CHEN YUNG NGAI KENNETH AND ANOTHER v. HUGILL & IP (A Firm) AND ANOTHER

HCB 3819/2011

[2023] HKCFI 151

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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Re: HO YUK WAH DAVID (the “Discharged Bankrupt”)

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BETWEEN

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D E C I S I O N

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A. Introduction

1.  By this summons, the applicants (“Trustees”) apply for an order against the respondents, (respectively “H&I” and “OLN”; collectively, “the 2 Firms”) under section 29 of the Bankruptcy Ordinance, Cap 6 (“BO”). The 2 Firms are asked to produce documents concerning the Discharged Bankrupt, David Ho, and various entities who are said to be his nominees. The 2 Firms had acted for the nominees (“971 Defendants”) in HCA 971/2012 (“971 Action”).

2.  Six Categories of documents are sought by the Trustees:

(1) Details of payments to OLN for the 971 Action;

(2) In particular and without prejudice to Category 1, copies of bills, receipts, correspondence and various payment records and supporting instructions and communications in respect of such payments made to OLN in relation to the 971 Action;

(3) Retainer agreements between OLN and each of the 971 Defendants;

(4) The amount of funding made to OLN (inclusive of disbursements paid by OLN) for the 971 Action;

(5) Communications with one Liu Shu, director of three 971 Defendants in the 971 Action, witness statements and affirmations of Liu Shu; and

(6) Communications with David Ho.

3.  H&I maintain a neutral stance and their attendance was excused.

4.  OLN also maintain a neutral stance but have made written submission to assist the Court (for which the Court is grateful) and seek costs. The following analyses address OLN’s submissions, but the reasoning and conclusion will ultimately apply to H&I.

5.  OLN’s submissions are these:

(1) Some documents are subject to legal professional privilege (“LPP”). OLN are in no position to waive it and some clients have ceased to exist. OLN query if the privilege can be waived by the Trustees.

(2) Part of the documents in Categories 1 and 2, Categories 3 and 4 as a whole are confidential but not subject to LPP. Some parts subject to LPP can be redacted before production.

(3) Category 5 is subject to LPP.

(4) They confirm and are willing to provide an affidavit to confirm that (a) they have never acted for the 971 Defendants in any other action besides the 971 Action; and (b) they have never had any dealings with David Ho.

6.  Accordingly, the Trustees have since reduced the scope of the order sought. The only substantive dispute remains that of LPP.

B. Legal Principles under Section 29 BO

7.  Section 29 BO provides as follows:

“(1) The court may, on the application of the … trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it … any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property.”

8.  The applicable principles for considering whether to make an order under section 29 BO have been set out in Re Ho Yuk Wah David (No. 5) [2020] HKCFI 578, §§22 and 31, Au-Yeung J; CA Judgment (“83 Judgment”) [2022] HKCA 110, §12. In gist, the Trustees must satisfy the Court that the information or documents “relate to the bankrupt, his dealings or property”; the provision of information or documents is reasonably required for him to carry out the Trustees’ functions; and the respondent is able to provide such information or documents. The standard of proof is reasonable suspicion: 83 Judgment, §14.

9.  Under sections 29(1A) and (3) of BO, the court may order the respondent to answer interrogatories by way of an affidavit, or order a respondent to submit an affidavit to the court containing an account of his dealings with the bankrupt. However, section 29 does not confer power on the court to order the making of an affidavit to produce documents or to explain what has become of documents no longer in the respondent’s possession. Re Ho Yuk Wah David [2019] 1 HKLRD 961, §§40 and 42, Recorder Eugene Fung SC.

10.  Confidentiality is no bar to an order for disclosure in a section 29 application: The Joint and Several Trustees in Bankruptcy of Nanik Dayaram (also known as Nanik Dayaram Hathiramani) v Lee Pei Yin, HCB 7651/2011, 6 November 2015, §62, Ng J.

C. Legal Principles on Legal Professional Privilege

11.  The principles on LPP have been summarized in HKSAR v Wong Chi Wai (2013) 16 HKCFAR 539, at §§34-37. It is for the party refusing disclosure to establish LPP: Wauth v British Railways Board [1980] AC 521, at 541G. Once established, LPP cannot be overridden by the court: Wong Chi Wai, §37.

