THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (in Liquidation) v. THE GRANDE HOLDINGS LTD AND OTHERS

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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BETWEEN

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(Heard Together)

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D E C I S I O N

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The application

1.  I have before me an identical summons in each of the proceedings taken out on 30 July 2008by Ho Wing On, Christopher and Ruby Lee Yen Kee (collectively “the applicants”).

2.  Mr Ho is thepresident, group chief executive and director of The Grande Holdings Limited.  Ms Lee is the head legal counsel of the Grande group of companies.  They are the 1^st and 19^th defendants in an action brought by the liquidators of Akai Holdings Limited (“Akai”) and Kong Wah Holdings Limited (collectively “the Companies”) in HCCL Nos. 37 and 40 of 2005.  I shall refer to that action as “the Grande Proceedings”.

3.  Other defendants in the Grande Proceedings are corporate members of the Grande group, companies no longer related or not related to the Grande group, and a former employee of the Grande group.

4.  Mr Ho, Ms Lee and 8 other defendants, being the 2^nd, 4^th, 6^th, 7^th, 9^th, 15^th, 16^th and 20^th defendants are represented by the same firm of solicitors, Messrs Wilkinson & Grist.  The other defendants are separately represented.  I understand from Mr Paul Carolan with the possible exception of the 4^th defendant, which may be a related company, the companies represented by Wilkinson & Grist are all in the Grande group.  The 9^th defendant is a special case in that the interest of the Grande group in this company has been sold recently, so it is anticipated that Wilkinson & Grist may soon cease to act for the 9^th defendant. The 9^th defendant is the entity through which the interest in the Grande group is held in the 10^th to 14^th defendants, the five Zhongshan Kawa companies.

5.  In the summonses before me, the applicants seek the following orders:

(1)     they be permitted to provide each other with copies of their respective transcripts of their private examinations conducted by the liquidators of the Companies;

(2)     they be permitted to provide copies of their respective transcripts to the following:

(i)    their legal advisers and any parties assisting such legal advisers (“Other Advisers”);

(ii)    Michael Binney, a chartered accountant and a director of The Grande Holdings Limited and The Grande Group Limited, two of the defendants in the Grande Proceedings;

(iii)    Felicity Porter, Associate Director, Legal of The Grande Group Limited; and

(iv)    the 2^nd to 18^th and 20^th defendants in the Grande Proceedings, their legal advisers and their Other Advisers.

6.  Mr Carolan said this application is not an application for discovery and the applicants do not seek discovery from the liquidators, as the applicants each has a copy of his or her own signed transcript, with the consent of the liquidators.  He would appear to have accepted that the application is brought under rule 62(2) of the Companies (Winding-up) Rules, by which 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 of the depositions of a person examined under section 221 of the Companies Ordinance, Cap. 32, and the furnishing of copies of or extracts therefrom. He also relied on the inherent jurisdiction of the court to entertain this application, so as to vary the orders made by Master de Souza, which I will come to.

7.  The liquidators oppose the application.  Mr Scott, SC submitted it should be dismissed, alternatively it should be adjourned pending:

(1)     all the defendants in the Grande Proceedings filing their defences; and

(2)     the outcome of Akai's application for leave to appeal to the Court of Final Appeal in CACV No. 233 of 2008 and any subsequent appeal in the Court of Final Appeal.

8.  CACV No. 233 of 2008 is an appeal from an order I made in HCCL No. 29 of 2004, an action brought by the liquidators against Ernst & Young (“the E&Y Proceedings”), in which I ordered the liquidators to give discovery to Ernst & Young of the transcripts of the private examinations of a number of persons, including Mr Ho and Ms Lee.

9.  The liquidators contended that the appeal from that order deals with substantially the same questions of law and fact relevant to the present application.

The background

10.  On 4 August 2005, I made an order pursuant to section 221 that the applicants be examined on oath before a Master concerning the affairs of the Companies.

11.  Three months after the order was made, on 7 and 8 November 2005, the liquidators filed protective writs in relation to the potential causes of action against the applicants and certain of the Grande group of companies.  These are the Grande Proceedings.

12.  The general indorsement to the writ alleged, among other things, breaches of fiduciary, contractual, equitable and/or tortious duties owed by the defendants to the plaintiffs from November 1999 in respect of the conduct of the affairs of the plaintiffs and dealings with and receipt of assets of the plaintiffs by the defendants during that period.

