THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. KIN YUEN

CACV 253/2007 and cacv 254/2007

cacv 253/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 253 of 2007

(on appeal from HCCW NO. 49 of 2000)

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AND

cacv 254/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 254 of 2007

(on appeal from HCCW NO. 50 of 2000)

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______________________

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J U D G M E N T

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Hon Rogers VP:

1.  These were appeals from a decision of Kwan J given on 17 July 2007.  In that decision the judge made orders concerning the examination of the appellant in relation to the affairs of Akai Holdings Limited (“Akai”) and Kong Wah Holdings Ltd.  Both those companies are in compulsory liquidation.  The orders dealt with the examination of the respondent before a master of the High Court.  By the orders the judge ordered that the applicants, who were the joint and several liquidators of the companies, should, 7 days before the date set for the examinations, provide copies of documents that may be referred to at the examinations.  The appellant was required to keep the documents so provided in strict confidence and to use them solely for the purpose of refreshing his memory and no other purpose.  No exception is taken to that part of the order.  The appellant objects to paragraph 5.1.1 which prevents the appellant from disclosing or discussing the contents of those documents with his legal representatives, whether solicitors or counsel without the written consent of the applicants or the leave of the court.  There is a corresponding paragraph 10.1 which is directed to solicitors and counsel and this is likewise objected to.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

The history of the application.

2.  There is no dispute and, indeed, there can be no doubt that it is justified to have examinations under section 221 of the Companies Ordinance Cap. 32 (“the Ordinance”).  The procedure by which the person to be examined would be provided with the documents in advance of the examination was one which was adopted in at least one previous examination.  The judge referred to a ruling which had been made on 12 June 2006 when there was an appeal from the master.  The practice of supplying documents which are to be used in an examination in advance of that examination is a matter of practicality.  It enables the person who is to be examined to refresh his memory.  In the present case the companies were wound up 7 years ago and, hence, any person who is to be examined about the affairs of the companies will inevitably have to recall events a long time ago.  As has been pointed out he may also need to refresh his memory against other documents.

3.  The insertion of the provision that the examinee should not discuss the documents with his legal advisors is one which was originally inserted by the master.  In the June 2006 judgment the judge said at paragraph 11:

“

The reason for this ruling, as the Master has explained, is that he sees a risk that the evidence [examinee] is to give in his examination may be coloured, even with the best will in the world, if he is allowed to go through the documents supplied and to have a general discussion or even a more detailed discussion on points arising from those documents with his legal advisers.  He was not saying that [examinee] would be coached in giving evidence, but it is important to “ensure that the witness gives his evidence as best as he can, having refreshed his memory from the documents without any assistance”.  He noted that he had made a similar ruling on another occasion, after an examination has commenced, that if a matter should arise which requires legal advice to be taken before further examination is to continue, an application could be made to him for that purpose with the examinee identifying to the court the area of advice he would be seeking.  As mentioned earlier, the Master thinks it appropriate to adopt a similar approach in the present situation, before the commencement of the examination.”

4.  The judge drew a distinction between the witness familiarising himself with the matters which are the subject of the examination and being coached, whether consciously or subconsciously, by talking to others about the documents.  In that 2006 decision the judge referred to the accepted principle of giving evidence that once an examination has begun, leave would be necessary if the legal advisers were to speak to the examinee.  The principle behind that rule was to guard against the risk that the witness’s testimony might be affected or compromised if he were allowed to consult with legal advisers in the course of giving evidence.

5.  Reference was made in that decision to Article 35 of the Basic Law.  It was said that in that case the matter had not been put on a basis as high as being a constitutional point.  On that occasion the judge said:

“

The right to legal advice is for protection of lawful rights and interests.  This right may be restricted where there is danger that the evidence of a witness may be contaminated and there is risk that the course of justice may be compromised.  As mentioned earlier, [examinee]’s right to seek legal advice in general on his examination is not curtailed.”

6.  Reference was also made to the cases of R v Momodou [2005] 2 All ER 571 at paragraphs 61 to 65; the decision of Lewison J in Ultraframe (UK) Limited v Fielding (No. 1) [2005] EWHC 1638 at paragraphs 22 to 31; and the decision of Young J in Re Equiticorp Finance Limited; ex parte Brock (No. 2) (1992) 7 ACSR 13 at 16 to 17.

