Orient Power Holdings Limited (Receivers and Managers Appointed) (in Liquidation) and Others v. Ernst & Young

CAMP 6/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 6 OF 2017

(ON AN INTENDED APPEAL FROM HCCL NO 14 of 2014)

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REASONS FOR DECISION
AND ASSESSMENT OF COSTS

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Hon Lam VP (giving the Reasons for Decision and Assessment of Costs of the Court):

1.This is an application for leave to appeal against the decision of Mimmie Chan J [“the Judge”] on 30 June 2017 in HCCL 14 of 2014 refusing leave to the Plaintiffs to file and serve the witness statement of Mr Isherwood. Mr Isherwood is an officer of the Standard Chartered Bank [“the Bank”], a former banker to the Plaintiffs and now one of their major creditors. The learned judge refused leave to appeal on 13 July 2017.

2.The intended appeal is an appeal against the case management decision of the Judge (who is also the judge in charge of the Commercial List) in a complex commercial case.  The Judge is most familiar with it as she has been monitoring the progress of the action since 8 July 2014, presiding over case management conferences.  She is also the trial judge of the case and presided at the pre-trial review.  The 60-day trial (trial dates were fixed long ago on 12 August 2015) will commence on 4 September 2017.

3.The application for the filing of the witness statement was made by a summons issued on 8 May 2017.  Though it was an application taken out about 4 months before the commencement of the trial, it has to be considered against the following background:

(a)  At the First Case Management Conference on 15 October 2014, the Judge set the deadline for the filing of witness statements at 31 March 2015;

(b)  The Plaintiffs were aware of the relevance of the evidence of Mr Isherwood and had tried to procure his evidence when they prepared witness statements before the exchange in March 2015;

(c)  Due to the refusal of the Bank to make Mr Isherwood available, the Plaintiffs did not press further and instead procured evidence from a Mr Wong of the China CITIC Bank.  Mr Wong’s witness statement was filed and served on 31 March 2015;

(d)  In between April 2015 and May 2017, there was no indication that the Plaintiffs would continue to seek to obtain evidence from Mr Isherwood, for example by seeking extension of time to file and serve witness statements.  There is no suggestion that the Plaintiffs had made any efforts in that regard during that period;

(e)  As a condition for agreeing to have Mr Isherwood’s evidence admitted, the Defendant invited the Plaintiffs to procure disclosure of documents relevant to Mr Isherwood’s evidence from the Bank in order to ensure fairness to the Defendant in respect of such evidence.  Before the Judge, the Plaintiffs did not agree to such condition notwithstanding that the Bank was the liaison bank and coordinator in the syndicate of banks which procured the appointment of receivers of the 1^st Plaintiff in 2006 and acted as security agent for the secured lenders in appointing the liquidators of the Plaintiffs’ Group. Instead the Plaintiffs suggested the Defendant should obtain such documents from the Bank by subpoena;

(f)   Due to the imminence of the trial, there is not much time for the Defendant to seek discovery against the Bank in respect of such documents and it is likely that there would be disruption to the trial dates if this aspect of the matter were dealt with in the usual way;

(g)  There are still other loose-ends in respect of the preparation for trial, in particular in relation to expert evidence and counsel and the Judge are heavily engaged in between now and the commencement of trial in trial preparation.  There will be a second pre-trial review hearing on 4 August 2017 where some of the issues would be canvassed;

(h)  The admission of the evidence of Mr Isherwood would have some strategic implications in terms of the preparation of the defence evidence and the conduct of the defence case.  Without such evidence, the Plaintiffs did not have any direct evidence on what their bankers would have done if qualified auditor’s reports were given.  With such evidence, the Defendant might need to do more than merely putting the Plaintiffs to proof.  

4.As stated by the Judge in the Decision of 13 July 2017, the test for granting leave to appeal in this type of situation was set out by the Chief Judge in厦門新景地集團有限公司v Eton Properties HCMP 13 of 2012, 14 February 2012, paragraph 9:

“ No leave to appeal should be granted unless the threshold test of reasonable prospect of success is satisfied, or (which is not relevant to the present case) there is some other reason in the interests of justice why the appeal should be heard: section 14AA(4), the High Court Ordinance (Cap 4). But the court still retains a discretion whether to grant leave even if the threshold test is satisfied. This is particularly so in relation to an intended appeal against a case management decision. In relation to such an intended appeal, this court rarely intervenes save in exceptional circumstances. As Kwan JA reiterated in the recent case of Mimi Kar Kee Wong Hung v Severn Villa Limited, HCMP 2192/2011, 12 January 2012, para 31, it need hardly be emphasized that generally, an appellate court will not interfere with a judge’s exercise of discretion unless the judge has misunderstood the law or the evidence or the exercise of his discretion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible. In relation to case management decisions, the intended appellant must show that the judge “has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task”, or if the judge “erred in principle or the order was irrational having regard to the issues that had to be resolved”. It is of great importance that this court does not descend to micro‑managing cases pending before the court below.”

