Chan Yui Hang v. The Disciplinary Committee of the Hong Kong Institute of Certified Public Accountants

HCAL 1086/2022

[2022] HKCFI 3340

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 1086 OF 2022

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BETWEEN

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Before:  Hon Coleman J in Chambers (Open to Public)

Date of Decision:  1 November 2022

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D E C I S I O N

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A. Introduction

1.As the title identifies, this application is brought by a certified public accountant seeking leave to apply for judicial review of a disciplinary decision made against him by the governing body of his profession – the Disciplinary Committee (“DC”)  of the Hong Kong Institute of Certified Public Accounts (“HKICPA”).

2.The disciplinary proceedings arose from the Applicant’s appointment as the liquidator of a company known as Leco Watch Case Manufactory Limited (“LECO”)  on 26 November 2012.

3.By 24 June 2013, the Applicant had already paid himself HK$4,720,943.18 (“HK$4.7m”)  out of the LECO’s fund as liquidator’s fees.  That figure accounted for 48% of the total realized assets, which amount was only finalized in about 2016.

4.In 2016 and 2017, the HKICPA received two complaint letters raising concerns, amongst others, regarding the fees paid to the Applicant.  On 11 September 2017, the Registrar of the HKICPA formally submitted 5 complaints (“Complaints”)  against the Respondent to the Council of the HKICPA.  Relevant for present purposes is the 4^th Complaint, that the Applicant had failed to obtain proper approval from LECO’s creditors for his liquidator’s fees.

5.The DC held a disciplinary hearing on 16 January and 20 May 2019.  By a decision dated 13 November 2019 (“Decision”)  all 5 Complaints were found to be established.  The Decision – and inferentially the procedural steps leading to it – is the subject of this leave application.

6.Having considered all the materials, I am of the view that this application can be dealt with on paper.

7.This is my Decision.

B.  The Disciplinary Proceedings and the Decision

8.The relevant regulatory regime for certified public accounts is to be found in the Professional Accountants Ordinance Cap 50 (“PAO”).  After the conclusion of the disciplinary proceedings, the PAO has been amended several times, but the then applicable version was the one becoming effective on 3 March 2014.  References to the PAO below refer to that version.

9.The 5 Complaints were submitted by the Registrar of the HKICPA to the Council of the HKICPA pursuant to section 34(1A). The Council then referred the Complaints to the Disciplinary Panel pursuant to the power under the same section.  The DC was then constituted under section 33(3).

10.The 1^st to the 4^th Complaints were that Applicant as a certified public account had failed or neglected to observe, maintain or otherwise apply a professional standard under section 34(1)(a)(vi)  of the PAO.  The 5^th Complaint was that the culmination of the first 4 Complaints amounted to professional misconduct under section 34(1)(a)(viii)  of the PAO.

11.The relevant professional standards specified by the Council under section 18A are to be found in the Code of Ethics for Professional Accountants (“Code”).  Section 500.5(e)  of the Code requires an insolvency practitioner “to comply with relevant laws and regulations and avoid any conduct that the professional accountant knows or should know might discredit the profession”.  Part of the relevant law for insolvency practitioners is to be found in the Companies (Winding-Up and Miscellaneous Provisions)  Ordinance Cap 32 (“CWUO”)  and its subsidiary legislation.

12.The substance of the 5 Complaints is as follows:

(1)  the Applicant failed to convene annual creditors meetings and report his conduct and dealings in relation to the liquidation of LECO for 4 years, or alternatively for 3 years, in breach of section 247 of the CWUO;

(2)  6 out of 7 of the Applicant’s filing of liquidator’s statements of account were late in time, in breach of section 284 of the CWUO;

(3)  the Applicant failed to maintain overall control of work delegated to an agent consulting firm;

(4)  the Applicant failed to obtain proper approval of LECO’s creditors in respect of the liquidator’s fees paid to himself, in breach of section 244 of the CWUO, and failed to report openly and transparently to those having an interest in the liquidation in breach of the Code; and

(5)  by his repeated failures to observe the legal and ethical requirements, he was guilty of professional misconduct.

