CHUNG SUN KWAN v. THE OFFICIAL RECEIVER

HCA 2731/2015

[2021] HKCFI 712

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2731 OF 2015

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J U D G M E N T

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Introduction

1.  This is the trial of the Action on liability. 

2.  On 14 December 1999, Kwangtung Provincial Bank (“KP Bank”) commenced a mortgagee action against the Plaintiff in HCMP 7711 of 1999 (“HCMP7711”) for payment of monies owed by the Plaintiff to the KP Bank and vacant possession of the Plaintiff’s property which had been mortgaged to the bank.  On 6 March 2000, KP Bank obtained a judgment against the Plaintiff in the sum of HK$3,055,778.02 together with interest and costs (“Judgment debt”), as well as vacant possession of his property. 

3.  On 31 March 2000, the Plaintiff issued third party proceedings in HCMP7711 against his business partner Mr Wan Hang Ping (“Wan”) for an indemnity against KP Bank’s claim ie the Judgment debt and costs of HCMP7711 (“3P Proceedings”/ “3P Claim”). 

4.  By his Statement of Claim dated 4 January 2001, the Plaintiff sought an indemnity from Wan not just for KP Bank’s claim and costs of HCMP7711, but also profits said to be due from Wan to the Plaintiff under inter alia a partnership agreement.  On 13 February 2001, Wan filed his Defence in the 3P Proceedings.  Thereafter, since about August 2001, the Plaintiff’s and Wan’s legal representatives entered into settlement negotiations of the 3P Proceedings.  The range of offer and counter offer were between HK$2.5 million and HK$6.1 million respectively.

5.  Before the Plaintiff and Wan could reach a settlement agreement, the Bank of China (Hong Kong) Limited (“BOC”) became the successor of KP Bank.  On 17 October 2002, BOC petitioned for the bankruptcy of the Plaintiff for a sum of over HK$1.2 million, being the outstanding balance of the Judgment debt after deducting the sale proceeds of the Plaintiff’s property.  On 18 December 2002, the Plaintiff was adjudicated bankrupt[1]. By Order of Master Lung dated 20 May 2003, the Defendant became the trustee-in-bankruptcy (“Trustee”) of the Plaintiff. 

6.  As summarised in para 1 of Mr Ng’s Opening Submissions, the Plaintiff claims against the Defendant in negligence at common law for the loss and damage he has suffered as a result of the Defendant’s failure inter alia

(1)     to consider adequately or at all whether to adopt the Plaintiff’s right of action in the 3P Proceedings timeously and within a reasonable time;

(2)     to consider and assess adequately or at all whether the 3P Proceedings should be settled as per the terms of a written Settlement Agreement entered into between the Plaintiff and Wan on 9 January 2007 (“Settlement Agreement”)whereby the Plaintiff and Wan agreed to settle the 3P Proceedings at HK$4 million. 

7.  As shall be explained later in this Judgment, the so-called Settlement Agreement was merely a proposal to settle.

8.  In gist, the Plaintiff’s complaint is that there was undue delay after the Defendant had become the Trustee before the Defendant notified him (via Mr Albert Ho) of the decision not to adopt and proceed with the 3P Claim on 6 September 2007 (on the ground that the Defendant was not satisfied that there were sufficient funds or a proper indemnity to keep the 3P Proceedings on foot or that the 3P Proceedings had a prospect of success).  There was further delay until 22 September 2012 when the Defendant assigned back to the Plaintiff his 3P Claim which had been vested in the Defendant upon the bankruptcy of the Plaintiff pursuant to s 58 of the Bankruptcy Ordinance, Cap 6 (“BO”), at the consideration of HK$5,000. 

9.  After the assignment, the Plaintiff offered to settle the 3P Proceedings with Wan for HK$9 million.  In response, Wan applied to strike out the 3P Proceedings.  Wan lost before a Master and L Chan J but succeeded in the Court of Appeal - on 15 August 2014, the 3P Proceedings were struck out by the Court of Appeal for want of prosecution in CACV 64 of 2014. 

10.  The gravamen of the Plaintiff’s complaint is that he was saddled with the adverse effect of the Defendant’s said failure and inaction which eventually resulted in the 3P Proceedings being struck out.  If the Defendant had not stalled in his inquiry and decision as to whether or not to adopt the 3P Proceedings, but assigned the Plaintiff’s right of action back to him at a much earlier stage after his discharge from bankruptcy, he would have been able to grip the Settlement Agreement or somehow been able to settle the 3P Proceedings, and, even if the Plaintiff and Wan could not reach a settlement, he would stand a high chance of his right of action not being struck out.

The Parties’ case and the issues 

11.  At paragraph 46 of the Amended Statement of Claim, it was pleaded that:

“46. At all material times, the Defendant owed the Plaintiff a duty of care at common law, and further or alternatively, by reason of the matters aforesaid, the Defendant had voluntarily assumed responsibility towards the Plaintiff:-

(a)     to consider or consider adequately the merits of the Third Party Proceedings timeously and within a reasonable time;

(b)     to consider/assess or consider/assess adequately whether the Third Party Proceedings should be settled as per terms of the Settlement Agreement timeously and within a reasonable time;

(c)     to consider whether to proceed with the Third Party Proceedings and thereby adopting it timeously and within a reasonable timeframe;

(d)     to notify the Plaintiff his decision as to whether to proceed with and adopt the Third Party Proceedings timeously and within a reasonable time so that the Plaintiff could take whatever appropriate prudent step to proceed with the Third Party Proceedings without delay; and

(e)     to allow the Plaintiff to continue with the Third Party Proceedings on his own by assigning the right of action in respect of the Third Party Proceedings back to the Plaintiff timeously and within a reasonable timeframe so that the Plaintiff could continue with the Third Party Proceedings without delay.”

