ENRICH FUTURE LTD AND OTHERS v. DELOITTE TOUCHE TOHMATSU (a firm)

HCCL 10/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 10 OF 2011

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D E C I S I O N

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1.  On 14 April 2011, the Writ was issued in these proceedings by the provisional liquidators (“Liquidators”) of Sunlink International Holdings Limited (“Sunlink”), against Deloitte Touche Tohmatsu (“Defendant”), for alleged negligence in respect of its auditing of the financial statements of Sunlink for the year ending 31 December 2007 and for the year ending 30 June 2008. On 21 May 2013, the Writ was amended without leave to reflect the assignment of Sunlink’s claims to Enrich Future Limited as 1^st plaintiff, and for the addition of the 2^nd to 7^th plaintiffs now named in the action.

2.  Quite exceptionally, the validity of the Writ was extended on 4 occasions, by orders of the Court made on 10 April 2012, 8 April 2013, 24 February 2014 and 9 April 2015 (“Extensions”).  The applications for Extensions were made, in the usual course, on an ex parte basis, and were supported by the Affidavits of Mr David Yen (“Yen”) on each occasion.  Orders were also made on 24 February 2014 and 9 April 2015 for the supporting affidavits to be kept confidential. 

3.  The Writ was eventually served by the plaintiffs on the Defendant on 21 September 2015, with a Statement of Claim seeking damages in excess of HK$1.5 billion.  The Defendant disputes the validity of such service, but acknowledged service of the Writ on 5 October 2015.

4.  On 19 October 2015, the Defendant applied by summons to set aside the orders for the Extensions, to seek production of the Yen affidavits, and for the amendments to the Writ to be disallowed. 

5.  Subsequent to the issue of the Defendant’s summons, the Plaintiffs have produced the 2^nd and 3^rd Yen affidavits (respectively, “Yen 2” and “Yen 3”) in full, but have only provided to the Defendant redacted copies of the 1^st and 4^th Yen affidavits (respectively, “Yen 1” and “Yen 4”).  The redactions to Yen 1 relate to a restructuring agreement entered into by Sunlink, and the redactions to Yen 4 comprise copies of the originating summons and affidavit in support filed in the plaintiffs’ application to the court, in separate proceedings, for sanction of their arrangements for the funding of this action. The only issue remaining in dispute, for determination by the Court at the hearing on 19 May 2016, is whether or not the Defendant is entitled to disclosure of the redacted materials referred to in Yen 1 and Yen 4.  There is no dispute raised, that a party affected by an ex parte order made may apply to the Court to discharge it.

6.  The Defendant says that it is entitled to set aside the ex parte orders for the Extensions, and for keeping the Yen affidavits confidential.  Relevant to the application for setting aside (still to be heard) are issues as to whether there was material non-disclosure by the plaintiffs in their ex parte application, whether there was good reason for the Extensions, and if so, on balance of hardship, whether the Court should exercise its discretion to extend the Writ (Chow Ching Man v Sun Wah Ornament Manufactory Ltd [1996] 2 HKC 460 at 463F).  The Defendant claims that there was material non-disclosure by the plaintiffs regarding the applicable limitation periods, that there was no good reason to extend the Writ, and that the Defendant has sustained prejudice by reason of the Extensions. 

7.  The plaintiffs claim that the matters redacted, which are now the only matters withheld from the Defendant, relate to the restructuring of the plaintiffs and the funding arrangements for the litigation, which are irrelevant to the matters to be decided by the Court, and are confidential to the Liquidators and the plaintiffs.  The plaintiffs claim that the non-disclosure of such information would not prejudice the Defendant, and go further to claim that the disclosure of the information relating to the funding for the litigation brought by the Liquidators would give an unfair advantage to the Defendant, enabling the Defendant to know the amount of money and the “war chest” that the Liquidators and the plaintiffs have available, in pursuing their claims against the Defendant in this action. 

