RE WING FAI CONSTRUCTION CO LTD

CACV 244/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 2004

(ON APPEAL FROM HCCW 735 OF 2002 )

______________________

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JUDGMENT

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Hon.  Yeung JA:

1.  I have had the advantage of reading the judgment of Yuen JA.  I agree with her judgment and the order set out in paragraph 112 hereof.

Hon. Yuen JA:

2.  On 23 July 2004, Kwan J. dismissed an application by Kelly Cheng      Kit Yin and Robert Yip Kwong, both former directors of Wing Fai      Construction Co Ltd ("the Company") for an order to commit David   John Kennedy ("the Liquidator"), one of the liquidators of the   Company, for criminal contempt of court.  The application was  dismissed by the judge on the ground that the Liquidator had no case   to answer.  The applicants appealed. 

3.  As a matter of completeness I should add that after the hearing of this appeal in June 2005, there was an application by the appellants to amend the Notice of Appeal to include an appeal against the judge’s decision given on 23 September 2004 in respect of costs.  On 6 October 2005, the application to amend was allowed and directions given in respect of the costs issue.  On 14 October 2005, an Amended Notice of Appeal was filed. 

Issue

4.  This appeal raises an interesting and important issue on the use to which liquidators may put depositions given under compulsion in private examinations ordered under s.221 Companies Ordinance ("the Ordinance") and undertaken under rule 62 of the Winding-Up Rules ("W-Up Rules"), in particular the supply of depositions to the police directly without first seeking the approval of the court who had ordered the examination.

5.  There are two competing forces at work.  On the one hand, there are the concerns of the individuals whose depositions were given - under compulsion - in circumstances conferring a certain degree of confidentiality.  On the other hand, there is the public interest in the furtherance of good corporate governance which may involve,  where appropriate, the prosecution of those who may be criminally liable. 

(1) The court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs, or property of the company.         

(2) The court may examine him on oath concerning the matters aforesaid, either by word of mouth or on written interrogatories, and may reduce his answers to writing and require him to sign them.

(3) The court may require him to produce any books and papers in his custody or power relating to the company, but where he claims any lien on books or papers produced by him, the production shall be without prejudice to that lien, and the court shall have jurisdiction in the winding up to determine all questions relating to that lien.

(4) If any person so summoned, after being tendered a reasonable sum for his expenses, refuses to come before the court at the time appointed, not having a lawful impediment (made known to the court at the time of its sitting, and allowed by it), the court may cause him to be apprehended and brought before the court for examination". 

(Emphasis added).

The following points are notable:

- this section applies only in a winding-up by the court, not a voluntary winding-up; but

- it applies to all persons, whether officers of the company or not; and

- merely so long as the person is deemed capable of giving information about the company.

- Further, s.296(2A) of the Ordinance provides:

"an answer given by a person to a question put to him in exercise of powers conferred by rules made under this section [which include the Winding-Up Rules] may be used in evidence against him".  (Emphasis added).

As there is no limit to the type of proceedings in which the evidence may be used, the answers may be used in civil and criminal proceedings.

11.  Section 221 operates however together with rule 62 of the W-Up Rules, which under s.296(2) of the Ordinance, "shall have effect as if enacted by this Ordinance". 

12.  Rule 62 of the W-Up Rules provides:

"62.   Depositions at private examinations

(1) The Official Receiver or liquidator may attend in person, or by counsel or by solicitor employed for the purpose, any examination of a witness under section 221 of the Ordinance, on whosesoever application the same has been ordered, and may take notes of the examination for his own use, and put such question to the persons examined as the court may allow.

(2) The notes of the depositions of a person examined under section 221 of the Ordinance, or under any order of the court before the court, or before any officer of the court, or person appointed to take such an examination (other than the notes of the depositions of a person examined at a public examination under section 222 of the Ordinance) shall not be filed, or be open to the inspection of any creditor, contributory, or other person, except the Official Receiver or liquidator, or any provisional liquidator other than the Official Receiver, while he is acting as provisional liquidator, unless and until the court shall direct, and the court may from time to time give such general or special directions as it shall think expedient as to the custody and inspection of such notes and the furnishing of copies of or extracts therefrom".

(Emphasis added).

The import of these provisions will be discussed later. 

Public examination - s.222 and rule 59

13.  By way of contrast with private examination under s.221 and rule 62, it may be convenient to set out here the provisions for public examination under s.222 and rule 59 which were enacted at the same time and which remain in force.  

14.  Section 222 provides:

"222. Power to order  public examination of promoters, directors, etc.

(1) Where an order has been made for winding up a company by the court, and the Official Receiver or liquidator has made a further report under this Ordinance stating that in his opinion–   

(a) a fraud has been committed by any person in the promotion or formation of the company or by any officer of the Company in relation to the Company since its formation; or

(b) [repealed]

the court may, after consideration of the report, direct that that person or officer shall attend before the court on a day appointed by the court for that purpose and be publicly examined as to the promotion or formation or the conduct of the business of the company or as to his conduct and dealings as officer thereof.

