Omni Secs Ltd v Deloitte & Touche

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Georges and Collett, JJ.A.)
• Judgment Date: 05 May 2000
• Court: Court of Appeal (Cayman Islands)
• Date: 05 May 2000

Court of Appeal

(Zacca, P., Georges and Collett, JJ.A.)

OMNI SECURITIES LIMITED

and

DELOITTE AND TOUCHE and NINE OTHERS

R.H. Hildyard, Q.C. and D.T.J. McCahill for the appellant;

G.C. Vos, Q.C. and N.R.L. Clifford for the first to seventh, ninth and tenth respondents;

G.C. Vos, Q.C. and G.F. Ritchie for the eighth respondent.

Cases cited:

(1) Alexander v. Cambridge Credit Corp. Ltd.(1987), 9 NSWLR 310; 12 A.C.L.R. 202, considered.

(2) Brickfield Properties Ltd. v. Newton, [1971] 1 W.L.R. 862; [1971] 3 All E.R. 328, dicta of Cross, L.J. applied.

(3) Cargill v. BowerELR(1878), 10 Ch. D. 502; 47 L.J. Ch. 649.

(4) Cellular Clothing Co. Ltd. v. G. White & Co. Ltd.UNK(1952), 70 R.P.C. 9, not followed.

(5) Darlington Bldg. Socy. v. O”Rourke, James, Scourfield & McCarthy, [1999] Lloyd”s Rep. P.N. 33; [1999] P.N.L.R. 365, dicta of Sir Iain Glidewell applied.

(6) Galoo Ltd. v. Bright Grahame Murray, [1994] 1 W.L.R. 1360; [1995] 1 All E.R. 16, considered.

(7) Harries v. Ashford, [1950] W.N. 177; [1950] 1 All E.R. 427.[1950] W.N. 177; [1950] 1 All E.R. 427.

(8) Hydrocarbons Great Britain Ltd. v. Cammell Laird Shipbuilders Ltd. (No. 2)UNK(1991), 58 BLR 123, followed.

(9) Leicester Wholesale Fruit Market Ltd. v. Grundy (No. 2)UNK(1990), 53 BLR 1, followed.

(10) Letang v. Cooper, [1965] 1 Q.B. 237; [1964] 2 All E.R. 929, dicta of Diplock, L.J. applied.

(11) Lewis & Lewis v. DurnfordUNK(1907), 24 T.L.R. 64.

(12) London United Inv. PLC v. Mitchell, Queen”s Bench Division, February 10th, 1994, unreported, considered.

(13) March v. E. & M. H. Stramare Pty. Ltd.UNK(1991), 171 C.L.R. 506; 99 Aust. L.R. 423.

(14) Paragon Finance PLC v. D.B. Thakerar & Co., [1999] 1 All E.R. 400; (1998), 142 Sol. Jo. (L.B.) 243, dicta of Millett, L.J. applied.

(15) Steamship Mutual Underwriting Assn. Ltd. v. Trollope & Colls (City) Ltd., (1986), 33 BLR 77; 6 Con. L.R. 11, followed.

(16) Welsh Dev. Agency v. Redpath Dorman Long Ltd., [1994] 1 W.L.R. 1409; [1994] 4 All E.R. 10, considered.

Legislation construed:

Grand Court Rules, O.20, r.5:

‘(1) . . . [T]he Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleading, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

(2) Where an application to the Court for leave to make the amendment mentioned in paragraph . . . (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

. . .

(5) An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.’

Limitation Law (1996 Revision) (Law 12 of 1991, revised 1996), s.41:

‘(3) Except as provided by section 39 or by rules of court, a court shall not allow a new claim within paragraph (b) of subsection (1) . . . to be made in the course of an action after the expiry of any time

limit under this Law which would affect a new action to enforce that claim . . .

(4) Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as therein mentioned, but only if the conditions specified in subsection (5) are satisfied, and subject to any further restrictions the rules may impose.

(5) The conditions referred to in subsection (4) are in the case of a claim involving-

(a) a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on [sic] any claim previously made in the original action . . .’

