CHUNG PUI TAK AND ANOTHER v. TAM CHI LEUNG NOLAN AND OTHERS

HCA 1439/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1439 OF 2012

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D E C I S I O N
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The Applications

1. There are two summonses of the plaintiffs before the Court.  The first one (“1^st Summons”) dated 21^st December 2015 is to seek an order that the witness statement of To Wai Chung filed on 14^th December 2015 be inadmissible in the trial on the basis that it is in substance an expert opinion evidence without leave first being obtained and the relevant provisions of the RHC have not been complied with.

2. The second one dated 22^nd December 2015 (“2^nd Summons”) is for leave to extend time for the plaintiffs to adduce Notice of Non-admission under Order 27 rule 4 (1)(b) of the RHC.  The order sought would be that “leave be given to the Plaintiffs to file and serve the Notice of Non-admission in respect of the authenticity of a document listed as item 36 in the List of Documents of the Defendants filed on 2^nd July 2013.”

The Brief Facts

3. The facts pleaded by the plaintiffs are complicated and convoluted.  Briefly, the 1^st plaintiff had a family business in the mainland.  He and the 1^st defendant had made an agreement to make use of a company called Hui Guang as a vehicle to take orders from his family business for supplying carton boxes for the family business, making profit from his family business.  But he did not want this to be known to his family members.  Therefore, he allowed another company called Kid Art controlled by the 1^st defendant and his wife to hold Hui Guang’s shares.  Kid Art held Hui Guang’s shares as to 60% on trust for the 1^st plaintiff, the other 40% on trust for the 1^st defendant.  The 1^st plaintiff and the 1^st defendant further agreed that the income of Hui Guang was to be collected and costs paid by a new company, the 2^nd plaintiff  (“Fine Group”) managed entirely by the 1^st defendant as its director.

4. The 1^st defendant had acquired the business of Best Tri, the 2^nd defendant, a printing business.  The 1^st plaintiff alleges that the 1^st defendant agreed to hold 40% of the shareholding of Best Tri on trust for the 1^st plaintiff.  There was a dispute between the 1^st plaintiff and the 1^st defendant over the accounts of Hui Guang and the 1^st defendant had allegedly been in breach of fiduciary duty in the running of the business of the 2^nd plaintiff.  The 1^st plaintiff demanded the 1^st defendant to transfer 40% of Best Tri’s shares to his son.  The 1^st defendant refused.

5. The 1^st plaintiff claims against the 1^st defendant and the 3^rd defendant for a declaration that the 1^st defendant through the 3^rd defendant, or alternatively the 3^rd defendant, is the trustee holding 40% of the issued shares of Best Tri in favour of the 1^st plaintiff and for an order that the 1^st defendant shall cause the 3^rd defendant and the 3^rd defendant shall transfer 40% of the shareholdings of Best Tri to the 1^st plaintiff or his nominee.  The 2^nd plaintiff claims against the 1^st defendant for damages for breach of fiduciary duty.

The 1^st Summons

6. The 1^st plaintiff contests Mr. To Wai Chung’s witness statement.  Mr. To is an auditor and a witness for the 2^nd and the 3^rd defendants.  The 1^st plaintiff agrees that paragraphs 1-5 of Mr. To’s witness statement refer to the facts of the case.  However, the 1^st plaintiff says that paragraph 6 of his witness statement is his expert evidence as an accountant.  The expert evidence is to account for the non-entering into the financial statement of the Best Tri in respect of two off-set printing machines, which is an issue of dispute between the parties.  The 1^st plaintiff submits ‘paragraph 6 of the witness statement is clearly opinion evidence purporting to explain why To Wai Chung, as a professional accountant, accepted that no value were assigned to the two machines (hence inferentially justified their non-appearance in the relevant financial statements of D2).  What is more the grounds he gave were studded with opinions. Examples of phrases indicative of his opinion can be seen in (a) “...would be highly subjective...”, (b) “.....prudence concept dictates...”, (c) “...to me it is clearly not the original contemplation of the vendors...” and (d) “....No value should be assigned...” What is more, much of what he said are not common knowledge but within the expertise of the accounting profession.’[1]

7. The plaintiffs submit that in the absence of expert evidence direction and compliance with the provisions of the RHC relating to experts, the witness statement is inadmissible as evidence in the trial.[2]

