HCCL 29/2004
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMMERCIAL ACTION NO. 29 OF 2004
----------------------
| BETWEEN | | |
| | AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION) | Plaintiff |
| | and | |
| | ERNST & YOUNG (A HONG KONG FIRM) | Defendant |
----------------------
Before : Hon Stone J in Chambers (Open to public)
Dates of Hearing : 3 and 4 July 2008
Date of Judgment : 23 July 2008
----------------------
J U D G M E N T
----------------------
Introduction
1. The trial of this litigation, wherein the liquidators of Akai Holdings Ltd (in liquidation) pursue Akai’s former accountants, Messrs Ernst & Young, for damages for negligent auditing for the years 1997, 1998 and 1999, is set down for hearing before this court for a period of 6 months, commencing on 15 September 2009.
2. In the lead-up to trial, case management conferences periodically are scheduled in an attempt to ensure that when this case finally does get to court that all of the usual interlocutory problems have been considered, and hopefully resolved.
3. This hearing represented one such scheduled conference, the previous such conference having been held in December 2007.
4. In addition to mention/decision upon various relatively non-controversial case management matters, the defendant took the opportunity to issue substantive summonses which were returnable at this particular hearing.
5. These summonses, which seek orders characterised by the defendant as “various orders of a case management nature”, are as follows:
(i) Summons dated 7 May 2008 seeking security for costs in the sum of HK$198.614 million;
(ii) Summons dated 20 June 2008 for specific discovery;
(iii) Summons dated 20 June 2008 for provision of further and better particulars of the Points of Claim;
(iv) Summons dated 20 June 2008 seeking Order 14A determination of the correct methodology for calculation of damages;
(v) Summons dated 20 June 2008 seeking to strike out certain paragraphs of the Points of Claim, together with certain entries within Appendix 1 to the Points of Claim.
6. Of these 5 applications, summons (i), namely that seeking security for costs from the date of issue to the conclusion of the trial, already has been determined, and is the subject of a separate judgment: see Judgment dated 15 July 2008, wherein the defendant’s application was dismissed for want of jurisdiction.
7. Summons (iv) and summons (v) have been adjourned sine die, with costs reserved, and with liberty to restore upon appropriate notice (by which in practice I anticipate is meant not less than 21 days).
8. As to summons (v), the strike out application, Mr Coleman SC, appearing for the defendant, sensibly took the view that until forthcoming amendments to the Points of Claim were effected by the plaintiff, that the defendant should ‘wait and see’ before deciding whether to press on with this summons.
9. With regard to summons (iv), the outstanding Order 14A ‘damages methodology’ application, the court took it upon itself to give an indication that, although leave is not required to make such application, nevertheless it was highly unlikely in the circumstances of this case that, if ultimately mounted, this application would succeed, the view being taken that the correct methodology for calculation of damages – which is pleaded upon an alternative basis – was a matter best left to trial; as matters presently stand, however, this summons remains ‘live’, albeit adjourned.
10. At this hearing, therefore, the court entertained argument upon the remaining 3 summonses, with, as earlier indicated, the security for costs summons already having been decided, given the probability of an expedited appeal therefrom.
11. Accordingly, the subject-matter of this judgment will be formally to record certain case management decisions, and further to decide the substantive applications for specific discovery and for further and better particulars.
Case Management Order
12. Little requires to be said about this, the decisions reached in this regard being incorporated with a draft Order approved by the court, with minor variations, at this hearing.
13. This Order speaks for itself.
14. Suffice it to say that primarily it provides dates for delivery of expert reports, gives leave to the plaintiff to amend the Points of Claim by 1 September 2008, with leave to the defendant to make consequential amendments by 31 October 2008, provides for delivery of witness statements by 31 October 2008, and appoints the next Case Management hearing for 17 December 2008 – the latter date being chosen expressly to accommodate the available dates both of Mr Kosmin QC, who appears with Mr Scott SC for the plaintiff, and Mr Hapgood QC, whom, I am told by Mr Coleman, then will be in a position (as was not the case at this hearing) to appear with Mr Coleman SC for the defendant.
