Kuah Kok Kim and Others v Ernst & Young (a firm)

• Judge: Chao Hick Tin J
• Judgment Date: 28 October 1996
• Neutral Citation: [1996] SGCA 66
• Citation: [1996] SGCA 66
• Defendant Counsel: Tan Chee Meng and Melvin Elias (Harry Elias & Pnrs)
• Published date: 19 September 2003
• Plaintiff Counsel: Michael Khoo and Josephine Low (Michael Khoo & Prns)
• Date: 28 October 1996
• Docket Number: Civil Appeal No 153 of 1995
• Court: Court of Appeal (Singapore)
• Subject Matter: Pre-action,Civil Procedure,'Or',Conjunctive or disjunctive,Whether documents sought to be discovered relevant,Construction of statute,Whether procedure for application complied with,O 24 r 7A(3)(a) & (b) Rules of the Supreme Court 1990,Discovery to see if cause of action available against accounting firm for breach of contract or negligence,O 24 r 7A Rules of the Supreme Court 1990,Whether grounds for application for order of discovery had been sufficiently stated,Statutory Interpretation,Discovery of documents

The facts

This appeal essentially deals with the issue of pre-action discovery, pursuant to O 24 r 7A of the Rules of the Supreme Court 1990 (the RSC). The facts, in brief, were as follows.

The appellants were minority shareholders in a company, Chong Lee Leong Seng Company Ltd (the company), and together, they held 1,254,833 shares or approximately 10.57% of the issued shares of the company. In 1989, they commenced proceedings to wind up the company. These proceedings were subsequently settled on terms that the appellant would sell their shares to the majority shareholders at a price to be valued.

By a letter dated 28 January 1993, the first appellants and the majority shareholders of the company instructed the respondents to carry out a valuation of the shares as at 31 July 1989. This was to be a non-speaking valuation, in that the respondents were not required to furnish any reasons for the valuation but merely to state what, in their opinion, was the fair value of each share of the company.

The respondents replied on 6 April 1993 stating that in their opinion, the fair value for each share as at 31 July 1989 was $2.15. The shares were then sold at that price in accordance with the terms of the settlement. The appellants however, had reason to believe that the valuation given by the respondents was arrived at based on a mistake of principle or law. Thus they wrote to another firm of accountants, KPMG Peat Marwick on 28 December 1994, to obtain another valuation.

Meanwhile, on 29 December 1994, the appellants, through their solicitors, wrote to the respondents requesting them to disclose their basis on which their valuation was carried out and how the value of $2.15 per share was arrived at. The respondents replied on 3 January 1995 stating that `the letter engaging us dated 28 January 1993 states that we are not required to furnish any reasons for our valuation. Accordingly, we regret to inform you that we are not able to furnish the information request by your client`.

On 14 February 1995, KPMG Peat Marwick reverted back to the appellants, informing them that the shares had been valued between $3.17 and $3.26 each and gave a brief statement of the various methods of valuation which they had used and the methods which they considered inappropriate.

Proceedings were then commenced in the High Court to compel the respondents to give discovery of documents and working papers which they had referred to or used in determining their valuation, to enable the appellants to decide whether there had been a breach of contract or negligence on the part of the respondents and thus to decide whether to bring an action against them.

The decision below

The hearing first came before the assistant registrar who granted the application and ordered the respondents to give discovery of `the documents or working papers relied upon, referred to or used by them for the purpose of the valuation of the shares of Chong Lee Leong Seng Company Limited`. When the matter came before the trial judge, he allowed the appeal in part and varied the order to exclude working papers and documents created or prepared by the respondent.

The respondents` arguments before the trial judge were as follows. Firstly, they contended that there had been a failure to comply with paras (a) and (b) of r 7A(3), in that the appellants did not set out the nature and particulars of their allegations, state the substance of their case against the respondents, as well as specify the documents.

The trial judge held that based on the appellants` narration of the events, they had, in their affidavit, sufficiently stated the grounds for their application as well as the material facts pertaining to the intended proceedings in their affidavit. In the trial judge`s opinion, the affidavit was not required to state the cause of action with particulars. If the appellants were in a position to do so, they would well be in a position to commence proceedings immediately and it would not be necessary to provide a scheme for discovery before action.

Moreover, on the facts disclosed in the affidavit, the trial judge held that there may reasonably be a claim for breach of contract or for negligence in relation to the valuation of the shares by the respondents, and if so, they were likely to be parties to any intended proceedings which the appellants might commence.

