VICTORY CITY INTERNATIONAL HOLDINGS LTD (In Liquidation) AND ANOTHER v. DELOITTE TOUCHE TOHMATSU (a firm)

HCA 2083/2024

[2025] HKCFI 5505

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2083 OF 2024

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D E C I S I O N

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A.  INTRODUCTION

1.  This is a decision in respect of a discovery application taken out by the joint and several liquidators (“JLs”) on behalf of the plaintiffs (“P1” and “P2”, together “Ps”) against the defendant (“D”), who was the former auditor of Ps and some of the group’s subsidies.

2.  By Ps’ Summons dated 9 January 2025, Ps apply under:

2.1  O.24, rr.7, 10, 11A of the Rules of the High Court (Cap 4A) (“RHC”) for specific discovery of all audit documentation and/or audit file(s) (as defined in the Hong Kong Standard on Auditing 230) relating to D’s audits of P1 and its subsidiaries (including P2) for the 2012 to 2019 financial years (“FY”) (“AWPs”), which are in D’s possession, custody or power and which have not previously been provided by D to the JLs of P1 and P2 (“Specific Discovery Application”); and

2.2  O.3, r.5 of the RHC for an extension of time for filing and serving the statement of claim (“SOC”) until 5 months after the production of AWPs by D (“EOT Application”).

B.  BACKGROUND

3.  The following are the background facts which have been summarised by the parties in their respective submissions in this case. Where appropriate, I shall adopt them below as introduction to the case. However, they should not be taken as facts accepted by the other side, least to be treated as finding of facts by the court in Ps’ applications. 

B1.  Relevant facts as highlighted by Ps

4.  Ps’ counsel, Ms Sara Tong SC, leading Mr Eugene Kwan, in Ps’ Skeleton Submissions (“Ps’ Skeleton”) states that the relevant factual background has been set out in detail in the 1^st Affidavit of Patrick Cowley (“Cowley 1^st Aff”) which was filed in support of Ps’ applications. The salient facts of Cowley 1^st Aff are as follows.

B2.  The Parties

5.  P1 is a Bermudan company formerly listed on the Main Board of the Stock Exchange of Hong Kong (stock code: 539). It is the holding company of a group of companies (“the Group”) engaged in the production and sale of knitted fabric, dyed yarn and garment products.

6.  P2 is a Hong Kong company and an indirect subsidiary of P1, and was the main trading arm of the Group.

7.  D was the auditor of P1 and certain of P1’s subsidiaries, including P2, from as early as FY2007 onwards. From FY2012 to FY2020, D issued unqualified audit opinions in respect of P1’s consolidated financial statements and P2’s financial statements.

B3.  The Group’s Collapse

8.  From at least FY2012 to FY2020, the Group consistently reported profits. P1’s consolidated accounts for FY2020 further reported that, as at 31 March 2020, the Group had net assets exceeding HK$6.5 billion, along with bank balances and cash amounting to more than HK$1.2 billion.

9.  However, on 14 December 2020, the Group suddenly and unexpectedly announced that it was unable to make a scheduled debt repayment of approximately HK$290 million. From then, P1 and P2 commenced their descent into liquidation:

9.1  On 22 February 2021 and 9 March 2021, P1 announced that D had obtained two credit reports from the Jiangmen Branch of the People’s Bank of China (“PBOC”) which revealed undisclosed borrowings by P1’s Mainland subsidiaries likely exceeding RMB1 billion.

9.2  On 26 March 2021, D resigned as auditor and informed P1 that reliance should no longer be placed on D’s audit report for FY2020 and its report on the interim consolidated financial information for the six months ended 30 September 2020.

9.3  On 23 April 2021, the Bermuda Court ordered that P1 be wound up.

9.4  On 11 August 2021, P2 was placed into liquidation.

9.5  On 29 October 2021, the Bermuda Court appointed Mr Patrick Cowley, Ms Lui Yee Man, and Messrs Charles Thresh and Mike Morrison as the joint and several liquidators of P1.

9.6  On 1 June 2022, this court appointed Mr Patrick Cowley and Ms Lui Yee Man as the joint and several liquidators of P2.

B4.  The Fraud

10.  The JLs’ latest findings on the fraud which led to the Group’s collapse are explained in detail in Section C of Cowley 1^st Aff. 

11.  In gist, the JLs have discovered evidence suggesting the following:

(1)  Trade finance fraud[1]

11.1  The Group’s business was funded by trade finance facilities arranged between P2 and various banks in Hong Kong. Under the facilities, P2 would provide invoices issued by the suppliers to the bank and the bank would advance money to P2 to pay the invoice. The JLs have discovered widespread fraud in connection with these facilities from as early as FY2012, involving (i) duplicate copies of the same invoice being presented to banks twice within a short period of time and (ii) false invoices being fabricated.

(2)  Overstatement of Property, Plant & Equipment (“PPE”)[2]

11.2  The Group significantly overstated the value of its PPE by falsely asserting that it had constructed new PPE and adding the construction cost to the value of the PPE on the Group’s balance sheet, when no substantial construction had taken place.

11.3  Almost all of the Group’s PPE was held by the Group’s Mainland operating subsidiaries. From FY2012, the Group reported substantial additions to PPE and substantial closing balances for PPE in P1’s consolidated financial statements. However, the audited accounts for the Group’s principal Mainland operating subsidiaries[3] for the financial years ended 31 December 2014 to 2019 (“Mainland Audited Accounts”) showed much lower additions and closing balances for PPE.

11.4  The JLs believe that many of the construction contracts found amongst the working papers from FY2017 to FY2020 in relation to PPE were falsified, including 60 construction contracts with a total transaction value of RMB 2.3 billion.

(3)  Overstatement of Inventories[4]

11.5  The Group significantly overstated the value of its inventories. Although the Group’s inventories were principally held by its Mainland operating subsidiaries, the Mainland Audited Accounts showed much lower closing balances for inventories when compared to P1’s consolidated financial statements.

11.6  As at 30 September 2020, the Group reported inventories in excess of HK$3.4 billion. However, following the appointment of the initial provisional liquidators in early 2021, the Mainland subsidiaries provided management accounts which showed that the value of the inventories held by JXVC, which represents the majority of the inventories held by the Mainland subsidiaries, was less than RMB0.5 billion.

(4)   Undisclosed Loans[5]

11.7  There were significant undisclosed loans advanced to the Group. As mentioned in §9.1 above, D itself concluded that the amount of undisclosed loans likely exceeded RMB 1 billion. The JLs have since discovered other evidence suggesting the existence of further undisclosed loans.