The defendant’s application for discovery: summons dated 20 June 2008
15. This application is mounted under Order 24, rules 3 and 7, and asks that within 14 days the plaintiff give a further and better list or make specific discovery, and thereafter make available for inspection, of the documents or classes of documents specified in the Schedule attached to the summons.
16. Given the generality (and the potentially huge volume) of the documents so requested, which covered some 14 categories of documentation, this summons occasioned vigorous argument, with Mr Kosmin castigating some of the requests as “unfocused and unnecessary”, and invoking the observations of Lord Millett NPJ in Joint & Several Liquidators of Kong Wah Holdings Ltd v. Grande Holdings Ltd (2006) 9 HKCFAR 766, at paragraphs 33 and 35, wherein his Lordship discussed applicable principles as to discovery which thus provide guidance for the conduct of modern large and complex litigation.
17. In like vein, Mr Kosmin relied upon observations of the Court of Appeal which stress the importance of active case management in order that discovery skirmishes may be avoided where possible, and the real issues in dispute between the parties identified expeditiously and by limiting discovery where possible: see Cable & Wireless HKT Telephone Ltd & anr v. City Telecom (HK) Ltd & anr [2000] HKEC 386, per Rogers JA; and Dynamic Way International Ltd & anr v. Ho Kui Chee [2000] HKEC 385, per Rogers JA.
18. However, Mr Kosmin was keen to stress to the court that the plaintiff liquidators remained willing and able to assist the defendant with discovery, and in particular its expert, Mr Ellison of KPMG – whose recent letter dated 2 July 2008 was produced to the court – in any way practically possible.
19. Accordingly, he said, if and in so far as Mr Ellison wished to inspect documents relating to specified transactions, this would be the appropriate manner in which now to proceed, rather than simply to maintain a huge volume of further discovery (in all probability amounting to thousands of pieces of paper), such as would be involved in the generality of documents as now were requested within categories 9, 10, 11 and 12 thereof, which were couched in the following terms:
Category 9 requested:
“All bank advices and statements for every bank account held by the plaintiff for the period 1 November 1996 to 31 October 1999”;
whilst Category 10 was in similar general form, namely:
“All bank advices and statements for every bank account for every person or entity that is alleged to have received assets of the plaintiff as a result of the alleged defalcations recorded in the plaintiff’s General Ledger for the period 1 November 1996 to 31 October 1999”;
and a similar request under Item 11 was made for the like period for “all letters to and from any bank in respect of any transfer of funds between the plaintiff and any alleged recipient”, whilst Item 12 sought, again for the same period, “every journal voucher of the plaintiff (and its supporting documentation) for all cash receipts recorded in the General Ledger of the plaintiff which emanate from any of the alleged recipients”.
20. For his part Mr Coleman was undeterred by criticism of the ambit of discovery as now sought.
21. At bottom his argument was that EYHK remained of the view that there was available to Akai a “massive pool” of documentation, from which it was picking and choosing in its approach to disclosure in this action; consistent therewith he argued that the liquidator plaintiff had made its own trawl through the documents, which had resulted in the detailed Report of Mr Borelli, whilst Mr Spence, the plaintiff’s new and hitherto unannounced expert – whose recent report seemingly had been produced out of a hat – had checked Mr Borelli’s conclusions (and presumably had had access to the full panoply of this documentation).
22. Accordingly, said Mr Coleman, the defendant’s expert, Mr Ellison, had made it clear that he, too, simply wished to see the like documentation in order to verify the accounting conclusions as to which credits as recorded could be reconciled with certain ‘General Ledger defalcations’ which now apparently formed part of the plaintiff’s case; in short, “Mr Ellison wants to do the job himself”.
