ERNST & YOUNG (sued as a firm) v SJ ASSET MANAGEMENT SDN BHD (in liquidation) (W-02(NCC)(W)-2311-11/2017)

SJ ASSET MANAGEMENT SDN BHD (in Liquidation)

SECURITIES COMMISSION MALAYSIA … RESPONDENTS (In the matter of Civil Suit No: 22NCC-422-03/2012 High Court of Malaya at Kuala Lumpur Between CIMB Investment Bank Berhad … Plaintiff And

Ernst & Young (sued as a firm)

SJ Asset Management Sdn Bhd (in Liquidation) … Defendants And Securities Commission Malaysia … Intervener) 2 CORAM: TENGKU MAIMUN TUAN MAT, JCA HARMINDAR SINGH DHALIWAL, JCA ABDUL KARIM ABDUL JALIL, JCA JUDGMENT OF THE COURT [1] This appeal raises conflicting policy issues in relation to the right of discovery, including what we were told are novel questions of law in Malaysia pertaining to the application of the doctrine of public interest immunity in so far as disclosure of documents is concerned. [2] The appeal arose as a result of the order of the Kuala Lumpur High Court dated 1 November 2017. The learned Judge had dismissed the appellant’s (“EY”) application for discovery filed pursuant to Order 24 Rule 3 and/or Rule 7 of the Rules of Court 2012 (“ROC 2012”) (“Discovery Application”). In that Discovery Application, EY had sought for documents and information which were made available to the Securities Commission (“SC”) during SC’s supervisory assessment of the 1st respondent, SJ Asset Management Sdn Bhd (“SJAM”). 3 [3] We heard the appeal on 5 September 2018. After hearing the parties and taking into consideration the written submissions, we allowed the appeal and set aside the order of the High Court. Our reasons for doing so now follow and will constitute the judgment of the court. Background [4] The background facts leading to the Discovery Application are not disputed and can be stated as follows. SJAM was a small private company which carried on business as licensed fund manager. In that role, SJAM administered, managed and invested clients’ funds in various investments in the global markets. The funds managed by SJAM were held at all times by reputable third party custodian banks. [5] In August 2009, as part of increased scrutiny of asset management companies, the SC conducted an examination of SJAM (“2009 SC Examination”. In April 2010, the SC appointed BDO Consulting Sdn Bhd (“BDO”) to attend at SJAM and examine its books, accounts and records (“2010 BDO Examination”). The 2010 BDO Examination led to an admission by SJAM of certain regulatory breaches. 4 [6] As a result of SJAM’s admission, the SC revoked SJAM’s fund manager license on 23 July 2010. BDO was later appointed as liquidator, and in that role reported an alleged discrepancy between the trust assets that had been reported to SJAM’s clients and the trust assets held by custodians. SJAM was then wound up in October 2010. [7] After learning of the discrepancy in trust assets, separate suits were instituted against SJAM and EY. CIMB Investment Bank Berhad (“CIMB”), who had advised its own clients to invest through SJAM, commenced Civil Suit No. 22NCC-422-03/2012 (Suit 422) and various other individual investors (“Investors”), who used SJAM’s services, commenced Civil Suit No. 22NCC-431-03/2012 (Suit 431). [8] CIMB and the Investors, for convenience referred together as the Plaintiffs, alleged in those suits that the discrepancy in trust assets arose as a result of fraud committed by three defendants, namely:

(a) Tan Whai Oon, the Managing Director of SJAM during the relevant time period;

(b) Annalong Corporation Ltd., a company allegedly associated with SJAM; and

(c) SJAM, the fund manager. 5 [9] The Plaintiffs also pursued a claim against EY, SJAM’s auditor, on the basis that EY failed to detect the alleged fraud. EY has denied the Plaintiffs’ allegations and contends, among other things, that the fraud was not reasonably discoverable. The Discovery Application [10] The Discovery Application, the subject matter of the instant appeal, was filed by EY vide Enclosure 179, to seek disclosure of the following documents (collectively referred to as the “Discovery Documents”):

(i) Details and/or documents relating to all investigations and/or examinations by the SC on SJAM, including but not limited to the SC’s investigation and/or examination in the 2009 SC Examination);