B5.  D’s Duties as Auditor

12.  D’s alleged duties as auditor have been explained in detail in Section D1 of Cowley 1^st Aff, which are summarised by Ps’ counsel in Ps’ Skeleton and are set out below.

13.  As the auditor of P1 and P2, D was obliged to conduct the audits with reasonable care and skill and to carry out audits in accordance with the applicable Hong Kong Standard on Auditing (“HKSA”). To give an unqualified audit opinion, the auditor must obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error. In particular:

(1)  “Reasonable Assurance”

13.1  Reasonable assurance is a high level of assurance. It is obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk (that is, the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated) to an acceptably low level: HKSA 200 §5.

(2)  Obtaining Sufficient Appropriate Audit Evidence

13.2  The auditor is required to design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence: HKSA 500 §6; see HKSA 500 (Audit Evidence) §§A1-A6 on the meaning of “sufficient appropriate audit evidence”.

(3)  Sampling Procedure

13.3  HKSA 530 (Audit Sampling) concerns the use of sampling procedures for the purposes of gathering audit evidence. The standard explains that the objective of the auditor, when using audit sampling, is to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected.

13.4  As set out in HKSA 530 §§6-8, amongst other things:

(a)  When designing an audit sample, the auditor shall consider the purpose of the audit procedure and the characteristics of the population from which the sample will be drawn.

(b)  The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level.

(c)  The auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection.

(4)  Fraud Detection

13.5  If, during an audit, “red flags” are identified (findings which appear unusual or inconsistent with other information obtained by the auditor), the auditor ought to investigate and design further audit procedures to obtain additional evidence in respect of the matter. This is reflected in HKSA 315 §31 and HKSA 330 (The Auditor’s Responses to Assessed Risks) §A60.

13.6  In relation to the detection of fraud, the auditor must maintain professional skepticism throughout the audit: HKSA 240 (The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements) §8. The auditor is also required to incorporate an element of unpredictability in the selection of the nature, timing and extent of audit procedures: HKSA 240 §30(c).

B6.  Alleged serious deficiencies in D’s audits of P1 and P2 from FY2012 to FY2020

14.  As set out in detail in Section D2 of Cowley 1^st Aff, the AWPs provided by D to date,[6] together with certain additional evidence obtained by the JLs, have allegedly revealed serious deficiencies in D’s audits of P1 and P2 from FY2012 to FY2020. In gist, Ps allegations against D have been summarised by Ms Tong SC in Ps’ Skeleton as follows:

(1)  Failure to reconcile the Mainland Audited Accounts with P1’s consolidated financial statements[7]

14.1  The JLs have identified a number of variances between the (i) Mainland Audited Accounts and (ii) P1’s consolidated financial statements.

14.2  Most pertinently, the assets and liabilities of the Group’s Mainland subsidiaries (which held substantially all the Group’s PPE, inventories and trade payables) as shown in the (i) Mainland Audited Accounts as at 31 December 2019 and (ii) the Group’s consolidated financial statements for FY2020 as outlined in DTT’s audit working papers has a variance of over RMB8.7 billion.

14.3  The JLs say that these variances were very obvious “red flags” which should have alerted D to the fraud. Yet, inexplicably, Ps say there is no evidence in the audit working papers for FY2020 that D identified the variances or took any steps to reconcile P1’s consolidated financial statements with the Mainland Audited Accounts. 

14.4  The JLs do not yet have D’s audit working papers for FY2015 to FY2019 (save for part of D's audit working papers for FY2015 to FY2019 in relation to trade finance[8] and for FY2017 to FY2019 in relation to PPE[9]), and therefore cannot reach definitive conclusions as to whether D identified the variances or took any steps to reconcile the Group’s consolidated accounts with the Mainland Audited Accounts in those audit years.

(2)  Seriously improper sampling practices[10]

14.5  Through ad hoc email searches, the JLs have discovered email correspondence between D and members of P2’s finance team indicating that D engaged in improper sampling practices by asking P2’s management to select their own audit samples. Ps say that this sampling practice is fundamentally flawed, as it creates the risk that P2’s staff could strategically choose only supported samples, thereby impairing the reliability of the testing. The seriously improper sampling practices were extensive and affected a large number of audit procedures performed by D, as shown in the table in Cowley 1^st Aff §47.

14.6  For example, in email exchanges in relation to the selection of samples for D’s overstatement test on sales of P2 for FY2018:

(a)  On 30 May 2018, D sent an excel template to P2’s finance team requesting P2 to fill in the template. The template contained the following instructions: “Please help fill in 50 samples, choose evenly from each month and with large amount >1m, thx”.

(b)  On 6 June 2018, P’s finance team emailed the completed excel template to D.

(c)  On 7 June 2018, D replied P’s attaching a revised excel template, stating “Well received. However for the overstatement test on sales, the sample size of Hong Kong, Taiwan and other countries are revised. Please kindly help us fill in 10 more samples that over 1 Million on top of three tabs as follow...”. On the same day, VCCL replied attaching the excel template completed in accordance with DTT’s instructions.

14.7  The improper sampling practices identified by the JLs closely resemble those apparently adopted by D’s Mainland affiliate, Deloitte Touche Tohmatsu Certified Public Accountants LLP (“Deloitte China”), as revealed in recent regulatory proceedings brought by the United States Securities and Exchange Commission (“SEC”) against Deloitte China:

(a)  In September 2022, the SEC charged Deloitte China for failing to comply with auditing requirements in its audits of US-listed companies by asking its clients to select their own audit samples for testing.

(b)  An example highlighted by the SEC involved Deloitte China emailing an excel spreadsheet to its client asking the client to provide detailed information about fixed asset sales and purchases. One week later, the client returned the spreadsheet to Deloitte China with samples the client had selected and the requested information regarding three fixed asset disposals and purchases.

(c)  Deloitte China settled the SEC charges by paying a penalty of US$20 million and agreeing to undertake extensive remedial measures.

(3)   Other alleged deficiencies

14.8  The audit working papers provided so far also revealed D’s failure to address a number of “red flags” arising from the audit procedures carried out by D in respect of, amongst other things, (i) PPE[11], (ii) inventories[12], and (iii) loans[13].

B7.  Commencement of the present proceedings

15.  On 24 June 2021, Ps claim that, in order to protect against the risk of Ps’ claims against D from becoming time-barred, Ps, the JLs and D entered into a Tolling Agreement, which was subsequently amended and restated on 17 October 2023 (“Tolling Agreement”).