23. In principle, this position struck me as not unreasonable, and whilst ultimately a ruling was not required on the point – it subsequently being accepted by Mr Coleman that, without prejudice to his client’s right further to pursue these documents, that for immediate purposes this discovery application presently would be confined to Categories 1-8 of the attached schedule – it seems to me that in a case of this dimension, wherein literally thousands of pieces of paper have been accumulated, that it should be possible for the parties to abandon the traditional adversarial approach to discovery, and actively to co-operate in order to ensure that both sides have had adequate opportunity to inspect and/or to cross-reference and/or to verify particular transactions.
24. To be fair, I understood – I hope correctly – that this approach was precisely that which Mr Kosmin had in mind, and the court is prepared to take at face value his assertion that Mr Borelli and his team would do all that it could to assist Mr Ellison in order to answer his queries and assuage any concerns about any transaction or transactions revealed within the documents for the period in question.
25. If this understanding be correct – and if it is not, the court will not hesitate to ensure that a level playing field indeed does exist in terms of unobstructed access to primary data – then the situation devolves simply to a matter of mechanics, and to agreement between the litigants as to the best way of assisting the other in the discovery context.
26. It seems to me that traditional discovery procedures must be brought, and if necessary dragged, into the more ‘user friendly’ context of large modern commercial litigation, and in my mind the only question outstanding is the manner in which Mr Ellison best may be permitted to perform the verification function he perceives is his professional duty; thus, instead of spending hours compiling lists, it strikes the court that Mr Ellison (or his staff) be permitted physically to inspect the entirety of this documentation at its current place of assembly, alternatively, if and in so far as he is able currently to identify particular transactions meriting further investigation/inquiry, it may be possible to scan the relevant documents, and thus to impart this information in digital form.
27. The court has no way of knowing the most practical approach to be adopted, and indeed this aspect of the matter currently stands adjourned. Nevertheless the parties should understand that this Commercial Court has no wish to referee interminable discovery argument (nor, for that matter, any other interminable interlocutory argument), and takes the firm view that in a case of this dimension the interests of the respective clients are best served by the active pursuit on both sides of practical and efficient solutions to the logistical problems thrown up by the dimensions of this case.
28. With these introductory observations – which I hope will prove redundant since I understand that the parties presently are discussing the best way forward – I turn to the ‘live’ matters remaining in this discovery application.
29. These can, I apprehend, be dealt with relatively briefly, and I deal with them in the ‘category form’ in which they appear within the summons’ schedule.
Category 1: The affidavits of Cosimo Borelli and Chuck Tam together with any documents that are referred to therein and any exhibits thereto filed in BVIHCV2006/134.
30. The defendant says that these documents are “necessary and relevant for EYHK’s understanding of he alleged defalcations in the present action, as well as to issues of contributory fault, the true cause of Akai’s alleged loss and the extent of any such loss.”
31. The plaintiff says that the defendant has not articulated the relevance of these documents and that it has disclosed all the documents in its possession that were the subject of the BVI proceedings.
32. For my part I have difficulty in understanding why this request was refused, at least in terms of the affidavits themselves. I am told that the proceedings in the BVI were commenced by originating summons, so that the affidavit evidence effectively amounted to the ‘pleadings’ within the case.
33. Why these affidavits simply could not have been handed over I know not: they may, or they may not, advance the respondent’s knowledge of the case, although I am prepared to accept the assertion that EYHK is entitled to see these affidavits in order to make an assessment of the true cause of Akai’s alleged loss, and in my view the court is entitled to wonder at the degree of resistance now demonstrated.
34. Accordingly, under this head I order that the affidavits, including the exhibits thereto, be disclosed within 21 days of the date hereof, time to run in the vacation; as to any other documents mentioned therein, I make no such order pending details thereof, and demonstration of the relevance.
Category 2: The witness statements of Cosimo Borelli and Frank Holmes together with any documents that are referred to therein and any exhibits thereto and transcripts of their oral testimony and any documents referred to during the course of their testimony in HCCL 59/2004, Akai v. TFB, together with all relevant documents discovered in those proceedings by either party.
