Bermuda International Securities Ltd v KPMG (A Firm)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE WALLER,LORD JUSTICE CLARKE,LORD JUSTICE RIX,Lord Justice Waller |
| Judgment Date | 27 February 2001 |
| Neutral Citation | [2001] EWCA Civ 269 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: B1/2000/2393 |
| Date | 27 February 2001 |
[2001] EWCA Civ 269
Lord Justice Waller
Lord Justice Clarke and
Lord Justice Rix
Case No: B1/2000/2393
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Mr Justice Timothy Walker
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr M Brindle QC, Miss P Hamilton (instructed by Messrs Cameron McKenna for the Respondent)
Mr R Knowles QC, Mr D Allison (instructed by Messrs Stephenson Harwood for the Appellant)
This is an appeal from Timothy Walker J who on 9 th June 2000 made an order for pre-action disclosure under CPR 31.16 in favour of the respondents (BISL) against the appellants (KPMG). The order he made, for convenience, I append hereto. He also refused to order BISL to pay either the costs of the application or the costs of providing the documents despite the presumption under CPR 48.1 that any costs of the application or the provision of pre-action disclosure should be paid by the party seeking the same. He refused permission to appeal, as did my Lord, Clarke LJ, but permission to appeal was granted after an oral hearing by May LJ on both aspects.
It is convenient to deal first with this aspect of the judge's ruling. CPR 31.16 provides as follows:
"Disclosure before proceedings start
(1) This rule applies where an application is made to the court under any Act for disclosure before proceedings have started.
(2) The application must be supported by evidence.
(3) The court may make an order under this rule only where
(a) the respondent is likely to be a party to subsequent proceedings;
(b) the applicant is also likely to be a party to those proceedings;
(c) if proceedings had started, the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and
(d) disclosure before proceedings have started is desirable in order to
(i) dispose fairly of the anticipated proceedings;
(ii) assist the dispute to be resolved without proceedings; or
(iii) save costs.
(4) An order under this rule must
(a) specify the documents or the classes of documents which the respondent must disclose; and
(b) require him, when making disclosure, to specify any of those documents
(i) which are no longer in his control; or
(ii) in respect of which he claims a right or duty to withhold inspection.
(5) Such an order may
(a) require the respondent to indicate what has happened to any documents which are no longer in his control; and
(b) specify the time and place for disclosure and inspection."
Section 33 of the Supreme Court Act 1981 , which was amended to give affect to the recommendation contained in "Access to Justice" Final Report, Section III, Chapter 12 paras 37–52, provides as follows:
"Powers of High Court exercisable before commencement of action
(1) On the application of any person in accordance with rules of court, the High Court shall, in such circumstances as may be specified in the rules, have power to make an order providing for any one or more of the following matters, that is to say
(a) the inspection, photographing, preservation, custody and detention of property which appears to the court to be property which may become the subject-matter of subsequent proceedings in the High Court, or as to which any question may arise in any such proceedings; and
(b) the taking of samples of any such property as is mentioned in paragraph (a), and the carrying out of any experiment on or with any such property.
(2) On the application, in accordance with rules of court, of a person who appears to the High Court to be likely to be a party to subsequent proceedings in that court the High Court shall, in such circumstances as may be specified in the rules, have power to order a person who appears to the court to be likely to be a party to the proceedings and to be likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising or likely to arise out of that claim
(a) to disclose whether those documents are in his possession, custody or power; and
(b) to produce such of those documents as are in his possession, custody or power to the applicant or, on such conditions as may be specified in the order
(i) to the applicant's legal advisers; or
(ii) to the applicant's legal advisers and any medical or other professional adviser of the applicant; or
(iii) if the applicant has no legal adviser, to any medical or other professional adviser of the applicant."
