Attorney General v. Hanwitt Ltd
Read the full judgment text of HCA 1737/1983 on BabelCite. This High Court CFI judgment.
1. Hanwitt Limited ("Hanwitt") was registered as a dealer under the Commodities Trading Ordinance, Cap. 250 ("the Ordinance").
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HCA001737/1983 1983, No. 1737 Commercial Law - Administrative Law - Commodities Trading Ordinance, Cap. 250 - Discretion of the Commissioner for Commodities Trading under section 52(2) to order a dealer to pay the whole of the costs of an auditor appointed under section 52(1) - Commissioner suing dealer for recovery of the auditor's casts as a debt under section 52(3) - Collateral attack b dealer on exercise of Commissioner's discretion. =============== After it came to the attention of the Commissioner for Commodities Trading ("the Commissioner") that the defendant, a registered commodity dealer, had failed to lodge its accounts in time under section 50 of the Commodities Trading Ordinance, Cap. 250 ("the Ordinance") and had failed to establish a segregated account under section 46, the Commissioner appointed an auditor under section 52(1) to conduct an examination and audit, and then to report to the Commissioner under section 54. Having revoked the defendant's registration in the light of the auditor's report, the Commissioner in writing ordered the defendant under section 52(2) to pay the whole of the costs and expenses, amounting to $170,521, claimed by the auditor. The defendant failed to pay, so that the Commissioner, having first paid the auditor's bill in full, sued the defendant to recover the whole amount as a debt under section 52(3). The defendant, having pleaded by way of Defence that the auditor's fees were excessive and that the defendant was obliged to pay the Commissioner no more than a reasonable amount, the Commissioner sought summary judgment under 0.14 for the whole amount claimed. Upon appeal by the Commissioner from the Master's decision giving interlocutory judgment for the Commissioner for an amount to be assessed, Held that the Commissioner was entitled to final judgment for the whole amount claimed. The sole issue was the public law question whether the Commissioner had validly exercised his discretion that the defendant should pay the whole of the costs charged by the auditor. The only decisions open to the Master had been either to grant the Commissioner summary judgment for the full amount claimed on the basis that the Commissioner had exercised his powers validly, or else to dismiss the 0.14 summons if it was arguable the Commissioner had not exercised his power validly, for in that event the Commissioner's order to the defendant would have been a nullity. The court was satisfied the Commissioner had exercised his discretion validly. Observations on the scope for collateral attacks on the decisions of public officials since O'Reilly v. Mackman (1982) 3 All E.R. 680.
IN THE SUPREME COURT OF HONG KONG HIGH COURT ——— BETWEEN
——— Coram: Hon. Rhind, J. Date: 23rd June, 1983 ————— JUDGMENT ————— 1. Hanwitt Limited ("Hanwitt") was registered as a dealer under the Commodities Trading Ordinance, Cap. 250 ("the Ordinance"). 2. For the purposes of section 101 of the Ordinance, Hanwitt had informed the Commissioner for Commodities Trading ("the Commissioner") that its financial year ran from 1st April to 31st March. As section 50 of the Ordinance requires a dealer to lodge its accounts for the past financial year together with an auditor's report on those accounts within four months of the end of its financial year, Hanwitt had until the 31st July following the end of the financial year to comply. 3. Not only was there the general obligation imposed on Hanwitt by section 50 to meet the dead-line of 31st July each year for lodging its accounts plus the auditor's report with the Commissioner, but also there was an express condition attaching to Hanwitt's registration as a dealer for the year 1982 that this must be done. 4. Hanwitt missed the dead-line for 1982. Worse still, when the accounts for the financial year ending 31st March 1982 were finally lodged with the Commissioner on 14th September 1982, they were accompanied by a report from the auditor, pursuant to his duty under section 51 of the Ordinance, pointing out that Hanwitt had not established a segregated account under section 46 of the Ordinance during the financial year being reported on. 5. Failure by a dealer to fulfil his statutory duty of establishing a segregated account, keeping his own and his clients' money separate, is an extremely serious type of omission. 6. The Commissioner's response was swift. The very day of receiving that report from Hanwitt's auditor i.e. 14th September 1982, the Commissioner wrote to Hanwitt announcing his intention of suspending Hanwitt's registration as a dealer and appointing his own auditor. 7. After considering representations made by Hanwitt's directors at a meeting on 21st September 1982, the Commissioner, who was satisfied that Hanwitt was guilty of misconduct, as defined by section 36(5)(b) of the Ordinance, wrote to Hanwitt on 22nd September 1982, suspending Hanwitt's registration with immediate effect until such time as auditors appointed by the Commissioner reported. 8. With regard to the appointment by the Commissioner of auditors, the Commissioner's letter to Hanwitt went on :-
