Case Detail

HCA 1517/2016

[2024] HKCFI 877

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1517 OF 2016

____________

BETWEEN
	CHINA METAL RECYCLING (HOLDINGS) LIMITED (IN LIQUIDATION)	Plaintiff
	and
	DELOITTE TOUCHE TOHMATSU (A FIRM)	Defendant

____________

Before:

Hon Cheng J in Chambers (by paper disposal)

Date of Defendant’s Written Submissions:	27 December 2023
Date of Decision:	26 March 2024

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D E C I S I O N

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A. INTRODUCTION

1. There are before me two summonses taken out by the Defendant:

1.1 a summons dated 31^st March 2023 seeking the issuance of a letter of request (“the Letter of Request”) to the proper judicial authority of the People’s Republic of China for the provision of various audit working papers and other related documents in the form of documents and electronic data kept in mainland China (“theMainland Documents”) by Deloitte Touche Tohmatsu Certified Public Accountants LLP (“Deloitte China”), pursuant to the Arrangement on Mutual Taking of Evidence in Civil and Commercial Matters between the Courts of the Mainland and Hong Kong (“theArrangement”) and the Court’s inherent jurisdiction (“the Summons”);
1.2 a summons dated 27^th December 2023 seeking leave to file and serve further affirmation evidence in support of the Summons (“the Evidence Summons”).

2. At the case management conference on 13^th November 2023, I directed that the Summons was to be determined on the papers.

3. By letters dated 9^th November 2022, 14^th June 2023 and 24^th November 2023, the Plaintiff confirmed that it takes a neutral stance on the Summons. It did not file any submissions in response to the Defendant’s submissions.

4. The Plaintiff did not oppose the application to file further evidence, and I make an order in terms of the Evidence Summons.

B. THE BACKGROUND

5. The following is taken largely from the Defendant’s skeleton submissions.

B1. The parties’ pleaded cases

6. The Plaintiff was a Cayman Islands company listed on the Hong Kong Stock Exchange. Mr Chun Chi Wai (“Mr Chun”) at all material times was its CEO and the chairman of its board of directors (“theBoard”).

7. The Plaintiff’s pleaded claim against the Defendant is as follows.

7.1  The Defendant was engaged to carry audits of the Plaintiff and a group of associated companies (“theAudit Engagements”) for the years ending 31^st December 2009, 2010 and 2011 (“the Relevant Years”), and owed duties to the Plaintiff to carry out the Audit Engagements with reasonable care, skill and diligence and, if necessary, to report to the Plaintiff’s management any irregularities.
7.2  Mr Chun perpetrated a fraud through a series of repetitive fictitious transactions with purported suppliers and customers related to or controlled by Mr Chun in order to manipulate the group’s profits. The transactions involved false documents and round robin fund flows (“the Fraud”).
7.3  The Plaintiff’s financial statements for the Relevant Years therefore did not give a true and fair view of the Plaintiff’s financial position, and the Defendant failed to warn the Plaintiff’s management of the Fraud.
7.4  As a result of the Defendant’s breach of duties in relation to the Audit Engagements, the Plaintiff suffered losses comprising (i) funds allegedly misappropriated in June and July 2013 in the sum of around HK$1,960,887,984; and (ii) dividends declared by the Plaintiff in respect of the Relevant Years in the sum of around HK$673,474,000.

8. The Defendant’s pleaded case is as follows.

8.1  The Fraud as alleged is not admitted.
8.2  The Defendant’s duties towards the Plaintiff were set out in the engagement letters. In particular, as an auditor, it was only required to obtain reasonable, but not absolute, assurance as to whether the Plaintiff’s financial statements taken as a whole were free from material misstatement, and was not required to conduct forensic investigations or be an expert in the authentication of documents.
8.3  The Defendant did not breach any of its duties. It conducted the audits with due care, skill and professional skepticism, and had warned the Plaintiff of its internal control deficiencies; alternatively, none of the matters that came to its attention warranted communication to the Plaintiff.
8.4  The alleged Fraud was sophisticated and no reasonable auditor would have detected it.
8.5  In any event, the effective cause of the alleged loss was the perpetration of the alleged Fraud and concealment by Mr Chun and the Board, which should be attributed to the Plaintiff.
8.6  As to the alleged misappropriations in June and July 2013, in January 2013, the Defendant had drawn to the Plaintiff’s attention a whistle-blower report about the alleged Fraud and required the Board to investigate such matters. As to the dividends, there were sufficient distributable reserves to declare the dividends irrespective of the alleged Fraud.
8.7  The Plaintiff’s claim is time-barred pursuant to a three-year contractual limitation period agreed in the Audit Engagements.
8.8  In any event, the Defendant relies on the Plaintiff’s failure to mitigate and counterclaims the Plaintiff for misrepresentations made by the Plaintiff’s management and contributory negligence.

B2. The Mainland Documents

9. According to the Defendant, the Mainland Documents which are the subject of the Summons are in the possession of Deloitte China. Deloitte China is an accounting firm established in accordance with the laws of the PRC. The Defendant and Deloitte China are both member firms of Deloitte Touche Tohmatsu Ltd, but they are legally separate and independent entities. Deloitte China provided audit services to the Plaintiff and its subsidiaries. In particular, its audit field work was conducted in mainland China, and the Mainland Documents were generated and kept at Deloitte China’s offices.

10. The Mainland Documents comprise the following categories of documents:

10.1  audit working papers of the audits of financial statements in the Relevant Years, stored and maintained digitally or in the document archiving system of Deloitte China in mainland China;
10.2  email correspondence relevant to the audits in the Relevant Years generated or preserved in mainland China;
10.3  hardcopy documents generated or preserved in mainland China during the audits in the Relevant Years; and
10.4  other documents relevant to the audits in the Relevant Years generated or preserved in mainland China, including sales contracts, bank statements, audit and bank inquiry letters, receipts, meeting notes and memoranda.

11. The Defendant has obtained an expert opinion from Professor Han Liu, an Associate Professor of Law at Tsinghua University, explaining that the Mainland Documents, comprising audit working papers and audit-related documents, constitute audit archives in mainland China and must be preserved and kept in mainland China in compliance with the rules and regulations of the PRC. They are prohibited from being transmitted outside mainland China without approval from the relevant authorities.

12. It should be noted that the Defendant seeks to obtain these documents for the purpose of complying with its own obligations of disclosure in the present proceedings.

C. RELEVANT LEGAL PRINCIPLES

13. The court has an inherent jurisdiction to issue a letter of request to another court for assistance in obtaining evidence; whether to do so involves an exercise of discretion: Panayiotou and others v Sony Music Entertainment (UK) Ltd [1994] Ch 142 at 146H to 150J (Nicholls VC); Kwan Chui Kwok Ying v Tao Wai Chun, unreported, CACV 194/2002, 13^th December 2002, at [19] to [22] (Woo JA).

14. Whilst the factors relevant to whether to issue a letter of request for the examination of a witness would not entirely overlap with the factors relevant to whether to issue a letter of request for the production of documentary evidence, I accept the Defendant’s submissions that guidance may be derived from authorities relating to the former.

15. I accept the Defendant’s submissions that the following factors are relevant in the exercise of discretion in the present case:

15.1  whether there is reason to suppose that the mainland court would be receptive to the request: cf. Panayiotou at 150F; Kwan Chui Kwok Ying at [22]; Bold Shine Investment Ltd v Zheng Deli [2023] 2 HKC 417 at [15], [24] to [25], [30] to [31] (Chow JA). It is not necessary that there be complete certainty as to what will happen in the mainland court: cf. Delco Participation v HWH[2021] HKCFI 249 at [58] (Coleman J). Allied to this is the consideration of whether the request would be an exercise in futility: cf. Huang Yu Hui v Zheng Shizhi [2022] 1 HKC 274 at [13] (Au-Yeung J);
15.2  whether it is necessary and in the interests of justice to obtain the documents. This includes a consideration of whether the evidence is relevant and material. Cf. Huang Yu Hui at [11]; Delco Participation at [25] to [26] (Coleman J). It seems to me that the admissibility of the documents should also be considered under this heading: cf. Panayiotou at 153H;
15.3  whether reasonable attempts have been made to obtain the evidence in other ways: cf. Huang Yu Hui at [11];
15.4  whether the application is made bona fide and with such promptness as not to cause unreasonable delay: cf. Huang Yu Hui at [11].

16. It seems to me that it is also necessary to consider:

16.1 whether the documents sought are sufficiently precisely identified (rather than being a general request for discovery). See Panayiotou at 151C to 153F;
16.2 whether the documents exist and are likely to be in the possession of the person from whom production is sought: cf. Panayiotou at 153H to 154A.