(a) member of Commission;

(b) member of Shariah Advisory Council;

(c) member or the Audit Oversight Board;

(d) member of any committees of the Commission, Shariah Advisory Council or Audit Oversight Board;

(e) officer, servant or agent of the Commission; or

(f) person attending any meeting of-

(i) the Commission;

(a) revive anything not in force or existing at the time at which the repeal takes effect; or

(b) affect the previous operation of any written law so repealed or anything duly done or suffered under any written law so repealed; or

(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under any written law so repealed; or

(d) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any written law so repealed; or

(e) affect any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid; and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed, as if the repealing law had not been passed.” 12 [22] In coming to this view, we have not overlooked the submissions with regard to the Consent Order dated 27 July 2016. By this order, parties in Suit 422 had agreed for SJAM to produce certain documents subject to SC’s consent. Now, the learned Judge appeared to take the view that EY had acknowledged that consent of SC was required for disclosure of the Discovery Documents. [23] On this score, we do not think the said consent order precludes EY from pursuing its rights to obtain a disclosure order from the court in the event SC fails to provide the consent. We take the view that EY had not waived its rights to apply for specific discovery if SC had refused to give consent. In other words the Consent Order cannot be considered to be a commentary on any statutory requirement for consent. [24] It is trite law that a statement of the law cannot be pronounced by consent (see Lees v Motor Insurers’ Bureau [1953] 1 WLR 620; Slaney v Kean [1970] 1 Ch 243). In other words, arguments must be heard and an opinion pronounced by the court on a statement of the law. As such, we do not think there was any acknowledgment nor any incongruity in EY’s position that the consent of the SC is not a requirement. Since we have indicated that according to the prevailing law no consent of SC was required, the Consent Order requiring consent has become ineffective. 13 [25] In view of our decision that no consent of SC is required for disclosure, the arguments on whether EY should have sought a judicial review of SC’s non-action or silence with regard to the issue of consent has also become irrelevant. We would, however, observe that the failure of EY to mount any judicial review did not affect its right to pursue an application for discovery against SJAM. The arguments raised in this connection appear to overlook the point that the Discovery Application was made in the context of a private action between two private parties where the SC is not even a party. It does not affect SC’s public functions. Whether disclosure injurious to public interest [26] In addition to finding that the SC’s authorisation was required by statute, the learned Judge accepted SC’s objection to disclosure on the grounds of public interest immunity. The importance of public interest in the context of discovery is echoed in Order 24 Rule 15 of ROC 2012 which provides that the rules relating to discovery are “subject to any written law or any rule of law which authorises or requires the withholding of any document on the ground that the disclosure of it would be injurious to the public interest” (see also BA Rao & Ors v Sapuran Kaur & Anor [1978] 2 MLJ 146; Suruhanjaya Sekuriti v Datuk Ishak bin Ismail [2016] 1 MLJ 733). This proviso probably had its genesis in the British Crown 14 Proceedings Act 1947 which had preserved the so-called “Crown privilege” as decided by the House of Lords in Duncan v Cammell Laird & Co Ltd [1942] 1 All ER 587. [27] It is inevitable that when public interest immunity is asserted, the court will be faced with competing public interests where disclosure is concerned. On the one hand is the public interest of preventing harm to the nation and the public service by such disclosure of documents. On the other hand is the public interest of promoting the fair and effective administration of justice where harm would be caused if the withholding of material evidence results in the court being unable to make a fair determination of the dispute. [28] In the context of injury to public interest, in what came to be the leading case on the subject, the House of Lords in Conway v Rimmer and Another [1968] 1 All ER 874 (“Conway”) held that disclosure could only be ordered if the risk of injury to the public interest is outweighed by the injury to the public interest in the administration of justice. In other words, a balancing exercise must be carried out to determine on the facts of each case which public interest should prevail. 15 [29] Based on the decisions in Conway and Burmah Oil Co Ltd v Bank of England [1979] 3 All ER 700, Bingham J in Air Canada v Secretary of State for Trade (No.2) [1983] 1 All ER 161 (“Air Canada”) summarized the principles to be followed with public interest immunity claims. Although His Lordship’s decision to allow disclosure was set aside by the Court of Appeal, the principles stated, as follows, have gained universal acceptance (at p 165): “3. The plaintiff’s summons seeking production of documents for which the Secretary of State has claimed public interest immunity. Since the decision in Conway v Rimmer [1968] 1 All ER 874, [1968] AC 910 the question of public interest immunity has arisen on a number of occasions, most importantly for present purposes in Burmah Oil Co Ltd v Bank of England [1979] 3 All ER 700, [1980] AC 1090. From the authorities, and that authority in particular, I derive the following as the principles to be followed where it is sought to withhold documents on the ground that they belong to a class such that their production would be injurious to the public interest and where that claim is contested by a party to the litigation.

