Nam Tai Electronics, Inc. v. Pricewaterhouse Coopers

HCA 6783/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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BETWEEN

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Before : Hon. Waung, J. in Court

Dates of Hearing : 25-29 November 2002, 2 December 2002, 11 June, 16-18 June 2003

Date of Handing Down of Judgment : 3 February 2005

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J U D G M E N T

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1.In this Action, the Plaintiff claims against the Defendant damages for defamation, breach of confidence and malicious falsehood arising out of a Liquidation Proposal of Albatronics published by the Defendant in August 1999.  Liability is vigorously denied. Halfway through the Trial, the Plaintiff abandons its claim for malicious falsehood but liability on the two causes of action as well as quantum are closely contested.

HISTORY

2.The Plaintiff is a public listed company on NASDAQ in America. Mr. Koo Ming Kown (“Koo”) was at all material times the effective chief operating officer of the Plaintiff. The business of the Plaintiff is in the manufacturing in China of electronics products for American companies such as HP.

3.The Defendant is the well known accounting firm in Hong Kong and other parts of the world, providing auditing and financial advices and services. 

4.From 1989 until its resignation in November 1998, the Defendant acted as the auditors of the Plaintiff.

5.Pursuant to an engagement letter dated 18^th September 1998 (“Albatronics Contract”), the Defendant conducted (together with Johnson Stokes and Master as lawyers and BNP as bankers) due diligence review of Albatronics (Far East) Company Ltd. (“Albatronics”), subsequent to a Subscription Agreement dated 11^th September 1998 (“Subscription Agreement”) whereby the Plaintiff agreed to subsribe for new shares in Albatronics to give the Plaintiff control of Albatronics, a publicly listed Hong Kong company. It is not disputed that arising out of the Albatronics Contract and the engagement of the Plaintiff, there was a duty of confidence owing by the Defendant to the Plaintiff.  The dispute is as to the scope of the duty and whether there was any breach.

6.By its report dated 10^th November 1998 (page 917-963) and the letter dated 10^th November 1998 (page 913-6) enclosing the said report (collectively referred to as “the Due Diligence Report”), the Defendant on its due diligence review reported negatively on Albatronics and cautioned against the Plaintiff proceeding with the proposed acquisition of Albatronics under the Subscription Agreement.  The Section of the Due Diligence Report  under the heading “Significant Findings” (page 914) and the Section of the Due Diligence Report under the heading “Executive Summary” (pages 918-920) contained negative findings and opinions of the Defendant on the financial condition of Albatronics.

7.Subsequent to the Due Diligence Report, the Plaintiff proceeded in early December 1998 with the Subscription Agreement and thereby became the majority shareholder of Albatronics.

8.On 30^th June 1999 (some 7 months after the formal acquisition of Albatronics by the Plaintiff), the voluntary liquidation of Albatronics was announced.

10.The Defendant was keen to be appointed Liquidators of Albatronics.  There were other accounting firms also competing for that appointment.  The decision as to which accounting firm should be appointed as Liquidator of Albatronics was in the hands of the major creditors of Albatronics which included Sony (a major supplier of Albatronics and of the Plaintiff) and a number of bank creditors including Sumitomo Bank, HSBC and Sanwa Bank (“Creditors”).

11.The Defendant submitted in August 1999 to Sony and through Sony to other creditors of Albatronics, a document entitled “Liquidation Proposal of Albatronics” (“the Proposal”) proposing that the Defendant be appointed liquidator of Albatronics.

12.The Proposal contained, under the Section with the heading of “Independence” (“Independence Section”), the following:-