12.  At paragraph 59 of the Amended Statement of Claim, it was pleaded that the Defendant was in breach of his common law duty of care for:

“(a)    Failing adequately or at all to take possession of all the relevant documents relating to the Third Party Proceedings for his consideration whether to proceed with the Third Party Proceedings timeously and within a reasonable time;

(b)     Failing to consider adequately or at all the evidence and merits of the Third Party Proceedings timeously and within a reasonable time;

(c)     Failing to consider adequately or at all whether to proceed with the Third Party Proceedings and thereby adopting it timeously and within a reasonable time;

(d)     Failing to notify the Plaintiff his decision as to whether to proceed with and adopt the Third Party Proceedings timeously and within a reasonable time so that the Plaintiff could take whatever appropriate prudent step to proceed with the Third Party Proceedings without delay;

(e)     Failing to consider and assess adequately or at all whether the Third Party Proceedings should be settled as per terms of the Settlement Agreement;

(f)     Failing to advise the Plaintiff to accept the terms of the Settlement Agreement in full and final settlement of the Third Party Proceedings;

(g)     Failing to allow the Plaintiff to continue with the Third Party Proceedings on his own by assigning the right of action in respect of the Third Party Proceedings back to the Plaintiff timeously and within a reasonable timeframe so that the Plaintiff could continue with the Third Party Proceedings without further delay;

(h)     Failing to take into account the risk of the Third Party Proceedings being struck out for want of prosecution; and

(i)     Permitting or causing the Third Party Proceedings to be struck out for want of prosecution.”

13.  In gist, the Defendant’s case is this.

14.  First, as a matter of principle, a trustee does not owe a common law duty of care to the bankrupt in relation to any “estate claims”.  Mr Leung, for the Defendant, is at pains to emphasise to this court that the Plaintiff is not making a claim for breach of “statutory duty” under the BO.  Nor is he seeking relief against the Defendant under ss 83 or 84 of the BO.  The Plaintiff’s claim in this Action is therefore entirely outside the detailed statutory regime set out in the BO which imposes extensive obligations on the part of a trustee and provides adequate relief to persons aggrieved including a bankrupt.  There is therefore no scope for the imposition of a common law duty of care on the Defendant. 

15.  Second, even if it is theoretically possible for a trustee to owe a common law duty of care to the bankrupt, there is nothing on the facts of this case which gives rise to such a duty on the part of the Defendant.

16.  Third, there was no breach of duty on the part of the Defendant.  In order to have a proper case on breach, the Plaintiff needs to identify and prove inter alia the following:

(i)     What exactly did the Defendant have a duty to do, but failed to do it?

(ii)    When should the Defendant have done it?

17.  In considering (i) and (ii) above, one must clearly bear in mind the Defendant’s serious lack of funding and that neither the Plaintiff nor his creditors were willing to provide a suitable indemnity to cover the legal costs of the 3P Proceedings against Wan and any adverse costs order.

18.  In broad terms, the issues for determination by this court are:

(1)     Whether the Defendant owed any common law duty of care to the Plaintiff in principle.  (“Issue 1”)

(2)     Whether the Defendant owed the alleged[2] common law duty of care to the Plaintiff on the facts of this case.  (“Issue 2”)

(3)     If so, whether that duty was breached in the circumstances of the case.  (“Issue 3”)

19.  At trial, the Plaintiff called 1 witness viz himself. 

20.  The Defendant called 2 witnesses:

(1)     Ms Tang Wai Han (also known as Lydia WH Tang) (“Ms Tang”), an Insolvency Officer of the Official Receiver’s Office (“ORO”) since January 1993.  Ms Tang was assigned as the case officer to handle the Plaintiff’s bankruptcy in November 2002.  She was reassigned and ceased to be the case officer on 9 March 2007.

(2)     Mr Tang Yuk Tung Richard (“Mr Tang”), a Senior Insolvency Officer of the ORO since April 2007 when he was assigned as the case officer of the Plaintiff’s bankruptcy until November 2012 when he was transferred to another post and ceased to be the case officer.   

21.  Given the material events took place over a decade ago, it would be unrealistic to expect the witnesses to have a clear recollection of them.  Fortunately, this court is considerably assisted by the contemporaneous correspondence and documents which are either not in dispute or indisputable.  This court will therefore place heavy reliance on these contemporaneous correspondence and documents in making findings for the purpose of this Judgment.

Deliberation

Issue 1

22.  The relevant parts of ss 83 and 84 of the BO provide:

“83.    Appeal to court against trustee

If the bankrupt or any of the creditors or any other person is aggrieved by any act or decision of the trustee, he may apply to the court, and the court may confirm, reverse or modify the act or decision complained of, and make such order in the premises as it thinks just.

84.     Control of court over trustee

(1)     The court shall take cognizance of the conduct of trustees, who shall act in a fiduciary capacity and deal with property under their control honestly, in good faith, with proper skill and competence and in a reasonable manner, and in the event of any trustee not faithfully performing his duties and duly observing all the requirements imposed on him by Ordinance, rules or otherwise with respect to the performance of his duties, or in the event of any complaint being made to the court by any creditor, the Official Receiver, the bankrupt or any other person in regard thereto… the court shall inquire into the matter and take such action thereon as may be deemed expedient.

…

(4)     Where on an application under this section the court is satisfied—

(a)     that the trustee has misapplied or retained, or become accountable for, any money or other property comprised in the bankrupt’s estate; or

(b)     that a bankrupt’s estate has suffered any loss in consequence of any misfeasance or breach of fiduciary or other duty by a trustee in the carrying out of his functions,

the court may order the trustee, for the benefit of the estate, to repay, restore or account for money or other property (together with interest at such rate as the court thinks just) or, as the case may require, to pay such sum by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just, and liability under this section is without prejudice to any liability arising apart from this section.”

23.  As acknowledged by Mr Leung in his Opening submissions, there is scant case law on whether a trustee can (or cannot) owe a common law duty of care to a bankrupt.  For reasons which will become apparent later in this section, the authorities relied upon by Mr Leung are hardly conclusive in his favour.  It therefore seems to this court unsafe to try to resolve the question of a trustee’s common law duty of care in the abstract without reference to the facts of the case. 

