NG SHEK WAI v. HONG KONG INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

HCAL 81/2016

[2021] HKCFI 46

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 81 OF 2016

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JUDGMENT

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A. INTRODUCTION

1.  This claim for judicial review originates from a dispute between a flat owner and an incorporated owners’ committee over building renovations.

2.  The applicant (“Mr Ng”) is the flat owner in this instance, and his grievance starts with the incorporated owners’ committee of Corona Tower, 93 Caine Road (“IO”) over the renovation of Corona Tower in 2012 and 2013.

3.  In essence, Mr Ng was in his own mind convinced that (a) the IO was deceived into paying for certain works which were not carried out, or (b) alternatively, such works were already covered under a pre-existing contract between the IO and the renovation contractor, meaning the IO paid extra for work to which it was entitled.  The IO did not share that view.

4.  Dissatisfied, Mr Ng then directly contacted the auditor engaged by the IO, Mr Lin King Wai (“Mr Lin”) and repeatedly petitioned Mr Lin to either (a) seek further evidence from the IO to prove that the Lintel Repair Works were actually carried out, or (b) modify his audit opinion in respect of the IO’s financial statements for the 2014 and 2015 financial years.  Mr Lin declined.

5.  Mr Ng’s next move was to lodge a complaint against Mr Lin with the respondent (“HKICPA”).  To this end, he filed a complaint form and also sent a large number of emails to the HKICPA setting out his criticisms of Mr Lin’s conduct.

6.  The Professional Conduct Committee of the HKICPA resolved to dismiss the complaint on the ground that no prima facie case had been shown and that Mr Lin did not have a case to answer (“Decision”).

7.  As a result, the HKICPA became the latest target in Mr Ng’s ongoing crusade.  By these proceedings, he claims that the Decision should be quashed on the ground that the HKICPA failed to provide sufficient reasons to justify the Decision.

8.  Mr Ng’s grounds of judicial review are in substance and principle that the Decision lacked adequate reasons.

9.  At the same time, HKICPA’s grounds of opposition to the judicial review are fundamentally that (a) as a matter of law, HKICPA’s duty and scope to provide reasons is shaped in the context of the specific circumstances of the present case concerning the confidentiality duty imposed on a professional auditor in relation to his client, (b) considered against the duty and scope so shaped, the Decision and the replies by HKICPA read together have provided sufficient reasons as required by the law.

10.  As amplified below, HKICPA submitted that the challenge by Mr Ng is unmeritorious. Adequate reasons were provided to Mr Ng.  The case handler at the HKICPA responded to each of Mr Ng’s emails in some detail and explained to him, in essence, that (a) the available evidence, including the evidence provided by Mr Ng, was not sufficient to establish that the IO’s payments for the renovation works were improper, and (b) Mr Lin was not required by the auditing standards to carry out further investigations or audit procedures as requested by Mr Ng.

11.  HKICPA further submitted that indeed, it would be inappropriate and harmful to the functioning of the regulatory scheme administered by the HKICPA to compel the HKICPA to provide more detailed reasons in the present context, which includes the following key features:

(1)  The HKICPA’s position was essentially a negative one – ie one based on the absence of evidence – which is inherently incapable of more detailed elaboration.

(2)  On Mr Ng’s own evidence, the Decision does not have any or any substantial impact on his interests.

(3)  Under the HKICPA’s complaint handling procedure, the initial decision made by Professional Conduct Committee of the HKICPA is intended to serve as an efficient means of filtering out unmeritorious or minor complaints.  This purpose would be defeated if each decision must be accompanied with detailed reasons.

(4)  The Professional Conduct Committee deals with each complaint by a collective decision-making process.  In such cases, it is inappropriate to require detailed reasons, as each committee member may have reached the same ultimate conclusion by varying routes.

(5)  A challenge against the Professional Conduct Committee’s decision to dismiss a complaint does not proceed by way of appeal.  Instead, applicants have the right under section 34(1AAA) of the Professional Accountants Ordinance, Cap 50 (“PAO”) to request the Council to consider the matter on a de novo basis.

(6)  The respondent auditor and the HKICPA are under a duty of confidentiality, which compels them to avoid disclosing material provided by the client to third parties.  The maintenance of confidentiality in respect of such materials is necessary to maintain the relationship of trust and confidence between auditors and their clients.

B.     BACKGROUND

12.  The following relevant background is extracted from HKICPA’s Skeleton Submissions.

B1.    The HKICPA

13.  The HKICPA was established and incorporated by the PAO.  It is responsible for the registration and control of the accountancy profession in Hong Kong.

14.  The governing body of the HKICPA is the Council, established under section 10 of the PAO.

15.  Under section 7 of the PAO, the objectives of the HKICPA include (a) regulating the practice of the accountancy profession, (b) preserving and maintaining its reputation, integrity and status, and (c) discouraging dishonourable conduct and practices by certified public accountants (“CPA”), and for this purpose, holding inquiries into the conduct of CPAs.  In other words, an important function of the HKICPA is to serve as a regulator of the accountancy profession.