“	6.	Independence
	We understand that Nam Tai, Albatronics’ majority shareholder, has raised some concerns regarding our ability to act as independent Liquidators of Albatronics. Nam Tai has these concerns because of our previous dealings with it.  To alleviate any concerns of Albatronics or the creditors, we have summarized our relationship with Nam Tai below and provided an explanation as to why PricewaterhouseCoopers does not have a conflict interest and can accept the appointment as Liquidators of Albatronics.
	1.	PricewaterhouseCooopers resigned as auditor of Nam Tai in “December 1998.
	2.	In September 1998, PricewaterhouseCoopers conducted due diligence for Nam Tai in respect of its potential acquisition in Albatronics. We recommended that Nam Tai not make the acquisition. Nam Tai did not take our recommendation and proceeded to invest in Albatronics.
	3.	In July 1998 we were appointed Liquidator of TAI [Tele-Art Inc.] by the British Virgin Islands (“BVI”) Court. Nam Tai was the petitioning creditor in this matter and specifically requested that PricewaterhouseCoopers be appointed Liquidator.
	TAI’s principal asset is shares in Nam Tai which are pledged to Bank of China (“BOC”). Nam Tai is seeking to set off amounts owed to it by TAI against TAI’s shareholding in Nam Tai.  We do not believe that Nam Tai is entitled to such right of set off and have commenced proceedings against Nam Tai for return of the shares.
	In response, Nam Tai has filed an application seeking our removal as Liquidator of TAI, arguing that we have a conflict of interest in this matter arising from services provided to them in 1998.  It should be noted that this position conflicts directly with Nam Tai’s original position that we be nominated as Liquidator.  The BVI Court has not yet handed down a decision on this matter.
	We understand that Nam Tai has objected to our appointment as Liquidator of Albatronics on the grounds that prior services provided to them create a conflict of interest.  We have had no professional relationship with Albatronics and are not prevented in any way from acting as Liquidator.  This is in accordance with the Hong Kong Society of Accountants Members Handbook, Professional Accountants Ordinance and By Laws, Supplement to Statement 1.203 ‘Professional Ethics Integrity, Objectivity and Independence in Insolvency.’  Further our resignation as auditor, conduct of due diligence and suit against Nam Tai in our capacity as Liquidator of TAI do not in any way impair our independence in acting as Liquidators of Albatronics.  In fact the above confirms our true independence in this matter.”

13.The words objected to by the Plaintiff are to be found in sub-paragraph No. 2 of the Independence Section (“Paragraph 2”). The objection and complaint of the Plaintiff to Paragraph 2 is that firstly it is defamatory and secondly that it is a breach of confidence.  

14.Subsequent to the Proposal, the creditors of Albatronics appointed Arthur Anderson as Liquidator of Albatronics.

15.On 7^th of July 2000, the Plaintiff issued its Writ in this Action against the Defendant.  The claim at the time of the Writ on 7^th July 2000 was only for damages for breach of confidence.  On the 6^th of September 2000, some two months later, the Writ was amended and claim was made not only for breach of confidence but also for defamation and for malicious falsehood, all arising from the same Paragraph 2 of the Independence Section of the Proposal.

TAI DISPUTE

16.In its Statement of Claim dated 11^th September 2000, the Plaintiff relied on a matter wholly unrelated to the Albatronics in support of an allegation of malice of the Defendant in publishing Paragraph 2.  The dispute relied on is that between the Defendant and the Plaintiff in relation to Tele-Art Inc. (“TAI”).

17.TAI was the owner of shares in the Plaintiff but was also a debtor to a government entity in Ireland, which resulted in Judgment being entered against TAI. The Plaintiff obtained an assignment of the Judgment debt and petititoned for the winding up of TAI.  In July 1998 the BVI Court ordered TAI to be wound up and (with the support of Nam Tai) appointed David Hague (“Hague”), a partner of the Defendant as liquidator of TAI.

18.The Nam Tai shares held by TAI were charged to the Bank of China.  The Plaintiff in satisfaction of the Irish Judgment redeemed the shares held by TAI.  Hague considered there might be an issue of priority between the Bank of China and the Plaintiff and Hague as liquidaator of TAI, commenced proceedings on 4^th of February 1999 to set aside the redemption and to determine the priorities. The Plaintiff took the view that Hague had a conflict of interest and petitioned the BVI Court to remove him as liquidator of TAI.   The Plaintiff alleged in paragraph 17(c), under Particulars of Malice, that as result of the application in the BVI Court by the Plaintiff to remove Hague as liquidator, the Defendant bore a grudge against the Plaintiff, which caused the Defendant to publish Paragraph 2.

19.The TAI dispute between the Plaintiff and Hague was relied upon by the Plaintiff in support of its claim (a) for malicious falsehood and (b) for aggravated or exemplary damages under the claim for defamation and (c) under the claim for breach of confidence.   