24.  The starting point of Mr Leung’s submission is the decision of Chu J (as she then was) in Lam Ching Sheung v Official Receiver [2009] 5 HKLRD 278.  In that case, the plaintiff was made bankrupt by an Order made in March 2001 and the Official Receiver was appointed her trustee.  In March 2002, the Court of Appeal ordered the bankruptcy Order be “set aside”.  The Official Receiver considered the Court of Appeal had not annulled the bankruptcy Order but merely stayed it so that he had to do the minimum amount of work.  Subsequently, in 2007, the Court of Appeal clarified that the bankruptcy Order had been quashed in March 2002 and dismissed the bankruptcy proceedings.  The plaintiff then sued the Official Receiver for negligence and breach of statutory duty for mistakenly treating her as a bankrupt after the March 2002 Order.

25.  At [43], the learned Judge explained the hurdles faced by the plaintiff in relation to her claim in negligence in these terms:

“43. The first hurdle is that the plaintiff has to establish that in law the Official Receiver owed a duty of care to her. The relationship between the plaintiff and the Official Receiver came into being with the order made by the Master on 12 July 2001, under which the Official Receiver became the trustee of the plaintiff’s estate in bankruptcy. It is true that, as a trustee, the Official Receiver was subjected to statutory duties under the Bankruptcy Ordinance and the Bankruptcy Rules. This, however, does not necessarily mean that the Official Receiver owed a common law duty of care to the plaintiff as a bankrupt. In Commissioners of Customs and Excise v Barclays Bank Plc [2007] 1 AC 181, at paras. 14, 38 and 39, the House of Lords pointed out that a duty of care usually arises from the defendant’s acts. The defendant bank in that case was held not to have owed a common law duty of care to the plaintiff, the reason being that the bank had not voluntarily or on its own initiative assumed any responsibility towards the plaintiff. … The Official Receiver in the present case is in the same situation as that of the bank.” (emphasis added)

26.  The learned Judge then went on to consider the facts of the case and concluded at [47] that:

“ Accordingly, in the circumstances of the case, there is no evidence to show that the Official Receiver had assumed any duty of care towards the plaintiff. On the contrary, by his letters to the plaintiff, in which he expressly advised her to seek independent legal advice and assistance in respect of her case and the order of 5 March 2002, the Official Receiver had effectively disclaimed any duty that he might owe to the plaintiff. Furthermore, as regards her legal position and matters such as her estate and creditor’s rights, the plaintiff had placed no reliance on the Official Receiver’s opinions or statements. For these reasons, the plaintiff has failed to prove that there was a special relationship between her and the Official Receiver so that at law the Official Receiver was taken to be under a duty of care towards the plaintiff.” (emphasis added)

27.  The references to assumption of duty of care and special relationship between the plaintiff and the Official Receiver can be harked back to the legal principles the learned Judge referred to earlier in [40] and [41] of the Judgment:

“40. In the present case, the plaintiff is claiming damages for alleged pure financial or economic loss. In a claim of this nature, the plaintiff has to show that she and the defendant were in a special relationship so that the defendant owed her a duty of care: Hedley Bryne & Co. Ltd v Heller & Partners Ltd [1964] AC 465; Clerk & Lindsell on Torts (26^th edition, 2006), para. 8-85.

41. One of the factors which the Court will consider is whether there was voluntary assumption or undertaking of responsibility by the defendant towards the plaintiff, so that a special relationship was created between them: Hedley Bryne & Co. Ltd v Heller & Partners Ltd, 528; and Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. In considering this question, the Court applies an objective test which focuses on things said or done by or on behalf of the defendant in his dealings with the plaintiff and considers whether, in all the circumstances of the case, such things said or done demonstrate that the defendant had assumed a duty of care towards the plaintiff: Williams v National Life Foods Ltd [1998] 1 WLR 830, 835. The Court will also consider whether the loss suffered by the plaintiff is reasonably foreseeable, how proximate the relationship between the plaintiff and the defendant was, and whether, as a matter of public policy, it is fair, just and reasonable to impose a duty of care on the defendant: Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 180-181.” (emphasis added)

28.  The question whether a trustee, as a matter of principle, can or cannot owe a common law duty of care to a bankrupt was not addressed in Lam Ching Sheung v Official Receiver.  The only ruling which assists the Defendant is that the mere existence of a trustee/ bankrupt relationship is not sufficient to give rise to such a duty. 

29.  On the other hand, the fact that the learned Judge had to examine the factual circumstances of the case before concluding there was no special relationship between the plaintiff and the Official Receiver which would give rise to a common law duty of care rather suggests that, on a different set of facts, a trustee may owe a common law duty of care towards a bankrupt. 

30.  The next case is Oraki v Bramston [2018] Ch 469 which was concerned with claims by the bankrupts against their former trustees at common law and under section 304(1) of the Insolvency Act 1986[3] in negligence and for breach of duties in failing to manage their estates properly.  The alleged improper conduct was said to have unnecessarily prolonged the bankruptcies and caused financial loss and mental distress to both the estates and the claimants personally.  One of the issues before Proudman J was whether a trustee owed any duty at common law to the bankrupt outside section 304.  At [22], Proudman J referred to a prior decision of Mr Nicholas Strauss QC (sitting as a deputy judge of the Chancery Division) in the same case which dealt with the same issue: [2014] BPIR 1374. 

31.  At [4] - [5] of that prior decision, Mr Nicholas Strauss QC, in the context of an appeal against a deputy master’s decision in an application by the trustee for summary judgment or to strike out the claim, observed that:

“4.   To a large extent, the issues between the parties turned on two questions of law. First, it was submitted on behalf of the appellants that a trustee in bankruptcy could not owe any common law duty to the bankrupt outside section 304 of the Insolvency Act 1986. …

5.     The deputy master dealt with this in considerable detail between paras. 15 and 29 of her judgment, and concluded that, at least in a case such as the present, in which it is clear throughout that the assets of the estate far exceed the sums required to pay all creditors in full and the expenses of the bankruptcy, it is at least arguable that the existence of the surplus gives rise to a duty on the trustee’s part to the bankrupt as the person who will be entitled to that surplus. I entirely agree with her on this issue.” (emphasis added)

32.  At [30] - [34], Proudman J set out her own reasoning and conclusion on the same issue as follows:

“     30   Bankruptcy case law has long recognised that a trustee in bankruptcy is not a trustee for the bankrupt until it has been established that there is a surplus after payment in full of all the creditors: see Bird v Philpott [1900] 1 Ch 822, 828, In re Leadbitter (1878) 10 Ch D 388, 391, In re A Debtor, Ex p the Debtor v Dodwell [1949] Ch 236, 240‑241 and James v Rutherford-Hodge [2006] BPIR 973, paras 12, 14.