13.I shall set out in some detail the 4^th Complaint, the resolution of which by the DC is the focus of the present leave application.

14.It is undisputed that the Applicant had made 4 payments of liquidator’s fees to himself, totalling HK$4.7m: (1) HK$1m on 3 April 2013, (2) HK$1m on 12 April 2013; (3) HK$2m on 19 June 2013, and (4) the remaining HK$0.7m odd on 24 June 2013.

15.The Registrar’s case was that the Applicant, in making those payments, had failed to comply with section 247 of the CWUO and section 500.40 of the Code (on top of the umbrella section of 500.5(e)).  Section 247 of the CWUO provides that “the creditors may fix the remuneration to be paid to be liquidator”.  Section 500.40 of the Code requires a liquidator to report openly and transparently his acts and dealings to those having an interest in the liquidation process, bearing in mind the expectations of what a reasonable and informed third party would consider appropriate.

16.The Applicant put forwards two responses to the 4^th Complaint: (1) he was paid according to his time spent; and (2) the majority shareholders had resolved to pay him 50% of the realized assets of LECO as liquidator’s fees.

17.Both arguments were rejected by the DC, for reasons canvassed in §§64-77 of the Decision.  The DC was of the view that the creditors could not have approved the liquidator’s fees paid in advance because the chronology did not fit.  For the argument that he was paid according to time spent:

(1)  There was no evidence that the timesheet provided to the DC was provided to the creditors prior to payments.

(2)  The timesheets covered the period from 14 December 2012 to 26 November 2013, meaning that the timesheets could only have been compiled after 26 November 2013.  But the HK$4.7m fees were fully paid by 24 June 2013.

(3)  Nor could the Applicant rely on the statements of account which recorded the payments of liquidator’s fees as evidence for having sought prior approval before or at the time the accounts were issued. The relevant statement of account covered period from 26 November 2012 to 25 November 2013, and was filed on 13 January 2014.  By then, all payments had already been made.

18.The DC also refused to accept that the fees were pre-agreed to be charged on a percentage basis.  The Applicant produced the minutes of the first creditors’ meeting of LECO which was chaired by the Applicant himself.  The body of the minutes is less than one and a half page.  The minutes recorded (sic):

It was revolved that the remuneration of Liquidator is 50% of the realise assets of the Company excluded the investigation cost of Liquidator.  The audit for Financial Statement of the Company is not required.

19.In the minutes, both the Applicant and a solicitor said to be the representative of the Director signed next to their names to indicate their presence.  There is no signature next to “Creditor”, but the description of “Refer to Annex 1”.  No such annex has been provided to the Court.

20.The DC did not think the minutes of the first creditors’ meeting could assist the Applicant:

(1)  By comparing the 4 payments the Applicant made to himself with the amount of total realized assets up to the date when the payments were made, it could be seen that the aggregate of the 1^st and the 2^nd payments (i.e. HK$2m)  was more than 50% of the total assets realized by 13 April 2013 (i.e. HK$3,602,110.85); and the total of the 4 payments also accounted for more than half of the total assets realized by 24 June 2013 (i.e. HK$7,452,178.17)  In other words, even if the minutes were to be taken at face value, the Applicant had paid himself more than the amount authorized at the time of payment.

(2)  In any event, the DC was of the view that it is most unlikely that parties would have intended to pay 50% of the realized assets as liquidator’s fees on the first creditors’ meeting regardless of the actual amount of work done.  It would not be workable at all because not all the assets would be recovered.

C.  Appeal to the Court of Appeal

21.Pursuant to section 41 of the PAO, there is a statutory right of appeal to the Court of Appeal (“CA”)  from a decision of the DC.  The Applicant appealed against the Decision as well as the DC’s subsequent decision on sanctions and costs (which is irrelevant for present purposes)  in CACV 528/2020.

22.The appeal was dismissed on paper by a Judgment dated 15 July 2020 (“CA Judgment”).  In principle, the CA Judgment has little bearing on the current leave application.  The CA Judgment could not be the target of the intended review, nor is this Court bound by the CA Judgment when exercising its judicial review jurisdiction.  But (as will be seen below)  the proposed grounds run by the Applicant for the current leave application either are made by reference to the CA Judgment or are a re-run of arguments already made in the CA.  It may be convenient to set out part of the CA Judgment in more detail.

