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

CACV 545/2019

[2021] HKCA 546

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 1 November 2019, Ng J handed down his judgment (“the Judgment”) in a trial on liability. The action was brought by Lau Chun Ming, who was the major creditor of a bankrupt Ma Koon Sik (“Ma”), against a firm of certified public accountants Deloitte Touche Tohmatsu, whose partners Lai Kar Yan Derek (“Lai”) and Darach E Haughey (“Haughey”) were the joint and several trustees of the estate of Ma from 21 November 2002 to 29 June 2009. The plaintiff claimed damages against the defendant for breach of a contract contained in or evidenced by a letter in Chinese issued by the defendant to the plaintiff on 16 October 2002 (“the Letter”)^[1]. The judge entered judgment for the defendant. This is the plaintiff’s appeal.

Background

2.  The relevant background matters may be stated as follows.

3.  On 6 August 2002, the plaintiff presented a bankruptcy petition against Ma as an unpaid judgment creditor of over HK$30 million. A bankruptcy order was made on 30 October 2002.  The plaintiff was the most substantial unsecured creditor.

4.  On 16 October 2002 the defendant’s senior manager Yeung Lui Ming issued the Letter to the plaintiff, which evidenced an agreement that in consideration of the charges and payments stated therein including a non-refundable deposit of HK$100,000, the defendant agreed to arrange Lai and Haughey to seek appointment as the joint and several trustee of Ma’s estate and to assist the plaintiff to deal with the assets of Ma already charged by the plaintiff as judgment creditor^[2].  The deposit was subsequently paid.

5.  With the support of the plaintiff at the first general meeting of creditors on 21 November 2002, Lai and Haughey were appointed the joint and several trustee of Ma’s estate (“1^st Trustees”).  They acted as such until 29 June 2009 when they were removed and replaced by Yat Ming Cheung and Rainier Hok Chung Lam (“2^nd Trustees”).  In July 2009, the plaintiff and the 2^nd Trustees were handed the trustees’ books and records and were told of the intention of the 1^st Trustees to seek an order for release (“Release”) under section 94 of the Bankruptcy Ordinance, Cap 6.  On 11 December 2009, Lai and Haughey applied to court for Release.  Their application was not met with any opposition and a master granted the Release on 28 January 2010.

6.  Shortly afterwards, on 5 February 2010, the 2^nd Trustees were replaced by Yiu Cho Yan and Tsang Hin Shun Thomas (“3^rd Trustees”), who obtained the relevant books and records from the 2^nd Trustees.  In August 2011 and August 2012, the 3^rd Trustees brought these three actions with a view to recovering the assets of Ma (“Recovery Actions”):

(1)  on 2 August 2011, HCMP 1455 of 2011 concerning Ma’s payment/remittance from his current account with Wing Lung Bank, within two years of the presentation of the petition, of HK$3,226,172.59 together with a further sum which made up a total of C$700,000 (“CAD Payment”) to Patrick Lai in Canada on 15 March 2001, as well as a total sum of HK$8,845,000 by three cheques in March 2001 (“HK Payment”) to Ma’s wife Chan King Har (“Chan”);

(2)  on 2 August 2012, HCMP 1606 of 2012 concerning Ma’s undisclosed property in the city of Arcadia, Los Angeles, US (“Arcadia House”) which had been registered in the name of Ma and Chan as joint tenants since 1989 and was sold for USD$428,000 on 30 April 2002, less than four months before the presentation of the petition; and

(3)  on 16 August 2012, HCMP 1729 of 2012 concerning Ma’s undisclosed property in Arcadia Avenue, San Gabriel, US (“San Gabriel Condo”) which was registered in the names of Ma and a Madam Nancy Wang, purporting to be husband and wife, as joint tenants.

7.  The Recovery Actions were met with challenges on the ground that they were time-barred.  By a deed entered into on 7 March 2013, the 3^rd Trustees, the plaintiff, Ma and other creditors of Ma reached a settlement whereby inter alia the Recovery Actions were discontinued and/or withdrawn upon Chan making a payment of HK$5 million.  The plaintiff received slightly over HK$500,000from the settlement, after deducting fees, expenses and legal costs.