9. As this case is concerned with the effect of section 52 of the Ordinance, and, in particular, whether Hanwitt can in fact be held liable for the full costs and expenses which Messrs Coopers & Lybrand ("Coopers") in due course claimed for the audit it conducted, it should be helpful to set out the whole of section 52 :- "52(1) Where -
10. By a letter of the same date, the Commissioner emote to Coopers, confirming their appointment under section 52(1) of the Ordinance, setting out at length the background of Hanwitt's business activities and asking them to undertake the following work :-
11. As part of the background material contained in that letter, the Commissioner passed on information to Coopers on the following matters:-
12. It was not till 29th November 1982 that Coopers finished their report, and it did not reach the Commissioner's hands till 1st December 1982. Accompanying it was their fee note for a total of HK$170,521, made up of $165,000 for what were described as "Professional services rendered in carrying out an audit and examination of the books, accounts and records of Hanwitt in accordance with your written instructions of September 22, 1982", and $5,521 for disbursements. 13. It is that sum of $170,521 claimed in Coopers' fee note which has given rise to the present proceedings between the Attorney General, representing the Commissioner, and Hanwitt. 14. It will be recalled that on the occasioning of suspending Hanwitt's registration on 22nd September 1982, the Commissioner had told Hanwitt it would have to boar the full costs and expenses of an audit. That was what the Commissioner envisaged as between himself and Hanwitt. 15. However, in the Commissioner's letter of appointment to Coopers on 22nd September 1982, he had informed then that, in the first instance, the responsibility for the payment of the whole of their fees and costs in carrying out the work would be the Commissioner's. 16. Coopers' report, embodying the results of its examination and audit, analysed in great detail the way Hanwitt had been conducting its business from June 1981 till suspension of its registration on 22nd September 1982. It revealed a picture of wholesale disregard by Hanwitt of the provisions of the Commodities Trading Ordinance, and the Companies Ordinance, as well as indicating that Hanwitt was engaged in dubious commodity braking practices. 17. What Coopers produced was a report, rather than the more accounts one normally gets from auditors. That report is full of analyses of the way in which the affairs of Hanwitt were run. Moreover, it involves a considerable amount of "detective" work in revealing some of Hanwitt's practices. Quantatively, the report runs to some twenty-three pages, plus a further dozen or so pages of appendices. Just to quote numbers like that, though, can give very little idea of the time and the quality of the work which went into the compilation of that report. 18. The impression I got from my perusal of the report was that its preparation must have taken hundreds of hours of time by highly skilled accountants. I regard it as a first rate piece of work. 19. Digesting that report and pondering on its implications understandably took the Commissioner some time. It was not till the 13th December 1982 that the Commissioner was ready to writ to Hanwitt, summarising the main instances of misconduct and improprieties disclosed by the report. 20. Briefly, what the report had revealed and what the Commissioner passed on to Hanwitt was :-
21. Such a brief summary can convey no idea of the thoroughness and detailed examination carried out by the report. Only a perusal of the report itself can give an idea of the work that must have gone into it. 22. After having summarised the findings of the report, the Commissioner's letter went on to say he had decided to revoke Hanwitt's registration for contraventions of sections 40(1), 45 and 46 of the Ordinance, as well as for being guilty of misconduct within section 36(5)(b) and (c) of the Ordinance. 23. He concluded the letter by directing Hanwitt to pay Coopers' fee note for $170,521 by 20th December 1982, and pointing out that, if such payment was not forthcoming, he would commence legal proceedings against Hanwitt for recovery under section 52(3) of the Ordinance. 24. An opportunity was given to Hanwitt to make representations as to why their dealer's registration should not be revoked. Their representations were, however, to no avail, so that the revocation of their registration became effective on 17th December 1982. 25. Following the Commissioner's letter of 13th December 1982, Hanwitt simply remained silent and inactive about Coopers' fee note. 26. The Attorney General sent Hanwitt a letter of demand on 31st January 1983, threatening legal proceedings unless the $170,521 was paid within 7 days. 27. Meanwhile, on 3rd February 1983, the Treasury paid Coopers the full amount of $170,521 claimed by the fee note. 28. There was now a response from Hanwitt on the topic of fees. It wrote a letter dated 8th February 1983 to the Attorney General, with copies to the Commissioner and Coopers, the material part of which read :-
