Helm Hong Kong Ltd v. Au Tat Kei, Decky

HCA 1517/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1517 OF 2006

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Before: Deputy High Court Judge Carlson in Chambers

Date of Hearing: 20 May 2010

Date of Ruling (Handed Down): 4 June 2010

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R U L I N G

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Introduction

1.Put shortly, the Plaintiff, a company engaged in the import and export of chemical products, is alleging that the Defendant Mr Au has personally  profited from a part of its business in the PRC which it had designated “The Secret RMB Business”.  The Defendant has done so in collaboration with a Mr Mark von Torklus who was his superior at the time.  In order to prove its case, the Plaintiff had engaged the services of Mr Bruno Arboit who is a highly experienced chartered and certified accountant both in Hong Kong and Australia.  There is no doubting his expertise and therefore his capacity to provide expert evidence in this case.  The question that I need to determine, objection having been taken on the Defendant’s behalf, is whether his previous relationship with the Plaintiff in its investigation of the alleged fraudulent activities of the Defendant and of Mr von Torklus should now disqualify him from giving independent expert evidence.  It is submitted on the Defendant’s behalf that where Mr Arboit carried out an investigation into this matter on the Plaintiff’s behalf, which was to become an integral part of its case against the Defendant and which no doubt has found expression in the Statement of Claim, he should not now be engaged as the Plaintiff’s expert’s witness.  Mr Bullett, for the Defendant, submits that where in 2006 Mr Arboit had been engaged as adviser and consultant to the Plaintiff and prepared a report for it in that capacity, he cannot now be seen to change his hat, as it were, and appear in court as an “independent” expert.

2.In order to assist me, I have asked for and been provided by the Plaintiff with Mr Arboit’s 2006 report over which it claims legal professional privilege.  This report has not been shown to the Defendant.  For my part, I have found it of great assistance because I have been able to see what Mr Arboit said and did in his capacity as consultant/adviser to the Plaintiff and what he has said qua prospective independent expert in the 2009 report.

3.There is also an ancillary ruling which I may need to give.  If I allow Mr Arboit to give expert evidence in accordance with his 2009 report then Mr Bullett submits that the Plaintiff must be taken to have waived its privilege over the 2006 report.  This was a considered report upon which the Plaintiff has to a very great extent based its case and the Defendant should be able to look at it to compare its contents with the 2009 “independent” expert report to see if there are any inconsistencies between the two that his counsel might legitimately be able to exploit in cross-examination and also to consider the language used in it which might be said to affect Mr Arboit’s capacity to provide truly independent evidence to assist the court, which at the very least might affect the weight that ought to be attached to his expert evidence.

A Brief Account of the Factual Background

4.So much can be gleaned from the Executive Summary of Mr Arboit’s 2009 report.  The Plaintiff is a foreign company in the PRC which was not licensed under the PRC regulations to import or export to and from the PRC.  In such circumstances, it entered into agency agreements with licensed PRC agents who were able to do so.  The business that the Plaintiff was able to generate in this way was designated “The Secret RMB Business” which started in June 2002.  This Secret RMB Business operated in the sale of chemicals by the Plaintiff to the PRC agents which they were able to sell on at a profit to customers in the PRC but with “no and/or limited accounting to [the Plaintiff]”.  Whilst the business was transacted by the PRC agents, it appears to have been initiated and supervised by the Plaintiff’s employees in Hong Kong.

5.What Mr Arboit has set about doing, which unsurprisingly he did for his 2006 report as consultant/adviser to the Plaintiff, was to look at the transactions and the books of account to try and see which transactions from the Secret RMB Business were officially recorded in the Plaintiff’s books and records and which were not.  This he did in painstaking detail.

6.In doing the same in 2009, Mr Arboit was to a large measure basing himself on his work in 2006 in discovering what had happened with the Secret RMB Business.  The groundwork was of necessity the same, which is something that I may need to return to presently.

7.In his expert report in 2009, Mr Arboit, based on his study of the accounts and other available evidence, arrives at a number of conclusions for the court’s assistance.  In summary form, these are at pages 14-16 of the report.  He says that any profits arising from the sale of chemicals by the agents were not recorded in the books and records of the Plaintiff and then he goes on to assess the quantum of profits made from the unrecorded transactions.  There then follows an analysis, as best as can be obtained from the available material, of Mr von Torklus’ and the Defendant’s role in the Secret RMB Business.