The first task of the court is to peruse the certificate or document in which the claim for public interest immunity is made in order to satisfy itself

(a) that the class to which the documents are said to belong is one recognized as capable of attracting public interest immunity or is at least closely analogous to a recognized class, (b) that there is no reason to believe the documents do not fall within the class claimed, and (c) that the documents themselves and the basis of the claim to immunity have apparently been the 16 subject of proper consideration by an appropriate person. If these conditions are met, in the absence of any contrary indication the court will treat the certificate or claim, not as conclusive, but as motivated by a concern for the public interest which (despite the inevitable difference of viewpoint) is as genuine as that of the court itself. In some cases the nature of the class will virtually conclude the matter (for example, where Cabinet papers or diplomatic dispatches are concerned) but such cases are the exception and are not those which in practice give rise to controversy.

If the court is satisfied that the party seeking to withhold the documents has made a valid claim for public interest immunity the next step is to determine whether the party seeking production is able to show a public interest in production. To do so, such party must show not only that the documents are relevant under the Peruvian Guano test (a condition which the claim for immunity itself assumes to be satisfied: see Compagnie Financiers et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55) but that they are necessary for disposing fairly of the cause or matter or (to put it in a different way) are necessary for the due administration of justice: see the Burmah Oil case [1979] 3 All ER 700 at 708, 714, 718, 731, [1980] AC 1090 at 1113, 1121, 1125, 1141. If it appears to the court that the documents are likely to be necessary for the due administration of justice the court is confronted by a second aspect of the public interest, fit to be weighed in the balance against the first.

If the court is satisfied that there is a public interest both in production and in non-disclosure it must consider the relative substance of each claim with a view to forming a judgment whether, on balance, the public interest will be better served by the withholding of the documents or by their production. It might be concluded that in respect of some documents the claim for immunity, although properly made, was of relatively little weight (as in the Burmah Oil case [1979] 3 All ER 700 at 714, 720, [1980] AC 1090 at 1121, 1128). It might conversely emerge (as it did in the Burmah Oil case 17 during argument in the House of Lords) that only very few of the documents were truly necessary for resolving the real issues in the action, and then the claim for immunity would have to be considered in relation to those documents. But the task of the court is to weigh the harm which production would cause to the business of government or public administration against the harm which non-disclosure would do to the just determination of the particular case and decide where the balance of public interest lies.

Where the court is of opinion that the balance of public interest lies clearly against production it will not inspect the documents on the off-chance that that conclusion might prove to be wrong if the documents were looked at. But the court may privately inspect the documents, certainly if it is provisionally inclined to order production (see Conway v Rimmer [1968] 1 All ER 874 at 888, 900, [1968] AC 910 at 953, 971) but also, it would seem, if careful consideration of the conflicting claims in the absence of the documents leaves the court subject to grave and disquieting doubts as to where the balance lies: see the Burmah Oil case [1979] 3 All ER 700 at 726, 734, [1980] AC 1090 at 1135, 1145. If provisionally inclined to order production the court would not ordinarily make that order without first inspecting the documents privately." [30] In the instant case, the learned Judge accepted the SC’s submission that the balance of public interest tilts on the side of non-disclosure to protect the effective functioning of the SC pursuant to the SCMA 1993. The following reasons were provided in coming to this conclusion:

(a) It is in the interests of public that the Discovery Documents be protected as a class to fully protect the investigative and supervisory 18 powers of the SC given that it is inevitable that each document will be based on, or contain references to other similar investigation or supervisory documents.

