Ng Shek Wai v. Hong Kong Institute of Certified Public Accountants

HCAL 81/2016

[2019] HKCFI 2439

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 81 OF 2016

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D E C I S I O N

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A.  INTRODUCTION AND BACKGROUND

1.Before the court is the respondent’s application seeking an order for withdrawal of most of the interrogatories served on it by the applicant in his letter dated 20 June 2018.  The interrogatories relate to over 150 questions and sub-questions.

2.To put the application in proper context, I would set out briefly the background leading to the judicial review.  This background is largely not disputed for the present purpose.

A1.  The applicant and the dispute

3.The applicant is an owner of a flat in Corona Tower.

4.Between August 2012 and October 2013, renovation works were carried out on Corona Tower, which works were approved by its Incorporated Owners (“IO”).

5.A Mr Lin, who is a certified public accountant, was engaged by the IO as its auditor.  He audited and confirmed the IO accounts for the year which included the accounts for the renovation works.

6.Subsequent to the issue of the financial statement and audited accounts of the IO, the applicant said he had provided various materials and information to Mr Lin which showed that there were at least a number of plausible frauds discovered by him in relation to certain extra works said to be rendered by the contractor in the renovation.

7.It is the applicant’s case that plausible frauds are these[1]:

(1)  The IO was deceived by the contractor into paying for repair works said to be carried out on window lintels and the gaps between the outer wall and the window frames of the master bedrooms (for convenience, collectively “the Lintel Repair Works”).  This is so as although the contractor asserted that the Lintel Repair Works were necessary as some window lintels did not have steel bars, the Building Authority had confirmed with the applicant (upon his own inquiry) that the window lintels at Corona Tower did not have to have steel bars by design[2].  These works were therefore unnecessary.

(2)  Even if the Lintel Repair Works were needed, they should have properly been included in the original contracted works under the renovation contract and should not be required to be paid for as additional or extra works.

(3)  Further, even if the contract did not so cover them, the total lengths of the repair works carried out were inflated, as the relevant invoices did not list out the exact location and length of every gap and window lintel said to have been repaired.

8.The applicant says the information and materials he had provided to Mr Lin (which included the applicant’s own analysis of the various invoices provided by the contractor concerning the Lintel Repair Works and the information he had obtained from the Building Department) showed at least a prima facie case that the sum charged by the contractor for these works was inflated as the works were not necessary, not actually carried out or exaggerated.  In the premises, under Hong Kong Standards on Auditing (“HKSA”) 200, 240 and 560, Mr Lin should carry out further necessary investigations to verify the relevant accounts of the IO he had audited, and amend the audited report if necessary[3].

9.In light of these, the applicant started communicating with Mr Lin asking him effectively to revisit the audited accounts and financial statements which included the payments to the contractor for the Lintel Repair Works.

10.On 30 June 2015, the applicant faxed a complaint letter to Mr Lin.  In the said letter, the applicant asked Mr Lin (a) to enquire with the IO as to whether the Lintel Repair Works were necessary and were in fact carried out; and (b) to amend the auditor’s report on the IO’s accounts if the IO failed to respond.

11.In early July 2015, the applicant called Mr Lin to follow up on his complaint.  According to an email from the applicant to the respondent on 6 July 2015, the applicant alleged that during the phone call, Mr Lin stated that he would not and was under no duty to investigate further.

A2.  Complaint made to the respondent and the respondent’s decision[4]

12.On 10 August 2015, the applicant filed a complaint (“the Complaint”) with the respondent against Mr Lin.  In gist, the applicant alleged in the complaint form that Mr Lin failed to comply with professional standards, specifically HKSA 200, 240 and 560, as he failed to adopt a sceptical attitude and investigate whether the invoices for the Lintel Repair Works were fabricated.

13.After the respondent received the Complaint, Ms Winnie Leung (“Ms Leung”) of the Compliance Department was assigned to handle the matter under the supervision of Mr Peter Nip.

14.It is the respondent’s case that on 5 October 2015, the respondent sent a letter to Mr Lin.  The letter summarised the applicant’s complaints and requested Mr Lin to provide (a) his comments and explanations on the expenditures in relation to the Lintel Repair Works, together with supporting documents; and (b) information on specific actions he had taken to comply with HKSA 500[5] and HKSA 560.