23.Two grounds were advanced at the CA.  Relevant for the present purpose is the 1^st ground which is also re-run in this leave application.

24.In the Checklist dated 8 August 2018 filed by the Applicant in preparation of the hearing before the DC, the Applicant indicated that two witnesses should be called to give evidence at the hearing. They were Ms Amy Lo and Ms Joanne Cheng, the representatives of two company creditors who had previously sent complaint letters to the HKICPA against the Applicant in September 2016 and January 2017.  Ms Lo raised various complaints including the failure to seek proper approval for payment of liquidation fees.  Ms Cheng’s complaints included failure to disclose the breakdown of income and expense of the liquidation to the creditors.  In July 2017, both creditors withdrew their complaints.  But, as already traversed in the chronology given above, the Registrar proceeded to submit formal complaints to the Council against the Applicant in September 2017.

25.The Applicant was required in the Checklist to explain why the attendance of the witnesses was required and to provide some other information.  The relevant excerpt is reproduced (sic):

(c)  The specific issue or issues in respect of which you consider the witness should give evidence:

1.  All the statements produced by the aforesaid witness are full of misrepresentation.

2.  The intention of those witness in initiating this complaint case is merely to put pressure on respondent to 100% recover their debt.

(d)  The reasons why you consider the witness’s evidence is necessary

1.  All the evidence are critical points of case.

2.  The complaints missed these important points.

(e)  Whether you can produce a witness statement for the witness prior to the hearing:

Yes

(d)  Whether you consider it necessary for a summons to be issued to compel the witnesses’ attendance at the hearing

[no reply]

26.The Registrar, as the complainant in the disciplinary proceedings, did not intend to rely on the evidence or Ms Lo or Ms Cheng and did not propose to call any witness at the hearing.

27.The parties attended a directions hearing and the following directions, amongst others, were given:

2.  No witness is to be called at the forthcoming substantive hearing (“Hearing).

4.  The Respondent is at liberty to make application to file additional evidence before the Hearing.  The Complainant will be given an opportunity to respond to the Respondent’s application.

28.The Applicant argued that the DC had failed to ensure fairness to him by directing that no witness could be called at the hearing.  He said that Ms Lo and Ms Cheng could give crucial information on the resolution passed at the first creditors’ meeting regarding the remuneration to be paid to him and the failure to call them had deprived the parties and the DC the opportunity to examine the disputed facts.  He also said that the witnesses’ knowledge of the remuneration agreed to be paid to him would affect the DC’s view that there was a continuous lack of approval of the liquidators’ fees.

29.This ground was rejected as unsustainable by the CA at §§49-56, on three bases.

30.First, although the DC directed that no witness was to be called, at the same time it also expressly provided that the Applicant was at liberty to apply to file additional evidence before the hearing and then the Registrar would be given an opportunity to reply.

31.Second, the directions could not be faulted in the circumstances:

(1)  Disciplinary process of the HKICPA is intended to be based primarily on written submissions presented before the oral hearing, and parties are required to set out their respective cases fully in writing: see Hong Kong Institute of Certified Public Accountants v Ng Kwok Ching [2021] HKCA 1821.

(2)  The schedules to the Disciplinary Committee Proceedings Rules (“DCP Rules”)  specifically state that it is up to the Chairman and the DC to direct whether witnesses are to give evidence and on what particulars issues.

(3)  The Applicant failed to identify in the Checklist the disputed facts the evidence of which Ms Lo and Ms Cheng could give.

(4)  The Applicant did not ask to summons Ms Lo or Ms Cheng.

(5)  Despite being given leave to file further evidence, and the Applicant indicating in the Checklist that he could produce the witness statements of Ms Lo and Ms Cheng in advance, he did not produce them.  Had such witness statements been filed, the Committee might then have been in a position to consider if it would be necessary to have Ms Lo or Ms Cheng as witnesses.

