LAU CHUN MING v. DELOITTE TOUCHE TOHMATSU(a firm)

CACV 22/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 22 OF 2015

(ON APPEAL FROM HCCL 24 OF 2013)

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J U D G M E N T

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Hon Cheung JA :

I. Appeal against refusal to strike out claim

1.  This is an appeal by the defendant against the judgment of Ng J who dismissed the defendant’s application to strike out the plaintiff’s claim on the ground that it discloses no reasonable cause of action. 

II.  Background

2.  The background of this case is succinctly set out in the following part of the judgment below :

‘ 4. The Plaintiff is a creditor of Mr Ma Koon Sik (“Ma”) for an unpaid judgment sum of over HK$30 million awarded in HCCL 111 of 1996.

5. On 6 August 2002, the Plaintiff instituted bankruptcy proceedings against Ma. On 30 October 2002, Master S. Kwang granted a Bankruptcy Order against Ma and the Official Receiver became the provisional trustee of Ma’s estate.

6. It is pleaded at paragraph 6 of the Statement of Claim that by a contract (“Contract”) between the Plaintiff and the Defendant as evidenced by or contained in a Chinese letter issued by the Defendant (“Letter”) and signed by its senior manager 楊磊明 on 16 October 2002 and by the Plaintiff on 21 November 2002, in consideration of the payments stipulated therein including an initial payment of a non-refundable deposit of HK$100,000 (“Deposit”), the Defendant agreed that it would have had its partner/supervisor Lai Kar Yan Derek (“Lai”) and Darach E. Haughey (“Haughey”) to seek appointment as the Joint and Several Trustees of the estate of Ma (“Trustees”) and to assist the Plaintiff to handle or otherwise deal with the property of Ma already charged by the Plaintiff.

7. At paragraph 7 of the Statement of Claim, the Plaintiff pleaded the payment of the Deposit pursuant to the Contract and the appointment of Lai and Haughey as the Trustees at a general meeting of creditors on 21 November 2002.

8. At paragraph 8 of the Statement of Claim, the Plaintiff pleaded an implied term of the Contract that the Defendant covenanted that Lai and Haughey would carry out their duties as Trustees with proper skill and competence and reasonable care in inter alia tracing and recovering the property of Ma, keeping the Plaintiff informed of possible claims for recovering and/or realizing the property of Ma and bringing claims for recovering and/or realizing the property of Ma.

9. At paragraph 9 of the Statement of Claim, it is pleaded, further or in the alternative, that by reason of the relationship between the two arising from the facts stated in paragraphs 6 and 7, the Defendant owed a tortious duty of care towards the Plaintiff (“Duty of Care”) which is coterminous with the duties of the Trustees as those pleaded in paragraph 8.

10. After reciting a series of events which tend to suggest Lai and Haughey have been derelict in their duties, the Plaintiff pleaded at paragraph 44 that the Defendant was in breach of the Contract and the Duty of Care and was negligent. While most of the failures particularized under that paragraph were in substance failures of Lai and Haughey, it is reasonably clear from paragraph 44 (t) that chief among the Plaintiff’s complaint against the Defendant is its failure to ensure the two would act with reasonable skill and care in their position as Trustees of Ma’s estate.

11. To complete the picture,

(1) by a resolution passed at the general meeting of creditors on 29 June 2009, Lai and Haughey were removed as Trustees and replaced by Messrs. Yat Ming Cheung and Rainier Hok Chung Lam;

(2) on 11 December 2009, Lai and Haughey applied to the Court for an order for release (“Release Order”) under section 94(1) of the Bankruptcy Ordinance, Cap 6 (“BO”);

(3) on 28 January 2010, Master Hui granted the Release Order to Lai and Haughey.’

III.  The Judge’s decision

3.  The basis of the Judge’s decision to dismiss the defendant’s application is as follows :

‘ 18. In my view, the present position is not dissimilar to what happened in A & J Fabrications Ltd v Grant Thornton [1998] 2 BCLC 227.

19. In that case, the plaintiffs, who were the majority creditors of a company in liquidation, entered into a contract with the defendant accounting firm, whereby in consideration of payment of the defendant’s fees up to a certain amount, the defendant agreed that an insolvency practitioner from its firm would seek appointment as liquidator of the company.  An insolvency practitioner from the defendant was duly appointed liquidator. He was subsequently replaced by another practitioner from the defendant firm. The Plaintiffs claimed that in breach of the contract and a duty of care, the defendant had failed to supply the services required of it.

20. The defendant applied to strike out the plaintiffs’ statement of claim as disclosing no reasonable cause of action. One of the arguments was that the plaintiffs should have sued the liquidators personally and not the firm because only the liquidators had the necessary powers to inter alia sue the directors for misfeasance and so on (which the plaintiffs complained were not exercised). The firm did not have any such powers and therefore could not have been in breach of any duty to the plaintiffs.