16.  Between 26 April 2021 and 16 April 2021, the JLs requested D to provide audit working papers to assist them in their investigations. D refused certain requests, but voluntarily provided the following:[14]

16.1  D’s working papers in relation to:

(a)  its review of the Group’s interim consolidated financial information for the 6 months ended 30 September 2020; and

(b)  its audits of (i) P1 and P2 for FY 2020; (ii) P1 and P2’s trade finance arrangements for FY 2015 to FY2019 and (iii) P1’s and P2’s PPE for FY 2017 to FY2019.

16.2  D’s permanent files containing historical corporate documents relating to the Group; and

16.3  The Mainland Audited Accounts for the financial years ended 31 December 2014 to 2019 (save for JXVC's audited accounts for the year ended 31 December 2014 and Guanda's audited accounts for the year ended 31 December 2015).

17.  Ps say that initially they intended to apply for pre-action discovery of the AWPs from D. On 13 September 2024, Ps’ solicitors (MinterEllison LLP) wrote to D’s solicitors (RPC) requesting, amongst other things, for D to provide the AWPs voluntarily and to extend the Tolling Agreement for another 12 months. D (through RPC) replied on 8 October 2024 refusing Ps’ requests.

18.  Ps claim that, in light of D’s refusal, Ps commenced this action by filing a generally indorsed Writ of Summons on 17 October 2024 (“Writ”) upon the expiry of the Tolling Agreement (see clauses 2.1 and 2A.1). Further, Ps claim that the Endorsement of Claim (“Endorsement”) is widely drafted in order to preserve all potential claims that Ps may have against D. However, based on the available information, Ps claim that the present focus of Ps’ claim against D is on the audits deficiencies from FY2012 to FY2020.

19.  Under the Endorsement, P1 and P2 claim relief for, inter alia, breach of contract and negligence against D in connection with or arising out of its audit work of the Group from FY2009 to FY2020. To the extent that any potential limitation period relating to the claims have expired, Ps say that they also intend to rely on the provisions of the Limitation Ordinance (Cap. 347) ("LO") to extend the relevant limitation period.

B8.  Relevant background facts as highlighted by D

20.  The following are the background facts highlighted by Ms Cheng in D’s Skeleton Submissions (“D’s Skeleton”) which give a different angle to the facts as summarized by Ps above.

21.  The JLs were appointed back on 23 April 2021.

22.  The JLs and D entered into a Tolling Agreement dated 24 June 2021 for an initial period of one year, which was subsequently extended three times: see §§14-15 of Affirmation of Cheung Adrian Chunwai (“Cheung Aff”), senior legal counsel of D, filed on behalf of D[15]. In the Amended and Restated Tolling Agreement dated 17 October 2023, it was agreed inter alia for time to stop running in respect of potential claims against D regarding engagements prior to 1 April 2015[16] and for the tolling period to extend to 16 October 2024[17]. This was without prejudice to D’s right to defend such potential claims on the ground that they are time-barred as of the date of the agreement and/or that the plaintiffs are not entitled to extend the applicable limitation period.[18]

23.  Meanwhile, since the JLs’ appointment, D has produced numerous documents (over 6,000) in the course of over 3 years in response to their requests to facilitate their investigations into the assets and affairs of the Group.[19]

24.  The documents produced belong to the following categories:[20]

24.1  Group company documents, namely (1) P1’s books and records going back to 2013; (2) engagement letters between D and P1 or the Group entities; (3) management accounts and prepared by client schedules in D’s possession, custody or control.

24.2  D’s working papers for FY2020 audit and interim review of consolidated financial information for the six months ended 30 September 2020.

24.3  D’s working papers for FY2015 to FY2019 in relation to trade finance.

24.4  D’s working papers for FY2017 to FY2019 in relation to PPE.

24.5  Audited accounts of the Group’s Mainland subsidiaries for the years ended 31 December 2015 to 2018 in D’s possession, custody or control.

25.  D says that it is also clear from the JLs’ evidence that they have had access to information and documents from sources other than D. For example:

25.1  The JLs have the restated audited accounts of one of the Group’s principal Mainland operating subsidiaries (JXVC) prepared by the Bankruptcy Administrator of the Mainland subsidiaries.[21]

25.2  The JLs have referred to various internal documents of the Group, such as duplicate invoices indicating trade finance fraud[22], the Excel file from the computer of P2’s accounting staff[23], internal email correspondence showing discussions of sampling of invoices[24] or indicating the amount of borrowings in Mainland as at certain date[25].

26.  D says that the information and documents already available to the JLs have enabled them to make extensive and detailed findings during their 4-year-long investigation[26], as set out in the JLs’ two affirmations and summarised in the Ps’ Skeleton[27].

27.  After rounds of correspondence, on 13 September 2024, solicitors for the JLs contended for the first time in their letter to D that they had “discovered serious deficiencies in [D]’s audits of [P1] and [P2] from FY2012 to FY2020”. They demanded the AWPs to the extent not already provided by D, threatened a pre-action discovery application against D (which was never pursued), and proposed a further 24-month extension of the tolling period.[28]

28.   D took the view that it was inappropriate for further extensions, given that the last exchanges with the JLs concerning their requests for documents took place almost 18 months earlier in April 2023[29], and the JLs purported to have concluded views in respect of claims against D.[30]  D considered it was in the parties’ interests for the JLs to commence proceedings without further delay and thus rejected the request for further time extension.[31] 

29.  The JLs finally issued the generally endorsed Writ on 17 October 2024 and served the same on 24 December 2024.

B9.  Parties’ respective case in a nutshell

30.  The grounds of Ps’ applications and D’s grounds of objections can be briefly summarised as follows.

B10.  Ps’ grounds of applications in a nutshell

31.  In a nutshell, Ms Sara Tong SC for Ps submits under Ps’ Skeleton that (i) the Specific Discovery Application and (ii) the EOT Application ought to be granted for the following reasons:

31.1  First, there is no dispute that the AWPs are in existence (both in electronic and physical form) and within the possession, custody or power of D.

31.2  Second, Ps submit that no doubt all the AWPs are relevant to the proceedings in the Peruvian Guano sense and would be covered by standard disclosure in any event. The question is only one as to timing: whether the AWPs ought to be produced now or only after the close of pleadings. In this regard, Ps say that the authorities establish that in an audit negligence claim, audit working papers are “obvious examples” of documents appropriate for early discovery, just as medical records are in a medical negligence claim. Ps also rely on the unchallenged independent expert opinion of Mr Stephen Peter Stuart Weatherseed (“Mr Weatherseed”), who explained why it is necessary for Ps to review all AWPs to identify the nature and extent of D’s audit negligence.