17. In the present case, if a letter of request is to be issued, the relevant procedure will be governed by the Arrangement, which came into force on 1 March 2017. For present purposes, the following articles[1] are relevant:

Article 1: This Arrangement is applicable to the mutual taking of evidence in civil and commercial matters between the People’s Courts of the Mainland and the Courts of the HKSAR.
Article 2: The parties must make requests for the taking of evidence through their respective designated liaison authorities, of which the Higher People’s Courts are designated as the liaison authorities of the Mainland, whilst the Administration Wing of the Chief Secretary for Administration’s Office of the HKSAR Government is designated as the liaison authority of the HKSAR …
Article 3: …In the event that the requested party considers that the material as contained in a request does not comply with the relevant legal provisions of its jurisdiction, and affects its completion of the requested matter, it shall promptly inform the requesting party and ask amendment of the request or for supplementary material. The requesting party should, at the request of the requested party, make amendment, provide supplementary material or re-issue a request.
If the requested party considers that the requested matter does not fall within the scope of assistance as provided in the Arrangement, it may return the letter of request and specify the reason(s) therefor.
Article 4: The letter of request and the relevant material attached should be in the Chinese language. In case the document is not in the Chinese language, a Chinese translation of it should be provided.
Article 6: …The scope of assistance that may be requested by a court of the HKSAR in seeking the taking of evidence by the People’s Courts of the Mainland under the Arrangement includes:
(1) …
(2) provision of documentary evidence, real evidence, audio-visual information and electronic data;
…
Article 8: The letter of request or the relevant material attached shall specify:
(1) the name of the court issuing the letter of request and the name of the court conducting hearing of the case relating to the letter of request;
(2) the names or titles and addresses of the parties or witnesses in connection with the requested matter, and all other information that will facilitate the making of contact with and the identification of them;
(3) the particulars of the requested assistance, including but not limited to, the basic circumstances of the case…; the specific document or article to be obtained…; the reasons for the taking of the evidence; where necessary, a statement of the importance of the evidence to the action…;
(5) the contact person of the requesting party and his contact information;
(6) all other information which will assist in the execution of the requested matter.”

D. APPLICATION OF PRINCIPLESIN THE PRESENT CASE

D1. Whether there is reason to suppose that the mainland court would be receptive to the request

18. The Defendant’s draft Letter of Request appears to fall within the scope of the Arrangement.

18.1 It is a request for evidence in a civil and commercial matter (cf. article 1).
18.2 The evidence sought consists of documentary evidence and electronic data (cf. article 6).

19. The draft Letter of Request satisfies the formal requirements under the Arrangement.

19.1  Professor Liu has opined that as the Mainland Documents are primarily located in Shanghai, and in the possession of Deloitte China which is registered in Shanghai, the Shanghai Higher People’s Court is most likely to be the competent authority in the matter. The draft Letter of Request accordingly names the Shanghai Higher People’s Court as the liaison authority in the mainland. The Letter of Request is proposed to be issued via the Administration Wing of the Chief Secretary for Administration’s office. (Cf. article 2.)
19.2  The draft Letter of Request and attached list of documents have been translated into simplified Chinese (cf. article 4).
19.3  The draft Letter of Request specifies the matters required under article 8.

20. I note that although Deloitte China is not a party to the action, Professor Liu has opined that the Shanghai Higher People’s Court would nevertheless likely accede to the request.

21. Furthermore, the Defendant says that it was informed by the relevant regulators in mainland China that matters arising from civil proceedings in Hong Kong should be dealt with under the Arrangement.

22. As pointed out by the Defendant, Article 3 provides a mechanism for the amendment, supplementation or re-issue of a request in the event that the mainland court considers that this is necessary. This should facilitate the reception of the request by the mainland court.

D2. Whether the documents have been sufficiently precisely identified

23. The documents have been identified with sufficient particularity in the present case, being a necessary requirement under article 8 of the Arrangement.

D3. Whether the documents exist and are likely to be in the possession of the person from whom production is sought

24. The circumstances of the present case are that the Defendant has been able to identify the documents and to know that they are within the possession of Deloitte China.

D4. Whether it is necessary and in the interests of justice to obtain the documents

25. The evidence is that the Mainland Documents ought to be the subject of disclosure by the Defendants in the present proceedings, being relevant to the issues in dispute between the parties. In particular, they would be relevant to the determination of whether or not the Defendant was in breach of its duties in conducting its audits, revealing what the Defendant (through Deloitte China) knew at the material time.

26. Furthermore, as explained by the Defendant, steps have been taken, with the assistance of mainland lawyers, to carry out a digital comparison of the documents held by Deloitte China and the documents held by the Defendant in Hong Kong (without transferring the contents of any of the mainland documents to Hong Kong) so as to minimise the number of documents sought under the Letter of Request – documents which were duplicated between the two sets were taken out from the final list of the Mainland Documents, as the Defendant could give discovery of these in Hong Kong without seeking them from Deloitte China. The resulting list is just over 4,000 documents in length (this may be compared with the discovery so far given by the Defendant in Hong Kong in these proceedings of 165,000-odd documents). Leaving aside the figures, the point is that efforts have been made to limit the documents sought to those which are truly necessary.

27. It is not possible at this stage to say whether each of the Mainland Documents is admissible or material to the issues in the proceedings. However, this is of relatively less importance in the circumstances of the present case, which are that the documents are all admitted by the Defendant to be relevant to such issues and that the purpose of obtaining the Mainland Documents is to comply with the Defendant’s discovery obligations.

28. In the circumstances, it is necessary and in the interests of justice for the Defendant to obtain the documents.

D5. Whether reasonable attempts have been made to obtain the evidence in other ways

29. According to Professor Liu’s expert opinion, the Mainland Documents cannot be transmitted outside mainland China without approval from the relevant authorities, so that Deloitte China cannot simply pass the documents to the Defendant. I need not go into the details of the rules and regulations prohibiting such transmission as they are not disputed, save for one aspect.

29.1  In Securities and Futures Commission v Ernst & Young [2015] 5 HKLRD 293, Ng J held, on the basis of the PRC legal evidence then before the court, that the Regulations on Strengthening Protection of States Secrets and Archive Management related to Listing Overseas and Issuance of Securities Overseas (CSRC Announcement [2009] No.29 (“Regulation 29”) issued by the China Securities Regulatory Commission (“CSRC”) only prohibited the transmission of audit working papers involving state secrets, state security or significant public interest (see [170] to [179]).
29.2  Subsequent to this decision, the legal position was clarified by article 12 of the Interim Provisions on Audit Services Provided by Accounting Firms for Overseas Listing of Mainland Chinese Enterprises (“the 2015 Interim Provisions”), which took effect from July 2015. Article 12 of the 2015 Interim Provisions dealt with retrieval and inspection of audit working papers by overseas judicial or regulatory authorities, but did not distinguish between audit working papers that did deal with state secrets and those that did not.
29.3  In Joint and Several Provisional Liquidators of China Medical v KPMG, unreported, HCCW 435/2012, 24^th February 2016, Harris J held that article 12 of the 2015 Interim Provisions could not be read as saying that audit working papers, in respect of which there was no reason to think that they contained state secrets, could not be taken out of the mainland.
29.4  Subsequent to this decision, there has been further clarification by the CSRC in the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (CSRC Announcement [2023] No.44) (“Regulation 44”), which took effect from 31^st March 2023. Professor Liu explained that Article 9 of Regulation 44 clarified the meaning of article 6 of Regulation 29. Under article 9, overseas transmission of working papers produced on the mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies were to be retained on the mainland. Where such documents needed to be transferred or transmitted outside the mainland, the relevant approval procedures stipulated by national regulations were to be followed.
29.5  Professor Liu has therefore opined that the Mainland Documents cannot be transmitted outside mainland China.

30. If Deloitte China were to transfer the Mainland Documents to the Defendant without prior approval, it would be subject to administrative liabilities and criminal sanctions, as explained by Professor Liu.

31. The parties have considered other means of enabling the Defendant to produce the Mainland Documents in these proceedings.

31.1 The Plaintiff asked the Defendant whether it sought approval of the relevant authorities in mainland China for the outbound transmission of the Mainland Documents. As mentioned above, the Defendant’s evidence is that it was informed by the relevant regulators in the PRC that matters arising from civil proceedings in Hong Kong should be dealt with under the Arrangement.
31.2 The Plaintiff proposed, by reference to a previous experience in another action, that Deloitte China could make available the Mainland Documents for inspection in mainland China and upload the documents on a separate platform accessible only in mainland China. However, Professor Liu’s opinion is that the proposed arrangement would nevertheless breach PRC law. Furthermore, even if documents could in this way be identified as being relevant for use at the trial of the present proceedings, they could not be produced for such use.