DEFMATION

20.In this claim for defamation by the Plaintiff company, it is accepted that what is actionable is imputation which tends to injur the company’s reputation.  It is not enough that words actually damage the company in its business.  The imputations which are actionable must be on the lack of competence or lack of business judgment of the company in the way of its business.

21.It should be noted right at the beginning that there is no plea of justification by the Defendant.  There is no plea by the Plaintiff of legal innuendo, (“conjunction of the words used and some extrinsic fact” per Holroyd Pearce LJ in Lewis v Daily Telegraph [1963] 1 QB 340 at 364) which is required to be specially pleaded and particularised.

22.The Plaintiff relies soley on the natural and ordinary meaning of the words. The sole question for the Court on this Trial of defamation without a jury is therefore, whether Paragraph 2 is:-

(1) not defamatory of the Plaintiff as contended by the Defendant (hereinafter referred to as Defendant Non-Defamatory Meaning”); or

(2) defamatory of the Plaintiff as pleaded by the Plaintiff in paragraph 16 of the Statement of Claim, namely that in the natural and ordinary meaning, Paragraph 2 meant and were understood to mean:-

(a)	the Plaintiff acted carelessly or
(b)	the Plaintiff acted negligently or
(c)	the Plaintiff acted recklessly or
(d)	the Plaintiff acted irresponsibly

in going ahead with its subscription of Albatronics shares despite the contrary due diligence advice of the Defendant (collectively hereinafter referred to as “Plaintiff’s 4 Defamatory Meanings”); or

(3) defamatory of the Plaintiff not as pleaded by the Plaintiff, but nevertheless in the natural and ordinary meaning, bearing a defamatory meaning albeit of a lesser degree than those pleaded by the Plaintiff (hereinafter referred to “Less Injurious Defamatory Meaning”).

23.The issue under the Defamation claim is what is the natural and ordinary meaning of the keys words in Paragraph 2, is it one of the Plaintiff’s 4 Defamatory Meanings or is it the Defendant Non-Defamatory Meaning or is it the Less Injurious Defamatory Meaning.  As I am sitting as judge and jury, the question is not therefore whether these keys words are capable of having the meaning alleged by the Plaintiff.  The choice of the Court is to ascertain the ordinary and natural meaning of Paragraph 2 and to decide out of the 3 possible choices, which is the ordinary and natural meaning of the relevant words. This is a question of fact exclusively for the determination of a Judge, sitting alone as judge and jury.  

24.In Eastern Express Publisher v Claudia Mo [1998] 2 HKC 593, Yuen J. (as she then was) adopted the one stage classic Diplock Slim v Daily Telegraph approach (at page 176 of the Slim Judgment) of what is the meaning of the words.  She said at page 599:-

“I can go straight to the questions: ‘Is the natural and ordinary meaning of the words that which is alleged in the statement of claim defamatory?” and ‘if not, what, if any less injurious defamatory meaning do they bear?’

25.In attempting to arrive at the natural and ordinary meaning of the key words by the aforesaid one stage process, I bear in mind the following:-

(1)	the greater capacity of non-lawyers for implication;
(2)	the necessity to ascertain the meaning in the context of the whole Proposal document and in particular in the context of the Independence Section.

26.The necessity to put into the correct context in respect of the relevant words is highlighted by the case of Charleston v News Group Newspapers [1995] 2 A.C. 65 where the Plaintiff was seeking to rely only on the headline photograph without the text.  The House of Lords held that the response of the publishee must be referable to the entire publication.  Lord Bridge at page 70 reminded us of the classic dictum in Duncan & Neill on Defamation where it said:-

“In order to determine the natural and ordinary meaning of the words of which the plaintiff complains it is necessary to take into account the context in which the words were used and the mode of publication.  Thus a plaintiff cannot select an isolated passage in an article and complain of that alone if other parts of the article throw a different light on that passage.”

27.What then is the important context which I must bear in mind.  The context is of course the fact that Albatronics had gone into liquidation and there was the necessity to appoint liquidators.  It is the function of the liquidators to look into the financial affairs of the company Albatronics and the conduct of the management by its majority shareholders, the Plaintiff Nam Tai. The Due Diligence undertaken by the Defendant some one year earlier for Nam Tai and what role the Defendant played is the context within which the question of possible conflict of interest of the Defendant arises and therefore will be of significance to the Creditors of Abatronics in deciding whether to appoint the Defendant as Liquidator of Albatronics.