(b) It would be injurious to public interest if the Discovery Documents were ordered to be disclosed by this Court as this would impede the proper functioning of the SC i.e. there is a risk that future investigations carried out by the SC may be affected and public confidence in the SC be undermined.

(c) The protection from disclosure afforded to the SC is not limited to a one-off situation involving merely SJAM, as codified in the SCA. On the other hand, a precedent in allowing disclosure of the SC's investigation papers would be established if this Discovery Application is allowed, resulting in a floodgate effect i.e. large amounts of subsequent litigation seeking for such a disclosure.

(d) Further, third parties may be discouraged from coming forward to give evidence or from giving evidence fully and freely and likewise it would be important to preserve the integrity and independence of reports made pursuant to the investigations conducted by the SC". [31] These four grounds given by the SC to oppose disclosure, and which were accepted by the learned Judge, were assailed by learned 19 counsel for EY. The criticism advanced by counsel was that the SC’s generic reasoning in support of the claim to public interest immunity was vague, bare and unsubstantiated. It was contended that no evidence or reasoning was put forward to establish that the Discovery Documents belonged to a class which was recognised as capable of attracting public interest immunity. Blanket and bare assertions that disclosure would be injurious to the public interest, it was argued, should be rejected by the law. [32] After careful consideration, we came to the view that this criticism was not without merit. In the first place, the disclosure of the Discovery Documents does not trigger any recognisable head of public interest immunity. According to the learned authors of Disclosure (4th Edn, Sweet & Maxwell, 2012), the recognised heads of public interest immunity are national security, international relations, workings of central government, other branches of public service, the police and armed forces, confidentiality and informants (at paras 12.17 to 12.26). [33] Secondly, as suggested in Air Canada, the court must be satisfied that the documents and the basis for the claim to immunity have been properly considered by an appropriate person. We agree with the appellant that the deponent to the affidavit filed by the SC was not the 20 appropriate person to properly consider the documents or the basis for the claim to immunity from disclosure. [34] The deponent did not seem to be familiar with the effect of the documents and depended upon the solicitors’ advice to come to a view that disclosure should not be allowed. The reasons given appeared to be that of the SC’s solicitors. In the end, the SC’s affidavits were lacking in specificity and detail to support the SC’s argument that on the facts the documents ought not to be disclosed due to the public interest. [35] In the same context, we are not persuaded that the SC has led sufficient evidence to justify non-disclosure. For this purpose, the affidavits filed to oppose disclosure must be carefully scrutinised. For instance, the affidavits filed by the SC could have contained an averment that the documents are required for a pending investigation or that disclosure would prejudice an ongoing criminal prosecution. If there was such an assertion, it would be the duty of the court to consider and if there is sufficient justification, disclosure would be refused. However, there was no such assertion in the present case except for bare, sweeping and unsubstantiated arguments against disclosure which the Court would be unable to accept (see Competition Commission v Nutanix Hong Kong Limited and others [2018] HKCT 1). 21 [36] Thirdly, we agree that after determining that the Discovery Documents were relevant and necessary for a fair trial, the learned Judge should not have refused to make an order for production without examining the documents and considering them in the light of the other material as advocated in Goodridge v Chief Constable of Hampshire Constabulary [1999] 1 All ER 896. The jurisprudence in this respect is settled in that the court should inspect the documents in circumstances where the documents requested satisfy the ordinary test for production and disclosure is challenged on the basis of public interest immunity (see Wallace Smith Trust Co Ltd (in Liq) v Deloitte Haskins & Sells [1996] 4 All ER 403; Science Research Council v Nasse, BL Cars Ltd (formerly Leyland cars) v Vyas [1979] 3 All ER 673). [37] Coming now to the reasons given by the learned Judge for refusing disclosure, for the first ground, we were unable to ascertain how the investigative or supervisory powers of the SC would be affected as this was not explained in the affidavits. As alluded to earlier, the affidavits only refer in broad terms to the general investigative and supervisory powers of the SC without providing any particulars. 22 [38] For the second ground, we must say, with respect, that any concerns about future investigations being affected and public confidence in the SC being undermined is unwarranted. There was simply no evidence of any ongoing or forthcoming investigations into SJAM. In fact, investigations were already completed with SJAM’s licence being revoked and enforcement action taken to wind up SJAM. At least, evidence of any such prejudice to future investigations ought to have been provided in the affidavits. [39] As for the third ground concerning the floodgate effect, this is against the established jurisprudence as the law in the form of Order 24 ROC 2012 allows for discovery of documents in civil litigation. Disclosure orders will be made only in the appropriate cases where the legal test has been met. The court functions as a gatekeeper by assessing the merits of each individual application. The fear of the floodgate effect seems to us to be unjustified and unfounded. [40] In this context as well, the role of the SC must be properly appreciated. The SC must act fairly in that there must be equal access to documents to prevent one party from having a litigious advantage or disadvantage as the case may be. As SJAM has had the benefit of having the documents sought for in the application, the SC’s stand in opposing 23 disclosure is rather curious. The documents concerned are no longer confidential. In other words, the documents are no longer with SC alone. As stated earlier, it is pertinent that discovery is only sought against SJAM and not the SC. It is to the benefit of all parties that it is disclosed as to how the fraud had occurred and the reasons why action was taken against SJAM. [41] In this respect, we agree with the sentiments expressed in the recent Hong Kong case of SFC v Wong Yuen Yee & Ors [2017] 2 HKC 332 where the Court of First Instance observed that the proper role of the Hong Kong equivalent of the SC is to make all materials available for potential use in a trial to ensure a just outcome: "76. It has to be borne in mind that these are proceedings in which the respondents are faced with an adversary in the form of a governmental regulator which controls the investigatory process. With powers that rank high in the 'hierarchy' of coercive powers for obtaining information and of investigating suspected wrongdoing (see Stern, supra, at p 2257D), the Commission occupies a position analogous to criminal law enforcement agencies, with the additional advantage that an interviewee's privilege against self-incrimination is abrogated.

