Overseas Trust Bank Ltd. v. Goopers & Lybrand (A Firm) and Others

Case No.HCA 5764/1986

Court

High Court CFI

Date27 Mar 1990

Judge—

Case Document

100%Judiciary

HCA005764/1986

1986, No. A5764

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HEADNOTE

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A PERSON NOT A PARTY TO AN ACTION CAN BE COMPELLED TO PRODUCE TO THE COURT ON SUBPOENA ONLY DOCUMENTS WHICH ARE EVIDENCE EITHER TO PROVE OR DISPROVE ANY MATTER IN QUESTION IN THE ACTION. HE CANNOT BE COMPELLED TO PRODUCE DOCUMENTS MERELY BECAUSE THEY RELATE OR MAY RELATE TO SUCH A MATTER.

1986, No. A5764

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Between

	Overseas Trust Bank Limited	Plaintiff
	AND
	Coopers & Lybrand (a firm) and others	Defendants
	and
	Anthony Wentworth Howitt and others (Practising as Peat, Marwick, Mitchell & Co. (a firm))	First Third Parties
	and
	N.G.P. Panditharatna and others (practising as Ford, Rhodes, Thornton Co (a firm))	Second Third Parties

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Coram: Godfrey, J.;

Date: 27 March 1990

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JUDGMENT

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1. In this action the plaintiff ("OTB") sues the defendants ("Coopers"), its former auditors, for damages for alleged professional negligence.

2. OTB is a bank. On 6th June 1985 its then directors announced that it was insolvent. The business had been dishonestly and imprudently conducted. OTB would have failed but for the intervention of the Hong Kong Government ("the Government") which immediately stepped in and rescued it. OTB was not alone. At various times the affairs of the Hang Lung Bank, the Ka Wah Bank and Dollar Credit Finance Limited also engaged the Government's attention.

3. OTB's accounting date is 30th June. In the years ending 30th June 1981, 30th June 1982 and 30th June 1983 the provisions which it made in its accounts for bad and doubtful debts were inadequate. It says that Coopers should have insisted on its making more substantial provision for such debts in each of those years. It says that, if that had been done, its former management could not have continued to mismanage its affairs, and the losses in succeeding years would have been stemmed or avoided. Alternatively, Coopers would have had to qualify their reports on the accounts, which would have had the same result. Either the Government would have intervened in the affairs of OTB to prevent further mismanagement or it would have allowed OTB to go to the wall.

4. Coopers deny any professional negligence. They also deny the allegation that the Government would have intervened as OTB suggests. They add that OTB's case is pleaded with the benefit of hindsight (though it looks more like foresight to me) and that OTB has fully recovered its losses, this action being really a device by the Government to recover its investment in OTB.

5. I need say no more about the action except to mention that Coopers have brought in two third parties, each of them a firm of accountants, the first third party having been concerned with the affairs of OTB's Bahrain branch, and the second third party having been concerned with the affairs of OTB's Colombo branch.

6. Discovery in the action is complete. But Coopers assert that there exists further documentary evidence which will assist their case. The problem is that this evidence is not in the possession, custody or power of OTB. The people who can produce the documents, say Coopers, are those who presently hold office as Financial Secretary, Secretary for Monetary Affairs, and Commissioner of Banking. So Coopers have addressed to each of them subpoenas duces tecum (I shall refer to these as "the Jacobs subpoena", "the Nendick subpoena" and the "Nicolle subpoena" respectively).

7. Each of the addressees has applied to have the subpoena addressed to him set aside. It is with these applications that the Court is now concerned.

8. In the course of the argument before me, Coopers indicated that they were content that the Jacobs subpoena should be set aside. As to the Nendick subpoena and the Nicolle subpoena, Coopers indicated that they now sought production of fewer documents than had originally been sought.