16.  In the exercise of its regulatory function, the HKICPA deals with complaints concerning the ethical and professional conduct of CPAs and their firms/practices.  The complaints which may be made against CPAs are set out in section 34(1) of the PAO.

17.  The relevant category of complaint for the present case is failure to observe, maintain or otherwise apply a professional standard under section 34(1)(vi) of the PAO.

18.  It is in the interests of the public and the respondent auditor to ensure that such complaints are handled in a prompt and efficient manner:

(1)  Efficient investigation into and resolution of such complaints is necessary to maintain the public’s trust and confidence in the accountancy profession.

(2)  Likewise, it would be unfair to the respondent auditor if a complaint of professional conduct is left hanging over his or her head for an extended period, particularly if the respondent auditor is ultimately cleared of the charge.

B2.   TheHKICPA’s complaint handling process

19.  The HKICPA’s complaint handling process is set out in its Complaint Handling Flow Chart.

B2.1  Assignment of case handler and initial investigation

20.  When a complaint is received, a CPA of the HKICPA’s Compliance Department will be assigned to handle the complaint.  This individual is referred to as the “case handler”.

21.  Generally, the first step taken by the case handler is to see if it is appropriate to make inquiries of the respondent auditor in relation to the complaint.  If so, the case handler will seek representations from the respondent auditor and ask for production of supporting information and documents, which will often include material supplied by the client.

B2.2  Review by the Professional Conduct Committee

22.  After the initial investigation, the case handler will report his or her findings to the Professional Conduct Committee of the HKICPA, a non-statutory committee established by the Council to deal with complaints against CPAs.  It is made up of independent CPAs who are not staff of the HKICPA.

23.  The Professional Conduct Committee meets several times each year to evaluate and decide upon case reports submitted by the compliance department.  The committee usually has to deal with multiple complaints at each meeting.  By way of illustration:

(1)  In 2015, the Professional Conduct Committee held 7 meetings and dealt with 85 complaints.  On average, 12 cases were considered by the committee at each meeting.

(2)  In 2016, the Professional Conduct Committee held 7 meetings and dealt with 86 complaints.  On average, 12 cases were considered by the committee at each meeting.

24.  Upon review of the complaint, the Professional Conduct Committee may reach one of three conclusions.

25.  First, the Professional Conduct Committee may find that a prima facie case of improper conduct under section 34(1) of the PAO is made out.  If so, it may take one of three courses of action:

(1)  If the improper conduct is minor in nature, issuing a letter of disapproval to the CPA.

(2)  If the improper conduct is moderately serious, recommending that the Council deal with the matter by way of a resolution by agreement, which may include a mandatory public censure of the CPA and the imposition of a penalty.

(3)  If the improper conduct is serious, recommending that the Council refer the matter to the HKICPA’s Disciplinary Committee.  In such cases, each of the parties is entitled to legal representation.

26.  Second, the Professional Conduct Committee may find that further investigation is required.  If so, it will recommend to the Council that an Investigation Committee be established to carry out a statutory investigation pursuant to the provisions under the PAO Part VA.

27.  Third, the Professional Conduct Committee may find that no prima facie case of misconduct has been made out.  If so, it will dismiss the complaint.

B2.3  Nature of the review by the Professional Conduct Committee

28.  As can be seen from the structure of the HKICPA’s complaint handling process, the review by the Professional Conduct Committee is meant to serve as an efficient means of filtering out unmeritorious complaints, minor complaints and complaints calling for further investigation.

29.  This mechanism is key to the prompt resolution of the complaints against CPAs.  The HKICPA receives close to 100 complaints annually.  It is therefore practically impossible for the HKICPA to deal with each and every complaint by way of the more formal procedure used in Disciplinary Committee proceedings.

30.  In this regard, the well-established public law position on the extent to which a public authority is required to make inquiries or further inquiries into any particular matter warrants emphasis.  The law is that, subject to a Wednesbury challenge (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680), it is for the public body, and not the court to decide upon the manner and intensity of inquiry to be undertaken: see Deng Suet Yan v Hong Kong Housing Authority[2017] 4 HKLRD 73 at §19 (Lam VP).

B2.4  Safeguards against erroneous decisions on the part of the Professional Conduct Committee

31.  There is no right of appeal against the decision of the Professional Conduct Committee, irrespective of the conclusion which it reaches.

32.  There are, however, three safeguards built in to ensure that the Professional Conduct Committee handles complaints in a proper manner.

33.  First, the Professional Conduct Committee’s decisions are subject to oversight by the Regulatory Accountability Board of the Council (“RAB”):

(1)  The RAB is a non-statutory committee established for the purpose of, inter alia, overseeing the performance and operations of the Compliance Department and the Professional Conduct Committee.