    31   In James v Rutherford-Hodge [2006] BPIR 973, it was held, see especially per Chadwick LJ at para 12, that the ability of the bankrupt to challenge the actions of the trustee was limited. A bankrupt had no beneficial interest in his property. He merely (subject to his rights to pursue a remedy under section 303(1)) had a right to participate in any surplus once the bankruptcy was concluded with all creditors and expenses paid: see also Heath v Tang [1993] 1 WLR 1421, especially at p 1424E, per Hoffmann LJ.

…

    33   I observe that it would be inconsistent with the requirement that the permission of the court must be given if the bankrupt had an unfettered right to take proceedings against his trustee. In any event there is no need for the bankrupt to have a general right of action based on a common law duty which would conflict with the statutory regime of rights, for example, sections 303, 304, 325(2), 326(3) and 363 of the 1986 Act.

    34   I do not therefore consider that there is a common law duty in negligence apart from the statute. However, the trustee owes a statutory duty to the bankrupt because of section 330(5) of the 1986 Act, at any rate where the estate proves to be solvent …” (emphasis added)

33.  Mr Leung submits that Proudman J’s analysis was essentially that, having laid down a comprehensive statutory regime governing the duties of trustees, the legislature did not intend for there to be a parallel common law regime upon which bankrupts could sue their trustees.

34.  On appeal, Proudman J’s decision was upheld on the facts.  But on the aforesaid issue, Richards LJ (with whom McCombe LJ agreed) took a different view.  At [214] and [216] - [217], Richards LJ explained his disagreement on the issue as follows:

“     214   Section 304 in terms provides a framework for claims for the benefit of the bankruptcy estate. It is concerned with, and confined to, acts or omissions on the part of the trustee that have caused loss or damage to the estate. An application under the section may be brought by any creditor, who will clearly have an interest in the proper administration of the estate. The bankrupt may only apply under the section with the leave of the court[4]. This is a requirement designed to provide protection to trustees, although it is to be noted that the bankrupt may be given leave even though there is not, or is not likely to be, a surplus available for him.

…

    216   It is perfectly understandable that the bankrupt should need leave before he can apply under the section for the benefit of the estate. That does not, however, explain why in no circumstances can a trustee owe an enforceable duty to the bankrupt in respect of loss or damage caused not to the estate but to the bankrupt personally. Nor, importantly, does it explain why section 304(1) provides that the subsection is ‘without prejudice to any liability arising apart from this section’. Those words are apt to extend to any claim for any common law or other duty not falling within the express terms of section 304. They wisely accommodate future legal developments, including developments in the common law, as well as providing for liabilities that could in 1986 have arisen.

    217   In my judgment, section 304 cannot be read as excluding any liability on the part of a trustee to a bankrupt, save as expressly provided by the section, and I therefore respectfully disagree with the judge on this point. ...” (emphasis added)

35.  Like Richards LJ, this court cannot see anything in s 84 (or s 83 for that matter) which excludes common law liability on the part of a trustee to a bankrupt.  Nor does this court understand that to be Mr Leung’s argument.  His argument, like that of Proudman J, is that having laid down a detailed statutory regime governing the duties of trustees and providing remedies to persons aggrieved including eg creditors and bankrupts, the legislature intends to exclude a common law regime whereby bankrupts can sue their trustees.  But s 84(4), like s 304(1), provides that liability under the section is “without prejudice to any liability arising apart from this section”.  It is at least arguable that the proviso reinforces the argument that any common law duty is preserved rather than excluded by s 84. 

36.  Lastly, Mr Leung seeks to draw an analogy with the Court of Appeal’s decision in Li Ngan Shui Brumen v AR Hearder (otherwise known as Official Receiver) [1995] 2 HKLR 248.  In that case, the Court of Appeal rejected the claim by a creditor in a bankruptcy administered by the Official Receiver for breach of statutory duties under the BO.  The Court first held the question whether breaches of statutory duty were actionable was a matter of the proper construction of the statute.  Then at p 253 (lines 5-15), Nazareth VP concluded:

“     We can find nothing, nor is it suggested that there is anything in the Bankruptcy Ordinance that implies a right of civil action. On the contrary, in creating the various duties and obligations of a trustee in bankruptcy, the Ordinance provides a correlative remedy in s.83, possibly wider than a right of civil action, and must, in our judgment, have intended it as the only remedy. …

    We conclude, therefore, that upon a proper construction of the Bankruptcy Ordinance, there is no right of action for breach of statutory duty by a trustee in bankruptcy, and that claims for damage in respect of such breach must be brought under s.83 of the Ordinance.” (emphasis added)

37.  Mr Leung submits that the reasoning of Nazareth VP should equally apply by analogy to a case for breach of common law duty of care - the fact that the legislature had set up a detailed statutory regime makes it improbable that there was intended to be other channels for a bankrupt to sue his trustee.  But in this court’s view the analogy is not exact.

38.  As the Court of Appeal held, whether breaches of statutory duty are actionable is strictly a matter of the proper construction of the statute.  What the Court of Appeal had decided is that the detailed statutory regime of the BO precludes any civil claim based on breach of statutory duties.  In this respect, Li Ngan Shui Brumen v AR Hearder (otherwise known as Official Receiver) was in fact followed by Chu J in Lam Ching Sheung v Official Receiver with regard to the claim based on breach of statutory duty, but not with regard to the claim based on common law duty.

39.  On the other hand, in the traditional analysis, whether or not a common law duty of care arises on a particular set of facts depends on a consideration of much more than the proper construction of the relevant statute: see Commissioners of Customs and Excise v Barclays Bank Plc [2007] 1 AC 181 at [4] quoted below under the section Issue 2.  In any event, like Lam Ching Sheung v Official Receiver, the question whether a trustee, as a matter of principle, can or cannot owe a common law duty of care to a bankrupt did not arise in Li Ngan Shui Brumen v AR Hearder (otherwise known as Official Receiver) and to that extent the case is of limited assistance to Mr Leung.

