THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. JAMES HENRY TING

cacv 304/2004 & CACV 305/2004

CACV 304/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 304 of 2004

(on appeal from HCCW NO. 49 of 2000)

_________________________

_________________________

_________________________

AND

CACV 305/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 305 of 2004

(on appeal from HCCW NO. 50 of 2000)

_________________________

_________________________

BETWEEN

_________________________

(Heard together)

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Ma CJHC:

1.  I agree with the reasons as contained in the judgment of Rogers VP for dismissing the present appeals.

Hon Rogers VP:

2.  These were two appeals from a judgment and orders of Madam Justice Kwan given on 7 September 2004.  The application before the judge was that the examination of the respondent under section 221 of the Companies Ordinance, Cap. 32, which had previously been sought, should be dismissed or stayed.  The judge dismissed that application and ordered that the respondent should attend court on a date to be fixed to be examined on oath concerning the affairs of two companies namely Akai Holdings Limited (“AHL”) and Kong Wah Holdings Limited (“Kong Wah”) and that he should produce to the liquidators all documents relating to those companies and their subsidiaries in his custody or power.  The judge also made provision as to costs.  At the conclusion of the hearing of these appeals, these appeals were dismissed with costs, with reasons to be given in writing.

Background

3.  AHL was a company listed on the Hong Kong Stock Exchange and from 1996 it was the parent company of a wholly-owned subsidiary Kong Wah, which had previously been listed on the stock exchange.  In turn these companies had, until 1999, been within a group of companies, of which the parent was Semi-Tech Corporation Limited (“STC”).  That company had been listed in New York apart from other jurisdictions.  AHL and Kong Wah were wound up by orders dated 23 August 2000.  As the judge recorded, the AHL insolvency constituted the largest corporate insolvency ever in Hong Kong.  The group appeared to have liabilities in excess of US$1 billion and few remaining assets which could be realised for the benefit of the creditors.  In the annual report of AHL for 1996, the STC group was described as an international business comprising numerous public companies listed on the world’s leading stock exchanges, with market capitalisations aggregating US$4.5 billion (equivalent to about HK$35 billion), and employing 100,000 people in over 120 countries worldwide. 

4.  Most of the key directors and executives of the AHL Group have left Hong Kong or were uncooperative with the liquidators and their requests for assistance.  The companies that were involved in the management of AHL and Kong Wah have all refused to provide any meaningful assistance.  The investigation of the financial affairs of AHL and Kong Wah has been severely hampered by the lack of sufficient books and records.  Although 650 boxes of records have since been taken into possession in relation to AHL and 1,800 boxes in relation to Kong Wah, in the light of the size of the businesses of those companies, there are clearly grounds to believe that these do not constitute all the books and records.

5.  The respondent was the chairman and chief executive of AHL.  He is said to be the most important and crucial person who could provide information to the liquidators.  In the principal supporting affidavit in this application, the liquidators have identified 18 areas of concern involving substantial sums in respect of which they require information from the respondent.  Some of the matters referred to in the affidavit went back to 1998, so claims in relation to which the respondent’s assistance is required would become time-barred against third parties fairly soon, unless protective writs are issued by the liquidators or unless the liquidators are able to postpone the limitation period by virtue of fraud, concealment or mistake.  There is clearly a need for the liquidators to be assisted by the respondent who can be expected to have knowledge of the events and transactions, which contributed to the collapse of the AHL Group.  It is said, and the judge accepted, that the provision of a statement of affairs by answers in writing to a questionnaire could not be considered adequate in the circumstances.

6.  On 2 May 2003, the respondent was charged with an offence of false accounting under section 19(1)(a) of the Theft Ordinance, Cap. 210.  On 5 March 2004, four additional charges of false accounting were laid against him.  All the charges relate to dealings concerning MicroMain Systems Limited (“MicroMain”) and shares in that company.  The trial of those charges is scheduled to commence on 3 May 2005 and last until 7 June 2005.  Meanwhile the examination under section 221 of the Companies Ordinance is scheduled to commence on 13 June 2005.

