DELOITTE TOUCHE TOHMATSU (a firm) v. THE HONG KONG SOCIETY OF ACCOUNTANTS (a body corporate)

CACV 247/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 247 OF 2000

(ON APPEAL FROM HCAL NO. 97 OF 1999)

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J U D G M E N T

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Hon Rogers VP:

1. These three appeals were heard together. They relate to applications for relief by way of judicial review in respect of decisions made by the Council of the Hong Kong Society of Accountants ("HKSA") that Investigation Committees should be appointed to examine the affairs of the applicants. Two of the applications were heard together at first instance. All three applications were refused. It is from those refusals that these appeals are brought. Since the same points are sought to be raised in respect of all three appeals it was convenient that they should all be heard at the same time.

The statutory framework

2. The HKSA is a statutory corporation incorporated by section 3 of the Professional Accountants Ordinance, Cap. 50 ("the Ordinance").

3. The objects of the HKSA are set out in section 7 of the Ordinance. It is unnecessary to refer to all of them. In short the HKSA was to be the professional body which was required to register and regulate professional accountants in Hong Kong. One of the objects of the HKSA stipulated in section 7 is:

"(h) To discourage dishonourable conduct and practices by professional accountants, and for this purpose to hold inquiries into the conduct of professional accountants, firms referred to in paragraph (a), and corporate practices."

4. The Council of the HKSA is established under section 10 of the Ordinance. Amongst the powers given to the Council under sections 17 and 18 of the Ordinance is the specific power to appoint committees to assist or advise the Council in the exercise of its powers and the power to delegate to such committees such of its powers as it may from time to time determine.

Disciplinary proceedings

5. One of the responsibilities of the Council is to appoint a Disciplinary Panel under section 33 of the Ordinance. Complaints against accountants are required to be made to the Registrar of the HKSA. Under section 34(1), the Council is given a discretion to refer a complaint to the Disciplinary Panel. There are a number of matters which can form the subject of complaints against professional accountants. For the purposes of the present appeals those listed in section 34(1)(a)(iv) & (vi) are relevant. Those subsections relate to complaints under (iv) that the accountant has been negligent in the conduct of his profession and under (vi) that the accountant failed or neglected to observe, maintain or otherwise apply a professional standard. At the disciplinary proceedings the complaint must be presented either by the complainant or by the Registrar or by a member of an Investigation Committee. For the purposes of the Ordinance, solicitors and counsel of those persons are treated as being those persons.

The Investigation Committee

6. Part VA of the Ordinance was added in 1994. This establishes the Investigation Committee. Under section 42B there is to be an Investigation Panel which consists of not less than 12 members appointed by the Council. Section 42C(2)(a) provides that where the Council reasonably suspects or believes that a professional accountant or a firm of certified public accountants or public accountants has been negligent in the conduct of his, her or their profession or failed or neglected to observe, maintain or otherwise apply professional standards then "the Council may, in its discretion, constitute an Investigation Committee and direct the Committee, having considered the matter, to inform the Council as to whether in its opinion, were such a complaint made against him or it, the professional accountant or firm concerned would have a case to answer."

7. Section 42D of the Ordinance relates to powers and functions of the Investigation Committee. It gives the Committee power to call upon any professional accountant to whom the Committee's proceedings relate and any employer or former employer or employee or former employee of that person to produce any documents and give the Committee all assistance which they reasonably can. Sub-section (3) provides that any person who complies with such a requirement of the Committee shall not incur any liability to anybody else by reason only of the compliance. Sub-section (4) provides that self incrimination shall not be an excuse for non-compliance but that the answers to any questions are not to be admissible in evidence in any criminal proceeding. Finally, it should be noted that there are provisions as to secrecy contained in section 42G.

Practice Review Committee

8. Mention might also be made of the Practice Review Committee. This is established under section 32A of the Ordinance. The purpose of this committee is to supervise the review by reviewers to determine whether professional standards specified by the Council are being or have been observed, maintained or applied in respect of some or all practice units.

9. The purpose of this committee was referred to in the report of the Council for 1998 which is contained in the HKSA annual report for that year. At page 6 reference is made to the fact that the committee processed 200 cases in 1998 and there had been a cumulative total in the 6 years of the operation of the committee of some 897 cases. The second paragraph of the annual report in relation to the Practice Review Committee states:

"The educational thrust of Practice Review has remained unchanged. In line with this emphasis, suggestions for improvement were made to practitioners in their meetings with reviewers during each review and in the committee's report issued at the conclusion of the review. Common problems were examined in depth in Practice Review Workshops to enable those members not under review to avoid the mistakes of others in applying the Societies Professional Standard."