40.  To conclude, this court is not persuaded by Mr Leung that the authorities are sufficiently clear and convincing to negate the possibility of a common law duty of care owed by a trustee to a bankrupt.  This court shall therefore proceed to consider whether such a duty exists in the circumstances of this case under Issue 2.

Issue 2

The Law

41.  In Commissioners of Customs and Excise v Barclays Bank Plc at [4], Lord Bingham of Cornhill set out the test of liability in negligence for pure financial loss as follows:

“     4 The parties were agreed that the authorities disclose three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant … Third is the incremental test, based on the observation of Brennan J in Sutherland Shire Council v Heyman (1985) 157 CLR 424, 481, approved by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 AC 605, 618, that:

‘It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed’.’” (emphasis added)

42.  At [6], Lord Bingham lamented that “the threefold test itself provides no straightforward answer to the vexed question whether or not, in a novel situation, a party owes a duty of care.”  At [7], his Lordship expressed the view that “the incremental test is of little value as a test in itself, and is only helpful when used in combination with a test or principle which identifies the legally significant features of a situation.” Lastly, at [8], his Lordship suggested that, whichever test to apply, one should “concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole.”

43.  In the context of a claim in negligence against a public officer exercising statutory powers and subject to statutory duties, one can derive from the passages in Chu J’s decision in Lam Ching Sheung vs Official Receiver supra the following propositions:

(1)     A common law duty of care would only arise if a defendant and a plaintiff are in a “special relationship” eg as a result of voluntary assumption or undertaking of responsibility by the defendant towards the plaintiff: see [40] - [41].

(2)     The mere fact that the defendant was subject to statutory duties as trustee is per se insufficient to give rise to a common law duty of care: see [43].

(3)     A common law duty of care usually arises from the acts of a defendant, rather than omissions: see [43].

44.  The 1st proposition is uncontroversial, it being derived from the first test referred to by Lord Bingham of Cornhill quoted above.

45.  Regarding the 2nd proposition, it was supported by the Supreme Court’s decision in N v Poole BC[2019] UKSC 25 where Lord Reed DPSC explained at [65] that public authorities do not owe a duty of care at common law merely because they have statutory powers or duties, even if, by exercising their statutory functions, they could prevent a person from suffering harm.  It would be otherwise if eg the authority has created the source of danger or has assumed a responsibility to protect the claimant from harm, unless the imposition of such a duty would be inconsistent with the relevant legislation.  At [73], his Lordship concluded that clearly the operation of a statutory scheme did not automatically generate an assumption of responsibility, but it might have that effect if the defendant’s conduct pursuant to the scheme met the criteria set out in such cases as Hedley Byrne and Spring v Guardian Assurance plc.

46.  Regarding the last proposition that a common law duty of care usually arises from the acts (as opposed to omissions) of a defendant, that is also amply supported by high authorities. 

47.  In Stovin v Wise [1996] AC 923[5], Mrs Wise emerged from a side road and ran down Mr Stovin because she was not keeping a proper look-out.  When he sued her for damages, she joined the Norfolk County Council as a third party alleging negligence and breach of statutory duty on the basis that because the visibility at the intersection was poor, the council should have done something to improve it.  The council had statutory powers which would have enabled the necessary work to be done and there was evidence that the relevant officers had decided in principle that it should be done, but they had not got round to doing it.  Mrs Wise’s claim succeeded in the courts below but failed in the House of Lords. 

48.  It was pointed out in Lord Hoffmann’s speech that the council had done nothing at all to improve the visibility of the junction at the side road.  The only basis on which it was a candidate for liability was that Parliament had entrusted it with general responsibility for the highways and given it the power to improve them and take other measures for the safety of their users.  At pp 952F - 953A, Lord Hoffmann made the following observations on the relationship between a failure to perform a statutory duty and the imposition of a common law duty of care:

“     Whether a statutory duty gives rise to a private cause of action is a question of construction … It requires an examination of the policy of the statute to decide whether it was intended to confer a right of compensation for breach. …

    The same is true of omission to perform a statutory duty. If such a duty does not give rise to a private right to sue for breach, it would be unusual if it nevertheless gave rise to a duty of care at common law which made the public authority liable to pay compensation for foreseeable loss caused by the duty not being performed. It will often be foreseeable that loss will result if, for example, a benefit or service is not provided. If the policy of the Act is not to create a statutory liability to pay compensation, the same policy should ordinarily exclude the existence of a common law duty of care.” (emphasis added)

49.  This court has already referred to the Court of Appeal’s decision in Li Ngan Shui Brumen v AR Hearder (otherwise known as Official Receiver) in which it was held that the detailed statutory regime of the BO shows that the policy of BO is to preclude any civil claim based on breach of statutory duties.  If so, the same policy should ordinarily exclude the existence of a common law duty of care.

The facts - from The Plaintiff’s bankruptcy in December 2002 to March 2007

50.  As to what happened from the time the Plaintiff was adjudicated bankrupt to his automatic discharge in December 2006 through to March 2007, this was set out in the witness statement of Ms Tang who was the relevant case officer at the time and the Plaintiff’s witness statement from paras 27 to 40.

51.  The events depicted in Ms Tang’s statement is substantially if not exclusively based on contemporaneous documents/ correspondence.  In gist, her evidence is that after becoming the Trustee, the Defendant began administering the Plaintiff’s estate in the usual manner by eg interviewing the Plaintiff to conduct a preliminary examination of his bankruptcy affairs, obtaining information by requiring him to complete a “Preliminary Examination of Bankrupt” form and a “Statement of Affairs” and dealing with proofs of debt.

52.  It is accepted by the Defendant that the Plaintiff had made a number of inquiries, both oral and written, about the progress of the 3P Proceedings with the Defendant.  The Plaintiff had also procured Mr Albert Ho (a then legislator) to write to the Defendant several times enquiring about the progress of the 3P Proceedings, the second last one being dated 7 June 2006.  The correspondence shows that the Defendant had only sent holding replies to the Plaintiff/ Mr Albert Ho.

