JOHN ROBERT LEES AND ANOTHER v. DRAGON INVESTMENT COMPANY II LLC AND OTHERS

HCA1180/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1180 OF 2003

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J U D G M E N T

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1. The defendant appeals against the decision of Master de Souza given on 7 May 2007 refusing to grant leave to the defendant to adduce expert evidence from a liquidator in this matter.

The plaintiffs’ claim

2. This claim is brought by the plaintiffs who were appointed joint provisional liquidators of Sino American Telecom Inc (“the Company”) by the court on 14 May 1998, the same day on which the defendant presented a petition for the winding up of the Company.

3. The plaintiffs’ claim is for some $5.9 million being the amount of their remuneration and disbursements approved by Kwan J , the companies judge, in August 2004 for payment out of the asset of the Company, but which was not met by any such asset.

4. The basis of the plaintiffs’ claim is an Indemnity Agreement signed between the plaintiffs and the defendant and dated 16 June 1998 which provided that in consideration of the plaintiffs agreeing, at the request of the defendant, “to accept appointment” as joint provisional liquidators of the Company, the defendant undertakes to indemnify the plaintiffs against : 

“

… any liability which may be incurred or suffered … by reason of the appointment of yourselves as joint provisional liquidators as aforesaid or of your acting as such joint provisional liquidators … to the extent that you are unable to recover the same from the assets of [the Company] and provided that such liability shall not have arisen by your own negligence misconduct or default.”

The Indemnity Agreement further provides :

“

In particular (but without prejudice to the generality of the foregoing) [the defendant] hereby agree to indemnify you … in respect of any costs, joint provisional liquidators’ remuneration and joint provisional liquidators’ disbursement to the extent not paid out of the companies’ assets … provided that such … costs, expenses and other liabilities shall not have arisen or been caused by your negligence, misconduct or default.”

The defence raised

5. A number of defences have been raised by the defendant to the claim of the plaintiffs.

6. Some of those defences, such as the defence of past consideration, and the defence that the plaintiffs’ own remuneration was not covered by the Indemnity Agreement (which therefore turns on the construction of the Indemnity Agreement) are not relevant to the present application for expert evidence as it had been conceded by the defendant that those defences involve purely legal argument.

7. Those other defences raised which are relevant to the present application for expert evidence, are said by the defendant to arise out of the plaintiffs’ negligence, misconduct or default in discharging their duties as provisional liquidators of the Company, particulars of which can be summarized as follows :

(a)	fees incurred by applications to appoint the plaintiffs as the provisional liquidators of Remoco (Hong Kong) Ltd and Goldremart Holdings Ltd, being two subsidiaries of the Company which comprised the assets of the Company.  The defendant alleged that the plaintiffs knew or ought to have known such applications were misconceived and should never have been made.  Those applications were ultimately dismissed by Le Pichon J (as she then was) on 21 May 1998;
(b)	fees incurred in an application to the court to sell the assets of the Company to its creditors.  The defendant alleged that the plaintiff knew or ought to have known that such application was misconceived (instead there should have been a scheme of arrangement).  That application was also dismissed by Le Pichon J on 3 July 1998.  The appeal therefrom was also dismissed by the Court of Appeal;
(c)	fees unnecessarily incurred or wasted when Messrs Lui & Carey, having advised on a Loan Agreement (in respect of a loan made by Pheonix Telecommunication Ltd to the joint venture which formed part of the asset of the Company) and after the Loan Agreement had been approved by the court, a partner of Messrs Lui & Carey then advised that the Loan Agreement was incorrect and the terms had to be changed;
(d)	fees also unnecessarily incurred in defending an action by Writ wherein SEC Development Co. Ltd claimed against Remoco (Hong Kong) Ltd in HCA6456/1999.  The defendant alleged that there was no benefit to the Company to defend that claim since, by the time of that claim, the assets of Remoco (Hong Kong) Ltd had already been transferred to Remoco China Ltd, and that it was only of benefit to Pheonix who had requested the Writ to be defended;
(e)	the defendant also relies on the further failures of two solicitor firms, Messrs Lui & Carey and Messrs Dibb Lupton Allsop, as were relied upon by the plaintiffs in contesting taxation proceedings, to be failures which the plaintiffs should have prevented by proper supervision of those two firms of solicitor;
(f)	the defendant alleged that work done after 14 August 2000 in respect of Remoco Hong Kong Ltd was wrongly charged by the plaintiffs as part of the Company’s provisional liquidation despite an order for winding up of Remoco (Hong Kong) Ltd was made on that date;
(g)	the defendant alleged that the plaintiffs’ claim included remuneration for work done by the plaintiffs not within the provisional liquidation of the Company, but was work done for Phoenix and Remoco China Ltd, as well as dealings with the Official Receiver in respect of the winding up of Remoco (Hong Kong) Ltd, which should not be recoverable under the Indemnity Agreement;
(h)	the defendant further alleged that the fees charged by the plaintiffs were excessive and include unbillable an duplicated time; and
(i)	lastly, the defendant also alleged that the plaintiffs failed to pursue the auditors of the Company and of Remoco (Hong Kong) Ltd in respect of the $3.2 million shown in the audited accounts of the Company which the plaintiffs say was fictitious, but which entry the defendant relied on when investing in the Company.