The points for the judge were thus: -
A Were BISL likely to become a party to proceedings, and were KPMG likely also to be a party to those proceedings i.e. in this case were BISL likely to sue KPMG?;
B If so, were KPMG. likely to have in their possession custody or power documents relevant to an issue "arising or likely to arise out of that claim"?;
C If so, did the circumstances as specified in the rules exist to provide the jurisdiction to order "those documents" to be disclosed and produced to the applicant's legal advisers, and/or any other professional adviser? [It is noteworthy that under the section it is not particular documents, but the documents that would otherwise ultimately have been produced on discovery under the old rule O.24 with which the section appears to have been concerned].
D Under CPR 31.16 the circumstances additional to those already made a requirement by the section, are that an order should "only" be made where:
(i)
if the proceedings had started the respondent's duty by way of standard disclosure would extend to "the documents or classes of document of which the applicant seeks disclosure";
(ii) disclosure of the documents before proceedings have started is desirable to dispose fairly of the proceedings; assist the dispute to be resolved without proceedings; or to save costs.
E An order must specify the documents or classes of documents and must require the respondent to comply with 4(b). The order may require compliance with 5. The details of 4(b) and 5 are not relevant to this appeal, but the compulsion to specify may be of relevance.
Background
BISL is a manager of investment trusts and in particular was manager of Siam Selective Growth Trust a fund which was set up in early 1990. KPMG were the auditors and tax agents of the fund from March 1990. The fund was subject to the United Kingdom tax regime. It operated and was approved by the Inland Revenue as an investment trust for the purposes of s.842 of the Income and Corporation Taxes Act 1988 ( ICTA). Responsibility for ensuring that the fund complied with s.842 of the ICTA rested primarily with BISL. Sub-section 1 of that section states that in order to be approved as an investment trust for any year of account, the fund must not invest more than 15 per cent of its total assets in any one company (including shares in that company's subsidiaries). Under BISL's Management Agreement, clause 5.1.2.1 BISL were required to ensure that not more than 10 per cent of the fund's total assets were invested in any one company including shares in that company's subsidiaries.
In September 1993 the fund held shares in Shinawatra Computers and Communications Public Company Limited ("Shinawatra") and in certain of its subsidiaries. The fund also held a modest number of shares in a company called Advanced Information ("Advanced"). The value of the shares in Shinawatra and its subsidiaries was increasing very rapidly and in or about August/September 1993 the fund made significant purchases of further shares in Advanced which was also a subsidiary of Shinawatra.
During the period September 1993 until December 1994, BISL were calculating their holdings on a cost basis rather than a market valuation basis. Towards the end of 1994 certain directors of BISL became aware of the possibility that this calculation was on a wrong basis. In December 1994 KPMG were involved in assisting with checking valuations as at certain key dates at which it was feared possible that the fund may have been in breach of s.842.
There was also an issue as to whether Advanced was a subsidiary of Shinawatra and whether shareholdings in Advanced should be brought in to the calculations as part of the Shinawatra group.
During December 1994 the revaluations were completed. These revaluations showed that even on key dates the 15 per cent limit was not breached. These revaluations were circulated to BISL, KPMG and the directors of the fund, and the directors of the fund confirmed in January 1995 that the valuations were prudently carried out and the assumptions were verifiable.
However, during the course of 1996 a decision was taken to liquidate the existing fund in order to create a new close ended fund. KPMG was nominated to be the liquidator. At this point KPMG as liquidator were not satisfied that s.842 had not been breached. Ultimately the fund had to accept that there had been breaches of s.842 in December 1993 through to July 1994. That resulted in the Inland Revenue revoking the investment trust status of the fund for accounting periods ending 31 March 1994 and 31 March 1995. The Inland Revenue raised assessment as to tax for the accounting periods ending 31 March 1994, and 1995.
After extensive negotiation with the Inland Revenue a compromise was reached in the sum of £4,250,000. BISL under their Management Agreement accepted the obligation to reimburse the fund in relation to the above figure.
BISL claim that KPMG as auditors or tax agents were also...
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