PETER PO FUN CHAN v. HONG KONG SOCIETY OF ACCOUNTANTS

CACV 299/2003 & cacv 87/2004

cacv 299/2003

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 299 of 2003

(on appeal from the disciplinary order dated 15^th september 2003 by the disciplinary committee constituted by the hong kong society of accountants under section 33(3) of the professional accountants ordinance, cap. 50)

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cacv 87/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 87 of 2004

(on appeal from HCA NO. 3059 of 2003)

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BETWEEN

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J U D G M E N T

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Hon Rogers VP:

1.  These were two appeals which were heard together.  At the conclusion of the hearing of the appeals this court reserved its judgment to be handed down in writing which we now do.  For convenience the appellant in both cases will be referred to throughout as the plaintiff.

CACV 87 of 2004

2.  The first appeal is an appeal against the judgment of Mr Justice Suffiad given on 3 March 2004 whereby he dismissed an appeal from the master, who had ordered that the writ and statement of claim be struck out.

3.  The statement of claim in the action was endorsed on the writ and makes assertions over a range of matters.  Nevertheless, the nub of the complaint is similar to the plaintiff’s complaint in previous proceedings, namely that copies of accounts had been stolen from the plaintiff’s files and sent under cover of anonymous letters to the Hong Kong Society of Accountants (“HKSA”).  Following receipt of those letters the HKSA had instigated investigations.  These have resulted in complaints being lodged with the Disciplinary Committee of the HKSA.  It is not disputed that the plaintiff provided the HKSA with copies of his working papers prior to the commencement of proceedings before the Disciplinary Committee.

4.  The prayer for relief in the action seeks delivery up of property said to belong to the plaintiff.  It is an action in conversion and as explained by the plaintiff relates both to the pieces of paper and to the information contained on the paper which is said to be confidential information.  As regards the ownership of these items it would be clear that the plaintiff may own the pieces of paper if they had been taken from his files.  As regards the ownership of the information contained on the paper, in so far as it is confidential information, that information would appear to me to be information which belonged to the client.  It would appear to be difficult to allege that the plaintiff owned the confidential information contained in the various files relating to the accounts of his clients.  He would not be free in law or equity to use that information as he wished.  No doubt the lay client, in this case the companies, would be free to use the accounting information relating to their own companies as they wished.  Hence it would be information that belonged to them.

5.  Be that as it may, there are a number of obstacles in the way of the plaintiff’s action, which appear to me to be insurmountable.  In the first place, as was pointed out in paragraph 34 in the judgment below, there is no allegation that there had been a demand by the plaintiff on the defendant, which is the Disciplinary Committee, for the return of the documents which were sent to the HKSA.  They have, apparently, been passed to the police with a view to their investigating allegations of theft.

6.  In the second place the defendant, the Disciplinary Committee, clearly had valid grounds for investigating the matters relating to the documents.  As regards the documents themselves they led to further investigations including requests being made of the plaintiff for provision of his working files.  As regards the information contained in the accounts which were sent under the cover of the anonymous letters, that information is seemingly all contained in the plaintiff’s files which were passed to the HKSA and the Disciplinary Committee and there can be no question but that they would be entitled to use any information contained in those files for the purposes of disciplinary proceedings.  The matter is put in the judgment below in paragraphs 36 to 38 where it is pointed out that the primary effect of these proceedings, if successfully prosecuted, would have been, and thereby presumably the purpose of the proceedings was, to attempt to prevent the Disciplinary Committee from continuing with a scheduled hearing notwithstanding the failure of judicial review proceedings, based on the same allegations of alleged misuse of stolen documents and information.

7.  In my view the proceedings were correctly struck out.  I would mention that whilst there are no doubt strong grounds for suspecting that the accounts which had been sent under cover of the anonymous letters had been stolen from the plaintiff, and the plaintiff can, no doubt, present his case on the basis that that is a valid supposition upon which the case should be viewed, that does not in itself provide the plaintiff with a good cause of action against the Disciplinary Committee.  Whilst this court has on previous occasions expressed sympathy with the plaintiff for the fact that it is a reasonable conclusion to suppose that his documents have been taken from his files, most probably by an employee with a grudge, and sent to the HKSA under cover of an anonymous letter, which is commonly regarded is an act of cowardice, the difficulty remains that the perpetrator has not yet been identified.

CACV 299 of 2003

8.  This is an appeal brought under section 41 of the Professional Accountants Ordinance, Cap. 50 (“the Ordinance”).  The decision of the Disciplinary Committee was dated 15 September 2003.  There were two complaints before the Disciplinary Committee.  They were as follows:

“	(1)	Failure to account for investment properties at their open market value, disclose the departure from SSAP 13, (Statement of Standard Accounting Practice) or qualify/modify the audit report
	(2)	Inadequate audit work and unclear disclosures on the issues of going concern.”

9.  The Disciplinary Committee found both charges proved.  The first charge related to the inclusion in the relevant company’s accounts, which had been made up to 31 March 1998, of properties which had been acquired by the company in October 1997 where the cost of the properties was treated in the accounts as being the value of the properties.  Paragraph 8 of SSAP 13 reads as follows:

“	Subject to paragraphs 9, 12 and 13 below, investment properties should be included in the balance sheet at their open market value, based on a period end valuation carried out:
	a.	annually by persons holding a recognised professional qualification in valuing properties and having recent post-qualification experience in valuing properties in the location and in the category of the properties concerned; and
	b.	at least every three years by an external valuer with similar qualifications to those in a. above.”

