Transcript: How to Prepare for Litigation pt.2

with Mavis Tan and Jessica Pyman

· Transcripts - CBLP


Jessica: The China business law podcast discussion with control risks continues here. Part two, our interview with Mavis and Jessica, it might never end up in court. It might never end up in arbitration, but clients use these kind of different ways of gathering information to help them make the decisions that they need.

So many of our clients use the information that began this, help them 

Mavis: settle. I always remember the rush and the excitement. Finding out the modus operandi complex fraud, 

Jessica: whether the production plant is still running weapons, how many workers are coming in and out whether their sales contracts are being honored.

Just to see if it's already been hollowed out.

Iris: So getting back to our preparedness for the litigation, I recall that you mentioned about the assets investigation, and I think in China, China, Chinese post process with two, we said, we see either sees the person always sees the assets. So if, yeah, that's very blond until it works. Yeah. So how about. Uh, about the one term you said about fit to SU assessments and also a set investigation.

How can you elaborate on this helpful for companies or for lawyers? Because I think most companies, almost the clients there were saying. It's what will I have after I go to judgemental after Gordon award? If that's nothing I want you and fire this, I want to use that to this. It's very critical. I think 

Jessica: we touched a bit on it earlier, but.

In terms of definitely there's been an evolution in how clients are advised by counsel, I think in how they deal with this and their approach to it. And there just seems to be a much higher degree of pragmatism around. Trying to at least, and not maybe doing a full asset, trace bells and whistles, that's going to run for months, but doing a quick look.

So a fairly cost-effective quick look just to see what the structure looks like on the other side, whether there are issues associated with the counterparty and how they handle themselves in disputes, which in some markets is a real. Genuine concern on how that might impact on your business. It may be as mentioned daily, and it may be that suddenly by one line of inquiry, you're revealing all of these different interconnectedness and those there's actually, there's not just one person or one company on the other side of the table from you.

There's a whole network, which is in a position to lambast or at least severely disruptive business. So I think. All of the work that you do upfront is bundled into this phrase, fit to Sue, which it covers a lot of stuff, but basically it just means doing the necessary before, like to help inform your strategy around a dispute and what kind of legal action may be merited or warranted and likely to produce results.

And that's from my perspective, but I know. And it is more involved with the forensic aspect of that. So maybe you want to add to my rambling account. 

Mavis: Sure. In terms of as investigations and in fit to SU I think the challenge and the it's more valuable to typically do plaintiff parties who are seeking to access information on acids that they're not privy to.

For example, in a lot of the high net worth family disputes and trust disputes, where you're trying to get information on the structure is the assets who hosts what and where. And that work is much more valuable for a plaintiff to do upfront. Because if not, you won't even know where. To start your proceedings or which assets to go after.

So I think that's a difference whether you're a plaintiff or a defendant and for as investigations. But what I've seen personally is that it is well worth doing it even before you start proceedings. Not only because it helps you focus, but also yes. A lot later on in discovery as well, because you know exactly what to ask about which people and witnesses that you need to get.

Understand. So I think that's helpful. 

Iris: It also involving the counterpart assessment that you can research or investigate whether some defendants or whether what's the relationship between them and someone who they are hiding or, yeah, because some shareholders, they are not on some of the, as shareholders and we just didn't know what's behind the curtains.

That's very important to United together. 


Jessica: And you may, and it may take some times if you, I think often, sometimes a client knows their counterparty very well, super well, and they've broken bread with them. They know where they're, where the chairman's daughter goes to university. They have a lot of history there and so they understand their modus, operandi and her very first sense of their connections.

But sometimes they did. And to particularly. With regards to local connections. And if, as an example, you are likely to get into a dispute with a company that is very prized by us, local government, and is considered a key entity for that province or for that part of the region. It employs a lot of people.

It has benefited from a fairly sheltered position. Vis-a-vis the local government and whether that's in China or in other countries around the region is the. There can be a parallel. You need to be aware of that, of the depth and proximity of those relationships and how that might impact on the steps that you might want to take.

For instance, we're talking to lawyers in Hong Kong who are availing themselves with these new interim measures that are available. So for arbitration, where they can seek some kind of relief in that. What we have seen from clients here is that I say four applications that are seated in Hong Kong. They can look to seek interim relief in Chinese courts, and they may look for assets or presence in different parts of China away from.