(2) The Official Receiver or liquidator, as the case may be, shall take part in the examination, and for that purpose may, if specially authorized by the court in that behalf, employ a solicitor with or without counsel.

(3) The Official Receiver or the liquidator, where he is not the party making the further report, and any creditor or contributory, may also take part in the examination either personally or by solicitor or counsel.

(4) The court may put such questions to the person examined as the court thinks fit.

(5) The person examined shall be examined on oath, and shall answer all such questions as the court may put or allow to be put to him.

(6) A person ordered to be examined under this section shall, before his examination, be furnished with a copy of the further report, and may at his own cost employ a solicitor with or without counsel, who shall be at liberty to put to him such questions as the court may deem just for the purpose of enabling him to explain or qualify any answers given by him: 

Provided that, if any such person applies to the court to be exculpated from any charges made or suggested against him, it shall be the duty of the Official Receiver or liquidator, as the case may be, to appear at the hearing of the application and call the attention of the court to any matters which appear to him to be relevant, and if the court, after hearing any evidence given or witnesses called by the Official Receiver or liquidator, as the case may be, grants the application, the court may allow the applicant such costs as in its discretion it may think fit.

(7) Notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined, and may thereafter be used in evidence against him, and shall be open to the inspection of any creditor or contributory at all reasonable times.

(8) The court may, if it thinks fit, adjourn the examination from time to time"             

(Emphasis added).

The following points are notable:

- as with s.221, s.222 applies only in a winding-up by the court, not a voluntary winding-up;

- it applies only where the Official Receiver or the liquidator suspects fraud committed by promoters or officers;

- a ‘further report’ (i.e. after the usual ‘preliminary report’)  by the Official Receiver or liquidator is required - this is provided for in s.191(2) and (3);

- the court has a discretion whether to order a public examination after consideration of the further report;

- if a public examination is ordered, the examinee is given a copy of the further report before the examination; and

- the examinee may before the examination apply to be exculpated.

15.  Section 222 operates with r. 59 which provides:

"59. Use of depositions taken at public examinations

Where in the course of the proceedings in a winding up by the court an order has been made for the public examination of persons named in the order pursuant to section 222 of the Ordinance, then in any proceedings subsequently instituted under [s.276: damages against delinquent officers, etc.; s.275(1), (2) or (4): fraudulent trading; s.168I: disqualification of directors; s.358(2): relief from claims], the verified notes of the examination of each person who was examined under the order shall, subject as hereinafter mentioned, and to any order or directions of the court as to the manner and extent in and to which the notes shall be used, and subject to all just exceptions to the admissibility in evidence against any particular person or persons of any of the statements contained in the notes of the examinations, be admissible in evidence against any of the persons against whom the application is made, who, under section 222 of the Ordinance, and the order for the public examination, was or had the opportunity of being present at and taking part in the examination:

Provided that before any such notes of a public examination shall be used on any such application, the person intending to use the same shall, not less than 15 days before the day appointed for hearing the application, give notice of such intention to each person against whom it is intended to use such notes, or any of them, specifying the notes or parts of the notes which it is intended to read against him, and furnish him with copies of such notes, or parts of notes (except notes of the person’s own depositions), and provided also that every person against whom the application is made shall be at liberty to cross-examine or re-examine (as the case may be) any person the notes of whose examination are read, in all respects as of such person had made an affidavit on the application".          

16.  Sections 221 and 222 and rules 62 and 59 were modelled on English legislation which has now been amended.  This will be discussed later. 

17.  It may be convenient now to briefly set out the facts which led to this appeal. 

Factual background

18.  The Company was part of the China Rich Group of companies.  On 6 July 2002, a petition was presented to wind up the Company.  The Respondent Mr Kennedy and Cosimo Borelli, both of RSM Nelson Wheeler Corporate Advisory Services Ltd (“RSM Nelson Wheeler”), were appointed provisional liquidators.  On 9 December 2002, the Company was wound up.  On 28 February 2003, they were appointed full liquidators.

19.  Since the appointment of provisional liquidators, the Company has become involved in various proceedings, including winding-up proceedings of another company and writ actions against companies and individuals.

20.  The materials before us show that the relationship between the liquidators and the former directors was, to use a neutral term, difficult.  The liquidators considered the former directors to be uncooperative, and the former directors considered the liquidators to be overly aggressive.  It is not necessary for present purposes to decide who was right on which occasion.  Any judge who has dealt with compulsory liquidations would have had experience of liquidators being over-suspicious and former directors being over-defensive.    

Order for private examination

21.  On the liquidators’ application, Deputy Judge To made an order under s.221 on 25 March 2003 for the private examination of (amongst others) Miss Cheng and Mr Yip, both former directors of the Company ("the Examinees").  We were not referred to the grounds for the application.  As a matter of completeness, I would mention that neither Examinee has been charged with criminal offences.

22.  The examinations took place in July 2003.  There was another round of examination for Mr Yip which took place in February 2004.