32. In the circumstances, there do not appear to be any other way for the Defendant to obtain the Mainland Documents.

D6. Whether the application is made bona fide and with such promptness as not to cause unreasonable delay

33. The Summons was issued on 31^st March 2023. The Defendant submitted, and I accept, that it was reasonable for the Defendant to wait until after the promulgation of Regulation 44 on 24^th February 2023 (clarifying the position under PRC law) before issuing the Summons. The Defendant has given discovery of other documents in the meantime.

D7. Other discretionary factors

34. It is relevant to note that the Defendant is making the application in order to meet its own discovery obligations, rather than to seek documents from an opposing party.

35. The Plaintiff has taken a neutral stance and has not filed any evidence to contradict the Defendant’s factual or expert evidence, or submissions to contradict the Defendant’s.

36. These factors also support the exercise of discretion in the Defendant’s favour.

D8. Conclusion as to exercise of discretion

37. In the circumstances, the court’s discretion should be exercised in the Defendant’s favour.

E. DISPOSITION

38. As indicated above, there will be an order in terms of the Evidence Summons.

39. I further grant an order in terms of the Summons.

(Yvonne Cheng)
Judge of the Court of First Instance
High Court

Mr Jason Yu, instructed by Clyde & Co., for the Defendant

Messrs Holman Fenwick Willan for the Plaintiff

[1] As translated by the Defendant.

HCA 1517/2016

[2019] HKCFI 1876

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1517 OF 2016

________________________

BETWEEN
	A	Plaintiff
	and
	B	Defendant

________________________

Before:

Master Anthony H K Chan in Chambers

Date of Hearing:	15 July 2019
Date of Decision:	29 July 2019

________________________

DECISION

________________________

A. Introduction

1. There are 2 summonses before this Court.

2. The first in time is D’s summons to apply for further and better particulars of the Statement of Claim (“FBP Summons”). The second is D’s summons to apply, as an alternative to its application for further and better particulars, for leave to serve on P interrogatories in writing (“Interrogatories Summons”).

B. Background

3. This is an auditors’ negligence claim brought by P, a company formerly listed on the Main Board of the Hong Kong Stock Exchange Ltd and now in liquidation, against D, who was the auditor of P (and its group of companies, collectively “the Group”) for the financial years ended 31 December 2009 to 2011 (“the Relevant Years”).

4. In broad terms, P claims that by reason of D’s alleged failure to properly audit P and the Group, the massive fraudulent scheme that was apparently perpetrated on P by its former chairman and CEO (a Mr Chun) – whereby he manipulated the profits of P and the Group by creating false sales, revenue, profits and accounts receivables through fictitious transactions – was not discovered and consequently, the Group’s audited financial statements for the Relevant Years seriously misstated the true financial position of the Group. It is said had D conducted a proper audit, P would not have paid out around HK$480 million in dividends and Mr Chun would not have been able to misappropriate funds from P to the tune of around HK$1.9 billion.

5. The present action commenced on 7 June 2016. The Statement of Claim (“SOC”), which runs to 198 pages (excluding schedules), was filed and served on 29 August 2018.

6. On 23 November 2018, D, unusually, even before it has served its pleading, served on P a request (which contains 75 requests over 29 pages) for further and better particulars of the SOC, which P answered on 4 February 2019 (“Answers”). The Answers, excluding the schedule, run to 54 pages.

7. Unsatisfied with the Answers, D issued the FBP Summons on 1 March 2019. As I have said, D has not filed its pleading and therefore it also applies (see paragraph 2 of the FBP Summons) for the deadline for service of its Defence be extended to 28 days after service of the further and better particulars sought.

8. On 5 July 2019, D issued the Interrogatories Summons. Mr Wilson Leung for D submitted that if I decide a particular request for further and better particulars is not a proper request but is appropriate to be answered as an interrogatory, then I should give leave to D to serve the same qua interrogatory pursuant to RHC Order 26 rule 4.

9. On 9 July 2019, P served voluntary further and better particulars of the SOC (“Voluntary FBPs”). D claims that P has answered some of the requests but not others and claims costs on the answered requests. P demurs on the basis that D is not entitled to the voluntary answers in the first place. Therefore, I have to consider the answered requests for the purpose of resolving the dispute on costs.

10. In light of the above, I propose to proceed as follows:

10.1   I would first decide on the following outstanding requests for further and better particulars: requests 3, 9, 10, 12, 13, 14, 17(2) and (3), 22, 25, 26, 28(2) and (3), 32(2), 38, 39, 42(2), 43(2) and (3), 47(2), 49, 50, 51, 52, 53, 54, 55, 56, 57, 58(3), 60, 61, 62, 63, 64, 65, 66, 67, 68(2) and (3), 69(2) and (3), 70, 74, 75 (“Outstanding Requests”).
10.2   If I disallow a particular outstanding request, I would then consider whether D should be given leave to serve an interrogatory in respect of that request.
10.3   Lastly, I would decide the issue of costs and for that purpose, in addition to the Outstanding Requests, I would need to consider the following answered requests: requests 2, 11, 15, 16, 21(3), 23(3), 27, 30, 33(3) and (4), 36(3) and (4), 40, 45(3) and (4), 58(1) and (2), 72 and 73 (“Answered Requests”).

C. Law

C1. Legal principles concerning further and better particulars

11. The applicable legal principles are well-known and need not be rehearsed here. See: Well Joint Trading Ltd v Chiu Chung Chiu (HCA 1768/2011, 9 July 2012) at §§14-17 (DHCJ Au Yeung, as she then was); Will Win Development (Asia) Co Ltd v Wei Xing (HCA 797/2012, 25 February 2013) at §§24-30 (DHCJ Marlene Ng, as she then was); Qihoo 360 Technology Co Ltd v Fu Sheng (HCA 1637/2011, 30 April 2013) at §§10-13 (Master Herbert Au Yeung); Wah Sun Hong Ltd v Wong Lee Yuk Ping Agnes (HCA 333/2016, 16 November 2016) at §§10-13 (Recorder Stewart Wong SC); McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775 at 792-793 (Lord Woolf MR, as he then was) Commission for Racial Equality v Ealing London Borough Council [1978] 1 WLR 112 at 117C-G, 118B (Megaw LJ).

C2. Legal principles on interrogatories

12. The equally well-established legal principles on interrogatories have been summarized in Mega Yield International Holdings Ltd v Fonfair Co Ltd (HCA 948/2009, 16 September 2011) at §§26-29 (DHCJ Au Yeung).

13. In addition, RHC Order 26 rule 4 provides that:

“(1) Where an application is made for leave to serve interrogatories, a copy of the proposed interrogatories shall be served with the summons or the notice under Order 25, rule 7, by which the application is made.
(2) In deciding whether to grant lave to serve interrogatories, the Court shall take into account any offer made by the party to be interrogated to give particulars, make admissions or produce documents relating to any matter in question and whether or not interrogatories without order have been administered.”

14. The normal rule is that interrogatories should be served only after discovery and exchange of witness statements. Hong Kong Civil Procedure (2019) at §26/4/3 contains the following relevant commentary:

“The application is made to a master, and, in an action by writ, where automatic discovery or documents has been obtained under O.24, r.2, should normally be made on the first hearing of the summons for directions. But it is sometimes reasonable to postpone the application and to make it by notice under the summons for directions, under O.25, r.7, where discovery of documents is substantial and it is not yet plain what information will be obtained therefrom.Rarely will interrogatories be allowed before defence, partly because till then it is not known what are the matters in dispute (Mercier v Cotton (1876) 1 QBD 442, CA; Disney v Longbourne (1876) 2 Ch D 704; Re A Debtor [1910] 2 KB 59 at 63) but there is power to allow them earlier (Beal v Pilling (1878) 38 LT 486). Normally, interrogatories follow discovery and witness statements. However, there may be unusual circumstances which justify a departure from this usual rule, in the court’s discretion.”

15. Mr Justin Ho for P drew my attention to Mercier v Cotton and the other cases cited in the commentary mentioned above and made the point that these older cases were decided under the old Order XXXI of the Rules of Supreme Court in England and Wales where rule 1 specifically provided that the plaintiff “may at the time of delivering his statement of claim, or at any subsequent time not later than the close of the pleadings…without any order for that purpose…deliver interrogatories in writing for the examination of the opposite party;”

16. However, Mr Ho does not go so far to say the Court has no jurisdiction to order interrogatories before D has filed its pleading. It has to be remembered that the present applicable test (for both interrogatories without order and ordered interrogatories) is whether the interrogatories are necessary either for disposing fairly of the matter or for saving costs. Indeed, Order 26 does not prescribe a time for serving interrogatories, either with or without leave of the Court. But obviously the timing of an application for leave (along with other factors such as those identified in Order 26 rule 4(2)) is a relevant factor as it provides context for the assessment of whether interrogatories are necessary. Hence, that D is applying for leave to serve interrogatories before it has filed its pleading is one of the factors that I have to take into account when applying the necessity test to the facts of the present case.

