Fil Leveraged Us Government Bond Fund Ltd. and Others v. Tcw Funds Management, Inc
Read the full judgment text of HCCL 231/1998 on BabelCite. This HCCL judgment was delivered on 30 March 2001.
1. There is before the court an application by the defendant, by summons dated 2 March 2001, for specific discovery pursuant to the provisions of Order 24 rule 7.
Cited by 1 case
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HCCL000231C/1998 HCCL231/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMMERCIAL ACTION NO.231 OF 1998 ---------------
--------------- Coram: Hon Stone J in Chambers Dates of Hearing: 26 and 27 March 2001 Date of Judgment: 30 March 2001 ___________________ J U D G M E N T ___________________ THE APPLICATION 1. There is before the court an application by the defendant, by summons dated 2 March 2001, for specific discovery pursuant to the provisions of Order 24 rule 7. 2. This summons, which is in the form usual for this type of application, seeks an order that the plaintiffs and the third party herein, Mr Mansfield, do within 14 days make and file affidavits stating whether they have at any time had in their possession, custody or power the documents or classes of documents specified in the Schedule annexed to the summons, alternately stating what has become of such documents no longer retained. The Schedule annexed is considerable, itemising some 26 classes of documents which are now sought. 3. The application is backed by the Second Affidavit of Mr Keith Mak, sworn and filed on 8 March 2001. It is an affidavit which has been drawn by counsel. In the complex circumstances prevailing in this case it is also a document which has been of real assistance, the style adopted therein being to group the items sought within common areas of inquiry, the better in order to explain why the documents are required for the resolution of this dispute. 4. This particular discovery application appears to have been waiting in the wings for a considerable time, being first flagged as long ago as 1999, although the particular development of the case subsequent to its commencement in this jurisdiction (I am reminded that it was ongoing for two years in the United States prior to a successful forum non conveniens application) appears to have resulted in its delay. Perhaps, too, it reasonably may have been anticipated that an earlier accommodation on the subject might have been reached with those acting for the plaintiffs, much as the plaintiffs' own specific discovery application was disposed of by consent at the composite hearing of outstanding interlocutory matters held in November 2000. Be that as it may. Without wishing in any way to attribute fault - and Mr Fok SC, who appears for the defendant, has carefully and fairly reminded the court of the procedural history in this case, including the two contested strike out applications and the application to join Mr Mansfield as third party - it is unfortunate to say the least that there remains to be adjudicated a wide-ranging discovery application in what is a complex commercial case, the trial of which is scheduled to commence on 29 October 2001, a mere seven months from today - in itself a relatively short period given the amount of preparatory work currently necessary in order to ensure that these dates are met. And there can be no doubt in anyone's mind, I surmise, of this court's desire to see that this trial indeed does take place as scheduled. 5. Surprisingly, given the manner in which this application was launched, no evidence whatever has been filed either by the plaintiffs or by Mr Mansfield. Whilst I can understand why the Herbert Smith critique of the discovery requests, as set out in their letter of 20 February 2001, was couched in the terms that it was, it is perhaps more difficult to see why a similar 'dead bat' approach thereafter was maintained in light of Mr Mak's full and detailed explanation, on affidavit, of each of the categories of documents sought. The matters outlined in that affidavit may or may not have been regarded by the plaintiffs as justifying the relief sought, but it might reasonably have been thought appropriate for some evidential engagement to have taken place upon the issues raised. Whilst relevance is always an inviting subject for argument, in the circumstances of this case there seemed little to be gained by initially opposing the present application "root and branch", as in fact occurred, on the basis that Mr Mak's affidavit did not get over the "existence threshold" in terms of the classes of documents sought - a blanket approach which possibly contributed to Mr Fok's subsequent complaint that a serious and well-founded application was being trivialised. Indeed, in a commercial case of this magnitude, the objective observer might reasonably take the view that doctrinaire reliance should not be allowed to hold sway at the expense of pragmatism and commonsense. 6. Fortunately, the latter attributes began to be demonstrated early in the argument by Mr Scott SC, appearing on behalf of the plaintiffs, and indeed latterly by Mr Mansfield, who attended throughout. I pause to note that Mr Mansfield's position in this case is not an easy one. Whilst as Third Party he represents himself, clearly he is and has been the key person instructing those acting for the plaintiffs - as he explained in one of his exchanges with the Bench, "every piece of paper" that he had relating to matters prior to TCW's termination in June 1995 already has gone to Messrs Herbert Smith, albeit he retains post-termination materials. For the purposes of the present application he adopted Mr Scott's submissions, although his subsequent suggestions with regard to the possibility of retrieving and reviewing electronic records proved independently helpful and constructive, and as I understand the position these proposals have been adopted. 7. I turn now to the substance of the application, and also to record the accommodations which were reached within the framework of the argument. (1) ITEMS NO LONGER IN CONTENTION