53.  Meanwhile, the Plaintiff and Wan had signed a 2-paragraph letter dated 9 January 2007 which the Plaintiff contends as a “Settlement Agreement”.  The letter reads:

“To deal with according to two principles:

1.     on the basis of HK$4 million ($4,000,000.00);

2.     on the principle of resolving all disputes in this case and, legally and reasonably resolving the problem of shareholders in Bright Wide Investment Limited Company as the basis for paying, to pay the aforesaid amount.”

54.  In a 7 March 2007 letter, which Mr Ng described as the “ultimatum”, Mr Albert Ho stated that if the Defendant did not reply to him on or before 12 March 2007, he would accompany the Plaintiff to convene a press conference at the ORO and publicly request the Defendant to explain the progress of the case.  At paragraph no 2 of the letter, Mr Ho stated that:

“ The Bankruptcy Order was discharged on 18 December 2006, the Defendant of that case Mr. Wan Hang Ping offered $4,000,000 for settlement and provided a cheque of $200,000 to Mr. Chung for living expenses. We wish to know whether the Official Receiver’s Office can allow Mr. Chung to handle the debt recovery.” (emphasis added)

55.  It would appear from the ultimatum that the 9 January 2007 letter was merely a proposal from Wan to the Plaintiff to settle the 3P Proceedings, rather than a concluded settlement agreement as contended by the Plaintiff.  As shall be seen later in this Judgment, subsequent correspondence also confirms that no concluded settlement agreement had been reached on 9 January 2007.

56.  The “ultimatum” triggered a substantive reply from Mr Eamonn O’Connell, the then Official Receiver, by a letter dated 9 March 2007 to Mr Albert Ho.  In the letter, Mr O’Connell stated inter alia:

(1)     The 3P Proceedings were still ongoing.

(2)     There were insufficient funds available in the “Bankruptcy Estate Account” to underwrite the legal costs of continuing with the 3P Proceedings; therefore, the Defendant had not taken active steps to process the Proceedings further.  In the absence of any settlement with Wan, it might be necessary to approach the Plaintiff’s creditors to see if they would agree to underwrite the costs of the 3Party Proceedings.

(3)     All the assets of the Plaintiff, including his right of action in the 3P Proceedings, remained vested in the Defendant after the discharge.

(4)     There had been direct settlement negotiations between the Plaintiff and Wan.  A representative of the Defendant would contact the Plaintiff to discuss the proposed settlement.  At that stage, the Defendant was not in a position to allow the Plaintiff to conduct the recovery on his own.

57.  It is clear from the above that the Defendant did not adopt and/or advance the 3P Proceedings during that period.  This is accepted by Mr Leung.

58.  The Plaintiff’s statement gives a similar but more detailed picture of what he said had happened during the period.  Apart from referring to the contemporaneous documents/ correspondence, he appears to be able to recollect, years after the events, some not very significant details of his personal dealings with Ms Tang which are not recorded in any form, eg at paras 30 to 32.   

59.  At para 40, the Plaintiff summed up his depiction of the events during that period:

“It can be seen from the above series of events that during my bankruptcy from December 2002 to December 2006, the OR qua the trustee in bankruptcy of all my properties had not pursued the Third Party Proceedings against Mr. Wan at all. … To my grave disappointment, the OR, despite my repeated efforts and requests for her to do so and the involvement of Mr. Ho, only paid lip service to her promise to give me a detailed reply as related to the Third Party Proceedings as soon as possible.”

60.  For the present purpose, it is unnecessary for this court to resolve whether the additional details in the Plaintiff’s witness statement did take place or whether Mr Ng’s criticism of Ms Tang’s assertion in the witness box that the Plaintiff had failed to produce the relevant 3P Proceedings documents to the ORO was a self-serving statement.  What matters for the present purpose is that it is largely common ground that nothing was done by the Defendant to assess the merits of the 3P Claim or to adopt or advance the 3P Proceedings during that period.  In other words, a case of omissions.

The facts - from March 2007 to the Deed of Assignment on 22 September 2012 (“Deed of Assignment”)

61.  What happened during this period was set out in the witness statement of Mr Tang and the balance of the Plaintiff’s witness statement.  The events depicted in Mr Tang’s statement, like those in Ms Tang’s, are substantially if not exclusively based on contemporaneous documents/ correspondence.  As this court pointed out earlier, since April 2007, Mr Tang was assigned as the case officer of the Plaintiff’s bankruptcy until late 2012. By then, the Defendant had already assigned the right of action in the 3P Proceedings to the Plaintiff for the sum of HK$5,000 by the Deed of Assignment.

62.  Prior to Mr Tang’s assignment, there was a meeting between the Plaintiff and two staff from the ORO on 14 March 2007 viz Ms Polly Yip Po Lin (“Ms Yip”) and Mr Fu Kam Wong (“Mr Fu”).  The meeting was recorded contemporaneously in an internal note (“Note”) prepared by Mr Fu.  As recorded in the Note:

(1)     Ms Yip informed the Plaintiff that:

(a)     After the Bankruptcy Order, all the Plaintiff’s rights of action against Wan in the 3P Proceedings had been vested in the Defendant.

(b)     In order to consider whether to proceed with the 3P Proceedings, the Defendant would need to take into account the legal liabilities in connection therewith. 

(c)     In case there was insufficient fund in the bankruptcy estate or no funding was provided by any interested parties for the purpose, the Defendant could not proceed with the 3P Proceedings.

(2)     The Plaintiff also provided inter alia the following information to Ms Yip and Mr Fu about the Third Party Proceedings:

(a)     The Plaintiff had no documents relating to his 3P Claim which had been passed to his solicitor.

(b)     The Plaintiff had previously asked for $5 million to $6 million for settlement of the matter with Wan through their solicitors.  The reason for the Plaintiff to request that sum was that he had financial difficulties.  Also, he had no money to proceed with the case and hence wanted to settle the matter and avoid further legal costs. 