17. Mr Leung stressed, relying on Corporacion Nacional del Cobre de Chile v Metallgesellschaft Ltd AG (unreported, 23 November 1998) at pp 5 to 6 (HHJ Colyer QC), that necessity in this context does not mean absolute necessity but means “a strong or compelling reason or something which if it is not done will prevent the desired result, that is the fair disposal of the case, the saving of costs et cetera.”

18. In my view, that formulation is consonant with the principles summarized by DHCJ Au Yeung in the Mega Yield case I have mentioned earlier.

D. Outstanding Requests

D1. Parties’ general submissions

19. Both Mr Leung and Mr Ho made general submissions, particularly directed at the FBP Summons, before turning to the individual requests. In particular, Mr Ho submitted that on the strength of his general submissions, the FBP Summons should be dismissed “without more”, which I take it to mean without having to consider the merits of the individual requests.

20. First, Mr Ho submitted that D is fully aware of P’s case against it, bearing in mind (a) the comprehensive SOC (which according to Mr Ho pleaded all the material facts necessary to establish P’s case) (b) P has produced extensive documents to D, and also proffered explanations on those documents, upon D’s request under RHC Order 24 rule 10 and (c) P has provided 2 rounds of answers to D’s request for further and better particulars. It is said that the present application is an attempt to obtain wide-ranging information about matters, which should only be dealt with (if relevant) at the discovery and/or evidential stage.

21. Second, Mr Ho argued that given P has had possession of the SOC for over 9 months not to mention the materials provided to it by P as described in the preceding paragraph, it is not necessary or desirable for further particulars to be ordered prior to service of D’s pleading in the sense that D would not be put in an unfair or impossible position in serving its pleading before the service of further particulars requested.

22. Third, Mr Ho submitted that the Interrogatories Summons, itself misconceived, is a clear concession on D’s part that the FBP Summons is defective in that it seeks to request impermissible evidence.

23. In support of those submissions, Mr Ho referred me to McPhilemy at 792-793, Will Win at §§24, 25 and 27 to 29, Wah Sun at §§1 to 13 and Commission for Racial Equality at 117C-G, 118B, which I have mentioned at section C1 above.

24. On the other hand, Mr Leung laid emphasis on the following general points.

25. First, the purpose of pleadings is to enable the other side to know what evidence it needs to prepare for trial.

26. Second, D should be given a fair opportunity to seek further and better particulars and interrogate P before D files its pleading bearing in mind (a) P has had plenty of time to prepare the SOC (b) the high value of P’s claim (c) D’s professional reputation and standing is at stake. Counsel submitted that ordering further and better particulars or alternatively interrogatories at this stage would enable D to plead its defence with precision and avoid having to make substantial amendments in future, which would also be consonant with the underlying objectives stipulated in RHC Order 1A rule 1.

27. Third, whilst the SOC is admittedly a long document, Mr Leung argued that it is by no means a properly pleaded document, which, according to him, necessitated the FBP Summons and, in the alternative, the Interrogatories Summons.

28. Fourth, Mr Leung submitted that the Voluntary FBPs constitute a tacit admission by D that the requests they answer are relevant and necessary.

29. In my view, I should not consider the general submissions in isolation or in the abstract without having regard to the individual requests, which I turn to below. It should be said that in the discussion that follows, I have taken on board the general submissions described above.

D2. Individual requests

Request 3

30. This concerns SOC §13.3 where P pleads an implied term of the 2009 Engagement that D would take reasonable steps to acquire knowledge and understanding of the business of P and the Group and in particular each transaction to which P and/or one or more of its controlled entities was a party which was of sufficient financial size to affect materially the 2009 Financial Report and P’s accounting records, systems and internal control.

31. The request asks P to provide a full list, and particulars, of the companies that are said to be the “controlled entities” that were not disclosed as part of the Group during the Relevant Years or a related party.

32. Mr Ho argued D is not entitled to make the request as P’s plea of the existence of an implied duty is a question of law to which D should be able to plead to without knowing the identity and particulars of the “controlled entities”. In any event, it is said that P has already made clear in the Answers that the “controlled entities” are those mentioned in SOC §58 and Schedule B to the SOC, of which D is not seeking further and better particulars.

33. Mr Leung complained that P obviously has in mind a threshold of what D ought to have done in the circumstances but is not prepared to disclose to D what that threshold is. With respect, it seems to me the implied duty (or to use Mr Leung’s terminology, the threshold) that P contends for has been pleaded with sufficient clarity in order for D to decide how to meet it at the pleading stage. Whether the implied duty is borne out by the relevant factual context is a matter of evidence. There is no suggestion that such evidence cannot be reasonably expected to emerge at a later appropriate juncture.

34. In my view, the particulars sought are not necessary and further, it is not necessary or desirable for such particulars to be given before D files its pleading. I would disallow this request. I would also refuse leave to serve interrogatories at this stage. D has failed to show why it is essential or necessary for the fair disposal of the case or for saving costs for interrogatories to be ordered now.

Requests 9 and 10

35. They concern SOC §73 where P proffers particulars of how the Round Robin Funds were circulated from and back to Central Steel between 2007 and 2009.

36. Request 9 asks P to confirm whether its case is that the Round Robin Funds arose out of or were connected to the commission of criminal acts by Mr Chun or his alleged associates. Request 10 asks for particulars of the individuals in the Group who knew about the Round Robin Funds or who were involved and/or provided assistance to Mr Chun in carrying out the Round Robin Funds.

37. Mr Leung submitted the particulars are relevant because P’s plea contains an insinuation (if SOC §§52 to 79 are read together with SOC §73) that D should have detected, but failed to detect, a fraudulent scheme of which the Round Robin Funds were part of. He argued that the particulars are necessary for D to investigate and plead to whether the Round Robin Funds ought to have been detected by D and alternatively to decide which of P’s directors it should join as third parties.

38. When SOC §§72 and 73 are read together, it seems to me that the latter paragraph simply pleads how the Round Robin Funds were, according to the SFC’s investigations, said to have moved from Central Steel to other entities and back to Central Steel. In my view, SOC §73 does not contain any plea on whether (a) Mr Chun or his alleged associates knew about or were involved in the Round Robin Funds (b) any of their actions were or were connected to criminal acts or (c) D knew or ought to have detected the Round Robin Funds. As such, I fail to see how it may be said that the particulars sought are relevant to, or necessary in order for D to plead to, SOC §73.

39. Further, D’s suggestion that it needs the particulars to consider which of P’s directors it should join as third parties show that the requests should not be allowed as they are tantamount to fishing for evidence to shore up D’s position. There is also no suggestion that such evidence cannot be reasonably expected to emerge at a later stage of the litigation (say through discovery or witness statements).

40. Accordingly, I would not allow requests 9 and 10 and would also refuse leave to serve interrogatories.

Request 12

41. This concerns SOC §78 where P pleads how the Group’s financial position should look in the Relevant Years after discounting the allegedly fictitious transactions.

42. The request asks for a breakdown of the figures pleaded. Without prejudice to P’s position that the request is for evidence, P proffered further information in the Voluntary FBPs, which Mr Leung complained is insufficient as no individual breakdowns of the allegedly fictitious transactions have been provided.

43. Mr Leung argued that P obviously has those individual breakdowns, and it is necessary for D to have them now so D would be able to plead to these breakdowns instead of pleading a general denial. Mr Ho countered that the particulars pleaded in SOC §78 are more than sufficient for pleading purposes and indeed it is nothing out of the ordinary in cases such as present for a summary of the figures to be pleaded in tabular form and for details such as breakdowns and calculations leading to the figures pleaded to be addressed at the evidence stage.

44. I agree that this request is clearly in the territory of factual evidence or expert evidence, which is a matter for a later stage of the litigation. Accordingly, it is not necessary for particulars or interrogatories to be ordered.

Requests 13 and 14

45. They concern SOC §§93 and 93.1. In §93, P pleads that in respect of D’s 2009 audit work, D did not document audit work so as to understand various matters pleaded in the sub-paragraphs. SOC §93.1 pleads that one such matter was “the precise terms and documentation of paying agent relationships involved in the settlement of direct sales transactions”.

46. Request 13 asks, for each of the various matters pleaded in §93, (a) what documents would have been necessary (b) the materiality for the understanding (c) whether D was obliged to carry out and/or to document such work and (d) what is the source of that alleged obligation. Request 14 asks for particulars of the “precise terms and documentation of paying agent relationships” relied on by P.