8. The defendants argue that Mr. To’s witness statement is to explain the plaintiffs’ allegation that Mr. To as the auditor had failed to put the proper entries into the financial statements of the 2^nd defendant and the 3^rd defendant. According to the defendants, the plaintiffs’ pleaded case is “the alleged purchase of the printing machines by D1 (through D3) by purchasing the shares in D2 and the printing machines, and the subsequent dealing with the printing machines are inconsistent with the audited financial statements of D2 and D3 in that no printing machines appeared to have been injected into either D2 or D3 for the financial year for the period of March 2003 to April 2004, or subsequently in that any injection of assets into the companies must as a matter of auditing practice be recorded in the financial statements since those printing machines, being newly acquired by D1 (through D3) as alleged, were eligible for capital depreciation allowance which the auditor preparing the relevant financial statements for Ds knew or ought to have known.”[3]  It is therefore apparent that Mr. To should “explain why he did not record the printing machines into the relevant audited financial statements of D3 and D2 for claiming capital depreciation allowance.”[4]

9. In relation to paragraph 6 of Mr. To’s witness statement, the defendants say “In the 6^th para. of his Witness Statement, he states from his own personal knowledge the reasons he had in mind during the auditing of the accounts of D2 and D3 why he, being the auditor of D2 and D3, accepted that no separate value should be assigned to the printing machines / assets acquired in the accounts of D2 and D3 as per the 8/12/03 Agreement.”[5] 

10. The real issue between the parties is whether paragraph 6 of Mr. To’s witness statement, in which he explained why he did not record the printing machines into the relevant audited financial statements of the 2^nd and the 3^rd defendants is expert opinion.  The defendants rely upon the authority of Koninklijke Philips Electronics N. V. (Formerly known as N. V. Philips Gloeilampenfabrieken and Philips Electronics N. V.) v Wealthful Technology Ltd [2002] HKEC 740 at § 16 as adopted by Kwan J. (as she then was) in In the matter of Jinro (HK) International Ltd (unreported, HCCW 1352/2001, 26 July 2002 at §22).  The courts held:

“The mere [fact] that factual evidence is given by someone with expertise in a particular discipline does not transform that evidence into expert or opinion evidence although sometimes the line between factual and opinion evidence may not be immediately apparent. For example, an explanation as to how a computer works may be purely descriptive and factual although it may require some expert training on the part of the person giving that explanation. On the other hand, evidence as to the quality of the work of a computer may be a matter of expert opinion.”

11. The defendants also rely upon the rule that an expert who is giving factual expert opinion may also proffer (a) statements of opinion which are reasonably related to the facts within his knowledge and (b) relevant comments based on his own experience.  As long as the principal purpose of the evidence is factual, the evidence should go in as a witness statement (not a report).  Another way of testing this is to consider (a) whether the witness has any direct knowledge of the factual matters about which he testifies since, in general, the true expert’s knowledge of the facts will usually be based on hearsay and (b) whether the opinion is about what a hypothetical person would have done or advised in the situation (rather than what he himself would have done or advised).[6]

12. Section 58 of the Evidence Ordinance (Cap. 8) provides that :

(1) Subject to any rules, where a person is called as a witness in any civil proceedings, his opinion on any relevant matter on which he is qualified to give expert evidence shall be admissible in evidence.”

13. Mr. To, an auditor of the 2^nd and 3^rd defendants, does not dispute that he had not entered the entries of the value of the off-set printing machines in the financial reports of the 2^nd defendant and the 3^rd defendant. He becomes a factual witness in relation to the entries of accounting records in question.  It is only fair that he should be given the opportunity of explaining to the court at trial why he had not made the financial entries as alleged.  As the plaintiffs submit, his evidence will shed light on whether the 1^st defendant was honest in the transactions between him and the 1^st plaintiff.  His explanation will, no doubt, involve his expertise as an auditor.  The purpose of his evidence will be for the court to determine whether the plaintiffs’ assertions are valid, which will be a matter of the fact to be found by the court.  The purpose of the evidence will determine the nature of his evidence.  His evidence is not to be used as an opinion on the relevant matter, but rather as evidence for the determination of the truth of the facts.  Therefore, his opinion as an auditor when he decided not to make entry of the off-set printing machines in the financial statements of the respective companies will be considered whether he had good explanation for the acts that he had done, a factor to determine what he will be telling the court is the truth.  It is on this understanding that factual evidence given by someone with expertise in a particular discipline does not transform that evidence into expert or opinion evidence.