8.As to the report of 2006, I need to be very circumspect in what I say about its contents.  What I can say is that it is even more thorough and therefore longer than the export report.  It amounts to a full-scale investigation of the Secret RMB Business including an investigation into and conclusions about who might be involved in the fraud and why that is so.  It then sets out a series of recommendations.  As a piece of forensic accountancy investigation it is an admirable document in every way producing reasoned conclusions and giving recommendations.  I have already observed that these conclusions form the basis of the Plaintiff’s case against the defendant.  In the best sense of the word, this is a highly partisan document going to support the litigation against the Defendant.

9.Without being familiar with its contents but being aware of Mr Arboit’s participation on the Plaintiff’s behalf in providing research and advice to the Plaintiff in mounting the action against the Defendant, Mr Bullett submits that Mr Arboit cannot be seen to possess that objectivity which an independent expert would usually be expected to have from which he can provide his expertise to assist the court.  He is far too much in the thick of it in the Plaintiff’s camp for that to happen.  He has become investigator and adviser and that is as far as his involvement in the action should be allowed to go.

10.I hope I have provided a sufficient account of Mr Arboit’s involvement as appears from the expert report which the parties have and from the privileged 2006 investigation report which only I have seen.  If this ruling needs to be considered in another court, then the 2006 report can also be called for by its members so that they will have the same view of Mr Arboit’s involvement as I have.

11.May I say that whatever conclusion I come to no possible criticism can be made of Mr Arboit who has done, as far as I can see, a thoroughly competent and comprehensive job in his preparation of the 2006 report as he has in the 2009 expert report.

12.I will now turn to the cases which govern the court’s approach in deciding whether a proffered expert ought to be allowed to give evidence.

The Authorities

13.Mr Man, on behalf of the Plaintiff, has referred me to a number of cases which bear on this issue.  It is convenient to start with the decision of the Court of Appeal in Tang Ping Choi & Anr. v Secretary for Transport [2004] HKLRD 284, in which a tenant was claiming compensation for land resumption by the Government.  The Government sought to call as expert witnesses employees of Chesterton Petty its consultants in the land resumption.  The Court of Appeal held that the Government could do so.  Rogers VP, with whom the other two members of the court agreed, said at paras. 14-15 of his judgment that:

“There is no doubt that Mr Cheng was employed by Chesterton Petty.  The question then arises as to whether a consultant, or for that matter an employee of a consultant, which has acted as a consultant should not be permitted to be an expert witness in an action to which the entity to whom the consultant had given advice as a consultant is a party.  I see no basis for any such suggestion.  If there were to be such an exclusion, experts would be put in an impossible situation where litigation might ensue.  Looking at it from the other way, they could not give advice to anybody who was considering engaging their services in litigation.  Even more seriously, once engaged as an expert for litigation they could not give the engaging party any advice.

But the question also arises as to whether there is an absolute bar to the admissibility of evidence as expert evidence, on the footing that a consultant or an employee of a consultant were to be treated as an employee of the engaging party.  In my view, on general principles, there cannot be such a bar.  An expert is called to give evidence within his expertise either for example to explain technical matters or to give opinion evidence based on his experience.  Naturally, that evidence should not be biased and the content of the evidence should not, in any way, be influenced by the outcome of the litigation.  But in countless instances expert witnesses have been employees of the party calling them.  In some cases, it was almost inevitable that that had to be so because the technical or other matters in respect of which the expert was giving evidence was very highly specialized.”  

And so, the Vice-President was in no doubt about the matter.  His judgment was sought to be challenged before the Court of Final Appeal which dismissed the application for leave to appeal based on the question framed for its consideration “Whether a close connection between an expert and the party calling him would entitle the court to exclude the expert evidence of such an expert”.  (See [2005] HKEC 1729).  In this case, the Court of Appeal had considered and adopted the decision of the English Court of Appeal [Phillips MR, Robert Walker and Anthony Clarke LJJ’s (as they then were)] in Regina (Factortame Ltd & Ors) v Secretary of State [2003] QB 381.  At 408C-E, the Master of Rolls in dealing with the position of an expert witness referred to CPR r 35.3 [in England and Wales] which I believe also correctly states what the position is in Hong Kong and to the speech of Lord Wilberforce in Whitehouse v Jordan:

“Experts — overriding duty to the court

(I) It is the duty of an expert to help the court on the matters within his expertise.

(2) This duty overrides any obligation to the person from whom he has received instructions or by whom he is paid.