47. P has given some answers in the Answers and the Voluntary FBPS, which D considers to be insufficient.

48. Leaving that dispute to one side, I do not consider request 13 to be necessary. As I have said, SOC §93 contains a plea that D did not document audit work so as to understand various matters pleaded in the sub-paragraphs. Whether this is in fact a positive allegation (as D says) that D should have but failed to do something is beside the point. Apart from SOC §93.1, D is presently not asking for particulars about the various matters pleaded in SOC §§93.2 to 93.4 so it seems to me D has no difficulty understanding what those matters were. That being the case, D must surely be in the position to plead whether it did or did not document audit work for the purpose of understanding those matters and the reasons or justifications why it did or did not document its audit work.

49. Mr Leung argued that the particulars sought are necessary as D needs to know P’s case as D is entitled to meet it by saying either (a) what D did was in fact the same as what P says D ought to have done or (b) P’s case on what D ought to have done is wrong in the circumstances. It seems to me that the difficulty with that submission is it ignores what is P’s pleaded case at SOC §93, i.e. D did not document its audit work. As I have said, D must be able to respond as it must know what it did or did not do. If D did document its audit work, that would be an adequate answer to P’s case. If D did not document its audit work, then the remaining question would be a question of law, i.e. whether D was in breach of its duties for not documenting its audit work in the circumstances.

50. As for request 14, I have some sympathy for D as it is not entirely clear to me what the pleader was referring to in SOC §93.1. That said, clarifications have been given in the Answers and the Voluntary FBPs. Yet, D still complains that P should identify the specific documents in relation to each specific step in the flow of transactions in question that D is said to have failed to document. I disagree. With the clarifications in the Answers and the Voluntary FBPs, D should have no difficulty pleading whether it did or did not document audit work.

51. In the circumstances, I consider it is not necessary to order requests 13 and 14 and there is also no justification to grant leave for interrogatories.

Requests 17(2) and (3)

52. They concern SOC §134.5.2 where P pleads D failed to carry out any or any sufficient audit work in analysing P’s and the Group’s accounting systems and internal controls in reaching the conclusion that the internal controls of Central Steel were implemented and satisfactory when in fact, as evidenced by one of D’s own audit working papers (for which P gave a reference number), D was aware that credit policies were subject to management override and were not consistently implemented.

53. The requests ask P to identify the specific transactions where credit policies were overridden by management of which D was aware of. It is said that without such particulars, it is difficult to investigate and plead to whether that in fact happened and whether D knew.

54. Mr Ho submitted that the requests have been answered in the Answers, pointing to the audit working paper pleaded in SOC §134.5.2 and also the matters (including other audit working papers) pleaded in SOC §§115, 117 and 118 to the effect that D knew about the existence of such management override. Mr Leung countered that is insufficient and in particular the audit working paper referred to in SOC §134.5.2 does not seem to support the plea that D knew of the management override.

55. I have not been provided with any of the audit working papers but be that as it may, it seems to me that P has pleaded with sufficiently clarity, particularly with reference to the audit working documents referred to in SOC §§115, 117, 118 and 134.5.2, its case against D. Whether P’s plea that D knew is borne out on the evidence is a different matter for a different day. D should have no problem pleading to P’s plea after having considered the relevant audit working papers identified.

56. For these reasons, I do not consider it necessary to order further and better particulars on requests 17(2) and (3) or to give leave for interrogatories to be served.

Request 22

57. This request is related to requests 17(2) and (3). The parties referred me to their respective submissions made in respect of requests 17(2) and (3) and I have expressed my views on them above. In any event, P has clarified that the reference to “credit polices” in SOC §134.5.2 (of which requests 17(2) and (3) are concerned with) have the same meaning as the phrase “receivables collections policies” in SOC §136.5.3 (of which request 22 is concerned with). In the circumstances, I do not regard it necessary for me to order further and better particulars or give leave for interrogatories to be served.

Requests 25 and 26

58. Request 25 is substantially identical to request 13 whereas request 26 is materially the same as request 14. They all ask for particulars concerning P’s pleaded case that D has failed in a particular aspect in its audit work save that requests 13 and 14 concern D’s alleged failure in its 2009 audit work (as pleaded in SOC §§93 and 93.1) while requests 25 and 26 concern the same alleged failure in D’s 2010 audit work (as pleaded in SOC §§154 and 154.1).

59. The parties repeated their arguments deployed for requests 13 and 14 and for the same reasons I have given in respect thereof, I would not allow requests 25 and 26 nor would I grant leave for interrogatories.

Requests 28(2) and (3)

60. They are substantially identical to requests 17(2) and (3). Requests 17(2) and (3) concern SOC §134.5.2, which is about a specific alleged failure in D’s audit work in 2009 whereas requests 28(2) and (3) concern SOC §199.5.2, which is about the same alleged failure in D’s 2010 audit work.

61. The parties repeated their arguments deployed for requests 17(2) and (3). For the same reasons I have given in respect thereof, I would not allow requests 28(2) and (3) nor would I grant leave for interrogatories. In particular, I note that SOC §199.5.2 makes a specific reference to an audit working paper for support that D was aware that credit policies were subject to management override and were not consistently implemented. Accordingly, it seems to me D ought to have little difficulty pleading to that claim or filing evidence to meet it, having considered that audit working paper.

Request 32(2)

62. This concerns SOC §200.8 where P pleads D conducted audit work only in respect of a sample of 75 transactions on the basis that the risk level in respect of the revenue was “normal/not significant” and despite its work documented in the MGTN Memo, did not obtain or do any audit work in respect of customs documents which would have provided appropriate corroborative audit evidence in respect of purported direct sales transactions.

63. The request asks for particulars of custom documents that P says would have “provided appropriate corroborative audit evidence in respect of purported direct sales transactions”.

64. Mr Ho argued that the particulars sought are not necessary because P’s pleaded case is that D was in breach for not conducting any audit work in respect of the customs documents. I am inclined to agree. It seems to me that the general nature of P’s case is relatively clear bearing in mind (a) P’s plea is that D “did not obtain or do any audit work in respect of customs documents” (b) P has pleaded the accounting standards that D was allegedly in breach of and (c) it is sufficiently clear what type of documents the pleader is referring to when he used the phrase “customs documents”.

65. In any event, P has volunteered particulars on what it meant by “customs documents” but yet D remains unsatisfied particularly because P has qualified its answers with the phrase “at the very least”. In continuing to pursue this request, it seems to me D is effectively saying P should specify each and every such document. In my view, this underscores P’s request is in substance a request for evidence, which is impermissible. More to the point, it has to be remembered that P’s plea is that D was in breach for not auditing any of the customs documents. It is thus difficult to see why it is (a) necessary for D to know each and every document that P says D ought to have audited but did not and (b) necessary or desirable for such particulars to be given before D files its pleading.

66. I also fail to see why it may be said that it is necessary for interrogatories to be ordered at this stage of what customs documents P says would have provided appropriate corroborative audit evidence. In particular, D has failed to demonstrate why it cannot be reasonably expected that such matters would not emerge at the discovery or evidence stage thereby necessitating interrogatories now.

Requests 38 and 39

67. Request 38 is substantially identical to request 13 whereas request 39 is materially the same as request 14. They ask for particulars concerning P’s pleaded case that D has failed in a particular aspect in its audit work save that requests 13 and 14 concern D’s alleged failure in its 2009 audit work (as pleaded in SOC §§93 and 93.1) while requests 25 and 26 concern the same alleged failure in D’s 2011 audit work (as pleaded in SOC §§224 and 224.1).

68. The parties repeated their arguments deployed for requests 13 and 14 and for the same reasons I have given in respect thereof, I would not allow requests 38 and 39 nor would I grant leave for interrogatories.

Request 42(2)

69. This concerns SOC §278.6 where P pleads D failed to address and revise its audit plan consequent on audit evidence obtained in respect of the settlement of receivables by purported paying agents that revealed numerous anomalies, inconsistencies and circumstances requiring the conduct of further audit procedures so as to obtain sufficient appropriate audit evidence.

70. The request asks for particulars of what would have constituted “sufficient appropriate audit evidence” on P’s case. Mr Ho argued the particulars sought are not necessary and, in any event, it has proffered particulars in the Answers and the Voluntary FBPs. Mr Leung replied that the answer is unsatisfactory as P’s answer is qualified (in the same way the answer in respect of request 32(2) is qualified) with the phrase “at the very least”.

71. For the same reasons I have given in respect of request 32(2), I reject Mr Leung’s submission and would not allow request 42(2) nor would I grant leave for interrogatories.

Requests 43(2) and (3)

72. They are substantially identical to requests 17(2) and (3). Requests 17(2) and (3) concern SOC §134.5.2, which is about a specific alleged failure in D’s audit work in 2009 whereas requests 43(2) and (3) concern SOC §278.7.2, which is about the same alleged failure in D’s 2011 audit work.