15.According to the respondent, on 22 October 2015, Mr Lin sent a letter to the respondent setting out his response and providing supporting documents for review by the respondent[6].

16.After considering the Complaint and the applicant’s subsequent emails to the respondent, Ms Leung submitted a report dated 15 January 2016 to the Professional Conduct Committee of the respondent, which concluded that the applicant had not adduced sufficient evidence to establish a prima facie case of misconduct.

17.On 20 January 2016, the Professional Conduct Committee agreed with the Compliance Department’s assessment and resolved to dismiss the Complaint.

A3.  Communication of the Decision to the Applicant

18.On 3 February 2016, the respondent sent a letter to the applicant to dismiss the Complaint and stated that the Professional Conduct Committee had reviewed the Complaint and considered that no further action should be taken as no prima facie case against Mr Lin was made out (“the Decision”)[7].

19.Dissatisfied with the Decision, the applicant had subsequently and repeatedly by emails asked the respondent to give detail reasons as to why it had come to the conclusion that there was no prima facie case of professional misconduct under the Complaint against Mr Lin.

20.In response, the respondent further communicated to the applicant the following reasons for the Decision in the respondent’s various email replies (collectively “the Replies”)[8]:

(1)  In the context of investigating complaints made against its members, the respondent’s objective is to assess whether the member has properly complied with the applicable audit standards in his performance of the audit.

(2)  Under HKSA 560, an auditor is only required to conduct further inquiries if, after issuing the audit report, he becomes aware of any fact that, if known to the auditor at the date of his report, may have caused him to amend the report.

(3)  The information and documents provided by the applicant were not sufficient to establish the allegation that the payments for the Lintel Repair Works was not proper.  Based on the above, along with the information and documents provided by Mr Lin, the respondent was satisfied that Mr Lin had taken sufficient steps to evaluate the information provided by the applicant for the purpose of compliance with HKSA 560.

(4)  The evidence provided by the applicant was also inadequate to show that Mr Lin had engaged in improper conduct by disclosing the Complaint to the IO.  The disclosure formed part of the steps properly taken by Mr Lin to follow up on the Complaint.

(5)  Pursuant to the Code of Ethics for Professional Accountants, Mr Lin was bound by the principle of confidentiality and, as such, was unable to disclose confidential information belonging to the IO (as his named client) without appropriate authorisation.

21.In this respect, it is common ground that the respondent has not provided at any stage to the applicant any of the information or documents it had received from Mr Lin during the investigation of the Complaint as mentioned above.  It has also not set out in the Decision or the Replies what is the content or gist of the information and documents Mr Lin had provided to it.

B．  THE APPLICANT’S APPLICATION FOR JUDICIAL REVIEW CHALLENGING THE DECISION

22.As mentioned above, the applicant applied for leave to apply for judicial review to challenge the Decision.  The grounds of judicial review as set out in the Form 86 are these:

(1)  Ground 1: The Council of the respondent (“the Council”) did not provide sufficient reason to justify why the applicant’s complaint in the letter that: “附件一的投訴信已詳述爭拗...但練先生的反應令本人失望...練先生不停以各種藉口推託調查...他不可能去拆開石屎調查...他不會限期法團交出紀錄，一切隨法團自行決定” did not show a prima facie case of misconduct.

(2)  Ground 2: The Council did not provide sufficient reason to justify why the applicant’s complaints on Mr Lin’s allegations that:

(a)  相對於大維修的3千萬元總支出，20萬元是小數目，不值得他去花時間調查；

(b)  他只負責核對會計紀錄，不負責調查。

did not show a prima facie case of misconduct.

(3)  Ground 3: The Council did not provide sufficient reason to justify why the applicant’s complaint that Mr Lin’s assertions that: “他只會向管理委員會負責，無需向個別業主負責，所以不會向本人交待結果，我要自行向法團查詢結果” did not show a prima facie case of misconduct.

(4)  Ground 4: The Council did not provide sufficient reason to justify why the applicant’s complaint that Mr Lin disclosed his complaint to the Management Committee of the IO without a good reason did not show a prima facie case of misconduct.