21. Jacob J (as he then was) rejected the defendant’s argument and observed at 230g-i that:

“I think the point is misconceived. It is true that it is employees of the firm who were the liquidators, but they only took their position as such by virtue of the contract between the plaintiff and Grant Thornton. Grant Thornton, in accepting the consideration of £5,000, were contracting to put their man in as liquidator. Of course once in as liquidator he would owe his duties to the company. But there is nothing inconsistent between the pleaded contract and the employee having duties to the company. The pleaded contract is, in short, that the employee/liquidator undertakes to do a proper job as liquidator. That is what Grant Thornton contracted would happen.”

22. At 232f, Jacob J rejected the defendant’s further argument that the plaintiffs had got the wrong party:

“Mr. Collings says, again, that the plaintiffs have got the wrong party. If there was a duty at all in tort it was a duty on the individual liquidators, and they should be the defendants. No doubt they could be, but it seems to me that once those defendants were put in as Grant Thornton men, Grant Thornton owed a duty coterminous and dependent upon the duties of the individual liquidators to these plaintiffs.”

23. In light of the indication by Jacob J in that passage at 232f, but for the Release Order, Lai and Haughey could conceivably have been made defendants in the present action on account of their alleged dereliction of duties.  However, as submitted by Mr Coleman SC which I accept, once Lai and Haughey were appointed Trustees as the Defendant’s men, the Defendant owed a separate duty to the Plaintiff the breach of which he is entitled to take legal action to pursue.’

IV.  The present appeal

1) Striking out of the tortious claim only

4.1  In this appeal the defendant is content not to strike out the whole of the plaintiff’s claim.  It merely asks for the whole of the paragraph 9 which deals with the tortious claim and part of paragraph 44 in respect of the following words ‘and/or Duty of Care and/or otherwise guilty of negligence’ to be struck out.  The contractual claim against the defendant remains. 

2) Order for release

4.2  The relevant parts of section 94 of the Bankruptcy Ordinance (Cap. 6) dealing with the release of the trustees are as follows :

‘ (1) When the trustee has realized all the property of the bankrupt or so much thereof as can, in his opinion, be realized without needlessly protracting the trusteeship, and distributed a final dividend, if any, or has ceased to act by reason of a voluntary arrangement having been approved, or has resigned or has been removed from his office, he shall apply to the court for his release, and if all the requirements of the court with respect to accounts and with respect to any order of the court against the trustee have been fulfilled, the court may make an order for release accordingly.

(2) Where the release of a trustee is withheld the court may, on the application of any creditor or person interested, make such order as it thinks just, charging the trustee with the consequences of any act or default he may have done or made contrary to his duty.

(3) An order of the court releasing the trustee shall discharge him from all liability in respect of any act done or default made by him in the administration of the affairs of the bankrupt, or otherwise in relation to his conduct as trustee, but any such order may be revoked on proof that it was obtained by fraud or by suppression or concealment of any material fact.’  (emphasis added)

4.3  Rule 169 of the Bankruptcy Rules (Cap 6A) deals with the way in which an application for release may be made :

‘ A trustee before making application to the court for his release shall give notice of his intention so to do to the Official Receiver, to all the creditors of the bankrupt who have proved their debts and to the bankrupt, and shall send with such notice a summary of his receipts and payments as trustee :

Provided that,…..’

4.4  Rule 171 further provides that :

‘ The release of a trustee shall not take effect unless and until he has duly delivered over all the books, papers, documents and accounts which by these rules he is required to deliver over on his release.’

4.5  Section 94 of the Bankruptcy Ordinance is modelledon section 93 of the Bankruptcy Act 1914 of the United Kingdom.  As the Judge had rightly pointed out, the intention of section 94(3) is ‘to wipe the slate completely clean so far as the trustee is concerned, so that he may thereafter pay no thought to the previous course of his actions as the trustee in bankruptcy’: In re Munro [1981] 1 WLR 1358, 1362F-H.

3)  A & J Fabrications Ltd

4.6  Mr Bartlett SC (who only appeared in this appeal) for the defendant referred the Court to Muir Hunter on Personal Insolvency para 3―920.  It contained a review of the case of A & J Fabrications Ltd which was discussed by the Judge in his judgment :

‘ …. However, it is to be noted that in A & J Fabrications Ltd v Grant Thornton [1998] 2 B.C.L.C. 227, Jacob J. declined to strike out a claim in negligence against the defendant in respect of a liquidator employed by that firm who had failed to prosecute a cause of action with the result that it became limitation barred. On the special facts in question, Jacob J. left open the issue of whether a creditor had a direct remedy against not only the defendant firm of accounts, but also its chosen liquidator.