35. In this regard the plaintiff says, correctly, that the documents sought in this category, that is, the affidavits and the transcript of oral evidence) are documents created long after the TFB transactions in issue occurred, and that whilst it may be that the defendant would like to obtain these documents with a view to testing the credit of any evidence that Mr Borelli and Dr Holmes (if called) may give in these proceedings, documents solely used for the purpose of impeaching credit are not relevant and should be refused as a matter of discretion.
36. For the defendant/applicant it is said that Dr Holmes’ evidence as to his role in Akai, and his interaction with other members of the company, clearly is relevant to a number of matters, and also to any questions of knowledge as may arise in relation to the limitation point connected with the 1997 audit, which issue has been ordered to be tried as part of the general issue. It is further said that Mr Borelli’s evidence similarly is relevant to the state of knowledge of the liquidators at any given time.
37. I see the force in this, and in any event, as was made clear during argument – Mr Kosmin in fact expressing his understanding of this view – this court (which sat in the Akai v. TFB case) is uncomfortable with the idea of certain evidence given in that case being subject to specific recollection by both the bench and the plaintiff but not by the defendant in these proceedings. Clearly there must be as level a playing field as legitimately can be achieved.
38. Accordingly, in this category, therefore, I order that the witness statements (including annexures thereto) of Mr Borelli and Dr Holmes be discovered, together with that part of the trial transcript containing their viva voce testimony, which was, of course, given in open court, together with such documents are were referred to or produced to the court in the course of their testimony.
39. I further order that such disclosure is to take place within 21 days from the date of this judgment, time to run in the vacation. Save as aforesaid, I presently decline – absent any case being made as to any specific document or documents – to make any further order for discovery of documents as otherwise referred to in the TFB v. Akai case, which is the subject of the concluding clause of this request.
Category 3: Agreements or covenants entered into by the plaintiff (or any of its liquidators or any other agent of the plaintiff) since 23 August 2000 which are either settlement agreements or covenants not to sue or any other agreements foregoing or compromising Akai’s rights to pursue potential remedies including but not limited to the further covenants not to sue referred to at paragraph 1 of Lovell’s letter dated 15 May 2008.
40. This is resisted on the basis that the liquidators have had to provide covenants/agreements not to sue various persons in order to obtain information, they are prima facie not relevant, and are subject to ‘litigation privilege’. Further, it is said that there has been no offer of reciprocal disclosure by the defendant in respect of arrangements it may have made with potential witnesses, and thus that a ‘one way street’ approach is being adopted.
41. It is also said that no actions in fact have been commenced against the other individuals who have been provided with covenants not to sue – which perhaps is unsurprising since presumably that is the whole point of such covenants.
42. I find this resistance unsatisfactory in principle, given the circumstances of this case, wherein on the one hand the liquidators pursue these auditors for vast sums of money – which claims may, or may not, be justified, I know not, since I currently have no view whatever as to the merits – and yet on the other hand they wish to remain wholly reticent as to what indemnities from suit have been granted and to whom.
43. Nor do I grasp why in this regard apparently there should be an instinctive disinclination to co-operate on this aspect, although since I do not know – and pointedly have been refused the information – as to the identity of who is funding this litigation, I appreciate that there may be other forces at work within the decision-making process.
44. Let me make it plain, however, that I am wholly unsympathetic to any hint of obstruction to any reasonable discovery request – although I also recognize the liquidators’ contention that the defendant is in the process of making a ‘tactical meal’ of discovery.
45. As always a reasonable balance has to be struck between competing interests, but at the end of the day fairness must be the overriding benchmark, and in principle I can see no good reason why the defendant cannot know what ‘deals’ have been reached by the liquidator, with whom, and when. In the context of a case like this – wherein an indemnity was granted even to Mr Ting, who was the principal mover in the fraud perpetrated on this company – for the defendant to be denied such primary knowledge strikes me as difficult to justify.