23.In other words, the applicant’s challenges against the Decision are in principle that it lacked adequate reasons to explain why the Complaint against Mr Lin did not show a prima facie case of professional misconduct.

24.In this respect, the applicant’s contentions made in support of the leave application (as elaborated in the applicant’s first affirmation) are these:

(1)  The various invoices and documents he had provided to Mr Lin showed a prima facie case that the Lintel Repair Works were unnecessary, in fact not carried out or exaggerated.  He has set out in the Complaint the analyses and the reasons why he had come to those conclusions.

(2)  In the premises, there is evidence to demonstrate that the contractor was not entitled to charge for and be paid by the IO for those works.  There are therefore sufficient materials and information which have subsequently come to the knowledge of Mr Lin which, if known to him at the date of his report, may have caused him to amend the report.

(3)  As a result, in compliance with his professional duties under HKSA 560 and others, Mr Lin should undertake reasonable inquiries in light of these materials and information and should amend the relevant audited report if necessary.

(4)  However, in the Decision and the Replies, the respondent only asserted (without providing any reasons explaining why) that Mr Lin had already undertaken reasonable inquiries as required under the professional standards and there was no prima facie case as to any breach of the professional standards.

(5)  In particular, the respondent has provided no information or explanations in the Replies and the Decision as to (a) what inquiries Mr Lin had undertaken to ascertain if the applicant’s analyses based on the invoices and information he had obtained to demonstrate the contractor’s “fraud” were correct, (b) why Mr Lin had found the applicant’s analyses were incorrect, if that was his conclusion, and (c) why Mr Lin did not proceed to amend the audited report if he had found the applicant’s analyses to be indeed correct.

(6)  In the circumstances, the Decision even read with the Replies simply provided no adequate reasons to enable the applicant as the complainant to have an intelligible understanding as to why there was no prima facie case of misconduct as complained of.

25.This court granted leave to the applicant to apply for judicial review.

26.The respondent filed its opposition affirmation in the judicial review on 13 March 2018[9]. As summarized by Mr Chan for the respondent in his skeleton, the respondent’s case in opposition in broad term is:

(1)  The respondent provided adequate reasons to explain why the Complaint was dismissed.  It was under no duty to provide further detailed reasons in light of, among others, the need to preserve the confidentiality of information obtained from auditors’ clients.

(2)  In any event, the court should not grant relief as the applicant has suffered no prejudice in the circumstances of this case.

C.  THE INTERROGATORIES AND THE PRESENT APPLICATION TO QUASH THEM

27.After the filing of the respondent’s evidence, on 20 June 2018, the applicant served on the respondent a letter of interrogatories requesting the respondent to answer over 150 questions and sub-questions.

28.By way of a summons dated 16 July 2018 (“the summons”), the respondents applied for an order for the withdrawal of most of the questions under the interrogatories (“the impugned interrogatories”).  The impugned interrogatories have been identified under paragraph 1 of the summons.

29.As summarized by Mr Chan, the impugned interrogatories are in substance concerned with (a) the evidence and information provided by Mr Lin to the respondent, (b) the matters considered by the respondent in the course of its investigations and deliberations, and (c) the respondent’s evaluation of the evidence and information.

30.The respondent says the impugned interrogatories should be quashed on the bases that (a) they do not relate to a matter in question between the parties, (b) they are not necessary for disposing fairly of the cause or matter or for saving costs; or (c) they are fishing, oppressive, vexatious or prolix.  In particular, it is submitted that:

(1)  The impugned interrogatories are irrelevant and unnecessary to the pleaded grounds of challenge in this judicial review.

(2)  The impugned interrogatories are an impermissible attempt to pre-empt and undermine the respondent’s right to defend its position at the substantive hearing by compelling it to prematurely disclose the confidential information and reasoning in rejecting the applicant’s complaint.

(3)  The impugned interrogatories are as a whole oppressive and prolix.

D．  DISCUSSION

D1.  Relevant legal principles[10]

31.The relevant principles governing whether interrogatories should be permitted are not and cannot be disputed.  They can be conveniently summarized as follows:

(1)  The interrogatories must relate to a matter in question between the parties: Order 26, rule 1(3) of the Rules of the High Court (Cap 4A).

