In China Evergrande Group (in liquidation) v PricewaterhouseCoopers (a firm) & Ors [2026] HKCFI 4845, the Court of First Instance dismissed PricewaterhouseCoopers International Limited’s (“PwC International”) application to strike out China Evergrande Group’s claim against it.
The decision allows Evergrande’s liquidators to pursue their allegation that PwC International owed the company a duty of care in relation to its monitoring and review of audits conducted by PwC’s Hong Kong and Mainland member firms. The Court stressed, however, that this was an interlocutory decision: it did not determine that such a duty was in fact owed, or that PwC International was negligent.
Background
China Evergrande Group (“Evergrande”) was formerly one of Mainland China’s largest property developers. It was ordered to be wound up by the Hong Kong Court on 29 January 2024.
PricewaterhouseCoopers Hong Kong (“PwC HK”) had audited Evergrande’s group consolidated financial statements since before 2016, with assistance from PricewaterhouseCoopers Zhong Tian LLP (“PwC Zhong Tian”). Evergrande alleges that the two firms negligently conducted the audits for the financial years 2017 to 2020.
According to Evergrande, it relied on the resulting financial statements when declaring and paying dividends totalling RMB42.355 billion. It claims approximately RMB57.937 billion in damages from PwC HK and PwC Zhong Tian, comprising the allegedly unjustified dividends, financing costs and audit fees.
As against PwC International, Evergrande claims approximately RMB38.096 billion in respect of the financial years 2018 to 2020, comprising RMB27.553 billion in dividends and RMB10.543 billion in financing costs.
The proceedings followed a dramatic deterioration in Evergrande’s reported financial position. In August 2023, Evergrande published its financial statements for FY2021, reversing RMB664 billion of revenue recognised in previous periods, reporting losses of RMB686 billion and recording negative equity of RMB473 billion.
PwC International was not a party to Evergrande’s audit engagement letters. Nor was PwC International qualified to conduct audit work in Hong Kong or paid for the audits.
Evergrande nevertheless alleges that PwC International owed it a duty of care in tort because of the role which PwC International played at the apex of the global PwC network. Among other matters, Evergrande pleaded that PwC International:
- developed and monitored common standards across the PwC network;
- possessed powers to place member firms under “supervised remediation” and to impose new leadership;
- was, or ought to have been, involved in monitoring PwC HK’s and PwC Zhong Tian’s audit functions;
- caused reviews of the FY2018 to FY2020 audits to be performed and assumed responsibility for those reviews; and
- knew of the risks associated with Evergrande’s size, indebtedness, business model and reported financial performance.
PwC International applied to strike out the claim under Order 18 rule 19(1)(a), (b) and (d) of the Rules of the High Court and the Court’s inherent jurisdiction. It contended principally that the facts pleaded could not give rise to a duty of care.
The Court’s Decision
The Court dismissed the strike-out application in its entirety.
- An arguable duty of care
For an application based on a failure to disclose a reasonable cause of action, the pleaded facts had to be assumed to be true. A claim should not be struck out unless its legal basis was unarguable or almost incontestably bad. Particular caution was required where the existence of a duty of care depended upon facts that had not yet been established.
The Court held that Evergrande had pleaded all the necessary ingredients of an arguable claim. Those pleadings addressed PwC International’s alleged governance responsibilities, its monitoring and control of member firms, its alleged participation in the relevant audit reviews, Evergrande’s reliance, PwC International’s knowledge, breach, causation and loss.
Viewed objectively, it was at least arguable under the threefold test of foreseeability, proximity and fairness, or under the assumption-of-responsibility analysis, that PwC International owed Evergrande a duty of care.
The Court noted a possible tension in the authorities. In Luen Hing Fat Coating & Finishing Factory Ltd v Waan Chuen Ming (2011) 14 HKCFAR 14, the Court of Final Appeal, despite stating that it was taking a holistic view, applied the threefold test. In Dah Sing Insurance Service Ltd v Gill Gurlux Singh (2016) 19 HKCFAR 454, the Court of Final Appeal preferred an objective assumption-of-responsibility analysis. The Court expressed “some doubt” as to whether the approaches in those two Court of Final Appeal decisions were uniform, or whether they were the same as the approach subsequently articulated by Lord Reed JSC in Robinson v Chief Constable of West Yorkshire [2018] AC 736.
The Court rejected the suggestion that liability within a professional-services network constituted a special category of negligence. It was instead a variation of the ordinary law of tort. The decisive question would be PwC International’s actual role and conduct, not merely the separate legal personalities of the network entities.
- Discovery and a trial were necessary
The Court considered it crucial that the parties proceed to discovery and, potentially, interrogatories. Much of the relevant evidence concerning PwC International’s involvement, its internal standards and its communications with member firms was not yet available to the liquidators.
The affidavit filed in support of PwC International’s application was considered inadequate and unsatisfactory. It was made by PwC International’s solicitor and relied principally on publicly available documents, without explaining from the client’s own evidence what involvement PwC International had in Evergrande or the audits.
By contrast, the liquidators identified matters said to require further investigation, including PwC International’s professional indemnity insurance, its monitoring of member firms, and its powers to intervene in their management and remediation.
The Court concluded that these factual disputes should be tested through discovery and cross-examination rather than determined summarily.
- The contractual “no claims” clause
PwC International also relied on a provision in the audit terms which stated that Evergrande would not bring claims against other PwC entities participating in the services.
The Court held that the clause did not provide a basis for striking out the claim. It was at least arguable that the provision applied only to subcontractors, whereas PwC International was alleged to sit at the top of the PwC global structure and was unlikely to be a subcontractor of PwC HK or PwC Zhong Tian.
There was also an issue as to whether PwC International fell within the contractual definition of a “PwC entity”. Even if the provision applied, its reasonableness under the Control of Exemption Clauses Ordinance was a fact-sensitive matter which should be determined at trial.
Why the Decision Matters
The decision is significant for claims involving international professional-services networks.
First, it demonstrates that describing member firms as separate legal entities will not necessarily dispose of a negligence claim at an early stage. The Court will examine the global entity’s alleged conduct, including the standards it promulgates, the supervision it undertakes, the powers it exercises and the responsibilities it presents itself as assuming.
Secondly, public statements about network-wide quality and accountability may have legal consequences. Published governance materials, representations concerning common standards, remediation powers and interventions following audit failures may all be relevant when determining whether a global entity assumed responsibility or had a sufficiently proximate relationship with a member firm’s client.
Thirdly, the judgment reinforces the high threshold for striking out fact-sensitive professional negligence claims. Where the critical evidence is held by the defendant and may emerge only through discovery, the Court will be slow to determine the existence of a duty of care without a trial.
The judgment does not conclusively establish that PwC International is liable for Evergrande’s alleged losses. It decides only that the claim is sufficiently arguable to proceed. Its practical importance lies in opening the way for discovery into the governance and operation of the PwC global network—and, ultimately, for the alleged responsibility of its international coordinating entity to be examined at trial.
Adrian Beltrami KC, Charles Manzoni SC and Cherry Xu, instructed by Karas So LL, appeared for China Evergrande Group.
Read the judgment here at: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=184326&currpage=T