Reference was made in the report to the fact that a disciplinary complaint was successfully made against one practitioner who repeatedly failed to provide audit files for practice review. Disciplinary complaints against three other practitioners were in the process of being drafted in view of their failure to rectify significant non-compliance with the HKSA's professional standards discovered in earlier reviews.

10. Reference is also made in the report to the Professional Standards Monitoring Committee. It is said that that committee had reviewed over 140 annual reports of listed companies during the reporting period. It is apparently that committee's target to review all published financial statements over a 5-year cycle. The report indicates that the committee was pleased to note that there was compliance with reporting standards which had been satisfactory in respect of an increasing number of published financial statements.

11. It can thus be seen that of the committees which have been referred to, the Practice Review Committee would appear to form part of the HKSA's educational role, whereas the Professional Standards Monitoring Committee would appear to be part of a routine monitoring function in respect of published annual company reports.

12. In contrast, the function of the Investigation Committee is to advise the Council whether there is a case which should be brought before the Disciplinary Committee. The Council is not required to be satisfied that there is a case which falls within the terms of section 42C(2)(a)(i) or (ii) before it refers a matter to the Investigation Committee. The threshold is simply that the Council reasonably suspects or believes that there is such a case and that it requires the assistance of the Investigation Committee before deciding whether disciplinary proceedings should be launched. The Investigation Committee is, therefore, one which can provide some assurance that the Council is acting on advice as to whether disciplinary proceeding should be brought.

13. In early 1995 the then Council issued a statement headed "Policy to circumscribe the instigation of investigations". That statement indicated the circumstances in which the Council would consider the appointment of an Investigation Committee under section 42C of the Ordinance. These were where matters concerning professional conduct or integrity had attracted public concern or when a regulatory authority had made a report which cast doubts on the professional conduct or integrity of an accountant and where there had been a report from one of the committees and where the council had received a complaint against an accountant or a firm. Importantly as regards the arguments in the present case the statement went on in paragraph 2:

"Council shall not appoint an Investigation Committee:

a. unless the Council is of the view that in order to conclude the matter satisfactorily, it will require more than the voluntary co-operation of the members concerned."

The background facts

GKC Holdings Limited ("GKC")

14. On 19 January 1999 the Senior Executive Director of the Regulatory Affairs Group of the Stock Exchange of Hong Kong Limited wrote to the Registrar of the HKSA drawing attention to some of the circumstances behind the resolution of the directors of German Kitchen (China) Limited ("GK-China") that that company should be wound up because of its insolvency. GK-China was the major subsidiary of a group of companies which were held under the umbrella of GKC. The Group was engaged in the importing and selling of kitchen systems and marble and granite on a project basis. GKC, the holding company, was listed on the Hong Kong Stock Exchange in December 1997. The accountants' report in the listing prospectus, containing the auditors' unqualified opinion, covered the three years and four months up to 31 July 1997.

15. The financial difficulties of GKC had become apparent almost immediately thereafter and had been reported in the public media since July 1998. The resolution to wind up GK-China was passed on 20 October 1998. The HKSA was informed in the letter of 19 January that an independent financial review of the group performed by another firm of accountants in August 1998 had revealed that the financial statements of GKC might not fairly reflect some of the contracts and may have included misstatements. There was also reason to believe that there had been a number of irregular payments from bank accounts. The matter was directed to the Professional Standards Monitoring Committee.

16. On 2 July 1999 the Senior Executive Director of the Regulatory Affairs Group wrote again to the Registrar of the HKSA in the following terms:

"Based on the information obtained by the Listing Division, the Exchange is of the view that there may have been material misstatements in the Group's pro forma combined results for three years ended 31st March 1997 and the four months ended 31st July 1997 (the "Track Record") and the Group's combined net tangible assets as at 31st July 1997 (the "Net Tangible Assets"), as set out in the accountants' report in the listing prospectus of the Company dated 3rd December 1997, that were not detected by BDO Binder and Deloitte Touche Tohmatsu, the joint reporting accountants of the Company, who had expressed a clean opinion on those results and net tangible assets. We have doubts that, in respect of the Track Record and the Net Tangible Assets, the joint reporting accountants of the Company:-

(a) may have been negligent in the conduct of their profession (section 34(1)(d) of the Professional Accountants Ordinance (the "PAO")); and

(b) may have failed or neglected to observe, maintain or otherwise apply any professional standards (section 34(1)(db) of the PAO).