31.3  Third, early disclosure of the AWPs would result in very significant time and costs savings by enabling Ps to properly plead its case now without the need for the SOC to be later substantially redrafted or amended.

31.4  Fourth, the AWPs are easily retrievable and no prejudice would be caused to D in ordering early specific discovery.

31.5  Fifth, the EOT Application should be granted to allow sufficient time for Ps to prepare and file their SOC after the disclosure of AWPs.

B11.  D’s grounds of objection in a nutshell

32.  Ms Bonnie Cheng, D’s counsel, submits that pre-SOC discovery is neither necessary for disposing fairly of the cause or matter at this stage nor for saving costs in this case. D says that this litigation should be allowed to proceed in its normal course.

33.  In a nutshell, Ms Cheng submits that the JLs have not demonstrated exceptional circumstances to justify obtaining pre-SOC discovery. In particular Ms Cheng submits that:

33.1  Audit negligence cases are not a class of their own. The general procedure and timetable (where pleadings which define the issues come first, to be followed by discovery of documents) should apply as in any other civil case.

33.2  The JLs already possess considerable information and documents directly from D and through their investigation. On their own admission, it is possible to file a SOC at this stage without the documents sought.[32]

33.3  The only bases for seeking pre-SOC discovery thus boil down to (1) a purported need to “identify, plead and particularise”[33]the JLs’ case against D more fully; and (2) purported savings in time and costs.[34]

33.4  To the extent that the documents are to enable the JLs’ identification of claims and allegations, that would be impermissible fishing.

33.5  To the extent that the JLs wish to plead and particularise their case more fully and/or save time and costs, these are not exceptional reasons, as the same can be said in almost every case. In any event, the purported time/costs savings are speculative and questionable in the overall scheme of things.

33.6  On proper analysis, many of the requested AWPs are not relevant or necessary to pleading or particularising the matters which the JLs themselves have identified at this stage.

33.7  The court is also asked to consider the unfairness to D if further discovery were to be given at this stage.

C.  DISCUSSION

C1.  Agreed list of issues

34.  The parties have filed an Agreed List of Issues on 19 February 2025. The following are the issues agreed between the parties under that document:

“1. What are the applicable legal principles for an application for discovery before the filing of a Statement of Claim?

2. Does the Plaintiff’s application satisfy those legal principles?

3. If the answer to 2 above is yes, have the Plaintiffs met the requirements for specific discovery under Order 24 rule 7 of the Rules of the High Court (Cap. 4A) (“RHC”), in particular:

(1) Have the Plaintiffs shown a prima facie case that the documents sought in paragraph 1 of the Plaintiffs’ summons dated 9 January 2025 (“Documents”) are relevant to the Plaintiffs’ claim herein, in particular:

(i) What is the test for relevance where there is no pleading setting out the matters in question between the parties to the litigation?

(ii) In the absence of a Statement of Claim, has the 1^st Affidavit of Patrick Cowley sufficiently articulated the matters in question forming the basis of the Plaintiffs’ claim herein?

(2) Whether the Plaintiffs have shown a prima facie case that the Documents exist, and are or have been in the possession, custody or power of the Defendant?

4. Whether the scope of the discovery sought in paragraph 1 of the Plaintiffs’ summons dated 9 January 2025 is appropriate, including in terms of the nature and/or class of documents and/or the period of discovery?

5. As per the requirements under Order 24 r.8 RHC, whether discovery of the Documents (or any part thereof) at this stage of the proceedings is necessary for disposing fairly of the cause or matter or for saving costs?

6. Whether the expert evidence in the 1^st Affidavit of Stephen Peter Stuart Weatherseed is relevant and/or necessary to the Court’s determination of the issues set out in paragraph 1 to 5 above?”

35.  In this decision, I intend to deal with the applicable legal principles involved in such applications first and then to deal with what I would regard as the crux of the issues in dispute between the parties.

C2.  General Principles on Specific Discovery

36.  As summed up by Ms Tong SC, the applicable principles for an application for specific discovery under O.24, r.7 of the RHC are trite and can hardly be disputed:

36.1  There is no jurisdiction to make an order for specific discovery under O.24 r.7 unless there is sufficient evidence or prima facie case that: (i) the documents or classes of documents exist which the other party has not disclosed; (ii) the documents relate to a matter in issue in the action; and (iii) the documents are in the possession, custody or power of the other party.

36.2  Once it is established that those three prerequisites for jurisdiction do exist, the court has a discretion whether or not to order discovery.

36.3  The court will not make an order unless the discovery sought is necessary either for disposing fairly of the cause or matter or for saving costs. The burden lies on the party resisting discovery to show that discovery is not so necessary.

36.4  The Peruvian Guano test remains the test of relevance. A document is relevant if: (i) it is reasonable to suppose that it contains information which may, not must, either directly or indirectly enable the party requiring the same either to advance his own case or to damage the case of his adversary; or (ii) it is a document which may fairly lead the party to a train of inquiry which may have either of those two consequences.

36.5  For the purpose of discovery, the pleadings have to be looked at broadly.

36.6  The order must identify with precision the documents or categories of documents which are required to be disclosed.

36.7  Notwithstanding the Peruvian Guano test, “fishing” is not allowed, and discovery should not be oppressive.

(See: Hong Kong Civil Procedure 2025 §24/7/2 & §24/8/2)

37.  Specific discovery under O.24, r.7 may be ordered “at any time”, even before service of a SOC. It is not an abuse of process per se for a litigant to choose to apply for early discovery under O.24, r.7 instead of pre-action discovery under s.41 of the High Court Ordinance (“HCO”): Jowers v Kinney [2019] 5 HKLRD 686 §§14-17.

38.  In a pre-SOC application for specific discovery, the requirements to be met remain to be those under O.24, r.7: e.g., Mckay v Rysaffe Ltd [1983] 2 HKC 436 at 438I-439A; Lim Siew Peng v Glaxo Wellcome Hong Kong Ltd [1997] 3 HKC 802 at 805F-G; Jowers §15. However, in a pre-SOC application, the following special considerations apply due to the early nature of the application:

38.1  An application for specific discovery before the service of a SOC is “exceptional”: Mckay at 438I-439A.

38.2  One “exceptional” circumstance where early discovery may be ordered before service of the SOC is where such discovery would save costs of the undoubtedly heavy amendments which would be needed once discovery was given: Disclosure (6^th Ed.) §2-38; Speyside Estate and Trust Co Ltd v Wraymond Freeman (Blenders) Ltd [1950] Ch. 96 at 101-102.