Liquidator’s letter of 24 November 2003 to Miss Cheng

23.  However on 24 November 2003, a letter under RSM Nelson Wheeler’s letterhead and signed by the Liquidator was sent to Miss Cheng ("the 24.11.2003 letter").  This letter was marked ‘Private and Confidential’ but was faxed to Miss Cheng’s office. 

24.  The Liquidator’s letter referred to inconsistencies between Miss Cheng’s "previous sworn evidence and either subsequent sworn evidence of yourself or evidence obtained by us from other sources".  It went on to say:

"Based on the information that I have and your failure to clarify any inconsistencies, I am firmly of the view that you have perjured yourself in both current proceedings on foot and your Section 221 examination.  I am also firmly of the view that you have manipulated documentation to support your various claims in the various proceedings.  Whilst these are very serious allegations I consider that you have done so having been motivated by a desire to defraud creditors of [the Company]".  (Emphasis added).

Parts of Miss Cheng’s depositions at the private examination, amounting to about 2½ pages, were then set out verbatim in the 8-page letter.  The letter concluded with the following statement:

"I have a duty under s.277 of the Companies Ordinance to report to the Court if I suspect a former director of the company in Liquidation has committed a criminal offence.  Based on the evidence I have gathered in the course of the Liquidation, it is my view that you may have committed several serious criminal offences.  I am now in the process of providing my evidence to the Court with a view to obtaining instructions from the Court to refer the matter to the Department of Justice.  If you have anything that you wish to add or clarify with respect to the above prior to me doing so then I request you do so within 14 days, failing which I shall make my report based on my understanding of the position and the evidence in my possession".  (Emphasis added).

25.  Section 277, to which the Liquidator referred, provides (where relevant) as follows:

"277. Prosecution of delinquent officers and members of company

 (1) If it appears to the court in the course of a winding up by the court that any past or present officer or member of the company has been guilty of any offence in relation to the company for which he is criminally liable, the court may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator to refer the matter to the Secretary for Justice".  (Emphasis added).

Defamation action issued by Miss Cheng against the Liquidator

26.  Miss Cheng’s response to the 24.11.2003 letter (apart from a brief denial of the allegations) was to issue a writ on 5 December 2003 against Mr Kennedy and RSM Nelson Wheeler for defamation, on the ground that the letter had been sent to a fax machine in the general office where it was published to third parties.

27.  On 9 December 2003, the Liquidator wrote to Barlow Lyde and Gilbert, Miss Cheng’s solicitors, referring to the intention expressed in the 24.11.2003 letter (of making a report to the Court under s.277) and said amongst other things:

" ... I shall make my report to Court based on information currently in my possession".  (Emphasis added).

The Liquidator did not however make a report to the Court. 

Liquidator’s supply to police of private examination depositions

28.  Instead on 20 January 2004, the Liquidator made a Report directly to the Commercial Crime Bureau of the police.

29.  In this report, of which we now have a redacted version, the Liquidator alleged that Miss Cheng had:

"knowingly perjured herself in sworn testimony with the intent of defeating lawful claims of [various companies including the Company] against herself [and others], and also with the intent to defraud creditors of [various companies including the Company]".

30.  Annexed to the report was a copy of the 24.11.2003 letter which, as I have mentioned, contained verbatim extracts from Miss Cheng’s depositions at the private examination.

31.  Further on 31 January 2004, the Liquidator made a Statement to the police, of which we also have a redacted version.  Attached to this statement were the transcripts prepared from Miss Cheng’s depositions at the private examination.   

32.  On 31 March 2004, the Liquidator made a Further Statement to the police, this time including allegations against Mr Yip.  We have also been supplied with a redacted version of this statement.  Although there is a reference to Mr Yip’s examination in February 2004, his depositions on that occasion do not appear to have been supplied.

33.  What were however supplied to the police were the entire transcripts of the private examination in July 2003.

Use of depositions in civil proceedings

34.  I have referred earlier to the fact that since the appointment of provisional liquidators, the Company has become involved in a number of proceedings.  Between September 2003 and April 2004, the Liquidator also quoted and exhibited the Examinees’ depositions in those proceedings, as well as in the defamation action which was brought against himself personally (and RSM Nelson Wheeler).

Application for committal for contempt

35.  In April 2004, the Examinees applied for an order of committal of the Liquidator, on the grounds that he was in contempt of court in supplying the depositions from the private examination directly to the police without the court’s approval and also in using the depositions in those civil proceedings.

36.  On 20 April 2004, Kwan J gave leave for the application to issue.

Dismissal of application for committal

37.  At the hearing of the application, the applicants were cross-examined.  At the conclusion of their case, the judge held (amongst other things) that as a matter of law the Liquidator did not need to obtain the court’s approval to supply the depositions to the police and that there was no case to answer.  The application was dismissed.

Discussion

38.  Whilst I agree that the court’s leave was not necessary for the use of the depositions in the civil proceedings, with great respect to the judge, I do not agree that leave was not required for the supply of the depositions to the police.

