LEE YING LIN AND CHAN CHUI WAN DI DI, THE CO-ADMINISTRATRICES OF THE ESTATE OF CHAN CHUI PING KIMMY, DECEASED v. LO PIK LEE

HCPI 93/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO 93 OF 2013

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AND

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HCPI 94/2013

PERSONAL INJURIES ACTION NO 94 OF 2013

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(CONSOLIDATED)

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D E C I S I O N

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1. This is an appeal by the plaintiff from the decision of Master Roy Yu dismissing the plaintiff’s application for leave by the court to adduce expert evidence on quantum by a certified chartered accountant.

2. As such it is by way of rehearing.

Introduction

3. Chan Chui Ping Kimmy, deceased (“the 1^st deceased”) and Lo Kwan Lung, deceased (“the 2^nd deceased”) were respectively wife and husband before their deaths.

4. In the early hours of 13 February 2010, the 2^nd deceased was driving a motorbike with the 1^st deceased as pillion passenger and travelling along Tai Po Road when the motorbike driven by the 2^nd deceased came into a head‑on collision with a light goods vehicle driven by the defendant.  The light goods vehicle driven by the defendant was travelling on the wrong side of the dual carriageway of Tai Po Road when the accident occurred. As a result of the collision, both the 1^st and 2^nd deceased died.

5. Two separate actions were commenced by the plaintiffs being the co‑administratrices of the respective estates of the 1^st and the 2^nd deceased. Both actions were subsequently consolidated.

6. Liability for the accident has been admitted by the defendant with damages to be assessed.

7. In the circumstances, the incomes of the 1^st deceased as well as the 2^nd deceased are important factors for assessment of damages.

Background

8. It is the plaintiffs’ case that the 2^nd deceased, before his death, was the sole proprietor of Sun Cheong Motor‑Cycle Services (“Sun Cheong”) and his wife, the 1^st deceased, was the only other person who assisted him in running Sun Cheong.

9. It is the pleaded case of the plaintiffs that the business of Sun Cheong included the making, repair and maintenance of motorcycles as well as the purchases and sales of second‑hand motorcycles.

10. Sun Cheong was also one of the contractors of Mitsubishi Elevator Hong Kong Company Ltd (“Mitsubishi”) for the repair work of motorcycles used by Mitsuishi.

11. It is the plaintiffs’ case that:

(a)  Sun Cheong was a profitable enterprise and that the 1^st and 2^nd deceased worked very hard to make it profitable.

(b)  Most of the income from sales by Sun Cheong was received in cash, cheques or by autopay arrangements.

(c)  The 1^st deceased was responsible for all the financial management of Sun Cheong.

(d)  Whenever the cash income from sales by Sun Cheong was accumulated up to $20,000, the 1^st deceased would deposit same into her personal bank account.

(e)  The business expenses of Sun Cheong which included rental of the business premises, business registration fees, electricity, water and telephone charges, internet bills, purchase prices of second‑hand motorcycles, engine parts, spare parts, lubricants, license fees, and insurance premiums, were paid by EPS, cheques and autopay arrangements from the 1^st deceased’s personal bank account and also by cheques from Sun Cheong’s current bank account.

12. Given that the 1^st and 2^nd deceased owned and worked at Sun Cheong, the assessment of damages would necessarily require a determination of the net profit of Sun Cheong.

13. However, it would also appear that a major difficulty faced by the plaintiffs is not only the fact that they do not have personal knowledge of the profit earned by Sun Cheong.  This is further complicated by the fact that most of the business records of Sun Cheong were lost after the death of the 1^st and 2^nd deceased. It would appear that the loss of such business records of Sun Cheong came about because the premises where Sun Cheong operated were rented premises and that after the death of both deceased, the rented premises were reclaimed by the landlord and the business records of Sun Cheong kept there were disposed of by the landlord.

14. This can be seen from a letter from the plaintiffs’ solicitors dated 20 May 2014 to the defendant’s solicitors which stated:

“Almost all business records of Sun Cheong were kept in its shop at [address]. After the death of the 1^st deceased and 2^nd deceased, all these business records were lost. Our clients were only able to retrieve very few business records of Sun Cheong and they do not have personal knowledge of the profits earned by Sun Cheong.”