8.  The plaintiffs rely on the judgment of the Australian court in Weston v Publishing and Broadcasting Ltd [2010] NSWSC 1288, where Barrett J referred to reported instances in which details of a plaintiff’s litigation funding arrangements have been kept from the defendant in the funded litigation. The learned judge referred to the case of Re Kingsheath Club of Clubs Ltd [2003] FCA 1034, where Goldberg J observed that “a litigant is not normally privy to the ‘war chest’ that the opposing party has available to fund the litigation”, and went on to state, as follows:

“Although the applicants, as creditors, have an interest in the financial commitments and obligations entered into by the liquidator, it would give them an unfair advantage in any litigation brought by the liquidator against them for them to have knowledge of the amount of money available to the liquidator to run the litigation. They would, by virtue of that knowledge, have a technical and strategic advantage which ought not to be given to them. Although they wish to have regard to, and consider, the commerciality of the liquidator’s agreement with IMF (Australia) Ltd, it is necessary to balance against that interest the consequence of knowledge of the amount of funding in the event that litigation against them ensues.

There is a real risk that disclosure of the amount of funding available to the liquidator to proposed defendants in proposed litigation would frustrate or impede the purpose of the liquidator’s application for the court’s approval to enter into a funding agreement.  It may enable the proposed defendants to assess and implement the extent to which they could, by way of interlocutory processes, eat up the liquidator’s funding before the conclusion of the trial.”

9.  I accept these are valid concerns, to be borne in mind in the balance of the prejudice to the Defendant on the one hand, and the prejudice to the plaintiffs on the other hand.

10.  The plaintiffs do not dispute the general proposition advanced on behalf of the Defendant, that a party is entitled to receive documents referred to by the other party, in affidavits filed and applications made before the Court.  However, they maintain that the grounds relied upon by them to support their applications for the Extensions have been set out in the affirmations which they filed in support of their ex parte applications, and these affirmations have already been supplied to the Defendant.  I agree with the plaintiffs’ argument, that the Defendant is already informed of the fact of the restructuring involving the plaintiffs in this case, and of the plaintiffs having sought the Court’s sanction for their funding arrangements.  Whether the restructuring and the funding arrangements constitute good reasons to seek the Extensions in this action can be argued on behalf of the Defendant, without sight of the restructuring agreement and the details of the restructuring scheme, or of the funding.  It can be said, therefore, that the redacted information and documents are unnecessary to the Defendant’s opposition to the renewal of the validity of the Writ and the Defendant’s application to set aside the orders for the Extensions.

11.  However, whilst the Court would not hesitate to give effect to the underlying objectives of the Rules of the High Court, to order discovery and disclosure only if this is necessary either for disposing fairly of the cause or matter or for saving costs (O24 r8 (1)), it is important also to bear in mind that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.  In the exercise of its powers and discretions conferred under the Rules, the Court balances the rights of the parties and the due administration of justice.

12.  How justice can be duly administered depends on the facts of each case and the issues to be decided by the Court.  I have borne in mind the issues to be determined on the Defendant’s application to set aside the Orders for the Extensions.  It cannot be overlooked that in applying to the Court for the Extensions, the plaintiffs did refer to the restructuring of the companies involved in the litigation as plaintiffs, to the funding arrangement, and the Court’s sanction of the funding arrangements.  These were all matters disclosed to the Court as being relevant to the Court’s consideration of the application for the Extensions, but are now sought to be withheld from the Defendant.  Whilst the Court may consider, even at this stage of its consideration of whether to permit disclosure of the redacted matters to the Defendant, that the materials withheld are not or cannot be seen to be relevant to the issues to be determined, it has not heard the Defendant’s submissions, because the Defendant is not able to make full submissions on the relevance of the materials, when it has not been given the opportunity to review the redacted materials.  I agree that to withhold the materials from the Defendant, when it seeks to challenge the orders granted for the Extensions, will be contrary to the fundamental notions of open justice, that a party is entitled to know the case asserted against it, to see the evidence put against it, and to be given the opportunity to meet the case advanced against it.

13.  In Re K (Infants) [1962] 1 Ch 381, Upjohn LJ encapsulated the spirit of this important principle, at 405 of the reported judgment:

“It seems to me fundamental to any judicial inquiry that a person or other properly interested party must have the right to see all the information put before the judge, to comment on it, to challenge it and if needs be to combat it, and to try to establish by contrary evidence that it is wrong. It cannot be withheld from him in whole or in part. If it is so withheld and yet the judge takes such information into account in reaching this conclusion without disclosure to those parties who are properly and naturally vitally concerned, the proceedings cannot be described as judicial.”