Genesis and development of private examination

39.  It may be helpful to start with a word on the genesis of these examinations.  It would appear that in England the procedure of examination started with examination of bankrupts, whose harsh treatment  in Dickensian times was notorious.  It was then introduced to corporate insolvencies.  Private examination was first introduced, followed by public examination and the relevant rules.

40.  In Hong Kong, the Companies Ordinance was first modelled on the 1929 Companies Act, some amendments being made later, consequent on new enactments in the 1948 Companies Act.  However the Insolvency Act 1985-6 effected significant changes to the English legislation, and some of the statute law introduced by this Act and other relevant enactments have not been adopted in Hong Kong.

41.  The following index of section numbers (not meant to be comprehensive) may be useful when referring to some of the English cases, subject to the caveat that section numbers shown against the Insolvency Act are not intended to refer to equivalent sections but only to those provisions where the relevant English legislation can now be found. 

Cos Act/Cos Ord.	s.221	s.222	r.62	s.277
1862	s.115
1890		s.8
1908	s.174	s.175
1929	s.214	s.216	r.72	s.277
1948	s.268	s.270	"	s.334
Insolvency Act
1986	s.236	s.133	r.9.4	s.218(1)
			&  r.9.5

New approach in English legislation after Insolvency Act 1985-6

42.  Apart from the Insolvency Act, the Company Directors Disqualification Act was also enacted in 1986.  Some of the provisions in the latter act have been adopted in Hong Kong and incorporated into the Companies Ordinance under Part IVA (s.168C - s.168T).

43.  However, the approach of the Insolvency Act in assimilating personal and corporate insolvencies into one single statutory regime was not adopted in Hong Kong.  The courts in England have however held that "the primary task of the courts is to construe the Insolvency Act 1986 as it stands, without regard to the legislative histories of its various components” (Bishopsgate Investment Management Ltd (in provisional liquidation) v Maxwell, p.21 per Dillon LJ).

Other relevant enactments in England

44.  Apart from that approach in the Insolvency Act, there are now some additional enactments in England that are relevant to the law on private examination but which have not been adopted in Hong Kong.   

45.  The first example is s.235 I.A. which imposes on a wide class of persons concerned with the running of a company a mandatory duty to give such information as the office-holder (such as a liquidator) may “reasonably require”.  No application to the court is required and there is no discretion in the matter.  This section has not been adopted in Hong Kong.

46.  A second example is that s.218(3) I. A. now imposes a statutory obligation on liquidators in a winding-up by the court to report criminal activity by officers and shareholders to the Official Receiver.  This section has not been adopted in Hong Kong.

47.  A third example is that the Serious Fraud Office (“the SFO”) has been given special inquisitorial powers under the Criminal Justice Act in the investigation and prosecution of serious fraud.  There are conferred on the Director powers to put questions to persons under investigation (which answers are not however admissible in criminal proceedings) and to serve notice requiring documents from any persons (which as we shall see includes liquidators).  We have not been referred to any equivalent statute in Hong Kong.

48.  A fourth example is the amendment to s.133 which omits the requirement of the further report in the process of applying for a public examination.  This has not been adopted in Hong Kong.

49.  I have pointed out these differences as a reminder that it is important to consider the Hong Kong legislation on its own and as it stands, because part of the rationale expressed in the more recent English decisions may not be applicable.

50.  In relation to the Hong Kong legislation, I have earlier referred to some notable features of s.221 (private examination) and s.222 (public examination).  They may be considered in juxtaposition. 

Features of public examination

51.  A public examination can be attended by all, including the police.  The examinee is compelled to answer questions.  It has long been accepted (since 1896, according to Bishopsgate, p.45)that the examinee cannot claim privilege against self-incrimination.  His answers can be used in evidence against himself.  

52.  However a public examination can only be held after (i) fraud has been asserted by the Official Receiver or the liquidator in a further report, (ii) after the court has considered the materials in that report, and (iii) after the examinee has failed in his attempt to exculpate himself. 

53.  It is clear from the number of stages set out above that the legislature does not expect an allegation of fraud to be made lightly, or a public examination to be ordered easily.  That is understandable because of the draconian ramifications I have summarized in paragraph 51.

Features of private examination

54.  In a private examination however,

(1) the threshold requirement is substantially lower.  The applicant need only show that the individual to be summoned is “capable of giving information” about the company: s.221(1);

(2) and the range of purposes for which an application may be made is not limited to getting in the assets;

(3) nevertheless an examinee has no privilege against self-incrimination;

(4) and, as we have seen, s.296(2A) provides that answers may be used in evidence against the examinee. 

55.  Comparing the above, one may well ask the question – what features does a public examination have that a private examination does not have (and with less demanding requirements)?  If nothing, what does the legislature intend by maintaining these two separate types of examination?

