3D-GOLD JEWELLERY HOLDINGS LTD v. PRICEWATERHOUSECOOPERS (a firm)

HCA 1192/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1192 OF 2011

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DECISION

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1.  This is an application by the defendant, PricewaterhouseCoopers (“PwC”), to set aside the service of the writ in this action (“the Writ”) on the grounds that: (a) the service on 12 July 2013 did not comply with the requirement for service on partnership under O.81 r.3 of the RHC (Cap 4); and (b) the service on 18 July 2013 was effected after the expiry of the Writ (as extended).

Background

2.  The 1^st plaintiff was a company incorporated in Bermuda.  It was also a public-listed company in Hong Kong, but the trading in its shares was suspended on 30 September 2008 and it was de-listed on 9 July 2012.  On 3 September 2012, the 1^st plaintiff was ordered to be wound up in Hong Kong.  The other plaintiffs were companies related to the 1^st plaintiff.

3.  PwC is a firm of certified public accountants, which was retained by the 1^st plaintiff to provide auditing services to the 1^st plaintiff and its group of companies.

4.  The Writ is among the 5 writs (“the 5 Writs”) issued by the plaintiffs against PwC alleging negligence in the audits undertaken in respect of the financial years ending 31 March 2003 to 2008 respectively.  All of the 5 Writs sue PwC in the name of the firm.  A single writ was issued in respect of both the 2007 and 2008 audits.

5.  Each of the 5 Writs was issued in the month of July of the years 2009 to 2013, which was just before the expiry of the apparent limitation period for each intended claim.

6.  The Writ in this action, which relates to a claim for the audit period where the audit report and financial statements were dated and signed on 21 July 2005, was issued on 15 July 2011.  The Writ was not served in its original validity period, and on 16 July 2012, the validity of the Writ was extended for 12 months from 15 July 2012 to 14 July 2013.

7.  Service of the 5 Writs was attempted on 12 July 2013.  It is the defendant’s case that this particular service was not within any of the permitted grounds under O.81 r.3.

8.  Service of the 5 Writs was again attempted on 18 July 2013.  PwC accepts that the re-service was valid in respect of 4 of the 5 Writs on that day, but the service of the Writ in this action was not valid as the validity of the Writ had by then already expired.  The issues in this application are therefore whether the service of the Writ on 12 July 2013 was valid, and if not, whether the court should cure the defect in the service under O.2 r.1 of the RHC.

Whether the service on 12 July 2013 was regular?

9.  O.81 r.3(1) of the RHC provides:

“Where by virtue of rule 1 partners are sued in the name of a firm, the writ may, except in the case mentioned in paragraph (3), be served –

(a) on any one or more of the partners, or

(b) at the principal place of business of the partnership within the jurisdiction, on any person having at the time of service the control or management of the partnership business there, or

(c) by sending a copy of the writ by registered post (in accordance with Order 10, rule 1(2)) to the firm at the principal place of business of the partnership within the jurisdiction;

… … …”

10.  On 12 July 2013, the Writ was served by leaving at the reception desk of PwC’s office at 22/F, Prince’s Building, 10 Chater Road, Central, under a cover of a letter marked to the attention of “Mr Chris Harford, General Counsel / Ms Adeline Chin, Senior Legal Counsel”.

11.  Although Mr Christopher Martin Harford (“Mr Harford”), the General Counsel of PwC, was not physically present at the office on 12 July 2013, he has confirmed in his evidence that the Writ came to his attention on that day.[1]

12.  There is no serious dispute that, at the material time, neither Mr Harford nor Ms Adeline Chin (“Ms Chin”) was a partner of PwC, nor were they persons having the control or management of the partnership business at the principal place of business of PwC.

13.  Mr Manzoni, SC, counsel for the plaintiffs, accepts that the Writ had not been served on PwC in accordance with the methods provided for in paragraphs (a) to (c) of O.81 r.3(1).  Despite that, he submits that the use of the word “may” in the rule indicates that the methods identified therein are permissive rather than mandatory.  There is no restriction on service being effected by other means.  According to Mr Manzoni, the purpose of service is to bring the proceedings to the attention of the party being served.  As PwC (through Mr Harford) had knowledge of the service of the Writ on 12 July 2013, this particular service should be regarded as good service.

14.  I cannot agree with such submission. In law, a partnership is not a separate entity and so a partnership can only be sued in the name of the individual partners.  O.81 provides an alternative and more convenient way of suing a partnership.  Instead of all the individual partners be named as the defendants, a partnership can be sued in the name of the firm under O.81.