The present case

7.  Mr Yuen had previously attended interviews in 2001 on a voluntary basis.  In August 2006 the liquidators requested a further interview.  That was agreed to.  However, Mr Yuen’s solicitors declined to give an undertaking that mirrored the order which had been made in the 2006 proceedings.  It was in those circumstances that the liquidators applied for an order for examination and put forward the order in similar terms to that which had been the subject of the 12 June 2006 decision.  Although Mr Yuen at first objected to an order for examination, when the matter came to be argued before the judge, the only matter at issue was the question of Mr Yuen’s ability to discuss the documents which were provided in advance with his legal advisers.  The judge said at paragraph 16:

“	As an experienced company director with financial qualifications, and with close involvement in the affairs being investigated, he should have sufficient knowledge and understanding of the documents to be able to go through them without assistance from his legal advisers.”

8.  The judge then was said at paragraph 19:

“	19.	The purpose of the directions is to safeguard against or reduce the risk of impermissible drilling, coaching and colouring of Mr Yuen’s evidence, so that the evidence he gives should be his honest and independent recollection in his own words.  They are not designed to surprise, trap or ambush Mr Yuen, and that is why relevant documents that would be referred to are supplied to him a week in advance, giving him sufficient opportunity to refresh his memory on the documents.
	20.	I do not agree it would be impracticable or unrealistic to impose directions that Mr Yuen may not confer with his legal advisers on the contents of the documents.  The prohibition in the directions is clear.  They are prohibited from having a conference to go through the documents supplied by the liquidators.
	21.	Nor do I accept that the directions should not be made as the court would not be able to inquire into the contents of the advice actually given by the legal advisers to Mr Yuen, as their communications are protected by legal professional privilege.  As officers of the court, solicitors are expected to obey the directions of the court.  The presupposition that the directions of the court might be disobeyed is not a relevant consideration.
	22.	Although no time limit is placed on the effect of the directions, there is liberty to apply generally.  If the need to preserve the confidentiality should cease to exist, Mr Yuen or the liquidators may apply to court to have the restrictions lifted.  Mr Yuen would not be hampered in seeking legal advice if proceedings are brought against him in future.”

This appeal

9.  On this appeal Mr Yu SC, who appeared on behalf Mr Yuen, raised similar arguments to those that had been raised in the court below.  His primary point was that Article 35 of the Basic Law was infringed by the order that had been made.  The first paragraph of Article 35 provides:

“	Hong Kong residents shall have the right to confidential legal advice, access to the courts, choice of lawyers for timely protection of the lawful rights and interests or for representation in the courts, and to judicial remedies.”

10.  It was strongly urged that since this was a fundamental right which was enshrined in the Basic Law, it was not subject to any qualification or balancing exercise.  The point was made that the importance of this concept was recognised because it goes further than other conventions dealing with human rights.

11.  In my view, what is said about Article 35 is correct and I would not, for one moment, consider it proper that the rights of any person to have confidential legal advice should be infringed, nor that the exercise of that right should be delayed in a manner that would jeopardise his or her rights.  There can be no system of state imposed lawyers.  There can be no system of lawyers divulging legal advice given to their clients without the clients’ whole-hearted consent and instructions.  On the other hand Article 35 was not directed to, and was not intended to abrogate, the rule about a witness giving evidence not talking about his evidence to any person whilst he is giving that evidence.  It must always be remembered that the exercise of legal rights is subject to restraint if the exercise of those rights would conflict with the legal rights of others.