The judgment below

7.  In the judgment below the judge came to the conclusion that section 221 of the Companies Ordinance permitted the examination to take place notwithstanding the common law privilege against self-incrimination which, as far as testimony is concerned, is now enshrined in Article 11(2)(g) of the Bill of Rights.  She went on, however, to refer also to section 33(1) of the Theft Ordinance, Cap. 210.  In paragraph 53 of her judgment the judge referred to the fact that the “compensatory protection” under section 33(1) provided a safeguard which was not “a disproportionate response to a serious social problem” and struck a fair balance between the general interest of the community and the protection of the rights of the individual.  In those circumstances the judge permitted the examination to go ahead.

These appeals

8.  On this appeal Mr Pannu, who appeared on behalf of the respondent, sought an order that the examination under section 221 should be stayed, but not dismissed, until the delivery of the verdicts in the existing criminal proceedings and in any further criminal proceedings also relating to the AHL and Kong Wah companies on the grounds that the section 221 proceedings are oppressive and/or an abuse of the process because they put in jeopardy the respondent’s common law privilege against self-incrimination and that the proceedings contravene Article 11(2)(g) of the Bill of Rights Ordinance, Cap. 383.  The argument really fell into two parts.  The first part related to the criminal charges in the imminent trial and the events involving MicroMain.  The second part related to the remaining 17 heads of inquiry referred to in the affidavit filed on behalf of the liquidators.

9.  Turning first to the present criminal charges, it has to be observed that as at present scheduled the criminal charges will be heard and disposed of before there is an examination under section 221.  In the event that the trial of the criminal prosecution extends beyond the estimated time, it would be hardly likely that the examination under section 221 could take place because the respondent would necessarily be required to be in attendance at the criminal trial.  Thus as a practical matter, if for no other reason, the respondent’s concerns would appear at the moment to be more theoretical than real.  In any event, I see no ground for disturbing the judge’s order in this respect.

10.  Section 33(1) of the Theft Ordinance reads as follows:

"(1)	A person shall not be excused, by reason that to do so may incriminate that person or the wife or husband of that person of an offence under this Ordinance-
	(a)	from answering any question put to that person in proceedings for the recovery or administration of any property, for the execution of any trust or for an account of any property or dealings with property; or
	(b)	from complying with any order made in any such proceedings,
	but no statement or admission made by a person in answering a question put or complying with an order made as aforesaid shall, in proceedings for an offence under this Ordinance, be admissible in evidence against that person or (unless they married after the making of the statement or admission) against the wife or husband of that person."

11.  Although in some sense the section may be regarded as abrogating the rule against self-incrimination, in my view, what it does is to protect the relevant person against self-incrimination in respect of charges under the Theft Ordinance.  Although in the relevant proceedings covered by section 33(1) the person involved is required to answer the questions, any answers which are given cannot be given in evidence against him if and when he is prosecuted for an offence under the Theft Ordinance.  That may (and it is unnecessary to decide this in the present case) include, in my view, not only a prohibition against the giving of direct evidence of an admission made, tendered for the purposes of proving guilt but also cross-examining the person as to credit on the basis of a statement made during the earlier proceedings.  In the circumstances of this case, where charges have already been brought and are about to be tried, there is no question of any answers in the section 221 examination being used in evidence in respect of those charges.  As a practical matter it would not happen.  In any event section 33(1) would prevent it happening.

12.  In my view it thus becomes irrelevant as to what the full effect of section 221 of the Companies Ordinance is in other circumstances.  It is clearly a highly necessary section which empowers liquidators to learn and discover relevant information and materials from those previously concerned with running a company which has now gone into liquidation:- see in particular In re Arrows Ltd (No. 4) [1995] 2 AC 75 and Shierson v Rastogi [2003] 1 WLR 586.  In the present circumstances the respondent is given all the protection that he needs in the scheduled trial by section 33(1) even were the trial to take place after the section 221 examination.

13.  Mr Pannu sought to argue that section 33(1) of the Theft Ordinance was not applicable in respect of section 221 examinations.  In my view, on the wording of section 33(1) such examinations are clearly covered.  The section refers to “… question put to that person in proceedings for the recovery or administration of any property …”.  Winding-up proceedings under the Companies Ordinance are undoubtedly proceedings for the administration of property.  Winding-up proceedings are directed to the collection and proper distribution of the assets of a defunct company. 