We hereby lodge a formal complaint to the Society pursuant to section 34 of the PAO, the details of which are set out in the attached report dated 2nd July 1999 (the "Complaint Report")."

17. We have been shown part of this report. The report includes the summary of findings that had been made by the independent reviewing accountants. It is unnecessary to set out more than a minimum. The report, however, states that GK-China did not maintain a complete and detailed project list but one had been reconstructed and there were some 397 projects. Out of 117 projects which were identified from the available records of GK-China, 17 of the relevant contractors had apparently confirmed that 69 of those projects were "non-existent". This discrepancy would make a substantial difference to the accounts. Whilst the investigations were not complete it was said that:

"Assuming that all 132 projects with files are genuine, the results of the confirmation exercise would suggest that, out of the 379 projects, only 147 (39%) may be positively identified by the Liquidators as potential "genuine" ones. The corresponding contract sums would total HK$655 million, or just 13.6% of all project sums on the reconstructed list."

It was apparent that something in the order of HK$693,000,000.00 was proposed to be written off as at 31 March by the auditors.

18. Another aspect of the investigation had revealed substantial discrepancies between the entities which had been paid by cheque and the payees named in the payment vouchers of GK-China.

19. On 20 August 1999 the Professional Standards Monitoring Committee approved its report to Council on the matter. It is apparent from the minutes of that meeting and from the report that, although the committee had received oral explanations and been shown selected audit work papers, neither the committee nor its representatives had reviewed the audit files. The committee came to the view that it was not sufficient to answer the question as to why the auditors had not discovered the apparently fictitious contracts only on the basis of the auditor's oral representations. What was required was a thorough knowledge of the audit approach used in auditing the company's contracts, the audit work actually done and the audit findings.

20. The formal complaint from the Stock Exchange together with the report of the Professional Standards Monitoring Committee were put before the Council of the HKSA on 7 September 1999. They considered those matters and came to the conclusion that:

"In the light of the PSMC report and having taken into consideration all the factors laid before the meeting, members acknowledged the following advantages of referring the case to an Investigation Committee appointed under section 42C of the Professional Accountants Ordinance.

(a) As the Investigation Committee has statutory powers to obtain documents, other information and explanations under section 42D of the PAO, the case could be handled in a more effective and expeditious manner;

(b) The statutory secrecy requirements imposed by section 42G upon the Investigation Committee, Council, the Registrar and any other person assisting the Investigation Committee not discoverable by any person in the event of a law suit; and

(c) Section 42D(3) provides a measure of protection for persons from incurring liabilities to any other person by virtue of their providing information to the Investigation Committee.

In conclusion, the Council resolved that an Investigation Committee should be appointed to examine whether the CPA firms concerned had been negligent and failed to comply with the professional standards of the Society in the preparation of the accountants' report contained in the listing prospectus of GKC Holdings Limited and the audits of the financial statements of GKC and its subsidiaries for the period from 1 April 1994 to 31 July 1997 that formed the basis of the proforma results and assets shown in that accountants' report."

The Guangnan case

21. The background to this case is slightly different from that in respect of GKC. The evidence shows that, at about the end of 1998, there started to appear a number of press reports about problems being experienced by Guangdong Enterprises (Holdings) Limited. That company was a private company but it had subsidiaries. One of the subsidiaries was Guangnan (Holdings) Limited ("Guangnan"). Guangnan was listed on the Hong Kong Stock Exchange. There were apparently reports which circulated as to the fact that there had been understatement of the liabilities of the company in the financial information circulated by Guangnan in relation to a private placement of shares that took place in late 1998.

22. As a result of the financial difficulties, the Guangdong Provincial Government engaged KPMG, another firm of accountants, to prepare a report as to the financial conditions of Guangdong Enterprises (Holdings) Limited and its subsidiaries, including Guangnan. On 31 January 1999 Guangnan caused a public statement to be made, which was advertised in the press, that there had been "inappropriate accounting for various transactions and tardiness in recognising write-downs."

