ALLIED GROUP LTD. and Others v. ATTORNEY GENERAL and Another

IN THE COURT OF APPEAL

1993, No. 107
(Civil)

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J U D G M E N T

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Penlington, J.A.:

1. On the 8th of August 1992 the Financial Secretary Mr. Hamish Macleod, CBE, JP considered that it was appropriate for him to exercise his powers under Section 143(1)(c) of the Companies Ordinance, Cap. 32 for it to appoint an inspector to investigate the affairs, interalia, of the Allied Group Limited and Allied Properties (HK) Ltd. He also authorised the establishment of a steering committee to advise him as to the appointment of a suitable candidate as such an inspector and to assist him to monitor the inspector's progress in relation to administrative matters arising during the course of that inspection. The actual composition of the steering committee was entrusted to the then acting Secretary for the Monetary Affairs and it comprised Mr Tam Wing Pong, then Deputy Secretary for the Monetary Affairs, Mr John Allan, a senior member of the Attorney General Chambers, Mr Gerard McMahon of the Securities and Futures Commission and the then Legal Advisor to the Monetary Affairs Department, Mr Stefan Cannon. Mr Cannon ceased to be a member of the steering committee in November 1992.

2. On the 14th of August 1992 the Financial Secretary, acting on the advice of the steering committee, appointed Mr Nicholas Allen a partner in the firm of Coopers and Lybrand, Chartered Accountants, as such an inspector.

3. Section 143 of the Companies Ordinance reads as follows:

"143. Investigation of the affairs of a company in other cases

(1) Without prejudice to his powers under section 142, the Financial Secretary-

(a) shall appoint one or more competent inspectors to report thereon in such manner as the Financial Secretary may direct, if the court by order declares that its affairs ought to be investigated by an inspector appointed by the Financial Secretary; and

(b) may do so if the company by special resolution declares that its affairs ought to be investigated by an inspector appointed by the Financial Secretary and the company gives security in such amount as the Financial Secretary may require; and

(c) may also do so if it appears to the Financial Secretary that there are circumstances suggesting-

(i) that the business of the company has been or is being conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive of any part of its members or that it was formed for any fraudulent or unlawful purpose; or

(ii) that persons concerned with its formation or the management of its affairs have in connexion therewith been guilty of fraud, misfeasance or other misconduct towards it or towards it members; or

(iii) that its members have not been given all the information with respect to its affairs that they might reasonably expect.

(2) The power of the Financial Secretary under subsection(1)(c) shall be exercisable with respect to a body corporate notwithstanding that it is in course of being voluntarily wound up."

4. The inspection proved to be a substantial task and has to date involved the expenditure of over 40 million dollars in professional fees. The report is we were informed, however, now prepared and is ready for submission to the Financial Secretary.

5. On the 21st of May 1993, however, an ex parte application was made by the Allied Group Ltd., Allied Properties (HK) Ltd. and Mr. LEE Ming Tee, a businessman who had been closely associated with the companies as Managing Director. This application came before Rhind J. who ordered it be heard inter partes which took place before Kaplan J. on the 7th of June 1993.

6. The application was for

(i) an order of Certiorari to quash the decision of the Financial Secretary appointing Mr. Allen as an inspector;

(ii) an order to quash the decision of the Financial Secretary establishing the steering committee;

(iii) a declaration that the Financial Secretary has acted over ultra vires;

(iv) Prohibition restraining the Financial Secretary and Mr Allan from acting an excess of their respective jurisdictions; and

(v) a stay of the inspection of the Allied Group Ltd. and Allied Properties (HK) Ltd.

7. The grounds upon which relief was sought was that the decisions made were ultra vires and that they had the appearance of bias.

8. The matter came before Kaplan J. on the 7th of June 1993 and in a judgement delivered on the 11th of June 1993 he refused the applications for leave to apply for judicial review.

9. The applications originally sought to challenge firstly the appointment of Mr Nicholas Allen as an inspector and secondly the establishment of the steering committee by the Financial Secretary. However when the matter came before Kaplan J. the applicants abandoned their challenge to the decision to appoint Mr. Allen. Kaplan J. therefore was only concerned with question of the establishment and the functions of the steering committee. Before us the scope of the applications was further limited in that it was conceded that provided the steering committed had abided by the terms of reference under which they were appointed no complaint could be made that the Financial Secretary had appointed a committee to assist him in carrying out his functions under the relevant sections of the ordinance. I have no doubt whatever that must be so. Section 42(1)(a) clearly empowers the Financial Secretary to appoint an inspector to investigate the affairs of the company and to report thereon in such manner as he may direct and it was not disputed that the words "in such manner" apply to the investigation as well as the report. Clearly therefore the Financial Secretary does have an ongoing duty to monitor the progress of the investigation. As Mr. Hamish Macleod, the Financial Secretary has said in his affidavit when one considers that this was by no means the only investigation being carried out and it was concerned a large group of companies it would be virtually impossible for the Financial Secretary to carry out his duties unaided. Mr. Nicholas Allen in his affidavit stated that pursuant to Section 144 of the Companies Ordinance, which relates to the investigation of related companies, his inspection has extended to some two hundred and fifty such related companies and has involved the obtaining and reviewing of documentation from four hundred companies and one hundred and fifty individuals. The budget for the inspection is HK$41 million.

