YEUNG CHIU SING RICKY AND ANOTHER v. TSUI TACK KONG

DCCJ 6755/2019

[2022] HKDC 350

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6755 OF 2019

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DECISION

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I. INTRODUCTION

1.  On 1 June 2021, I handed down my decision in which I ordered that (a) the orders of the Master dated 2 December 2020 be set aside; (b) Summary Judgment be entered for the plaintiffs; (c) the defendant’s counterclaim be dismissed; and (d) a costs order nisi that the costs of the Summary Judgment Summons, the plaintiffs’ appeal against the Master’s decision and the Action be paid by the defendant to the plaintiffs (“the Decision”).

2.  By Summons dated 11 June 2021, the plaintiffs applied to vary the costs order nisi to the effect that costs of the Summary Judgment Summons, the plaintiffs’ appeal against the Master’s decision and the Action be paid by the defendant to the plaintiffs, with certificate for one counsel for each of the hearings of the Summary Judgment application and of the appeal (“Ps’ Variation Summons”).

3.  By Summons dated 11 June 2021, the defendant seeks leave to appeal against the Decision (“D’s Appeal Summons”).

4.  P’s Variation Summons and D’s Appeal Summons were heard together before this Court on 16 August 2021 (“the Hearing”).

5.  At the Hearing, I granted P’s Variation Summons. I have reserved my decision on D’s Appeal Summons and I will give my decision here.

6.  Unless otherwise stated, I adopt the abbreviations used in the Decision.

II.  Discussion

7.  I dismiss D’s Appeal Summons as I do not consider any of the intended grounds of appeal raised in the draft revised Notice of Appeal (“the DNoA”) exhibited to the 3^rd Affirmation of the defendant at “TTK-7” has a real prospect of success or there is any other reason in the interest of justice requiring the appeal to be heard by the Court of Appeal: see Section 63A of the District Court Ordinance (Cap 336).

8.  I note that some of the arguments raised in the defendant’s skeleton dated 9 August 2021 went beyond the scope of the DNoA. I will not deal with those arguments as an appellant is not entitled to raise new argument which is not covered in the notice of appeal without the leave of the Court: see Order 59 rule 3 (3) RHC; United Muslim Association of Hong Kong & Ors v Yusuf Yu [2018] 4 HKLRD 22 at §§42-46.

Ground 1

9.  Under Ground 1, the defendant cited Hong Kong Civil Procedure 2021 §14/4/11 and contended that I should not have granted summary judgment based on EY’s Opinion, as “leave to defend should be given [to the defendant] where liability depends on professional opinion”.

10.  This ground of appeal has no merit at all as the defendant is proceeding on a wrong assumption that its liability in the Action depends on the correctness of EY’s Opinion.

11.  As I have analysed and concluded in §§31 to 33 of the Decision, it was the plaintiffs and the defendant’s intention to refer the Deferred Tax Dispute to EY for determination and that EY’s Opinion which addressed the Deferred Tax Dispute shall be final and binding on them. Accordingly, short of evidence that EY has materially departed from the instructions given by the parties, it is not open to the plaintiffs or the defendant to challenge EY’s Opinion on the ground of mistake: see Lau Yee Ching v Wong Tak Kwok CACV 172/2006 (unrep, 26/1/2007) per Tang VP (as he then was) at §§15-17.

12.  This is not a case where the Court needs to choose between conflicting professional opinion. Rather, by agreement, the parties have agreed to be bound by EY’s Opinion. Hence, Hong Kong Civil Procedure 2021 §14/4/11; European Partners in Capital (EPIC) Holdings BV v Goddard & Smith [1992] 41 E.G. 118; Belvedere Ltd v Incorporated Owners of Dak Shing Building [2015] HKEC 322; and Mahan Selvaraj v Grace Ka Man O’Brian [2020] HKCA 698 relied on by the defendant have no application here.

Ground 2

13.  Under Ground 2, the defendant raised two complaints:-

(a)  First, the defendant alleged that there was a defect in substance in the plaintiffs’ SoC as the plaintiffs pleaded that the parties would treat EY’s Opinion as “authoritative” rather than “final and binding”. Hence, I could not proceed on the basis that the opinion by EY was to be final and binding with respect to the Deferred Tax Dispute: see DNoA §§2, 4.

(b)  Second, the defendant contended that I had conducted a mini-trial on affidavit in finding in §32 of the Decision that the plaintiffs and the defendants did intend the opinion of EY to be final and binding on them with respect to the Deferred Tax Dispute: see DNoA §§3, 5.

14.  With respect to the defendant’s first complaint, I do not agree that there was any defect in the plaintiffs’ statement of claim. There is no magic in the word “authoritative” or the phrase “final and binding”. According to Shorter Oxford English Dictionary (6^th Edn), Vol 1 at p 155, “authoritative” can mean “possessing or claiming due authority; entitled to deference and acceptance”. As I have explained in §§31-32 of the Decision, reading the word “authoritative” in the context of the SoC as a whole, as well as the facts of the case (including the contemporaneous correspondence between the parties), the parties did intend the opinion of EY to have the legal effect of being final and binding on them.