29. The next day, the Attorney General issued the writ in the present proceedings against Hanwitt, claiming Coopers' fees of $170,521 as a debt from Hanwitt under section 52(3) of the Ordinance. 30. A Defence was filed on Hanwitt's behalf which basically follows the same line as Hanwitt's letter of 8th February 1983 to the effect that the amount being claimed for the audit is excessive and unreasonable, rather than fair and reasonable, but acknowledging that the Crown is entitled to recover the fair and reasonable costs of the audit. 31. At this point, the Crown took out a summons under 0.14 for summary judgment for the full amount claimed. 32. In an affidavit from one of Hanwitt's directors, filed for the purpose of the 0.14 proceedings, he points out that Hanwitt feels the amount being claimed for audit fees is excessive, and takes up the theme again that the Crown is only entitled to recover from Hanwitt the fair and reasonable costs of the audit on a quantum meruit basis, any amount in excess of that being the Crown's own concern. 33. The line propounded by Hanwitt found favour with the Master. He entered interlocutory judgment for the Crown for a sum to be assessed. 34. Against that decision of the Master, the Crown appeals, con-tending it should have been given final judgment for the full amount claimed. 35. Counsel for Hanwitt is, by contrast, happy to see the Plaster's decision stand. He contends that it is now up to the Crown to prove what was a reasonable audit fee for Coopers to charge, the Crown's entitlement to recovery being limited to that. 36. As an exercise in palm-tree justice there is perhaps a superficial attraction in the decision reached by the Maser, but, as a matter of law, what he did was totally misconceived. 37. By the use of the words, "Where the Commissioner is of the opinion etc." in section 52(2) of the Ordinance, the legislature has shown in unmistakable fashion that it has entrusted the Commissioner, not the courts, with deciding whether the whole or any part of the costs and expenses of an auditor are to be borne by the dealer. 38. What the Master has purported to do is to usurp the Commissioner's power, so that the court's opinion would be substituted for that of the Commissioner. 39. In the words of Lord Diplock in O'Reilly v. Mackman and others,(1) the Master has allowed the court to succumb to the "temptation, not always easily resisted, to substitute its own view of the facts for that of the decision - making body on whom the exclusive jurisdiction to determine facts had been conferred by Parliament." 40. The problem presented by the present case is entirely one of public law. All that the court can do is see whether the Commissioner has exceeded his powers in forming the opinion Hanwitt should pay the whole of Coopers' costs. If he has exceeded his powers under section 52(2), his decision will be a nullity, so that the Crown will not be entitled to recover anything in its present action. On the other hand, if the Commissioner has acted within his powers, there can be no question that the Crown will be entitled immediately to recover the full amount claimed as a debt under section 52(3). 41. There is simply no scope for the "half-way hosue" solution of the Master. The Crown must get everything or nothing. 42. The legal analysis referred to by Lord Diplock in Bromley L.B.C. v. G.L.C.(2) shows that the problem of whether a government official's decision is open to challenge can be resolved by considering two questions, namely :-
43. That analysis of public law problems serves conveniently for resolving the problem before me, but I am aware that other analyses are possible e.g. Lord Scarman's approach in Bromley L.B.C. v. G.L.C.(2) at 170, and Lord Bridge's summary of the law in Cocks v. Thanet District Council. (4) However, those other analyses in no way conflict with the part of the judgment of Lord Diplock in Bromley L.B.C. v. G.L.C. (2) which I have referred to. 44. Turning firstly to the question of ultra vires, I am satisfied that the only reasonable interpretation of section 52(2) is that it was within the power of the Commissioner to order Hanwitt to, pay the whole of the bill submitted by Coopers. This was not a situation like e.g. Musson v. Emile(5) where the Chief Registrar of Friendly Societies in England simply lacked the statutory power to order an official of a building society to pay certain types of expenses. 45. The only real question, in the present case, as I see it, is whether the Commissioner exercised his discretion so unreasonably or arbitrarily by ordering Hanwitt to pay the whole of Coopers' fees that his decision carrot be justified under the objective standard of reasonableness required by the Wednesbury principle. 46. Although neither Hanwitt's Defence, nor the affidavit filed on its behalf in the 0.14 proceedings, nor its counsel's arguments in court directly addressed the specific issue of whether the Commissioner's order was invalid for unreasonable exercise of discretion, I would, nonetheless, be prepared to hold that the Commissioner's exercise of his discretion was a nullity if there were sufficient material tending to that conclusion. 47. It so happens, though, that on the material before the court everything points towards the Commissioner having formed a wholly reasonable opinion in asking Hanwitt to pay the whole of the fees Coopers had charged. 