PETER PO FUN CHAN v.THE HONG KONG SOCIETY OF ACCOUNTANTS

HCAL637/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.637 OF 2001

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J U D G M E N T

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Introduction

1. The applicant in these proceedings for judicial review is a professional accountant, registered as such by virtue of s. 24(1) of the Professional Accountants Ordinance, Cap. 50 ('the Ordinance'). The applicant has for many years practised as an accountant under the name of Peter Chan Po Fun & Co. At all material times the applicant has employed a number of people - 20 or more - to assist him in his practice.

2. In or about April 2000, the Hong Kong Society of Accountants ('the Society') received an anonymous letter. It bore no address and was signed only 'an accountant'. Enclosed under cover of the letter were the financial statements for the year ended 31 March 1998 of a company called Shanghai Land Company Limited. The financial statements had been audited by the applicant's firm. In respect of those financial statements, the anonymous letter said only : ".... herewith please find a copy of accounts which is hard to come by for your reference."

3. The identity of the person who sent the financial statements to the Society has not come to light. Nor can it be said with any certainty how that person came into possession of those financial statements. The applicant, however, is convinced that they were taken from his office. The probabilities support him. I am told that two other sets of financial statements emanating from the applicant's offices were sent to the Society at or about the same time. These too were sent under cover of anonymous letters. It seems unlikely that three different sets of accounts, all audited by the applicant, would have been sent to the Society under cover of anonymous letters by three persons acting independently of each other. In all likelihood, the three sets of accounts were sent to the Society by an employee or ex-employee of the applicant.

4. Clearly, the person who sent the financial statements of Shanghai Land Company Limited intended that they should be examined by the officers of the Society. This was done. In the result, at the end of May 2000 the Society's Director of Professional Conduct ('the Director') wrote to the applicant's firm to confirm that the Society had the financial statements in its possession and that it had carried out a review of those statements. The Director had a number of queries.

5. The applicant's firm, under the signature of the applicant, replied promptly giving its answers. Thereafter correspondence ensued between the parties, the Director seeking further clarification of matters and the applicant doing his best to supply the necessary information. During this process, the applicant raised no question concerning the manner in which the financial statements had come into the possession of the Society. To the contrary, an examination of the correspondence shows that the applicant co-operated fully with the Director to enable him to complete his investigations.

6. By October 2000, the Director had determined that, on the information available to him, there was reason to believe that the applicant may not have adhered to the professional standards required of him in the auditing of the financial statements. Steps were therefore taken in terms of the Ordinance to formally determine the matter.

7. Section 34 of the Ordinance provides that :

"(1) A complaint that -

(a) a professional accountant -

....

(iv) has been negligent in the conduct of his profession;

....

(vi) failed or neglected to observe, maintain or otherwise apply a professional standard;

.....

shall be made to the Registrar who shall submit the complaint to the Council which may, in its discretion .... refer the complaint to the Disciplinary Panel."

8. The Disciplinary Committee Proceeding Rules, made pursuant to s. 51 of the Ordinance, envisage that complaints under s. 34(1)(a) will, in the main, be made by persons or bodies outside of the Society. By way of illustration, r. 3(1) and (2) reads :

"(1) A complaint under section 34(1) of the Ordinance .... regarding a respondent shall be in writing and signed by the complainant, and shall be made to the Registrar who shall submit the complaint to the Council.

(2) The Council may require the complainant to set out the grounds of his complaint and, except where the complaint is in writing under the hand of a public officer, supported by one or more statutory declarations as to the facts of the case."

When, however, as in the present case, there has been an internal investigation conducted by the Society's officers which gives rise to a belief that an accountant may have been guilty of misconduct or may have failed to meet the professional standards required of him, s. 34(1A) empowers the Registrar, without the receipt of any formal, outside complaint, to refer the matter to the Council. Section 34(1A) reads :

"Where the Registrar has reason to believe that subsection (1)(a) or (b), applies to a professional accountant .... he shall submit the facts to the Council which may, in its discretion, refer the complaint to the Disciplinary Panel."

9. On 26 October 2000, in accordance with s. 34(1A), the Registrar submitted a complaint to the Council of the Society. In that complaint, he stated that he had reason to believe that the applicant, in his auditing of the financial statements, had been 'negligent in the conduct of his profession' and/or had 'failed or neglected to observe, maintain or otherwise apply a professional standard'. By letter dated 8 December 2000, the applicant received formal notice that the Registrar had taken these proceedings.