A particular city where they know that they're less likely to get favorable results. So for instance, that might mean that they may not go to a third tier city where the counterparty is headquartered, but they may go to a first tier city court, which has the counterparty has a affiliate or a subsidiary that is registered there, which means that the.

The Hong Kong procedures will apply, but they've done it in a strategic way to make sure that they're going to get probably a more even handed hearing in 

Mavis: that perception. And I think that a large part of counterparty assessment is in looking for pressure points. So I, I remember a case in a Hong Kong at that recovery proceedings that I was involved in.

It was a Russian, a group of companies and the Hong Kong nexus was basically just a shell company in Hong Kong, but the Russian individuals were directors of that company. They've completely abandoned this shell company, uh, stripped out all his assets and would not respond to any form of proceedings.

Yeah. Ultimately our client, they did a bit of investigation as to the individual directors and where their footprint S and they found out that I'm one of the directors because of personal relationship in Hong Kong, in necessity that him coming to Hong Kong fairly regularly. And the client was ultimately able to obtain an injunction, preventing him from leaving Hong Kong because he was an application for contempt of court had been ticking against him for ignoring all the court orders for disclosure.

And because he was prevented from leaving Hong Kong, one of his trips very quickly, or there was a settlement on the table the next day, this would not have been possible. If the client didn't have information on this individual. 

Jessica: Yeah, but I would add to that also, is that what dispute support looks like in Asia is quite different from other regions.

There are. So there's, for instance, London is a center for a lot of disputes and that can be kind of investor state, or it can be oligarchy versus oligarch from central European. The nature of those disputes can be a tough or disputes are tough, but what that looks like. In Asia is often very different and oftentimes we it's a little more binary and that one side has been defrauded and they are looking for ways to try and get their money back.

It's mostly, it can be a kind of normal course of business disputes where everybody's a little bit, but in most instances, in the cases where we are involved, there has been, there's been some injustice. There has been. Something that has happened that has caused, and I wouldn't say that I'd be naive to assume in all instances, but in most instances where our involvement is marital lens, it's because we're on the right side in terms of there being a party that needs to try and get what is due to them, because either an enforcement stage where there has been an award in their favor finally, and then they go to collect on it and they can't because.

The award is honored by the other side, or just because they need to understand, need to gather more information, to be able to try and get to that point where they're getting wouldn't that feel?

Iris: Yes. Yes. And that makes me recall that case. That's what we successfully is to ask for an injunction for the living, for the board. And then we filed the injunction on his cars and now he has three cars and then we just had injunction all this cars and then that part, they just come to us. I said to him, I think that's a director and the.

It's freezing way hard to settle a case because you find the right person and you just find a, his neck sometimes. 

Jessica: Yeah, I think I know that. I prefer that. I prefer to, I found a time that maybe it's used pressure points rather than leverage, but information is useful in all negotiations. Like whether it's as part of a dispute or whether.

Part of a deal and how clients use it Tuesday is that is, that can be very powerful. 

Iris: Did they help and back let's that a little bit, because a man has said like Chinese companies, they are learning a lot in international litigations and international arbitrations. I think one point is quite a few and now it's quite difficult for a Chinese concept on tasty.

And that's what we are not familiar with the experts. And usually the experts, they are playing a very critical and sometimes, so there are. Way in the case, how is that hard playing nowadays in the litigations and how like you help us with the expert 

Mavis: issues? Yeah. Generally speaking, an expert is someone with special skills or knowledge around.

Specific area that either came from academic study or from professional experience and expert evidence is generated required and accepted when, unless assisted by someone with those, that special knowledge and skills, the average person or a court is unlikely to be able to have an accurate judgment about a relevant topic or issue in dispute.

So for example, my expertise is in forensic accounting and insolvency. So the type of expert evidence that I give it's typically on technical accounting matters, quantum matters or along insolvency. For example, your money laundering proceedings typically brought into perform the fund flows, tracing, and in reviewing underlying purpose of our transactions.

According to accompany senior contemporaneous records in so shareholders with joint venture disputes, I've been asked to value, for example, company shares and dispute. Or provide an opinion on the true position on so complex related party transactions and related shareholder loans, that kind of issues, or in a fraud situation, you know how the was the fraud perpetrated?