Civil Procedure-pleading-amendment-time-barred claims-new cause of action barred by Limitation Law (1996 Revision), s.41(3) is new allegation of new loss or injury for which new remedy sought-alleged breach of contract or duty of care may be new claim even though coincided in time with breaches already pleaded and in same legal category

Civil Procedure-pleading-amendment-time-barred claims-no leave to amend under Grand Court Rules, O.20, r.5(2) and (5) to introduce otherwise time-barred claim if minimal overlap with issues already pleaded and extensive new factual inquiries required to answer allegations

Companies-directors-de facto/shadow director-concept of shadow directorship not part of Cayman law

Civil Procedure-pleading-amendment-time-barred claims-leave granted to amend under Grand Court Rules, O.20, r.5(2) and (5) to restore abandoned cause of action if original case reasonably pleaded upon legal advice and amendment in interests of justice

Companies-auditors-professional negligence-plaintiff to establish chain of causation to show that negligence dominant and effective cause of losses-claim for losses following auditors” negligent failure to alert company to fraudulent dealings not struck out unless plainly unarguable

The appellant brought an action to recover damages from the respondents for breach of contract and negligent misstatement in the preparation of audit reports.

The second respondent, DH&S (Cayman), was the appellant”s former auditor. In practice, it merely signed off the accounts and answered various statutory inquiries, and its associated firm in Switzerland, D&T (Zurich), the eighth respondent, prepared the annual audit report. The appellant, following its liquidation, brought proceedings against the two firms alleging that DH&S (Cayman) had acted in breach of its contract and both firms had breached their duty of care in tort by failing to alert it to the financial consequences of unsecured loans which it had made to or

obtained on behalf of other affiliated companies during 1988 and 1989. It claimed for losses in relation to these loans and payments made after the issue of the 1989 audit report to the owner of the Omni Group, Werner Rey, and private companies owned by him. The general endorsement on the writ included a claim in contract against D&T (Zurich) which was omitted from the statement of claim.

The appellant sought to amend its statement of claim to include, inter alia, an allegation of breach of contract, outside the statutory limitation period, against D&T (Zurich) and its principals, a similarly time-barred claim for further losses arising from loans or advances to Rey and his companies during 1988 and 1989, and an allegation that since Rey was a shadow director or agent of the appellant and since the transactions complained of were unauthorized by the board, they were carried out in breach of fiduciary duty.

The Grand Court (Smellie, C.J.) gave the appellant leave to restore its claim in contract against D&T (Zurich) even though time-barred, since it arose from facts similar to those already pleaded and the appellant had pleaded its case reasonably and diligently in the context of different contractual positions adopted by the parties at different times in the history of the case. The court refused leave to include the claims in respect of the Rey transactions, since they amounted to new causes of action under the Limitation Law (1996 Revision), s.41(3) and did not, for the purposes of s.41(4) and (5) and the Grand Court Rules, O.20, r.5, arise from the same or similar facts as matters already pleaded. They contained new allegations of new loss, giving rise to a new remedy, did not overlap sufficiently with the pleaded allegations, and would require extensive new factual inquiries. The proceedings in the Grand Court are reported at 1999 CILR 126.

In a previous ruling (reported at 1998 CILR 275) the Chief Justice had declined to strike out claims for heads of loss resulting from the appellant”s continuing to trade in reliance on the 1989 audit report, when it would not have done so otherwise. He stated that it would be for the appellant to prove that the respondents” negligence was the dominant or effective cause of its loss.

On appeal, the appellant submitted that the Grand Court had erred in ruling that it had no jurisdiction to allow the ‘Rey amendments,’ since (a) the proposed amendments were not new causes of action but only new examples of breaches of the same duty; (b) it had failed to take account, when comparing the existing pleadings with the proposed amended version, of amendments which it had already allowed; and (c) even if they were new causes of action, the new allegations arose from facts already pleaded, namely, the negligent audit reports for 1988 and 1989.

On a cross-appeal, D&T (Zurich) submitted that (a) having abandoned the claim in contract against it before serving its statement of claim, the appellant should not have been permitted to restore it over three years after the limitation date; (b) if confused as to the contractual status of the

different firms at the time of pleading, the appellant should instead have included an alternative claim against it in addition to that against DH&S (Cayman); (c) the court had wrongly permitted certain amendments the substance of which was dependent on the ‘Rey amendments’; and (d) the claims in relation to further losses suffered in 1990 and 1991 in conse-quence of the negligent audit investigations should have been struck out, since they relied on a chain of causation which presupposed that effective internal controls would have been put in place had the appellant been properly advised.

Held, dismissing the appeal and allowing the cross-appeal in part:

(1) The Grand Court had had no jurisdiction to allow the ‘Rey amendments’ to be made to the appellant”s statement of claim outside the limitation period. For the purposes of s.41(3) of the Limitation Law (1996 Revision), a cause of action was...