(6)  In any event, it is well established that the Court would not interfere with a case management decision unless it involves an error or law or principle, or will give rise to clear injustice, or is irrational, or is otherwise plainly wrong.  No such exceptional circumstances existed.

32.Third, even by the time of the CA appeal, the Applicant had not been able to show what evidence Ms Lo and Ms Cheng could give in support of his case.  That fact that they had withdrawn their complaints cannot be taken to mean that they would give evidence in his favour.

D.  Proposed Grounds of Review

33.The Form 86 and the supporting affirmation were signed by the Applicant, acting in person.  But they bear some resemblance to those prepared by lawyers.

34.Two proposed grounds were put forward in the Form 86:

(1)  Ground 1 is framed as that the DC “erred in principles and law in the refusal of the Applicant’s application to call the witnesses during the disciplinary hearing”.  There is some emphasis on the fact that Ms Lo and Ms Cheng had already withdrawn their complaints by July 2017, yet the disciplinary proceedings were instituted and the Registrar continued to rely on the assertions and complaints made by Ms Lo and Ms Cheng. It is said that their evidence was necessary to resolve “material dispute of acts, in particular the basis of the complaint of the failure to seek approval of the liquidator’ fees”.

(2)  Ground 2 is framed as that the DC had “acted procedurally unfair to the Applicant and in breach of ‘natural justice’”.  The procedural unfairness is said to be underpinned by the DC’s refusal to accept the prima facie content of the minutes of the first creditors’ meetings which evidenced the creditors’ views on the arrangement of the liquidator’s fee and, instead, drew their own interpretation of what the creditors could have meant on the approval of the liquidator’s fee.

E.  Proposed Ground 1

35.As can be seen, the proposed Ground 1 is a re-run of the main thrust of the challenge which failed in the CA.  This is unlikely a fertile area of review.

36.In the supporting affirmation, the Applicant sought to draw support from §45 of the Guidelines for the Chairman and the Committee on the Administering the Disciplinary Committee Proceedings rules (“Guidelines”).  I shall also reproduce §§46, 48- 49 which also concern the calling of witnesses:

45.  With respect to directions for the cross-examination of the parties and the attendance of witnesses, when there is a material dispute of fact in relation to an issue and a party wishes to call a witness to give evidence in relation to the matter, the Committee is (save in exceptional circumstances)  obliged to permit the attendance of the witness. If a witness is permitted to give evidence, other parties must also (save in exceptional circumstances - the occurrence of which is hard to envisage)  be given an opportunity to cross-examine the witness

47.  Similarly, if a party has chosen to give evidence in a proceeding (whether orally or by way of statements or assertions in the party's written submissions)  and there is a material dispute of fact, the Committee must (save in exceptional circumstances)  permit the party to be cross-examined. This is not the case, however, where a party has not given any evidence in the proceeding. Where a party has not given any evidence, the Committee may ask questions of the party but should decline any request made by other parties to the proceedings to cross-examine the party concerned.

48.  The Chairman and the Committee should avoid taking responsibility for securing the attendance of witnesses. The preferable position is to require the parties to secure the attendance of those witnesses they wish to call and to permit parties to apply for subpoenas for the purposes of compelling the attendance of particular witnesses if they so wish.

49.  Where the Chairman or the Committee permits the parties to call witnesses, the Committee should consider directing that the parties exchange witness statements, to the extent that such statements have not already been filed as part of the parties' written submissions and evidence. Depending upon the nature of the issues, it may be appropriate for such statements to stand as evidence-in-chief in the proceedings. This will serve to give each party notice of the evidence relied upon by the other side and is likely to shorten the length of the hearing by removing the need for oral evidence-in-chief to be adduced. Where the determination of a factual issue depends essentially on matters of credibility, it may be inappropriate to order statements to stand as evidence-in-chief.

37.From its Introduction section, it can be seen that the Guidelines are supposed further to explain how the DCP Rules – which have provided very broad discretion to the Chairman and the DC in conducting disciplinary proceedings – could be interpreted and applied in a manner which is consistent with the legal requirement of procedural fairness.  Apparently, it seeks to provide some consistency in the DC’s exercise of discretion without fettering the broad discretion.  On the very first page of the document, printed in bold right below the heading is the following:

The Guidelines are intended for guidance only and are not binding upon the Chairman or the Disciplinary Committee.  It is expected, however, that the Chairman and the Disciplinary Committee will follow the Guidelines save in exceptional circumstances.