73. The parties repeated their arguments deployed for requests 17(2) and (3). Additionally, Mr Ho said the requests have been answered in the Answers, pointing to a specific audit working document, which has been pleaded, as well as the matters pleaded in SOC §§179 to 181. It seems to me that D should not have any difficulty responding to the claim after having looking at the audit working document and the matters pleaded in SOC §§179 to 181.

74. In the circumstances and for the same reasons I have given in respect of the parties’ submissions regarding requests 17(2) and (3), I would not allow requests 43(2) an (3) nor would I grant leave for interrogatories.

Request 47(2)

75. This concerns SOC §280.5 where P pleads D failed to design, program and perform substantive audit procedures so as to address the risk of material misstatement in respect of receivables in particular by reason of the aging of trade debtors and that receivables collections policies and procedures were not documented and were subject to management override.

76. The request is for particulars of specific transactions where D knew were subject to management override and implemented inconsistently to receivables collections policies.

77. Mr Leung confirmed that the focus of the request is SOC §280.5.2, i.e. for particulars concerning D’s alleged knowledge of specific transactions where there were management overrides. SOC §280.5.2 is linked to SOC §278.7.2, which is subject to requests 43(2) and (3). Indeed, the parties repeated their submissions here deployed for requests 43(2) and (3), which I have addressed above. For those reasons, I would not allow request 47(2) nor would I grant leave for interrogatories.

Request 49

78. This concerns SOC §282 where P pleads that at no time at, before or after the AGM for each of the Relevant Years did D make certain comments, report or warn P, P’s board, P’s members or proper authorities on the matters specified in that paragraph.

79. D’s request for particulars includes: (a) who in P had knowledge of each of the matters pleaded (b) whether it is P’s case that D could lawfully have commented upon, reported on or warned P about the Round Robin Funds or any matters arising therefrom (c) to whom D could lawfully have commented, reported or issued warning about the Round Robin Funs or any matters arising therefrom (d) whether P’s case is D should have performed any of the actions pleaded in SOC §282 even if such actions would have been unlawful.

80. Mr Leung submitted that the request may be divided into 2 groups: first group being (a) and the second group being (b) to (d).

81. In respect of the first group, Mr Leung accepted it straddles the divide of particulars and interrogatories. He further accepted the real question for me to decide is whether P should be ordered to disclose the information sought now. Counsel submitted the relevance and necessity is obvious as the particulars or interrogatories would go to several lines of defence: first, whether the knowledge of any of P’s directors ought to be attributable to P thus undermining P’s reliance of section 31 of the Limitation Ordinance; second, D’s causation defence; and third, it would enable D to decide whether third party proceedings should be brought against any of P’s directors.

82. As for the second group, Mr Leung argued that they are relevant and necessary because D wants to run a defence that it could not have warned P’s directors because of the secrecy provisions in the Securities and Futures Ordinance.

83. The focus of Mr Ho’s submission in respect of both groups of request was that P has failed to show why the information cannot be reasonably expected to emerge either at the discovery stage or when parties exchange witness statements or expert evidence and therefore it is not necessary for particulars or interrogatories to be order before D has filed its pleading. I agree.

84. Additionally, I should say I do not agree with Mr Leung’s submission on the relevance and necessity of the second group of requests. It seems to me if D wishes to run the defence that it could not have warned P’s directors, it should have no difficulty doing so without the particulars or interrogatories sought under the second group of requests.

Request 50

85. This concerns SOC §289.1 where P pleads had it not been for D’s breach, P would not have paid out dividends in the Relevant Years.

86. D asks for particulars as to how, if D had complied with the alleged duties, P would have prevented dividends from being paid out in the Relevant Years. Mr Leung clarified that D wants particulars of how D’s compliance would have led to non-payment of the dividends. Mr Leung said the particulars are relevant and necessary as D is entitled to know P’s case on causation.

87. On the other hand, Mr Ho submitted that P’s pleaded case on causation is clear, i.e. D’s breach caused P to pay out the dividends. Counsel also submitted that the request is in the nature of seeking evidence.

88. I agree with Mr Ho. It seems to me that P’s pleaded case on causation is clear and any further details would be matters of evidence, which is presently unnecessary. I would therefore not allow this request nor grant leave for interrogatories.

Requests 51 to 56

89. Request 51 also concerns SOC §289.1 and asks for particulars of what action (if any) has been taken to recover the payment out of dividends in the Relevant Years from the recipients. But given Mr Leung’s indication that the request is put on the same footing as requests 52 to 56, I would deal with requests 51 to 56 together.

90. Requests 52 to 56 concern SOC §289.2 where P pleads had it not been for D’s breach, P would have caused steps to be taken to change control of P’s executive management particularly by removing Mr Chun and other members of management and precluding their access to P’s and the Group’s bank accounts.

91. Request 52 asks for particulars as to which member of management, other than Mr Chun, P would have sought to remove but for D’s alleged breach.

92. Request 53 asks for the reasons why P would have sought to remove the members of management.

93. Request 54 asks for reasons why P would have sought to preclude those members of management from accessing P’s and the Group’s bank accounts.

94. Request 55 asks P to identify the bank accounts in question.

95. Request 56 ask for particulars of (a) the steps P would have taken and (b) whether these steps would also have been necessary preconditions to the counterfactual posited in SOC 289.3.

96. Mr Leung accepted that requests 51 to 56 are more in the nature of interrogatories than particulars and the real question is whether the present stage of the litigation is an opportune time for P to disclose the information sought. Mr Leung submitted that it is reasonable for D to seek such information from P at this stage as the information is relevant to first, P’s case on causation, second, whether P has mitigated its loss and third, whether P is claiming loss twice.

97. I disagree. In the first place, “reasonable to know” is not the applicable test, both for requests for further and better particulars and for applications for leave to serve interrogatories. Second, in my judgment P’s pleaded case on causation is sufficiently clear and any further details would be matters of evidence, which is presently unnecessary. Third, the information sought is not necessary in that even without such information, it would still be open to D to run a case on (if so advised) (a) P’s failure to mitigate and (b) P should not be entitled to double claim against D for what P had recovered from Mr Chun or others.

98. For these reasons, I would not allow requests 51 to 56 and would refuse to grant leave for interrogatories.

Requests 57 and 58(3)

99. They concern SOC 289.3 where P pleads had it not been for D’s breach, P would not have pursued further expansion of purported sale by the Group and caused the Group to adopt a course of trading which, as far as possible, preserved the assets of the Group and avoided incurring further liabilities.

100. Request 57 asks for particulars concerning (a) the process by which P would have altered the Group’s course of trading and (b) the course of trading that would allegedly have been adopted and whether it is said that P would have traded as a solvent company.

101. Mr Leung argued it is important for D to know how and why (on P’s case) P’s course of trading would have changed had D complied with its duties or what according to P was the mechanism by which the loss would allegedly have been prevented. This appears to be yet another request directed at the issue of causation, which P has pleaded with sufficient clarity, viz: D’s breach caused P to have pursued further expansion and to adopt the course of trading it did instead of as far as possible preserving the Group’s assets and avoiding incurring further liabilities. It seems to me that the details sought by D are in the realm of evidence. It is not clear to me, and D has not demonstrated, why such details cannot be reasonably expected to emerge either at the discovery stage or when parties exchange witness statements or expert evidence. Accordingly, I would not allow request 57 and refuse to grant leave for interrogatories.

102. Request 58(3) asks for particulars of the Voluntary FBPs where P said it will refer to and rely upon D’s report to the audit commission dated 27 March 2012. D asks P to specify which paragraph(s) or pages(s) of the document P is referring to. D’s complaint is that the document is 26 pages long and therefore D is entitled to know which part(s) of the document P intends to rely on. I reject any suggestion that such a request or interrogatories is necessary.

Requests 60 and 61

103. This concerns SOC §292.2 where P pleads that by virtue of the continued trading of P and the Group on the basis of mistaken beliefs, the non-executive and independent non-executive directors of P (save Ms Lai) permitted P and the Group to continue trading with the effect that Mr Chun was able to misappropriate funds from P to the tune of HK$1.9 billion odd.

104. Request 60 asks P to identify any individuals who had knowledge of the misappropriation and the level of participation or assistance rendered in the misappropriation by those with knowledge.

105. Request 61 asks P to identify the measures taken (if any) to recover the funds misappropriated by Mr Chun.

106. Mr Leung submitted that request 60 is put on the same footing as the first group of request under request 49 whereas request 61 is put on the same footing as request 51. For similar reasons I have given in relation to the first group of request under request 49 and request 51, I would not allow requests 60 and 61 or grant leave for interrogatories.