9. In the case of the Nendick subpoena, Coopers pursue their request (in some respects revised) for production of the following documents (the numbering follows that used in the schedule to the Nendick subpoena) :

	1.	The memorandum prepared by Colin Martin, Commissioner of Banking (date unknown) and submitted to Douglas Blye, Secretary for Monetary Affairs in 1984 which referred inter alia to the "Crisis at OTB" and which followed the preliminary review of provisions at OTB by the banking examiners in 1984.
	4.	The notes, memoranda and other documents prepared or received by Douglas Blye relating to the investigations into the affairs of OTB carried out by the banking examiners between November 1984 and June 1985.
	5.	The notes, memoranda and other documents prepared or received by Douglas Blye relating to the discovery of fraud at OTB.
	6.	The report by Hambros on the financial status of OTB in June 1985 received by Douglas Blye and the notes, memoranda and other documents prepared or received by Douglas Blye relating to the report.
	11.	The notes, memoranda and other documents prepared or received by Douglas Blye following "the disclosure to the Commissioner of Banking of a problem regarding the level of provisions in the accounts of Hang Lung Bank for the 12 month period ended 31st March 1983 and/or relating to any agreement or proposals as to level of such provisions.
	12.	(as revised). The notes, memoranda and other documents prepared or received by Douglas Blye in connection with the confidential contingency plans drawn up in the 12 month period preceding September 1983 and referred to in the speech of the Financial Secretary in which he moved that the Hang Lung Bank (Acquisition) Bill 1983 be read a second time.
	13.	The confidential contingency plans referred to in 12. above.
	22.	The report prepared by Mr B.S.P. Gent in mid-1984 on the banking regulatory system of Hong Kong.

10. In the case of the Nicolle subpoena, Coopers pursue their request (in some respects revised) for production of the following documents (the numbering follows that used in the schedule to the Nicolle subpoena) :

1.	The original of a letter from Patrick Chang, former Managing Director of OTB, to I.W. Lo, Senior Bank Examiner dated 15th July 1982.
3.	A complete copy of the bank examiner's internal report dated 18th July 1983.
4.	The complete report or reports of which the documents entitled "Appendix 19b Summary of Directors' related loans in OTB Limited" and Appendices 20 - 30 and 34 annexed to [the subpoena] and marked 'A' are extracts.
6.	The memorandum prepared by Colin Martin, Commissioner of Banking (date unknown) and submitted to Douglas Blye, Secretary of Monetary Affairs in 1984 which referred, inter alia, to the "Crisis at OTB" and which followed the preliminary review of provisions at OTB by the banking examiners in 1984.
7.	A copy of the internal report prepared by the former Assistant Commissioner of Banking, Gordan Laung, date unknown, commissioned by Colin Martin following receipt of the report referred to in item 6 above.
8.	A note prepared by Colin Martin, following a meeting with Patrick Chang on 2nd October 1984.
12.	(as revisied). The reports, notes, memoranda and other documents prepared or received by Robert Fell, relating to the discovery of fraud at OTB in May/June 1985.
13.	The copy of the report prepared by Hambros on the financial status of OTB in June 1985 received by Robert Fell and the notes, memoranda and other documents prepared by Robert Fell relating to the report.
14.	The notes, memoranda and other documents prepared or received by Robert Fell in connection with the intended and/or actual exercise of the power of the Commissioner of Banking to intervene in the affairs of OTB under Section 13, Banking Ordinance 1983.
16.	to 22 (as revised). The reports, notes or memoranda prepared or received by Colin Martin or Robert Fell in each of the years 1982 to 1985 concerning :
	(a)	The appropriate level of provisions in OTB's accounts; and
	(b)	The appropriate treatment of management representations as to the recoverability of debt.
30.	The internal report of examiners from the Commissioner of Banking's office investigating the failure of Dollar Credit Finance Limited dated 29th December 1982.
31.	The letter from Hang Lung Bank to Colin Martin, enclosing a Deed of Settlement with E.K. Cheng and H.K. Lee and seeking confirmation that Colin Martin had no objection to its proposed terms.
32.	The reports of Peat Marwick Mitchell dated 16th and 29th March 1983 relating to their audit of the loan portfolio of Hang Lung Bank.
33.	Letter of April 1983 from S.M. Cheung of the Commissioner of Banking's office to Hang Lung Bank expressing general agreement with proposals with regard to the level of provisions in the accounts of Hang Lung Bank for the 12 month period ended 31st March 1983.
35.	Notes of the meeting in September 1983 between Winston Kwong, the management of Hang Lung Bank and its auditors, Peat Marwick Mitchell, to discuss the level of provisions in the accounts of Hang Lung Bank for the 12 month period ended 31st March 1983.
37.	(as revised). The notes, memoranda and other documents prepared or received by Colin Martin in connection with the confidential contingency plans drawn up in the 12 month period preceding September 1983 and referred to in the speech of the Financial Secretary in which he moved that the Hang Lung Bank (Acquisition) Bill 1983 be read second time.
39.	The notes and memoranda prepared or received by Colin Martin regarding in the level of provisions in the accounts of Hang Lung Bank for the 12 month period ended 31st March 1983.
40.	A copy of the report commissioned by Robert Fell the Commissioner of Banking, and prepared by Richard Farrant, his Assistant following the Government takeover of Hang Lung Bank.
41	to 47 (as revised). The reports, notes or memoranda prepared or received by Colin Martin in the years 1982 and 1983 concerning :
	(a)	The appropriate level of provisions in Hang Lung's accounts; and
	(b)	The appropriate treatment of management representations as to the recoverability of debt.