(2)  Every year, the RAB will compile a random selection of complaints handled by the Professional Conduct Committee to determine – in essence – whether it has applied adequate internal procedures and appropriately addressed the allegations made by the complainants.

(3)  The RAB notably provided positive feedback on the work of the Professional Conduct Committee in both 2015 and 2016 (ie the period in which Mr Ng’s complaint was handled) and opined, inter alia, that (a) no deviations from due process were noted, (b) all allegations made by complainants were addressed, and (c) no criticisms were made in respect of the quality of case handling.

34.  Second, under section 34(1AAA) of the PAO:

(1)  If the Council decides not to refer the complaint to the Disciplinary Committee, a complainant who is aggrieved by the Council’s decision may request the Council to refer the complaint to the Disciplinary Committee.

(2)  In that scenario, the Council shall refer the complaint to the Disciplinary Committee unless it is of the opinion that no prima facie case exists or that the complaint is frivolous or vexatious.

(3)  In other words, this procedure gives complainants who are aggrieved by the Professional Conduct Committee's decision an opportunity to request the Council to consider the complaint on a de novo basis.  This provides a further safeguard and means of redress against erroneous decisions by the Professional Conduct Committee.

35.  Third, the HKICPA also has a discretion to re-open the dismissed complaint if the complainant is subsequently able to adduce new evidence which shows that there could be a case to answer.

B3.    Mr Ng’s complaint

B3.1  The renovation of Corona Tower

36.  According to Mr Ng, between August 2012 and October 2013, substantial renovation works were carried out on Corona Tower by a contractor and an architectural consultant.

37.  Part of the renovation works involved (a) the rebuilding and repair of window lintels, and (b) the repair of gaps between the outer wall and the window frame of the master bedroom (“Disputed Works”).

38.  Mr Ng had several concerns or doubts about the Disputed Works, which may be summarised as follows:

(1)  He alleges that the architectural consultant gave a false explanation as to why such works were necessary.  The consultant said that the Disputed Works were mandated by law, but Mr Ng claims this explanation was untrue.  To Mr Ng’s mind, this raises doubts as to whether the IO was deceived into paying for the Disputed Works.

(2)  The invoices provided by the contractor did not list out the exact location and length of every gap and window lintel repaired.  As a result, Mr Ng suspected that the total lengths on the invoices were inflated and the IO was deceived into paying for works which were not done.

(3)  Mr Ng considered that the Disputed Works also fell within another pre-existing item within the renovation contract between the IO and the contractor, namely repairing structural defects and cracks in the outer walls.  On this basis, Mr Ng is of the view that the IO effectively paid twice for the Disputed Works.

B3.2  Mr Ng’s communication with Mr Lin

39.  On 30 June 2015, Mr Ng sent a complaint letter to Mr Lin which:

(1)  Set out his doubts and concerns in relation to the Disputed Works.

(2)  Requested Mr Lin to seek further evidence from the IO to prove that the Disputed Works were necessary and were in fact carried out.

(3)  Requested Mr Lin to modify his opinion in respect of the IO’s financial statements for the 2014 and 2015 financial years in the event that the IO failed to provide the requested evidence.

40.  Sometime between 30 June and 6 July 2015, Mr Ng called Mr Lin and reiterated his requests.  According to Mr Ng, Mr Lin’s response was that:

(1)  He would ask the IO to provide him with the “bills and information” concerning the Disputed Works.

(2)  He would not demand the IO to provide further information to confirm the “genuineness of the bill”.

(3)  He would not inform Mr Ng as to how the latter’s complaint would be handled.

(4)  He would not tell Mr Ng whether he would set a time limit for the IO to answer his queries.

41.  On 21 July 2015, Mr Ng sent a second complaint letter to Mr Lin, in which he threatened to file a complaint with the HKICPA in the event that Mr Lin continued to refuse to comply with his requests.

B3.3  Mr Ng’s complaint to and correspondence with the HKICPA

42.  On 10 August 2015, Mr Ng filed a complaint against Mr Lin with the HKICPA.

43.  Between 12 August 2015 and 27 April 2016, Mr Ng and the HKICPA then exchanged 19 emails in which Mr Ng set out, and the HKICPA responded to, a number of different complaints concerning Mr Lin’s conduct.

44.  Due to the volume of correspondence, as well as the fact that Mr Ng has framed his complaints in slightly different ways in each email, it is difficult to set out the exact scope of his complaint.  However, as submitted by the HKICPA, it appears the key tenets of his complaint are that:

(1)  In light of the information provided by Mr Ng, Mr Lin was obligated to demand the IO to provide evidence which proved that the Disputed Works had been carried out.