8.  On 26 July 2013, the plaintiff issued the writ in this action against the defendant.  His claim is based on breach of an implied term of the contract and this is how the implied term was pleaded in the re-amended statement of claim at §8 (“the Implied Term”):

“It was an implied term (“the Implied Term”) of the Contract to give the same business efficacy and/or by operation of law that the Defendant covenanted that Lai Kar Yan and Darach Haughey, who only took their positions as the Trustees by virtue of the Contract, and each of them undertook to carry out or otherwise perform their duties with proper skill and competence and in a reasonable manner and/or reasonable care and skill as trustees in bankruptcy should be including but without limiting the following:-

(a)  Investigating, conducting searches and/or making inquiries as may be necessary and with due expedition and diligence to ascertain, locate, trace and/or recover the estate and/or property of the Bankrupt.

(b)  Reporting to and/or keeping the Plaintiff informed of, among other things, the possible claims, actions and/or proceedings for recovering, securing and/or realizing the estate and/or property of the Bankrupt and their respective limitation periods.

(c)  Bringing and/or instituting claims, actions and/or proceedings for recovering, securing and/or realizing the estate and/or property of the Bankrupt and with due expedition and diligence within the limitation periods or otherwise so as not to render the same time barred or barred due to laches, acquiescence and delay.”

9.  The statement of claim pleaded that Lai and Haughey were derelict in their duties in taking action for the recovery of Ma’s assets and it was only after the appointment of the 3^rd Trustees that the Recovery Actions were brought. §44 pleaded that the defendant was in breach of the Contract and particulars were set out in §§(a) to (t).  As noted by the judge, the alleged breaches in §§(a) to (s) were in substance failures of Lai and Haughey.  The only breach pleaded against the defendant is §(t) which read: “Failure to ensure that the Trustees would act with reasonable skill and care in their position as trustees of the estate of the Bankrupt”.  As succinctly summarized in §10 of the plaintiff’s opening submissions at the trial, the breach relied upon by the plaintiff is that the Recovery Actions were discovered and/or proceeded with by the 3^rd Trustees but were not discovered, followed up, investigated and/or proceeded with by the 1^st Trustees during the nearly seven years of their trusteeship.

10.  The defence pleaded in the amended points of defence regarding the breach of the implied term is that the plaintiff “agreed to fund Messrs Haughey and Lai in the administration of the affairs of [Ma]” (§3) and “insofar as the actions on the part of the Trustees required the Plaintiff to provide expenses and fees, the Plaintiff took responsibility for decision-making” (§4). §5 read as follows:

“Ultimately the Plaintiff made the decision not to fund the Trustees in respect of actions recommended by the Trustees and not to continue funding the administration, despite the Trustees incurring time costs on the administration and costs for legal services rendered to the Trustees for the Plaintiff’s benefit. As a result, the administration suffered from the continuing lack of funding which the Plaintiff was to provide. In the premises, the Plaintiff cannot complain about any alleged inaction on the part of the Trustees.”

11.  There is no dispute on the funding actually provided to the 1^st Trustees, as stated in Haughey’s witness statement:

“7.  After our appointment, [the plaintiff] agreed to provide funding to the Trustees for the purposes of the bankruptcy.  On 25 September 2003, the Trustees and [the plaintiff] entered into a funding agreement under which, among other things, “[the plaintiff] shall provide funds not exceeding HK$100,000.00 from time to time immediately on demand by [us]”. …

8.  We also received other funds from [the plaintiff] independent of the funding agreement, namely:-

8.1.  In accordance with Rule 172 of the Bankruptcy Rules (Cap 6A), HK$14,400.00, being expenses directly related to summoning the meeting of creditors held on 29 June 2009 at the request of [the plaintiff];

8.2.  a non-refundable deposit of HK$100,000.00.