38.3  Lack of pleadings does not prevent discovery from relating to “matters in question in the action”: RHM Foods v Bovril [1982] 1 All ER 673 at 678C-E. Although this is not addressed in any detail in the cases, Ps submit that, in the absence of pleadings, the court should determine “relevance” by reference to the supporting affidavit. The same approach is applied in pre-action discovery applications (although the more stringent test of “direct relevance” is applied in pre-action discovery due to the different statutory wording under HCO s.41): Zhang Shouen v Standard Chartered Bank (Hong Kong) Ltd (unrep., HCMP 682/2015, 15 October 2015) §29.

C3.  Early discovery of audit working papers in auditors’ negligence cases

39.  Ms Tong SC has pointed out that pre-action discovery of audit working papers have been ordered in a number of English cases concerning intended claims for professional negligence against auditors:

39.1  In Bermuda International Securities Ltd v KPMG (a firm) [2001] Lloyd’s Rep PN 392, pre-action disclosure of all files relating to the audit of a fund for 3 accounting periods and which are relevant to compliance with certain statutory requirements enabling the fund to maintain its status as an investment trust (which carried tax benefits) was granted (p. 400) in relation to an intended claim against the auditors for acting negligently in auditing or conducting the tax affairs of the fund (§12).

39.2  In Jay v Wilder Coe (a firm) [2003] EWHC 1786 (QB), pre-action disclosure of all working papers (§11) produced during 2 financial years was granted in relation to an intended claim against accountants for failing to detect a substantial shortfall in the accounts.

39.3  In Marshall v Allotts (a firm) [2005] PNLR 110, pre-action disclosure of various documents, including notes and working papers (§67), was granted in relation to an intended claim against accountants for a negligent valuation of shares.

40.  Although these cases concern pre-action discovery applications in England, Ms Tong SC submits that their reasoning is instructive where specific discovery is sought pre-SOC in Hong Kong in determining whether the documents sought are (i) relevant (ii) necessary and (iii) whether specific discovery ought to be granted as a matter of discretion:

40.1  Under the English rules for pre-action disclosure,[35] the test for relevance is the same as that governing standard disclosure. In England, standard disclosure requires a party to disclose only (i) the documents on which he relies, (ii) the documents which (a) adversely affect his own case, (b) adversely affect another party's case or (c) support another party's case, and (iii) the documents which he is required to disclose by a relevant practice direction. As observed by Chadwick LJ in Three Rivers District Council v Governor and Company of the Bank of England (No 4) [2003] 1 WLR 210 §27, this is a narrower test than the Peruvian Guano test (which remains the applicable test for an O.24, r.7 application in Hong Kong). Thus, documents which satisfy the English test for relevance in relation to standard disclosure would a fortiori also satisfy the Peruvian Guano test.

40.2  In England, pre-action disclosure may be granted if it would be “desirable” in order to (i) dispose fairly of the anticipated proceedings, (ii) assist the dispute to be resolved without proceedings, or (iii) save costs.[36] Whilst the test of desirability may be said to be less stringent than the test of necessity under O.24, r.8(2) of the RHC  (see Zhang Shouen §34), factors leading to the conclusion that early disclosure would be “desirable” are quite similar to those for determining whether disclosure would be “necessary” under the Hong Kong rules.

40.3  Both pre-action disclosure in England (Lott v PSA Automobiles SA [2023] EWHC 2568 (KB) §62) and pre-SOC discovery in Hong Kong (Jowers §3) are regarded as exceptional or unusual in nature. It is thus instructive to consider the factors leading the English courts to conclude that pre-action disclosure should be granted as a matter of discretion despite its exceptional or unusual nature.

41.  Ms Tong SC submits that the following principles may be distilled from the English authorities cited above of which I agree.

42.  First, in terms of relevance, audit working papers are the equivalent of medical records in a case of medical negligence as “obvious examples” for pre-action disclosure because they are directly related to the professional work alleged to have been negligently performed: Jay §18.

43.  Second, the following factors are particularly relevant in deciding whether an order for early discovery of audit working papers should be made:

43.1  Whether there would be a likely saving of costs resulting from the applicant being able to plead its case with more particularity and without the need for later amendment and/or re-amendment: Bermuda International Securities Ltd §27; Marshall §70.

43.2  Whether the respondent had already reviewed and collated the documents sought and it would not be burdensome for the documents to be handed over: Bermuda International Securities §27.

C4.  Pre-SOC discovery is exceptional rather than norm

44.  Ms Cheng for D in D’s Skeleton has highlighted the fact that while the court has power to order specific discovery after proceedings have commenced, an application for pre-SOC or pre-pleading discovery is exceptional. 

45.  Ms Cheng stated that the exceptional nature of such applications and the rarity of occasions in which they are allowed have been highlighted in both the local as well as English cases.

46.  They included the English cases of Gale v Denman Picture Houses Ltd [1930] 1 KB 588 per Scrutton LJ which was cited in Lott v PSA Automobiles SA [2003] EWHC 2568 (KB) at §62 as identifying “the exceptional nature of an application for specific disclosure before a POC has been served”. Similar sentiment has been expressed by Master Marlene Ng (as she then was) in Wong Hon Wai v Secretary for Justice (HCPI 664/2009), 24.2.2011) at §25.

47.  In AssetCo PLC v Grant Thornton UK LLP [2013] EWHC 1215 (Comm), AssetCo applied for pre-action disclosure against its former auditors, Grant Thornton for various categories of documents in two years (2019 and 2020) (§§10-11). AssetCo claimed in correspondence that it was “unable to particularise its claim properly without the pre-action disclosure sought” and “not possible for [it] fully to plead the particulars of negligence” (§15). Blair J did not accept the contention, noting there were “no further details as to why the exercise was impossible in the first place” (§29).

48.  On the argument about potential time/costs-saving, Blair J observed that:

“There is in my view a further objection to making an order at this stage. Mr Chivers QC accepted in argument that the applicants were seeking disclosure of what would be disclosable in the action if brought on the issues as they presently appear in the letter of 16 November 2012. It follows that if proceedings are in fact begun the disclosure process would have to be gone through again. Mr Chivers says that this will not entail much extra cost because in effect the exercise will already have been done. However, in this case, whatever the position may have been in other cases, I do not think that this is realistic. As the respondent submits, disclosure will have to be revisited in the light of the pleadings and will require, as it was put, a further exercise. It is not an answer, in my view, to say that the costs of the present exercise would be met by the applicants.