46. I therefore take the view that in principle such indemnities/covenants not to sue should be disclosed, and accordingly I order that disclosure of such indemnities/covenants be made within 21 days from the date hereof, time to run in the vacation.
Category 4: The pleadings and other relevant documents produced or obtained by the plaintiff or its liquidators in the Supreme Court of Bermuda action number2006/312 between James Henry Ting & ors, plaintiffs, and Cosimo Borelli as Liquidator of Akai Holdings Limited & ors, defendants, including but not limited to all affidavits and witness statements filed in those proceedings together with any documents that are referred to therein and any exhibits thereto and transcripts of the oral testimony of Cosimo Borrelli and any documents referred to in the course of his testimony.
47. These proceedings in Bermuda have attained some profile because they arose out of the settlement agreement entered into between Mr Ting and the liquidators, and Mr Ting’s attempt to hold the liquidators to the terms of that agreement; in the event in a strong judgment – which was produced in the earlier, and now concluded, Akai v. TFB action – Chief Justice Grounds held in favour of the liquidators, and the result of Mr Ting’s appeal from that judgment currently is awaited.
48. The plaintiffs’ position is that production of these documents is objected to because they are not relevant to the issues in this action and that the request for their production is “oppressive and unnecessary”, and that absent a cogent explanation as to how the documents sought are relevant to the matters in issue, an order for discovery should not be made.
49. The defendant maintains that issues in the Bermuda proceedings included matters relevant to the alleged defalcations with which the present case is concerned, and also to the knowledge of the liquidators in the context of the alleged 1997 audit time-bar, and that as to the affidavits, witness statements and exhibits, and transcripts of any evidence given by Mr Borrelli, such plainly are relevant.
50. The Ting/Liquidators settlement agreement already has been ordered to be discovered, and the defendant thus has had sight of the document the alleged breach of which resulted in this Bermudian litigation which, for the moment at least, has been resolved in favour of the liquidators.
51. In my view there should be discovery, in part at least, albeit I think that the request as framed is too broad.
52. Accordingly, I order that the pleadings, affidavits (and exhibits thereto) and witness statements in the Bermudian proceedings be disclosed, and further the transcript, if available, of the evidence given by Mr Borelli in those proceedings, and that such discovery be given within 21 days of the date hereof, time to run in the vacation.
53. Save as thus specified, I make no other order under this head.
Category 5: Documents obtained by the plaintiff through discovery in other proceedings [by other parties] to which it is a party and that are relevant to the matters in question in the current proceedings, including without limitation documents discovered in HCCL 20/2005 between AkaiHoldings Ltd (in liquidation) and Domine Ko Cheong Wing and ors, and HCCL 42/2005 between Akai Holdings Ltd (in liquidation) and Everwin Dynasty Limited and ors.
54. In response to this request the plaintiff says that the application made in this category is exceedingly general, and that in any event the defendant rightly recognizes that the plaintiff may be prevented from giving discovery of documents it has received under compulsion, and thus would be bound by the implied undertaking not to use documents for a collateral or ulterior purpose without leave of the court or consent of the party providing discovery.
55. In addition, the plaintiff says on affidavit [vide Dobby (4), at para 78] that as a matter of fact no discovery has taken place in either of the two actions specified, namely HCCL 20/2005 or HCCL 42/2005.
56. For its part the defendant recognizes the implied undertaking, but maintains that that does not remove the obligation upon the plaintiff to provide a proper list of those documents for the purpose of this action.
57. In this regard I have concluded that the defendant unduly is pushing the discovery envelope, and I do not consider that any purpose will be served by spending significant amounts of time making lists of documents which in all probability are, at best, of peripheral import, and have not been demonstrated to be otherwise.
58. If necessary I would be prepared to revisit this category if and when the defendant is able to buttress any application with some semblance of specificity; as matters currently stand, however, I consider this request in this form unjustified, and decline to make any order in this respect.