8. Prior to commencement of this hearing, it had been indicated on behalf of the defendant that, out of the 26 items contained in the Schedule annexed to the summons, the defendant did not wish to pursue Item 11 (identities / holdings of bondholders in the MSL Fund) and Item 23 (reports / records etc relating to management of Bond Fund by IPA since June 1995). Indeed, these particular items were not developed by Mr Mak in his affidavit leading the application. 9. Further, at the conclusion of the hearing, Mr Fok SC helpfully submitted that on reflection he had decided no longer to press Item 24 (pricing information / methodology in respect of Bond Fund securities provided to FIL by IPA / APAM) and Item 25 (trade records / reports etc showing purchases and sales of Bond Fund securities by IPA / APAM since their appointment in June 1995). In my view, Mr Fok was correct to take this course.
10. Mr Scott SC indicated early in the argument that his clients were prepared to consent to an order in relation to Item 3 (all documents in relation to the calculation / breakdown of the alleged losses suffered by the Bond Fund shareholders, MSL Fund bondholders and the First Investment Group as set out in the Mansfield Memo to MCSL directors dated 19 April 1995) and Item 14 (the Guarantee, and related documents, referred to by Mr Mansfield in his fax dated 3 February 1994 in respect of the annual distribution payment of the MSL Fund). 11. In this context Mr Scott made it clear that although his client did not have any of these documents (and out of abundance of caution waived no residual privilege argument), it was accepted on behalf of the plaintiffs at this hearing that the twin requirements of existence and relevance were satisfied. 12. In addition, Mr Scott submitted that in the circumstances his client was prepared to make a second concession, on this occasion without accepting that a case properly had been made out in terms of probable existence, in order to shortcut matters. His clients, he said, would make an affidavit stating that they did not have or no longer had (and if appropriate what had become of them) documents within the following categories :-
(2) ITEMS REMAINING CONTENTIOUS 13. The end result of the foregoing exercise was that out of the 26 items particularised in the Schedule to the summons, substantive argument was maintained only in terms of those items, or categories of items, set out below. Items 1 and 2 - after the end of May 1995 14. As earlier noted, these items focused upon reports to shareholders of Bond Fund, and reports of Bond Fund to financial intermediaries. The affidavit to be made by the plaintiffs would, as Mr Scott stipulated, cover the period up to the end of May 1995, whilst for his part Mr Fok was content to limit the defendant's inquiries in this regard to the end of August 1996, which date correlated with the divestment by TCW's managerial successors of the last of those securities which had been purchased by TCW, and which had remained in the Bond Fund portfolio after TCW's termination in May 1995. 15. There is, therefore, a small window which remains outstanding as the subject for argument, and I have no hesitation in ordering discovery of the relevant reports categorised in Items 1 and 2 for the period from the end of May 1995 to the end of August 1996. Whilst I accept Mr Scott's contention that management of a different portfolio by different managers is not of compelling interest in the context of this case, I can see the relevance of reports relating to the interim period when the portfolio continued to contain what I will refer to, for shorthand purposes, as 'TCW securities'. Items 9 and 10 16. As drawn, these items go to what has been referred to by counsel as the 'conflict of interest' point. These items read as follows :-
17. Under this head Mr Scott made two points in opposition to this request : first, that there was in fact no live issue in this regard so far as Mr Mansfield was concerned, since the fact of his interest in Bond Fund had been admitted on the pleadings, and second, that no case whatever had been pleaded alleging that any officer apart from Mr Mansfield had any conflict of interest. Thus, absent Mr Mansfield himself, this was a blatant 'fishing' expedition. 18. Mr Fok clearly recognised the strength of this last submission, and at the end of the argument indicated that he was prepared to limit the application in this regard to Mr Mansfield alone. He further made the point that whilst the admission to which Mr Scott alluded went to Mr Mansfield's admission of an interest in FIL, the request also went to shareholding in Bond Fund and also to MSL Fund, which was not the subject of any admission, expressed or implied. 