(2)  The interrogatories must be necessary either for disposing fairly of the cause or matter or for saving costs: Order 26, rule 1(1) of the Rules of the High Court.

(3)  Even where the interrogatories comply with the requirements of the rules, the Court nevertheless retains an overriding discretion as to whether or not to allow them to be administered: Lee Nui Foon v Ocean Park Corp (No 2) [1995] 2 HKC 395.

32.In determining whether the interrogatories relate to a matter in question between the parties, the court applies a test which is akin to the Peruvian Guano test in discovery.  The right to interrogate is not confined to the facts directly in issue, but extends to any facts the existence or non-existence of which is relevant to the existence or non-existence of the facts directly in issue: Lee Nui Foon at 398F-G, Kao Lee & Yip v Koo Hoi Yan (unreported, HCA 8847/1993, 26 February 2002) at paragraph 7(1).

33.In this respect, in judicial review context[11], the “facts directly in issue” and the scope of the issues should be ascertained from the grounds of the judicial review set out in the Form 86.  Cf: Dembele Salifou v Director of Immigration [2015] 4 HKC 297 at paragraphs 18, 27; HKT v Secretary for Commerce and Economic Development [2018] HKCFI 2224 at paragraphs 19 - 20.

34.Moreover, as with discovery, “fishing” interrogatories are not permitted.  This means the questions must not be asked for the purpose of enabling a party to see if he can find a case, of which he presently knows nothing, which is different from the pleaded case he now makes: Lee Nui Foon at 396I-397A.

35.The test of necessity is a stringent one and is not necessarily satisfied just because the subject matter of the interrogatories is relevant.  While the prospect of minor incremental advances being established by the answers may suffice, the less an interrogatory appears to be targeted at the core issues in the proceedings, the more likely a court will be to exercise an adverse discretion to its employment: Salt & Light Development Inc v STJU Sunway Software Industry [2006] 2 HKLRD 279 at paragraphs 17, 29.

36.Further, the purpose of interrogatories is to narrow down and clarify the factual issues to be resolved at trial: Salt & Light at paragraph 25.  Although each application should be considered on the particular facts and issues arising in each case, it must also be borne in mind that judicial review proceedings generally are not well suited for the resolution of disputed facts and are primarily concerned with legal issues: Chu Woan Chyi v Director of Immigration [2009] 6 HKC 77 at paragraph 14(3).  Hence, the cases where interrogatories (in particular extensive ones) should be permitted in judicial review context are likely to be more restricted.

37.Finally, even where interrogatories are relevant and necessary, the court should order the interrogatories to be withdrawn where they are oppressive or prolix:

(1)  Interrogatories are oppressive if the answer cannot be given without a prolonged examination of the respondent’s record, with the expenditure of much time and trouble: Lee Nui Foon at 397F-398D.

(2)  In determining whether the interrogatories are prolix, the court should look at the request as a whole.  If the interrogatories as a whole are prolix it is no answer to say that there are in the set of interrogatories here and there some which might be admissible if they stood alone: Lee Nui Foon at 398C-D.

D2.  This application

38.Bearing these principles in mind, I agree with the respondent that the interrogatories should be quashed for the following reasons.

39.As I have set out in some details above, the applicant’s grounds of judicial review are in substance and principle that the Decision even read together with the Replies lacked adequate reasons.

40.At the same time, the respondent’s grounds of opposition to the judicial review are fundamentally that (a) as a matter of law, the respondent’s duty and scope to provide reasons is shaped in the context of the specific circumstances of the present case concerning the confidentiality duty imposed on a professional auditor in relation to his client, (b) considered against the duty and scope so shaped, the Decision and the Replies read together have provided sufficient reasons as required by the law.

41.In this respect, the principles governing the duty of a decision maker to provide reasons are now well established.  They can be briefly and generally stated for the present purpose as follows[12]:

(1)  The duty to give reasons for administrative decision can be required expressly or implied by the relevant statute or can arise in common law out of the requirement of fairness.

(2)  If there is a duty to give reasons, the adequacy of the reasons given would depend on the context in which the decision maker is operating and the particular circumstances of the case in question. 

(3)  The reasons given should show to the objective reader that the decision maker has addressed the substantial issues (but not necessarily every single issue) before it and why it has come to its decision. 