Requests 62 to 64

107. They concern SOC §§297, 301 and 305 where P pleads that but for D’s breach, dividends would not have been paid in the Relevant Years as P would have reported insufficient profits or retained profits and would not have passed the solvency test and the provisions for payment of dividends such that any distribution would have been unlawful under Cayman law.

108. The requests ask P to confirm whether Cayman law applied and, if so, the contents (or the provisions) of the Cayman law relied upon.

109. In my view, P’s case against D is pleaded with sufficient clarity. Further, if Cayman law experts were called, the experts would obviously debate the details of Cayman law and whether certain provisions would apply to the present case. D would have the benefit of assistance from its own expert and cross-examination of P’s expert. If nobody takes the point that Cayman law is different from Hong Kong law, the matter would be resolved on the assumption that the law in the two jurisdictions are the same and it cannot be suggested that D’s legal representatives are incapable of advising D on Hong Kong law. Either way, I fail to see how it may be said that the particulars sought are necessary or why D would be placed in an unfair or impossible position if it were required to serve its pleading without the particulars sought. Similarly, it cannot be reasonably said interrogatories would be necessary at this stage. In the circumstances, I would not allow requests 62 to 64 or grant leave for interrogatories.

Requests 65 to 67

110. They concern SOC §308 where P alleges that between 13 June and 29 July 2013, Mr Chun, on behalf of Central Metal, authorized remittance to the tune of HK$1.96 billion odd without supporting documents or legitimate commercial purpose.

111. D requests for particulars about the internal controls in place and reporting systems (if any) at the relevant time. Mr Leung submitted D’s intended defence to P’s plea is that (a) there was more than one authorised signatory for the bank accounts from which the funds were misappropriated and (b) D had warned the Group about issues over insignificant signatories and received a satisfactory response from the Group. Mr Leung accepted the requests are more akin to requests for interrogatories instead of particulars but nevertheless said the requests are necessary to enable D to investigate who else had control over the bank accounts, which would be relevant to D’s intended defence that any failures in P’s internal control were not its fault. In other words, the requests are directed at the issue of causation.

112. Judging from D’s reasons in support of the requests, it seems to me D has a good idea what case it is required to meet and more importantly how it is going to meet it, viz: by arguing Mr Chun was not the only one who had control over the bank accounts and that D was not responsible for any failure in P’s internal controls as it had warned the Group of potential issues, to which the Group gave what D considered to be a satisfactory response. In the circumstances, it seems to me that the requests (whether for particulars or for interrogatories) are not necessary and there is also no justification for D to make the requests before serving its pleading.

113. In any event, P’s plea in SOC §308 is simply that Mr Chun authorized remittance without support documents or valid purpose. It is difficult to see how the particulars are relevant to or arise out of P’s plea.

114. Therefore, I would not allow requests 65 to 67 or grant leave for interrogatories.

Requests 68(2) and (3) and 69(2) and (3)

115. They concern SOC §§309.1 and 309.2 where P gives a breakdown of the instalments of the HK$1.96 billion odd remittance that I have mentioned earlier.

116. The requests are for particulars about the relevant internal approval procedures and reports made (if any) in respect of each instalments. D’s reason is that it is contemplating issuing third party proceedings against other directors of P who may be responsible for P’s losses and the particulars sought are important for that purpose.

117. I disagree. It is difficult to see why D needs such particulars before it is in a position to respond to P’s averments about the instalments under which the remittance was made. I also question how the particulars may be said to be relevant or arise out of those averments. Further, I agree with P that the requests are tantamount to fishing for evidence, which is impermissible.

118. Mr Leung further argued at the hearing that the requests are directed at the issue of causation and that the requested particulars are difficult to detect by D on its own. With respect, I am unable to see how they go to the causation issue. Further, it seems to me the pleader has adequately pleaded the break down of the instalments of the remittance. It would obviously be for P to make out its case on the evidence in due course, and there is no suggestion that such evidence cannot be reasonably expected to emerge at a later appropriate juncture.

119. For these reasons, I would disallow requests 68(2) and (3) and 69(2) and (3) and refuse leave to grant interrogatories.

Request 70

120. This concerns SOC §310 where P pleads that the payments (which turned out to be the sums Mr Chun had misappropriated) were not for any genuine or legitimate commercial purpose or for the benefit of Central Steel or P and the funds have been entirely lost.

121. The request asks what steps (if any) have been taken to recover the payments.

122. It seems to me that the request goes to D’s intended defences of (a) P was in breach of its duty to mitigate and (b) P should not be entitled to double claim against D any sum P had recovered from others. I asked Mr Leung whether, even without the information sought, D could plead those defences as it seems to me matters such as whether P ought to have recovered – but has failed to recover – its loss against (say) one of its former directors are merely matters of evidence that would support the defences.

123. Mr Leung responded saying that D could but the defence would be a hollow plea or a blanket denial and ideally D should be able to plead to what steps P ought to have done (but has failed to do) to recover the payments.

124. Mr Ho countered saying the requested details are unnecessary and that if Mr Leung were right, then P’s pleading would inevitably have to be much lengthier than it already is. Counsel argued that it is one thing to “front load” costs in civil litigation, but it is quite another thing whether it is necessary (which is the test for both requests for further and better particulars and for interrogatories) to require P to do so at this stage of the litigation.

125. I agree with Mr Ho and also for reasons I have given at §122 above, I do not regard it necessary to and I would not allow request 70 or grant leave for interrogatories.

Request 74

126. This concerns SOC §312 where P pleads had D performed the December 2009 audit, December 2010 audit and the December 2011 audit properly, D would have identified the material misstatements in P’s and the Group’s accounts by no later than April 2010 with the consequence that (a) P and the Group would have been revealed to have made substantial losses (b) the Group’s lenders would have stopped further lending, demanded repayment of outstanding facilities and applied for provisional liquidators (c) alternatively the proper authorities would have applied for provisional liquidators (d) the provisional liquidators would have concluded that P and the Group were insolvent and the Group would have been wound up.

127. The request asks P to particularise, on P’s case, the amount of time each step (as pleaded in SOC §312) would have taken. Mr Leung submitted that D is contemplating the argument that even had D acted properly (in accordance with P’s case), it would still have taken a long time for provisional liquidators to be appointed and hence some of the dividends would have been paid out anyway.

128. Mr Leung suggested that the requested information is necessary to tie down the estimated time for each step so that D need not guess what P’s case is when it pleads to it. Counsel further suggested that given the Liquidators have plenty of experience in the liquidation process it should have no difficulty proffering a time estimate.

129. I am unable to agree. If D intends to run a case that even if it were in breach it would not have mattered as provisional liquidators could not be appointed quick enough to protect P’s assets, it is for D to plead a case on how long it says the appointment process would normally take. This shows to my mind that D’s request is in fact for evidence. Further, if D were to run such a case, one would expect that the parties would file the relevant evidence at the appropriate juncture. Thus, it cannot be said that such evidence cannot reasonably be expected to emerge at a later stage thus warranting interrogatories at this stage.

130. For these reasons, I would disallow request 74 and refuse leave for interrogatories.

Request 75

131. This concerns SOC §314 where P pleads that for the purpose of section 31 of the Limitation Ordinance, the earliest date on which P had knowledge required for bringing the present action for damages was 31 October 2016 being the date on which the Liquidators were provided with access to some, but not all, of D’s audit work papers.

132. The request asks P to confirm whether the provisional liquidators brought any application(s) under section 221 of the former Companies Ordinance (Cap 32) or sections 286A, 286B or 286C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) in order to obtain documents or information to assist them in understanding the affairs of P.

133. Mr Leung argued the request is necessary as D is contemplating issuing third party proceedings against P’s directors who may be responsible for P’s losses.

134. Mr Ho countered that the request is not relevant as it does not arise out of any matters pleaded in SOC §314 or that it is more akin to interrogatories.

135. I agree with Mr Ho. In addition, it seems to me the request is tantamount to D fishing for evidence to challenge P’s case on the earliest date being 31 October 2016. There is no suggestion that such evidence cannot be reasonably expected to emerge at the later stages of this litigation thus warranting interrogatories at this stage.

136. For these reasons, I would not allow request 75 and refuse leave for interrogatories.

E. Answered Requests

137. The Answered Requests are those that P has answered and D is no longer pursuing save as to costs. Mr Leung submitted that given they were answered only shortly before the hearing, D should get costs. On the other hand, Mr Ho submitted that D should not get costs as it is not entitled to the voluntary answers. Alternatively, Mr Ho argued that for the answer(s) that I consider D is entitled to, I should order costs in the cause.