19. I do not think that it necessarily follows that an admission in itself is sufficient to preclude discovery - and, to be fair, Mr Scott did not put it as high as this - and after reflection, in the exercise of my discretion I am inclined to order specific discovery under these two heads, with the excision of the clause "each of ... to particular" in the second to fourth lines of Item 9, and a like deletion in the second and third lines of Item 10, so that the request is clearly stated to be limited solely to Mr Mansfield. Items 17 - 20 20. These items form a further recognisable 'cluster', and broadly deal with the change of investment adviser from TCW to International Portfolio Analytics Ltd ("IPA") and Atlantic Portfolio Analytics & Management Inc. ("APAM"). As framed, these discovery requests are as follows :-
21. There perhaps has been some misapprehension as to the true aim of this request, Mr Fok being at pains to emphasise that the point at issue here went not to any question of annual percentage return, whether of 12% or otherwise, as Mr Scott had initially thought, but solely to the historical statements within certain classes of contemporary documentation relating to the reason or reasons for the change of investment adviser in 1995. In this context Mr Fok stressed that this material was particularly relevant to the allegation of deceit made against his client, in that the contemporaneously recorded reaction of the plaintiffs at or around the time of the change had a signal bearing as to whether the plaintiffs in fact had been misled, as was claimed; in addition, these heads also went to the absence of contemporary correspondence as to misrepresentation. 22. I allow the discovery sought under each of these heads, that is, 17, 18, 19 and 20, save that Item 17 is to be amended by the deletion of all that follows the word 'Adviser' in the fifth line thereof. In his concluding remarks, Mr Fok recognised, I think, the desirability of amendment in these terms. Item 21
23. This head of request sparked lively debate. In his affidavit (at page 24) Mr Mak usefully sets out, in tabular form, such minutes as have been disclosed of board or general meetings of each of the plaintiffs, noting in particular that only three sets of minutes of FIL had been produced, and that no minutes either of MSL or FIS appear to have been disclosed either by the plaintiffs or by Mr Mansfield. He makes the fair point that on the probabilities there should be more, and further makes observations as to the clear relevance of these documents in terms of decisions made at material times, in particular in relation to various issues in question including pricing, leverage, fees, redemption payment at the time of suspension, hedging, distribution payments, termination of TCW as investment adviser, and liquidation of the MSL Fund. 24. For his part, Mr Scott submitted that what was being sought is analogous to the type of 'discovery by file' which is wont to occur in construction disputes, that his clients already had made discovery of what is relevant in terms of the issues pleaded, and that judicial discretion should be firmly exercised against such "speculative discovery". In effect, he said, the defendant was challenging the veracity of the discovery thus far made, which it should not be forgotten was, in its original and supplemental form, extensive. 25. Mr Fok's response was that there could as yet be no challenge to the plaintiffs' veracity because the plaintiffs pointedly had not yet said anything in evidence, in particular on the point that there were no more minutes relevant to the issues pleaded in this case. And that absent such evidence, in circumstances like this the defendant was obliged to make an application of this nature. 26. In my view Mr Fok is correct. Had the plaintiffs chosen to explain their position in evidence (and I do not consider that inter-solicitor correspondence in this regard suffices as a substitute), such averment on oath would have been conclusive, and thus an end of the matter. But, as observed at the outset, thus far there has been no evidential engagement of any kind, the plaintiffs choosing initially to resist the application with "a straight bat on everything", to adopt Mr Scott's colourful phrase. 27. I order discovery under this head also in terms of the request as drawn. Items 5, 6, 7, 26 and 8 28. I have taken these items out of numerical sequence, and deal with them at the last, because they achieved by far the greatest profile during argument. These items, which were cumulatively referred to under the label 'the redemption point', are framed thus :-