13.  Mr Ho was examined in private for 16 days before Master de Souza between February 2006 and December 2007, Ms Lee was examined in private for 6 days before the Master between November 2006 and May 2007.

14.  During the examinations of both, the Master ordered each of them to sign and return to the liquidators the transcript of the examination within a specified time and each of them, their solicitors and counsel are not to disclose “any information or documents given or obtained in the examination to any other person without leave of the Court or the written consent of the liquidators”.

15.  On 31 March 2008, the liquidators filed the consolidated points of claim in the Grande Proceedings.  There are 17 plaintiffs in that action and 20 defendants, the points of claim took up 274 pages.

16.  I have been provided by Mr Carolan’s team with a summary of the key allegations by the plaintiffs, this took up 8 pages closely typed.  Defences were due on 14 September 2008.  I understand the defendants have sought an extension of time, I am not told what extension of time was given.  Discovery has not yet commenced.

17.  On 23 September 2008, the Court of Appeal gave judgment in CACV No. 233 of 2008 dismissing the appeal from my order.  The liquidators applied to the Court of Appeal for leave to appeal to the Court of Final Appeal.  The application was heard on 9 October 2008, judgment was reserved.  To date, Ernst & Young has not been permitted to inspect the transcripts ordered to be disclosed, pending the outcome of the liquidators’ application for leave to appeal.

Purpose in seeking the transcripts

18.  In the affidavit in support of the application made by Mr Budge, the solicitor for the applicants, he has given these reasons for this application.  There are numerous claims against each of the defendants in the points of claim, with detailed references to matters and events in 1999 and 2000.  There is need for the applicants to discuss with the co-defendants and persons named in the summons the matters and events as alleged, with reference to the transcripts, to re-construct the sequence of events and clarify what had actually happened.

19.  At present, Mr Binney is assisting with forensic accountancy matters regarding the actions.  In due course, independent forensic accountants will be instructed to assist.  “Other Advisers” referred to in the summonses are expert witnesses to be retained by the defendants to assist in the defence of the actions, since many of the allegations in the points of claim involve complicated financial transactions.

The liquidators’ reasons of opposition

20.  Mr Scott submitted the orders sought should be refused for these reasons:

(1)     they are unnecessary for the fair and expeditious disposal of the Grande Proceedings;

(2)     they are premature in the context of the Grande Proceedings where defences have not yet been served and discovery has not yet taken place;

(3)     they are unnecessary for, and contrary to, the beneficial winding up of the Companies;

(4)     they are inconsistent with the statutory purposes of section 221 and rule 62; and

(5)     they are contrary to the Companies’ proper claim to legal professional privilege over the transcripts.

Legal professional privilege

21.  I will first deal with the liquidators’ claim for legal professional privilege, which is the last reason of opposition advanced by them.

22.  The liquidators claimed the transcripts are subject to proper claims for both legal advice privilege and litigation privilege.  A claim for legal professional privilege was made in the application for discovery I heard in the E&Y Proceedings.  In my decision on 30 July 2008, I rejected the liquidators’ claim for legal advice privilege on the ground this has no application to transcripts as they are not communications between a lawyer and client seeking or giving legal advice.  I rejected the claim for litigation privilege on the ground Akai had not established a factual basis for this and as a matter of law and principle, transcripts of a private examination are not privileged as the dominant purpose test cannot be met or does not apply.  I do not propose to recite the detailed reasons in my decision.

23.  My decision was affirmed by the Court of Appeal for the reasons given in paragraphs 14 to 19 of the judgment of the Court of Appeal.

24.  In this hearing, Mr Scott submitted the decisions in the E&Y Proceedings are in error, for the reasons he advanced in the application for leave to appeal to the Court of Final Appeal.  The judgment of the Court of Appeal on questions of law are binding on me.  I see no reason why I should adjourn this summons to abide by the outcome of the liquidators’ application for leave to appeal to the Court of Final Appeal and the eventual appeal, if this should take place.  I trust any adverse ruling of law made against the liquidators today will be taken on appeal in the same way, and there are measures that could be taken, if necessary, to see to it that any appeal by the liquidators would not be rendered nugatory.