Thus far from of saving costs [sic], pre-action disclosure would have the opposite effect. It would not, in my judgment, be a minor undertaking, though Mr Polley accepts that it would not be oppressive in the sense used in some of the cases…” (§§35-36, emphasis added)

49.  The rationale for the above principle was set out by Lawson LJ in RHM Foods v Bovril [1982] 1 All ER 673 at 677 g-j:

“The need for definition of the issues probably explains why orders of the kind made by Warner J[37] are so rare. It is, I think, significant that the only case to which we were referred dealing with the making of an order for discovery before any pleading was delivered was Speyside Estate and Trust Co Ltd v Wraymond Freeman (Blenders) Ltd [1949] 2 All ER 796, [1950] Ch 96. In that case the purpose of the order was clearly to save costs. It was not for the purpose, as this application was, of fishing for evidence to support an allegation which it was submitted could be inferred from conclusions set out in affidavits.

As Oliver LJ pointed out in the course of argument, if an order for discovery under Ord 24, r7(1) could be made in this case, it could probably be made in every case in which a deliberate intention to deceive was alleged. The making of such orders would add greatly to the costs of litigation and would probably slow down the doing of justice.  In my judgment, save in exceptional circumstances, orders of the kind under discussion in this case should not be made until the plaintiffs’ case has been fully and properly pleaded in a statement of claim.” [emphasis added]

C5.  Purpose of pre-SOC discovery

50.  Where the stated purpose of pre-SOC discovery is to allow the JLs to formulate its claim with greater particularity and/or to save time and costs, the following passage by Jefford J in the case of Balfour Beatty Regional Construction v Broadway Malyan Ltd [2022] EWHC 2022 (TCC) was cited and relied on by Ms Cheng:

“Mr Owen relied principally on the documents which BB seeks as being ‘something important or significant which can be achieved by early disclosure’. That something is, in his submission, the necessity for disclosure in order even to formulate the claim with a degree of particularity which will make the Pre-Action Protocol process worthwhile and the benefit in, as I have put it, getting it right the first time.

There is an obvious attraction in that submission but the first difficulty with it is that in very many cases of this nature a party seeking early specific disclosure would be able to make the same submission that something significant and important would be achieved in terms of greater particularity, promoting settlement and avoiding change of position and amendment. In fact, such applications are not commonplace and are unusual.

In the commercial context, pre-action disclosure is recognised to be unusual (see Assetco plc v Grant Thornton UK LLP [2013] EWHC 1215 at [17] and Carillion plc v KPMG [2020] EWHC 1416 (Comm) at [15]). In Hutchinson 3G (UK) Ltd v O2 UK Ltd and others [2008] EWHC 55 (Comm), also in the context of pre-action disclosure, Steel J observed that in almost every dispute a case could be made out that pre-action disclosure would be useful in achieving settlement or otherwise saving costs and that that there must therefore be circumstances outside “the usual run” for disclosure to be ordered. Although this is not an application for pre-action disclosure, given that nothing has been done other than the issuing of the Claim Form, there is a close analogy.” (§§42-44, emphasis added)

51.  Ms Cheng has also cited a number of cases where the courts have rejected the soundness of arguments about pleading with greater particularity and/or costs-saving, or shared the floodgate concerns expressed in Balfour.  They included AssetCo PLC v Grant Thornton UK LLP [2013] EWHC 1215 (Comm); Carillion Plc (In Liquidation) v KPMG LLP [2020] EWHC 1416 (Comm); Zhang Shouen v Standard Chartered Bank (Hong Kong) Ltd (HCMP 862.2015, 15.10.2015); and 上海諾港科學集團有限公司 (Formerly known as上海諾港科技有限公司) v World Laureates Management Ltd (Formerly known as World Laureates Association Ltd) [2024] HKCFI 1540.

52.  I do not think one can dispute with the above.

C6.  Pre-SOC discovery is the exception rather than the norm 

53.  D submits that the starting point to consider whether granting an order for specific discovery after proceedings have commenced but before a SOC is served is to appreciate the fact that they are the exception rather than the norm. I consider this must be right.

54.  In Gale v Denman Picture Houses Ltd [1930] 1 KB 588 (cited in Lott v PSA Automobiles SA [2023] EWHC 2568 (KB) at §62 as identifying “the exceptional nature of an application for specific disclosure before a POC has been served”[38]), Scrutton LJ said:

“I do not question for a moment that under the wide words of Order XXXI, rr.12 and 14, there is power to make such an order, but equally I think that it should not be made unless in the most exceptional circumstances. A plaintiff who issues a writ must be taken to know what his case is. If he merely issues a writ on the chance of making a case he is issuing what used to be called a ‘fishing bill’ to try to find out whether he has a case or not. That kind of proceeding is not to be encouraged. For a plaintiff after issuing his writ but before delivering his statement of claim to say, ‘Show me the documents which may be relevant, so that I may see whether I have a case or not,’ is a most undesirable way of proceeding.”[39] (at 590, emphasis added)

55.  In Wong Hon Wai v Secretary for Justice (HCPI 664/2009, 24.2.2011), Master Marlene Ng (as she then was) stated the following:

“The court has a wide discretion when to order discovery in the interest of justice. There is jurisdiction to order specific discovery even before service of the statement of claim, but the making of such an order generally calls for definition of the issues. Such order should not normally be made and the practice is to refuse discovery before close of pleadings save in exceptional circumstances because until at least a statement of claim has been delivered the court can seldom know what the matters in question in the action are. It is generally inexpedient and unnecessary to order discovery until the issues have been defined by the pleadings.” (§25, emphasis added)

56.  As Ms Cheng has pointed out, in some instances, applications for pre-SOC discovery were made for the purpose or in the context of an interlocutory application.[40]  Even then, the courts consistently maintained that they would only exercise such powers “very rarely”, “sparingly”, and would “require the clearest possible demonstration from the party seeking discovery that it is necessary for the fair disposal of the application”: Fiona Trust Holding Corporation v Yuri Privalov [2007] EWHC 39 at §§24-25; Flatela Vava v Anglo American South Africa Ltd [2012] 2 CLC 684 at §§63-64.

57.  In Zhang Shouen v Standard Chartered Bank (Hong Kong) Ltd (HCMP 862.2015, 15.10.2015), the former customers of the bank applied for pre-action discovery of 130 recordings of telephone conversations between them and the bank’s representatives from March 2010 to April 2013. The following observations of G Lam J (as he then was), while admittedly obiter and made with reference to the legislative provisions on pre-action discovery, are nevertheless instructive in D’s submissions:

“If it is said that pre-action discovery should be ordered simply because it would save costs by avoiding the need for amendment (however minor) of pleadings after discovery in the ordinary way, this might mean an order for pre-action discovery should be made in a great many cases, perhaps even almost as a matter of course. This would have the potential of generating a great deal of expensive and time-consuming satellite litigation even before the actions proper have been commenced. I very much doubt that was the legislative intention behind s. 41 and rule 7A. As it is, however, I need not express any concluded view on the requirement of rule 8(2) in this case.” (§46, emphasis added)

C7.  Not all pre-discovery application should be refused

58.  As a matter of principle, Ms Cheng accepts that not all pre-action or pre-SOC discovery should invariably be refused, but she submits that (1) the above authorities demonstrate that those cases are not the norm; and (2) their individual facts and the court’s reasoning require careful examination.