23. The findings of KPMG that there was potential asset and revenue impairment due to inappropriate accounting for various transactions was repeated in another statement published by the company on 8 February 1999. On 2 March 1999 the board of Guangnan published the consolidated accounts for the nine months ended 30 September 1998 as audited by KPMG, who were described as the independent reporting accountants. The accounts were qualified in a number of respect. The accountants noted a number of things and in particular that the evidence available to them was limited. One of the things they said, however, was:

"As indicated in note 7 (xii) on the accounts, provisions have been made against certain balances aggregating HK$2,453.6 million which were brought forward from 31 December 1997. At least HK$1,079.3 million of these items represents provisions which ought to have been made at 31 December 1997 or in prior years. However, no allocation of any of the provisions as prior period adjustments has been made. In our opinion, a substantial part of the provisions made in the accounts for the period ended 30 September 1998 should have been made in the accounts in prior years and should be regarded as prior period adjustments in preparing the accounts for the period ended 30 September 1998 with a corresponding reduction in the loss for the current period. We are unable to quantify the exact quantum of the total amount of such prior period adjustments but are of the opinion that the total amount should be in excess of HK$1,079.3 million."

24. One of the other matters which is noted in the accounts is under note 7(ix) which refers to a figure of $155,500,000.00. That was said to have related to fresh fish stocks which were apparently lost in August 1997 and not in existence on 31 December 1997 but were apparently still listed as an asset in the accounts up to that date.

25. There was, not surprisingly, apparently press coverage that questioned the audit work following these announcements. Furthermore, on 8 March 1999 the Senior Executive Director of the Regulatory Affairs Group of the Stock Exchange wrote to the Registrar of the HKSA drawing attention to the announcements and the fact that it appeared that the audited accounts, at least for the year ended 31 December 1997, included significant misstatements and may not show a true and fair view of the financial position of the Group as at 31 December 1997 and the Group's results for the year then ended. Attention was drawn to the fact that the accountants had expressed a clean opinion on the 1997 financial statements. The letter then went on:

"The Exchange has grave concern on the reliability of the financial statements issued by the Company in 1997 and prior years. Although it is the responsibility of the directors to prepare financial statements which give a true and fair view, the auditors are responsible for forming and expressing an independent opinion on the financial statements. A clean audit opinion provides reasonable assurance that the financial statements taken as a whole are free from material misstatement. The Exchange, as well as the general investing public, would cast doubts on why the significant misstatements in the 1997 Financial Statements were not detected.

The Exchange is aware that the Society is looking into the above matters and will take appropriate actions, where necessary. We would be grateful if the Society would keep us informed of the development, if any."

26. Whilst that letter stops short of constituting a complaint, it demonstrated the seriousness of what appeared to be inaccuracies in the accounts which had been presented to the investing public.

27. The Council of the HKSA had already commenced their own inquiries prior to receipt of the letter from the Stock Exchange. The steps taken and the information received were summarised in a memo dated 30 April 1999 which was presented by the Registrar to the Council for its meeting on 4 May 1999.

28. At the meeting on 4 May 1999, one of the senior partners of the applicant in appeal CACV 601 of 2000 had, of course, to absent himself from the meeting whilst the matter was discussed. Before doing so he drew the meeting's attention to clause 2(a) of the Council's policy not to appoint an Investigation Committee unless it was of the view that in order to conclude the matter satisfactorily, it would require more than the voluntary co-operation of the members concerned. He pointed out, as the firm had indicated, its voluntary co-operation with the HKSA to allow access to its working papers. He said that the Council should consider not instigating an investigation by an Investigation Committee as this would attach a stigma to the firm. The minutes of the meeting record that the options of referring the case to the Professional Standards Monitoring Committee or appointing a special working group or constituting an Investigation Committee were considered. It is recorded that:

"... the Council took into consideration the nature of the case, the resources problem associated with the PSMC as well as any working group appointed for this purpose, the voluntary co-operation offered by the firm, the possible adverse impact on the firm concerned, the legal implications in the event of a law suit arising during the course of investigation and the course of action that should be taken by the Society in respect of existing and future corporate failure cases."

29. The minutes record that the Council resolved to appoint an Investigation Committee under section 42C of the Ordinance. The text of the reasons for the appointment of an Investigation Committee are almost the same as that in respect of the GKC case in the meeting of the 7 September 1999 save that, in addition, it was stated that:

"(d) In the light of public attention on the mater, the findings of an Investigation Committee will be more conclusive and credible than a non-statutory inquiry."

30. The Council did not consider that there would be a significant difference in the adverse publicity between the appointment of an Investigation Committee or the Professional Standards Monitoring Committee looking at the matter or the appointment of a special working group.