25.  As for the ruling in my earlier decision that the liquidators had not made out a factual basis for litigation privilege, it was contended by Mr Scott that the factual basis is established in this instance, relying on the 48^th affidavit of Mr Cosmo Borrelli made in opposition of this summons, paragraphs 8 to 11, 23 to 24.

26.  Mr Borrelli had made an earlier affidavit deposing to the purpose of conducting the private examinations of the applicants and others in the E&Y Proceedings.  That was considered in paragraphs 27 to 31 of my decision on 30 July 2008.

27.  On 29 August 2008, the present summonses came before me and I adjourned them for substantive argument, giving directions to the liquidators to file evidence in opposition within 21 days, by 19 September 2008.  On the same day, the appeal from my decision in the E&Y Proceedings was heard in the Court of Appeal and judgment was reserved.

28.  The liquidators did not file their affidavit in opposition to this summons within the time as directed.

29.  On 23 September 2008, the Court of Appeal handed down its judgment.  Rogers VP agreed with my view that the liquidators’ evidence was heavily hedged and did not show the dominant purpose of the examinations as being in relation to existing or contemplated litigation.

30.  Mr Borrelli’s 48^th affidavit was filed the day after the judgment of the Court of Appeal was handed down.  Mr Scott has explained to the court the affidavit was filed on 24 September 2008 due to circumstances beyond Mr Borrelli’s control, that he did not return to Hong Kong until 22 September 2008 and there was a typhoon on 23 September.

31.  Mr Scott asked me to read the 48^th affidavit together with the earlier affidavit.  He submitted I would find no substantial difference between the two and informed me on instructions there was no re-drafting of the later affidavit in the light of the judgment of the Court of Appeal.

32.  I am not bound to accept assertions on affidavit on their face.  There is a difference in emphasis in the two affidavits. It seems to me that paragraphs 9 to 11,23 to 24 of the 48^th affidavit, with the emphasis on “main object”, “overriding purpose” and “dominant purpose”, are prepared with an eye on relevant passages in judgments relied on by the liquidators. The liquidators had not revealed how they had put their applications for private examination when the applications were heard in 2005.  This was a point made by Ernst & Young in the Court of Appeal and mentioned in the judgment at paragraph 16.  It is still not addressed in the 48^th affidavit.  That the applicants could have adduced such evidence, as they were respondents to that application, is neither here nor there, as the onus is on the party asserting privilege to satisfy the court of the factual basis for it.

33.  I wish also to point out that the order for examination was made on 4 August 2005, protective writs were not issued until 7 and 8 November 2005.  The actual examinations were not conducted until February 2006.

34.  In these circumstances, I do not think I can attach significance to the assertions made in the 48^th affidavit.  There is no basis to alter my view that the factual basis has not been established for a claim for litigation privilege.  I decline to dismiss the summons on the ground of legal professional privilege claimed by the liquidators.

If disclosure of transcripts is inconsistent with the statutory purposes of section 221 and rule 62

35.  I turn to the 4^th reason of opposition of the liquidators.  This is also a question of law considered in my decision on 30 July 2008and was decided against the liquidators. Argument was advanced on that occasion that the disclosure of transcripts would be to further the private interests of Ernst & Young in defending the E&Y Proceedings, and Ernst & Young would need to show disclosure is for the purposes of the winding up of the Companies and this would be beneficial to or advance the purposes of the winding up.  I held that the disclosure of transcripts by a liquidator in civil litigation he has brought in the name of the company for recovery of assets is to assist the beneficial winding up of the company and is a use within the purpose of section 221, applying the decision of the Court of Appeal in Re Wing Fai Construction Company Limited [2004] 3 HKLRD 357.  The Court of Appeal in its judgment on 23 September 2008upheld my ruling it was conducive to the beneficial winding up of Akai that the company should fulfil its obligation to give discovery.

36.  I am given to understand there is also a pending application for leave to appeal to the Court of Final Appeal against the decision in Wing Fai Construction, to be heard next week.

37.  On this question of law, I would apply the question as held by the Court of Appeal and hold that the disclosure of transcripts in these circumstances is not inconsistent with the statutory purposes of section 221 and rule 62.

Exercise of discretion

38.  The other three reasons advanced by the liquidators all go to the discretion to be exercised whether disclosure of the transcripts should be allowed under rule 62.