28.The purpose of the Proposal was first and foremost to sell the good quality of the Defendant to the Creditors and only incidentally to disabuse any notion of bad quality or unsuitable quality of the Defendant for the job of Liquidator.

29.That the Proposal was first and foremost to sell the good quality and suitability of the Defendant for the job of Liquidator of Albatronics is made clear by the first Section headed Introduction where this was said:-

“The purpose of our proposals is to clearly demonstrate that PricewaterhouseCoopers should be the firm appointed to act as the Liquidators of Albatronics.

Our proposal highlights that the Financial Advisory Services team of PricewaterhouseCoopeers has the requisite local specialized experience and the available capacity of liquidation specialists to handle a liquidation of the size and complexity of Albatronics for the benefit of the creditors……

…….

Our proposal clearly demonstrates that PricewaterhouseCoopers is the sensible choice fo the appointment as Liquidators based on our:

…………………….”

The Proposal consists of 9 Sections:

Introductions (1^st),

Our Understanding of Your Needs (2^nd),

Observations of Albatronics’ Financial Position (3^rd),

Methodology (4^th),

Core Team Members (5^th),

Independence (6^th),

Relevant Experience (7^th),

Capacity (8^th),

Fees (9^th).

A fair reading of the entire Proposal will give the clearest impression that the whole purpose of the Proposal was to demonstrate to the Creditors the positive qualities of the Defendant so that it can be appointed Liquidator.

30.As part of the effort to show the positive quality of the Defendant as potential Liquidator it becomes necessary to show the lack of any disqualifying qualities.  This is the incidental purpose of the Proposal and the reason for the inclusion of the Independence Section.  To the Creditors, to whom this Proposal was addressed, the suggested conflict of interest is a bad quality of the Defendant.  It might even be said to be a disqualifying factor.  It is therefore the objective of the Independence Section of the Proposal to disabuse any notion which the Plaintiff might have created in the minds of the Creditors that somehow because of the previous involvements of the Defendant with either the Plaintiff or Albatronics, the Defendant had become unsuitable or disqualified to be appointed the Liquidator of Albatronics.  This is the context, within which the Proposal and in particular the Independence Section was written and published to the Creditors of Albatronics.

31.Three areas of Defendant’s relationships with the Plaintiff were described by the Defendant in the Independence Section and they are numbered:

1.	Re auditor of the Plaintiff;
2.	Re Due Diligence of Albatronics purchase;
3.	Re TAI Liquidator.

All three areas were described in the context of the Defendant having no conflict of interest by reason of its previous conduct in those three capacities or areas.  The focus is therefore on what activities were carried out by the Defendant, so that it could be shown that the Defendant was not disabled by reason of such activities.  The relevance and objective of the Independence Section is to show that there were no disabling circumstances of the Defendant and the exercise was not directed at showing the quality whether good or bad or otherwise of the Plaintiff.  The focus is not on the Plaintiff but on the Defendant.  

32.That this is the context can be readily seen in the penultimate sentence of the Independence Section where it said:-

“Further our resignation as auditor, conduct of due diligence and suit against Nam Tai in our capacity as Liquidator of TAI do not in any way impair our independence in acting as Liquidators of Albatronics.  In fact the above confirms our true independence in this matter.”   

33.Earlier in that Independence Section the Defendant wrote the following 4 statements:-

(A)	In September 1998 the Defendant conducted due diligence for the Plaintiff in respect of its potential acquisition in Albatronics.
(B)	The Defendant recommended that the Plaintiff not make the acquisition.
(C)	The Plaintiff did not take the Defendant’s recommendation and proceeded to invest in Albatronics.
(D)	The Defendant has had no professional realtionsip with Albatroncis and is not prevented in any way from acting as Liquidator.

For ease of reference I will hereinafter refer to these 4 Statements as respectively Statement A, B, C and D.  I will refer to the statement of “our conduct of due diligence … not in any way impair our independence in acting as Liquidators of Albatronics” as Statement E and the statement of “In fact the above confirms our true independence in this matter.” as Statement F.