12.  LPP falls into 2 categories, legal advice privilege and litigation privilege. The latter covers all documents brought into being for the purposes of litigation. The former covers communications between lawyers and their clients whereby legal advice is sought or given: Three Rivers District Council & ors v Governor and Company of the Bank of England (No.6) [2005] 1 AC 610, §10, Lord Scott.

13.  Privilege does not attach to everything a claimant says to the lawyer. It is the purpose of the communication (ie to enable the client to seek advice or for the lawyer to give it) contained in a document that determines whether or not LPP attaches. Privilege, Colin Passmore, 4^th ed, at §2-012.

14.  Using the test in §§12 and 13 above, the following documents are confidential but should not automatically be regarded as privileged in their entirety in the light of Three Rivers (No. 6): The Law of Privilege, Bankim Thanki QC, 3^rd ed, at §2.128-2.129.

(1) A fee note, bill of costs or statement of account, because it is brought into existence principally for the purpose of recording and charging for work which had been already completed. No privilege will attach where, eg the fee notes merely set out the dates and refer to the action taken in respect of which a charge is made: Hodgson v Amcor Ltd [2011] VSC 204, §§59-63 (Australia); or where the fee note does not relate to the giving of advice at all: Time Super International Ltd v The Commissioner of ICAC [2002] 2 HKC 581, Seagroatt J.

(2) “Mere collateral facts”, of which the address and identity of a client or an individual are examples. They are formalities that occur before the legal advice is sought or given and records nothing which passes between the solicitor and client in relation to the obtaining of or giving of legal advice. See Wong Chi Wai, §95; R on the Application of Miller Gardner Solicitors v Minshull Street Crown Court [2002] EWHC 3077, §20, CA.

(3) Retainer agreements, which will only be privileged if they reveal the nature of the advice sought. See Thanki, The Law of Privilege, 3^rd ed, at §2.133.

15.  Parts of the documents in the preceding paragraphs which are subject to LPP can be covered up, whilst parts which are not subject to LPP should not: Ainsworth v Wilding [1900] 2 Ch 315, at 325 (fee note).

D. Application of the Legal Principles under Section 29 BO

16.  David Ho and the following entities were/are defendants to the 971 Action:

(1) Gladius Limited (D2);

(2) Ontrade Properties Limited (D3);

(3) King Ocean Development Inc (D4);

(4) Asia-Pac Group Investments Limited (D5);

(5) Grand Asia Capital Services Limited (D8); and

(6) Pacific Shine Limited (D9).

17.  One Asia Pac Infrastructure Development Limited (“APIDL”) was D6 in the 971 Action.

18.  D2-D5, D8 and D9 (971 Defendants) were represented by H&I between 11 December 2018 and 17 July 2019; and then by OLN from 17 July 2019.

19.  According to Ms Chiu who appeared on behalf of OLN at the call-over hearing of this summons on 15 September 2022, there was a natural person who gave her instructions on behalf of the 971 Defendants. However, OLN had not informed that natural person of this summons because the Trustees asserted that “any unauthorized disclosure or divulge of information about the Defendants and other related companies will be regarded as a breach of confidentiality and will be dealt with professionally”.

20.  It is not clear why the Trustees needed to assert that position since the documents sought were historical in nature and there was no secrecy or urgency involved in the summons. However, I agree with the Trustees that the natural person is not a party to this application and it is not known in what capacity he/she was instructing OLN at the time. He/she has no right to be heard.

21.  All the 971 Defendants have been struck off or dissolved after the Judgment. However, D2 and D9 have been restored by the Trustees for the purpose of enforcing the Judgment and Orders in the 971 Action. The summons and supporting affirmation have been served on D2 and D9 but they have not responded.

22.  On paper, Mr Yu Yang owned and controlled the 971 Defendants and APIDL. The Trustees’ case is that D2 held 1 share in APIDL since about 2004. David Ho sold 999,999 shares of APIDL to APIHL, which ultimately ended up in the hands of D5. D3 and D4 recapitalized APIDL in December 2007. D8 was a guarantor for D3’s recapitalization. D9’s shares were held by D2 and an entity called Ferdinan.