5.See also Mimi Kar Kee Wong Hung v Severn Villa Limited[2012] 2 HKLRD 887; Li Xiao Yun v China Gas Holdings Ltd HCMP 466 of 2013, 11 March 2013; CACV 38 of 2013, 11 March 2013.  We would reiterate what had been said in Li Xiao Yun v China Gas Holdings Ltd CACV 38 of 2013, 11 March 2013 at [18] and [19]:

“ Unmeritorious appeals against case management decisions, at least last minute urgent appeals, are to be deplored since not only are they satellite litigation increasing the costs of the judicial process, they also tend to disrupt the preparation for trial on the part of those representing the opposing party. It is wholly inconsistent with the spirit of the underlying objectives in Order 1A Rule 1 and the duties of the parties and their lawyers under Order 1A Rule 3. Last minute pre-trial applications also disrupt the preparation for the trial on the part of a trial judge in terms of reading into the case. Instead of getting himself or herself familiar with the issues that have to be tackled at the trial, the judge would have to divert attention and spend time and efforts on such applications. Thus, such practice has to be discouraged and, unless there are good justifications, the unsuccessful appellant should normally be expected to face an order for indemnity costs.

To justify an interference with the Judge’s case management discretion, it is not enough that members of the appellate court may make a different decision had they been the primary judge who exercised the discretion.  This is particularly so when the Judge was the trial judge presiding over the trial and she had been handling the case since the Pre-trial review.  The Plaintiffs have to show that the Judge has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task, or alternatively the Judge erred in principle or the order was irrational having regard to the issues that had to be resolved.”

6.Though the present application concerns a summons taken out some four months before the commencement of trial, the timing of it should be considered against the background set out above, in particular the implications it could cause to the defence case and the potential disruptive effect on the preparation for trial.  Viewed in that light, and given the unexplained previous omission on the part of the Plaintiffs to procure the statement from Mr Isherwood, the characterization of this application by the Judge as a late one can hardly be gainsaid. 

7.In the written submissions of Mr Karas (who did not appear at the hearing before us) made in support of the application to us, he submitted that the Judge was plainly wrong in finding unexplained delay and potential prejudice arising therefrom as determinative.  He also said the Judge failed to conduct a balancing exercise and failed to have regard to the probative value of Mr Isherwood’s evidence and compare it with the prejudice occasioned to the Plaintiffs by not having such evidence.  He also submitted that the Judge made some factual errors that vitiated her exercise of discretion.

8.With respect, we do not find any merit in these submissions.  It is clear from the Judge’s judgment of 30 June 2017 that she did not dismiss the summons simply by reason of unexplained delay and potential prejudice, shutting her eyes to the evidential value of Mr Isherwood’s evidence.  She alluded to the same at [8] of the judgment.  At the same time, she also found that fairness to the Defendant dictated that they should have the opportunity to test his evidence and the discovery of relevant documents from the Bank is essential to that process.  If it is necessary to procure such documents by way of discovery application, there is a risk that the trial would be disrupted. Again one can hardly gainsay these findings.  

9.The Judge stated clearly at [2] of the judgment she adopted the principles summarized in Parsad v Great Wealthy Engineering Co Ltd [2012] 3 HKLRD 705 and went on to say that the court has to weigh the relevance and probative value of the witness statement against other factors.  It is also crystal clear from the rest of the judgment that the Judge did carry out a balancing exercise.  The outcome of such exercise was unfavourable to the Plaintiffs.  But it is simply wrong to suggest that no balancing exercise had been performed.

10.Mr Karas’ submission that the Judge did not apply the law correctly is plainly wrong.  His submission that the Judge regarded Mr Isherwood’s evidence as “nothing new” is a misreading of [12] of the Judge’s judgment.  As Ms Ismail SC submitted, in that paragraph the Judge was addressing Mr Karas’ argument that the evidence of Mr Isherwood did not raise any new points in light of the witness statement of Mr Wong.  We do not read that paragraph as indicating that the Judge wrongly regarded the evidence of Mr Isherwood as adding nothing to the evidence of Mr Wong.