     In the subsequent case of Oldham v Kyrris [2003] EWCA Civ 1506; [2004] 1 B.C.L.C. 305, this issue of an officeholder’s duty of care to individual creditors came before the Court of Appeal….. In giving the leading judgment, Jonathan Parker L.J. considered all the case-law authorities and considered that to the extent that in A & J Fabrications Ltd v Grant Thornton, Jacob J. left open the question whether a liquidator owes a general tortious duty of care to creditors, the decision of the Court of Appeal in Peskin v Anderson [2001] 1 B.C.L.C. 372 (decided after Jacob J.’s decision) was decisive of that question.  In other words, absent some special relationship of the kind mentioned by Mummery L.J. in Peskin (see [31]-[34] of his judgment) an administrator (and hence an insolvency officeholder) owes no general duty to creditors.

    The decision of the Court of Appeal in Oldham v Kyrris, above, was approved by the Privy Council in the case of Hague v Nam Tai Electronics [2008] UKPC 13; [2008] B.P.I.R. 363 and applied in Lomax Leisure Ltd v Miller [2007] EWHC 2508 (Ch) and Charalambous v B&C Associates [2009] EWHC 2601 (Ch).’

4.7  In my view it is not necessary to enter into a discussion on the authorities relating to A & J Fabrications Ltd. The question of release was not an issue in that case.

4)  Nature of a partnership

4.8  In my view the plaintiff’s tortious claim against the defendant which is a partnership suffers from a fundamental defect. By reason of the nature of the joint and several liability of the partnership that is said to have arisen as a result of the alleged negligence of two of its partners, the release of liability of these two partners under the Release Order will likewise release that of the partnership as well.

4.9  The starting point is that partners are jointly and severally liable to any persons not themselves partners for the torts of any one of them acting in the ordinary course of the business of the firm, or with the authority of his co-partners : see sections 12 and 14 of the Partnership Ordinance (Cap. 38) and Clerk & Lindsell on Torts 21^st Ed. para 5―92.  Lindley & Banks on Partnership 19^th Ed. para 13―94 stated :

‘ The traditional view has always been that a creditor may discharge a partner from a partnership debt or obligation by means of a release or a covenant not to sue, with differing consequences for the other partners, as Lord Lindley [Clayton v Kynaston (1699) 2 Salk. 573] explained:

“A release of one partner from a partnership debt discharges all the others; for where several persons are bound jointly, or jointly and severally, a release of one is a release of them all…..” ’ [Emphasis added]

4.10  The wording of section 94(3) of the Bankruptcy Ordinance is clear : the release order will release the trustee from all liability in respect of any act done or default made by him in the administration of the affairs of the bankrupt.  No alternative construction on the ambit of the release has been advanced by Mr Coleman SC (together with Ms Queenie Ng) for the plaintiff. 

4.11  In my view the plaintiff has not really advanced any substantive argument on the effect of release on the joint liability of the partnership.  Mr Coleman argued that while the release order has the effect of releasing the liability of the trustees as trustees, it does not have the effect of making the duty of care owed by the defendant during the period of their trusteeship vanish.  My view, however, is that while the trustees were trustees, they were at the same time partners of the defendant.  It is only because of this relationship which caused the defendant to be sued in the first place. 

4.12  Mr Coleman further argued that section 94(3) is concerned a trustee’s liability in his capacity as trustee and it does not extend to the liability of the firm of which the trustee is a partner.  The answer to this point is that the statement of claim as it stands has not drawn any distinction between, on the one hand, the negligence committed by the trustees in their capacity as trustees and, on the other hand, in their capacity as partners in the firm.

4.13  Mr Coleman referred to paragraph  44 of the statement of claim which was identified by the Judge in the part of the judgment that I have referred to earlier.  Since the alternative tortious claim is to be struck out, I do not see how this will assist the plaintiff in this appeal even if the defendant had not asked for this paragraph to be struck out as well.  It remains to be seen at the trial of the plaintiff’s contractual claim how this paragraph will assist the plaintiff.

4.14  In my view it is plain and obvious that the alternative claim based on negligence is not sustainable and should be struck out.

V.  Conclusion

5.  Accordingly the appeal is allowed and there will be an order in terms of paragraph 1 of the order sought by the defendant in the notice of appeal.

VI.  Costs

6.  I will make an order nisi that the defendant is to have the costs of the appeal with a certificate for two counsel and no order as to costs of the hearing below.  This is because the Judge would not, in any event, have struck out the contractual claim and the arguments on release in the context of the liability of a partnership was only raised for the first time on appeal.

Hon Yuen JA :

7.  I agree.