59.  I agree.

C8.  Pleading with greater particularity and/or costs-saving argument

60.  According to D’s understanding, the arguments relied on by JLs is that if the discovery of the AWPs are allowed, they would be able to plead with greater particularity and hence would reduce the need to amend the SOC later, thus will able to save time and costs. However, with respect, I do not think this is what Ps are saying.

C9.  Application of cases cited by the parties

61.  As can be seen from the cases cited by the parties above, while the principles are clear, their application highly depends on the facts of each individual case. Whether there are exceptional circumstances depends on the facts of a particular case. At the end of the day, it is a matter of discretion for the court to exercise.

62.  I agree with Ms Tong SC that the cases cited by D can be distinguished from the present case. First and foremost, it is important to recognise the fact that, unlike the cases cited by D, Ps are not seeking discovery to enable them to prepare a “more focused” or “refined” or even “better” pleading or to form any “concluded” view on D’s negligence. Rather, I agree with Ms Tong SC that the requested AWPs are necessary for P to plead the particularise the extent and scope of the deficiencies of D’s work during the relevant FY. Second, I think it is fair to say that in several of the cases cited by D, the courts found that early disclosure would unlikely lead to substantial savings of costs and time. However, as I will discuss below, my view is that substantial amendments to pleadings will be inevitable if the AWPs are not disclosed by D at this stage. This will inevitably lead to significant increase of costs and time, which is not in any parties’ interest.   

D1.  The real crux of the issues in dispute  

63.  Ms Tong SC has set out the applicable principles on relevance in Ps’ Skeleton[41]. She submits that where there is no pleading setting out the matters in question between the parties, relevance (in the Peruvian Guano sense) can be determined by reference to the affidavit supporting the application. In this regard, Cowley 1^st Aff has set out in detail Ps’ intended negligence claim against D on the basis of the available information and has clearly sufficiently articulated the matters in question forming the basis of Ps’ claim herein: cf Zhang Shouen in pre-action discovery applications.

64.  I agree with such an approach.

D2.  Whether the AWPs are relevant

65.  In my view, this is not the real crux of the matter in dispute here. I do not think D can seriously dispute that the requested AWPs as set out in Cowley 1^st Aff are all relevant to Ps’ claims against D in this case. Further, based on the independent expert evidence of Mr Weatherseed appointed by the JLs, which I note was not challenged by D by way of expert opinion, I do not consider one can dispute that the AWPs are all relevant.

66.  Nor in my view is the issue of whether the AWPs existed or not in dispute. As stated in Cheung Aff, there is no dispute both electronic and physical copies of D’s AWPs for its FY2012 to FY2020 audits are in existence and within the possession, custody or power of D.[42]

67.  In my judgment, the real crux of this matter is whether the JLs have demonstrated exceptional circumstances for the court to exercise its discretion to order the pre-pleading discovery in this case. However, before dealing with that issue, I would like to briefly deal with the issue of necessity of the AWPs for the sake of completeness.

D3.  Whether the requested AWPs are necessary 

68.  Ms Cheng in D’s Skeleton submits that the relevance or necessity of the full AWPs to the JL’s ability to plead their case at this stage is highly tenuous. In her submissions, Ms Cheng has highlighted several areas in the audit process to say why the requested documents are irrelevant and unnecessary at this stage. They included the alleged failure to reconcile the Mainland audited accounts to P1’s consolidated financial statements; improper sampling practices; PPE (inspections); PPE (tests of details and external confirmations); inventory; loans and particulars of loss[43].

69.  I am afraid I do not share the view of D on this matter. I have already dealt with the issue of relevancy in the preceding paragraphs, I shall not repeat them here. I will concentrate on the issue of necessity.

70.  In my judgment, in the particular circumstances of this case, the AWPs requested are necessary in order for Ps to properly plead and particularise their case of negligence against D in respect of its audits for FY2012 to FY2019.

71.  First, I agree with Ms Tong SC that the audit deficiencies complained of by Ps concerned not only certain discrete areas of the audit, but the entire audit process as a whole. Thus, the fact that D might have disclosed parts of the AWPs for certain years would not be sufficient for Ps to plead their case properly. It will be extremely difficult for Ps to plead its case against D with only piecemeal information from D and not able to see the complete overall picture of how the entire audit process was carried out over the years.    

72.  In this regard, I agree with the following observations made by Ms Tong SC stated in Ps’ Reply Submissions (“Ps’ Reply”):

72.1  The fraud uncovered by the JLs is likely to have resulted in material misstatements across a wide range of line items in the audited financial statements of P1 and P2: (see Weatherseed 1^st Aff §6).

72.2  The improper sampling practices engaged by D is likely to have affected a large number of audit procedures performed by D: (see Lui 1^st Aff §7.2).

72.3  The “cumulative and iterative” nature of the audit process means that there is a need to obtain all AWPs to determine the full extent of deficiencies in D’s audit work: (see Weatherseed 1^st Aff §§9-14; HKSA 330 §A60).

72.4  In particular, to determine whether D had complied with its duty, Ps need to obtain all AWPs to ascertain what procedures D performed and what evidence was gathered by D through those procedures. This is essential to determine whether the evidence obtained by D as a whole constituted sufficient appropriate evidence to obtain reasonable assurance that the financial statements were free from material misstatements: (see Cowley 1^st Aff §76.2).

73.  Second, I agree with Ps that given the wide-ranging audit deficiencies involved in the present case, it is necessary for Ps to obtain all AWPs to properly plead and particularise their allegations of audit negligence against D. I agree that Ps cannot be expected to guess or speculate what D may or may not have done during the audit process, without having sight of the AWPs. In my view, this is not a matter of just to enable Ps to particularise their case against D better, but to enable Ps to properly plead a case against D for all the relevant FY.

74.  In this regard, I agree that the AWPs in this case are similar to medical records in a medical negligence case in that the AWPs represent the records of the professional work done by auditors during the audit process: See Jay §18. Further, in the particular circumstances of this case, I agree with Ms Tong SC that, without the AWPS, it would be difficult, if not impossible, for Ps to (i) ascertain what audit procedures were performed by D during the subject audits; and (ii) particularise how and why those procedures were deficient.