56.  In my view, the difference is that the privacy of a s.221 examination is protected by the court under rule 62, and whilst a liquidator may use the depositions to fulfill his functions as a liquidator, those functions do not include the supply of depositions to the police without the approval of the court.

Purpose of private examination

57.  In my view, this is consistent with the purpose of a private examination.  The statute does not expressly state the purpose for which an order of private examination may be given, but through the years the courts have developed the range of purposes for which an order may be made.

58.  It has long been established that the primary purpose was to enable liquidators to complete their functions as effectively as possible, with as little expense as possible and with as much expediency as possible (In re Rolls Razor Ltd [1968] 3 All ER 698, p.700).  It is not restricted to getting information to assist liquidators in getting in the assets of the company, although that would usually be the primary purpose (Hamilton v Naveide on appeal from Re Arrows (No.4) [1995] 2 AC 77, H.L., p.102).    

59.  It has therefore been held that the Official Receiver may apply for a private examination to obtain information to enable him to consider whether to institute directors disqualification proceedings (C.A. Pacific Finance Co Ltd HCCW 36/1998, unrep. 6 Nov. 2001), a decision consistent with the decision in England in In re Pantmaenog Timber Co Ltd [2004] 1 AC 158, H.L..

60.  A  liquidator is obliged under statute to report conduct which may render a person unfit to be a director: s.168I(3).  (This is however just the first step of a reporting chain.  The liquidator makes a report to the Official Receiver, not to the police.  The Official Receiver himself then has a discretion whether to make a report to the Financial Secretary, who then considers if disqualification proceedings should be brought).

61.  However, notwithstanding that statutory obligation, Lord Millett held inPantmaenog Timber that it would not be unreasonable for a liquidator torefuse to apply for a private examination at the expense of the estate where the sole purpose would be to obtain information for disqualification considerations (para. 71).

62.  If that is so where the liquidator has a statutory obligation to report such conduct, then it is unlikely that the legislature intended a liquidator to apply for a private examination solely to obtain information to be supplied to the police.  I shall discuss in more detail later (paras.90-93) the provisions in the Hong Kong legislation regarding the part that liquidators are intended to play in the reporting of criminal conduct of which they become aware. 

63.  In Barlow Clowes Gilt Managers Ltd [1992] Ch 208, Millett J (as he then was) held that “whenever there are parallel investigations by the police, the Department of Trade and Industry and the liquidators of a collapsed company, as in the present case, the task of the liquidators is to obtain information, not evidence” (p.220).

64.  In any event in my view a court would not exercise its discretion to give an order for private examination for the purpose of enabling liquidators to supply information to the police.  The courts have always safeguarded its power to order a private examination.  It has been accepted that it is an oppressive process, and that is so whether for third parties or for officers of the company (Shierson v Rastogi [2003] 1 WLR 586).

65.  In In re Spiraflite Ltd [1979] 1 WLR 1096, Megarry J said that a court would not just make an order merely for the asking.  A private examination is held under the auspices of the court, insolvency being “a process conducted by, or under the control of, the court acting through its officers, the liquidators” (Hamilton v Naviede, p.102).

66.  The courts have therefore always been careful not to let its process be used unfairly, especially if the powers exercisable are unusually wide and the ramifications particularly serious for the individuals subjected to the process.

67.  In my view, the bringing of proceedings against delinquent officers is not a predominant purpose justifying an order for private examination against which no countervailing factors can be placed.  Before considering whether to order a private examination, the court always takes into account all the circumstances to see if a private examination would  offend against elemental fairness, such as the availability of other sources of information, the urgency of the need for information, and in the case of civil proceedings whether they are contemplated or pending (Shierson v Rastogi paras. 56, 58). 

68.  That this balancing exercise was undertaken by the Court of Appeal in Shierson v Rastogi before ordering a private examination against a director - even though s.235 I.A. now makes it mandatory for officers to give information to liquidators (para. 26) - shows that the court is still wary of the oppressive nature of a private examination and would not order a private examination without due circumspection even for well-established purposes for which an order may be made.

Use of depositions in civil proceedings 

69.  At this stage it may be convenient to briefly deal with the Liquidator’s use of the depositions in the civil proceedings.  It is clear in my view that the use was covered by rule 62(1).  That rule allows a liquidator to attend a private examination and make notes of the examination for his “own use”.  In my view that refers to use by the liquidator in that capacity in the course of administering the estate.  That would include the various civil proceedings in which the Company is involved. 

70.  Since Cloverbay Ltd v BCCI [1991] Ch 90, the courts have done away with the rule that a private examination would not be ordered after the liquidators have made a firm decision to sue the proposed examinee.  It is now accepted that there is “a distinction ... between applications for the (impermissible) purpose of improving the liquidators’ position in current civil litigation against the proposed examinee and applications for a permissible purpose which may at the same time have the result of improving the liquidator’s position in other respects” (Shierson v Rastogi para. 58).

71.  Further it has been recognized that the use of depositions in administering a company may be extended to its subsidiaries, to enable the assets of the subsidiaries to be got in for the good of the parent (Re Esal (Commodities) Ltd [1989] BCLC 59, p.65). 