48. I am far from sure that Hanwitt had even seen Coopers' report when Hanwitt, in its letter of 8th February 1983, first started raising queries about paying the bill. Moreover, it has to be borne in mind that Hanwitt is hardly in the position of a disinterested observer when it comes to a question of what is a reasonable amount for Coopers to have charged. Having lost its registration as a consequence of Coopers' report, Hanwitt cannot be expected to be sufficiently well disposed towards Coopers to take an objective view of what was a fair price for Coopers' work. 49. If the court thought there was justification for the view that Coopers had charged an unreasonable amount the court would, in appropriate circumstances, be prepared to hold that the Commissioner's exercise of his discretion in seeking to pass on those unreasonable charges to Hanwitt was invalid, with the result that the Crown's present, action would fail. 50. I have qualified my last statement with the words "in appro-priate circumstances", because, in the interests of good administration, the law imposes fetters on those seeking to challenge the exercise of administrative power. I will revert to this aspect of the case in a moment. 51. Far from thinking that Coopers' charges are unreasonable or excessive, I have formed the view that they are fair. What is a fair charge for an examination and audit culminating in a report like the one here is bound to be a matter of impression and opinion. When it comes to determining a fair price, the report must largely speak for itself. A reading of the report supplies internal evidence of the work that went into it and the calibre of that work. 52. I see no reason why the Commissioner should have cavilled at the price Coopers were asking, and because one of the directors of Hanwitt "feels" it is excessive is neither here nor there. 53. I do hot see that the Commissioner is to be faulted in the way he exercised his discretion. There is now a debt of $170,521 owed by Hanwitt to the Crown. 54. On the merits I was constrained to reject a challenge from Hanwitt to the node in which the Commissioner exercised his discretion. If, on the other hand, the merits had been with Hanuritt on this issue of the Commissioner's discretion, the court would have had to face up to the problem of whether it was appropriate to grant Hanwitt relief. 55. Through the operation of Order 53 of the Supreme Court Rules, the law imposes fetters on those who wish to make a direct attack on an administrative decision. Such an application for judicial review is not as of right, but only with the leave of the court. It must be made promptly and in any event within three months from the date when grounds for the application first arose unless the court considers there are good grounds for an extension. As explained by Lord Diplock in O'Reilly v. Mackman,(1) the provisions of O.53 are designed as protection against groundless, unmeritorious or tardy harrassment of those engaged in making I decisions in the public law field. It is not conducive to good administration if the decisions of public bodies can be groundlessly open to challenge years after they have been made. 56. An application for judicial review under 0.53 has now, generally speaking, become the only way of making a direct attack or the validity of the decisions of officials: O'Reilly v. Mackman.(1). 57. The case before me involved what is known as a collateral attack, where the individual affected by the decision of a public official waits until he is sued, and then, incidentally to the pro-ceedings, challenges the validity of the public official's decision. Musson v. Emile,(5) which I have already referred to, is an example of such collateral attack (see also de Smith's Judicial Review of Administrative Action, 4th Edition at 22, 107, 155, 278 and Sykes and Tracey, Cases & Materials on Administrative Law, 4th Edition, page 395 et seq). 58. That there is still some scope for collateral attacks since the decision in O'Reilly v. Mackman(1) is made apparent from the following passage of Lord Diplock in that case (at page 1134 e and f):-
59. Further, in Cocks v. Thanet D.C. (4) Lord Bridge had the following to say (at page 1140 d and e):-
60. The full implications of O'Reilly v. Mackman(1) for collateral attacks have yet to be worked out by the courts. By way of general observation, I think it can be said, though, that the same policy consideration of eliminating groundless, unmeritorious or tardy challenges must apply whether the attack is direct or collateral. 61. In the case before me, I tend to doubt whether the courts would have permitted Hanwitt to engage in an exercise of collateral impeach-ment if it had failed to take the initiative in directly seeking a judicial review of the Commissioner's decision with reasonable promptitude. A Defence seeking to raise a collateral attack where the court felt there should have been a direct attack might well finish up getting struck out under the court's inherent jurisdiction or as an abuse of the process of the court. 62. Whether Hanwitt's inactivity between getting the Commissioner's order on 13th December 1982 and the issue of the writ on 9th February 1983 might have impaired Hanwitt's prospects of successfully resisting an attempt to strike out a Defence embodying a collateral attack cannot arise now because, as I have already indicated, Hanwitt in already doomed to lose on the merits. 63. This appeal against the Master's decision succeeds, with judgment for the Crown in the sum of $170,521 being substituted for the Master's order.
Representation: Mr. J. Burdett (Legal Dept.) for plaintiff Mr. W. Stone (R. Wang & Co.) for defendant (1) (1982) 3 All E.R. 1124 (2) (1982) 1 All E.R. 129 at 159 (3) (1947) 2 All E.R. 680 (4) (1982) 3 All E.R. 1135 at page 1138 a - b (5) (1964) 1 W.L.R. 337 |