9.  During the period from June 2004 to January 2005, in accordance with the funding agreement, [the plaintiff] settled HK$63,450.00 of legal fees incurred in the bankruptcy.”

12.  It is also not in dispute that the plaintiff had paid close to HK$900,000 to the 3^rd Trustees to finance the pursuing of claims to realise and recover Ma’s estate in the bankruptcy.

13.  Five issues were raised for determination in the trial on liability.  For present purpose, we are only concerned with three of them:

(1)  whether the defendant owed a contractual duty to ensure that its partners and staff ie the 1^st Trustees and the other staff performed their duties with proper skill and competence and in a reasonable manner and/or with reasonable care and skill; (“Issue 3”)

(2)  whether the defendant was in breach of the contract or whether the 1^st Trustees’ performance of their duty was constricted by the alleged lack of funding available to them; (“Issue 4”)

(3)  whether the defendant is released from any contractual liability as a result of the Release granted to the 1^st Trustees.  (“Issue 5”)

14.  The judge found in favour of the defendant on all those issues.

15.  On Issue 3, the judge held that the plaintiff has failed to satisfy the conditions for a term to be implied into a contract (Kensland Realty Ltd v Whale View Investment Ltd & Anr (2001) 4 HKCFAR 381 at §23, adopting BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at 26), in particular condition (2) (it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it) and condition (3) (it must be so obvious that it goes without saying)^[3].

16.  Given his conclusion that the contract did not contain the Implied Term, Issue 4 must be decided in favour of the defendant.  The judge nevertheless considered the evidence and found that the plaintiff has not been able to demonstrate satisfactorily in what way(s) the 1^st Trustees had failed to carry out their duties with reasonable care and skill^[4].  He rejected the plaintiff’s testimony as “wholly incredible” and accepted Haughey’s testimony that “the 1^st Trustees’ action (taken or not taken) in the course of Ma’s bankruptcy was hampered by their limited funds and the Plaintiff’s refusal to provide the necessary funding to them”.  He further rejected the plaintiff’s suggestion that the defendant or the 1^st Trustees had not asked for funding to finance the investigation and possible legal actions in relation to the subject matters of the Recovery Actions^[5].

17.  As for Issue 5, the decision of the Court of Appeal in striking out the plaintiff’s tortious claim was based on the effect of the Release^[6]. The judge held that the rationale is equally applicable to a claim in contract as far as the effect of a release is concerned^[7].

This appeal

18.  Mr Ambrose Ho, SC, who appeared for the plaintiff on appeal^[8], appealed against the Judgment on these main grounds:

(1)  the Implied Term should be implied in law;

(2)  the Implied Term should be implied in fact;

(3)  the judge had failed to analyse the evidence in concluding that the plaintiff has not been able to demonstrate satisfactorily that the 1^st Trustees had failed to carry out their duties with reasonable skill and care; and

(4)  the Release did not affect the plaintiff’s contractual claim against the defendant.

19.  As rightly pointed out by Mr Manzoni, SC, who appeared for the defendant on appeal and below, failure to establish any of the three main grounds, namely, there was the Implied Term (whether in law or in fact), there was breach of the Implied Term and the Release is of no effect to release the defendant from liability, will result in the dismissal of this appeal.

20.  The broad grounds of appeal will be considered in the order as set out above.

Term implied in law

21.  There is a difference in the approach between implying a term in contract in law and implying a term in fact. As stated by Lady Hale in Geys v Société Générale, London Branch [2013] 1 AC 523 at §§55 and 56:

“55 In this connection, it is important to distinguish between two different kinds of implied terms. First, there are those terms which are implied into a particular contract because, on its proper construction, the parties must have intended to include them: see Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988. Such terms are only implied where it is necessary to give business efficacy to the particular contract in question. Second, there are those terms which are implied into a class of contractual relationship, such as that between landlord and tenant or between employer and employee, where the parties may have left a good deal unsaid, but the courts have implied the term as a necessary incident of the relationship concerned, unless the parties have expressly excluded it: see Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555^[9], Liverpool City Council v Irwin [1977] AC 239^[10].