48.	The note dated 31st May 1984 prepared by a member of Commissioner of Banking's staff expressing relief that the auditors of ka Wah Bank had agreed to issue a clean audit report.
49.	The report produced on or about 7th May 1985 by the Commissioner of Banking's Department following an examination of the affairs of Ka Wah Bank.
55.	(as revised). The notes, memoranda and other documents prepared or received by Robert Fell in respect of the intented and/or actual exercise of his powers to intervene in the affairs of Ka Wah Bank under Section 13 of the Banking Ordinance 1983 on or about 21st December 1985 and 10th January 1986.
62.	to 67 (as revised). The reports, notes or memoranda prepared or received by Robert Fell in the years 1984, 1985 and 1986 concerning :
	(a)	The appropriate level of provisions in Ka Wah's accounts,
	(b)	The appropriate treatment of management representations as to the recoverability of debt.
68.	The report prepared by Mr. B.S.P. Gent in mid 1984 on the banking regulatory system in Hong Kong.

11. In support of the applications to set aside the Nendick subpoena and the Nicolle subpoena, it is said, first, that the documents production of which is sought are irrelevant; secondly, that the subpoenas are oppressive; thirdly, that an order for production of the documents sought would fall foul of the provisions of section 120 of the Banking Ordinance, Chapter 155; and, lastly, that it would, in any event, be injurious to the public interest to order the production of these documents.

12. I deal first with relevance; and I remind myself that I am dealing now not with the process of discovery but with the process of subpoena.

13. In my judgment, there is a world of difference in the nature of documents which the addressee of a subpoena duces tecum can properly be asked to produce to the Court and the documents which a party to the action must produce for inspection by his opponent. A party to an action must disclose to his opponent the documents which are or have been in his possession, custody or power relating to matters in question in the action : see Order 24, rule 1 of the Rules of the Supreme Court. What is the meaning of this definition? The answer is supplied by Brett, LJ in the Peruvian Guano case (1882)11 Q.B.D. 55 at p.62 :

"What are the documents which are documents relating to any matter in question in the action? In Jones v. Monte Video Gas Co. (1880)5 Q.B.D. 556 the Court stated its desire to make the rule as to the affidavit of documents as elastic as was possible. And I think that that is the view of the Court both as to the sources from which the information can be derived, and as to the nature of the documents. We desire to make the rule as large as we can with due regard to propriety; and therefore I desire to give as large an interpretation as I can to the words of the rule, 'a document relating to any matter in question in the action.' I think it obvious from the use of these terms that the documents to be produced are not confined to those, which would be evidence either to prove or to disprove any matter in question in the action; and the practice with regard to insurance cases shews, that the Court never thought that the person making the affidavit would satisfy the duty imposed upon him by merely setting out such documents, as would be evidence to support or defeat any issue in the cause."

He added (at 9.63) .