These provisions enunciate principles which are long established, but have not been universally recognised.  Thus, in Whitehouse v Jordan [1981] 1 WLR 246, 256-257 Lord Wilberforce was led to observe:

‘it is necessary that expert evidence presented to the court should be, and should be seen to be, the independent product of the expert, uninfluenced as to form or content by the exigencies of litigation.  To the extent that it is not, the evidence is likely to be not only incorrect but self-defeating.’”

Lord Phillips then went on to consider two further cases which I have also found to be of assistance.  The first was Field v Leeds City Council [1999] CPLR 833, which concerned a claim by tenants against their local authority landlord [the City Council] in respect of alleged disrepair.  The council wished to call, as an expert witness, a surveyor employed by them in their claims investigation section.  The course of the matter was set out by Lord Phillips at page 409A-D:

“It appears that the district judge refused to entertain this evidence on the ground that the expert was not independent and, on appeal, the county court judge upheld this decision.  On appeal to the Court of Appeal Lord Woolf MR held that the fact that the expert was employed by the council did not automatically disqualify him from giving evidence.  Whether or not he was qualified to give such evidence could not be determined without sight of the report that he intended to give and his background and qualifications.

In concurring, Waller LJ said, at p. 841:

‘The question whether someone should be able to give expert evidence should depend on whether, (i) it can be demonstrated whether that person has relevant expertise in an area in issue in the case; and (ii) that it can be demonstrated that he or she is aware of their primary duty to the court if they give expert evidence.’

May LJ, also concurring, said, at p.842:

‘As to questions of opinion and generally, I entirely agree with my Lord, the Master of the Rolls, that there is no overriding objection to a properly qualified person giving opinion evidence because he is employed by one of the parties.  The fact of his employment may affect its weight but that is another matter.’”

Lord Phillips then contrasted this case with the observation of Evans-Lombe J in Liverpool Roman Catholic Archdiocesan Trustees Inc. v Goldberg (No.3) (Practice Note) [2001] 1 WLR 2337.  [See 409D-H and 410A-C]:

“That case involved a claim for professional negligence in relation to advice given by a Queen’s Counsel specialising in tax law to the plaintiff about its tax affairs.  The defendant called to give expert evidence a Queen’s Counsel who shared his chambers and was a personal friend of long standing.  The question of whether, in these circumstances, the expert’s evidence was admissible was raised at an early stage of the trial.  The judge decided not to deal with admissibility at that stage, but to deal with that question in the course of his judgment.  The action then settled, but the judge felt it appropriate to deal with the admissibility of the expert’s evidence.  He held that the evidence was inadmissible on the grounds of the public policy that justice should not only be done but should be seen to be done.  He put the matter thus, at p.2340:

   ‘I accept that neither section 3 of the [Civil Evidence act 1972] nor the authorities under it expressly exclude the expert evidence of a friend of one of the parties.  However, in my judgment, where it is demonstrated that there exists a relationship between the proposed expert and the party calling him which a reasonable observer might think was capable of affecting the views of the expert so as to make them unduly favourable to that party, his evidence should not be admitted however unbiased the conclusions of the expert might probably be.  The question is one of fact, namely, the extent and nature of the relat6ionship between the proposed witness and the party.’

This passage seems to us to be applying to an expert witness the same test of apparent bias that would be applicable to the tribunal.  We do not believe that this approach is correct.  It would inevitably exclude an employee from giving expert evidence on behalf of an employer.  Expert evidence comes in many forms and in relation to many different types of issue.  It is always desirable that an expert should have no actual or apparent interest in the outcome of the proceedings in which he gives evidence, but such disinterest is not automatically a precondition to the admissibility of his evidence.  Where an expert has an interest of one kind or another in the outcome of the case, this fact should be made known to the court as soon as possible.  The question of whether the proposed expert should be permitted to give evidence should then be determined in the course of case management.  In considering that question the judge will have to weigh the alternative choices open if the expert’s evidence is excluded, having regard to the overriding objective of the Civil Procedure Rules.”

14.I am bound to say that my mind has wavered in the course of the argument because of Mr Arboit’s previous instruction by the Plaintiff to act as investigator and adviser on what has now become this action.  His findings have inevitably found their way into how the case is now pleaded against the Defendant and how it will ultimately be presented at the trial.  Nevertheless, I feel constrained on the authorities to conclude that Mr Arboit should be allowed to give evidence as an expert in accordance with his 2009 report.  It strikes me that the words of Waller LJ in Field v Leeds City Council supra at page 841 identify the problem and its solution.  Firstly, that it can be demonstrated in this case that Mr Arboit has the relevant expertise, which he undoubtedly has, and secondly, that he is aware of his primary duty to the court.  Of this I have no doubt — he has provided a certificate to this effect and is a highly experienced expert witness who is, no doubt, aware of where his obligations lie when giving expert evidence.  The fact that he had previously been engaged by the Plaintiff in a partisan capacity, if I may so express it, in preparing the 2006 report must be a matter for the trial judge in the weight that he is prepared to attach to Mr Arboit’s evidence in his role as independent expert called by the Plaintiff.