10. By further letter dated 20 March 2001, the applicant received notice that the Council had referred the Registrar's complaint to a disciplinary panel and constituted a disciplinary committee. The letter came from the Registrar, the Society's representative in such business, and began :

" I filed a complaint against you to the Council of the Society on 26 October 2000. A copy of the complaint letter is enclosed for your information.

The Council subsequently resolved to refer the complaint to the Disciplinary Panel and to constitute a Disciplinary Committee to deal with the complaint. A hearing will be held by the Disciplinary Committee in due course to consider the complaint and you will be informed of the date of the hearing by the clerk to the Disciplinary Committee. ...."

11. The applicant now seeks orders of certiorari to quash, first, the decision of the Registrar to submit a complaint to the Council of the Society and, second, the decision of the Council to constitute a disciplinary committee to deal with that complaint. In short, it is the applicant's case that, in law, the matter of his professional conduct should not even be before a disciplinary committee for consideration.

12. At this juncture it should be mentioned that the present case is not the first of its kind concerning the applicant. In July 1999 the financial statements of a company audited by the applicant were sent anonymously to the Society for the same clear purpose, namely, their examination to see whether they accorded with required accountancy standards. The financial statements were examined. This resulted in the Registrar presenting a complaint to the Council of the Society and a disciplinary committee being constituted. As in the present case, the applicant sought to quash the relevant decisions of the Society. He was not successful. The matter came before me when the applicant sought leave to apply for judicial review. I did not grant him that leave.

13. In the present case, the applicant has advanced new grounds - or what he submits are new grounds - to challenge the lawfulness of the Society's actions. He has, in fact, advanced eight grounds. A number of them, however, share a common theme and may be dealt with together.

14. Although in his earlier challenge the applicant was represented by counsel, he has chosen on this occasion to appear without the benefit of legal representation. He has, however, submitted very full written arguments.

The 'tainted' provenance of the financial statements

15. The applicant has said that the financial statements were wrongly removed from his custody. Indeed he says that they must have been stolen from him. As a result, he has asserted that the financial statements were doubly tainted; first, by reason of their wrongful removal from his custody and, second, by reason of the manner in which they were delivered to the Society, that is, under cover of an anonymous letter. In light of this, the applicant has submitted that it was, in public law terms, unlawful for the Society to give any consideration to the financial statements let alone to take disciplinary proceedings against him in respect of them. The applicant has broken down this broad submission into four interlocking arguments.

16. First, the applicant has argued that, in judicial proceedings generally, material which has such a 'tainted' provenance is not admissible in evidence. How then can the financial statements be 'admissible' as the evidence upon which the Society has determined to institute disciplinary proceedings? In this regard, the applicant has referred me to a report from The Times Law Reports of 10 March 1987, the decision being one of the Court of Appeal in Barclays Bank plc v. Anderson. The headnote reads :

" Where a defence depended on allegations contained in an anonymous letter which was exhibited to the defendant's affidavit, the judge was correct to hold on an application for summary judgment that the defendant had no arguable defence to the plaintiff bank's action for recovery of money due from the defendant as guarantor for an insolvent company controlled by him."

The digest of the judgment of the court reads :

"... the defence was said to arise by way of set-off and counter-claim in which the defendant alleged that the bank manager had been in breach of his duty of confidentiality and had disclosed information about the defendants' company's financial affairs to another company, and that the bank manager had acted in collusion with the company's receiver who had failed to exercise his duties properly in realising the true value of the company's assets.

It was alleged that as a result of those breaches the defendant had sustained damages. The manager strenuously denied any breach of confidentiality on his part.

The defendant said that the letter from an undisclosed author coincided with his suspicions but did not say it established them. The judge was right in saying that the letter was not admissible and that there was no evidential validity in it.

The defendant had a suspicion and no more. There was no issue to be tried nor could it be said that there was something that ought to be investigated."

17. In that case, of course, the evidence was the anonymous letter or at least the allegations contained in it. In the present case, however, the Society has placed no reliance whatsoever on the evidential validity of the anonymous letter. It is no more than part of the package in which the financial statements were received. Its attention has instead focused on the financial statements themselves, the validity of which has been attested to by the applicant who has in no way contested their inherent integrity. Barclays Bank plc v. Anderson (supra) therefore determined a different issue.

