Oury Clark solicitors give an insight into the HP and Autonomy accounting fraud case, assessing the use of foreign evidence in proceedings.
The trial before the High Court in the proceedings pursued by Hewlett-Packard (HP) against Mike Lynch, the founder of Autonomy, is in its ninth week with Meg Whitman, the former chief executive of HP, having recently finished her evidence. Not only is the case extremely high profile, relating as it does to the acquisition of Autonomy by HP back in 2011, with allegations that the value of Autonomy was fraudulently inflated, but also raises issues regarding the inter-relationship between ongoing proceedings in different jurisdictions and the use of evidence obtained in criminal proceedings abroad.
In short, HP accuses Lynch and his co-defendant, Sushovan Hussain, (the former finance chief of Autonomy) of having orchestrated an accounting fraud at Autonomy, which was at the time one of the UK’s major software companies. Lynch strongly refutes the allegations and asserts that Autonomy was not properly integrated into HP and HP failed to take the business forward.
The case centres on HP’s purchase of Autonomy for $10.3billion in 2011. Back in 2011, the £25.50 per share option, which was said to represent a 79% premium, was believed by many HP shareholders to be excessive. It was however supported by the majority of investors and the deal was approved by Leo Apotheker, (HP’s chief executive and the architect of the transaction) and, as he observed, was supported by every member of HP’s Board. What transpired, however, was only a year after the acquisition, there was a substantial write down of the value of Autonomy’s business in HP’s books and assertions based on improprieties in the accounting records.
Trial reaching a key moment
Currently in the witness box is Cathie Lesjak, HP’s chief financial officer at the time of the takeover, who was responsible for the write-down of Autonomy’s value. Lesjak is reported as giving evidence that she expected to be dismissed, after speaking out about the excessive amount paid by HP and will be cross examined on the allegation that revenues were misrepresented and some contracts backdated. It is the Defendant’s case that the figures Lesjak’s team used to discount Autonomy’s values were manipulated.
The trial in London is part of a series of proceedings that are ongoing in relation to the ill-fated take over.
Lynch is countersuing in the US for damages and there are number of ongoing criminal proceedings. Hussain was convicted of fraud in California and has recently been jailed for 5 years. Lynch is also facing criminal charges in the US, alleging that he made misleading statements. The Serious Fraud Office in this country also launched its own investigation but elected not to proceed, which may have reflected the fact that the US authorities had instigated prosecutions. The existence of proceedings in the US raises important issues as to the use of evidence and documents obtained in proceedings in one jurisdiction for the benefit of foreign proceedings.
In the course of the English civil proceedings, a substantial quantity of documents have been disclosed and witness statements exchanged by both parties. HP’s legal team applied to the English Court earlier this year for an order enabling them to hand over to the FBI the entirety of the Defendants’ disclosure and witness statements. The US authorities had issued a subpoena for production of these documents but Mr Justice Hildyard refused the application on the grounds that HP had failed to show “cogent and persuasive reasons”, to overcome the restriction in the English civil proceedings under CPR Part 31 and 32, preventing the parties from using the documents for any collateral purpose. The Judge also concluded that there was a risk of prejudice to the Defendants if disclosure was made prior to the English trial.
The Hollington rule
The other aspect concerning the existence of foreign proceedings is the extent to which evidence given in the US fraud proceedings, in particular the findings of fact and the conviction against Hussain, can be used in the English proceedings. The general rule was laid down in the case of Hollington v Hewthorn [1943] KB 587 which ruled that the findings of Courts and Tribunals are not admissible in subsequent proceedings. In short, findings of fact by one tribunal cannot bind the decision made in a subsequent trial, where there may be different evidence.
An exception to the Hollington rule is contained in Section 11 of the Civil Evidence Act 1968, which states that the fact that a person is convicted of an offence in the UK shall be admissible in evidence for the purpose of proving that he committed that offence, where to do so is relevant to any issue in those proceedings. The Civil Evidence Act is though relevant only to convictions in the UK. The question of whether a foreign conviction can be used in evidence in English proceedings was considered in the case of Daley v Bakiyev [2016] EWHC 1972, where the foreign conviction arose from an attempted contract killing in Kyrgyzstan. In that case Bakiyev had been convicted of arranging an attempt on Daley’s life, who pursued a claim for damages in the UK. The High Court ruled that the Hollington rule applied to foreign convictions, namely that they were inadmissible in the English proceedings.
The restriction on the use of foreign convictions does not mean that other aspects of foreign criminal proceedings are not both relevant and admissible. It is understood that in the Autonomy action, extensive use has been made of transcripts of evidence given before the San Francisco jury in the Hussain fraud proceedings to support and contradict testimony given in the English civil proceedings.
It will be fascinating to see the outcome of the trial in London and the determination of the complex issues on the allegations of fraud. In addition, how important the evidence from the Jury Trial in the US has proven to be in the English proceedings. The Autonomy saga will not however end there, as the US fraud proceedings are ongoing and it will be interesting to see what use is made of the evidence obtained from the UK trial.