29. The latter item, item 8, was in fact accorded separate treatment by Mr Mak in his affidavit, albeit there is undoubtedly correlation with these other heads, and was referred to as such in argument. An additional point I have borne firmly in mind within this cluster of requests is that Item 26 was but a late entry onto the specific discovery scene, being first ventilated in inter-solicitor correspondence by Baker & McKenzie's letter of 13 February 2001, although as matters transpired, only the request in the opening two lines of paragraph 26 remained in issue, given Mr Scott's concession as to an affidavit covering the balance of paragraph 26, as amended to delete the words "to redeem shares or" (seventh line) and "redemption entitlements or" (final line). 30. Mr Scott strenuously objected to discovery under these items. He noted that with regard to redemptions within the period of the Bond Fund suspension, that is from April to September 1994, that Mr Mansfield had admitted some redemptions, namely those which were in the pipeline at the time of the suspension, in paragraph 14 of the Third Party Defence, and he submitted, therefore, that in light of such admission there was little relevance, to take Item 5 as an example, in seeking redemption requests at the individual investor level. Redemptions were a matter of historical fact, and the pieces of paper representing that process were, he asserted, of no consequence. Similar observations were equally applicable, he said, to Item 6, in that the admitted historical fact of such redemptions was sufficient for the pleaded case. Equally in terms of Item 7, the instructions to the custodian / trustee of the Fund were merely part of the redemption sequence, and added nothing to the basic issue. Likewise, he suggested with Item 8, which was all to do with the details of the monetary processing of the relevant requests. In a nutshell, he said, there was no issue in terms of what redemptions were actually made, but, put simply, the fundamental point was whether the plaintiffs were justified in acting upon the redemption requests during the suspension period of the Fund. 31. As for the newly-introduced Item 26, this, he submitted, was "breathtaking in its width", and it was unclear to what precise pleaded issue the arrangements of individual investors were relevant. Descriptive compression often does less than justice to argument, but that at least was the thrust of his observations under these heads. 32. Mr Fok maintained, correctly in my view, that mere admission of a fact did not remove documents from the scope of primary discovery obligations, albeit this fact was but an element which could legitimately be fed into the discretionary 'mix'. But in any event Mr Fok's primary submission under these heads was that the relevance of the discovery sought had not been fully appreciated, notwithstanding its detailed elaboration by the draftsman of Mr Mak's affidavit, in particular at paragraphs 41 to 43 thereof. There was in this case, he said, an important legal argument to be run which impacted directly upon whether the plaintiff companies (as opposed to individual shareholders) could recover the losses alleged. In essence, the point was that if Bond Fund was to recover claims in respect of securities whose value had declined, but which in effect represented the investment of shareholders who had already redeemed their shares, those redeeming shareholders who had actually suffered the loss would not receive compensation which might be awarded to the plaintiff companies, which compensation thus would enure to the benefit of the continuing shareholders - a situation, it would be submitted, which could not be correct given that any such recovery would not compensate those who in fact had suffered the loss. 33. This line of legal argument may or may not ultimately bear fruit at trial, said Mr Fok, but critical factual information upon which such legal submission depended was the ascertainment of what proportion of any particular head of loss claimed (to take for example, the claim for $71 million), was attributable to retained investments, and what proportion to redeemed investments. In other words, the vital information that was required was who redeemed, when, and how much? Once this historical data became known, TCW would contend that no damages were recoverable by any of the plaintiffs in this action in respect of losses associated with securities representing shareholder redemptions. Such information must be readily available, said Mr Fok, and these specific discovery requests were designed to elicit this information, which ought to be available "at the press of a button". Nor was it necessary, he said, to have details of new investors; what was necessary was to obtain details of those who invested under the TCW regime (i.e. pre June 1995) who fell within the class of investors who had already redeemed. 34. Mr Scott's initial objection was that this line should have been pleaded, and that absent such properly formulated plea, this was inappropriately widening the scope of the plaintiffs' discovery obligations. However, this was neatly met with reference to paragraph 154 of the Amended Defence, which in my view adequately sets out the point, so that under these heads I am unable to accede to Mr Scott's objection that what was being sought were "mountains of documents on tangential unpleaded issues". Mr Scott may, however, have been nearer the mark when he also argued that if what the defendant was after was simply information, there were considerably easier ways of getting at that, for example, by interrogatories, rather than via the cumbrous process of specific discovery of all the thousands of pieces of paper representing the primary redemption documents. 35. I confess I found this latter point very attractive, not least given the current relatively tight timetable to trial, and the probabilities that a very significant amount of documents would otherwise require to be sifted and analysed. As to this, in a brief and helpful submission, Mr Mansfield stated that documentation relevant to "redemption data", as he put it, would be in the region of some 20,000 to 30,000 documents, which must now be retained in warehouses or other repositories. 