34.Statements B and Statement C must not be singled out as providing the only source of the natural and ordinary meaning of the key words.  Not only must Statements A, B, C, D, E and F all be considered but they must further be considered in the context (not in the absence, per Charleson Judgment) of the whole Proposal and in particular in the context of the other two explanations of areas of involvements, all of them tending to show no lack of independence. Viewed therefore as robustly as one can and having regard to the fact that this Independence Section was addressed to Creditors who are seasoned professionals, can I come to the conclusion that there was a serious implication, not of Defendant’s suitability as Liquidator, but only of the Plaintiff’s “lack of judgment and lack of efficiency in the conduct of its professional activity…” (per page 699 of Drummond-Jackson v B.M.A. [1970] 1 W.L.R. at page 699).

35.In my view it is simply not possible to come to that view and I come to this conclusion for the following reasons:-

(a)	The whole purpose of the Independence Section consisting of 3 areas of involvement and 6 Statements touching on Albatronics (Statements A, B, C, D, E and F) are all statements to demonstrate to the Creditors that the Defendant would be independent and worthy to be appointed Liquidators of Albatronics. The purpose of the Independence Section was neither principally or even incidentally to belittle or touch on the business incapability of the Plaintiff.
(b)	The language used in these 6 Statements are neutral and without emotion and cannot be said to contain opinion or value judgment of the Plaintiff or its business efficiency.
(c)	In the undisputed context of the single purpose or message of the Proposal, namely “pick me, I am beautiful”, there is little room, if any, for the existence of or the sudden appearance of an unrelated different message or meaning (“Plaintiff is inefficient”).  This point requires elaboration which I will do in the next paragraph.
(d)	It is required in defamation law for the court to find only one single “right” meaning.  There is therefore no room for two parallel meanings or messages to be conveyed.

36.Language is used to convey a message. The ordinary and natural meaning of words used is to convey a message. When there is a primary message conveyed in a document then sentences written in that document are, generally speaking, in support of that primary message.  It is possible of course to go off the road, so to speak and bring into being a secondary message.  When it is done intentionally and done well, then that secondary message is also understood. But it is very rare (if at all possible) and certainly very difficult to have in one sentence or one paragraph, two messages running in parallel. This is what is in reality being suggested by the Plaintiff.  It is not disputed by the Plaintiff that Paragraph 2 of the Independence Section, like sub-paragraph No. 1 and sub-paragraph No. 3 is each conveying the message that the activity therein described did not give rise to any conflict of interest or render the Defendant incapable of being “Independent”.  What I believe however was suggested by the Plaintiff (see paragraph 9 of Plaintiff Final Submission with the word “it also contained”) is that there is an additional message in Paragraph 2, namely that the Plaintiff was inefficient in carrying on its business. In my judgment, there was no second message in Paragraph 2 and the only message in Paragraph 2 is the same message which had been running throughout the whole Proposal, namely choose us as we are good and qualified and without any disability.

37.I have in the previous paragraph ascribed to the Plaintiff, a case which was not put in submission in quite that way. But in so doing I am trying to be generous to the Plaintiff because it is almost impossible even to argue that there was just one message contained in Paragraph 2 and not two messages. If the contention of the Plaintiff is that the true meaning of Paragraph 2 is that contended by the Plaintiff (namely the Plaintiff was inefficient in the conduct of its business) and that was the single right meaning and the only message of Paragraph 2 and there was no message of the Defendant that it was independent and not conflicted because of its due diligence work, then what the Plaintiff is arguing is that the Defendant had wholly failed to achieve what it wanted to do by the insertion of Paragraph 2 describing its involvement with Due Diligence work Re Albatronics. Such a result is absurd and is wholly contrary to what is clearly the message in Paragraph 2.       

38.But as I have indicated, assuming the case really argued by the Plaintiff is the double parallel messages, then in my judgment for reasons which I have stated earlier, that submission must be rejected.