72.  Finally as for the defamation proceedings, although the Liquidator has been sued in his personal capacity, the depositions were referred to in response to Miss Cheng’s assertions in the writ and she must be taken to have waived the Liquidator’s duty of confidentiality accordingly.

73.  I do not see therefore any objection to the Liquidator’s use of the depositions in the civil proceedings.

74.  With that I return to the nub of this appeal - the Liquidator’s supply of the depositions directly to the police without first seeking the approval of the court. 

No privilege against self-incrimination

75.  The most oppressive aspect (or as Mance LJ preferred to describe it in Shierson v Rastogi, the most draconian aspect) of a private examination is the abrogation of the privilege against self-incrimination. 

76.  In England it had previously been thought that the privilege was only abrogated in public examinations but after the passing of the Insolvency Act 1986, it was held first by Vinelott J in In re Jeffrey S.  Levitt Ltd [1992] Ch 457 and then by the Court of Appeal in Bishopsgate that the privilege has been impliedly abrogated in private examinations as well.  This was taken by the House of Lords in Hamilton v Naviede to be the law.    

77.  The primary rationale in Bishopsgate was that as a result of the overall review of insolvency law after the Cork Report, individual insolvency has been assimilated with corporate insolvency and there was no reason why a private examinee in corporate insolvency should have the privilege when it was not available for bankrupts (Bishopsgate p. 31, p.41).

78.  In Hong Kong that rationale does not apply but in Re Weihong Petroleum Co Ltd [2002] 1 HKLR 541, Kwan J held that adopting a purposive approach, the common law privilege has been impliedly abrogated in private examinations.  In Joint and Several Liquidators of Kong Wah Holdings Ltd (in compulsory liquidation) v James Henry Ting HCCW 49/2000, unrep. 7 September 2004, Kwan J held, in respect of an individual who had been charged, that private examination could take place notwithstanding the common law privilege which, as far as testimony was concerned, was enshrined in Article 11(2)(g) of the Hong Kong Bill of Rights. 

79.  On appeal in Kong Wah, this court (Ma CJHC and Rogers V-P) upheld the judge’s decision (CACV 304/2005, unrep. 13 April 2005).  In that case, a charge had been laid under the Theft Ordinance, so s.33(1) of that Ordinance provided "compensatory protection" for the individual.   Section 33(1) says that “a person shall not be excused, by reason that to do so may incriminate that person of an offence under [the Theft Ordinance] 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 ... but no statement or admission made by a person in answering a question put ... shall, in proceedings for an offence under the Ordinance, be admissible in evidence against that person ...”.  (Emphasis added). 

80.  I should however add that one of the reasons given by the Court of Appeal in Kong Wah - that there was no equivalent section to s.433 I. A. in Hong Kong (para. 15) - may have been in error, as s.296(2A) appears to have escaped the court’s notice.  Be that as it may, it is common ground between the parties in this case that the privilege against self-incrimination has been abrogated in private examination so I shall say no more on this aspect.

81.  In HKSAR v Lee Ming Tee [2001] HKLRD 599, the Court of Final Appeal also held that the privilege against self-incrimination had been abrogated for answers given to inspectors appointed under s.145 of the Ordinance, although the section offered some protection to individuals in that if they claimed the privilege before answering, neither the question nor the answer would be admissible in evidence against him except for two limited offences.

82.  That however may be contrasted with the position under s.221, which - if the Liquidator is right - would allow him to supply directly to the police answers given by private examinees with no protection at all.  Section 296(2A) makes the answers admissible in evidence against the individual compelled to give them.  Counsel for the Liquidator did not proffer any rationale for this inconsistency save to argue that s.33(1) of the Theft Ordinance was a “quirk”.

Recapitulation

83.  In summary, so long as an individual (whether an officer or third party) is simply deemed capable of giving information about a company, in a private examination

- he would be compelled to answer self-incriminating questions, 

- his answers would be admissible in civil and criminal evidence against himself,

- and if the Liquidator is right, those answers could be supplied directly to the police without any process of filter or safeguard however serious the allegations made against the individual, in contrast to

- the elaborate system of safeguards for public examination (s.222),

- the protection given to individuals under s.33(1) Theft Ordinance (as in Kong Wah), and

- the protection given to individuals under s.145 of the Ordinance (as in Lee Ming Tee).

84.  That scenario is so extraordinary that one’s immediate natural reaction is that serious consideration must be given to the question whether the legislature did so intend, or whether the legislature intended that the individual retained a measure of “substituted protection”.

Protection provided by court control of depositions 

85.  In my view, the protection for the individual lies in the court’s control of the depositions under rule 62.  The House of Lords has held in Hamilton v Naviede that the rules are not “mere machinery” (p.104).  It has also been held by Millett J that the process of getting leave from the court is not to dispense with the general principle of confidentiality but to secure compliance with it (Barlow Clowes p.218).