23.  Ng J handed down judgment on 28 September 2020 in Chen Yung Ngai Kenneth & anor v Ho Yuk Wah David (a bankrupt) & ors [2020] HKCFI 2518 (“971 Judgment”). It was found, amongst others, that:

(1) The sale and recapitalization were shams, such that David Ho still beneficially owns 1 million shares in APIDL and D2 and, via them as his nominees, APIDL and Ferdinan (971 Judgment, §§68-75; 76-104, especially 96; 105-153);

(2) David Ho owned and controlled D2 as his nominee (971 Judgment, §§74, 154, 164);

(3) D5 was David Ho’s nominee by reason of the fact that its director and shareholder as at 22 June 2007 were all David Ho’s nominees (971 Judgment, §103). As the recapitalization was a sham, the allotment of APIDL’s shares to D3 and D4 were null and void. D2 and D5 remained the only shareholders of APIDL after the whole exercise (971 Judgment, §153).

(4) David Ho beneficially owned and controlled D5 as his nominee (971 Judgment, §§165-170).

(5) D3, D4, APIDL and D8 had all acted as David Ho’s nominees in the sham recapitalization (971 Judgment, §§123, 148, 151, 178 and 179);

(6) D2 was holding its one share in D9 as David Ho’s nominee. Ng J would have held that Ferdinan held the other share as David Ho’s nominee if Ferdinan were a defendant (§§184-185; 161-163).

24.  The shareholding position of the 971 Defendants is as follows:

	Name	Place of Incorporation	Last Shareholders	Last Directors
D2	Gladius Limited (previously D Ho Nominees Limited)	Hong Kong	Ferdinan, Yu Yang	Ferdinan, Liu Shu
D3	Ontrade Properties Limited	BVI	Yu Yang	Liu Shu
D4	King Ocean Development Inc	BVI	Yu Yang	Yu Yang
D5	Asia-Pac Group Investments Limited	BVI	Yu Yang	Liu Shu
D8	Grand Asia Capital Services Limited	BVI	Yu Yang	Yu Yang
D9	Pacific Shine Limited	Hong Kong	Gladius, Ferdinan	Gladius, Ferdinan
	Ferdinan Limited (previously D Ho Corporate Services Limited)	Hong Kong	Gladius, Yu Yang	Gladius, Yu Yang

	Name	Place of Incorporation	Last Shareholders	Last Directors
D6	APIDL	Hong Kong	D2, D5, D3, D4 (latter two based on re-capitalization)	D2, Ferdinan, Liu Shu

25.  Yu Yang was the former brother-in-law of David Ho. Yu Yang was held to be David Ho’s nominee shareholder of D2, D3 and Ferdinan (971 Judgment, §§160, 178, 163).

26.  Liu Shu was a director of D2, D3, D5, D6, an employee of the Asia-Pacific Group and alleged colleague of David Ho in 2007 (971 Judgment, §59). She was held to be a person closely associated with David Ho by reason of her association with Yu Yang (footnote 45 at page 63 of the 971 Judgment).

27.  Yu Yang and Liu Shu made witness statements but refused to testify at the trial (971 Judgment, §52). The assertions in the witness statements that Yu Yang was the ultimate beneficial owner of the corporate entities (including the 971 Defendants) was found to be bare assertions and rejected by Ng J (§§55-58, 66-67, 134-142).

28.  It has always been the Trustees’ reasonable suspicion that David Ho has always been the beneficial owner of APIDL and that his estate is entitled to any surplus funds of APIDL (§6 of the 83 Judgment). This has become an eventuality by virtue of the 971 Judgment when Ng J found that (i) the 971 Defendants were all nominees of David Ho and/or beneficially owned by him; and (ii) Yu Yang and Liu Shu were nominees acting under David Ho’s instructions.

29.  The Trustees consider themselves to have stepped into the shoes of David Ho and essentially own and/or control all the 971 Defendants. I agree.

30.  The Trustees have always suspected that the Bankrupt was involved in funding arrangements for various actions (§§2, 8 of the 83 Judgment). They draw the conclusion that those nominees’ litigation expenses for the trial of the 971 Action must have been funded or at least related to David Ho. The present application is primarily to ascertain the “fund flows” or payment records against the 2 Firms, to ascertain if funds are available for David Ho’s estate.

31.  I am satisfied from the facts in this Section that the Trustees have demonstrated reasonable grounds for suspecting that the documents or information sought are related to David Ho, his dealings or his property and that the Trustees require them to carry out their functions.

32.  There is no issue that the 2 Firms are able to produce the documents or information, if ordered, that are in their possession, custody or control.

E. Legal Professional Privilege

33.  OLN assert LPP in respect of part of Categories 1 and 2 and the whole of Category 5. OLN point out that they can redact Categories 1 and 2 but the LPP in Category 5 is in such a classic sense that redacting certain parts of the documents may give away clients’ instructions to OLN.