10.  The Disciplinary Committee expressed itself as satisfied on the basis of the Plaintiff’s admission and on the evidence presented, including the evidence of the plaintiff’s expert, that the plaintiff had failed to follow SSAP 13.  The Disciplinary Committee considered that that constituted a failure or neglect to observe, maintain or otherwise apply a professional standard in accordance with section 34(1)(a)(vi) of the Ordinance.  For the same reasons they also held that the plaintiff had been negligent in the conduct of his profession pursuant to section 34(1)(a)(iv) of the Ordinance. 

11.  Before this court the plaintiff sought to take two main points on this aspect.  In the first place it was argued that the Statements of Standard Accounting Practice were not mandatory and did not necessarily need to be followed.  The second point taken on this aspect was that even if SSAP 13 did apply, the plaintiff had done nothing wrong on his part in the auditing of the accounts because SSAP 13 only requires the valuation to be conducted annually, and that since the properties had been acquired in the previous October there was no requirement for accounts prepared in March to have a valuation since one year had not elapsed since their purchase.

12.  As regards the first point this was dealt with by this court in the judgment of 12 January 2001 in CACV 469 of 2000.  This court came to the following conclusion:

“There can, in the light of the above, be no doubt that the Statements of Standard Accounting Practice are applicable and are required to be followed.  Importantly it is clearly wrong to describe financial statements as being prepared in accordance with accounting principles when they were in breach of the Statements of Standard Accounting Principles and in breach of the Companies Ordinance.”

13.  Applications were made both to this court and to the Court of Final Appeal for leave to appeal.  In refusing leave to appeal the appeal committee of the Court of Final Appeal said:

“Next, the applicant raises a number of points of law.  But the relevant law is well settled.  And we see no reasonable prospects of the Court of Final Appeal applying the law in such a way as to reach a result different from the one reached by the Court of Appeal.”

In the light of this, this court does not propose to repeat what was said previously. 

14.  As regards the second point, the complaint before the Disciplinary Committee drew attention to the fact that SSAP 13 requires the properties to be shown at their “open market value” at the balance sheet date.  This is irrespective of any annual or triennial valuations.  The complaint letter also drew attention to the fact that the auditor’s file did not contain any documentary evidence of a valuation being made by the directors to substantiate the auditor’s representation that the directors carried out a valuation exercise.  Nor was there any evidence indicating that any director who claimed to have carried out a valuation was a qualified person to carry out the valuation under the requirements of paragraph 8 of SSAP 13.

15.  As regards the second complaint, as set out in the complaint letter, because it was clear that the company had current liabilities in excess of $166 million and negative shareholders’ funds of in excess of HK$4 million the note in the Financial Statements stated that:

“The Company has lost all its issued capital and is no longer a going concern until the long term financing is obtainable from its shareholders and directors.”

16.  It was said in the complaint letter that if the Company was no longer a going concern, then the assets of the Company, most of which were investment properties, should have been reduced to the net realisable values and provision for possible additional liabilities should have been considered.  It is said that the Financial Statements did not clearly show whether or not they had been prepared on a going concern basis.  Under the Statement of Auditing (“SAS”) 600 where there is a fundamental uncertainty, such as an uncertainty whether a company is and will remain a going concern for the foreseeable future, the audit report must be modified by inclusion of an explanatory paragraph referring to such uncertainty.  Where the uncertainty is regarded as extreme, the audit report should be qualified. 

17.  It would appear from the Committee’s decision that the plaintiff’s own expert said that he himself would not have drafted the note to the Financial Statements in the way it was drafted, and he was unable to confirm that he would have signed the audit report as an auditor.  The Disciplinary Committee decided, and found accordingly, that sections 34(1)(a)(vi) and (iv) had likewise been contravened.

18.  The plaintiff made two further points which can be mentioned.  The first was that the Disciplinary Committee had refused to exercise its powers under Rule 21.  That Rule provides:

“Where, after a complaint has been referred to the Disciplinary Committee further information is subsequently produced in writing which suggests that a hearing should not be held, the Disciplinary Committee may refer back the case to the Council for further consideration.”

19.  The plaintiff complains that although he requested the Disciplinary Committee to refer the matter back to the Council, the Committee refused to do so and did not provide any separate reasons for refusing to do so.  In my view the decision of the Disciplinary Committee against which the current appeal is made is sufficient in itself to answer the point as to whether the matter should have been referred back to the Council.  By finding the plaintiff to be in breach the Disciplinary Committee has, by the same token, found that there were no grounds upon which to exercise the powers under Rule 21.

20.  Complaint was also made that the Chairman of the Disciplinary Committee might have been biased against the plaintiff in view of disagreements over professional matters some years ago.  Whilst the plaintiff may, and clearly does, feel some anxiety in this respect I do not consider that the material which has been put before the court would lead a reasonable person to apprehend that there would be bias against the plaintiff.  No doubt in many professional circles there will be strong disagreement as to the course which should be adopted by the profession in respect of professional matters.  Nevertheless, neither the historical matters nor the decision in my view would lead to the conclusion that there had been bias in respect of these proceedings. 

21.  In these circumstances, these appeals in my view fall to be dismissed, and I would make an order nisi of costs in favour the respondents to these appeals.

Hon Le Pichon JA:

22.  I agree.

Hon Stone J:

23.  I agree.