(4)  Depending on the circumstances of each case, the reasons may not require great elaboration and they may be brief.  It is only when they are defective in substance that they should be considered inadequate.  Ultimately, what are adequate reasons in the circumstances of a particular case has to be approached sensibly.

42.In other words, in the applicant’s present judicial review, which is an adequacy of reasons challenge, the essential question to be determined by the court is whether, when viewed objectively in the specific factual context of the present case and the information and materials that were objectively known to the applicant as at the material time, the reasons as provided in the Decision and the Replies were adequate to enable the applicant (and a reasonable person in his position) to understand why the respondent did not consider there was a prima facie case of professional conduct as complained by the applicant.

43.Hence, what the court needs to look at and focus on in determining this essential question at the substantive hearing of the judicial review is, and should be confined to, all the objective facts, materials and information that were known or objectively known to the applicant at the time of the Complaint and when he received the Decision and the Replies.  It is against this context and objective background that the court is to assess whether the Decision and the Replies contained adequate (as contended by the respondent) or inadequate (as the applicant argues) reasons.

44.Once understood this way, it is clear that the impugned interrogatories sought by the applicant are all irrelevant to the determination of the central issues in the judicial review and should be disallowed.

45.As mentioned above, the impugned interrogatories are concerned with (a) the evidence and information provided by Mr Lin to the respondent, (b) the matters considered by the respondent in the course of its investigations and deliberations, and (c) the respondent’s evaluation of the evidence and information.  They therefore relate to information, matters and materials that were not known (whether in fact or objectively) to the applicant at the material time when he made the Complaints and received the Decision and the Replies.  Thus, the questions raised in the interrogatories would not aid the court in any respect to determine the essential question of whether, in the absence of other information and materials, the Decision and the Replies by themselves contain adequate reasons as required by the law.

46.As I pointed out to the applicant at the hearing, it was the very gist of his case in the judicial review that, given the lack of any substantive explanations, information and materials provided by the respondent at the material time to explain what investigations they had made with Mr Lin and what information or materials Mr Lin had provided to the respondent in response, the Decision and Replies did not contain any intelligible reasons to explain why the Complaint, backed by the information, materials and analyses provided by him, did not support a prima facie case of professional misconduct on the part of Mr Lin.  Hence, it is startling that he was seeking from the respondent, by way of the interrogatories, in substance precisely such information and materials which he said was lacking to explain the Decision.

47.In response, the applicant emphasized that the interrogatories served by him were only to “assist” the court, as the court might need such further information and evidence to understand the respondent’s Decision.

48.I am unable to accept this contention.  As I said above, the impugned interrogatories are irrelevant to the court’s determination of the central issues arising from the judicial review.

49.I will go further.  In my view, given the applicant’s case in the judicial review, the impugned interrogatories amount to a fishing expedition by the applicant to hopefully seek for further materials to aid him to see if he can find another case to challenge the Decision, of which he presently knows nothing.

50.In any event, given the sheer volume of the number of the questions asked under the impugned interrogatories, I also agree with Mr Chan that even if they were marginally relevant to the judicial review (which I do not accept), they are also clearly oppressive, vexatious and prolix.  I will therefore also quash these interrogatories on this basis.

51.In the premises, save those questions of the interrogatories which the respondent has already answered by way of the second affirmation of Nip Ting Ming Peter, I will allow the respondent’s application and order all the impugned interrogatories be withdrawn, as they are clearly irrelevant and unnecessary for the proper disposal of the judicial review and are also fishing, oppressive, vexatious and prolix[13].

E.  DISPOSITION

52.For all these reasons, I allow the respondent’s summons, with costs to the respondent.

53.Given my view that the impugned interrogatories are clearly irrelevant and amount to a fishing expedition by the applicant, I further order that costs should be taxed on an indemnity basis.  After considering the respondent’s statement of costs in the amount of $237,886 submitted for the present purpose, and in view of the large number of questions raised in the interrogatories which the respondent’s legal team has to spend a lot time to consider, I summarily assess the costs to be $200,000.

The applicant appeared in person

Mr Joshua Chan, instructed by Reynolds Porter Chamberlain, for the respondent