"... every document relates to the matters in question in the action, which not only would be evidence upon any issue, but also which, it is reasonable to suppose, contains information which may - not which must - either directly or indirectly enable the party ... either to advance his own case or to damage the case of his adversary. I have put in the words 'either directly or indirectly', because, as it seems to me, a document can propery be said to contain information which may enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of inquiry, which may have either of these two consequences ... ".

It is clear that, for the purposes of discovery, disclosure only of documents which would be evidence "to support or defeat any issue in the cause" is not enough.

14. The same judge (now Lord Esher MR), some 9 years later described the nature of a subpoena duces tecum in terms which clearly point out the distinction between the process of discovery and the process of subpoena. In Burchard v. MacFarlane [1891] 2 Q.B. 241, at pp. 247, 248, Lord Esher MR said this:

"In the Courts of Chancery before the Judicature Acts there was no such thing as a bill of discovery against a third person to discover matters in an action between other parties in which he had no interest. If there were a subpoena duces tecum to the same effect it would have been bad upon this view of the matter, and for the reason that it would be putting upon a witness who had no interest in the matter a burthen that there was no right to put upon him, that is, that he should look through his documents or books, and come to a conclusion as to what was relevant to the inquiry. A subpoena duces tecum was an order from the Court to a person to produce a document which was alleged to be in his possession - to produce it to the Court at the trial, and not to produce it to the parties, for, under a subpoena duces tecum, when a witness brought the document into Court the parties could not ask him for it. The parties have no right to see it, and all that could be done on a subpoena duces tecum was that the witness produced the document to the Court, subject to the order of the Court, not to the parties; and he might insist that his document should not be handed to the parties even at the trial. All that could be done was that the judge, when he was satisfied that it was evidence in the case for either of the parties, might order it to be read."

15. So, in the case of a subpoena duces tecum, the judge must be satisfied that the document is "evidence in the case for either of the parties" (see Burchard v. MacFarlane, above); but in the case of discovery "the documents to be produced are not confined to those, which would be evidence either to prove or disprove any matter in question in the action" (see the Peruvian Guano case, above). It is obvious that the class or classes of documents which may be required to be produced on subpoena is much more restricted than those which can be required to be disclosed on discovery. In the former case, the documents must be necessary evidence in the action.

16. In argument before me it was suggested that the documents with which the Court was concerned here could be divided into 5 categories, 3 of them containing 2 sub-categories. The categories were defined as follows :

(1)	(a)	Documents dealing with the inspections of OTB carried out by the Commissioner of Banking under statutory powers;
	(b)	Documents dealing with the crisis at OTB and its rescue.
(2)	(a)	Documents dealing with the inspections of Hang Lung Bank similarly carried out by the Commissioner of Banking;
	(b)	Documents dealing with the crisis of Hang Lung and its rescue.
(3)	(a)	Documents dealing with the inspections of Ka Wah Bank similarly carried out by the Commissioner of Banking;
	(b)	Documents dealing with the crisis at Ka Wah and its rescue.
(4)		Documents dealing with the crisis at Dollar Credit Finance Limited;
(5)		The Gent Report on the banking regulatory system in Hong Kong.

17. I accept this classification.

18. The documents contained in category (1), that is to say, documents dealing with the inspections of OTB carried out by the Commissioner of Banking and documents dealing with the crisis at OTB and its rescue, are perhaps documents which might fairly lead Coopers to a train of inquiry enabling them either to advance their own case or to damage the case of OTB upon the question whether or not the Government would have intervened earlier in the affairs of OTB if Coopers had done their work properly and the problems at OTB had accordingly then come to the Government's notice. I take the same view of the documents in category (2). The problems at Hang Lung Bank were sufficiently comparable with those of OTB in point of time and nature as to warrant a similar conclusion. And I take the same view of the Gent report, category (5). I regard the documents in categories (3) and (4) as too remote from the problems at OTB to justify the conclusion that these documents are relevant even on the Peruvian Guano test. But not a single one of these documents, in any of thesecategories, are in any judgment necessary evidence in the case for the purpose of process by subpoena.