Given the status of the Commission as a statutory body established for public functions, it seems to me that the observations of Sopinka J in R v Stinchcombe, supra, at p 333h-i are apposite: 'the fruits of the investigation' which are in the Commission's possession are 24 not its own property for use in securing a disqualification order but the property of the public to be used to ensure that justice is done. The proper role of the Commission is not a prosecutor bent on securing the disqualification of a respondent, but a fairminded regulator willing if not anxious to make all materials available for potential use in the trial to ensure a just outcome.

The requirement in civil cases that discovery has to be necessary for 'disposing fairly of the cause or matter' directs attention to the question whether one party enjoys a 'litigious advantage’ or suffers a 'litigious disadvantage’ with reference to access to documents: Taylor v Anderton [1995] 1 WLR 447, 462C. The notion of equal access to documents relevant for the preparation of one's case is an important facet of fairness in this kind of case, where the Commission has taken on the role of an investigator. The Commission is not in original possession of any relevant information or documents generated by any transaction to which it was party. It has acquired the documents only as a result of its investigation. The respondent is generally not in a position to specify what information and documents the Commission has, other than that which it has chosen to disclose. It is to be questioned whether practical fairness can be achieved if a respondent is required in this context to pinpoint a concrete and specific document or class of documents (so narrowly defined as to contain no irrelevant documents) before he can obtain discovery." [42] On the last ground, which alluded to third parties from being discouraged to give evidence, again we find this reason given by the SC to be speculative, unsupported and unfounded in principle. There was no evidence that the 2009 SC Examination or the 2010 BDO Examination 25 relied on any information given by informants. It appears to us from the appointment letter to BDO that the examinations focussed solely on SJAM’s books, accounts and records. [43] Now, the learned Judge also appeared to have relied on the case of Suruhanjaya Sekuriti v Datuk Ishak bin Ismail [2016] 1 MLJ 733 in arriving at the conclusion that disclosure must be refused for the effective functioning of departments or organs of central government. With respect, the learned Judge’s reliance on Ishak’s case is misplaced as the present Discovery Application is in no way concerned with the identity of informants. Unlike Ishak’s case, where disclosure of statements made by informants was sought, no such disclosure is sought here. In any event, the Discovery Documents are in the possession of SJAM and if there are informants involved, SJAM would already be aware of them. So the concerns about the candour of future informants are unfounded. [44] In the circumstances, we were constrained to hold that the learned Judge’s assessment of the balance of public interest was flawed and the final decision to disallow disclosure was unsupported by principle and by the evidence. The learned Judge had failed to properly weigh the likelihood of harm that non-disclosure would cause to the party seeking disclosure and to the administration of justice as a whole. The learned 26 Judge appeared to have taken the mistaken view that once public interest immunity is raised by a statutory body, the decision on whether to allow or disallow discovery is absolutely in the hands of the statutory body. [45] We hasten to add that this proposition is wrong in law as the final decision on disclosure must lie