10. There is nothing in the affidavits filed on behalf of the applicants suggesting that Mr Nicholas Allen has in fact been in any way biased or unduly influenced in the carrying out of his duties by anything suggested to him by a member of the steering committee. He says that he has reported regularly to the steering committee or the individual members thereof in relation to the progress of his investigation and the likely date when his report would be available. He is also consulted with them as regards the cost and the budget of the inspection. His conclusions have been reached without in any way being subject to the opinions or objectives of any of the members of the steering committee. While he appreciates that it is highly desirable at his report be completed and place in hands of the Financial Secretary as soon as possible, it is also very important that any person whose conduct is the subject of criticism in report should have a fair opportunity to comment on those parts of the report which make such criticism. This he says has been done. He specifically denies that anybody from the Securities and Futures Commission has in any way imposed his views on Mr Allan as to the conduct of any person or company being investigated. His impartiality as an inspector has not been impaired.

11. The applicants however rely on the well known and oft repeated dicta of Lord Hewart C.J. inR.v. Sussex Justices ex. P McCarthy [1924] 1KB 256 at 259 when he said that

"it is of fundamental importance that justice should not only be done but should manifestly and undoubtedly be seen to be done."

It is argued here of that the background in relation to the appointment of the steering committee and in particular remarks made by the then Secretary for Monetary Affairs, Mr Nendick at a meeting of the Finance Committee of the Legislation Council held on the 11th of December 1992 in relation to the inspection. There was a note for the Finance Committee which reads as follows.

"The inspectors has begun his investigation which is likely to take up six months. The progress of the inspection will be monitored by a steering group chaired by a Deputy Secretary for Monetary Affairs. One of the group's main aims will be ensure that the inspection perceived in a cost-effective manner."

12. He goes on to say that the government was conscious of the amount of money being spent on this and other investigations and was anxious that full value for money was achieved. For this reason the progress of the inspection was monitored by the steering group.

13. At the meeting on the 11th of December 1992, Mr Nendick is reported to have said in response to Ms. Emily Lau,

"the Secretary for Monetary Affairs advises that the investigations were a charge upon the general revenue and the Financial Secretary was able to commit funds when he appointed inspectors. Members were informed of the commitments entered into at an early stage when the inspections were commissioned and also as the inspection continued and there was a better idea of the cost. In the modern commercial world if there was the possibility of things going wrong in a company, they would often be very complex and inhibiting to investigations. Any grounds for taking criminal prosecutions should be identified as soon as possible. Appropriate teams had therefore been marshalled to obtain expeditious answers. A monitoring team of people with experience in relation to commercial law were in regular contact with the two inspectors and discussed the ways in which the investigations could perceived with the objective of being able, if the evidence was uncovered, to pass matters over to the prosecution authorities at the earliest possible stage."

He then went on, in reply to questions from other members, to say:

"that the proposal represented the best estimates on what the total cost would be. He had asked the Inspectors to concentrate on those areas which were likely to be most fruitful in producing results which could lead to the possibility of prosecution."

These remarks made by Mr Nendick were given wide publicity in both English and Chinese language newspapers circulating in Hong Kong. It is perhaps also however noteworthy that in this report Mr Nendick was also quoted as pointing out that the efficiency of this inspections could not be judged solely by the number of adverse findings and subsequent sanctions imposed. He is quoted in the Hong Kong Economic Journal as saying

"in some instances an inspection could be considered as having been satisfactory concluded even if it is estimated that there had been no abuse of fiduciary duty or that a particular complaint was not substantiated."