The plaintiffs’ application

15. It is against this background that the plaintiffs make the present application which is for leave from the court to adduce expert evidence by a certified public accountant “on quantum issue”.

16. At the hearing before the Master, the scope of the expert evidence sought was refined by counsel for the plaintiffs to “reconstruction of the profit and loss account of Sun Cheong which was run solely by the two deceased”.

17. That application was supported by an affirmation of Chan Kin Wo, who is the plaintiffs’ solicitor, and another affirmation of Chan Chui Wan, one of the co‑administratrices and who is also the sister of the 1^st deceased.

18. In her affirmation, Chan Chui Wan stated that before the accident, she had a close relationship with the 1^st deceased, her elder sister.  The 1^st deceased used to be an accounts clerk, but after Sun Cheong was established by the 2^nd deceased in 2004, the 1^st deceased resigned her job to assist the 2^nd deceased in running Sun Cheong.

19. She also gave the line of business of Sun Cheong being related to repair and maintenance of motorbikes and the selling of motorbike parts and that most of the customers were individuals who paid by cash.

20. After the accident she could only find some business documents of Sun Cheong which she passed over to the solicitors.  She also received some further payment and record from Mitsubishi.

21. The Master, in rejecting the application of the plaintiffs for expert evidence, gave a written Ruling as to why he dismissed the plaintiffs’ application.

22. Effectively, the Master came to the conclusion that the plaintiffs failed to satisfy him that expert evidence is necessary and have also failed to identify the issues or areas of dispute to be addressed by the expert.

This appeal

23. At this hearing, which, as already stated above, is by way of a rehearing, counsel for the plaintiffs puts the basis of this application squarely on “instructing accountants to reconstruct the profit and loss accounts of Sun Cheong” from which it would be possible for the court to determine the incomes of the 1^st and 2^nd deceased.

24. The reason put forward by counsel for the plaintiff as to why it would be necessary to “reconstruct” the profit and loss accounts of Sun Cheong was due to the loss of the business documents of Sun Cheong, and that the plaintiffs are not themselves accountants.  Without such reconstructed profit and loss accounts of Sun Cheong, the plaintiffs would be at a great disadvantage when it came to assessment of damages.

25. Counsel also pointed to the fact in the Statement of Damages which indicated that the dependants of the two deceased in this case are the parents of the 1^st deceased and two children of both deceased.  However, neither the dependants nor the plaintiffs took any part in running Sun Cheong.

26. At this hearing, counsel for the plaintiff also handed up to the court a document from the Inland Revenue Department entitled “Departmental Interpretation and Practice Notes No 11 (Revised) – Field Audit and Investigation” which counsel conceded was not a document handed to the Master at the hearing below due to the fact that counsel only came across this document when he was preparing for this appeal from the Master’s decision.

27. Counsel referred me to para 61 of that document which was subtitled “Books and records incomplete or unreliable” which is to the effect that the experience of the Inland Revenue Department has been that due to inadequate or even complete absence of records, it is often not possible to construct revised accounts on conventional lines.  For such cases, the back duty assessments generally have to be based on indirect methods which are founded on an investigation of the taxpayer’s personal affairs.  There is no single “best” method of quantification, and the method used depends on the circumstances of the case.  It then goes on to describe and detail a number of indirect methods which can be used.

28. Relying on what is stated in that para 61, counsel for the plaintiffs contend that in the present case, where a large part of the business documents relating to Sun Cheong is now missing (I am told by counsel that only about 10% to 20% of the business documents of Sun Cheong has been retrieved by the plaintiffs) expert accountants who are familiar with accounting principles will need to be engaged to “reconstruct” the profit and loss accounts of Sun Cheong by applying such accounting principles in largely the same way as was described by the Inland Revenue Department in para 61 of the document referred to above.

Defendant’s objection to plaintiffs’ application

29. The defendant’s objection to this application of the plaintiffs can be summarized as follows:

(a)  the matter of the deceaseds’ earnings is a factual one and can be deposed in a factual way without the need for experts;

(b)  the court is in a good position to look at the those business documents which have been retrieved and to come to a conclusion without the assistance of an accountant;

(c)  the “reconstruction” could be misleading; and

(d)  it is not justifiable to incur the costs of an accountant when the deceased did not have many accounts and or investments.