Category 6: The pleadings filed pursuant to any formerly confidential writs filed by the plaintiff together with any documents that are referred to therein including but not limited to the pleadings in HCCL 37/2005 between Akai Holdings Limited and The Grande Holdings Limited and ors, and HCCL 40/2005 between Akai Holdings Ltd and Phenomenon Agents Ltd.
59. The plaintiffs’ position is that the order sought should not be made, because the time period relevant to the actions involving the Grande Group post-date the time period relevant in this action, and the allegations are of a different nature and character; no claims are mounted against Grande in respect of monies claimed against Ernst & Young, and thus there is no ‘overlap’.
60. Mr Coleman essentially made no comment as to this category, and as I understand the position there is really no issue.
61. Accordingly, I make no order in this regard.
Category 7: The books and records of companies that are alleged by the plaintiff to be recipients of Akai funds as a result of defalcations claimed as losses in the present action, including books and records obtained by the liquidators (or either of them or their predecessors) by being appointed liquidator of those companies.
62. There also is no issue here. The evidence of Mr Dobby on behalf of the plaintiff (vide Dobby (4), at para 85) indicates that all relevant books and records falling within this category already have been discovered by Akai in its Lists of Documents files to-date.
63. Accordingly, as Mr Coleman naturally accepts, this evidence is conclusive on the point.
Category 8: Documents pertaining to the knowledge of the liquidators (and their predecessors including provisional liquidators) and/or their employees and/or agents and/or Akai of the matters pleaded in paragraphs 59 to 76 of the Points of Claim, that was acquired between their appointment as liquidators or provisional liquidators and 19 November 2005.
64. It appears that there is no issue here either.
65. In Dobby (4), at paragraphs 86-87, the deponent relates that in paragraph 77 of the Points of Claim, the liquidators first learned of the matters pleaded in paragraphs 59-76 of the Points of Claim no earlier than 2003 when they received copies of the documents referred to in those paragraphs from EYHK pursuant to an order under s 221 made by Madam Justice Kwan in the Companies Court, and that in relation to the request for discovery of documents leading Akai to mount a claim in respect of the 1997 audit, the only documents in the liquidators’ possession are the documents from the defendant’s own audit files for 1997 as produced to the liquidators in late 2003, and further that, in Dobby’s words, “there are no documents in any way relevant to this issue in the possession of the Liquidators which pre-date the receipt and review of EYHK’s audit files by the Liquidators from late 2003”.
66. In light of this evidence, Mr Coleman does not press the point.
67. The foregoing disposes of the discovery requests remaining extant after Mr Coleman’s indication to the court the issues raised by the remaining categories from Category 9 onwards would not be pursued pro tem.
68. I do not recall if an order was formally made adjourning these remaining requests sine die with liberty to restore, but if I did not do so at the time I formally now so do, at the same time as expressing the fervent wish that the parties discuss outstanding issues of discovery in a useful and constructive manner, to adopt that hallowed phrase.
69. I also venture to express the wish that on the next occasion there is to be a disputed discovery application – or indeed any disputed interlocutory application – that the application is drawn by, or at the very least founded upon, the specific advice of counsel, which I am far from sure was the situation in this instance.
70. If I may say so, there is not a great deal constructively to be gained by having to produce judgments upon relatively insignificant matters when the injection of a healthy dose of common sense and a mutual desire between the parties – and their highly competent legal teams – to move this case to trial as expeditiously as possible would go a long way towards eliminating tedious interlocutory argument.
71. As to costs of and occasioned by this discovery summons, given that the matter formally remains part-heard, the most appropriate course is to reserve costs to a later date, when the application either returns for completion or, if happily resolved as to outstanding matters, simply can be the subject of mention – and, no doubt, of immediate decision – at the next case management conference.
The defendant’s application for further and better particulars of the Points of Claim concerning Akai’s management and employees: summons dated 20 June 2008
72. This is a cumulative application, in that it picks up (within Schedule A to the summons) outstanding requests made in a Request for Particulars served on the plaintiff on 9 March 2007, and adds thereto (at Schedule B of the summons) new requests under specific paragraphs of the Points of Claim.