18. The fact that evidential material has been received anonymously does not render it inadmissible if, standing as its own, it possesses evidential value and is therefore relevant to the matter at hand. The manner of its receipt may go to the weight to be accorded to the evidence but does not determine its admissibility.

19. As for the contention that material of tainted or unlawful origin is not, as a rule of law, admissible into evidence, that is not the law of Hong Kong. The principle was clearly stated in Kuruma v. R [1955] AC 197, a decision of the Privy Council, the headnote reading :

"The test to be applied both in civil and in criminal cases, in considering whether evidence is admissible is whether it is relevant to the matters in issue. If it is, it is admissible and the court is not concerned with how it was obtained."

20. English common law does not incorporate the principle known to United States jurisprudence as 'the fruit of the poisoned tree', namely, that evidence from a poisoned source is itself poisoned.

21. The second argument of the applicant was more bold. It was to this effect : the financial statements were stolen from his offices and were therefore stolen property; in the result, in using them as a basis for investigation, the officers of the Society have committed the criminal offence of handling stolen goods contrary to s. 24 of the Theft Ordinance, Cap. 210.

22. There is no substance in this argument; it is misconceived. What in any event, has been stolen? For there to be theft there must be a dishonest appropriation of 'property' belonging to another. But information is not 'property' within the meaning of the Theft Ordinance. At worst, therefore, what has been stolen is some paper and ink. Perhaps there was an abstraction of electricity if a photocopying machine was used. But in the circumstances these are insignificant. The de minimis principle must apply. In any event, for the officers of the Society to be guilty of handling stolen goods, they must do so dishonestly. In this regard, s. 24(1) of the Theft Ordinance reads :

" A person handles stolen goods if (otherwise than in the course of the stealing) knowing or believing them to be stolen goods he dishonestly receives the goods, or dishonestly undertakes or assists in their retention, removal, disposal or reaslization by or for the benefit of another person, or if he arranges to do so."

There is not a shred of evidence to suggest that the officers of the Society acted dishonestly. To the contrary, it is manifestly evident that they acted in good faith to discharge their statutory responsibilities.

23. The applicant's third argument was to the effect that, in examining the financial statements, despite the fact that clearly they had been wrongly taken from his custody, the officers of the Society were in breach of art. 14 of the Hong Kong Bill of Rights, Cap. 383 :

" (1) No one shall be subjected to arbitrary or unlawful inference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation.

(2) Everyone has the right to the protection of the law against such interference or attacks."

24. The Society, of course, assuming that it is a public authority and therefore bound by the Bill of Rights, did not in any way directly interfere with the applicant's privacy or private possessions; it did not incite any such interference nor aid and abet it. If there was any interference, it was brought about by the applicant's employee or ex-employee, a private individual. The officers of the Society did no more than examine the financial statements after they had been delivered to them, having no knowledge of the manner in which the anonymous sender had come into possession of them.

25. What must be remembered is that, in terms of the Ordinance, the Society (acting through its officers) is charged with the regulation of the accountancy profession in Hong Kong. Central to this responsibility is the maintenance of professional standards. The statutory powers of the Society include the power to discipline accountants practising in Hong Kong if they fail to meet these standards. In the discharge of this power, the Society is obliged to receive complaints and to investigate those complaints. It is to be expected that some complaints may be made anonymously. For example, employees of accountancy firms may be fearful of losing their jobs if they openly complain of professional misconduct or negligence on the part of their superiors. As I said in my earlier judgment (Peter Po Fun Chan v. The Hong Kong Society of Accountants, HCAL 176/2000) :

"The Society has a statutory obligation to ensure that professional standards are adhered to by its members. A failure to do so could result in the profession falling into disrepute. In order to discharge its responsibility to ensure the preservation of standards, the Society - acting through the Registrar - is empowered to consider any matter coming to its attention other than by means of a formal, identifiable complaint. That power comes from section 34(1A) of the Ordinance which enables the Registrar to refer any matter that he 'has reason to believe' reveals professional misconduct or negligence on the part of a member."

26. In the circumstances, I am satisfied that, on the part of the Society, there has been no breach of art. 14 of the Hong Kong Bill of Rights.