30. It was also submitted by counsel for the defendant that since all the bank documents of the 1^st deceased’s account, the 2^nd deceased’s account and the account of Sun Cheong are available, plus the tax returns submitted by the 1^st deceased and also the 2^nd deceased trading as Sun Cheong before their deaths are available, there will be sufficient documents from which the court will be able to come to a determination on the incomes of the two deceaseds before the accident and thereby to make an assessment of damages without the need for any accountant to reconstruct the profits and loss accounts of Sun Cheong.

Decision

31. The Master, when coming to his decision to dismiss the plaintiffs’ application, gave a full, detailed and well‑reasoned written Ruling.

32. One of the matters which greatly troubled the Master was stated by him in para 30 of his Ruling when he said:

“For the present application, I see no reason why the issues to be addressed and commented by the accountant expert should not be set out in the summons. The wording of the summons is unclear. Mr. Wong [ie counsel for the plaintiff] now asks for reconstruction of the profit and loss account of Sun Cheong from the bank account of the 1^st and 2^nd deceased and Sun Cheong. However, he has not identified with precision the matters that are to be referred to the expert for comments and to re‑construct the account.”

33. This is a major difficulty with the plaintiffs’ application for expert evidence.  Precisely what is it that the plaintiffs wish for the expert to do when making its report?  What exactly do the plaintiffs mean by “reconstruction”?

34. When this query was put to counsel for the plaintiffs at this hearing by the court, all that the plaintiffs’ counsel could do was to fish out and hand up to the court the Departmental Interpretation and Practice Notes No 11 (Revised) of the Inland Revenue Department and to refer to para 61 thereof saying that even with the Inland Revenue Department it is recognized by them that where there is a complete absence of records, there can be indirect methods to construct accounts for assessments.  The various indirect methods detailed by the Inland Revenue calls for an accountant to apply accounting principles which a court and counsel will not be able to do.

35. However, that does not answer the question raised.  Accounting principles cannot be applied in a vacuum.  Whatever accounting principles are to be applied, they have to be applied to a set of facts which goes to the accountant in the form of instructions (usually in the form of business documents).  But where such business documents are missing or lost as in the present case, and that there are no persons who have personal knowledge of the operations or goings on in Sun Cheong before the accident to the two deceased, then the factual matters cannot be given by way of instructions to the accountants.

36. The real question therefore is how is the accountant supposed to “reconstruct” the profit and loss accounts of Sun Cheong without factual instructions.  How is the accountant to know, for instance, what business amounts of Sun Cheong, has been mixed with the personal monies in the bank account of the 1^st deceased. In the absence of the 1^st and 2^nd deceased, no one else could give those instructions to the accountant.

37. It cannot be for the accountant to fill in the factual gaps in the instructions by assumptions or inferences.  That would be speculation by the expert and would give rise to more disputes and arguments at the trial on assessment of damages. No doubt it is in this respect that one of the objections by the defendant is to say that any “reconstruction” could be misleading.

38. Ultimately, counsel for the plaintiffs has never attempted to set out with any precision at any time what sort of “reconstruction” they wished the accountant to do and what opinion is sought from the accountant to be put before the court by way of expert evidence.

39. In the circumstances, I share the view expressed by the Master that the plaintiffs have failed to satisfy this court that expert evidence from an accountant is necessary in the present case to deal with the issue of quantum.

40. I should add that had the business documents of Sun Cheong been recovered, or even a majority of it, the outcome may well have been different if such a similar application had been made.  But in those circumstances, it would be the preparation of a set of profit and loss accounts of Sun Cheong (whether audited or unaudited) based on the business documents and not a “reconstruction” of it.

41. Accordingly, and for the reason given above, this appeal by the plaintiffs from the decision of the Master is dismissed.  All the orders made by the Master below, including the costs orders, are to stand in their entirety.

42. The plaintiff will simply have to go to assessment armed with the bank documents and the tax returns which they have.

Costs

43. There will be a costs order nisi that the plaintiffs do pay the defendant the costs of this appeal, to be taxed and paid forthwith if not agreed, with certificate for counsel.