56 A great deal of the contractual relationship between employer and employee is governed by implied terms of the latter kind. Some are of longstanding, such as the employer’s duty to provide a safe system of work. Some are of more recent discovery, such as the mutual obligations of trust and confidence. This was referred to by Dyson LJ in Crossley v Faithful & Gould Holdings Ltd [2004] ICR 1615 as an “evolutionary process”. He also described the “necessity” involved in implying such terms as “somewhat protean”, pointing out that some well established terms could scarcely be said to be essential to the functioning of the relationship. At para 36, he said:

“It seems to me that, rather than focus on the elusive concept of necessity, it is better to recognise that, to some extent at least, the existence and scope of standardised implied terms raise questions of reasonableness, fairness and the balancing of competing policy considerations.”

There is much to be said for that approach, given the way in which those terms have developed over the years.”

22.  Mr Ho submitted that the judge had overlooked that the Implied Term should be implied in law as well as in fact, as it was pleaded in the statement of claim that the term should be implied in the Contract “to give the same business efficacy and/or by operation of law”.  Mr Manzoni pointed out that although pleaded, it was not pursued at the trial that the term ought to be implied as a matter of law.  Mr Ho drew our attention to various paragraphs of the plaintiff’s closing submissions at the trial (§§50, 54, 56 and 57).  Having considered those paragraphs, we are satisfied that this point was not raised properly before the judge and it would not be fair to say that the judge had overlooked this matter which was not argued before him.

23.  Mr Ho submitted that the Implied Term should be implied in law as a legal incident of this particular kind of contractual relationship into which the plaintiff and the defendant had entered.  The Implied Term is a rule of law which arises in consequence of the law imputing to the parties a certain intention by virtue of their express intention to enter into that relationship, and, unless the Implied Term is expressly excluded, the law effectively imposes this term into this class of relationship.  In this situation, the court is concerned with broader questions of policy and the strict test of necessity need not be satisfied.

24.  In support of his contention that the kind of contractual relationship in this instance calls for the implication of the Implied Term, Mr Ho pointed to these factors: the defendant firm was engaged by the plaintiff to provide professional services in return for the plaintiff paying the firm’s professional fees; the defendant is internationally renowned and the plaintiff relied fully on the defendant to provide the services through competent personnel (including the trustees in bankruptcy and the other employees involved in the undertaking) assigned to the task; the essence of the contract was the engagement of the expertise of the firm in providing the relevant professional services.  Mr Ho submitted that it would be inconceivable in a contract of this kind for the service provider not to undertake that the personnel assigned to the task would perform their work with competence, reasonable care and skill, in consideration for the professional fees to be received. He quoted Jackson & Powell on Professional Liability (8^th ed, 2016) at §2-013:

“Historically, the law of contract based on common law principles is the principal means by which the courts have exercised control over the standard of performance of professional persons. In most instances there is a contract between the professional person and his client, whereby the former agrees to render certain services in return for a fee. In such a contract there is generally implied by law a term that the professional person will exercise reasonable skill and care.”

25.  Insofar as the judge held that the Implied Term was unnecessary (in considering whether it should be implied in fact, and the test is different) because the Bankruptcy Ordinance and the law of partnership had already provided sufficient protection to the plaintiff^[11], Mr Ho submitted that these are irrelevant considerations and the judge had failed to have proper regard to the decision of Jacob J in A&J Fabrications Ltd v Grant Thornton [1998] 2 BCLC 227^[12], a case with facts similar to the present.

26.  The defendant accounting firm in that case sought to strike out the plaintiff’s statement of claim on the basis that it disclosed no reasonable cause of action and failed.  The plaintiff was the major creditor of a company in liquidation.  It entered into a contract with the defendant by which the latter agreed that in consideration of the payment of the defendant’s fees up to a certain amount, in accordance with the plaintiff’s nomination and voting instructions, the nominated employee or partner of the defendant Mr Edwards would seek appointment as liquidator of the company at the creditors’ meeting and if Mr Edwards was so appointed, “the defendant would investigate, and would encourage and assist the Official Receiver to investigate” the trading history of the company, its financial affairs and the conduct of the directors, so that the assets of the company could be secured and realised and distributed to creditors including the plaintiff.  The plaintiff alleged that in breach of contract (and a duty of care), the defendant failed to supply the services required of it and was guilty of negligence.