27. Finally, the applicant has argued that, in instituting an investigation upon the basis of an anonymous complaint, the Society has acted in defiance of the rules of natural justice. The breach alleged by the applicant cannot go to the investigation process itself. Before it was decided to present a complaint to the Council of the Society, the Director gave ample opportunity to the applicant to make submissions and present his side of the story. The alleged breach of natural justice most therefore lie in the Society's decision to consider the financial statements even though they came under cover of an anonymous letter. As the applicant has expressed it in his written submissions : "The Ordinance proves a set of rules for dealing with complaints against members lodged by identified complainants, such as the Stock Exchange. It does not provide rules on dealing with complaints lodged by anonymous and unidentified complainants. Further, it does not provide rules on dealing with stolen documents coming in as package..., it is important, may I say, to protect professional people from being penalised unduly by anonymous letters which may come from anywhere, in particular from their unidentified employees." The applicant emphasised that public policy should not allow 'this type of practice' to continue, preventing professional people from carrying out their business in peace.

28. But as I said in my earlier judgment - indeed it was central to that judgment - I am satisfied that the Ordinance does allow the Society, acting through the Registrar, to consider the substance of any complaint even if it is not formally made by an identified complainant.

29. The applicant has spoken of public policy. In my judgment, public policy in this matter is clearly dictated by the terms of the Ordinance which place a responsibility on the Society to investigate and discipline accountants who are guilty of misconduct or a failure to meet the professional standards expected of them. The Society's ability - in the greater public interest - to investigate complaints would be materially undermined if it felt itself constrained to consider only those complaints which are formally made by identified persons.

30. What must be remembered - and I repeat - is that, before any formal complaint was made to the Council, the Director afforded the applicant a full opportunity to explain his position concerning the competency of the financial statements. The applicant accepted this opportunity. Only after full and careful enquiry was a complaint presented. In those circumstances I fail to see how anything smacking of procedural impropriety or a breach of contemporary standards of natural justice can be alleged.

The allegation that the disciplinary proceedings are based on a wrong understanding of accountancy principles

31. The applicant has contended that the decisions to institute disciplinary proceedings against him have been based upon an incorrect understanding of relevant accountancy principles. In support of his contentions, the applicant has gone into lengthy considerations of what do or do not constitute competent approaches to the auditing of financial statements. But, as Mr Harris, for the Society, has said, these are matters for the disciplinary committee itself. They are not matters for this court. I agree.

32. It is not for me to prejudge the merits of the complaints made in the disciplinary proceedings nor the merits of the applicant's answers to those complaints. It is fundamental that judicial review does not go to the merits of decisions made, it goes to the lawfulness of the process through which those decisions come about. See, for example, Reid v. Secretary of State for Scotland [1999] 2 AC 512 per Lord Clyde at 541 :

"Judicial review involves a challenge to the legal validity of the decision. It does not allow the court of review to examine the evidence with a view to forming its own view about the substantial merits of the case. It may be that the tribunal whose decision is being challenged has done something which it had no lawful authority to do. It may have abused or misused the authority which it had. It may have departed from the procedures which either by statute or common law as a matter of fairness it ought to have observed. As regards the decision itself it may be found to be perverse, or irrational, or grossly disproportionate to what was required. Or the decision may be found to be erroneous in respect of a legal deficiency, as for example, through the absence of evidence, or of sufficient evidence, to support it, or through account being taken of irrelevant matter, or through a failure for any reason to take account of a relevant matter, or through some misconstruction of the terms of the statutory provision which the decision-maker is required to apply. But while the evidence may have to be explored in order to see if the decision is vitiated by such legal deficiencies it is perfectly clear that in a case of review, as distinct from an ordinary appeal, the court may not set about forming its own preferred view of the evidence." [my emphasis]

33. While, clearly, the applicant feels strongly that the complaints made against him are misconceived, it cannot be suggested that they have been made in bad faith. Nor, in my judgment, upon a consideration of the evidence before me, can it be said that the decisions of the Registrar and the Council were so outrageous in their defiance of logic that no sensible person with accountancy knowledge could have come to such decisions. That being the case, the merits of the complaints must be left to the disciplinary committee, a professional body constituted under the Ordinance for that specific purpose.