15.  As to the defendant’s second complaint, while the Court will not conduct any mini-trial on affidavit, it is entitled to test the defendant’s case against the evidence disclosed in the affidavit including contemporaneous documents. In finding that (a) the parties intended to treat the opinion by EY to be final and binding; (b) EY’s Opinion had answered D’s Alleged Essential Question; (c) EY had not materially departed from the parties’ instructions as set out in the Engagement Letter; and (d) the deferred tax (ie the Disputed Sum) does not constitute a potential liability on the Company, I have primarily referred to the parties’ contemporaneous correspondence, the Engagement Letter and EY’s Opinion, and tested the parties’ case against the above contemporaneous written documents. I do not consider that I have erred in law in my approach to the evidence.

Ground 3

16.  Under Ground 3, the defendant raised five complaints against my reasoning and conclusion as set out in §§34 (a), 34 (b) and 37 of the Decision: see p 5 of the DNoA. There is no substance in any of the complaints.

17.  With respect to complaint (1), by opining in paragraphs 4.2 and 4.3 of EY’s Opinion that there was a deferred tax asset of HK$5,125 in respect of the Property as at 30 June 2018, the other side of the coin must be that there was no deferred tax liability in respect of the Property as at 30 June 2018.

18.  With respect to complaint (2), it is wrong for the defendant to say that EY has not discussed the Company’s deferred liability in the amount of the Disputed Sum allegedly arising from the Company’s claim for allowance over the years. EY has answered the question in paragraphs 3.1 and 4.1 of EY’s Opinion by stating that under the current tax law, the Company’s claim for commercial building allowance will only give rise to a balancing charge when, inter alia, the relevant interest in the Property is sold. As the PSPA concerned the sale of the Shares of the Company holding the Property, and there was no sale of the Property by the Company, no balancing charge would arise.

19.  Complaint (3) is an argument that EY has committed mistakes in its preparation of EY’s Opinion. As the parties have agreed to be bound by EY’s Opinion, the defendant is not allowed to challenge EY’s Opinion on the basis of the alleged mistakes.

20.  Under Complaint (4), the defendant said that even if a balancing charge will only arise in the event that the Company sells the Property in the future, I should have considered whether such balancing charge falls within “all liabilities (actual contingent or otherwise…)” in Clause 9 of the PSPA. This is not part of the defendant’s pleaded defence and not part of the Deferred Tax Dispute which the parties agreed to be resolved by EY under the Dispute Resolution Agreement: see §§10-12 SoC and §§6-7 D&CC.

21.  Contrary to the defendant’s allegation in Complaint (5)[1], EY did not accept that the Company has any deferred tax liability. EY’s view as clearly set out in paragraphs 4.1 to 4.3 of EY’s Opinion was that the Company did not have any deferred tax liability and no balancing charge would arise from the sale of the Shares in the Company under the PSPA.

22.  In the first part of §7 of the DNoA[2], the defendant is making the same point as that under Ground 1. As I have explained above, this complaint has no merit.

23.  As to the latter part of §7 of the DNoA[3], the defendant said that I should have held that the plaintiffs must explain why the Company had changed the reporting standard from HKFRS-PE to SME-FRS and held that there are triable issues arising therefrom. The above has never been part of the defendant’s defence or the defendant’s complaint against EY’s Opinion. As the defendant said in his 1^st Affirmation dated 6 July 2020 at §42 “As regards the Company’s 2019 Accounts and the Completion Accounts, the Company has switched to adopt the accounting standard of SME-FRS. Under SME-FRS, deferred tax liability should not be recognised. But as mentioned earlier, for the purpose of the Agreement, it does not matter whether the Deferred Tax is to be recognised, what does matter is whether it exists.” (Emphasis added).

Ground 4

24.  Under Ground 4, the defendant complained that I have erred in law in finding that EY has not departed from the instructions given to it by the parties in preparing EY’s Opinion. Again, I do not consider the defendant’s complaint to have any merits.

25.  First, the defendant’s complaint that EY has given a “defective” opinion in paragraph 4.1 of EY’s Opinion is in substance a complaint that EY has committed a mistake in reaching the opinion. As I have found that the parties had intended EY’s Opinion to be final and binding, it is not open to the defendant to challenge EY’s Opinion based on an alleged mistake.

26.  Second, it is wrong for the defendant to say that EY has materially departed from the parties’ instructions by not providing “a definitive opinion in the context of clause 9 of the SPA”, which has never been part of the instructions given by the parties to EY as contained in the Engagement Letter.

27.  Third, EY had taken the defendant’s comments in ATT’s letter dated 3 September 2019 and D’s Proposed Additions enclosed to the said letter into account when it finalised EY’s Opinion. EY had included D’s Proposed Additions as part of the “Background facts and assumptions” in EY’s Opinion. EY had also opined under paragraph 4.3 of EY’s Opinion that it was reasonable for the auditor not to book the deferred tax assets of HK$5,125 in the AFS for the year ended 30 June 2018 under HKFRSPE as the auditor considered the amount to be immaterial.

IV.  Disposition

28.  I will dismiss D’s Appeal Summons.

29.  Costs of and occasioned by D’s Appeal Summons be paid by the defendant to the plaintiffs, with certificate for one counsel for the Hearing insofar as that part of the Hearing concerns D’s Appeal Summons. I will order summary assessment of the above costs:-

(a)  The plaintiffs shall submit their statement of costs within 7 days from the date of this decision;

(b)  The defendant shall submit his comments on the plaintiffs’ statement of costs within 7 days’ thereafter. Such comments shall be succinct and shall not exceed 3 pages;

(c)  The plaintiffs shall submit their response to the defendant’s comments within 3 days’ thereafter. Such response shall be succinct and shall not exceed 2 pages.