I mentioned case listing fraud that I was involved with how well the revenue and profits inflated the parties. For example, the banks, if they suffer an economic loss, Those in a profit inflation or falsify trade finance instruments, for example, or in certain liquidator type claims. What's the company solvent when it entered into various transactions.

So very technical type issues, then we've been brought into answer. And that's why also experts are required because. And not an average professor, or even an average accountant, wouldn't be able to provide professional opinion on such specific matters. So it's people of a specific expertise. And I think that your parties should consider experts at as part of the litigation readiness that we've been talking about because it essentially involves mobilizing.

The key information and analysis early on in the litigation process and getting an early read on launch proceedings. And if there was an expert matter that was going to make or break your case, you don't want to ignore the middle or twist and other proceedings that you don't actually have a good case.

The experts are not with you on what now and what you think is going to drive the outcome of your case. And I suppose it's also worth noting that experts, not all experts have to give evidence in court. But often also brought in this consulting expense where we don't actually produce any form of reports, but we are there to advise the client on what information they need and aware other witnesses in that case, what is the counterparty likely to say about certain issues, what documents they need to have, and just the preparation around building up their case.

I think that's something worth considering from the outset. 

Iris: Yeah. And from maybe companies views, I feel, I think most of the Chinese accompanies or some, maybe some of Florida clients, they are very cost sensitive. So my feel to that, to the evidence of the experts, they are a little bit costly. And sometimes they feel it's more reliable for some walk, evidence, that's evidence.

How would you advise your clients or our lawyers to choose when they should choose an experts and when they should spend it, this kind of cost on that. 

Mavis: So I think there will come a point depending on what the nature of the dispute is. If. It all boils down to a quantum issue, short parties, Katie put forward their own method of assessing quantum, but how would a court be able to decide which party is right?

Because quantum can be affected by the underlying information that has fed into it. The underlying assumptions that have been made, how is it that the court can assess which party? Of course, each party. For what their best case. It typically where an expert is required. The parties will come to agreement because they consulted out on their own.

And there's no way a court on its own can decide just based on the evidence put forward by the.

And so I'm afraid. And on a lot of cases, there's no choice. You're not going to provide an expert. The other party, your content body is going to. And so you'll be at a disadvantage if you don't. 

Iris: Yes. So when I was like in London, we, I was placed the tenders in the UK chambers and they just spent a very long time.

Budgets on the experts. And when one party has one expert, they will have to, the other party will have to, and they just see my history and they become experts. It's just that I, I a wider openly. Yes. Because in China, sometimes we will have some experts in the construction cases, all some real estate cases.

But depending on the judges, some judges feel this is a, just a testimony or just a certain. Individual opinions. So sometimes it would be neglected in Chinese process, but I feel you international arbitrations. It is very much valued. Yeah. It's a good trend. Yeah. It's a good trend because we see some Chinese cases.

They are a more experts standing on the stage and giving opinions and that opinion is finally got into the judgment. It's very important for sure. Okay. So talking about some assistance, I would like to ask if there are some digital systems of litigation assessments, because in China, we have some local courts they offer some, or some wise court system may say, if you can type in.

Some basic information of your counterparts. They can tell you how to approach this case and how much like how much percentage you can wait or something like that. I don't know whether there is some more fancy system, because I think this way is good because before you go to a court and you can see that how much you are on the winning.

And so in that more scientific or more offensive system supporting this kind of litigation assets, 

Jessica: I haven't come across that. I did it doesn't surprise me that there may be an early take-up of that in some of the Chinese provinces. I heard that. Was it her 

Iris: Nan? Yeah, financial and other promises. I haven't tried this kind of system because I don't know how they can or you, or how they can present the report because it's interesting, but I know some provinces, they have been spending a lot of money on this kind of systems.

They wonder what 

Jessica: that will look like. Yeah, I had that. I think it was her now. They were the first to digitalize all of that education record, which is really exceptional in terms of scale and speed of making that information available online, where none of the jurisdictions that recover, you still have to go to court to pull up filing from not even necessarily a historical finding like a very recent one.

I'm sure that they would have been big leaps in this stuff in China weather. And as you need, like with healthcare, like eventually, maybe you're going to have, you'll have your digital online doctor you'll have your digital online. You'll have, you'll be able to get like an instant readout of all things, but it hasn't for me personally, it hasn't impacted on my practice yet.