14. Kaplan J. considered these reports and was quite satisfied that they did not disclose anything apart from the fact that the Hong Kong Government was quite rightly anxious of that the cost of these investigations was kept within reasonable limits and that the public received value for the money it was spending Mr. Nendick appreciated the concern held by the members of the finance committee of the Legislation Council. He could see nothing in the remarks to indicate that any unduly influence had been placed on the inspector to hasten his report or to unduly emphasise the possibility of criminal proceedings being brought as a result of the inspector's findings. In this regard, some reliance was placed on the passage in the minutes of the Finance Committee meeting in which Mr. Nendick is reported to have said:

"a monetary team of people with experience in relation to commercial law were in regular contact with the two inspectors and discussed the way in which the investigations could perceived with the objective of being able if evidence was uncovered to pass matter over to the prosecution authorities at the earliest possible stage."

It was pointed out that one of the members of the steering committee was Mr. John Allan, a senior member of the Attorney General's Chambers of course be responsible for initiating any criminal proceedings. This however must be looked at in the context of the wording of Section 143(1)(c) of the Companies Ordinance which specifically refers to the investigation taking place where there are circumstances suggesting fraud misfeasance or other misconduct. They can be no dispute, and indeed it is not suggested, that where there is evidence uncovered pointing to possible criminal conduct those responsible for the initiations of criminal proceedings should be made aware of those facts as soon as possible. I agree with Kaplan J. that there is nothing sinister in the suggestion that the inspector should advise the Attorney General as soon as any such information comes to his knowledge.

15. It has been emphasised by counsel for the applicants that even if a person does not consider that he is being affected by bias it is such an insidious thing that his mind may be unconsciously so affected. Barnsey Licensing Justices [1960] 2 QBG 167 per Devlin L J at 187.

"in any event there is an overriding public interest that there should be confidence in the integrity of the administration of justice which is always associated with the statement of Lord Hewart CJ in R V Sussex Justices ex p McCarthy."

Reliance is also placed by all parties before us on re Pergamon Press Limited [1971] 1 Ch 388. At 399 Lord Denning MR said, in relation to inspectors who pursuant to corresponding legislation in the United Kingdom were investigating the affairs of the company.

"The inspectors are not a court of law. Their proceedings are not judicial proceedings; Grosvenor v Westend Railway Terminus Hotel Company Limited [1897] 76 LTT 337. They are not even quasi judicial for they decide nothing; they determine nothing. They only investigate and report. They said it privately and are not entitled to admit the public to their meetings. C Hearts of Oak Assurance (Ltd) v Attorney General [1932] AC 392. They do not even decide whether there is a prima fascia case as was done in Wiseman v Bornman [1971] AC 297."

That dicta is relied on by the respondents. However he went on to say:

"but this should not lead us to minimise the significance of their tasks. They have to make a report which may have wide reproduction. They may if they think fit made findings of fact which are very damaging to those who they name. They may accuse some; they may condemn others: they may ruin their reputations or careers. Their report may lead to judicial proceedings. It may expose persons to criminal prosecutions or to civil actions."

That latter statement is relied on by the applicants.

16. I am satisfied that the principles laid down in the line of cases beginning with R.v. Sussex Justices ex P McCarthy cannot be applied without qualification to the conduct of an enquiry by an inspector under the Companies Ordinance. We have been referred to a hand-book issued by the Department of Trade and Industry in the United Kingdom for the guidance of inspectors appointed pursuant to the relative provisions of the Companies Act 1985. Part of this hand book reads as follows.

"The responsibility for the conduct of the investigation is theirs (the inspectors) alone and it is for the inspectors to determine the conduct of a particular investigation. Similarly inspectors appointed under Section 94 and 177 of the Financial Services Act 1986 enjoy a distinct statutory position and are independent of the department. However in all cases inspectors must act fairly and reasonably.

The Department issues guidance to inspectors which take account of past experience. The guidance for Companies Act Inspectors is at Appendix B and that for insider dealing inspectors at Appendix C. Guidance for inspectors under Section 105 is being considered in the light of the experience which is being gained."

17. It is clear therefore that an inspector appointed under the Companies Act in the United Kingdom is subject to guidance by the Department of Trade and Industry. This of course must fall well short of any pressure being put on him which may influence any of his findings. However this must also be considered in the light of the purpose of these provisions. They enable the financial authorities both in the United Kingdom and in Hong Kong to carry out an investigation into the affairs of a company where there is evidence which calls for such investigation. The cost is often very considerable, as it is here, but clearly what the authorities require is a professional, competent, enquiry which will produce the relevant facts to be considered. Those facts may or may not result in judicial proceedings either criminal or civil. It would be quite quixotic if the authorities by their own efforts were to produce a report which was not factually sound. Any proceedings which were then taken may well prove to be unsuccessful because the findings on which they were based were not supported.