15.  O.81 r.3 provides the methods of service for such alternative way of suing a partnership, and the court expects a plaintiff to follow all these requirements in the service of the writ.  It is obvious that the word “may” in r 3 refers to the choice of the plaintiff in choosing the traditional or the alternative way of suing a partnership, but that does not mean that a plaintiff, in adopting the alternative way, is allowed to serve the writ in whatever way he likes.  That is why the learned authors of Hong Kong Civil Procedure 2014 said: “[when] suing a firm care must be taken to ensure that the requirements of service set out in r 3 are followed”.[2]  Hence, as the plaintiffs chose to sue PwC in the name of the firm under O.81, they had to follow the requirements in O.81 r.3 in the service of the Writ.  As they had failed to do so, the service of the Writ on 12 July 2013 was irregular.

Whether the court should cure the irregularity in the service of the Writ on 12 July 2013?

16.  Despite the irregularity in the service, the court has a discretion under O.2 r.1 of the RHC to cure such irregularity.

17.  O.2 r.1 provides:

“(1) Where, in the beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.

(2) Subject to paragraph (3), the Court may, on the ground that there has been such failure as is mentioned in paragraph (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit.

… … …”

18.  As the rule states, the consequence of irregular service is not that the writ is a nullity, but rather, that the court has a discretion as to whether to set aside the service.[3]

19.  In Hong Kong Civil Procedure 2014, the learned authors said the following:[4]

“Defective service of proceedings, however gross the defect, even a total failure to serve, where the existence of the proceedings is nevertheless known to the defendant, is an irregularity which can be cured by the court by the exercise of discretion under O. 2, r.1 … … …”

20.  I agree with Mr Manzoni that there is substantial authority for the exercise of discretion by the court pursuant to O.2 r.1 to remedy irregularities in service, even under provisions which provide for mandatory methods of service, particularly where: (i) the irregularity is technical rather than substantive; and (ii) the court is satisfied that the proceedings have come to the attention of the defendant.

21.  In HSBC v Ong Tong Shing[5], O.2 r.1 was applied to rectify an irregularity in the service of the writ.  In that case, following substantial inter partes correspondence, the writ was served by delivering a copy of the writ to the defendants’ office and leaving it with the receptionist, rather than personal service on the defendants[6].  The defendants thereafter waited a number of months until after the expiry of the writ before applying to have the proceedings dismissed for defective service.  DHCJ Gill dismissed the defendants’ application because the defendants were well aware of the service of the proceedings on the day that the proceedings were served and no prejudice was suffered by the defendants through the irregular service.

22.  In Golden Ocean Assurance Ltd v Christopher Julian Martin (The “Goldean Mariner”)[7], the majority of the English Court of Appeal[8] applied O.2 r.1 to rectify irregular service out of jurisdiction, in circumstances where: (i) the wrong writs were served on various defendants; and (ii) one defendant was served only with a form of acknowledgement of service.  McCowan LJ said the following in relation to the service of only the form of acknowledgment:[9]

“There is no evidence before the Court that they [the defendants] were ever in any doubt that the plaintiff intended to sue them or as to the nature of the proceedings, or that they suffered any prejudice by the irregularity in service. Therefore, in the special circumstances of this case, I would hold that the Court should likewise in the case of these defendants exercise its discretion against setting the service aside.”

23.  In Boocock v Hilton International Co[10], the proceedings had not been addressed to the defendant’s agent for service in England as required by the Companies Act 1985, but nevertheless had come to his attention on receipt.  While the English Court of Appeal concluded that the provisions as to effective service in the Companies Act were mandatory and had not been followed, the court exercised the discretion under O.2 r.1 to allow the service to stand in circumstances where the relevant individual was almost immediately aware of the service.

24.  The same happened in the present case.  Although the Writ was not served on PwC on 12 July 2013 in accordance with the provisions in O.81 r.3, PwC, through Mr Harford, was clearly aware of the service of the Writ and the nature of the claim contained therein on 12 July 2013.  Hence, the error of the process server had not caused any actual harm to PwC.

25.  In fact, there was a history of prior dealings between the Liquidators of the 1^st and 2^nd plaintiffs and PwC prior to the purported service of the Writ on 12 July 2013, which clearly indicated that Mr Harford, though he was not the partner, was clearly the appropriate representative of PwC for the purpose of the service of the Writ.

26.  Firstly, between November 2008 and April 2011, the  Liquidators engaged in extensive correspondence and negotiations with PwC that were all signed by Mr Harford or Ms Chin.[11]

27.  Secondly, PwC and Mr Harford were aware of the existence of the Writ from at least 18 July 2011, and had been provided with a copy of the Writ as annexed to the affidavit of Darach Eoghan Haughey filed on 18 July 2011 in the application by the Liquidators against PwC under s. 221 of the then Companies Ordinance (Cap 32) (“the s. 221 Application”).