19. I have not lost sight of the fact that Coopers contend (it seems to me, on the face of it, with some justice) that this action is in reality a device by which the Government seeks to recover its investment in OTB. Nevertheless, the Government is not a party to the action and OTB is not an arm of the Government; even though its entire share capital is now owned by the Government, it remains a separate legal entity and for present purposes I have to treat it as such. I cannot treat the subpoenas as if they were justified attempts to obtain specific discovery from the Government. Indeed, it is not suggested that I should do so. When I ask myself simply whether I am satisfied that any of this material is "evidence in the case for either of the parties" I find myself compelled to answer in the negative; even in relation to the documents in categories (1) and (2). They may relate to "matters in question in the action" in the wide sense in which those words were construed in the Peruvian Guano case; but they are not "evidence" of a character sufficient to justify the Court's demanding their production upon subpoena by a person not a party to the action.

20. For these reasons, I would set aside the subpoenas on this ground alone.

21. But in any case, the Nendick subpoena and the Nicolle subpoena are in my judgment objectionable on the ground that they are too wide and general in their terms and are therefore oppressive. Even in their revised form, each of them contains a number of requests for production of "the notes, memoranda and other documents" relating to various matters; and this formulation, however suitable on an application for specific discovery, is quite unsuitable for a subpoena. In a subpoena duces tecum, the description of the document required to be produced must be sufficiently specific to enable the addressee to put his hand on the documents or the file without having to consider for himself what documents he needs to produce and what documents he does not need to produce. I have no doubt that requests framed as are those here ought to be rejected. This would exclude all but items 1 and 22 mentioned in the schedule to the Nendick subpoena and all but items l, 3, 4, 6, 7, 8, 30, 31, 32, 33, 35, 40, 48, 49 and 50 mentioned on the schedule to the Nicolle subpoena.

22. I turn to section 120 of the Banking Ordinance, Chapter 155.

23. Subsection (1) provides as follows :

	"Except as may be necessary for the exercise of any function under this Ordinance or for carrying into effect the provisions of this Ordinance, every person to whom this subsection applies -
	(a)	shall preserve and aid in preserving secrecy with regard to all matters relating to the affairs of any company that may come to his knowledge in the exercise of any function under this Ordinance;
	(b)	shall not communicate any such matter to any person other than the person to whom such matter relates;
	(c)	shall not suffer or permit any person to have access to any records in the possession, custody or control of any person to whom this subsection applies."

Subsection (2) provides as follows :

	"Subsection (1) shall apply to -
	(a) any public officer.
	........"

Subsection (4) provides as follows :

"No person who exercises any function in the course of an examination or investigation under sections 47, 50, 55 or 117 or who receives reports, returns or information submitted under sections 47, 50, 55, 56, 63 or 64 shall be required to produce in any court any book, account or other document whatsoever or to diverge or communicate to any court any matter or thing coming under his notice in the exercise of this functions under this Ordinance, except insofar as may be necessary in the course of a prosecution for any offence or of a winding up by the court under section 122."

Subsection (5) provides (so far as is material) as follows :

"Subsection 1 shall not apply -

	(a)	......
	(b)	to the disclosure of information with a view to the institution of, or otherwise for the purposes of, any criminal proceedings, whether under this Ordinance or otherwise;
	(c)	in connection with any other legal proceedings arising out of this Ordinance;
	(d)	......."

A contravention of subsection (1) is made a criminal offence.

24. This action is not "a prosecution for any offence." Nor it is "a winding up by the High Court under section 122". So neither Mr Nendick nor Mr Nicolle, insofar as they have received reports, returns or information submitted under the sections quoted in subsection (4), may be required to produce any document coming under his notice in the exercise of his functions under the Ordinance. And the only "other legal proceedings" taken out of the ambit of subsection (1) by subsection (5) are legal proceedings "arising out of this Ordinance".

25. Mr Nicolle is "a public officer" for the purposes of section 120. Mr Nendick is not. However, I am satisfied that to require production of the documents mentioned in the subpoenas would defeat the clear statutory purpose of section 120 (similar conclusion was reached on comparable statutory provisions in Rowell v. Pratt [1938] A.C. 101). I would set the subpoenas aside on this ground, too. The section contains some infelicities of expression; but there can be no doubt that the legislature intended to preclude the production of such documents to any Court except in certain specified cases of which the present is not one.