86.  It has been argued by the Liquidator that the supply of the depositions is part of his “own use” of them under rule 62(1) because it is his duty to report criminal conduct to the police. 

Contrast with position in voluntary winding-up

87.  First, we have been referred to s.277(2) of the Ordinance which provides that a liquidator in a voluntary winding-up has a mandatory duty to report criminal conduct to the Secretary for Justice.  There is no provision that he should first seek the approval of the court.  It was argued that if a liquidator in a voluntary liquidation has such a duty, then likewise for a liquidator in a winding-up by the court and s.277(1) did not affect that position.

88.  In my view, the answer to that argument lies in the fact that a liquidator in a voluntary liquidation does not have the powers given to a liquidator in a winding up by the court, in particular the power to seek a private examination.  His materials would not have been obtained through compelling an individual to answer self-incriminating questions.  And since a voluntary winding up is not held under the auspices of the court, it is not surprising that there are no references to a prior application to the court (save to compel the voluntary liquidator to make a report: s.277(3)). 

Expansion of liquidators’ functions

89.  Secondly, emphasis has also been placed by the Liquidator on the passages in the speeches of the House of Lords in Pantmaenog Timber on the expansion of liquidators’ functions to include investigation of the cause of the company’s failure and the conduct of those concerned in its management. 

90.  We have seen that it is part of the liquidators’ statutory functions to report to the Official Receiver conduct that may render a person unfit to be a director.  In England, s.218(3) I.A. also now provides:

"If in the case of a winding up by the court in England and Wales it appears to the liquidators, not being the official receiver, that any past or present officer of the company, or any member of it, has been guilty of an offence in relation to the company for which he is criminally liable, the liquidators shall report the matter to the Official Receiver".

91.  It would first be noted that the statutory obligation in England is to report to the Official Receiver, not the police, so there is therefore a filtering process built into the regime.  In Scotland, where s.218(3) I.A. does not apply, it is considered that liquidators should apply to the court to make a report (Sealy & Milman: Annotated Guide to the Insolvency Legislation 2005/2006, 8th ed vol. 1 p.237).

92.  Although there is no statutory equivalent to s.218(3) in Hong Kong,  I do not say that liquidators should not report criminal conduct.  The issue is how he does so.  Where the winding up is by the court, with very powerful weapons such as s.221 at the liquidators’ disposal, reading the legislation as a whole (including s.222 and s.277(1), together with contrasting provisions in s.33(1) of the Theft Ordinance and s.145 of the Ordinance) I think that the “own use” to which a liquidator may put the depositions, were he to consider a report to the police appropriate, is to employ the depositions to support his application to the court under s.222 and/or s.277 (which application may be ex parte in the first instance).

93.  Whatever his functions, a liquidator’s documents (be they his own notes or his copy of official transcripts) are not his private records, for him to deal with as he pleases.  They are held to the order of the court (Hamilton v Naviede pp. 102, 104) and they should not be allowed to leave his control except in accordance with statutory intention.  It is well-established that once documents are disclosed, a civil court would not be able to place restrictions on what a criminal court may or may not admit as evidence (Rank Film Distributors Ltd v Video Information Centre [1982] AC 380, H.L.).

Umbrella of rule 62 protection

94.  As for the Liquidator’s argument that rule 62 was only for the protection of liquidators (which the judge agreed with), I see no reason why the section should be read down in that way.  Certainly I would agree that in a situation where say, a former book-keeper is examined, rule 62(2) serves to protect the privacy of the information so obtained by the liquidator, away from say, a creditor to whom the company may or may not owe what is claimed.  But that is simply because the cause of the winding up would not be assisted by such disclosure.  

95.  In my view, rule 62 is wide enough to protect whoever the court thinks it just and fair to be protected.  The individual who is compelled to give self-incriminating answers which are admissible in evidence against himself has a right to have a court at least consider whether to protect him. 

96.  The court may or may not give him that protection.  It would depend on the facts of each case, such as the availability of other evidence, the seriousness of the criminal conduct, the extent of the examinee’s involvement, etc.  But at least he is not at the mercy of liquidators who may be misguided or ‘trigger-happy’ or at worst, may succumb to the temptation of using self-incriminating answers as an unspoken  threat.

97.  In Spiraflite, Megarry J (as he then was) recognized that "liquidators are of course human and from time to time there may be liquidators whose discoveries or suspicions in their investigation of a company’s affairs produce in them an excess of zeal; and there may be other failings too" (p.1101). 

98.  Whilst a liquidator may have powers conferred under the Ordinance or by the court, as Nourse LJ noted, referring to a liquidator’s need for information conflicting with oppression to the examinee in the context of contemplated civil litigation: "that does not mean that he [the liquidator] is cast in some quasi-judicial role, anymore than is counsel or a solicitor. ... Least of all does he have either the duty or the competence to balance the two conflicting principles" (Cloverbay v BCCI, p.107).

