to find out whether the 2^nd and 3^rd Plaintiffs’ allegations in relation to the questionable transactions are made out. This is an onerous and tedious exercise. I see no reason why the court as well as the parties shall not be assisted by a qualified professional, who had digested the raw accounting materials and provided a helpful summary.

24.  In my view, the contents of Mr Yeung’s Accounting Reports are plainly relevant and helpful in assisting the court to make findings as to:

(1)  whether the books and accounting records of the 1^st Plaintiff reveal that the questionable transactions took place; and

(2)  whether the disclosure in 1^st Plaintiff’s audited financial statements fell short of meeting the applicable accounting standard required of the 1^st Plaintiff.

Conclusion and Disposition

25.  For the above reasons, I set aside the Master’s order dated 11 December 2024 and allow the Plaintiffs’ appeal.

26.  I grant leave for the Plaintiffs to adduce Mr Yeung’s Accounting Reports dated 25 October 2021 and 14 January 2022 as expert evidence.

27.  Although I allow the Plaintiffs’ appeal, I agree with the submissions of Mr Tommy Cheung (for the Defendants)  that the expert issues framed by the Plaintiffs are convoluted and unsatisfactory.

28.  In my view, the Accounting Reports of Mr Yeung are only relevant to the questions of (i)  whether the books and accounting records of the 1^st Plaintiff reveal that the alleged transactions pleaded in paragraphs 25 to 27 of the statement of claim took place; and (ii)  whether the disclosure in 1^st Plaintiff’s audited financial statements fell short of meeting the applicable accounting standard. As such, the leave that I grant (see paragraph 26 above)  is confined to these limited purposes.

29.  Had the Plaintiffs framed the expert issues in a simple and straight-forward manner, the Defendants would have appreciated where they came from and might not have opposed their application outright.

30.  In the circumstances, I am not of the view that the stance taken by the Defendants has been wholly unreasonable.

31.  Taking into account the aforesaid matter and the fact that the Plaintiffs succeed in the present appeal, I am of the view that the fair costs order to be made is as follows:-

(1)  the costs in respect of the Plaintiffs’ application for adducing Mr Yeung’s Accounting Reports as expert evidence under the summons dated 5 June 2024 be in the cause;

(2)  there be no order as to costs in respect of the summons dated 5 November 2024 seeking to amend the earlier summons dated 5 June 2024; and

(3)  the costs in respect of the hearing before the Master on 11 December 2024 as well as the costs in respect of the present appeal be the Plaintiffs’ costs in the cause.

32.  I thank Mr Simon Chiu and Mr Tommy Cheung for their helpful assistance.