(c)     The Plaintiff recently approached Wan in person and Wan proposed to settle the matter for $4 million.  Wan had also issued a cheque for $200,000 to the Plaintiff for his living expenses.  The Plaintiff had however rejected Wan’s proposal.  No new proposal was then received from Wan. 

(d)     The Plaintiff was of the view that the acceptable settlement sum for the 3P Proceedings should be at least HK$8 million.

63.  Pausing here, it should be noted that similar to Mr Albert Ho’s “ultimatum”, the Note contradicts the Plaintiff’s present contention that he and Wan had, by that time, already concluded a settlement agreement in the sum of HK$4 million. 

64.  Shortly thereafter, there had been extensive correspondence between the Defendant, the Plaintiff’s and Wan’s former solicitors seeking information and documents about the 3P Proceedings, as well as between the Defendant and Wan about Wan’s intention to settle the 3P Proceedings and for how much.  However, no settlement proposal was received from Wan. 

65.  On 11 July 2007, Mr Tang for the Defendant wrote to the Plaintiff’s 4 creditors (“Creditors”) with addresses stated in the Plaintiff’s statement of affairs dated 2 June 2003[6] informing them about the 3P Proceedings.  The Defendant also told the Creditors:

(1)     The Defendant was informed by the Plaintiff recently that Wan had made a settlement proposal of the 3P Proceedings but upon inquiry of Wan’s intention, no substantial reply was received.

(2)     The Defendant was not prepared to adopt the 3P Proceedings unless he was satisfied with the merits and had funding.  Regarding merits, the chance of success would very much depend on the evidence and counsel’s advice would have to be sought. 

(3)     Regarding funding, without sufficient funding, no action would be taken.  The amount of funding required would be: (i) HK$50,000 for counsel’s advice on merits and evidence; and (ii) at least HK$1.2 million initially to cover the Defendant’s own legal costs and any adverse costs order against the Defendant. 

66.  In the same letter, the Defendant inquired whether the Creditors were willing to provide funding.  In the absence of any reply within 14 days, the Defendant would assume that the Creditors were not interested and the Defendant would not be able to further pursue the 3P Claim. According to Mr Tang, no reply was received from any of the Creditors.

67.  After 11 July 2007, the Defendant had made several more inquiries with the Creditors as to whether any of them were interested in (i) providing funding or (ii) purchasing the right of action in the 3P Proceedings.  The long and short of it is that none of the Creditors showed any interest.

68.  Meanwhile, the Defendant had also been liaising with the Plaintiff and Wan to explore the possibility of a settlement.  The Defendant had also kept the Plaintiff or Mr Albert Ho informed of the lack of progress in the settlement negotiations with Wan.

69.  For instance, by a letter dated 19 July 2007, Mr Tang informed the Plaintiff (“19/7/07 Letter”) that the Defendant were going to suggest to Wan a settlement sum of HK$12 million, based in part on the Plaintiff’s previous indication that his loss should be between HK$8 to HK$9 million and asked the Plaintiff whether he objected. 

70.  In reply, the Plaintiff called Mr Tang on 26 July 2007 stating his agreement with the proposed sum of HK$12 million.  According to the note of that telephone conversation, Mr Tang had explained to the Plaintiff the figure would be subject to further negotiation. 

71.  Mr Tang then made the offer of HK$12 million to Wan by letter dated 7 August 2007.  Wan’s response was to reject the offer and he did not make any counter-offer to Mr Tang.  Subsequent attempts by Mr Tang to ask Wan to accept the offer of HK$12 million or to make a counter-offer was to no avail.  The negotiation with Wan reached a stalemate.

72.  By letter dated 6 September 2007 (“6/9/07 Letter”), Mr Tang informed Mr Albert Ho and the Plaintiff that:

(1)     Wan had rejected the proposed figure of HK$12 million and declined to make any counter offer. 

(2)     The Defendant had written to the Creditors to ask them for funding the Third Party Proceedings but none of them replied. 

(3)     The Defendant would not take up the 3P Proceedings or agree to the Plaintiff continuing them in the name of the Defendant unless:

(a)     there was sufficient funding or someone offered an indemnity for the legal costs involved and adverse costs order; and

(b)     the Third Party Proceedings had a chance of success. 

73.  Finally, by the same letter, the Defendant informed Mr Albert Ho and the Plaintiff that the Defendant was unable to take further action on the 3P Claim.

74.  In his Closing Submissions, Mr Ng submits that the 19/7/07 Letter constituted an “advice” by the Defendant to the Plaintiff and that the Plaintiff was led into believing that he stood a very good chance of success in the 3P Proceedings and that the Proceedings could be settled at HK$12 million or any sum exceeding HK$4 million.  Mr Ng further submits that there is ample basis to find the Defendant has undertaken responsibility towards the Plaintiff in respect of his 3P Claim.  The reasons given in support of Mr Ng’s submissions are inter alia since it was the Defendant’s stance that his statutory duties to realize the Plaintiff’s assets were for the benefit of the creditors, therefore, it should not have been necessary for the Defendant to ask the Plaintiff for his opinion on the proposed settlement figure.  By the same token, it should not have been necessary for the Defendant to keep the Plaintiff informed of the progress of the settlement attempts.

75.  In this court’s view, the submission is a complete non sequitur. 

76.  Whether the 19/7/07 Letter constituted an “advice” and a voluntary assumption of responsibility towards the Plaintiff in respect of his 3P Claim depends on its contents, objectively understood.  When one considers the content of the 19/7/07 Letter, it is difficult to see what “advice” was being given by the Defendant.  The 19/07/07 Letter said nothing about the 3P Claim’s merits or the chances that Wan would agree to settle at HK$12 million, or at any other sum for that matter.  All it did was to inform the Plaintiff of the Defendant’s intended action regarding the 3P Claim and asked the Plaintiff for his views.  It is trite law that upon an adjudication of bankruptcy, it is the Official Receiver who alone determines whether or not a right of action vested in the bankrupt should proceed or not: Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650 at [7] (Ma CJHC (as he then was) and Yeung JA).