31. There then followed some correspondence between the HKSA and the firm in question but the matter proceeded.

The main point taken by the applicants

32. On this appeal the main point taken by the applicants was that in view of paragraph 2(a) of the policy statement, which is set out above at paragraph 13, it was clear that:

"... the formal Investigation Committee route (with its compulsory powers against members) were only be used against members who refused or were unable voluntarily to co-operate with the HKSA."

33. Quite simply, that is not what paragraph 2(a) says. The policy indicated that the Council would not appoint a Committee unless it required "more than the voluntary co-operation" of the members concerned. The words "more than" indicate that something in addition will be required. The argument sought to be raised would only be valid if paragraph 2(a) read "unless the voluntary co-operation of the members concerned is not forthcoming."

34. The fact that voluntary co-operation by the firm would not be sufficient to avoid the appointment of an Investigation Committee was clearly the understanding of the partner of the applicant in the Guangnan case as recorded in the minutes of 4 May 1999. Indeed the affidavit of Kenneth Earl McKelvie sworn on 18 January 2000 in support of the application for leave in the GKC case states:

"The Applicants expected that, given the clear terms of the policy, the HKSA would only appoint an Investigation Committee once it became satisfied that it would require more than 'the voluntary co-operation of the members concerned'."

35. It appears to me, therefore, that not only does the argument that voluntary co-operation is sufficient fail, but the applicants have failed to demonstrate that it was their legitimate expectation that voluntary co-operation on their part would be sufficient to avoid the appointment of an Investigation Committee.

The correctness of the decision

36. Before turning to the remaining matters which were argued, which can be summarised as irrelevant considerations taken into account by the Council in making their decisions, I would make the following comments. It would appear to me that the decisions to appoint Investigation Committees were so clearly correct in their result that I find it difficult to imagine that there could be circumstances where, even if irrelevant or erroneous considerations were taken into account, a court would disturb the decisions.

37. The matters involved concerned accounts which were provided, in respect of the GKC case, in connection with its initial public offering and, in connection with Guangnan, in relation to a private placement.

38. The integrity of the Hong Kong financial markets is a matter of prime public importance. Not only does Hong Kong's financial stability rely upon Hong Kong as a service centre but, in particular, as an international financial centre. The raising of finance is dependent upon the confidence of the investing public. That confidence is secured in part by knowledge that reliance can be placed on financial statements. There can be no doubt that the accuracy of financial statements issued to investors and potential investors is of prime importance.

39. The role of an auditing accountant in certifying that the accounts give a true and fair view has to be viewed in this light. If there is a suggestion, not to speak of an allegation, that an auditor has failed in his duty in auditing accounts that are to be presented to the investing public, it is in everybody's interest that those suggestions and allegations are fully and properly investigated.

40. The Investigation Committee is a committee designed to scrutinise accusations made against professional accountants and their firms to see whether there is a prima facie case of negligence or misconduct. The fact that an Investigation Committee is appointed does not carry with it a stigma. Indeed, the very purpose of the Investigation Committee is to remove the stigma that could be argued to be attached if matters proceeded directly to a Disciplinary Committee.

41. There can be no doubt that the appropriate committee of the HKSA to review accusations which had been levelled against accountants and their firms with a view to seeing whether there is a prima facie case of a breach of their duties must be an Investigation Committee. The purpose of the other committees whether it be the Professional Standards Monitoring Committee or the Practice Review Committee is not to investigate to see whether there is a prima facie case to bring disciplinary proceedings. It may be that in the course of their work they come across instances where it can be concluded that disciplinary proceedings should be taken and where it is, therefore, their duty to draw the matters to the attention of the Council. That, however, does not make them the appropriate forum for investigating allegations made against accountants and their firms.

42. In my view, it would have been a dereliction of duty if, in the circumstances of the GKC case, the Council had not, without good reason, set in train the statutory mechanism for verifying the appropriateness of a complaint where that complaint is made officially by the Stock Exchange. The Stock Exchange itself is a regulatory body. In respect of the Guangnan case there was no official complaint, but the concern expressed by the Stock Exchange was scarcely less serious and the public attention to the matter was at least as great.

Irrelevant considerations

Third party co-operation

43. One of the points sought to be argued on these appeals was that there was no evidence before the Council that, for a proper investigation to take place, information had to be provided in the form of evidence or documents from some party outside the firms in question. It was also said that, even if such co-operation were required, there was no evidence that it would not be forthcoming.

44. Mr Huggins SC on behalf of the HKSA pointed out very forcibly that these points were not taken in the Form 86A when the proceedings were commenced and were not taken below. He points out that this was no mere technical objection since the evidence provided by the HKSA was directed to the objections which had been made and, had such points been taken, evidence to meet them would have been provided.

