LAW CHEUK v. CHAN FUNG LUEN MARGARET

HCPI 701/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO. 701 OF 2006

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J U D G M E N T

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1.  This personal injury action raises the vexed question of how to deal with a claim for loss of earnings where the injured person is employed by a company, wholly owned by him, and which continues to operate during the period in which the injured person is certified by a medical practitioner to be unfit for work, and so entitled to sick leave.

2.  In this case Mr Law is the proprietor, through a limited liability company, Tanfory Company Ltd., (Tanfory), of which, I am told from the bar, he is effectively the sole owner.  The company operates a very substantial and prominent nightclub in Hong Kong.  In the seven financial years prior to the accident the salary he received from the company had never been less than $5.4 million.

3.  In addition, Mr Law was the managing director and owner of a company, China Shine Estate Development Ltd., (China Shine), which was undertaking a very substantial property development in Guangzhou.  The terms of his employment agreement with China Shine were that China Shine would pay him a salary as and when the development project was completed, and the company had sufficient funds to make the payment.

4.  On 13 December 2003, Mr Law was injured in a motor vehicle accident.  As a result of injuries suffered in the accident, he was given a series of sick leave certificates, certifying him as unfit to work.

5.  Notwithstanding those certificates, Tanfory and China Shine and both continued to operate.

6.  Now Mr Law seeks to claim from the defendant loss of salary in relation to his position with the nightclub operated by Tanfory, contending that the sums paid to him during that period were reduced by the company because he was on sick leave.  The amount at issue is $4.8 million.  Apparently on the face of the record, Mr Law was paid a salary during the period of sick leave certificates, but in the books of the company that sum is said to have been subsequently treated as the repayment of loans.

7.  Mr Law also seeks to claim from the defendant loss of salary that he says would otherwise have been earned by him from China Shine.  On 22 August 2007, long after Mr Law had been found by his doctor to be fit for work, the property development company completed the project and paid a sum of some $8 million by way of salary for the period 1 July 2003 to 30 June 2007, but did not pay him a further sum of $5.8 million, which would have otherwise been earned during the period of sick leave.  Mr Law seeks to recover the sum of $5.8 million in these proceedings.

8.  Thus, the total claim for pre-trial loss of earnings is $10.6 million, a not insubstantial sum.

9.  In order to support the claim Mr Law has sought from the Master leave to adduce expert evidence from a forensic accountant in relation to his loss of earnings.  After hearing the parties, the defendant opposing the application, the Master refused leave to adduce the evidence.

10.  Mr Law now appeals that decision.

11.  The report of the forensic accountant, which I have seen de bene esse, identifies four issues to which it is addressed.  As Mr Tang’s opposition to the application was based upon the consideration of these issues, it is convenient to set them out.

12.  The first issue is in these terms:

“Whether Mr Law suffered any loss of earnings from being absent from work at Tanfory, considering, in particular that, during the relevant period, he was paid regularly by Tanfory but which payments were reclassified as loan repayments;”

13.  Mr Tang accepts, as does Mr Ozorio, that the question as to whether Mr Law was absent from work as a result of the injury suffered, is a purely factual issue which does not require expert evidence.

14.  As to the reclassification of payments as loan repayments, not salary, Mr Tang’s position is that there is no documentary evidence suggesting that there has been in fact such a reclassification, but that if such documentary evidence is produced, the defendant will concede that such a reclassification is proper from accounting point of view.

15.  The question as to whether or not there is documentary evidence of a reclassification is not a matter that requires expert evidence, but simply the production of the appropriate documents.

16.  Consequently, in respect of issue 1, the only point on which the forensic accountant can usefully assist the court is conceded, and the accountant’s evidence is not required.

17.  The second issue is:

“Whether the treatment of regular payments to Mr Law by Tanfory as repayment to set-off loans from Mr Law to Tanfory, and not of salaries, is consistent with standard accounting principles and practice;”

18.  Mr Tang concedes that such a treatment of regular payments is consistent with standard accounting principles and practice.

19.  Again, the only point on which the forensic accountant can usefully assist the court is conceded, and the evidence is not required.

20.  The third issue is:

“Whether the absence of Mr Law due to his injury led to loss of earnings of Tanfory;”

21.  The forensic accountant says in the report that he is unable to comment on whether the poor performance of Tanfory had anything to do with Mr Law’s absence from work.  He says further, and I do not understand Mr Tang to oppose the proposition:

“If the court were to find that the absence of Mr Law resulted in his inability to perform a necessary function, from an accounting point of view Tanfory was justified in stopping the payment of salary to Mr Law.”

22.  It is purely a factual issue as to whether Mr Law was unfit to work, and accordingly unable to perform a necessary function.  There is nothing in the report of the forensic accountant in respect of the third issue that would assist in the resolution of the matter by the court.

23.  The fourth issue is:

“Whether Mr Law suffered any loss of earnings from being absent from work at China Shine.”

24.  In this respect the evidence of the forensic accountant is that it is for the court to decide whether the reduction in the payment made can be treated as loss of earnings on the part of Mr Law.  Again, plainly, his evidence is not assist the court at all.

25.  It is clear that the Master was quite correct.  The appeal must be dismissed, with an order nisi that there be costs on the appeal in the cause to the defendant.

26.  Mr Ozorio argued the matter in part on the basis that the financial arrangements used by Mr Law were complex, and that Mr Law was an unsophisticated man with limited education who would have difficulty in explaining those circumstances to the court.  That, said Mr Ozorio, justified the use of expert evidence in explaining the circumstances.

27.  If an unusual or complex financial arrangements are in use it would be perfectly acceptable to call an accountant involved in those arrangements as a witness of fact, to explain those arrangements to the court, if it was thought necessary to have such an explanation.  In those circumstances the accountant would be giving his evidence as evidence of the facts of the arrangement, he being able to depose to those facts from his involvement in, and knowledge of those facts.  He would not be giving expert evidence, that he would be giving evidence of facts, not opinion.

28.  I will leave it to Mr Ozorio to give such advice as may be required in relation to any further evidence that may be considered necessary to properly explain the circumstances of Mr Law’s financial arrangements to the court.

29.  In the course of the hearing Mr Tang made a number of concessions which have been recorded in this judgment.  Mr Ozorio complained that as the defendant’s Answer to the Revised Statement of Damages amounted to a simple denial, it was necessary for those advising Mr Law to seek to prove everything. 

30.  The complaint is justified, and the Answer requires amendment in order to properly isolate and identify the true issues for trial.  Mr Tang sensibly agreed that an Amended Answer would be filed within 28 days of 10 June 2008.