(2)  In the event that the IO failed to provide such evidence, Mr Lin was obligated to modify his opinion in respect of the IO’s financial statements for financial years 2014 and 2015, even though the auditor’s report and financial statements had both been issued.

(3)  Mr Lin was also under an obligation to inform Mr Ng of the results of his investigations.

(4)  By failing to take any of those steps, Mr Lin breached Hong Kong Standards on Auditing (“HKSA”) 200, 240 and 560.

45.  By his letter dated 2 February 2016, Mr Ng also raised an additional complaint, namely that (1) Mr Lin had disclosed the details of Mr Ng’s complaints to the IO, and (2) in doing so, Mr Lin breached an implied rule that an auditor should not disclose a complaint from an informer to their client unless there is good reason.

B4.   Handling of MrNg’s complaint

46.  Upon receipt of Mr Ng’s complaint, Ms Winnie Leung (“Ms Leung”) of the HKICPA’s Compliance Department was assigned as the case handler under the supervision of Mr Peter Nip (“Mr Nip”).

47.  By a letter dated 5 October 2015, Ms Leung sought representations from Mr Lin in response to the complaint.

48.  By a letter dated 22 October 2015, Mr Lin provided his response to Ms Leung’s inquiries and provided copies of supporting documents for review.

49.  After considering the available materials, Ms Leung concluded that there was insufficient evidence to establish a prima facie breach, and that the complaints raised by Mr Ng went beyond the scope of the audit engagement.

50.  Ms Leung and Mr Nip then submitted a report to the Professional Conduct Committee dated 15 January 2016 which concluded that Mr Ng had not adduced sufficient evidence to establish a prima facie case of misconduct.

51.  On 20 January 2016, the Professional Conduct Committee agreed with the Compliance Department’s assessment and resolved to dismiss Mr Ng’s complaint.

52.  In the course of handling Mr Ng’s complaint, Ms Leung responded to each of Mr Ng’s emails in some detail.  Through her responses, the following essential reasons for the HKICPA’s decision were communicated to Mr Ng:

Reason	Relevant emails and/or passages
The HKICPA’s complaint handling process focuses on assessing whether the conduct of the respondent complied with the relevant audit standards.	07/10/15: “The Institute’s complaint handling process focuses on assessing whether the conduct of the Respondent complied with the relevant audit standards in the audits on the Owners’ Corporation’s financial statements.”
Under HKSA 240 §13, unless an auditor has reason to believe the contrary, he may accept records and documents as genuine.	Email dated 15/07/15.
Under HKSA 560 §§10 and 14, an auditor has no obligation to perform any audit procedures after the auditor’s report and/or financial statements have been issued.  After such time, an auditor is only required to perform audit procedures if a fact becomes known to the auditor that, had it been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report.	Email dated 15/07/15.
The information and evidence provided by Mr Ng was not sufficient to establish his allegation that the payments in respect of the Disputed Works was not proper.	25/02/16: “Information made available to us, including that provided by you, is not sufficient to establish your allegation that payments for certain items of renovation work was not proper.”
Mr Lin had followed up on the information provided by Mr Ng by taking steps to determine whether he needed to modify his audit report based on such information, and concluding that no modification was required.  Mr Lin did not and was not required to carry out any further audit procedures or investigation into the matter.	13/01/16: “Information provided to Institute suggests that Mr Lin had taken steps to follow upon the information you provided to him for the purpose of the relevant audits.  Steps to be taken as required by the relevant auditing standards are for expressing an audit opinion on the accounts of the Incorporated Owners and may not amount to an investigation into the matter… Based on your descriptions on the complaint form, Mr Lin had responded to your request and informed you that he would not investigate into the matter.” 21/04/16: “HKSA 560 does not require an auditor to carry out a detailed investigation into facts known to him after his issuance of an audit report.  It requires an auditor to take steps to ascertain if he needs to make any changes to the auditor report issued.  In this case, Mr Lin took those steps and concluded there was no need to modify the audit opinion.”
Mr Lin was not required to amend his opinion in respect of the IO’s financial statements for the financial years 2014 and 2015.	04/02/16: “The evidence available is not sufficient to show that Mr Lin had breached HKSA 560 in the circumstances that he did not amend the relevant audit report after receiving your information.”
Mr Lin was not under an obligation to inform Mr Ng of the results of his investigations, or provide the latter with any other information.	07/10/15: “If the [IO] owes you a duty to provide you with the documents or information you wish to obtain, it appears that you should seek recourse from the [IO] when there has been a breach of that duty.  The auditor may not be in a position to disclose the information/ documents to you as he is required to observe the Principle of Confidentiality and refrain from disclosing confidential information of his client to third parties without proper or specific authority.” 21/04/16: “An auditor is engaged by the management committee of the Incorporated Owners, his contacts are with the committee or the manager as the agent.  In general, the auditor is not expected to communicate directly with or release any confidential information to individual owners without authorization by the committee.”
Mr Lin disclosed the details of Mr Ng’s complaint to the IO as part of his follow up work after receiving the latter’s complaint.   This did not constitute improper conduct.	25/02/16: “As the Respondent had taken steps to follow up on the information you passed to him regarding the alleged suspicious renovation work, his communication of relevant information in this regard to the Incorporated Owners' management committee does not indicate improper conduct.”