12.  Counsel relied also on the case of Re Spedley Securities Ltd (in liquidation); Reed and others v Harkness (1990) 2 ACSR 117.  That was a case concerning the Companies (NSW) Code.  The judge went through the history of the legislation in Australia and came to the conclusion that the Code with which he was dealing represented “a distinct break and departure from earlier legislative provisions and practices about their public character.”  See page 124 of that decision.  That case was primarily concerned with the question of whether notes which had been recorded by persons who had been present at public examinations could be retained.  The notes were for the use by legal advisers in advising and discussing the matter with persons who would be examined under the same procedure.  Some other statements particularly those at page 127 of the report are expressed in general terms such as:

“

Any idea that there is to be no conference between and examinee and the legal representatives whom he is entitled to have appears to me to be quite wrong and it is not be expected or required by the court that before a person comes to be examined that he should not direct his attention to relevant matters, and that his legal representatives should not do so, in conference or otherwise.  Legal representation would be ineffective unless legal representatives were to take the examinee’s statement about such matters as could be seen to be relevant, point out papers which could be searched out and examined, and otherwise generally consider the examinee’s position, in relation to what was known about his position, from whatever source it was known and whether or not that source included evidence which had been given at the public examination of another person.  Schooling, drilling or colouring the evidence of an examinee would of course be quite wrong, as any legal representative must know.”

13.  I found myself attracted to these arguments, if for no other reason, it seemed to me that if an examinee were entitled to consult lawyers about the facts relating to a company in respect of which he was to be examined, there could be little practical purpose in preventing him from considering relevant documents with his lawyers.  Furthermore, as the cases in the 19^th century made clear, it was appropriate that an examinee should be represented at his examination by lawyers for the purpose of clarifying matters.  The argument that somebody seeking to re-examine a witness needs to know the detailed background facts is clearly a strong one.  In those circumstances it seemed that it would also be relevant for the lawyers who would be present to be informed of relevant facts relating to any particular document.

14.  Nevertheless, after reflection, I consider that the order made should be allowed to stand.  I look upon the order requiring the production of documents prior to the examination as being a contraction of the examination process.  The reason for the early production of the documents is so that a series of adjournments would not be necessary in order for the examinee to be able to recollect matters in relation to events which took place many years earlier.  It is possible that the examinee may be able to produce other documents which bear upon the matter.  That is, however, likely to be pure conjecture.

15.  Importantly, I do not consider that the order made constitutes an infringement of the rights under Article 35.  The right to confidential legal advice has not been infringed.  Neither has the right to have that advice for timely protection of the examinee’s lawful rights and interests been infringed.  If documents were shown to an examinee in the course of his examination, the examinee would have no right to ask for an adjournment in order to be able to consult his legal advisers.  He would not be able to consult his legal advisers during an adjournment either.  He might make a request to be able to do so, but the permission and consent of the judge before whom the examination were taking place would be necessary, but that is all.  In this instance, so too, the order provides that the examinee can consult his legal advisers provided he obtains the consent of the court or the liquidators.

16.  The position of witnesses in a civil or criminal trial differs from that of an examinee in that a witness in a trial may claim privilege against self-incrimination.  Thus if a witness at a trial raises the matter, and indeed a judge often warns a witness of possible impending danger in that regard, a witness may be granted an adjournment for the purpose of conferring with his own lawyers.  That privilege against self-incrimination does not extend to section 221 examinations.

17.  Furthermore it is somewhat difficult to foresee what the examinee would wish to consult a lawyer in respect of in relation to documents.  An examination under section 221 is not an adversarial procedure in which any claim is made against the examinee or any rights or liabilities are decided.  It is simply a procedure whereby the liquidators may discover facts.  The importance of the procedure is that the liquidator should discover the true facts.  The arguments in this case were put on the basis of the inviolability of constitutional and fundamental legal rights.  It was not explained why an examinee should be prejudiced if he could not consult his lawyer in circumstances where he cannot object to answering a question on the ground of self-incrimination.

18.  The examinee cannot be given a blanket permission to consult legal advisers because that would affect the rights of the liquidator in the confidentiality of the documents.  So long as the examinations are conducted under conditions of secrecy and confidentiality such that the examinee is not entitled to copies of transcripts nor to retain documents which have been shown to him in the course of the examination, the position must remain the same and the examinee has to rely on the safeguards as to the use of the answers which he gives.