138. In the circumstances, even though by D’s own admission satisfactory answers have been provided, I am placed in the unenviable position of having to decide whether I would have granted all these requests (15 of them discounting the sub-requests) for the purpose of costs only. I respectfully suggest this is not the best use of time and costs. I propose to address the Answered Requests succinctly.

Request 2

139. This is directed at SOC §13.3 where P pleads an implied term of the 2009 Engagement that D would take reasonable steps to acquire knowledge and understanding of the business of P and the Group and in particular each transaction to which P and/or one or more of its controlled entities was a party which was of sufficient financial size to affect materially the 2009 Financial Report and P’s accounting records, systems and internal control.

140. The request asks P to quantify the threshold at which the financial size of a transaction is alleged to have been sufficient to have materially affected the 2009 Financial Report and P’s accounting records, systems and internal control.

141. P’s voluntary answers directed D to its own audit working papers as to what P meant by the threshold. This indicates to my mind that the request is nothing more than a request for evidence and I would not have allowed it.

Request 11

142. This concerns SOC §78 where P pleads how the Group’s financial position should look in the Relevant Years after discounting the allegedly fictitious transactions. The request asks for the basis on which tax has been calculated for each year.

143. P’s voluntary answers stated that had the fictious sales and purchases pleaded in SOC §74 and the fictious receivables and payables pleaded in SOC §75 been discounted, the Group’s financial position (including the calculation of tax) would be the position as pleaded in SOC §78.

144. P’s answers simply re-stated what was said at SOC §78. D accepts the request has been answered. This suggests that SOC §78 is itself clear. Whether P is able to substantiate its calculation appears to me to be a matter of factual or expert evidence, which D would no doubt have the chance to dispute or challenge in due course. Therefore, I would not have allowed the request.

Request 15

145. This request is directed at SOC §93.4 where P pleaded D did not document audit work so as to understand the processes of shipping and international standards for shipping documentation including bills of lading, vessels and containers in accordance with ISO regulations. The request asks for particulars of the “processes for shipping” relied on by P and the “international standards” and “ISO regulations” relied on by P.

146. I have some sympathy for D as it is not entirely clear what the pleader meant by the phrases mentioned. I would have allowed the request. That said, it seems to me that P’s answers straddled between particulars and evidence but that was, in my view, down to how P answered the request and thus should not detract from the question whether the request should have been granted, to which I would have answered in the affirmative.

Request 16

147. This concerns SOC §134.4 where P pleaded D failed, contrary to HKSA 200 paragraphs 15 and 16 in particular, to plan their audit with an attitude of professional scepticism in light of the events pleaded in the sub-paragraphs that followed. The request asks what other paragraphs of HKA 200, terms or provisions does P intend to rely on.

148. Mr Leung complained about the pleader using the phrase “in particular”, which would give P wriggling room to rely on other provisions and that D is entitled to tie down P’s case at this juncture.

149. With respect, I would not have allowed this request as I consider P has pleaded its case with sufficient clarity, i.e. in light of the specific events pleaded in SOC §134.4.1 to 134.4.7, D should have planned its work with professional scepticism, which it did not. In the circumstances, I consider that the basis or bases of the duty that D has allegedly breached is a matter of evidence.

Request 21(3)

150. This concerns SOC 135.9 where P pleaded that D failed its duty by relying upon representations from the management and did not undertake any or any sufficient audit work to corroborate the management’s representation.

151. The request asks for particulars of what sufficient audit work that P alleges D ought to have done. Mr Leung submitted that D needs to know P’s case on what the reasonable standard is so that D may meet P’s case. But Mr Leung also submitted D has a good idea of what P’s case is but it wants to know exactly what P’s case is. In my view, that must be right given P has pleaded its case on D’s failure with sufficient clarity. Counsel’s acknowledgment also demonstrates the request fails the necessity test and thus I would not have allowed the request.

Request 23(3)

152. This request is directed at SOC §136.8 where P pleaded D failed to obtain corroborative audit evidence in respect of the management’s representations and asks for particulars of what would have constituted corroborative audit evidence on P’s case. Mr Leung relied on the same submissions made in respect of request 21(3), which I have summarized in the preceding paragraph, although he also said that the lack of particulars in SOC §136.8 is more egregious when compared to SOC §135.9. I am unable to agree with Mr Leung. I would not have allowed the request for the same reasons I would have disallowed request 21(3).

Request 27

153. Request 27 is substantially identical to request 15 with the only material difference being the former is about SOC §154.4, which is concerned with D’s alleged failure in the 2010 audit work whereas the latter is about SOC §93.4, which is concerned with D’s same alleged failure in respect of the 2009 audit work. I would have allowed request 27. I repeat what I have said at §146 above, which I consider to be applicable mutatis mutandis here.

Requests 30, 33(3) and (4), 36(3) and (4) and 45(3) and (4)

154. Mr Leung submitted that these requests are substantially the same as request 21(3) and he repeated the same submissions made for that request, which I have summarized at §151 above. I would not have allowed requests 30, 33(3) and (4), 36(3) and (4) and 45(3) and (4) for the same reasons I would have disallowed request 21(3).

Request 40

155. Request 40 is substantially identical to request 15 with the only material difference being the former is about SOC §224.4, which is concerned with D’s alleged failure in the 2011 audit work whereas the latter is about SOC §93.4, which is concerned with D’s same alleged failure in respect of the 2009 audit work. I would have allowed request 40. I repeat what I have said at §146 above, which I consider to be applicable mutatis mutandis here.

Request 58(1) and (2)

156. The request is directed at SOC §289.3 where P pleadd had D not been in breach, P would not have pursued further expansion of purported sales and caused the Group to adopt a course of trading which, so far as possible, preserved the assets of the Group and avoided incurring further liabilities. It asks (a) which assets P would allegedly have been able to preserve and (b) which liabilities P would allegedly have been able to avoid.

157. The reason for the request is that P wants to know what is the linkage between SOC §289.3 and the damages claimed. In other words, it is another request directed at the issue of causation. As far as P’s pleaded case at SOC §289, and why it claims the matters pleaded therein caused the damages claimed, is concerned, it seems to me the case is sufficiently clearly pleaded. Further, it appears that the request is in the realm of evidence as it is a matter of evidence whether P is able of substantiating its pleaded claim. I would therefore not have allowed this request.

Requests 72 and 73

158. They concern SOC §§311 and 311.1 where P pleads as a consequence of D’s breaches, P’s board and shareholders in general meeting made decisions regarding the on-going management and operation of P and the Group on the basis of materially misstated financial statement including to continue to trust and rely upon Mr Chun and his associates and permit them substantial discretion in the operations and management of P and the Group.

159. Request 72 asks for particulars of the date each meeting where P claims decisions were made regarding the on-going management and operation of P and the Group.

160. Request 73 asks for particulars of the date of any meeting in which P’s board and shareholders decided to continue to trust and rely upon Mr Chun and his associates and permit them substantial discretion in the operations and management of P and the Group.

161. Notwithstanding P has answered the requests, I do not consider that the requests are necessary and I would not have allowed them. P has pleaded the gist of its case with sufficient clarity, viz as a result of D’s breach, P’s board and shareholders relied on materially misstated financial statements to make management and operational decisions and continued to trust Mr Chun and his associates. It seems to me the requests for the date of the relevant meetings are driving at unnecessary particulars or evidence.

F. Conclusion

162. For all these reasons, I dismiss the Interrogatories Summons. There is no reason why costs should not follow the event and I make a costs order nisi that D do pay P’s costs of and occasioned by the Interrogatories Summons to be taxed if not agreed, with certificate for counsel.

163. As for the FBP Summons, P is clearly the winner as I have disallowed all the Outstanding Requests (a total of 40 discounting sub-requests) and I would only have allowed a handful of the Answered Requests (i.e. requests 15, 27 and 40 out of a total of 15 requests discounting sub-requests). In my judgment, a fair costs order in the circumstances would be to order D to pay 95% of P’s costs of and occasioned by the FBP Summons to be taxed if not agreed, with certificate for counsel, and I make a costs order nisi in those terms.

	(Anthony H K Chan)
	Master of the High Court

Mr Justin Ho, instructed by Holman Fenwick Willan, for the plaintiff

Mr Wilson Leung, instructed by Clyde & Co, for the defendant

Date of Hearing:	29 November 2022
Date of Decision:	29 November 2022
Date of Reasons for Decision:	21 December 2022

CHINA METAL RECYCLING (HOLDINGS) LTD (IN LIQUIDATION) v. DELOITTE TOUCHE TOHMATSU (A FIRM)

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Files (4)

	CHINA METAL RECYCLING (HOLDINGS) LIMITED	Plaintiff
	(IN LIQUIDATION)
	and
	DELOITTE TOUCHE TOHMATSU (A FIRM)	Defendant