36. Nevertheless, Mr Mansfield suggested a way out of the difficulty. This was to instruct the Registrar of Bond Fund to provide categories of information to the defendant's solicitors directly and in electronic form, a process which would elicit the primary redemption data the defendant now wished to obtain. In my view, and notwithstanding Mr Fok's immediate reservations, this provides an admirable solution to the practical discovery difficulty which otherwise undoubtedly would arise, and which I was highly concerned may have had the effect of jeopardising the current trial dates. As I understand the current position, a draft schedule has been prepared which details the instructions the plaintiffs will give to the sub-registrar of the Bond Fund in order to obtain the information specified in subparagraphs (a)-(f) of that Schedule. The form of the Schedule, which now has been sent to the court under covering letter, reads thus :-
37. Subject to any submissions counsel now wish to make, I am prepared to approve this course of action, and, if appropriate, to make an order in these terms, which will stand in lieu of the orders presently sought under Items 5, 7 and the relevant part of Item 26. 38. This leaves outstanding Items 6 and 8. 39. As to Item 6, on reflection I am inclined to agree with Mr Fok's submission that this item should, as he put it, be "hived off", and justifiably accorded separate treatment. After considering the matter, I have decided to make an order in terms of Item 6 as drawn. 40. As to Item 8, which it will be recalled were bank statements, this head of discovery seems to me to add little or any real assistance, although undoubtedly it will add considerably to the amount of paper requiring to be processed in this case. Mr Mansfield has also told the court that he estimates that there would be some 800 statements in question arising from the specified bank accounts. Moreover, the bank accounts in question do not contain, he said, "investor specific data", and if necessary he could ask the Registrar of the Fund to confirm this fact. These bank accounts were in the control of the custodian - indeed, the Citibank account was accessed by the trustee on a daily basis - and both accounts were used solely to deal with aggregate inflows / outflows of funds consequent upon the purchase and sale of securities. 41. In the circumstances, and in light of the data to be obtained pursuant to the Schedule of detailed information to which earlier I have referred, in the exercise of my discretion I decline to make an order under Item 8. 42. I will now hear the parties upon any matter arising, and upon the question of the costs of this application. ( Submissions ) 43. One matter of detail has been brought to my attention. This relates to Item 21, the request for minutes of board and shareholders' meetings of the various corporate entities specified. The request as it stands is presently unlimited in terms of time, and it has been suggested that the cut-off date of end August 1996, which has been adopted in other contexts, be applied equally in this instance. I agree, and so order that the like cut-off date be applicable to this request. 44. Turning now to costs. Mr Fok SC asked for the costs of this application, a request resisted by Mr Byrne Hill. Whilst not seeking himself to recover any costs, he submitted that a more just order would be a proportionate recovery only, in light of the fact that the discovery in fact awarded by the court "resulted in a substantial dimunition" of that which originally had been requested, so much so that, he argued, the defendant should recover but 50% of its costs. 45. In response, Mr Fok accepted that indeed he had not pressed some of the requests, and had been amenable to reasoned argument in cutting down the scope of others, but he emphasised that his clients had "heard nothing" before coming to court, and that prior to this hearing there had been no dialogue with regard to any item. It was certainly right for the defendant to have its costs, he asserted, and any dimunition thereof should be minor at best. 46. Looking at the application in the round, I have no doubt in all the circumstances that the defendant should have the bulk of its costs, notwithstanding that the scope of some of the contentious items has been cut down, and an alternative procedure adopted in terms of the 'redemption heads'. In my judgment the appropriate costs order, and the only such order that I make, is that the plaintiffs are to pay the defendant 85% of the defendant's costs of and occasioned by this application in any event, such costs to be taxed if not agreed. 47. I thank counsel for their assistance.
Representation: 26 and 27 March 2001 Mr John A. Scott, SC instructed by Messrs Herbert Smith, for the 1st - 5th Plaintiffs Mr Joseph Fok, SC instructed by Messrs Baker & McKenzie, for the Defendant Third Party in person, present 30 March 2001 Mr Byrne Hill of Messrs Herbert Smith, for the 1st - 5th Plaintiffs Mr Joseph Fok, SC instructed by Messrs Baker & McKenzie, for the Defendant Third Party in person, present |
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