In addition, the trial judge examined the relationship between paras (a) and (b) of r 7A(3), and came to the conclusion that the affidavits had to satisfy the requirements of both paragraphs, although the word `or` was used between paras (a) and (b). All in all, the trial judge was satisfied that the appellants had sufficiently complied with r 7A(3).

Next, the trial judge considered O 24 r 8 to decide whether the order was necessary to dispose fairly of the matter or to save costs. Although the respondents had given a non-speaking valuation, the trial judge felt that some discovery ought to be given. In his opinion, although the respondents were not required to give reasons for their valuation, giving discovery of certain documents such as the company`s financial reports and directors` reports was not the same as giving discovery of their reasons for the valuation. However, the respondents would also have created their own documents in forming a view as to the appropriate method to use in valuing the shares and these documents may well be likely to disclose the reasons for their valuation.

As the respondents were not required to give reasons for their valuation, the trial judge was of the view that discovery of such documents could not be necessary for disposing fairly of the cause or matter, nor would it be relevant to an issue likely to arise out of the claim which is likely to be made in the intended proceedings. Hence, the trial judge varied the order for discovery to exclude the working papers and documents created or prepared by the respondents; and they were awarded the costs of the appeal.

The issues on appeal

In gist, the appellants were appealing against the trial judge`s decision to exclude from discovery the documents and working papers which were created or prepared by the respondents for the purpose of the valuation. In turn, the respondents argued that the appellants were merely on a fishing expedition as they had no basis for their allegations of negligence or breach of contract by the respondents. Moreover, the respondents contended that paras (a) and (b) of O 24 r 7A had not been complied with as the appellants had failed to state the material facts pertaining to the intended proceedings and they had failed to specify the documents in respect of which the order was sought.

The procedure in O 24 r 7A

At the outset, we would deal with the preliminary issue as to whether paras (a) and (b) of O 24 r 7A should be read conjunctively or disjunctively. Counsel for the appellant argued that it should be the latter, and explained as follows. Order 24 r 7A of the RSC has its origin in the United Kingdom provision. It is in pari materia to the United Kingdom provision save that the equivalent English provision is limited to personal injury claims, and does not include the word `or` between paras (a) and (b). Thus, as long as para (a) is satisfied, there was no need to comply with para (b).

This was also supported by the fact that unlike s 31 of the Administration of Justice Act 1970, in which the United Kingdom provision derives its operative force, s 18(2) of the Supreme Court of Judicature Act (Cap 322) is a wide provision. Thus the court need not satisfy itself that both paras (a) and (b) are fulfilled, as the court has a wide discretionary power to allow pre-action discovery even if para (b) was not satisfied, so long as para (a) was.

It would be appropriate at this juncture to look at the United Kingdom provision and compare it with the local provision. Order 24 r 7A of the United Kingdom Rules of the Supreme Court states as follows:

(1) An application for an order under section 33(2) of the Act for the disclosure of documents before the commencement of proceedings shall be made by originating summons ... and the person against whom the order is sought shall be made defendant to the summons.

(2) An application after the commencement of proceedings for an order under section 34(2) of the said Act for the disclosure of documents by a person who is not a party to the proceedings shall be made by summons, which must be served on that person personally and on every party to the proceedings other than the applicant.

(3) A summons under paragraph (1) or (2) shall be supported by an affidavit which must -

(a) in the case of a summons under paragraph (1) state the grounds on which it is alleged that the applicant and the person against whom the order is sought are likely to be parties to subsequent proceedings in the High Court in which a claim for personal injuries is likely to be made;

(b) in any case, specify or describe the documents in respect of which the order is sought and show, if practicable by reference to any pleading served or intended to be served in the proceedings, that the documents are relevant to an issue arising or likely to arise out of a claim for personal injuries made or likely to be made in the proceedings and that person against whom the order is sought is likely to have or have had them in his possession, custody or power.

The operation of this rule was derived originally from s 31 of the Administration of Justice Act 1970 (now s 33(2) of the Supreme Court Act) which provided that the power of the court to make an order for the disclosure of documents thereunder should be exercisable `in such circumstances as may be specified in the rules`. As explained in the Supreme Court Practice 1995 , Vol 1 para 24/7A/1 with regard to the English provision:

By the operation of this rule, the parties in personal injury litigation will be able to obtain before trial the disclosure of relevant

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