18. Reliance was also placed by the applicants on a second affidavit sworn by Mr. B D O'Connor the Chief Executive of the first and second applicants. This related to a conversation which he said took place between himself and Mr Stuart Crosbie a senior member of the Securities and Futures Commission on the 6th of April 1993. The conversation had been made to by Mr O'Connor in his first affidavit sworn on the same date. In the first affidavit he had said that Mr McMahon had told him that there had been a steering committee appointed whose purpose was to decide policy. When asked what those policies were he said that they consisted of matters such as publication of the report and it had already been decided that it would be published due to political pressure. In his second affidavit however Mr O'Connor explained on that telephone conversation and said that in fact Mr Crosbie had also said that the Securities and Futures Commission was "out to get" LEE Ming Tee. That allegation is categorically denied by Mr Crosbie in an affidavit he himself had sworn.

19. We are fully aware that at this stage of an application for judicial review the court should accept the evidence contained in affidavits as its face value. It would be for the evidence to be tested at the hearing of the application if leave is granted. We should not disbelieve such evidence at this stage unless patently on its face it is not worthy of such belief. That is the way we would treat this evidence but during the course of the hearing we did remark that it was an extraordinary statement for Mr Crosbie to be made to the Chief Executive of the companies which were being investigated. Nevertheless the allegation is there and it has not as yet been tested. The applicants are therefore entitled to say that there was a suggestion which had come to their knowledge that the Securities and Futures Commission were biased in respect of Mr. LEE Ming Tee the managing director of the first two applicants. Does that however provided a base upon which the applicants might succeed in their application that the inspector's report should not go to the Financial Secretary or be made public.

20. This question has been fully considered by Kaplan J. who in his detailed research judgement has referred to many of the authorities which had been also cited to us. There are two decisions which I found of considerable assistance. The first is R v Secretary of State for Trade ex parte Perestrello [1981] 1.OB 19. That case concerned an investigation into the affairs of a company assurance to Section 109 of the Company Acts 1967. As a matter of general principle at p.35 Woolf J (as he then was) said:

"when one considers the functions of this office it really is holding inappropriate to talk about them not being regard as bias if they are performing their functions properly. Take this vary case; it is in my view almost inevitable that before the powers under Section 109 are exercised the offices concerned and through his office the Secretary of State must regard the situation as one where there are matters to be investigated. They are acting in a policing role. Their function is to see whether their suspicions are justified by what they found and that being so it is wholly inappropriate for the case to be approached in the same way as one would approach a person performing a normal judicial role or quasi judicial role - the situation where the person is making a determination."

He went on to consider the allegation that the applicants themselves thought the inspector had been bias. This the inspectors denied but Woolf J. said:

"the possible impression in the minds of the applicants must be viewed against those denials."

The second authority is R v Gough [1993] 2.WLR 883. These Lord Goff considered the various dicta relating to the question of the proper tests to be applied to judicial decision if there seemed on the face of it to be a likelihood or a real danger that there had been bias. He considered the cases such as Dimes v Proprieties of Grand Junction Canel [1852] 3.HL C.A.S. 759 where there was a direct pecuniary interest by the judge in the matter to be decided. He said that there was in such a case no question of likelihood or reasonable suspicions of bias.

"The nature of interest is such that public confidence in the administration of justice requires that the decision should not stand."

In Metropolitan Properties Company Ltd v Lannon [1969] 1.OB 577 a decision of a rate assessment commitment was quashed because the chairman of the committee was a solicitor who had been concerned with advising tenants of flats in a block which although not the one under consideration was comparable. The Court of Appeal held that the facts was such as to give rise an appearance of bias even though there was no actual bias on the part of the chairman. Lord Woolf referred to the various tests which had been laid down and said that in his view

"the correct test to adopt and deciding whether a decision should be set aside on the grounds of alleged bias is that given by Lord Golf namely whether there is a real danger of injustice having occurred as result of alleged bias."

He went on

"it must be remembered that except in the rare case where actual bias is alleged the court is not concerned to investigate whether or not bias has not established. Whether it is a judge, a member of the jury, justices or their clerk who was alleged to be biased, the court do not regard as being desirable or useful to enquiry into the individual's state of mind. It is not desirable because of the confidential nature of judicial decision making process. It is not useful because the courts have long recognised that bias operates in such an insidious manner that the person alleged to be bias may be quite unconscious of its affect."