I haven't seen any evidence of it or had clients who've done. And put the data points in and decided that it's worth going to asset Traci. 

Iris: Yeah. 

Mavis: I would certainly love to have one of those like crystal ball systems know game theory. I think the answer is always the same, no matter . You presented, but it, that sounded like to me, it's a form of analytics and for sure, in the, in, in how we do our investigations, we would, for example, risk ranking a certain party.

So parties based on a variety of, of data points we have on that party. So I suppose with these digital systems, it sounds like it goes through an analysis of similar cases, similar. In fact patterns and analysis, the kind of judgments that come on, but I don't know, I'm not personally not come across to their systems and I'm not sure.

I'm sure it would be information that is interesting. It's just not sure how accurate the output would 

Iris: be. Yes. I think in China, the situation is changing quite rapidly, but sometimes it's quite interesting. Yeah. But lots of new assays coming up and just a despair, very likely. So coming to the, this post COVID-19.

Uh, times and I feel for myself, I can assume that a lots of your investigations has to be like a remote way. So maybe video ways that's affecting some of your methods of investigation.

Jessica: Yeah. See, I speaking from the perspective of outside and quiet information retrieval, I think. In because China was so quick to recover, it's it hasn't impacted so greatly on our normal modus, operandi and other countries. It was much more impactful and new, certainly from a due diligence perspective. I think that people have lent into using companies like ours.

Why? Because we have people on the ground there, or we have a network of people that we work with very often. They have needed extra is nice on the ground to be able to look at a subject or a target investment. So dispute, there has been very little that has been served fast, moving that we had to be their eyes and ears on the ground in a way that it's different from usual, from my perspective.

And I think also just more generally the narrative or the expected narrative around his views from last year where I arrived. So there isn't much to speak. And actually the, most of the dispute work that we're working on certainly for last year were matters that predated COVID and for the most part and advertise.

Yeah. So it's not very interesting answer, but actually we didn't really need a particularly revised Emma, I think. Probably, if you're involved as she in kind of proceedings and expert witness and needed to do that remotely, then that becomes a bit different. But from the information gathering perspective, not 

Mavis: so much.

Um, so it sounds to me as an expert, I've been doing a lot more expert meetings via video conference. I think that's what we're doing from an investigations point of view. Certainly it's impacted our ability to get onsite, but as Jessica says, China has recovered. Very quickly. It was a temporary disruption to your ability to do the ability to get onsite.

But for the most part, we were able to after some slight delay, but what I have observed is that there are, there have emerged new ways of conducting effective investigations remotely. So for example, we had found an alternative ways to verify data using a combination. Data analytics and forensic accounting skills to obtain data from different counterparties and reconcile that data.

And that has actually been really helpful for us in conducting investigations of third parties. And we've been able to identify so channel stuffing issues. Fake sales and reported by resellers or that kind of issues. Previously, we would have tried to do it onsite by interviews and getting physical books and records, but it has been possible to find alternative ways to get to the same result if you like.

And that's Jessica says also we've leaned very heavily into our, using the external intelligence to focus investigation very much using Jessica's team to inform us online. Did the modus operandi, the fraud be who are the parties involved just to help us focus when we are looking internally at investigating books and records or employee type issues.

Iris: And I don't know whether it affects your professional, but from me, I think currently we have a lot trained in that. Less transactions, especially across border MAs. And there are less procurements like cross border procurements, but there are more bankruptcy and insolvency cases from your side and then affectional and it influence to your professionals or to your clients on 

Jessica: that trends.

So you go first, maybe it's, I can definitely comment from a kind of H K perspective because you've done some research around this also, but you. 

Mavis: Sure quite the opposite of the fan, especially in the mainland China, that's been a big uptake in fraud and conflict of interest in collusion type investigations for a lot of our clients.

And I think it's because we're COVID and. Uh, trade war has brought about substantial prejudice on manufacturing costs. So we have seen a large uptick in whistleblower activity relating to procurement type fraud and a lot of collusion. So that party collusion to points and type parties, whether on they're on the supply chain side or on the sales side, intermediary type collusion.

And interestingly, we've got a lot more historically, it's usually the Santo employee who will blow the whistle. It's very rarely that her parties, but we've been seeing a lot more third parties blowing the whistle because they feel like, for example, a supplier or reseller feeling that they've been shortchanged, or they're not getting a piece of the action because they are unwilling to do certain things or I'm willing to pay a bit of a kickback to certain employees.