99.  The court is on the other hand well-suited for and is experienced in the role of balancing the demand of furthering the public interest with that of safeguarding the individual.  It would simply be an extension of the balancing exercise which the court undertakes when it considers whether to order a private examination.  The courts have long recognized the "desirability of examinees having the right to have the unfettered discretion of the judge brought to bear on any exercise of this extraordinary jurisdiction" (In re Rolls Razor (No. 2) [1970] 1 Ch 576, p.591, emphasis added).

100.  Unrestricted direct divulgence to the police of depositions taken at a private examination (in which an individual would be compelled to answer incriminating questions which may be used in evidence against him) in my view

- is not articulated in the Ordinance,

- would undermine the legislative purpose of the safeguards built into the public examination process (s.222),   

- would not be a permissible purpose for an order for private examination and 

- would be inconsistent with other statutory provisions (including the protection given to the individual under s.145 of the Ordinance and s.33(1) of the Theft Ordinance).

If a liquidator considers that the depositions reveal criminal conduct that should be reported to the authorities, it is for the court in the exercise of its discretion to decide whether to approve disclosure of those depositions. 

101.  This view is consistent with the decision of the House of Lords in Hamilton v Naviede.  In that case after certain persons were arrested and charged, liquidators sought an order for their private examination.  The judge directed the liquidators that if the SFO should require the liquidators to produce the depositions (as the Director was entitled to do under the Criminal Justice Act), they should first seek directions from him.

102.  When later the SFO served notice on the liquidators to  produce the depositions, the liquidators duly applied to the judge for directions.  He ordered that the depositions should be supplied only upon an undertaking by the SFO not to use them except under certain conditions.

103.  The House of Lords held that notwithstanding the statutory right of the SFO under the Criminal Justice Act to require the liquidators to produce the depositions, the judge still had a discretion under rule 9.5 of the Insolvency Rules whether or not to authorize the unconditional release of the depositions.  However it was a wrong exercise of discretion by the judge (of the Companies Court) to impose conditions for the SFO’s use of the depositions.

104.  The House of Lords’ insistence that the court still has a discretion over disclosure of the depositions, even in the face of a Criminal Justice Act notice,  is significant.  It is also noteworthy that it was argued by counsel for the SFO that rule 9.5(4) - which provides that the court has powers over custody and inspection of depositions - applied only to the transcripts in the possession of the court and not those with the liquidators (p.90F).  It was obvious from the decision of the House of Lords that this argument was rejected. 

105.  In other words, when the liquidators were approached for the depositions, they had no right to supply them directly (notwithstanding the statutory duty under s.218(3) I.A. to report criminal conduct to the Official Receiver).  If that is so, then even less would the liquidators have the power to decide whether to supply them without a notice of production from the SFO.

106.  Kwan J held that rule 62(1) which gives the liquidators the right to make notes of the examination for “his own use” had no equivalent in rules 9.4 - 9.5.  I do not think that is a material difference, for the liquidator’s own use must be restricted to legitimate use within the statutory regime. 

Conclusion

107.  For the reasons above, with respect to the judge, I do not think the Liquidator should have supplied the depositions to the police without first obtaining the leave of the court.

No contempt

108.  However that is not to say that in this case, the judge was wrong in finding that there was no case to answer on the application for an order of committal.  It is well-established that to constitute contempt, the act in question had to have a significant and adverse effect on the administration of justice (AG v Newspaper Publishing plc [1997] 1 WLR 926), in thwarting the purpose of the court (AG v Punch Ltd [2003] 1 AC 1046).

109.  Here assuming that the purpose of the court is the protection of the integrity of its process under s.221 and rule 62 so as to preserve the confidentiality of examinees’ depositions, there was no adverse effect on the administration of justice because as events transpired, subsequent to Kwan J giving leave to issue the Examinees’ application, the court (Barma J) actually gave leave to the Liquidator to disclose part of the depositions to the police.  Whilst that would mean that the Liquidator had no leave to disclose the balance of the depositions, it was not contended that the disclosure of those parts had a significant and adverse effect on the administration of justice.

110.  The judge found that no evidence had been led by the applicants to demonstrate any significant and adverse impact on the administration of justice as a result of the acts complained of (para. 98).  The Liquidator argued before this court that that was because it was thought that the arguments before the judge at that stage were restricted to points of law only.  However, para. 5  of the judgment shows that the submission was "primarily" based on the arguments of law, in other words that other arguments were also advanced - as was indeed the case as shown in para. 4 of the judgment.

111.  Accordingly it cannot be said that the judge erred in her conclusion that there was no prima facie case of a significant and adverse impact on the administration of justice as a result of the acts complained of.

Order

112.  In the circumstances, I would dismiss the appeal with an order nisi that the Respondent bear the Appellants’ costs and the Official Receiver’s costs (if any) of the application for the period before Barma J’s order and that the Respondent’s and the Official Receiver’s costs thereafter be paid by the Appellants.  The parties have liberty to apply for directions consequential upon the amendment of the Notice of Appeal.

Hon. Tang JA:

113.  I agree.