77.  It may be that the Defendant was doing more than was necessary by informing the Plaintiff as to how he intended to go about performing his statutory duties with regard to the 3P Claim.  Be that as it may, the fact that the Defendant did inform the Plaintiff of his intended action cannot, without more, be translated into an advice and an assumption of responsibility towards the Plaintiff.  Mr Ng’s submission in this regarded must therefore be rejected. 

78.  Subsequent to the 6/9/07 Letter, the Plaintiff applied for legal aid in March 2008 to sue the Defendant for maladministration.  In August 2009, the Plaintiff was granted legal aid and Messrs Ho Tse Wai & Partners (“HTW”) was assigned to act as his solicitors.

79.  Between January 2010 and September 2012, there was protracted correspondence between the Defendant and HTW.  One of the matters canvassed in the correspondence was whether the Defendant would be willing to assign the cause of action in the 3P Proceedings to the Plaintiff.  For instance, on 11 February 2010, Mr Tang wrote to HTW indicating that subject to the merits of the 3P Claim and the provision of a full and effective indemnity, the Defendant might consider assigning the cause of action to the Plaintiff and asking HTW for an opinion on the merits.  The issue of the merits of the 3P Claim was apparently sorted out by HTW providing to the Defendant on 28 July 2011 4 pieces of legal advice prepared by counsel Erik Shum.  The provision of a full and effective indemnity remained the bone of contention in the ensuing correspondence between the Defendant and HTW dated 23 August, 2 and 9 September 2011 as well as in a meeting between Mr Tang, the Plaintiff and Mr Albert Ho held on 14 October 2011. 

80.  Subsequently, on 16 December 2011, the Defendant wrote to HTW inviting the Plaintiff to purchase the right of action in the 3P Proceedings.  This was eventually agreed by the Plaintiff resulting in the Deed of Assignment of 22 September 2012. 

Conclusion on duty of care

81.  As this court notes, the facts rehearsed above are largely taken from contemporaneous correspondence and documents and should be uncontroversial.

82.  For the present purpose, the most important thing to note, as submitted by Mr Leung and as found by this court, is that there is no evidence to show the Defendant had done anything to indicate to the Plaintiff that the Defendant was undertaking any responsibility towards him by eg advising him on the merits of his 3P Claim[7] or the prospects of a settlement deal with Wan, or indicating to the Plaintiff that, failing a settlement, the Defendant would proceed with the 3P Proceedings notwithstanding the lack of funding. 

83.  On the contrary, it is blindingly obvious from paragraph 59 of the Amended Statement of Claim that the crux of Plaintiff’s complaints is that during the material period, the Defendant had failed or omitted to do this, that or the other.  In other words, the complaints against the Defendant are all concerned with his inaction or omissions.  One therefore asks rhetorically what it was that the Defendant had done which would justify the finding of a special relationship between the Plaintiff and the Defendant or that the Defendant had voluntarily assumed responsibility towards the Plaintiff. In so far as Mr Ng relies on the 19/7/07 Letter, this court has already rejected his submission above.

84.  As illustrated in Stovin v Wise, for the present purpose, it does not matter whether what the Defendant had done in performing his statutory duties as Trustee was adequate or not.  It does not even matter that the Defendant had done nothing at all in performing his statutory duties, although this court is far from satisfied that that was the case.  If the policy of the BO is not to create a statutory liability on the part of the Official Receiver to pay compensation for breach of statutory duty under the BO, as held by the Court of Appeal in Li Ngan Shui Brumen v AR Hearder (otherwise known as Official Receiver), the same policy would exclude the existence of a common law duty of care in this case. 

85.  Lastly, as pointed out by Mr Leung in his Closing Submissions, the Plaintiff’s pleaded case on how the alleged common law duty of care has arisen is highly obscure.  There is force in Mr Leung’s submissions.

86.  At para 26 of the Amended Statement of Claim, there was a plea that the Defendant had knowledge of the existence of the 3P Proceedings and the Plaintiff was very anxious and eager to proceed with the 3P Proceedings. Then, without further explanation, at para 27(b), the Plaintiff asserted that the Defendant owed a duty of care at common law to him.

87.  In this court’s view, the anxiety of the Plaintiff to proceed with the 3P Proceedings, in the absence of assumption of responsibility by the Defendant, is insufficient to give rise to a common law duty of care.  In N v Poole BC,Lord Reed DPSC observed at [81]:

“ In the present case … the council’s investigating and monitoring the claimants’ position did not involve the provision of a service to them on which they or their mother could be expected to rely. It may have been reasonably foreseeable that their mother would be anxious that the council should act so as to protect the family from their neighbours, in particular by rehousing them, but anxiety does not amount to reliance. Nor could it be said that the claimants and their mother had entrusted their safety to the council, or that the council had accepted that responsibility. …”

88.  After para 27 of the Amended Statement of Claim, the Plaintiff continued to recite some of the exchanges between the Plaintiff, the Defendant, Wan and Mr Albert Ho etc ending with the 19/7/07 Letter at paras 44 - 45. He then asserted at para 46 that the Defendant owed a duty of care at common law to him or alternatively had voluntarily assumed responsibility towards him. There was no explanation of how those exchanges justify the assertion at all.

89.  To conclude, having considered the detailed circumstances of this particular case and the relationship between the parties in the context of their legal and factual situation as a whole, this court is of the firm view that there is nothing which would justify the imposition of a common law duty of care on the part of the Defendant and shall so hold.

Issue 3

90.  Given this court’s conclusion on Issue 2, Issue 3 becomes wholly academic. Further, as this court finds the Defendant did not owe any common law duty of care towards the Plaintiff, it is impossible to formulate the contents of that duty, without which one cannot even begin to consider whether the Defendant was in breach of any particular duty. In these circumstances, this court is of the view that it is futile to consider Issue 3 in the abstract and shall refrain from doing so.

Disposition and costs order nisi

91.  The Plaintiff’s claim is hereby dismissed.  There shall be an Order nisi that Costs of the Action, including all costs reserved, if any, be to the Defendant, to be taxed if not agreed, and paid by the Plaintiff forthwith, certificate for counsel.

92.  The Plaintiff’s own costs be taxed in accordance with Legal Aid Regulations.