38.I do not think that the Guidelines can lend much assistance to the Applicant, on top of the DCP Rules:

(1)  The Guidelines are not binding on the Chairman nor the DC.

(2)  In any event, the Chairman is only obliged to permit the calling of witness when there is a material dispute of fact relating to an issue on which the party intends to call witnesses to give evidence. Based on the information provided in the Checklist, it is fair to say that the Applicant did not identify for the DC’s consideration any material disputes of fact relevant to the issue of prior approval for liquidator’s fees.

(3)  The issues identified in the Applicant’s Checklist as relevant to Ms Lo and Ms Cheng’s evidence were that their complaints against the Applicant were false and that they did that to pressurize full recovery for their debts.  That suggested line of evidence to be elicited obviously has in mind the cross-examination of Ms Lo and Ms Cheng if they were to be called as the Registrar’s witnesses.

(4)  But the Registrar did not call them as witnesses.  Nor did the DC rely on Ms Lo or Ms Cheng’s complaint letters as bases for rejecting the Applicant’s case that his fees had been approved by the majority creditors.

(5)  If the Applicant were to call Ms Lo and Ms Cheng as his own witnesses, what the Applicant had to show is not that their evidence could not advance the Registrars’ case, but that their evidence could somehow advance the Applicant’s case – for example, that Ms Lo and Ms Cheng would give evidence that the majority creditors had approved the 4 payments in advance.  It is not readily apparently how attacking what Ms Lo and Ms Cheng said in their complaint letters could advance the Applicant’s case.

(6)  In any event, the Applicant did not ask for a subpoena to secure their attendance.

39.As noted above, some of these points had also been made by the CA.  The Applicant has attempted to explain them away in his supporting affirmation.  He identified whether the liquidators’ fee was approved by the creditors as a clear material dispute of fact which could be proved by Ms Lo and Ms Cheng’s evidence.  He also sought to beef up the importance their assertions by repeating multiple times that the HKICPA had relied heavily on their assertions and that their withdrawal of complaints was a shift of ground which spoke volumes.

40.As said, neither the Registrar nor the DCP relied on Ms Lo or Ms Cheng to prove the 4^th Complaint. Nor is the existence of complaints from creditors necessary for the Registrar to make a complaint under section 34 (1A)  of the PAO.  The Applicant has not yet explained, even as of today, how the evidence he proposed to elicit from Ms Lo and Ms Cheng could advance his case.

41.The Applicant also sought to excuse his failure to ask for a subpoena by saying that that was because the DC’s consent for witness attendance was a prerequisite for subpoena.  The Applicant did not point to any specific text of the Guidelines or the DCP Rules which would suggest that he should have first obtained “consent” from the DC before applying for a subpoena – if that was what he meant.  Nor can I find anything to this effect in the Guidelines.  The Applicant was asked to indicate in the Checklist whether he considered a summons had to be issued to compel witness’ attendance and he did not reply in the positive.

42.Ground 1 is not reasonably arguable.

F.  Ground 2: Procedural unfairness or breach of natural justice

43.Whilst framed as a procedural challenge, Ground 2 in reality seeks to attack the merits of the DC’s Decision.  The meaning and effect of what was recorded on the minutes of the first creditors’ meeting is a matter for the DC.  There is certainly no “procedural rule” that the DC must take what was recorded in the minutes at face value.

44.In any event, as the DC had explained, even if the minutes were to be taken at face value, what the Applicant had paid himself was more than 50% of the total realized assets of LECO at the times of payment, referencing the statements of account filed by the Applicant himself at the relevant time.  Even if the Applicant had launched this ground as an irrationality challenge, I would have no difficulty in rejecting it.

45.Ground 2 is not reasonably arguable.

G.  Conclusion

46.The application is dismissed, with no order as to costs.

The applicant, acting in person