And so. I think quite the opposite. We are. We've been extremely busy as a result of, I think there's pressure on everybody is looking so closely at cost in doing these sorts of investigations, 

Jessica: Jessica. Again, I think there were lots of things from last year, which were quite counter narrative and it took, I don't know if there is a higher incidence of fraud or embezzlement or conflict of interest type issues, or if it's just so bottleneck from the last year.

But it all like companies are just trying to get through backlog and that's cause last year everyone was in crash position and making expediency contingency type management decision, like just trying to keep the business running and they didn't have, so I think to some extent that must be true, that they didn't have time or Headspace to really address it unless something was particularly egregious.

They couldn't turn to those internal investigations. In good time. And so I think there has been a bit of a bottleneck of those and that's companies are working their way through it now and combined with the circumstance of COVID. So either distress or to maybe it's this point about kind of fair parties, Vinny aggrieved, and additional whistleblower.

So all of that has come together to make a huge spike in, I sprinkled onto investigations and those types of issues. I think it was interesting for that. So definitely. Because we were talking about disputes. There's been a lot more. Kind of contentious issues and a potential dispute with portfolio companies.

So private equity that has been something that's been very problematic for, or at least they've had issues with some portfolio companies and if it's been a non-Chinese client, but the issue has been in China and that's been very difficult for them to address. And so we've been able to assist in those kinds of situations in parallel.

And again, we only, we can't necessarily make. Full sense of all of the macro stuff that's happening with computers, China, and all of the different, big economic kind of pushes and pulls. But from our business perspective, we have worked on a lot more domestic M and a in China over the last kind of six months to nine months.

And that is either. Chinese private investors or institutional investors making doing deals in China, where there's a role for us with diligence or for foreign multinationals who are looking to double down on China and making increased kind of investments or switching those investments. And I think that's also a counter narrative to everything everybody expected last year, they're saying, no, one's going to pull out and everybody's.

Move their stuff around and they'll have to diversify. And I'm sure that has been happening for the last 10 years when people really manufacturing, Sears used to Vietnam, for instance, will buy new Nashville. But actually for what we hear from our clients is they are looking for opportunities. They are using us for kind of market entry work.

We're doing regulatory risk analysis. We're doing partner finding work. So it's the growth. Opportunity of China and clients looking to capitalize on that hasn't gone away, but it's just that the regulatory risks and how fast these things are moving for instance, with Dieter. And for instance, with changes with regards to certain industry types or overseas listings, or these things are super rapid, but they're all moving in parallel and all of these kind of trends and beams and issues and concerns.

They're all living in. In parallel moving really fast. And so new government companies are trying to put their house in order, get one of their compliance stuff sorted, which has been troublesome over the last year and look for growth opportunities. And it's not, it's a complicated time. It's been such a fascinating discussion, but I D I did want to give also first, a big thank you to Iris for leading the charge and hosting on this and has two questions and fantastic talking about getting prepared.

And whether for litigation or the hosting, a podcast, Iris, been on a job and also want to thank our guests and give our, and give both of you Jessica. And maybe it's a chance for people who really enjoy the podcast and also found what you had to say useful either now or in the future. What's the best way for them to reach out to you if they have further questions or maybe you need to engage you at some point on the website.

Okay. Iris, do you want to take us home? Any other thoughts or closing? Closing remarks. 

Iris: It's just a very big, thank you because from me, I'm not quite familiar with your expertise and your professionals, but after our discussion, and after I look into your website for the readiness, it's like just a new word.

That's a fascinating career. Maybe someday I will sit by you. I would like to join, but when I'm tired of the lawyer, we have quite 

Mavis: a few former lawyers in our teams. 

Jessica: Oh wow. Covering lawyers and want to have some more interesting job. I think it sounds like it. 

Iris: Yeah.

Mavis: it's been a pleasure. Thank you. Thank you. 

Jessica: Thank you. Thank you to our audiences. Always for listening. Forget them. And thank you once again to our sponsors, our main sponsor who's Castelle. The lead is a leading a recruiting agency. We don't want to forget the shout out as well. So thank you everyone.

Thanks for listening. And that's a wrap.