C.      SUMMARYOF LEGAL PRINCIPLES ON DUTY TO GIVE REASONS

C1.    Reasonscan be set out in multiple documents

53.  There is no rule to the effect that all reasons relied upon by the decision maker must be set out in one document or decision letter.  The reasons for the decision may be gleaned from more than one document where they form part of the communications with the applicant: Fordham, Judicial Review Handbook (6^th ed) at §62.3.6, Miu Hon Kit v Stock Exchange of Hong Kong Ltd [2020] HKCFI 675 at §§53-55.

C2.    Adequacy of reasons

54.  The adequacy of the reasons given depends on context.  There is no uniform standard or test which applies to every case: Oriental Daily Publisher Ltd v Commissioner for Television and Entertainment Licensing Authority (1997-98) 1 HKCFAR 279 at 290J-291A.

55.  As a starting point, the reasons given can be briefly stated.  They need only enable the reader to understand why the matter was decided as it was and what conclusions were reached on the principal important controversial issues: South Bucks District Council v Porter (No 2) [2004] 1 WLR 1953 at §36.

56.  Another common formulation is that the decision maker need only provide “outline reasons” setting out (a) the issues to which the decision maker directed its mind, and (b) the evidence or facts on which it relied: Li Fu Shan v Director of Immigration [2002] 4 HKC 284 at paragraphs 49 to 51.

57.  However, these dicta only form the starting point.  The decision maker may be required to give more or even less detailed reasons depending on the context, which includes the following factors:

(1)  The nature of the decision in question and the context in which it is made: South Bucks, supra at §36.

(2)  The importance of the rights or interests affected, as well as the extent to which such rights and interests are affected by the relevant decision: R v Higher Educational Funding Council, ex p Institute of Dental Surgery [1994] 1 WLR 242 at 263B.

(3)  The character of the tribunal, the kind of decision it has to make, and the statutory framework in which it operates: Oriental Daily Publisher, supra at 289D.

(4)  Whether the decision making body makes decisions through a collective decision making process: R (Hawksworth Securities plc) v Peterborough City Council [2016] EWHC 1870 (Admin), at §89.

(5)  Whether there is a right of appeal against the decision: Chan Tit Sau v Secretary for Justice [2004] 1 HKLRD 801, at §38.

(6)  Other safeguards within the decision making process: Deloitte Touche Tohmatsu v Hong Kong Society of Accountants (unrep, HCAL 97/1999, 31 May 2000), at §§77-78.

(7)  Whether the decision maker is subject to a duty of confidentiality, and if so, the harm which would result from leakage of the confidential information: R v Gaming Board, ex p Benaim and Khaida [1970] 2 QB 417, at 431B-G.

C3.    Applicant must demonstrate substantial prejudice

58.  The court should not intervene on the basis of an alleged failure to give reasons unless the applicant can satisfy the court that he has genuinely been substantially prejudiced by the alleged failure: South Bucks, supra at §36; Save Britain’s Heritage v Number 1 Poultry Ltd [1991] 1 WLR 153,at167C-E; Leung Sze Ho Albert v Bar Council of Hong Kong Bar Association [2016] 5 HKLRD 542, at §73.

D.      REASONSGIVEN BY THE HKICPA WERE ADEQUATE

59.  As submitted by the HKICPA, the short point which suffices to dispose of the present application is that the reasons given by the HKICPA (through Ms Leung’s correspondence with Mr Ng) were sufficient to enable a reader to understand why the matter was decided as it was and what conclusions were reached on the principal important controversial issues.

D1.    Mr Ng’s principal complaints

60.  As mentioned above, Mr Ng raised three principal complaints against Mr Lin, namely:

(1)  Mr Lin ought to have either (a) requested evidence from the IO which could demonstrate that the Disputed Works were carried out, or (b) modified his audit opinion in respect of the IO’s 2014 and 2015 financial statements.  By failing to do so, Mr Lin breached HKSA 200, 240 and 560 (“First Complaint”).

(2)  Mr Lin ought to have informed Mr Ng about the results of his investigation (“Second Complaint”).

(3)  Mr Lin breached an “implied duty” not to disclose a complaint by an informant without good reasons by disclosing the details of Mr Ng’s complaint to the IO (“Third Complaint”).