26. I turn last to public interest immunity. In my judgment, in any case in which public interest immunity is claimed against production of documents by the addressee of a subpoena, the first question (as with any subpoena which is challenged) is whether the documents sought to be produced are evidence in the case. I have already held here that they are not and I have drawn attention in this connection to the distinction between the process by way of discovery and the process by way of subpoena against a person who is not a party to the action. I will not repeat myself here. But in case a higher court takes a different view, I should go on to express my view of the next stage of the matter, that is, whether the certificate of the Chief Secretary here, advancing the claim for public interest immunity, properly founds that claim. I am satisfied that the Chief Secretary's Certificate does properly found the claim to public interest immunity. I must next consider whether Coopers have satisfied me, in relation to these documents, that they are sufficiently likely to contain material giving such substantial support to Coopers' case that I ought to inspect them with a view to ordering their production. I have reached the conclusion that none of the documents of which production is required are likely, let alone very likely, to support Coopers' claim. I think it is possible that some of them may do so, in particular, the documents Items No. 1 and 22 in the schedule to the Nendick subpoena (which are also items No. 6 and 68 in the schedule to the Nicolle subpoena). But that is not the test.

27. If I were wrong about this, and the correct view is that these documents, or some of them, are very likely, or at least likely, to support Coopers' case, then I would have thought it right on the authorities (which I do not review, since there is no real dispute about the principles) to inspect the documents with a view to ordering their production. As it is, I do not have to consider inspecting the documents and it follows that I do not have to consider whether, balancing the public interest in proper administration of justice against the public interest in good administration of public affairs, the documents ought to be produced. If, having found that the inspected documents did support Coopers' case, I had had to consider this, I would have come to the conclusion that the balance of competing public interests came down in favour of the public interest in the proper administration of justice. The claim of OTB in this litigation is for damages approaching HK$3 billion. Coopers say that this claim not only puts in issue the professional reputation of Coopers but also, by its magnitude, threatens the very existence of the firm. Since 7th June 1985, the Government has controlled OTB. In particular, the entire share capital of OTB is vested in the Government through the Financial Secretary Incorporated; the Chairman of OTB is the Secretary for Monetary Affairs (at present Mr Nendick); the other directors of OTB are appointed by the Financial Secretary; the Government has injected about HK$2.7 billion in funds into OTB; the Government's appointed Board of OTB has instituted these proceedings against Coopers; and the Government will receive the benefit of any damages obtained by OTB from these proceedings. I am inclined to agree. But these factors do not enable me, as I see it, to get over the facts that OTB is a separate legal entity from the Government and that the Government cannot be obliged in effect to give discovery as if it were a party to the action. Further, even when the Government is a party to proceedings, it is still entitled in a proper case to claim public interest immunity against the production of documents which it has had to disclose on discovery. Nevertheless, satisfied as I am that the Certificate of the Chief Secretary makes out the case for public interest immunity here, I am equally satisfied that the scales would have come down in the present case in favour of the public interest in the proper administration of justice. I do not believe the Government, as custodian of the public interest in good administration, would be much affected by the disclosure of any of the documents of which production is sought. To Coopers, who are entitled to justice, this action is a matter of life or death. However, for the reasons I have endeavoured to state, the question of balancing these competing public interests does not arise and I say no more about it.

28. For the reasons I have given, I propose to order that all three subpoenas be set aside. I will hear Counsel on any question of costs or otherwise which may arise as a consequence of this judgment on a date and at a time to be fixed through the usual channels.

(G.M. Godfrey)
Judge of the High Court

Representation:

Mr N. Bratza, Q.C. & Mr. P. Hamlin for the Attorney General

Mr. N. Thomas, Q.C. & Ms. A. Eu instructed by Barlow Lyde & Gilbert for Defendant

Mr. John Bleach instructed by Freshfields for Plaintiff

Ms. Maria Yuen instructed by Stephenson Harwood and Lo for First Third Parties

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