27.  In seeking to strike out the statement of claim as disclosing no reasonable cause of action, the defendant contended that it could not have been in breach of any duty as only the liquidator had the powers which were necessary for the supply of the services, which the plaintiff complained were not exercised, and the defendant did not have any such powers. Jacob J rejected the contention as misconceived and said at 230g to i (a passage relied on in particular by Mr Ho):

“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.”

28.  Jacob J went on to say at 230i:

“I can see no reason for supposing this claim is bad in law; there is every reason for supposing that it is good, though I do not have to go that far on this application.”

29.  Turning to the claim in tort, the defendant in that case again submitted that the plaintiff should have sued the individual liquidators, and not the defendant, for breach of duty.  Jacob J rejected this as “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” (at 232f). Jacobs J also rejected the defendant’s contention that the plaintiff would have remedies against the liquidator under various provisions of the Insolvency Act 1986 as irrelevant, saying: “Again I cannot see why this statutory remedy should in any way exclude the common law remedies in contract or tort” (at 233a).

30.  Mr Ho prayed in aid the above statements to support his contention that whatever protective scheme there is under the Bankruptcy Ordinance should not prevent contractual duties from being implied in law running parallel to the statute.  He emphasised that the contract here is between the plaintiff and the defendant, and this is separate from and independent of the provisions of the Bankruptcy Ordinance which govern the trustee in bankruptcy.  He submitted that the judge had erroneously conflated the two.  Whatever remedy is obtained under the statute would benefit the bankrupt’s estate and the creditors.  In contrast, breach of the Implied Term entitles only the plaintiff to seek compensation against the defendant.

31.  Similarly, Mr Ho submitted that whatever protection the plaintiff would obtain under partnership law can take effect in parallel with the contractual duties arising out of a necessary incident of the contract between the plaintiff and the defendant. The two can co-exist and there is no conflict.

32.  Lastly, the fact that the contract did not expressly provide for such an implied term is not relevant to the consideration whether such a term should be implied in law, in contradistinction to whether it should be implied in fact.  And as the Implied Term is a necessary incident of the contract between the plaintiff and the defendant, it must also have satisfied the test “it goes without saying”.

33.  As mentioned earlier, whether the Implied Term ought to be implied in law as a necessary incident of the relationship arising out of the kind of contract entered into between the plaintiff and the defendant was not argued before the judge.  Whether such a term should be implied is a complex question as the “necessity” involved in implying such a term in law is “somewhat protean” and “questions of reasonableness, fairness and the balancing of competing policy considerations” are raised (Crossley v Faithful & Gould Holdings Ltd at §36).  We have reservations whether it is really appropriate to address this question at the appellate level without any input of the judge at first instance.

34.  Be that as it may, both parties cited only one reported case (A&J Fabrications Ltd v Grant Thornton) with some discussion on the relationship arising out of the kind of contract similar to that entered into by the parties here.  Whether there ought to be an implied term in law was not discussed in any detail in A&J Fabrications Ltd, which is a decision on striking out the statement of claim as disclosing no reasonable cause of action.

35.  Further, the contract in that case was different in that it was agreed “the defendant would investigate, and would encourage and assist the Official Receiver to investigate” various matters in the administration of the liquidation of the company.  In contrast, by the contract in our case, the defendant agreed to arrange two of its partners to seek appointment as the trustees in bankruptcy of Ma’s estate and the Implied Term was that the defendant covenanted that its partners, who took up the positions as trustees in bankruptcy, would undertake to perform their duties with proper skill and competence.  As stated in The Interpretation of Contracts by Sir Kim Lewison (7^th ed) at §6.23, “the relationship giving rise to the implication of a term as an incident of that relationship must be defined with care”.