D2.    First Complaint

61.  It is not in dispute that the First Complaint is subject to and governed by HKSA 560 §§10 and 14, which provide that the auditor is not under any obligation to perform any audit procedures after the date of the auditor’s report unless a fact becomes known to the auditor which, had it been known to the auditor at the date of his report, may have caused him to amend his report.

62.  Against this background, the principal issue in relation to the First Complaint was whether Mr Lin’s attention had been drawn to facts (as opposed to mere allegations) which would have caused him to amend his auditor’s report if he had known of such facts at the time the report was made.

63.  This issue was addressed in Ms Leung’s emails to Mr Ng on 13 January 2016, 25 February 2016 and 21 April 2016, in which she informed Mr Ng that:

(1)  The evidence and information provided by Mr Ng was not sufficient to support his claim that the IO’s payments in respect of the Disputed Works were improper.

(2)  In the circumstances, it was open to Mr Lin to conclude (as he did) that (a) there was no need to carry out further investigations and (b) there was no need to modify his auditor’s report in respect of the IO’s 2014 and 2015 financial statements.

64.  In his written submissions, Mr Ng complains about Ms Leung’s purported failure to identify the specific steps taken by Mr Lin.  However, I agree it is reasonably clear from the correspondence cited above that Mr Lin did not and was not obligated to carry out any further audit procedures or investigations.

65.  Further, it must be borne in mind that Ms Leung was not a lawyer.  The emails which she drafted should be construed in a common sense manner with a focus on the overall substance, and not by using a fine legal microscope.  Even if there was any imprecision or lack of clarity in the language used by Ms Leung, this does not give rise to any procedural unfairness when the essential grounds for the rejection of the First Complaint can be gleaned from her emails.

66.  Mr Ng’s complaints about the HKICPA’s failure to deal with his criticisms of the oral reasons purportedly given to him by Mr Lin are also without merit.  As Ms Leung made clear to Mr Ng in her email dated 7 October 2015, the HKICPA’s complaint handling process focuses on whether the conduct of Mr Lin with respect to the audit of the financial statements complied with the HKSA.  What Mr Lin purportedly said during his oral communications with Mr Ng was therefore not relevant to the HKICPA’s complaint handling process.

67.  Finally, Mr Ng’s suggestion that Mr Nip has given new reasons in his Affirmation is factually incorrect.  As can be seen from paragraph 34 of Mr Nip’s Affirmation, what Mr Nip sought to do was to summarise the reasons which were set out in the course of the correspondence between Ms Leung and Mr Ng.  There is nothing inappropriate or impermissible about that.

D3.    Second Complaint

68.  In addition to explaining that Mr Lin was not obligated to carry out further investigation or audit procedures, Ms Leung also clearly informed Mr Ng in her emails dated 7 October 2015 and 21 April 2016 that his Second Complaint was unsustainable because (1) the auditor was engaged by the IO and was not expected to communicate with or release information to third parties such as Mr Ng, and (2) the auditor was also restrained by his duty of confidentiality from releasing client information to third parties such as Mr Ng.

D4.    Third Complaint

69.  In Ms Leung’s email dated 25 February 2016, she informed Mr Ng that:

“As the Respondent had taken steps to follow up on the information you passed to him regarding the alleged suspicious renovation work, his communication of relevant information in this regard to the Incorporated Owners' management committee does not indicate improper conduct. Information provided by you is not sufficient to indicate any improper conduct committed by the Respondent.”

70.  I agree that construed in the round and in a common sense manner, it is reasonably clear from this email that Mr Ng’s Third Complaint was dismissed because:

(1)  Mr Lin informed the IO of Mr Ng’s complaint to follow up on the information passed to him by Mr Ng.

(2)  This did not involve a breach of any auditing standards or any other “implied rule”.

E.     NO DUTYTO GIVE MORE DETAILED REASONS

71.  I accept that the HKICPA was clearly under no duty to provide more detailed reasons than those already given.  The following matters should be emphasized, as submitted by the HKICPA.

E1.    The HKICPA’s position was based on the absence of evidence

72.  HKICPA’s position was in essence a negative one based on the absence of evidence to support a prima facie case of misconduct.  This can be seen from the following parts of the correspondence between the HKICPA and Mr Ng:

(1)  Letter dated 3 February 2016: “The Professional Conduct Committee has reviewed your complaint.  Based on the information before it, the Committee considers that no prima facie case was shown for your complaint against Mr Lin King Wai; and Mr Lin would not have a case to answer.”  (emphasis added)

(2)  Email dated 25 February 2016: “Information made available to us, including that provided by you, is not sufficient to establish your allegation that payments for certain items of renovation work was not proper.”  (emphasis added)

73.  This type of decision is inherently incapable of detailed elaboration, as it is impracticable to expect the decision maker to prove a negative proposition.