34.  OLN point out that Ng J only ordered the following to be transferred to the Trustees (§§20 and 188 of the 971 Judgment):

(1) Shares held by D2-D5 in D6 (APIDL);

(2) D2’s 50% shareholding in D9.

Ng J did not order the shares in any of the 971 Defendants to be transferred to the Trustees.

35.  Accordingly, OLN submit that it does not appear to be correct to say that D2-D5 now “belong” to the Trustees. At most the Trustees are now the shareholders of APIDL (D6), but D6 was not one of the 971 Defendants and was never a client of OLN. The Trustees do not even assert that they are directors, shareholders or liquidators of any of the 971 Defendants (except 50% shareholder of D9).

36.  Despite the 971 Judgment, it is not clear to OLN that the documents created and prepared prior to that Judgment for the sole benefit of the 971 Defendants in defending the 971 Action belong to the Trustees.

37.  In the premises, OLN do not believe that it can safely assume that the Trustees are able to waive privilege on behalf of the 971 Defendants or at least D2-D5.

38.  I am unable to agree. Having regard to the express findings (set out in §§23-28 above) that D2, D3, D5 and D9 (not just their shareholders or directors) were nominees of David Ho, the Trustees would step into the shoes of these 971 Defendants. On top of that, D2 and D9 have not responded to the summons to assert LPP. That being the case, LPP of the nominees cannot be asserted against the Trustees.

F. Categories 1 to 3 – Details of Payments and Retainers

39.  Insofar as OLN raise an issue of LPP, it cannot stand in the light of the holding in §38 above. As for the other documents in these Categories, OLN say that they are confidential but does not raise an issue of LPP. These include the contact information of the transferors and transferees under the payment records. Confidentiality does not preclude an order for production: §10 above. If LPP does not attach to client’s identity, there is even less reason for LPP to attach to non-clients’ identity: §14(2) above. I make an order to produce these 3 Categories.

G. Category 4 – Amount of Funding to OLN

40.  OLN submit that this is confidential but not privileged. OLN are willing to provide an affidavit confirming the amount. I accept this approach.

H. Category 5 – Communications, Witness Statements and Affirmations of Liu Shu

41.  In respect of communications with Liu Shu, OLN assert LPP. That cannot stand in view of the express finding of Ng J that Liu Shu is a nominee of David Ho and hence the Trustees step into the shoes of Liu Shu.

42.  In respect of witness statements and affirmations, OLN are not aware of their existence other than in the 971 Action and is willing to say so an affidavit. The Trustees do not object. I accept this approach.

I. Category 6 – Communications with David Ho

43.  OLN have confirmed that they never had any dealings or communication with David Ho and are willing to say so on affidavit. The Trustees do not object. I agree with OLN’s approach.

J. Costs

44.  OLN have communicated substantively with the Trustees as early as 11 April 2022 before the summons was taken out. They reviewed and collated documents sought by the Trustees, assessed whether they were confidential or privileged and responded to the Trustees’ submission. They seek an order for costs against the Trustees personally.

45.  The Trustees oppose and suggest that costs should be limited to reasonable photocopying charges: The Joint and Several Liquidators of Kong Wah Holdings Limited and Akai Holdings Limited v Ernst & Young (unreported, CACV 356/2003, 17 March 2004) at §§37-39. Upon compliance with the order to be made, if OLN are shown to be fully co-operative with the Trustees in providing the necessary information, an order may be made that OLN be paid reasonable costs incurred by them in providing such information, to be paid out of the estate, under rule 87C of the Bankruptcy Rules (Cap 6A): Re Ho Yuk Wah David (bankrupt) (No.2), (§§12-13), Au-Yeung J.

46.  The grounds of OLN’s application for costs are these:

(1) Costs should be personally borne by the Trustees because an order for costs against the estate would likely be hollow.

(2) The general rule is that a trustee in bankruptcy, liquidator, trustee or personal representative, is personally liable for any costs order unless there is an express order directing otherwise: Re Lee Shuk Yee [2005] 4 HKC 318, §§10 & 11, Barma J (as he then was); upheld on appeal in [2006] 3 HKC 396, §§9-12. In To Pui Kui v Ng Kwok Piu, CACV 281/2012, 29 January 2015, the Court of Appeal stated that Re Lee Shuk Yee stood as authority for the proposition that even if there were to be an indemnity, the plaintiff personally bore the risk of the estate not having enough assets to pay for such costs liability. OLN therefore submit that a personal order for costs should be made, leaving the Trustees to recoup from the estate or any third party funder.