39.The case of the Plaintiff’s 4 Defamatory Meanings having failed, is there any scope for the Court to find that there is a less injurious defamatory meaning in Paragraph 2. In my view, in the particular circumstances of the case, there is no scope for such finding. The meaning of Paragraph 2 is clear to me, namely that the Defendant gave a negative Due Diligence report and recommended not to go ahead but the Plaintiff nevertheless went ahead and made the acquisition. This therefore made the Defendant not conflicted and suitable for the Liquidator appointment.  Had the Defendant recommended the go ahead and the Plaintiff accepted the Defendant’s recommendation and went ahead and as it turned out it was a disaster purchase, then the fact of the Defendant having made the positive recommendation and the acceptance of the positive recommendation could put the Defendant in a conflict position when the financial position of Albatronics which the Defendant recommended become the subject of scrutiny by the Liquidator. The heart of the message contained in Paragraph 2 is no conflict and that message was brought about as result of the combination of the Defendant recommended no go and the Plaintiff going ahead.  Statement B and Statement C are essential to the message of no conflict and are directed to no conflict and to nothing else.

40.I am fortified in my conclusion that there was no defamation by the Defendant in the publication of the Proposal because that was also precisely the reaction of the Plaintiff when it issued the Writ on 7^th July 2000.  At that time the only complaint in the Writ by the Plaintiff was for damages for breach of confidence.  It was only subsequently on 6^th of September 2000 that the Writ was amended by adding the claim for Defamation.  The Plaintiff should have continued with its original reaction (of no defamation).

BREACH OF CONFIDENCE

41.On the claim for breach of confidence, there is no dispute that the Defendant did owe to the Plaintiff at the relevant time a duty of confidence arising out of the professional engagement of due diligence undertaken by the Defendant for the Plaintiff.  The dispute between the parties is whether in the circumstances there was an absolute unqualified duty and whether there was breach of the duty of confidence.

42.In essence the defence to the claim for breach of confidence is that the disclosure in Paragraph 2 of the Independence Section was necessary to meet Plaintiff’s allegation of conflict of interest and came as result of the waiver of the right of confidence, by Plaintiff alleging to the Creditors conflict of interest and lack of independence.

43.It is not in dispute that the Creditors recipients of the Proposals were all aware of the fact that the Defendant had conducted Due Diligence for the Plaintiff.  This information was therefore not confidential.  It is also not in dispute that it was well known to all Creditors that the Plaintiff made the acquisition of Albatronics nor is there dispute that the Creditors all knew that the acquisition of Albatronics made by the Plaintiff turned sour and that Albatronics had gone into liquidation, thereby necessitating the appointment of Liquidators. There can therefore again be no complaint by the Plaintiff that the Defendant had given out any such information, which were well known. What was not known to the Creditors is that upon Due Diligence, the Defendant made a negative recommendation on Albatroncis to the Plaintiff and it is the disclosure to the Creditors of the negative recommendation of the Defendant to the Plaintiff which is the subject matter of the breach of confidence claim.

44.I accept that there was a duty of confidence.  What I am somewhat uncertain is whether the formulation of the scope of the duty of confidence by Lord Millet in Bolkiah v KMPG [1999] 2 A.C. 222 at page 235G might not be too wide and too absolute.  He said:-

“ …. The duty to preserve confidentiality is unqualified.  It is a duty to keep the information confidential, not merely to take all reasonable steps to do so.   Moreover, it is not merely a duty not to communicate the information to a third party.  It is a duty not to misuses it, that is to say, without the consent of the former to make any use of it or to cause any use too be made of it by others otherwise than for his benefit.”

45.I accept that there was a duty on the part of the Defendant not to disclose to third parties the confidential information that the Defendant had made a negative recommendation to the Plaintiff in respect of the proposed acquisition of Albatronics.  But is that duty absolute and unqualified or is it subject to qualification, such as subject to the qualification that it does not prevent disclosure if it is necessary or reasonably necessary to do.  It seems to me that there are a number of ways this problem can be formulated and framing the duty in absolute terms might not be the best way of analyzing the problem.

46.The heart of the problem is really the question of whether, the allegation to the Creditors by the Plaintiff of conflict of interest because of performance of due diligence work by the Defendant gave rise to a right to the Defendant to make the appropriate disclosure even when such disclosure includes confidential information such as that the Defendant made a negative recommendation to the Plaintiff.