74.  It is not for the regulator to explain to the applicant what type of evidence or materials would have been sufficient, or where exactly the line would have been drawn, as this would effectively require the regulator to speculate on what its decision would be in a different set of facts and circumstances not before it, which would not be appropriate: Sanyuan Group Ltd v Stock Exchange of Hong Kong Ltd (unrep, CACV 191/2008, 9 July 2009), at §§17, 22; Miu Hon Kit, supra, at §92.

E2.    The Decision did not impact Mr Ng’s rights

75.  It is well established that the duties of an auditor primarily depend upon the contract between him and his client.  Auditors do not normally owe any duties to third parties (including stakeholders such as individual shareholders or creditors of the company whose accounts are being audited): Jackson & Powell on Professional Liability (8^th ed), at §§17.035, 17.048, 17.077-17.078, 17.083.

76.  Since Mr Ng was not the client of Mr Lin, Mr Lin did not owe any contractual or common law duties to Mr Ng.  Mr Ng had no right to compel Mr Lin to conduct his audit in any particular way.

77.  In the circumstances, the Decision as to whether Mr Lin conducted his audit in a manner which was consistent with the HKSA has no direct impact on Mr Ng’s rights.

78.  The lack of impact on Mr Ng’s rights is indeed affirmed by his own evidence, where he states:

“My complaints to the HKICPA are not related to any personal benefit of me. At the end, even if Mr Lin is disciplined or the auditor report is amended, the Owners Corporation benefits nothing from the outcome as well. Thus, this Application is not brought for the benefit of any person.”

E3.    Professional Conduct Committee – collective process

79.  As mentioned in Section B2.2 above, the Professional Conduct Committee consists of a number of independent CPAs who meet several times each year.

80.  At each meeting, the committee members will discuss case reports submitted by the HKICPA’s compliance departments and then decide, by way of resolution, if (a) there is a prima facie case, (b) the case calls for further investigation, or (c) there is no prima facie case: see paragraphs 22 to 27 above.

81.  In such circumstances, where the decision making body consists of a number of individuals who arrive at a decision by resolution, it is impractical to require the committee to provide detailed reasons.  The following observations in Hawksworth Securities, supra at §89 are apposite here:

“…where a local authority planning committee gives reasons for a grant of planning permission it need only summarise the main reasons for the decision and can do so briefly. The committee is not required to set out each step in its reasoning, nor indicate which factual matters were accepted or rejected. Indeed, as the committee will comprise a number of councillors who may well have reached their shared conclusion by different routes, it would be impractical and undesirable for the committee to set out its step-by-step reasoning.” (emphasis added)

82.  Put differently, if the court imposed a duty on the Professional Conduct Committee to give detailed reasons in support of each decision, then they would have to reach a collective decision not only on how the case should be resolved, but also on each step of their collective reasoning process.  Such an arrangement would obviously be impractical.

E4.    Need for efficient filtering of unmeritorious complaints 

83.  As mentioned in Section B2 above, the initial review of complaints by the Professional Conduct Committee is intended to serve as a triage mechanism to filter out unmeritorious complaints, and complaints which call for further investigation.

84.  The purpose of this mechanism would be sharply undermined if the HKICPA is required to give detailed reasons when dealing with each individual complaint.

85.  As mentioned above, the Professional Conduct Committee makes decisions by way of collective resolutions at meetings.  During the relevant period in 2015 and 2016, they had to handle an average of around 12 cases at each meeting.

86.  If the members of the Professional Conduct Committee are also required to draft a reasoned decision and debate the contents thereof at each meeting, the decision making process would become much more complex and difficult.  It would certainly not be possible for the Professional Conduct Committee to handle 12 cases at each meeting.

87.  This would result in delay in the handling of complaints submitted to the HKICPA, which would in turn have a detrimental impact on the public trust and confidence in the accountancy profession, as well as the interests of individual respondent auditors who are subject to the complaints.

88.  The importance of this factor (ie the need to ensure that the decision making body is not subject to an impractical workload) was emphasised by the UK Supreme Court in Uprichard v Scottish Ministers [2013] SC (UKSC) 219, at §48, where Lord Reed emphasised:

“It is in addition important to maintain a sense of proportion when considering the duty to give reasons, and not to impose on decision-makers a burden which is unreasonable having regard to the purpose intended to be served.”

E5.    Redress does not require provision of detailed reasons

89.  Another important factor is the fact that the complainant has means to seek redress even if the HKICPA does not provide detailed reasons for the dismissal of a complaint on the ground that there is no prima facie case.

90.  Where the mechanism for redress against the decision is by way of appeal, the court would be more inclined to impose a duty to give detailed reasons, the obvious reason being that the complainant would be hamstrung in exercising his right of appeal unless he knows and understands the decision maker’s reasoning.  However, since there is no right of appeal against the HKICPA’s decision to dismiss a complaint, this factor does not come into play.

91.  Instead, there are three other built in safeguards which provide the complainant with means of redress that do not depend upon the provision of detailed reasons.