36.  For the above reasons, we find the statements in A&J Fabrications Ltd relied on by Mr Ho of limited assistance to the plaintiff’s contention.

37.  Mr Ho laid great emphasis on the fact that the contract was for the supply of professional services and it is generally implied by law that a professional person would exercise reasonable skill and care in providing such services.  That is but one facet of the considerations to be taken into account in deciding the question whether the law should imply a standardised implied term in that situation and the scope of it.

38.  It seems to us Mr Ho is missing the point in submitting that it is of no relevance that the Bankruptcy Ordinance and the law of partnership had already provided sufficient protection to the plaintiff and that the Implied Term could exist in parallel.  We think the judge made a valid point doubting the necessity in having the Implied Term in light of the comprehensive scheme provided in the Bankruptcy Ordinance for the supervision and control of trustees in bankruptcy and the protection under sections 12 and 14 of the Partnership Ordinance, Cap 38 that partners are jointly and severally liable for any wrongful act or omission of any partner acting in the ordinary course of business of the firm or with the authority of co-partners, even though the judge was considering this in the context of implying the Implied Term in fact.  Extensive remedies have been given by the statutes against the trustees in bankruptcy and against the partnership in respect of wrongful acts of the trustees.

39.  As stated in The Interpretation of Contracts, op cit at §6-12:

“Where legislation covers a particular area the courts must be especially careful about implying a term covering the same general area.”

40.  The learned author cited as authorities in support of this proposition Johnson v Unisys Ltd [2003] 1 AC 518 and Eastwood v Magnox Electric Plc [2005] 1 AC 503.  In each instance, the court declined to imply a term in a contract of employment relating to the manner of dismissal allegedly in breach of the relationship of trust and confidence, as the legislature had provided a statutory code regarding unfair dismissal by which limited remedy was given to the employee.

41.  The approach of Lord Denning in Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187 at 1196 E to G is of similar effect, wherein he discussed the category of implied terms which comprehends all those relationships which are of common occurrence:

“In such relationships the problem is not to be solved by asking what did the parties intend? Or would they have unhesitatingly agreed to it, if asked? It is to be solved by asking: has the law already defined the obligation or the extent of it? If so, let it be followed. If not, look to see what would be reasonable in the general run of such cases: see by Lord Cross of Chelsea at p. 570H: and then say what the obligation shall be. The House in Liverpool City Council v. Irwin [1976] 2 W.L.R. 562 went through that very process. They examined the existing law of landlord and tenant, in particular that relating to easements, to see if it contained the solution to the problem: and, having found that it did not, they imposed an obligation on the landlord to use reasonable care. In these relationships the parties can exclude or modify the obligation by express words; but unless they do so, the obligation is a legal incident of the relationship which is attached by the law itself and not by reason of any implied term.” (Emphasis supplied)

42.  For all the above reasons, we are not persuaded that the Implied Term should be implied in law in all the circumstances.

Term implied in fact

43.  There is no dispute as to the principles governing implied terms in fact, as set out in the Judgment at §§50 to 54.

44.  Mr Ho relied on the submissions he made in respect of implying a term in law to support his contention that the conditions for implying a term in fact in Kensland Realty Ltd v Whale View Investment Ltd have been satisfied.

45.  The correct approach here, unlike the situation of implying a term in law, is not that the term should be implied unless it is excluded.  And as noted by the judge, the default position is that nothing is to be implied into the contract.  We agree with the judge that it has not been shown why the Implied Term is necessary or why it must be so obvious that it goes without saying, for the reasons set out in the Judgment at §§64 to 67.  The fact that damages under the contract would be payable to the plaintiff rather than to the bankrupt’s estate and the unsecured creditors or that the liability would rest with the firm rather than the individual trustees in bankruptcy does not make the Implied Term necessary or obvious.

46.  We reject the contention that the Implied Term ought to be implied in fact.

47.  Having held against the plaintiff the Implied Term ought not to be implied in law or in fact, this appeal should be dismissed and it is not strictly necessary to consider the remaining grounds.  We will deal with them succinctly nonetheless.