The negligence issue

34. As I understood the applicant's submissions, they were to the effect that the complaint made by the Registrar and supported by the Council that he has 'been negligent in the conduct of his profession' under s. 34(1)(a)(iv) of the Ordinance is misconceived in law as to the meaning and intent of negligence and, as such, must be set aside. The applicant has argued that there is no such thing as carelessness in the abstract; there must first be a duty of care and, second, there must be evidence of damage resulting from a failure to exercise that care. His conduct, he has said - however it may be judged - has involved no duty of care and there has been no proof of damage; accordingly there has been no negligence on his part.

35. Negligence is the failure to use the requisite amount of care required by the law in the case when a duty to use care exists. When a professional accountant, registered in terms of the Ordinance, carries out accountancy work for a client he owes that client - and, I may say, the wider public who may rely on the accounts - a duty of care to do so in a professional manner. That duty is imposed by the Ordinance and is therefore required by law. Accordingly, it is clear that the applicant, when he audited the financial statements of Shanghai Land Company Limited, owed a duty of care to the company and the wider public to do so to the required professional standards. If he was negligent in doing so - and that is still to be decided - then his carelessness was far from abstract.

36. The applicant has gone on to argue that there has been no proof of damage. But such proof is only required when inter partes litigation takes place based on the tort of negligence. Proof of loss or damage of some kind is not an essential element of the disciplinary offence of negligence under the Ordinance. Indeed, there may be cases where the negligence has effected a saving for the client.

37. In the circumstances, I am satisfied that the decisions of the Registrar and the Council were not, in law, misconceived as to the essential elements of negligent conduct in terms of s. 34(1)(a)(iv)of the Ordinance.

Failure to take advice

38. I confess to having some difficulty in understanding the nature of this challenge. I take it to be that, because of the complexity of the issues involved, the Registrar and/or the Council were under an obligation to take professional advice before coming to their respective decisions and their failure to do so amounted either to a procedural impropriety or an act of such unfairness that, in law, their decisions must be set aside. I can find nothing in the Ordinance, however, which requires either the Registrar or the Council, in the discharge of the duties which are now under scrutiny, to take advice before making a decision.

39. In support of his argument, the applicant cited from Kwan Wong Tan & Fong & Another v. The HongKong Society of Accountants, HCAL 16/2000 in which I said :

".... It is a matter of no small consequence for an accountant to be called before such a committee and therefore of no small consequence for the Council to appoint one. How then is the Council to reach its decision whether to proceed to such disciplinary proceedings or not? It goes without saying that accountancy matters may be of great complexity. Fairness dictates that in such circumstances the Council should be in a position to receive informed, professional advice to enable it to exercise its discretion and in this regard the Council has available to it the two 'advisory' bodies that have been spoken of earlier; namely a Monitoring Committee or an Investigation Committee."

40. But the fact that the Registrar and the Council may take advice if they deem it necessary to do so is a different matter from being obliged to do so. As I have said, the Ordinance imposes no such obligation.

Additional challenges

41. Although not stated in the applicant's formal papers seeking judicial review, during the course of his submissions he raised what appeared to be two new matters.

42. First, the applicant alleged that some form of procedural impropriety may have occurred in framing the charges against him. This is because there is no direct evidence that either the Registrar or the members of the Council are themselves professional accountants. There is no substance in this complaint. It is evident that the Registrar and the Council members were lawfully appointed in terms of the Ordinance. No challenge has been made in this regard. Their decisions, as lawfully appointed officers of the Society, were made in accordance with the terms of the Ordinance. That ends the matter.

43. Second, the applicant alleged that some further form of procedural impropriety took place when the Council refused his request to address it before fixing a date for the hearing of disciplinary proceedings. This, said the applicant, was a 'legitimate request' and should not have been refused. But, of course, this Court is not here to monitor the merits or wisdom of each and every decision of the Council. It is here, if necessary, to supervise the lawfulness of its proceedings. Nothing has been placed before me to suggest that the Council in its decision acted contrary to the dictates of the Ordinance. It has not been said that traditionally the Council has always allowed such addresses, giving birth to some form of legitimate expectation. Nor can I see how it can be argued that the decision of the Council was in any way perverse or irrational; indeed, it may be argued with force that it was procedurally a prudent decision.

Conclusion

44. For the reasons I have given, I am satisfied that this application must be dismissed. I can find no substance in the challenges made, viewed individually or when taken together.

45. It appears to me that costs must follow the event. Costs are therefore awarded to the Society.