73. Mr Coleman did his best with this application, although it is fair to say that his task was not made the easier by that which he probably would characterise as a less than receptive tribunal.
74. In moving the application Mr Coleman stressed that at numerous places within the Points of Claim Akai put forward allegations regarding acts and/or the integrity of Mr Ting and unnamed employees “under his direction”: for example, at paragraph 123.3 it is averred that “little or no reliance could be placed upon representations from Mr Ting and employees under his direction”, and at paragraph 150 that “Between February 1996 and July 1999, Mr Ting and employees under his direction were, unknown to Akai or the members of Akai, engaged in substantial and numerous defalcations from the funds of Akai…”
75. Moreover, he said, in its earlier Request for Particulars served on 9 March 2007, EYHK had sought particulars from Akai of the persons alleged to be acting “under the direction of Mr Ting”, and the acts they were alleged to have engaged in under his direction. However, with a single exception – in response to Request 207, of paragraph 330.1 of the Points of Claim, wherein Akai had identified Domine Ko and Clara Loh as the employees under the direction of Mr Ting who were involved in the Thai Farmers’ Bank transaction – Akai’s response had been that it could not provide the particulars requested, and that in any event such particulars were unnecessary: for example, in response to Request 37 of paragraph 123 of the Points of Claim, and to Request 46 of paragraph 150, Akai had stated that “Akai is unable to identify the specific employees referred to. However, as those employees operated under the direction of Mr Ting, such identification is not required.”
76. Mr Coleman submitted that this type of response was “profoundly unsatisfactory” for two reasons: first, it is essential to EYHK’s defence that the defendant understands who exactly Akai contends participated in the various improper and fraudulent activities alleged to have taken place under Mr Ting’s direction, and what the nature of that participation was, given that the issue of attribution, both of acts and knowledge, was an important part of EYHK’s defences, in particular the limitation defence on the 1997 audit claim, and, within the attribution context, the defence of contributory fault; and, second, that given the immense amount of time expended by the liquidators investigating the affairs of Akai, it is “not acceptable” for Akai simply to say that it is unable to identify the employees or officers in question – it was “frankly inconceivable” that in the course of the investigations that the liquidators have not formed any view as to who at Akai other than Mr Ting was involved in his alleged misdeeds and in what capacity.
77. In response Mr Kosmin made several points regarding Schedules A and B within the latest particulars summons.
78. First, he said that in respect of the particulars now the subject of Schedule A that these have been answered, albeit the defendant’s current complaint is as to the sufficiency of those answers; second, and in any event, the plaintiff simply is not in a position further to identify the employees involved who acted under Mr Ting’s direction; and third, that two of the requests in fact are misconceived, given that for both Requests 208 and 218 the specific persons are identified.
79. As to Schedule B, said Mr Kosmin, namely the two new requests, numbered 297 and 298, the like position prevails as for the first request for particulars, namely that the plaintiff has no objection formally to responding to these requests, but that, as the defendant must be aware, the plaintiff is not able to identify the employees to which reference is made, so that such requests practically are pointless.
80. In this context Mr Kosmin reiterated that it is the plaintiff’s case that the employees who implemented the transactions which are the subject of the plaintiff’s complaints were persons acting wholly under the direction and control of Mr Ting, and that it was and is not part of the plaintiff’s case that these persons acted alone on a ‘frolic of their own’ or with the authority of Akai, nor is the plaintiff in a position to make any allegations of fraud against any of these individuals.
81. The short point, said Mr Kosmin, is that the plaintiff’s case is that Mr Ting acted fraudulently, and that its case fundamentally was that the defendant had failed to detect such frauds in the course of its auditing of the 3 years in question, and to report upon and to warn the company, thereby causing it loss and damage consequent upon such alleged negligence.