Failure to act with reasonable skill and care

48.  The plaintiff made a number of complaints under this broad ground:

(1)  the judge overlooked the principle that the trustees’ discretion is not absolute and that they have an obligation to maximise the return from the assets of the bankrupt’s estate to satisfy the claims of the creditors;

(2)  the judge’s findings that (a) the 1^st Trustees lacked funding and that (b) the plaintiff refused to provide funds are unsupported by the evidence at the trial;

(3)  as to (2)(a), this was not reconcilable with documentary evidence showing funds in the 1^st Trustees’ account; further it was admitted by Haughey in cross-examination that the plaintiff did provide funds to the 1^st Trustees;

(4)  as to (2)(b), the plaintiff was willing to provide funds to the 1^st Trustees when asked, though the 1^st Trustees never asked and the judge failed to analyse the evidence properly;

(5)  the judge misunderstood the evidence about the search on US assets in §76b of the Judgment in that the evidence relates to a “further” search on those assets;

(6)  the judge failed to analyse and explain why the funding was insufficient for any action to be taken towards the investigation and/or recovery of the HK Payment, CAD Payment, Arcadia House and/or San Gabriel Condo;

(7)  the judge did not analyse properly the fundamental issue whether the 1^st Trustees had carried out their duties with reasonable care and skill; in particular, he failed to deal with the lack of action of the 1^st Trustees as regards the HK Payment and CAD Payment when they had obtained the bank statements by late 2003; the same applies to the US Properties when the plaintiff had provided the 1^st Trustees with information about them in 2003.

49.  The nub of these complaints is the alleged failure of the judge to analyse and address the issues in the plaintiff’s case. Mr Ho cited Yap Sui Kong v Yip Fong Tim [2018] 4 HKLRD 791 in which Lam VP stated at §68:

“Whilst a judge is not obliged to address every point raised and discuss all the evidence in minutiae, the judgment must inform the appellate court and the parties how important issues raised in a trial have been resolved, see Welltus Ltd v Fornton Knitting Co Ltd [2013] 5 HKC 106. In contrast, the omission to discuss minor issues or those obviously without merit in light of the determination of a judge on other issues are unlikely to form a valid basis for disturbing a judgment: see Yui Chung Yin v Ng Kit Sum (CACV 25/2013, [2015] HKEC 2530, 27 November 2015); Hoptai Sharkfins Co Ltd v Productos Pesqueros Gallegos SL (CACV 240/2014, [2015] HKEC 2598, 7 December 2015).”

50.  We do not agree with Mr Ho that the judge’s resolution of important issues relating to alleged breaches of the Implied Term had not been addressed adequately in the Judgment.  As stated by the English Court of Appeal in English v Emery [2002] 1 WLR 2409 at §19, it is not possible to “provide a template” for the manner in which the resolution of issues should be presented in a judgment.  “What are adequate reasons in the circumstances of a particular case has to be approached sensibly” (Oriental Daily Publisher Ltd v Commissioner for Television and Entertainment Licensing Authority (1997-98) 1 HKCFAR 279 at 291F to G).

51.  It is pertinent to bear in mind that the judge had decided there should be no implied term in the contract, which would have led him to conclude that there was no breach of the Implied Term (as it was not pleaded that the defendant was in breach of any other term in the contract). Furthermore, the crux of the plaintiff’s case advanced at the trial was that the negligence of the 1^st Trustees was “self-evident”^[13] in that they should have made enquiries and taken action as they had been supplied with materials giving rise to enquiries and action.  The judge rejected this as “far too crude a basis” on which to accuse two professional trustees in bankruptcy of failing to carry out their duties with reasonable care and skill. He accepted Mr Manzoni’s submission that “it is not sufficient to simply look at what the 3^rd Trustees did years later, with different funding, and in different circumstances, and to assert that it is self-evident that those actions and the enquiries that led to them should have been undertaken by the 1^st Trustees too”.  The judge further noted there was no analysis by the plaintiff of “the potential costs and benefits of the actions that the 1^st Trustees are now accused of having failed to take”^[14].