11.Mr Karas appeared to have misunderstood the position of the Defendant regarding the discovery from the Bank.  At paragraph 4 of his submission of 14 July 2017, Mr Karas made this assertion:

“ The Plaintiffs’ application was not opposed by the Defendant, provided leave was granted to the Defendant to issue a subpoena to Mr Isherwood’s employer. This was not opposed by the Plaintiffs. Despite this, the Judge dismissed the Plaintiffs’ application.”

12.He repeated this assertion at paragraph 14 of his submissions.

13.With due respect, this is a distortion of the true position of the Defendant.  As Ms Ismail demonstrated, the position of the Defendant has all along been that the Plaintiffs should procure such documents from the Bank in order to redress the potential unfairness occasioned by the production of the statement of Mr Isherwood at this late stage (leaving insufficient time for proper contested discovery application against the Bank with possibility of appeals arising from such application and time for studying the documents obtained from such discovery and preparation for deploying the same for trial).

14.On the other hand, the Judge was very much alive to this potential unfairness, see [9] of the judgment.  And it was in such context the Judge mentioned the possibility of the Defendant calling evidence in response.  The Defendant cannot tell if such evidence would have to be called to put forward a positive case (with amendment of pleadings if necessary) until their lawyers have the opportunity to study the documents.  These are the potential ripple effects occasioned by the filing of the evidence of Mr Isherwood.  Mr Karas simply turned a blind eye to such ripple effects when he submitted that the Judge wrongly took these possibilities into account.    

15.We are also satisfied that there is no substance in Mr Karas’ alleged errors by the Judge set out in paragraphs 3.1 to 3.8 of the draft Notice of Appeal.

16.Ms Chan SC was engaged to appear for the Plaintiffs at the hearing before us. Counsel took a more realistic stance and focused on arguing that the Judge’s exercise of discretion was plainly wrong in light of the possible redress of prejudice to the Defendant by having an expedited production of documents by the Bank under a subpoena in accordance with the practice adopted in Khanna v Lovell White Durrant [1995] 1 WLR 121. She also informed the Court that the Plaintiffs had obtained confirmation from the Bank that it would endeavour to comply with the subpoena as soon as practicable in advance of the trial and referred us to a letter from the Bank’s solicitors on 25 July 2017. 

17.The Judge took the view that the Plaintiffs should procure the production of such documents to the Defendant. We agree. In the context of a late application, the applicant should be more proactive in taking the necessary steps to ameliorate the potential prejudice that could be caused by the lateness of the application. In the present context, those acting for the Plaintiffs should have approached the Bank regarding production of all relevant documents (as opposed to being selective in attaching some of them in the draft witness statement of Mr Isherwood).

18.The letter of 28 July 2017 is not a clear acceptance by the Bank that all relevant documents would be produced. The penultimate paragraph in that letter suggested that there could be practical difficulties which might take some time to resolve. This highlights that the process should have started much earlier and for reasons already canvassed, the Plaintiffs should bear the responsibility for the delay.

19.At the hearing, Ms Chan further informed us that the Plaintiffs would accept as a condition for the filing of the statement of Mr Isherwood that they would produce the documents from the Bank by 4 August.

20.Though such suggestion had been mentioned in the course of the submissions by Ms Ismail before the Judge, Her Ladyship indicated that she was not minded to make an order which might result in parties coming back to court to argue later as to whether such conditions have been complied with. Instead, the Judge took the view that the Plaintiffs should supply the documents first before applying for leave to file the new witness statement.

21.We can see the good sense in the Judge’s reasoning as a matter of case management and we cannot say such approach is plainly wrong.

22.It follows from that approach that it is still open to the Plaintiffs to supply the documents and come back to the Judge to apply for the filing of the new witness statement. Before us Ms Ismail was of the same view. The Judge would then be in a much better position to assess if there is still any room for the Defendant to argue for potential unfairness due to an incomplete picture being given in the new witness statement.

23.To sum up, it is plain to us that the Judge did pay regard to the correct legal principles in the exercise of her discretion. Instead of being plainly wrong, it seems to us that her decision is plainly right.  We cannot see any arguable ground for interfering with the Judge’s dismissal of the summons.

24.The intended appeal has no prospect of success and there is no other reason in the interest of justice for leave of appeal to be granted.

25.We therefore refused to grant leave to appeal.

26.We ordered the Plaintiffs to bear the Defendant’s costs of this application. Such costs are to be assessed on indemnity basis and payable forthwith in view of the unmeritorious nature of the application, the disruptive effect it has on the preparation for the trial and the persistence with a hopeless application even after the decision of the Judge in refusing leave on 13 July 2017. 

27.Having considered the Statement of Costs of the Defendant and heard Mr Ho and Ms Ismail on the same, we fix the costs of the Defendant at $640,000.

Ms Linda Chan SC and Mr Justine 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