82. He suggested that these requests for particulars on the part of the defendant stood in stark contrast to the position adopted by the defendant in request for particulars of its Points of Defence, wherein are to be found numerous allegations that “it” (that is, EYHK) had formed a conclusion, or had an understanding or belief, or had considered matters and held a view, and so forth, in respect of certain matters, and yet, when asked to particularize whom within EYHK formed the various states of mind, this request had been refused on the basis that the answer was “not a necessary part of EYHK’s case, but is relevant only to the manner in which the case will be proved.”
83. Mr Kosmin further submitted that there was an important practical distinction to be borne in mind between the respective positions of EYHK and Akai, namely that the defendant, EYHK, was Akai’s auditor for many years, and must have at its disposal its own detailed information as to the manner in which Akai operated, and as such is itself is no doubt in a far better position than the liquidators to identify the persons who assisted Mr Ting in respect of the transactions now in issue.
Decision upon the defendant’s application for particulars
84. It seems to me in the circumstances prevailing that this application is doomed to fail because, as Mr Kosmin has made abundantly clear, the plaintiff liquidators simply do not have the information requested, although in instances in which they do have it, they are willing to impart it.
85. The plaintiff’s case unequivocally is that, to use Mr Kosmin’s words, they are “pinning everything” on Mr Ting, whom they say was the fraudster within Akai who brought down the company – and whose clear and obvious fraud the defendant auditors allegedly failed to detect – and that any of the other Akai employees were no more than Mr Ting’s ciphers, who did his bidding and no more, although at the same time leading counsel was quick to assure the defendant that where the plaintiff was in possession of relevant information as to identity that this would be provided.
86. In this connection I accept that the plaintiff is not minded to make allegations of fraud not capable of substantiation against individual staff members who were acting according to Mr Ting’s specific instructions, even if, in any particular instance (such as the TFB transaction), the plaintiff in fact is aware of the identity of such individuals.
87. The present situation as to particularisation strikes me as less than satisfactory, but, equally, as unavoidable in the particular circumstances of this case; for my part I see no reason why the ‘attribution argument’ which the defendant seeks to run should be made to inform particularization of identities of which the plaintiff says it is, with but a few exceptions, wholly unaware.
88. At the end of the day the lack of particularity seems to me essentially to be a matter for trial: either the plaintiff can convince the court trying the case that Ting is and was the fraudster acting through mere ciphers, and that Ting’s fraud could and should have been identified and addressed by the defendant auditor, or it cannot, and the identity of those who did Ting’s bidding, whilst not wholly insignificant, does not strike me as essential to the plaintiff’s case, nor to the manner in which the defendant conducts its defence.
89. In fact, it is difficult to see how the liquidator plaintiff, who entered the arena long after the management defalcations had denuded the company of assets, can be other than in this relatively uninformed position, and whether this is sufficient to get the plaintiff home in this particular case, in light of the particular allegations of negligent auditing against this defendant, must be a matter for trial: the plaintiff clearly cannot be in a better position by not being able to provide the particulars requested, but equally the absence of such particulars in my view does not render the case demurrable on its face.
90. In the circumstances, therefore, I am minded to dismiss this summons, and I so order.
91. This once more raises the thorny issue of costs.
92. After some reflection, I have concluded that I should make an order nisi to the effect that the costs of and occasioned by this application are to be the plaintiff’s costs in the cause, such costs to be taxed if not agreed. I so order.
93. If and in so far as this order nisi is to be the subject of challenge, I order that notice be given of any application to vary the same within 28 days of the date hereof, absent which this costs’ order will become final, and that any such application for variation, if made, be made returnable and addressed at the next case management hearing presently scheduled for 17 December 2008.
| | | (William Stone)
Judge of the Court of First Instance
High Court |
Mr Russell Coleman SC, instructed by Messrs Barlow Lyde & Gilbert, for the defendant/applicant
Mr Leslie Kosmin SC, and Mr John Scott SC, instructed by Messrs Lovells, for the plaintiff/respondent