with the court. It is the independence of the courts which allows them to be best placed to carry out this duty. This much was asserted in Conway, supra, where it was pronounced (at p 901): "In many cases it will be plain that documents are within a class of documents which by their very nature ought not to be disclosed. Indeed, in the majority of cases I apprehend that a decision as to an objection will present no difficulty. The cases of difficulty will be those in which it will appear that, if there is non-disclosure, some injustice may result and that if there is disclosure the public interest may to some extent be affected prejudicially. The courts can and will recognise that a view honestly put forward by a Minister as to the public interest will be based on special knowledge and will be put forward by one who is charged with a special responsibility. As Lord Radcliffe said in the Glasgow Corpn case (1956 SC (HL) at p 18.), the courts will not seek on a matter which is within the sphere and knowledge of a Minister to displace his view by their own; but where there is more than one aspect of the public interest to be considered it seems to me that a court, in reference to litigation pending before it will be in the best position to decide where the weight of public interest predominates. I am convinced that the courts, with the independence which is their strength, can safely be 27 entrusted with the duty of weighing all aspects of public interests and of private interests and of giving protection where it is found to be due." [46] The courts are entrusted with the duty of being the guardians of the public interest, and in the exercise of this duty, to weigh both the public interest in the administration of justice and other public interests that may arise. The fact that the SC is a public body does not vindicate its failure to give clear, reasoned and valid justifications for its position in resisting disclosure. Bare assertions for non-disclosure will not suffice. In this regard, we are reminded of the observation of Lord Edmund-Davies in D v National Society for the Prevention of Cruelty to Children [1977]1 All ER 589 at p 616: "... Accordingly, it would be unthinkable to vest the judiciary with a power to exclude in its discretion evidence relevant to the issues in civil proceedings merely because one side wants it kept out and the judge thinks that its disclosure is likely to prove embarrassing. In other words, the exclusion of relevant evidence always calls for a clear justification." Conclusion [47] In the circumstances, and for the reasons we have given, we were persuaded that the decision of the learned Judge was plainly wrong and 28 cannot be upheld. The appeal was accordingly allowed and the order of the High Court was set aside. We also ordered the matter to be remitted to the High Court for the learned Judge to inspect the Discovery Documents as its final task in considering the claim for public interest immunity before ordering disclosure. [48] We also ordered the SC to pay costs of RM12,000.00 to the appellant EY subject to payment of allocator fees. No order for costs against the 1st respondent, SJAM. Deposit to be refunded. By agreement of the parties, we also granted a stay of two months of our order pending the application for leave to the Federal Court. Dated: 09 January 2019 Signed (HARMINDAR SINGH DHALIWAL) Judge Court of Appeal Malaysia 29 Counsel / Solicitors: For the Appellant (EY): Gopal Sreenevasan (with him Kelvin Seet, Ms Vendee Chai and Ms Lim Lay Yee) (M/s Cecil Abraham & Partners) For the 1st Respondent (SJAM): Ang Hean Leng (with him Choy Kay Chun) (M/s Lee Hishammuddin Allen & Gledhill) For the 2nd Respondent (SC): Lim Chee Wee (with him Ms Sharon Chong and Ms Joyce Lim) (M/s Skrine)