19.  This case does have special features.  One of those features was exemplified in a letter of 29 May 2002 from the solicitors acting for Mr Yuen.  That explained that Mr Yuen was the only person amongst the directors and employees of Alpha Capital Group Ltd (“Alpha Capital”) who provided any services to Akai.  Alpha Capital was said to have only assisted to arrange people to fill vacancies within Akai and played no further role.  It was said that there was no correspondence generated or reports prepared.  Nevertheless it is an admitted fact that Alpha Capital was paid US$5 million under an agreement whereby they would:

(1)	carry out a complete review of the operations and financial position of all operating units within the Akai group of companies
(2)	advise Akai on various options and strategy for disposing of non-core operations and assets
(3)	review the existing financial controls within the Akai group and advise on any additional controls that should be established and oversee the implementation of such controls
(4)	advise Akai on various options for restructuring the financial and treasury operations of its group and so forth.

20.  It would be rather surprising if there were not other persons whom the liquidators would wish to interview as well as Mr Yuen.  It is also to be noted that the same firm of solicitors that represents Mr Yuen also, apparently, advises Alpha Capital.  Observations made by Judge LJ in the case of R v Momodou at page 587g in relation to “witness training” bear some relevance.  There is no suggestion of impropriety whatever but clearly difficulties would arise.  I emphasise that the present case is not a case of witness training.  Nevertheless the cross fertilisation of ideas, which Judge LJ referred to, is a relevant consideration here.  Judge LJ was not dealing with an examinee under the equivalent of section 221, but rather in relation to evidence in criminal proceedings.  At the foot of the page he said:

“

The witness should give his or her own evidence, so far as practicable uninfluenced by what anyone else has said, whether in formal discussions or informal conversations.  The rule reduces, indeed hopefully avoids any possibility, that one witness may tailor his evidence in the light of what anyone else said, and equally, avoids any unfounded perception that he may have done so.  These risks are inherent in witness training.  Even if the training takes place one-to-one with someone completely remote from the facts of the case itself, the witness may come, even unconsciously, to appreciate which aspects of his evidence are perhaps not quite consistent with what others are saying, or indeed not quite what is required of him.  An honest witness may alter the emphasis of his evidence to accommodate what he thinks may be a different, more accurate, or simply better remembered perception of events.  A dishonest witness will very rapidly calculate how his testimony may be ‘improved’.  These dangers are present in one-to-one witness training.  Where however the witness is jointly trained with other witnesses to the same events, the dangers dramatically increase.  Recollections change.  Memories are contaminated.  Witnesses may bring their respective accounts into what they believe to be better alignment with others.  They may be encouraged to do so, consciously or unconsciously.  They may collude deliberately.  They may be inadvertently contaminated.  Whether deliberately or inadvertently, the evidence may no longer be their own.  Although none of this is inevitable, the risk that training or coaching may adversely affect the accuracy of the evidence of the individual witness is constant.”

21.  Clearly the scope for cross fertilisation of ideas may well exist in circumstances when the legal advisers are also advising others from whom the liquidators may legitimately wish to obtain information.

22.  This court’s attention was also drawn to a decision of my own of 27 October 1994 namely in the matter of Hing Wah Blanket Company Ltd and Webetter Investments Ltd (both in voluntary liquidation) whereby I had refused to follow what had seemingly been the previous practice of making orders for examination under section 221 ex parte and keeping the evidence supporting such an application confidential.  I had done so because I saw no need for the application to have been made ex parte.   In relation to the evidence in support of that application, although it may have been appropriate that it might be kept confidential, there was no call for an order to be made against the proposed examinee without him knowing the basis on which that order was made.  In the course of that the judgment I said in conclusion:

“

As a conclusion, I should add that I consider it is necessary from time to time to look at established practice to see whether it is appropriate in the circumstances which now pertain.  Where an established practice in one field does not accord with practice in other types of application and rules which the Court now applies in other instances, the time for change may well have come.  If necessary, the Companies Court has to change its practice as indeed other Courts have had to change their practice from time to time.  In so saying however I do not demur at all from the notion that it is important to follow established practice.”

23.  In the present instance, those considerations do not apply.  So long as the procedure of examination under section 221 exists, the present practice including the safeguards which are in existence seem to me to be applicable.

24.  I would therefore dismiss this appeal with an order nisi that the costs of this appeal should be to the respondents.

Hon Le Pichon JA:

25.  I agree.