47.I will first look at the matter from the point of view of waiver.  In the absence of the Plaintiff making allegation of unfitness by reason of conflict arising out of due diligence work, there will of course be no justification (or reason) for the Defendant making disclosure to the Creditors of the due diligence work done in relation to Albatronics.  But the Plaintiff knowing of the confidential nature of the work alleged unfitness and conflict of interest, and this by necessity, implies that the Plaintiff had waived the confidential information connected with such work. That waiver in my view entitled the Defendant to respond.  Thus Dillon, L.J. in Lillicrap v Nalder [1993] 1 W.L.R. 94 said at page 99:-

“… the waiver must go far enough, not merely to entitle the plaintiff to establish his cause of action, but to enable the defendant to establish a defence to the cause of action if he has one.  Thus, it would extend to matters under ….”

48.In my view, the waiver here is wide and at least wide enough to cover what was the response by the Defendant in the Independence Section.  It seems to me that it is only fair that the person who has that right of confidence does not abuse it by making an attack.  He cannot complain if as result of his attack, there was a response.  The glass house of confidence does not give protection if the occupant decides to throw out bricks.  

49.Secondly, the matter might be viewed broadly on the basis of whether the subject matter of the due diligence was still all confidential at the time of the Proposal or had been put into the public domain of the Creditors by the Plaintiff making allegation of conflict of interest.  It seems to me that the Plaintiff put the due diligence work (alleging conflict) into the public domain of the Creditors and thereby information relating to the Defendant’s due diligence work ceased to enjoy its confidential nature.  Once the confidential nature of the work was gone, there was nothing to protect or to complain about its disclosure.

50.The third way that this matter can be analysed is to regard the Defendant, in the face of the attack of conflict of interest, as having a right to respond appropriately and to conclude that the response in Paragraph 2 by the Defendant was within such right, being a necessary disclosure as well as a reasonable disclosure in the circumstances.  Mr. Griffiths complained at the closing that the disclosure went too far and that the Defendant should make a much more restrained response. I do not agree. The necessity of the response is to demonstrate to the Creditors that there was no conflict of interest. That could only be achieved by disclosing, not only that there was a negative recommendation (a positive recommendation could put the Plaintiff into a conflict of interest position because if chosen as Liquidator, the Defendant then might have to attack its previous positive recommendation), but further that the negative recommendation was not accepted. If this (negative recommendation not being accepted) was not said, then it could give rise to confusing impression of the connection between the negative recommendation on due diligence and the subsequent acquisition by the Plaintiff.  The Defendant’s statement (of the Plaintiff not accepting the negative recommendation but going ahead with the acquisition) made it clear that there could be no possible conflict arising out of the due diligence work undertaken by the Defendant.

51.Fourthly, it is possible to regard the true state of the law as giving no absolute right to confidence or to its enforcement.  In Webster v James Chapman & Co. [1989] 3 A.E.R. 939 Scott, J. (as he then was) said at page 945 the following:-

“The court must, in each case where protection of confidential information is sought, balance on the one hand the legitimate interests of the plaintiff in seeking to keep the confidential information suppressed and on the other hand the legitimate interests of the defendant in seeking to make use of the information.  There is never any question of an absolute right to have the confidential information protected.  The protection is the consequence of the balance to which I have referred …..”

52.Finally, one can approach the problem by asking the critical question whether there was misuse of the confidence by the Defendant in the circumstances of the Plaintiff alleging conflict of interest.  In my view, what the Defendant wrote in the context of the Independence Section was reasonable and professional and there was no misuse.

53.It seems to me that the result of various way of looking at the problem all point to there being no breach of confidence.  The claim of the Plaintiff under this head therefore also fails.

CONCLUSION

54.The conclusion I have come to is that the Plaintiff fails on both defamation and breach of confidence.  In the circumstances, it is not necessary for me to consider the question of damages under either heading and I do not propose to do so.

55.The Action of the Plaintiff is therefore dismissed with costs ro the Defendant and with certificate for two Counsel.

Mr. John Griffiths SC and Mr. Paul Shieh instructed by Messrs Wilkinson & Grist for the Plaintiff

Mr. Joseph Fok SC and Mr. Alexander Stock instructed by Messrs Barlow Lyle and Gilbert for the Defendant