The application for expert evidence

8. On the basis of the defence involving the plaintiffs’ negligence, misconduct and default in discharging their duties as provisional liquidators of the Company, the defendant submits that it is necessary and that the court will be assisted by expert evidence from a liquidator to prove the standard which should be expected from a reasonably competent provisional liquidator in the discharge of his duties as such.

9. In this respect, it was submitted by counsel for the defendant that although provisional liquidators are appointed and supervised by the court, but since the court does not engage in the day-to-day work of a provisional liquidator, evidence from an expert as to such day to day work becomes necessary for the court to decide what is a reasonable standard of conduct in that office.

10. The defendant seeks to draw an analogy with professional negligence cases and relies on the decision of the Court of Appeal in England in the case of Sansom & anr v. Metcalfe Hambleton & Co. [1998] PNLR 542 in which the Court of Appeal, allowing the appeal by the defendant, a surveyor, held that applying the general rule against finding a professional guilty of negligence without evidence from those within the same profession, the judge had not had the expert evidence necessary to make a finding of professional negligence against the defendants. 

11. On the other hand, the plaintiffs submit that since provisional liquidators are appointed and supervised by the court in their work and their conduct, the court is well in a position to determine what is reasonable standard for such conduct and therefore whether such conduct has fallen below such standard so as to amount to negligence or misconduct.

12. Therefore in the present case, where the issues raised concern whether the plaintiffs’ conduct as provisional liquidators have fallen below that standard of competence required of a provisional liquidator in these courts, the court is in a position to judge the level of those standards without the assistance of any expert.

Decision

13. It is trite law and practice that it is always upon a party seeking to adduce expert evidence for it to satisfy the court that expert evidence is necessary to assist the court in matters which the trier of facts will otherwise not have the required or specialized knowledge.  It follows from that that where the issue is one which falls within the knowledge or experience of the trier of fact there is no need for expert evidence.

14. Admittedly, in the majority of cases alleging professional negligence, leave will be given for expert witnesses within that same profession to prove the workings and also standards to be expected from someone reasonably competent in that profession.  But even so, it depends very much on the issues in dispute between the parties.  There is, however, no hard and fast rule that in cases of professional negligence expert witness within the profession concerned must be adduced.

15. As for instance, if a professional driver of a normal vehicle was alleged to have been negligent in his driving, such as a taxi driver, it would be unlikely that expert evidence will be allowed merely to prove the level of driving standard expected of him.  The reason for that is that the judge dealing with the trial can be expected to have such knowledge and experience of such driving standard without the assistance of an expert.

16. Furthermore, in the majority of cases of negligence alleged against a solicitor in the discharge of his duties as such, there is usually no necessity to call expert evidence as to conduct and standard to be expected of a reasonably competent solicitor.  Again the reason for that is that the judge is in a position to decide whether the conduct alleged and proved has fallen below the standard which is reasonably expected of a solicitor from the judge’s own knowledge and experience.

17. In the present case, the first thing to note is that although an analogy has been drawn by the defendant with cases of professional negligence, a provisional liquidator is not per se a profession, rather it is an office and the person appointed by the court to be a provisional liquidator is an officer of the court discharging those duties as such and with the supervision of the court in so doing.

18. While a court may not engage in the day-to-day working of a provisional liquidator, that should not prevent the court from delineating what is a reasonable standard to be expected from a reasonably competent provisional liquidator.  Without such knowledge, a court will not be able to effectively control or supervise a provisional liquidator in the discharge of his duties as such.

19. Based on the issues raised by the defence relating to negligence, misconduct and default of the plaintiffs, as well as the instances particularised relating to that allegation and from all the material before me, it would appear that what has been alleged by the defendant go only to the general conduct of the plaintiffs as provisional liquidators.

20. There is not the least indication that there are any specialised area relating to the disputed issues between the parties (such as accounting or accounting treatment) which the court will need expert evidence to assist it on.

21. Indeed the submission of counsel for the defendant is that they seek to adduce expert evidence to prove the general conduct and standard of a reasonably competent provisional liquidator.

22. Accordingly, I am not persuaded by the defendant that there is such a necessity to adduce expert evidence in the manner suggested.  Rather I accept the views of the plaintiff that the court is in a position to decide what is reasonable standard for a reasonably competent provisional liquidator acting in the discharge of his duties without assistance from expert.

23. This appeal is therefore dismissed and the order of the master below is affirmed.

Cost

24. There will be a costs order nisi that the defendant pays the plaintiffs their costs of this appeal in any event.