THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD v. [respondent]

Released for publication with parts redacted

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

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AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

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______________________

(Heard together)

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D E C I S I O N

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1.  I have before me two summonses issued by the liquidators of Akai Holdings Limited and Kong Wah Holdings Limited (collectively “the Companies”), under section 221 of the Companies Ordinance, Cap 32, against [respondent] that he is to be orally examined before a Master of the High Court concerning the affairs of the Companies, their subsidiaries and associates.

2.  The liquidators believe that [respondent] is uniquely placed to assist them in the discharge of their statutory duties by virtue of his substantial involvement in the affairs and dealings of the Akai Group, The  Grande  Holdings Limited, The Grande (Nominees) Limited and Omnicorp Limited formerly known as Toyo Holdings Limited.  He was [respondent’s position  in Akai Holdings Limited] and had been involved personally in quite a number of areas of the Akai Group’s affairs and dealings.

3.  The matters that the liquidators consider [respondent] would be able to assist them to advance their investigations are set out in para 47 of the 35^th affidavit of one of the liquidators, Mr. Borrelli.

4.  [respondent] had attended two interviews with the liquidators on 31  May 2001 and 22 June 2001 on a voluntary basis, with his solicitors in attendance.

5.  In August 2006, the liquidators requested a further interview with [respondent], as they have progressed with their investigation due to documents obtained from other sources and oral examinations they had conducted of people involved in the affairs of the Companies.  [respondent] agreed to an interview in October 2006.  On 9 October 2006, the liquidators requested [respondent] and his legal advisers to provide an undertaking to maintain the confidentiality of any information or documents that may be supplied to him during the interviews, to preserve the confidentiality and integrity of the liquidators’ investigations.  The undertakings sought were to mirror those that had been given in a court conducted examination.  [respondent] replied through his solicitors on 21 October 2006 declining to give the undertakings and contending that it would be inappropriate to apply the principles and procedures of a court conducted examination to an informal interview.

6.  The present summonses were taken out on 8 June 2007.  Correspondence was exchanged between the liquidators’ solicitors and [respondent’s] solicitors after that on the conditions sought to be imposed on each side in the event that an order for examination is made.

7.  [respondent] is not opposed to an order for examination all along.  I am satisfied that he should be orally examined on the affairs of the Companies, their subsidiaries and associates.

8.  The liquidators are agreeable to provide to [respondent], 7 days before the examination, copies of documents that may be referred to at his examination, solely for the purpose of refreshing his memory, and to provide a set of such documents to his solicitors and counsel, solely for the purpose of representing [respondent] in the examination.  The liquidators seek a number of directions to ensure that the documents provided to [respondent] and his legal advisers as aforesaid would be kept in strict confidence.

9.  [respondent] was opposed to all the directions sought by the liquidators when the summonses first came before the court on 29 June 2007.  He has now abandoned his opposition to most of the directions, with the exception of two.  Hence, he is not opposed to directions that the documents to be supplied by the liquidators are to be maintained by him and his legal advisers in strict confidence, that they must not disclose the documents to or discuss the contents with any other person without the written consent of the liquidators or leave of the court, that they must not make copies of the documents and must return them to the liquidators immediately after the examination was concluded.  The two directions that [respondent] remains opposed to prohibit him from disclosing or discussing the contents of the documents with his legal representatives, and prohibit his solicitors and counsel from disclosing or discussing the contents of the documents with him.

10.  I should mention at the start that I had previously affirmed directions in respect of another examinee in these liquidations similar to those sought by the liquidators at present, for the reasons given in a judgment on 12 June 2006 on an appeal from Master de Souza.

11.  The arguments urged on me by that examinee were much the same as the submissions made by [respondent’s counsel] on behalf of [respondent], although with the usual thoroughness of [respondent’s counsel], I was referred to more authorities than before.

12.  I am not persuaded by [respondent’s counsel] that the directions sought by the liquidators are inappropriate.

13.  Although it is recognised there is clear distinction between giving proper legal advice to an examinee on the one hand and schooling or colouring the evidence of an examinee on the other hand, with the best will in the world there is nevertheless a risk that the evidence of the examinee may be coloured if his legal advisers are permitted to go through with him the documents supplied by the liquidators to be used in the examination.

14.  As stated in my earlier judgment, a fair balance should be struck between the uninhibited right to legal advice and the need to ensure the integrity and effectiveness of the examination in that the evidence of the examinee should remain his own unrehearsed and untainted evidence and common sense should prevail in this situation (paras 13 and 17).  I do not propose to repeat the reasons or the cases cited in my earlier judgment, which in my view apply to the present situation.  I do not think the circumstances here are materially different from the case that I dealt with in June  2006.  I am mindful of the nature and purpose of the oral examination under section 221, and its effect and implication on the examinee.

15.  I would merely deal with some of the matters raised by [respondent’s counsel].

16.  [respondent’s counsel] submitted that the effect of the directions would seriously curtail [respondent’s] right to obtain legal advice.  In my view, the perceived difficulties are overstated.  [respondent’s] right to discuss with his legal advisers and seek advice on any matter relating to the examination is not affected, nor would his legal representation be rendered ineffective.  [respondent] would have a fairly clear idea as to the areas of investigation by the liquidators.  He had gone through two interviews with the liquidators with his solicitors in attendance, and had given affirmations in the liquidators’ applications under section 221 against other parties.  Prior to his first interview, he was given a very detailed list of some 75 questions.  His solicitors have already acquired some knowledge of the matters under investigation, having attended the previous interviews in 2001, quite apart from the fact that they have acted for other parties involved in some of the material transactions.  The only thing [respondent] is not allowed to do is to have his legal advisers go through with him the documents to be supplied by the liquidators, to prepare him for the evidence he is to give at his examination.  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.

17.  None of the decisions cited to me by [respondent’s counsel] are squarely on the issue that I am concerned with.  The case of Re Spedley Securities Ltd (1990) 2 ACSR 117 at 126 to 127, relied on heavily by [respondent’s counsel], was concerned with a public examination in which an order was made requiring the notes of legal advisers taken at the examination to be destroyed at the end of the examination.

18.  One has to approach the matter with common sense and proportionality in order to strike a fair balance.  The directions do not impose a blanket prohibition.  If [respondent] wishes to confer with his legal advisers on any of the documents supplied, he may do so, with leave of the court, or with the written consent of the liquidators, upon identifying the issue or area of his concern.  I do not accept that would involve divulging confidential or privileged communication between [respondent] and his legal advisers.

19.  The purpose of the directions is to safeguard against or reduce the risk of impermissible drilling, coaching and colouring of [respondent’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 [respondent], 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 [respondent] 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 [respondent], 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, [respondent] or the liquidators may apply to court to have the restrictions lifted.  [respondent] would not be hampered in seeking legal advice if proceedings are brought against him in future.

23.  I make an order in terms of paragraphs 1 to 12 of the draft order submitted to me in each of the applications.

24.  [respondent’s counsel] informed the court that [respondent] would not seek a direction that the hearing dates of his examination be fixed in consultation with [respondent’s] diary or his counsel’s diary.  [respondent] would merely put forward specific dates which he will request the court to avoid.  This is noted accordingly.

25.  I will award the costs of the summonses and of the hearings to the liquidators.  The summonses were necessitated because [respondent] had refused to provide any undertaking sought by the liquidators, whether the undertaking in the form as sought on 9 October 2006 or in the terms as sought on 20 October 2006.