45. In my view, these points in relation to the objections are valid points. I do not consider that these objections, as now raised, are open to the applicants. Indeed, from a perusal of the papers that are before the court, it would appear that information from outside parties would be likely to be relevant. For example, in the GKC case evidence from the 17 contractors who denied the existence of the 69 projects might well be highly relevant.

46. Although the point pleaded in the GKC case in respect of third party co-operation was that the Investigation Committee had no greater power than the Professional Standards Monitoring Committee to compel third parties to provide evidence, the necessity for that evidence was raised as an argument before Hartmann J. Having considered the matter on the basis of the papers before him, the judge came to the conclusion that he did not consider that the Council had acted unreasonably in finding that the inquiry could only be satisfactorily resolved on a consideration of all the available information from all relevant quarters. The judge considered that the conclusion was justified even though, at the time of taking the decision, Council would not have been able to identify with certainty which third parties would need to give co-operation. In my view that conclusion was correct.

47. In the Guangnan case the point was not argued, although it might be considered that it was covered in a point which was not argued because it was considered that Stock J had already decided a similar point in Ernst and Young v The Hong Kong Society of Accountants, HCAL 139/199 delivered on 16 March 2000.

Protection of documents from discovery and/or a subpoena

48. As recorded, the Council took into consideration the statutory requirements of secrecy under section 42G on the footing that the findings of the Investigation Committee would not be discoverable by any person in the event of a subsequent law suit. Section 42G prevents any member of the Investigation Committee, or, in effect, any other relevant person, from disclosing information arising from an investigation or access to any of the documents used in or that came into being as a result of an investigation. The HKSA has disclosed an advice given to it, in September 1998, by its solicitors. That advice was that disclosure could not be compelled by subpoena if a subpoena were issued pursuant to civil proceedings and that it would be surprising if a person could be compelled to give evidence or produce documents if by doing so he commits an offence.

49. Although it was sought to be argued on this appeal that that view of the law was inaccurate, it seems to me, it would be highly undesirable and indeed fruitless for this court to embark upon an examination of the law in this respect. It would be impossible for this court to envisage all possible permutations of documents or information which may come into question, still less the circumstances in which some form of order would be made or compulsion exercised which would enable disclosure and use in civil proceedings.

50. In my view, the Council was acting upon legal advice properly rendered by the Council's legal advisers. I content myself with saying that I see no basis for holding that that advice was so inaccurate that the Council fell into error in relying upon it.

Client confidentiality - the statement of ethics

51. The third ground referred to by the Council in its reasons for appointing an Investigation Committee turned upon section 42D(3) which reads as follows:

"A person who complies with a requirement of an Investigation Committee which is made by virtue of subsection (1) shall not incur any liability to any other person by reason only of the compliance."

52. The point sought to be made on this appeal is that this statutory protection is no better than the protection provided by the HKSA's own statement of ethics which reads:

"A member may disclose to the appropriate authorities information concerning his client where the member's own interest required disclosure of that information. Under such circumstances there is no contractual bar to disclosure of information concerning a client."

53. Mr Huggins again takes issue with the ability of the applicants to raise this point on this appeal. He demonstrates quite clearly that the point taken in argument in the court below was that client confidentiality prevented disclosure of items confidential to clients.

54. In my view, Mr Huggins' objection is correct. But even if it were not correct the point appears to me to be a bad one. In the first place, the statutory protection goes further than the protection afforded by the statement of ethics. In the second place, being a statutory provision, it constitutes the law and not a guideline as to ethics. There is always a possibility that code of conduct and guideline in respect of ethics could be brought into question. In the third place it would stand as a matter of reason that lay clients, whose confidential matters may be the subject of the discussion, would be more inclined to be co-operative where there is statutory protection of that confidential material and statutory compulsion upon the relevant professional advisers to produce the material.

55. Again, I consider that the criticism raised by this objection fails.

56. In my view, whether taken separately or together, none of the criticisms that were raised, either in argument, or even those criticisms that were raised in the notices of the appeal but not pursued in argument, would constitute grounds upon which it could be said that the decisions reached by the Council were flawed.

57. For these reasons I would dismiss these appeals with orders nisi that the costs of these appeals should be to the HKSA.

Hon Keith JA:

58. I agree that these appeals should be dismissed for the reasons given by Rogers V-P. I agree also with the orders nisi which he proposes.

Hon Le Pichon JA:

59. I agree.