XCHRX PINEMILL CO. LTD. v. LAI HONG SAN AND OTHERS

HCCW 19/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO. 19 OF 1998

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R U L I N G

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1. This is an application made on behalf of the 2nd respondent that three questions put to him on 13th July 2001 at 4.15 pm by the Senior Counsel for the applicant should not be allowed, on the ground that the answers given may be self-incriminating.

[The relevant questions and answers are omitted from the Ruling.]

2. It was submitted by Mrs Chan that the effect of the above questions and answers might render the 2nd respondent liable to some criminal charge, such as fraud. There was no elaboration as to precisely what criminal charge might be laid. The submission of the risk of criminal prosecution was made in vague and general terms.

3. If the privilege against self-incrimination is invoked, it must be borne in mind that the privilege is against the "exposure to jeopardy of criminal prosecution and is available only where there is a real danger of prosecution and conviction". See Pyneboard Proprietary Limited v Trade Practices Commission (1983) 45 ALR 609 at 621-2, per Murphy J.

4. I am quite unable to see any or any real danger of prosecution and conviction. On that basis alone, I would dismiss the 2nd respondent's application. As I envisage there may be further applications on the ground of privilege against self-incrimination, it may be appropriate to give my ruling on whether this privilege is available in a private examination under section 221 of the Companies Ordinance, Cap.32.

5. I would like to dispose of article 11(2)(g) of the Hong Kong Bill of Rights first. I was referred by Mr Kinnison for the liquidators to the case of Re Tse Chu-fai Ronald [1993] 2 HKLR 453. Jones J held in that case that article 11 has no relevance to the inspector's investigation under section 145 of the Companies Ordinance.

6. In my judgment, the same reasoning applies to the present situation in respect of an examination under section 221. No part of the examination is concerned with the determination of a criminal charge. The words in article 11(2)(g) are restricted to the rights of a person charged or convicted of a criminal charge.

7. I turn to consider the privilege against self-incrimination at common law. It seems to be common ground that this privilege has not been expressly abrogated by section 221 of Cap 32. However, this privilege could be removed impliedly if that is the clear intention of the legislation. It would be a matter of construction of the statute.

8. I think it is useful to start with the general purpose of section 221. This has been considered by Buckley J in In re Rolls Razor Limited [1968] 3 All ER 698 at 700, in dealing with section 268 of the Companies Act 1948, which is equivalent to our section 221. He has this to say in the judgment:

"The powers conferred by section 268 are powers directed to enabling the court to help a liquidator to discover the truth of the circumstances connected with the affairs of the company, information of trading, dealings, and so forth, in order that the liquidator may be able, as effectively as possible and, I think, with as little expense as possible and with as much expedition as possible, to complete his function as liquidator, to put the affairs of the company in order and to carry out the liquidation in all its various aspects, including, of course, the getting in of any assets of the company available in the liquidation."

9. This passage was approved by the English Court of Appeal in two cases. They are In re Esal (Commodities) Limited [1989] BCLC 59, at 64 and 69, and in In re British and Commonwealth Holdings Plc [1992] Ch 342. Two matters may be noted from this passage. Firstly, the purpose of the section is not just to recover assets, as submitted to me by Mrs Chan. Secondly, there is a public interest involved in ensuring that the liquidator should obtain information required for the discharge of his duties, and that such exercise may be achieved with "as little expense as possible and with as much expedition as possible".

10. I do not accept Mrs Chan's submission that a private examination has no public interest involved. Indeed, it has been stated in the Cork Report in paragraph 1734 that insolvency proceedings have "never been treated in English law as an exclusively private matter between a debtor and his creditors. The community itself has always been recognised as having important interests in them."

11. To answer the question, if the privilege against self-incrimination at common law has been abrogated by section 221, I would approach it in the way as Vinelott J has done in In re Levitt Limited [1992] Ch 457 at 472 E.

12. I ask firstly whether the examinee owes a duty to furnish the information sought and, secondly, whether there is any public interest in ensuring that the examination is carried out thoroughly and expeditiously. I have already answered the second question, and now I turn to the first. Section 221, unlike section 222(5) of the Companies Ordinance and section 29(3)(a) of the Bankruptcy Ordinance Cap 6, does not expressly provide that the examinee shall answer all questions that the court may put or allow to be put to him. However, the absence of such an express provision is not necessarily a pointer that the privilege against self-incrimination has been retained; see for example R v Scott, Dears & B 47 and Ex parte Schofield, 6 Ch D 230, in which the court had held that a debtor or bankrupt was obliged to answer questions in examination notwithstanding that his answers might incriminate him, and notwithstanding that the relevant section did not expressly impose on him a duty to answer questions.

13. In considering whether an examinee has a duty to answer questions in an examination under section 221, it would be relevant to take into account these matters.

14. Firstly, the examination is an inquisitorial procedure; see the dicta of Megarry J in In re Rolls Razor Limited (No. 2) [1970] 1 Ch 577, at 592 A to B:

"Accordingly, the legislature has provided this extraordinary process so as to enable the requisite information to be obtained. The examinees are not in any ordinary sense witnesses, and the ordinary standards of procedure do not apply. There is here an extraordinary and secret mode of obtaining information necessary for the proper conduct of the winding up. The process, borrowed from the law of bankruptcy, can only be described as being sui generis."

15. Secondly, an order for examination is often made in the situation where books and records of a company are not properly kept, and the circumstances justifying an examination may often involve a suspicion that the officers of a company have been involved in suspected wrongdoings. If a director is allowed to claim privilege against self-incrimination, the examination may be severely hampered, if not frustrated.

16. As stated by Mann LJ in Bishopsgate Investment Management Limited v Maxwell [1993] Ch 1, at 60 H to 61 B, in considering section 236 of the Insolvency Act 1986, which is equivalent to our section 221:

"The first duties of an office-holder who is a provisional liquidator are to trace and then to secure the assets of the company for the benefit of the creditors and (occasionally) the contributories. His ability to trace in a liquidation where assets are missing and the documentation does not explain their whereabouts, must be heavily dependent upon his ability to use sections 235 and 236. Those sections could be useless for their purpose if the privilege against self-incrimination is not abrogated. I use the word, 'could' because it will not always be so, but it is inherently likely to be so in the very cases where information from an examinee is most needed. The legislative purpose in those cases would be frustrated if the privilege is not to be treated as impliedly abrogated by the language employed. This is especially likely to be so where there is inadequate documentation because a failure to keep proper accounting records can itself be a criminal offence: section 222 of the Companies Act, as inserted by section 2 of the Companies Act 1989."

17. Similar reasoning was found in the judgment of Scott J in In re London United Investments Plc [1992] BCLC 91, at 113 g to h, in dealing with section 434 of the Companies Act 1985.

18. I should also say that there are safeguards in the Ordinance with the abrogation of the privilege against self-incrimination in a private examination. Firstly, rule 62(1) of the Companies Winding-up Rules provides that the Official Receiver or liquidator may put such question to the person examined as the court may allow. It has been recognised by the English Court of Appeal in In re London United Investments Plc [1992] Ch 578 at 600 F, that the court has power to refuse to compel a person to answer questions if they are oppressive, in the context of sections 434 and 436 of the Companies Act 1985.

19. The second safeguard is under rule 62(2) of the Companies Winding-up Rules. It is provided that the notes of deposition of a person examined under section 221 shall not be filed or be open to the inspection of any creditor, contributory or other person except the Official Receiver, liquidator or the provisional liquidator, unless the court shall so direct.

20. For the above reasons, I rule that the privilege against self-incrimination is not available to a person examined in an examination under section 221 of the Companies Ordinance.