21. It has been emphasised to us by counsel for the applicants that this is only an application for leave to apply for judicial review. The applicants have not put forward all the evidence they may in fact call and, as in the case of Mr. O'Connor, the affidavits were prepared with some degree of urgency which is why in his first affidavit he did not refer to the conversation with Mr. Crosbie containing the allegation as to the Securities and Futures Commission "being out to get" Mr LEE Ming Tee. All that is required is for the applicants to show that there is a reasonable possibility that their application would succeed. Clearly Kaplan J. had that principle clearly in mind. However having considered all the matters that were before Kaplan J. I am quite satisfied that he was right to conclude that there was no prospect of the applicants being able to show that, having reviewed the manner in which the steering committee was set up and the evidences as to the role it has played in the inspectors enquiry and the production of his report, a reasonable minded person would conclude that there was a real danger of his report being bias.

22. I am satisfied that this appeal must be dismissed.

Bokhary, J.A.:

23. Both Mr Chan for the individual applicant and Mr Graham for the corporate applicants concede that their clients would have no cause for complaint unless the Steering Group or any one or more of its members has strayed beyond the group's terms of reference so as to compromise the inspector's independence or objectivity and create a real danger of bias on his part. This being the leave stage, the question is whether it is arguable that that has happened.

24. The Steering Group's terms of reference are set out in the Financial Secretary's affidavit in which he says this:

"... I authorised the establishment of a Steering Group to:-

(i) advise me of a suitable candidate to appoint as inspector;

(ii) assist me to monitor the inspector's progress; and

(iii) assist me in relation to administrative matters arising during the course of the investigation."

25. Principally, the applicants rely on a statement made by the Secretary for Monetary Affairs to the Finance Committee of the Legislative Council at its meeting on December 11, 1992, which statement is minuted thus:

"A monitoring team of people with experience in relation to commercial law were in regular contact with the two inspectors and discussed the way in which the investigations could proceed with the objective of being able, if evidence was uncovered, to pass matters over to the prosecution authorities at the earliest possible stage."

The reference to two inspectors stems from the fact that two inspections, this one and another, were on-going.

26. For the corporate applicants, Mr Graham invited us to read the Secretary for Monetary Affairs' statement as if a full stop came immediately after the word "proceed". But there is no warrant for that. It is not suggested on behalf of any of the applicants that it would be wrong for an inspector who came across evidence of wrongdoing to draw such evidence to the attention of the appropriate authorities without delay. It does not compromise his independence or objectivity to have discussions with others on how that can best be done administratively. He could discuss that with the Financial Secretary, who could take advice thereon. Or he could discuss it with the sort of person from whom the Financial Secretary would take advice and whom he had appointed beforehand to assist him. The latter arrangement was the one selected. It seems to me to come within item (iii) of the Steering Group's terms of reference. I do not consider it arguable that it strays beyond the same. But even if that was arguable, I still would not consider it arguable that the inspector's independence or objectivity would have been compromised as a result. There would still, therefore, be no foundation for an argument that a real danger of bias has arisen.

27. The applicants also rely on two press reports, both on October 22, 1992, one in the Hong Kong Daily News and the other in the Hong Kong Commercial Daily. The former contains this statement:

"The groups meet regularly to receive and review progress reports from the respective inspectors and consider with the inspectors the most cost-effective and efficient way of proceeding with the inspections."

I see nothing sinister about that. The Financial Committee was rightly concerned that public money be well spent. It received assurances in that regard. And nobody in authority seems to have imagined that the only justification for an inspection would be blood on the inspector's sword. The report in the Hong Kong Commercial Daily, dealing with what the Secretary for Monetary Affairs said, concludes thus:

"In addition to the two cases under inspection, eight other inspections had been conducted over the past ten years under the Companies Ordinance. One of these cases involved eight companies. He drew attention to the point that one of the objectives of such inspections was to investigate substantive complaints or problems perceived to exist is listed companies. Therefore he reckoned that the efficacy of such inspections could not be solely judged by the number of adverse findings and subsequent sanctions imposed. In some instances, an inspection could be considered as having been satisfactorily concluded even if it established that there had been no abuse of fiduciary duty or that a particular complaint was not substantiated, he said."

28. That indicates the proper attitude. If there is cause for an inspection and one is ordered, then it is to be hoped that it will be conducted as quickly and as economically as practicable. If possible criminal offences come to light in the course of the inspection, the proper authorities should be notified without delay. At the end of the inspection, one hopes for a useful report, If, happily, it exonerates people, then it should do so in terms which leave no lingering suspicion. And if, unhappily, it condemns people, it should be clear as to the basis for such condemnation. That enables people to meet the criticism against them if they have any answer to the same. And it clarifies the position for those who have to consider taking matters further in the civil or criminal courts. There is much for an inspector to do. And he must function independently and objectively. But that does not mean that he must be cloistered.

29. I agree that this appeal must be dismissed.

30. I agree and have nothing to add.