14. Accordingly, I find that paragraph 6 of Mr. To’s witness statement is not expert evidence.

15. Of course, if the plaintiffs consider that Mr. To’s evidence cannot be understood by the court without the assistance of expert evidence or the plaintiffs may wish to have expert evidence to assist cross-examination of Mr. To, the plaintiffs may be at liberty to take out the application for leave to adduce expert evidence on the defendants’ pleaded case, reference being made to Mr. To’s witness statement.

The 2^nd Summons

16. As to the second summons for time extension to file and serve the Notice of Non-admission, the plaintiffs admit “Granted that under the Order 27 rule 4(2) the Plaintiffs should have filed the notice of non-admission within 21 days of the expiration for the date of inspection, it is submitted that there is no prejudice to the Defendants for the late filing of the notice of non-admission and there is no ground to require the Plaintiffs to bear the costs of the Defendants if they should want to file a supplemental witness statement (which they have yet to apply and no draft has been supplied).”[7]

17. The plaintiffs submit that this piece of evidence, viz. the Copy Deposit Form of $400,000 into The Hong Kong Bank, with handwritings to the effect that the money was received for the investment in Best Tri is a very important piece of evidence for the plaintiffs because the main argument between the plaintiffs and defendants is whether the sum of $400,000 was paid by the 1^st plaintiff for the investment in Best Tri, which the plaintiffs deny.  The evidence boils down to the issue whether the 1^st defendant was holding the position of being a trustee as asserted by the plaintiffs, or as partners in the investment in Best Tri, the defendants’ case.  The defendants say that there was an option agreement between the 1^st plaintiff and the 1^st defendant, which the 1^st plaintiff did not exercise for the 40% shares in Best Tri.

18. The defendants are quite right to say that the plaintiffs have not filed any affidavit in support of their application stating the explanation for the delay of more than two years.  The plaintiffs argue that it is not necessary to do so as the fact is clear and the 1^st defendant’s witness statement has not explained fully the Copy Deposit Form.  That may be the case.  But it does not alter the requirement as set out by the court in Gotland Enterprises Ltd v Kwok Chi Yau (No.2) [2013] 3 HKLRD 490 at §§6-7, in which the learned judge had held that without explanation, the court might refuse the application as the court would not be able to consider the applicant’s application whether it should exercise its discretion.

19. Despite the defendants’ objection to the application, the defendants do not dispute that at one stage the defendants agreed to allow the extension of time subject to the plaintiffs bearing their costs for the defendants’ supplemental witness statement to deal with the provenance of the Copy Deposit Form and the circumstances in which the 1^st defendant wrote on the Copy Deposit Form.[8]  The defendants have not been able to say what prejudice the defendants would suffer apart from costs in support of their argument that the plaintiffs’ application should be rejected.

20. Therefore, it is clearly an issue of costs for the plaintiffs’ application for extension of time.  This is agreed by the defendants today appearing before me.

21. Order 62, r.3(4), RHC provides:

(4) The costs of and occasioned by any application to extend the time fixed by these rules, or any direction or order thereunder, for serving or filing any document or the doing of any other act (including the costs of any order made on the application) shall be borne by the party making the application, unless the Court otherwise orders.

22. The only reason given by the plaintiffs in the written submissions is that there is no prejudice to the defendants for such extension of time for them to file and serve the Notice of Non-admission under O.27, r.4(2).  This morning, the plaintiffs further submit that the 1^st defendant should have elaborated the Copy Deposit Form in his witness statement and he should not be awarded the costs occasioned by his own failure.  In my view, these reasons do not exempt the plaintiffs’ liability to pay the costs to the defendants for this application under O.62, r. 3(4) RHC.

23. The plaintiffs have to pay the costs of and occasioned by the extension of time as requested.

Costs and Order

24. As to the costs of these applications, the plaintiffs agree that the costs of today’s hearing in respect of the two summonses should follow the event and be ordered in favour of the defendants.  The costs of today’s hearing are therefore awarded to the defendants, with certificate for counsel.  They are assessed under O.62, r. 9A at $90,000 to be paid by the plaintiffs to the defendants within 28 days from the date hereof.

25. This Court now makes an order in terms as follows:

a. The plaintiffs’ 1^st summons be dismissed;

b. Time be extended to the plaintiffs to file and serve the Notice of Non-admission under Order 27, r.4(2) RHC within 7 days from the date hereof and the defendants be at liberty to apply for leave to serve supplemental witness statement to explain the provenance of the Copy Deposit Form within 14 day thereafter;

c. The costs of and occasioned by the plaintiffs’ application for the extension of time under b. above shall be to the defendants in any event, to be taxed if not agreed.