75.  I do not agree with D’s submission that this equals to Ps “fishing” for evidence to find out whether they have a case at all. In my view, Ps clearly have a prima facie case against D based on the matters identified in Cowley 1^st Aff. This included various material misstatements which ought to have been detected by Ds but was not. However, in order for Ps to properly plead and particularise their allegations of audit negligence, it would be necessary for Ps to review the full set of AWPs. The above view is supported by the unchallenged independent expert opinion of Mr Weatheseed that all the AWPs are relevant in identifying the nature and extent of D’s audit deficiencies.

76.  Third, I agree with Ps’ submissions that the material currently available to the JLs are not sufficient to enable them to properly plead and particularise their allegations of audit negligence in FY2012 to FY2019. I further agree with Ps that the audit deficiencies identified in Cowley 1^st Aff are based only on the materials presently available to the JLs, which do not reveal the full extent of the deficiencies in the audit work performed by D from FY2012 to 2019.

77.  In this regard, I agree with the detailed submissions made by Ms Tong SC on behalf of Ps in reply to the various submissions made by Ds on alleged failures identified by P in D’s Skelton Section D2. This can be found in §§7 to 11 of Ps’ Reply. I do not intend to repeat them here save to say that in my view the AWPs disclosed by D so far are far from complete and would not enable Ps to properly plead and particularise their case regarding D’s negligence in relation to FY2012 to FY2019.

D4.  Whether there are exceptional circumstances which justify granting the applications in this case?

78.  In my judgment, the following exceptional circumstances would tilt the balance in favour of granting the Specific Discovery Application in this case.

79.  First, the AWPs provided to the PLs by D under the parties’ correspondence thus far were done in piecemeal fashion and are obviously incomplete. They do not give the JLs a comprehensive picture of the alleged deficiencies in the audit process throughout the relevant FYs in order to allow Ps to properly plead their case against D.

80.  As Mr Cowley has identified in his affidavit, besides the full set of FY2020 AWPs, the JLs currently only have incomplete and limited AWPs for the other FY between 2013 and 2019. They were made available to them by D through correspondence between the parties during April 2021 and April 2023. The list of documents / information provided to the JLs in correspondence has been helpfully summed up in table form by Ps and can be found at [B6/1416] of the hearing bundle. They show that the AWPs for the FY2012 to FY2019 are far from complete. For example, only AWPs relating to the Group’s trade financial facilities for FY2015 to FY2019 were made available under correspondence between 12 November 2021 and 21 February 2022 (approximately 200 documents). Likewise, only AWPs relating to the Group’s PPE from YP2017 to FY2019 were made available to the PLs through parties’ correspondence.

81.  Therefore, to ask the JLs to plead their case against D for alleged audit negligence with the limited AWPs provided thus far is like letting them to have only part of the picture and then make them nail their colours to the mast. That would put them in a seriously handicapped position. In my judgment, if the AWPs are disclosed at this stage, the JLs would be able to plead Ps’ case properly and with full particularity. While this may not totally eliminate the need of amendments to the SOC in future, which in a complex audit negligence claim like the present case seems inevitable, at least it would avoid the need for substantial amendments and re-amendments to the SOC at the initial stage of the proceedings. Conversely, if the AWPs are only obtained after the close of pleadings, this would inevitably cause substantial delays in the proceedings and wastage of costs as Ps would have to take time to study the AWPs and to prepare substantial amendments to the SOC according to the new information disclosed under the AWPs.

82.  Second, in my judgment, the early disclosure of the AWPs would result in significant time and costs savings in this case.

83.  While it is true to say that in each case this argument can be run and that saving of costs can be made if pre-action or pre-SOC discovery is ordered by the court: (see eg Zhang Shouen at §46), I think the circumstances of this case are rather different.

84.  Since I have found that all the AWPs requested are relevant to the proceedings and therefore would be discoverable in any event, it is only a matter of timing as to when they would be discovered. They can be discovered now or after the close of pleadings.

85.  While it is true that admittedly it would be possible for Ps to file a SOC and then obtain all the AWPs by way of discovery under Order 24 1(1) of the RHC after the close of pleadings (see Cowley 1^st Aff §74), this in my view will not be the most costs effective and time efficient way of dealing with the matter. It certainly will not be consistent with the underlying objectives of the Civil Justice Reform.

86.  It has been held that the likely savings of costs resulting from the ability for a plaintiff to lead his case with more particularity and without the need for amendment and/or re-amendment was regarded as a “highly relevant factor” in finding that early discovery was desirable and ought to be granted: See Bermuda International Securities §27 and Marshall §70.

87.  I consider the potential savings of significant amount of costs and time for the inevitable substantial amendments to their SOC if the PLs were not allowed to discover the AWPs at this stage is one of the main exceptional circumstances which would justify granting the Specific Discovery Application in this case.

88.  Third, unlike other cases where the documents requested during pre-action or pre-SOC stage may or may not exist, the AWPs requested by the PLs in this case have been confirmed by D to be readily available, both in electronic and physical form, and could be easily handed over to the JLs[44]. Thus, this would not cause any extra time or efforts on the part of D to collect the AWPs and then to pass them to the PLs. Further, there is no suggestion that D would suffer any prejudice if early specific discovery were to be ordered. I also do not see any unfairness will be caused to D if it is ordered to discover the AWPs now.

89.  Fourth, in my view, the AWPs in an audit negligence case are akin to medical records in a medical negligence case. They are “raw materials” which a potential claimant has to rely on in order to properly plead his case against the defendant. Without them, a plaintiff will be severely handicapped in formulating the claim and drafting the SOC.  It has been said that they are “obvious examples” of documents which may be appropriate for pre-action discovery in a claim for audit negligence: Jay §18; Black v Sumitomo Corpn & Others [2002] 1 WLR 1562 §85. I cannot agree more.    

90.  Given the above exceptional circumstances in this case, I am of the view that the PLs should be entitled to the requested AWPs at this stage.

The FOT Application

91.  As the JLs’ stated purpose for obtaining the AWPs is to enable them to properly identify, plead and particularise Ps’ claims, I consider it is reasonable to allow them the requested 5 months from the production of the AWPs in order to complete the exercise. I would therefore allow an extension of time of 5 months after the production of the AWPs requested for Ps to file and serve the SOC after the production of the AWPs.

CONCLUSION

92.  In conclusion, based on the above discussions, I would grant an order in terms of the Summons, with costs of and occasioned to be in the cause.