92.  First, pursuant to section 34(1AAA) of the PAO, the aggrieved complainant may request the Council to refer the complaint to the Disciplinary Committee, in which case the Council will consider the matter on a de novo basis to determine whether a prima facie case exists: see paragraph 34 above.  This avenue of redress is available to the complainant even if he does not have a detailed account of the Professional Conduct Committee’s reasoning process.

93.  Indeed, it would be disproportionate and inefficient to require the Professional Conduct Committee to give detailed reasons when the complainant can simply ask the Council to consider the matter on a de novo basis.  An analogy can be drawn with the practice in the High Court, where Masters are not normally expected to give detailed reasoned judgments in light of the fact that their decisions are subject to a de novo rehearing by a High Court Judge.

94.  Second, in the event that the complainant is able to adduce new material which could support his case, the HKICPA may (in its discretion) re-open the dismissed complaint.

95.  Third, decisions made by the Professional Conduct Committee are also subject to a review (on a sample basis) by the RAB, which consists of independent CPAs.

E6.    Provision of detailed reasons may reveal confidential information

96.  Auditors such as Mr Lin are subject to a duty to refrain from disclosing any confidential information acquired from their professional practice unless they are either authorised or subject to a legal right or duty to make such disclosure.  This duty of confidentiality is necessary to maintain the relationship of trust and confidence between auditors and their clients.  The duty is set out in Section 140 of the Code of Ethics of Professional Accountants.

97.  The HKICPA is subject to the same duty of confidentiality when it receives information from respondent auditors during the course of its investigations:

(1)  Where information confidential to A is disclosed by B to C in circumstances where C knows, or ought to have known, that B owes a duty of confidentiality to A in respect of such information, then C will become subject to an equitable obligation of confidence owed to A: Primary Group (UK) Ltd v Royal Bank of Scotland plc [2014] RPC 26, at §§210-223, 238-239.

(2)  When the HKICPA receives information from the respondent auditor in the course of its investigations, it is obviously on notice of the fact that the auditor owes duties of confidentiality to the client in respect of such information.

98.  As submitted by the HKICPA, subjecting HKICPA to a more onerous duty to give detailed reasons when dealing with complaints such as Mr Ng’s will exert substantial pressure upon it to disclose confidential information provided by the auditor's client.

99.  For example, if a duty is imposed on the HKICPA to provide a detailed account of the information obtained from Mr Lin, that information is likely to include confidential information belonging to the client.

100.  Mr Ng is not Mr Lin's client.  If the HKICPA is obligated to provide reasons or explanations that would include confidential information of an auditor's client, this would mean that any third party or outsider can obtain access to that client's confidential information "through the back door" by filing a complaint with the HKICPA.  Such disclosure would have an adverse impact on clients’ willingness to provide confidential information to their auditors, as the clients would know that their confidential information is accessible to third parties if such third parties file a complaint with the HKICPA, even if they don’t even have a prima facie case.

F.     NO PREJUDICE

101.  As noted in Section C3 above, the court should not intervene on the basis of an alleged failure to give reasons unless the applicant can satisfy the court that he has genuinely been substantially prejudiced by the alleged failure.

102.  In the present case, Mr Ng does not claim to have been at all prejudiced by the extent of reasons provided by the HKICPA (as noted in paragraph 78 above).  That should accordingly be the end of his legal challenge.

103.  This is firstly because, in circumstances where neither Mr Ng nor any other party is alleged to have been substantially prejudiced by the level of reasons actually given by the HKICPA, it cannot be said that those reasons were inadequate for serving the actual interests of any relevant party in the case.

104.  Further, even if the court were to find some technical failure to give as full a set of reasons as required in law (which is not the case as held above), the court should in the exercise of its discretion refuse to intervene to grant any relief:

(1)  As the Court of Final Appeal noted in the case of Shiu Wing Steel Ltd v Director of Environmental Protection and Airport Authority (No 2) (2006) 9 HKCFAR 478 at §90:

“The discretion of the court in deciding whether to grant any remedy is a wide one. It can take into account many considerations, including the needs of good administration, delay, the effect on third parties, the utility of granting the relevant remedy …”

(2)  In the present case, in addition to the absence of any prejudice that needs to be remedied, the circumstances of the present case do not show any utility in judicial intervention by way of judicial review.

(3)  It bears emphasis that the underlying complaints in this case date back many years.  There is and can be no suggestion that it serves Mr Ng’s or the public interest for complaints about these matters to be further ventilated.  Enough time, costs and public resources have been expended on this matter already.

G.      CONCLUSION AND DISPOSITION

105.  For all the reasons set out above, Mr Ng’s application for judicial review is dismissed.

106.  The costs of the application be paid by Mr Ng to the HKICPA, such costs are to be taxed if not agreed (with a certificate for 2 counsel).

107.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.