14.  Lord Dyson JSC also highlighted this, as recently as in the case of Al Rawi v Security Service [2012] 1 AC 531, at 572:

“... trials are contacted on the basis of the principle of natural justice. There are a number of strands to this. A party has a right to know the case against him and the evidence on which it is based. He is entitled to have the opportunity to respond to any such evidence and to any submissions made by the other side. The other side may not advance contentions or argues evidence of which he is kept in ignorance. The Privy Council said in the civil case of Kanda v Government of Malaya [1962] AC 322, 337:

‘If the right to be heard is to be a real right which is worth anything, it must carry with it a right in the accused man to know the case which is made against him.  He must know what evidence has been given and what statements have been made affecting him: and then he must be given a fair opportunity to correct or contradict them.’”

15.  In Hong Kong, Au-Yeung J held in Diagcor Bioscience Incorporated Ltd v Chan Wai Hon Billy [2015] 4 HKLRD 727 that even where discovery involved confidential information or trade secrets, the Court has to balance the parties’ rights and the due administration of justice.  She referred to Warner- Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354, where the English Court reiterated that the broad principle must be that the court has the task of deciding how justice can be achieved taking into account the rights and needs of the parties, and that what disclosure is necessary entails the general position that a party should know the case he has to meet, should hear matters given in evidence and understand the reasons for the judgment.  The Court emphasized that the starting point is that there should be full disclosure to the parties to the litigation of all materials which are going to be considered and which may be put before the court, and the onus is on the party seeking to restrict disclosure to justify it and to show why, in all the circumstances, documents should not be shown to the litigant on the other side.

16.  The plaintiffs say that the Yen affidavits were for the purpose of informing the Court of the work performed by the administrators of the scheme of arrangement involving the plaintiffs, and should be treated as an exception to the general rule requiring disclosure of all the evidence to the parties, the present case being akin to the situation in Re British and Commonwealth Holdings plc [1992] Ch 342, where disclosure might frustrate further investigations and public examinations in corporate liquidations.  However, the Yen affidavits were stated expressly to be for the purpose of applying for the Extensions, and the restructuring and funding arrangements were disclosed to the Court as relevant to these applications.

17.  I am not persuaded that there remains any confidentiality in the restructuring arrangement, the matter having been made the subject of a series of public announcements by the Liquidators to the Stock Exchange between January 2009 and February 2012.  Terms of the scheme of arrangement were provided to the creditors of Sunlink, which included the Defendant. Information concerning the plaintiffs’ funding for these proceedings (including the name of the funder) is also in the public domain, being available from the documents filed in HCMP 91/2015 which are accessible by the public.

18.  The plaintiffs also claim that the funding arrangements and the restructuring are non-adversarial proceedings which should be treated in the same way as trustees’ applications to the Court for directions and Beddoe orders.  The separate proceedings for sanction of the funding may be non-adversarial and may not relate to the Defendant, but the scheme and its sanction were stated by the plaintiffs as grounds in support of their application for the Extensions, and the Extensions are now part of the adversarial proceedings between the plaintiffs and the Defendant, and are in issue in the Defendant’s application to set aside the orders granting the Extensions.  As such, the Defendant is entitled to see and consider the evidence which was claimed by the plaintiffs to be relevant.

19.  Considered as a whole, I am not satisfied that there is sound reason to depart from the cardinal principles on which our system of open justice is founded, and to deprive the Defendant in this case of the opportunity which it now seeks, to consider fully the evidence presented to the Court when the plaintiffs applied for and obtained the Extensions.

20.  For all the above reasons, I grant the Defendant’s application for copies of the redacted materials and information withheld in Yen 1 and Yen 4, and ordered that the same be furnished to the Defendant within 7 days of the sealing of the order to be drawn up under this Decision.  I make an order nisi that the costs of the application are to be paid by the plaintiffs to the Defendant.