52.  In light of these considerations, we do not think there is any valid complaint as to (6) and (7).  We are also inclined to agree with Mr Manzoni that “a court should be slow to find a professionally qualified man guilty of a breach of his duty of skill and care towards a client (or third party), without evidence from those within the same profession as to the standard expected on the facts of the case and the failure of the professionally qualified man to measure up to that standard” (Sansom v Metcalfe Hambleton & Co [1998] PNLR 542 at 549B), unless it is an obvious case as in the example of an architect’s negligence given by Sachs LJ in Worboys v Acme Investments Ltd (1969) 4 BLR 133 at 139. The present situation clearly does not come within that category.

53.  Nor do we think the judge had overlooked the principle that the trustees’ discretion is not absolute and they are obliged to maximise the return from the bankrupt’s estate for creditors, as complained of in (1). Mr Ho quoted from Mannigel v Aitken (1983) 77 FLR 406 at 408 to 409 to emphasise his point of a minimum standard required of trustees to achieve the maximum return from the assets.  The judge had considered Mannigel v Aitken and quoted from a different part of that judgment at 409 to make the point that “in carrying out his duties and the exercise of his discretion, a trustee may be, and often are, subject to practical constraints”^[15].

54.  The complaints in (2) to (5) are challenges as to findings of primary fact made by the judge.  The principles are well established for the appeal court to interfere with this kind of findings.  The judge had considered and analysed the evidence in §§75 to 77.  We do not agree with Mr Ho that the documentary evidence referred to in §76 does not support the finding that the 1^st Trustees lacked funding.  As mentioned earlier, there is no dispute as to the actual funding received by the 1^st Trustees.  We have considered those parts of the transcript relating to the cross-examination of Haughey referred to by Mr Ho.  Reading his evidence in context and as a whole, we are not persuaded that the isolated passages in the transcript would support the contention that the 1^st Trustees never asked for funding to finance actions relating to the HK Payment, the CAD Payment or the US Properties.  We do not think there is sufficient ground to interfere with the judge’s rejection of the plaintiff’s testimony and his acceptance of Haughey’s evidence that the 1^st Trustees’ action was hampered by their limited funds and the plaintiff’s refusal to provide the necessary funding to them. 

Effect of Release on contractual claim

55.  The judge applied the reasoning in the CA Judgment on the effect of section 94 of the Bankruptcy Ordinance in striking out the plaintiff’s claim in tort.  By virtue of section 94, the Release discharged the 1^st Trustees from “all liability in respect of any act done or default made by [them] in the administration of the affairs of the bankrupt, or otherwise in relation to [their] conduct as [trustees].”  By sections 12 and 14 of the Partnership Ordinance, partners are jointly and severally liable for any wrongful act or omission of any partner acting in the ordinary course of business of the firm or with the authority of co-partners.  Where several persons are bound jointly, or jointly and severally, a release of one is a release of them all. (CA Judgment, §4.9)

56.  The judge took the view that contractual and tortious liabilities stand on the same footing as far as the effect of a release is concerned.  Hence, the Release and the CA Judgment also provide a defence by analogy to the contractual claim as well^[16].

57.  Mr Ho accepted that by the Release the 1^st Trustees are discharged from contractual liability as trustees in bankruptcy but the other partners in the firm are not discharged from liability under the contract. This is because the defendant’s obligations under the contract are separate and distinct from those of the 1^st Trustees under the Bankruptcy Ordinance or the partnership law.

58.  We reject his submission as contrary to the legal principles applied by the Court of Appeal in the CA Judgment.

Conclusion and costs

59.  For the above reasons, we dismiss this appeal.  We have heard submissions on costs.  We order the plaintiff to pay the defendant’s costs of this appeal, including the costs of vacating the hearing date of this appeal in November last year due to the late revision of the appeal bundle by adding over 250 pages of documents.  Costs for vacating the hearing date are to be taxed on a party and party basis.