28.  Thirdly, Mr Harford was held out by PwC as the responsible person within PwC to deal with the Liquidators.  In particular, Mr Harford swore an affidavit in response to a court order made in the s. 221 Application that was to be sworn by “a responsible partner” of PwC.  When queried as to Mr Harford’s status, PwC’s solicitors stated that Mr Harford’s position was equivalent to that of a partner.[12]

29.  Fourthly, on 25 June 2013, by a letter marked to the attention of Mr Harford and Ms Chin, PwC was provided by the Liquidators with a summary of the claim and a proposal for a moratorium by way of a tolling agreement, to enable time for parties to consider resolution of the claim without litigation.  The letter expressly stated the Liquidators’ intention to serve the 5 Writs and to pursue proceedings if no moratorium was agreed prior to the expiry of the 5 Writs.  On 4 July 2013, PwC, by way of letter from Mr Harford, noted the imminent expiry of the 5 Writs and refused the Liquidators’ request to enter into a tolling agreement.[13] On 8 July 2013,  Mr Kentish of the Liquidators’ solicitors, Lipman Kara, spoke to Ms Chin of PwC and reinstated that the plaintiffs would proceed to serve the 5 Writs if a moratorium was not agreed.  PwC did not respond thereafter.[14]

30.  From the above facts, it is clear that Mr Harford was the appropriate officer for the purpose of handling the proceedings on behalf of PwC.  Further, Mr Harford has confirmed in evidence that the Writ came to his attention on 12 July 2013.[15] In such circumstances, although the Writ was not technically served on PwC in compliance with the requirements stated in O.81 r.3, PwC suffered no prejudice resulting from such technical mistake.  Hence in my judgment, this is an appropriate case for the court to exercise the discretion to cure the irregularity in the service of the Writ.

31.  Mr Coleman, SC, counsel for PwC, submits that the court should not assist the plaintiffs as they had left every step in the proceedings to the last minute.  The plaintiffs only issued the 5 Writs shortly before the expiry of the material limitation periods.  They had applied to court for orders to keep the issue of the first two of the 5 Writs confidential until just after the issue of the Writ in July 2011.  Before the attempted service of the Writ, neither did the plaintiffs take any steps to ascertain whether PwC was legally represented nor make any enquires as to how to effect service.  In such circumstances, the court should not assist the plaintiffs by curing the irregularity.  Furthermore, by allowing the service of the Writ on 12 July 2013 to stand, PwC will lose the benefit of the accrued limitation defence.

32.  Whilst I agree that there was some delay in the prosecution of the claims, the plaintiffs were acting within their legal rights in the conduct of the proceedings.  Further, there is evidence to show that the Liquidators of the 1^st and 2^nd plaintiffs had tried to resolve the dispute with PwC without litigation[16], and that may provide some justification for the delay in the service of the 5 Writs. 

33.  The only technical error committed by the plaintiffs relates to the service of the Writ on 12 July 2013.  This was not a case where there was no service at all, and the only problem was that the service did not technically comply with the requirements in O.81 r.3.  Despite that, Mr Harford was clearly the appropriate officer to deal with the proceedings on behalf of PwC.  He had notice of the service of the Writ on 12 July 2013. There was hardly any prejudice at all.

34.  I agree that PwC may lose the benefit of the accrued limitation defence.  However, as the defect relates to the service itself, the court, in determining whether to cure the irregularity, should focus primarily on the prejudice caused by the irregularity.  In fact, similar argument had been raised in Boocock v Hilton International Co, but nevertheless the English Court of Appeal agreed to exercise the discretion to cure the irregularity.[17] The same happened in HSBC v Ong Tong Shing[18], where the curing of the irregularity might have an impact on the issue of limitation, and yet DHCJ Gill saw no difficulty in rectifying the defect.  In my judgment, the justice of the present case certainly demands the exercise of the discretion in favour of the plaintiffs and I therefore order the service of the Writ on 12 July 2013 to stand.

35.  For the above reasons, I refuse PwC’s application to set aside the service of the Writ on 12 July 2013.  I do not think that I need to deal with the application to set aside the service of the Writ on 18 July 2013.  If the parties take a different view, either of them can apply to the court to restore the hearing to deal with this particular matter.

36.  As the plaintiffs are seeking the indulgence of the court in curing an irregularity, I make a costs order nisi that save that the costs of the hearing before me on 13 March 2014 be paid by the defendant, the costs of the summons be paid by the plaintiffs.  The order nisi shall be made absolute 14 days after the date of the handing down of this Decision.