Orient Power Holdings Ltd and Others v. Ernst & Young

HCCL 14/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 14 OF 2014

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Before: Hon Mimmie Chan J in Chambers (open to public)

Date of Hearing: 30 June 2017

Date of Decision: 30 June 2017

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D E C I S I O N

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1.This is the plaintiffs’ late application for leave to serve a witness statement of Mr Isherwood, a senior banker at Standard Charted Bank (“SCB”), the draft of which has been exhibited to the plaintiffs’ affidavit, notice of the contents of which were supplied by the plaintiffs to the defendant on about 26 May 2017. The trial of this action has been set to commence on 4 September 2017, for 10 weeks.

2.Applying the principles succinctly summarized in Parsad v Great Wealthy Engineering Co Ltd [2012] 3 HKLRD 705 for granting leave to adduce witness statements at a late stage of the action, the court has to weigh the relevance and probative value of the witness statement against factors such as the potential disruption to trial, prejudice to the other parties, the explanation offered for the late application, and the objectives of the CJR.

3.It has to be borne in mind that this case has been set down for trial in early September 2017, with 10 weeks fixed for the calling of factual as well as extensive expert evidence, and that as early as October 2014, directions were made for factual witness statements to be exchanged before 31 March 2015. The claim in the action is made in respect of the defendant’s alleged negligence in its audit of the accounts of the OH Group, and the damages sought are for an increase in net deficiency of the group, of $913 million, and further damages in the excess of about $500 million.

4.First, I am not satisfied that there is any good reason for the delay. It goes without saying that since the CJR, parties and their legal advisors are to identify the key issues in dispute and to make early preparations for trial, in accordance with the principles of proportionality and cost-effectiveness. According to the plaintiffs, SCB was approached for the production of Isherwood’s statement before March 2015.  SCB did not agree then to make Isherwood available, due to “heavy work commitments” of either Isherwood or SCB.  There was a conscious and deliberate decision made by SCB and the plaintiffs to dispense with the filing of Isherwood’s witness statement, notwithstanding the plaintiffs’ and SCB’s knowledge of the relevance of the matters to be dealt with by Isherwood.

5.The role of SCB cannot be brushed aside in the bringing of these proceedings. SCB was not only a creditor of OPH, but was also the liaison bank appointed by the steering committee of OPH and the security agent for the secured lenders of OPH.  The receivers in this case who have brought proceedings in the name of OPH were appointed by SCB as the security agent on behalf of the lenders.

6.The explanation offered now is that when the plaintiffs approached SCB again in March 2017, SCB agreed to make Isherwood available to give evidence at the trial due to start in September.  There have been various interlocutory hearings before the court before and around the time of the 1^st PTR in May 2017, with heavy discovery sought and made and preparation of expert evidence, all taking place in anticipation of trial in September 2017.

7.Weighing the date and length of the trial and the complexity of the issues raised for trial, the application made in May 2017, more than 2 years after the date ordered for exchange of factual witness statements (31 March 2015) and 4 months before the commencement of trial (on 4 September 2017), is in my view substantial delay which requires very good justification.  SCB and the plaintiffs’ change of mind, after their initial decision not to call Isherwood, is not a good reason, particularly when the issues to be dealt with by Isherwood were the very same issues raised from the start of the filing of pleadings in 2012 and 2013.

8.Isherwood’s proposed statement is said to be relevant and of probative value to, according to the plaintiffs, SCB’s decision-making processes and risk management, the relationship between SCB and the OP group, the negotiations with OPH and Isherwood’s role, Isherwood’s knowledge and understanding of the key events leading to the appointment of receivers to OPH, and the impact of SCB’s earlier knowledge of the falsification in the accounts.  I agree with the defendant, that in fairness to the defendant, if Isherwood is allowed at this stage to give evidence of these matters said to be relevant, the defendant is entitled to discovery of documents which relate to SCB’s decision making, Isherwood’s role and involvement with the OP Group, and what SCB would have done, as is alleged, if the falsification of the accounts had been known. Isherwood now seeks to produce documents with his proposed statement, but SCB object to producing further documents and correspondence between SCB and OP which the defendant seeks to be disclosed, and the plaintiffs claim that they are not in a position to produce these documents as they are not in the plaintiffs’ possession, custody and control.  The plaintiffs claim that the defendant is not prejudiced, as it also has knowledge of the events leading to the appointment of receivers, due to the advisory role the defendant undertook in relation to OP’s dealings with the banks.

9.I agree that fairness dictates that the defendant be allowed to test Isherwood’s evidence and to seek discovery of SCB’s documents, on a Peruvian Guano basis, relating to the matters in question in this action and to which Isherwood seeks to give evidence.  On that basis, it cannot be said that there is no potential disruption to the trial, and the preparations therefor in the remaining time available before 4 September, if the plaintiffs should be allowed to adduce the Isherwood statement.  Discovery will have to be obtained from SCB.  Documents will have to be reviewed, and the defendant will have to be advised as to whether evidence has to be filed in response to Isherwood’s statement.

10.There is prejudice to the defendant in that it could have had time to take appropriate action to apply for the necessary discovery from SCB if the Isherwood statement had been produced in evidence earlier.

11.Whether the documents proposed to be appended to the Isherwood statement are entirely new, or had been disclosed before, they are only now proposed to be adduced into the evidence and to be relied upon by Isherwood and the plaintiffs at trial, and the defendant should be given the opportunity to consider and properly address the documents put in evidence.

12.The plaintiffs claim that Isherwood’s evidence is consistent with and coorborates the evidence of Wong Man Kin of CITIC Bank International Limited, and Wong’s witness statement, as to the actions taken by SCB leading to be appointment of the receivers.  If there is nothing new in Isherwood’s evidence, then it is not necessary at this late stage, when the relevance and probative value of the evidence is weighed against the delay, the possible disruption to trial and preparations for trial, and the reason given for the delay. 

13.For all the above reasons, I have little hesitation in dismissing the plaintiffs’ application, with costs to the defendant, and certificate for 2 counsel.

Mr Jason Karas (Solicitor Advocate) and Mr Justin Ho, instructed by  Lipman Karas, for the 1^st to 4^th plaintiffs

Ms Roxanne Ismail SC and Ms Queenie Lau, instructed by Davis Polk & Wardwell, for the defendant