XCHRX Ernst & Young (a firm) v. Atlas Magnetics Manufacturing Ltd.

DCCJ8784/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 8784 OF 2001

___________________

J U D G M E N T

___________________

1. In this action, the Plaintiff, a well-known accounting firm, sues its former client in relation to certain work and services provided by the Plaintiff to the Defendant in connection with the Defendant's intended floatation in the stock market.

2. Originally, it was envisaged that the retainer would result in the earning of professional fees in the total sum of $1.8 million, but then halfway through, after some work had been done, the retainer was terminated by mutual agreement and a question arose as to how much the client should pay the former accountants for the work done.

3. Prior to the cessation of work, a fee note for a sum of $320,000 had been issued by the Plaintiff to the Defendant in respect of work done up to 12 July 2000. That was on top of a deposit of $180,000 already paid upon the signing of the relevant agreement.

4. Today, the Plaintiff asks for summary judgment for the sum of $320,000.

5. On the materials before me, there are disputes between the accountants and the former client as to the amount of work done or services rendered as well as the value of those work done and services provided. In those circumstances, in my judgment it is quite difficult, if not impossible, for the court to come to the conclusion at this stage that the Defendant has no arguable case on the quantum side of the matter. The Defendant has simply raised certain queries relating to the various breakdowns for the amount claimed provided by the Plaintiff and the Defendant simply puts the Plaintiff to proof of the amount of work and services done and rendered and the value thereof.

6. Some cases are inherently suitable for an Order 14 application, like a dishonoured cheque situation. Some cases are inherently not suitable for an Order 14 application and I would say that so far as the quantum side of the present case is concerned, inherently, such a claim is quite unsuitable for Order 14 determination. Even if a defendant does nothing and simply puts the other side to strict proof of the quantum of the alleged work done or alleged services provided, a court cannot say that the defendant has not put forward an arguable case, because of the very nature of the claim itself.

7. So, in my judgment, I am not in the position to say the Defendant has no arguable case to the amount claimed, i.e. the sum of $320,000, which together with the deposit of $180,000 would mean that, according to the Plaintiff, work done and services provided were of a total value of not less than half a million dollars. In my judgment, the Defendant is entitled to challenge that assertion in a trial in which the Defendant would have the chance to cross-examine the Plaintiff's witnesses, the staff involved in providing the services with the benefit of all relevant documents, most of them in the possession of the Plaintiff, disclosed beforehand prior to the trial. So a final judgment on the amount claimed is quite out of the question.

8. I move on to consider whether any condition should be imposed relating to a payment of some amount pending the trial on quantum. I should say that apart from the Order 14 application, there is no accompanying application for interim payment as such. Given the nature of the dispute, whilst the Defendant does not go so far as to suggest that the amount of work done and the services rendered were not of any value exceeding $180,000, the amount which they had paid by way of initial deposit, there is really no reliable material before me for me to pinpoint an amount representing the value of work done and services rendered by the Plaintiff as to which the Defendant cannot have any arguable dispute. Certainly, the Defendant disputes the amount of $320,000. Now, suppose that is right, what lower amount should be the amount for the purpose of ordering a sort of interim payment through the back door by way of the imposition of a condition? I cannot name any figure and neither did Mr Ng, counsel for the Plaintiff, who had said everything that could be said on behalf of his client in this application, name any figure.

9. Nor can I say that the opposition or the refusal to pay the amount as claimed was not made bona fide on the part of the Defendant. As I say, given the nature of the claim, the Defendant simply, apart from making some positive averments and raising some queries and allegations, puts the Plaintiff to proof. In my judgment, that is something which the Defendant is perfectly entitled to do. I cannot infer from that that the Defendant does not oppose the case bona fide.

10. Nor can I draw any reliable inference from the fact that the Defendant delayed for a period of several months before positively challenging the fee note in question. People delay in their reply or in their reaction for various reasons and one just cannot speculate. Moreover, in the present Order 14 application, unless I can come to the conclusion that there is a lack of bona fides in the defence (or the defence is a shadowy one which is not the case here), I should not impose any condition.

11. So that leaves the final option, namely the entry of an interlocutory judgment with the quantum of the claim to be assessed. Mr Lo, counsel for the Defendant, very fairly did not really oppose this way of dealing with the Order 14 application. He was happy so long as his client had a full chance to challenge the quantum side of the matter. As I say, the Defendant did not - and again I will say rather fairly - suggest that the amount of work done and services provided were not of a value exceeding $180,000. So some money would, at the end of the day after the assessment, be payable by the Defendant to the Plaintiff and the outstanding question is how much and that would be the subject of an assessment.

12. So in my judgment, taking everything into account and in all fairness, I would order that interlocutory judgment on liability be entered by the Plaintiff against the Defendant with the quantum of the Plaintiff's claim to be assessed.

(Submissions re costs)

13. Having heard arguments from Mr Ng, I think the fairest order as to costs would be that the costs of the action incurred thus far be reserved to assessment. Any future costs would of course be dealt with at the end of the assessment and the reason for my costs order is simply this: The Plaintiff went for final judgment and put in evidence and incurred costs to prove the quantum claimed for. At the end of the day, the Plaintiff was only half successful and so far as the quantum side was concerned, the Plaintiff was not successful in getting a final judgment. So bearing all this in mind, I think much would depend on the outcome of the assessment and how far off or how near the mark the Plaintiff was with his claim of $320,000. That would be a relevant factor in deciding the question of costs relating to the preparation for the quantum side of this application. So I think I should not fetter the discretion of the master or whoever is hearing the assessment in any way. In those circumstances it would be best for me to reserve the costs of the action incurred thus far to the assessment.

14. Certificate for counsel.

(Submission re directions)

15. In the light of Mr Ng's indication that their side might want to apply to amend the Statement of Claim, I think it would be best if I do not give any directions for the further conduct of the assessment in the meantime and I leave it to the parties to come up with the directions they want to apply for to further the proceedings towards the assessment. So I give no directions.