14.  As part of his argument, Mr Pannu sought to rely upon the Court of Appeal judgment in the case of Regina v Kansal [1993] QB 244 for the proposition that the section only related to inter partes civil proceedings and did not relate to winding-up proceedings where there was no lis or adversarial nature.  In my view, the argument is based on a misreading of the Court of Appeal decision.  At page 250 of the report the passage in which these points are mentioned is a passage recounting arguments of counsel on behalf of the Crown.  Although the court held in favour of the Crown, the basis upon which it did so was that the Insolvency Act 1986 and the Rules made thereunder not only permitted the examination to take place but rendered any statement made in the course of that examination admissible in any trial.  In those circumstances, with specific legislation directed to this issue, the protection provided under section 31 of the Theft Act 1968 (which was the equivalent of section 33 of the Theft Ordinance) was inapplicable.  The Court specifically said:

"The privilege from self-incrimination is abrogated in bankruptcy proceedings not by the opening words of section 31 of the Theft Act 1968, but by rule 6.175 of the Insolvency Rules 1986 made pursuant to section 412 of the act of 1986:
	‘(1)	The bankrupt shall at the hearing be examined on oath; and he shall answer all questions as the court may put, or allow to be put, to him….(5) The written record may, in any proceedings (whether under the Act or otherwise) be used as evidence against the bankrupt of any statement made by him in the course of his public examination.’
Thereafter section 433 of the Act of 1986 renders the evidence admissible."

15.  The same does not apply in respect of winding-up proceedings in Hong Kong as the equivalent sections to those in the Insolvency Act 1986 and the Rules made thereunder are not present.  I would also observe that the opening words of the passage quoted above might be said to be irrelevant if the court had in fact accepted the argument by counsel for the Crown that section 31 of the Theft Act did not apply to bankruptcy proceedings because they were not inter partes civil proceedings.

16.  There remained, then, the question of the examination in respect of the 17 other heads of inquiry.  In respect of those counsel could not, despite a number of requests from this court, demonstrate that any of the heads of inquiry would lead to the respondent having to answer questions which would incriminate him in respect of any matters, let alone matters which were not offences under the Theft Ordinance.  Furthermore, counsel admitted that he could not put forward any argument based on instructions that there were reasonable grounds for apprehending that questions that would be asked would require answers which would cause the respondent to incriminate himself.  In those circumstances the argument was purely hypothetical and based on speculation by counsel.  Should the situation arise the course of the section 221 examination where the respondent feared that by giving an answer he would incriminate himself he would in my view be adequately protected by section 65 of the Evidence Ordinance, Cap. 8, the relevant subsections of which read as follows:

"(1)	The right of a person in any legal proceedings other than criminal proceedings to refuse to answer any question or produce any document or thing if to do so would tend to expose that person to proceedings for an offence or for the recovery of a penalty-
	(a)	shall apply only as regards criminal offences under the law of Hong Kong and penalties provided for by such law; and
	(b)	shall include a like right to refuse to answer any question or produce any document or thing if to do so would tend to expose the husband or wife of that person to proceedings for any such criminal offence or for the recovery of any such penalty.
(2)	In so far as any existing enactment conferring (in whatever words) powers of inspection or investigation confers on a person (in whatever words) any right otherwise than in criminal proceedings to refuse to answer any question or give any evidence tending to incriminate that person, subsection (1) shall apply to that right as it applies to the right described in that subsection; and every such existing enactment shall be construed accordingly."

17.  Although counsel argued that the judge’s exercise of discretion was flawed, such argument could not even begin to be made in the absence of factual circumstances which would be sufficient for the judge to hold that there was at least a reasonable apprehension that the respondent might incriminate himself.  In any event I do not consider that it can be said that the judge erred in any way when considering whether to grant the order sought.

18.  In those circumstances this appeal fell to be dismissed.

19.  For completeness, it should be mentioned that in correspondence prior to the hearing of this appeal, the question was raised as to whether this matter involved an interlocutory or final decision.  It is quite clear that these were interlocutory orders in the winding-up proceedings.  This is made clear for the avoidance of doubt.