Should the 2006 Report be Released to the Defendant

15.This issue now requires a decision from me.  The first report prepared with litigation in mind is undoubtedly covered by legal professional privilege.  The 2009 report covers the same ground as the 2006 report and the question is whether by calling Mr Arboit to provide evidence in the form of the 2009 report, the Plaintiff is now required to waive privilege on the earlier report.

16.In my judgment, the answer to this is provided by the English Court of Appeal’s decision in Jackson v Marley Davenport Ltd [2004] 1 WLR 2926.  Whilst this decision has much to do with the English CPR r.35.10(3) and 35.13, the general principle upon which this case was decided holds good in Hong Kong as well.  The substance of the court’s reasoning appears in the judgment of Longmore LJ at p.2929H to 2930F which is as follows:

“There can be no doubt that, if an expert makes a report for the purpose of a party’s legal advisers being able to give legal advice to their client, or for discussion in a conference of a party’s legal advisers, such a report is the subject matter of litigation privilege at the time it is made.  It has come into existence for the purposes of litigation.  It is common for drafts of expert reports to be circulated among a party’s advisers before a final report is prepared for exchange with the other side.  Such initial reports are privileged.

I cannot believe that the Civil Procedure Rules were intended to override that privilege.  CPR r 35.5 provides that expert evidence is to be given in a report unless the court directs otherwise.  CPR r 35.10 then changed the previous law by providing in paragraph (3) that the expert’s report must state the substance of all material (whether written or oral instructions) on the basis on which the report was written.  By paragraph (4) it is, moreover, expressly provided that these instructions shall not be privileged.  But the reference in rule 35.10 to ‘the expert’s report’ is, and must be, a reference to the expert’s intended evidence, not to earlier and privileged drafts of what may or may not in due course become the expert’s evidence.

The specific and limited exemption from privilege of the instructions given to the expert as the basis on which the report is to be written, shows, to my mind, that there cannot have been any intention in the minds of the draftsmen of the Civil Procedure Rules to abrogate the privilege attaching in other respects, eg to earlier drafts of a final report or to earlier reports whether said, in terms, to be draft reports or not.

This court has already held that it was not the intention or the purpose of the pre-action protocols, which are now required before an action is begun, to override the privilege attaching to the report of an expert whom a party has instructed but decided not to all: see Carlson v Townsend [2001] 1 WLR 2415.  Although the facts of that case are very different from this case, it provides analogous support for the conclusion that it cannot have been intended that the rules should override privileges in earlier reports of an expert whom it is intended to call to give evidence at the trial.  In my view that conclusion is further supported by the terms of the Code of Guidance for Experts and those Instructing them (1 June 2001 revision), prepared by the Academy of experts, which envisages legitimate amendments being made to expert reports in paras 17-19 of that code.”

17.This in my respectful judgment represents the correct view of the law in Hong Kong and provide a definitive answer to the issue which I must decide.  The 2006 report remains privileged — it cannot be seen by the Defendant and the copy provided to the court will be returned to the Plaintiff’s solicitors.  Whether privilege is subsequently waived by events at the trial remains to be seen and ruled on by the trial judge.

18.As I already said, the fact of Mr Arboit’s previous employment will undoubtedly go to the weight of his evidence which must largely depend on the to and fro of his cross-examination but is not a matter with which I am able to concern myself.

Costs of the Summons for Further and Better Particulars

19.There is an outstanding issue concerning the costs of the Defendant’s summons for further and better particulars upon which I had to give a ruling in writing which I handed down.  The Defendant was not completely successful but overall had the better of it.  It seems to me that the appropriate order is that the costs of an occasioned by that summons and of the hearing itself should be the Defendant’s costs in the cause.

The Costs of this Application

20.The Plaintiff having succeeded on both issues, it seems to me that it should get its costs in any event.  This, in the usual way, will be an order nisi.

Bernard Man, instructed by Messrs Richards Butler for the Plaintiff

Andrew Bullett, instructed by Messrs S H Chan & Co. for the Defendant