(3) Kong Wah is distinguishable. OLN do not seek to charge for being present at the inspection of documents to be produced, as the auditors did in Kong Wah. Unlike OLN who have to collate documents and assess their confidentiality and LPP, the production of documents by the auditors was purely a manual task. The Court of Appeal in Kong Wah did not hold that a former solicitor would never be entitled to recover such costs and is limited to only claiming photocopying charges. If that were the case, it would have the unfortunate effect of discouraging solicitors from upholding their duties to their former clients. The other case relied on by the Trustees, at §83, Ng J), also did not involve production by former solicitors.

47.  In deliberating on the question of costs, I have disregarded the Trustee’s submission that OLN were not analogous to a completely innocent party under a Norwich Pharmacal application because OLN were acting for David Ho’s corporate nominees and were receiving instructions from Yu Yang and Liu Shu. This is because there is nothing before the Court to justify any insinuation that OLN were complicit in the actions of David Ho or his nominees at the time OLN acted for the 971 Defendants.

48.  Even so, I am unable to agree with OLN.

49.  With regard to ground 1, there should not be a personal costs order against the Trustees as there was no litigation conduct on their part that required punishment on costs. Even OLN accept that the Trustees are just doing their duty. Difficulty in recovering costs from the bankrupt’s estate is not a reason to order the Trustees to personally bear costs.

50.  With regard to ground 2, Re Lee Shuk Yee concerns hostile litigation taken by a personal representative. However, a section 29 BO application is far removed from hostile litigation. It is a “fishing expedition” made on reasonable suspicion of a trustee in bankruptcy, to discover whether he has further avenues to recover the bankrupt’s assets for the benefit of the creditors: Re Ho Yuk Wah David (No. 5), §22(8).

51.  With regard to ground 3, both an auditor and a solicitor would need to incur time to peruse the s.29 BO summons and supporting affidavit, collate and review documents sought and make proposals on production. The auditor in Kong Wah was not allowed to recover the aforesaid costs; neither would the solicitor. The only thing that distinguishes the solicitor from the auditor is that the former has to consider questions of LPP but the latter does not. The costs for considering LPP (and any redaction) would be adequately covered by the proposed order of the Trustees under section 87C of BO. Moreover, it has been clear from the express findings of the 971 Judgment who were the nominees of David Ho such that LPP cannot be raised against the Trustees.

52.  For the reasons given in §§49-51 and without disrespect, I reject OLN’s submission for costs and accept the costs order proposed by the Trustees.

K. Conclusion and Orders

53.  I make an order for H&I and OLN to disclose, within 28 days from the handing down of this decision, the following documents which are in their respective possession, custody or power:

(1) Copies of all details of the payments made to each Respondent for the legal proceedings in the 971 Action.

(2) In particular and without prejudice to the generality of paragraph (1), copies of all bills, receipts, correspondence, counsel fee notes, invoices, cheques, bank drafts, cashier orders, online transfer records and all other payment records and supporting wiring instructions and communications in respect of such payments made to each Respondent in relation to the 971 Action.

(3) Copies of all retainer agreements between each Respondent and each and every of the Defendants they had acted for in relation to the legal proceedings in the 971 Action.

(4) Statements on affirmation by each Respondent confirming:

(a) That Respondent has never acted or represented (i) David Ho at all; and (ii) any of the Defendants which it has acted for in 971 Action save and except in the 971 Action itself;

(b) The total funding made to that Respondent (inclusive of disbursements paid by that Respondent) for the legal proceedings in 971 Action;

(c) That Respondent does not have in its possession, custody or power any witness statements or affirmations made by Cindy Liu Shu (if any) in relation to any legal proceedings other than in the 971 Action;

(d) That OLN have never had any communications with David Ho at all (whether in relation to all email correspondence involving the specified email address or otherwise);

(5) The Trustees do bear reasonable photocopying costs to be incurred by each Respondent in compliance with this order, to be paid out of the bankruptcy estate of the Discharged Bankrupt David Ho;

(6) Liberty to each Respondent to make an application under rule 87C of the Bankruptcy Rules (Cap 6A) for reasonable costs upon due compliance of §§(1)-(4) of this Order; and

(7) There be general liberty to apply.

54.  I thank Mr Joseph Wong and OLN for their assistance.