39.  No issue was taken with the relevance of the transcripts of the applicants to the issues in the Grande Proceedings.  The liquidators accept that the applicants are at liberty to tell each other, their legal advisers and other persons the matters they know which are relevant to the points of claim, but not by reference to the transcripts.

40.  The liquidators see nothing objectionable for the applicants’ solicitors to take witness statements from the applicants by reference to the documents in their possession and control, which largely constituted the documents available to the liquidators during the examinations, so long as the statements are prepared without reference to the transcripts.

41.  The liquidators also recognise the right of Mr Ho and Ms Lee to discuss their own transcript separately with their legal advisers, provided the legal advisers give an undertaking there would be no dissemination of information to the other defendants.

42.  It was contended on behalf of the liquidators that disclosure of the transcripts is not necessary for the expeditious preparation of the defence in the Grande Proceedings.  It was not shown that points of defence could not be filed without reference to the transcripts.  They said there was no evidence to suggest the applicants cannot recall the events except by reference to the transcripts, the applicants can discuss the events with their solicitors and Other Advisers relying on their independent recollection, using contemporary documents at their disposal.  It was contended there was no evidence that the transcripts would assist Mr Binney, Ms Porter or the Other Advisers in their work in the preparation of the defence.  Furthermore, it would be premature to order disclosure of transcripts as points of defence have not been filed and discovery has not taken place in the proceedings.

43.  I appreciate this is a very early stage in the Grande Proceedings, but these proceedings cannot be regarded as ordinary litigation.  The complexity of this litigation is on a par with if not more so than the E&Y Proceedings.  The events in question took place in 1999 and 2000.

44.  It is unrealistic to suggest that the applicants or their experts advising them would not be assisted by the transcripts, or that the applicants should be expected to rely only on their recollection and contemporary documents at their disposal.  As Mr Carolan has said, the applicants do not have the powers of total recall.

45.  I see no reason to differ from the way I exercised my discretion in the E&Y Proceedings, so disclosure of the transcripts would have been ordered in any event.  The only question is whether I should do so now instead of at the stage of discovery.

46.  I have a discretion in this matter.  What I do is not to be regarded as setting a precedent.  The circumstances here are entirely exceptional – in terms of the complexity and number of issues involved, the considerable lapse of time from the events in dispute, and the intricate interaction of persons and entities.

47.  The applicants seek disclosure of their own transcripts, not the transcripts of anyone else.

48.  I see nothing sinister in the applicants seeking disclosure of their transcripts to other defendants and their advisers, at least to those defendants within the same group of companies.  I decline to infer that is done to put up a “synchronised” defence that would not conflict with what was said in the transcripts.

49.  It is appropriate to exercise my discretion and order disclosure to be made at this early stage of the proceedings.  I note in Re Buchanan Enterprises Pty Limited [1982] 6 ACLR 733, the courthad declined to allow inspection by a witness of the transcript save for the portions of his evidence quoted in the liquidators’ affidavits, until a defence has been filed.  But we have a more open regime now in the conduct of litigation.  To allow disclosure at this stage accords with the present trend of conducting litigation on the basis that each party’s evidence is revealed well before trial.

50.  So I would grant the application and allow the applicants to show their transcripts to each other.  I would also allow the provision of the transcripts to the persons set out in paragraph 2(i) to (iii) of the summons, as well as to those companies in paragraph 2(iv) within the Grande group represented by Wilkinson & Grist, namely the 2^nd, 4^th, 6^th, 7^th 15^th, 16^th and 20^th defendants.

51.  I am not minded to grant the application as far as the 9^th defendant is concerned.  This company is no longer part of the Grande group, and is soon to be separately represented.  I am also not prepared to grant the application to allow the transcripts to be shown to the other defendants at this stage. There is no sufficient information before me why I should exercisemy discretion in their favour.  I know very little regarding their circumstances.

52.  The liquidators expressed concern if disclosure is ordered at this stage, this may not be subject to the usual implied undertaking regarding the use to which documents disclosed in discovery may be put.  I was referred to the decision of Stone J in the Grande Proceedings on 17 June 2008 and the decision of the Court of Appeal in Shun Kai Finance Company Limited v Japan Leasing (HK) Limited (No.2) [2000] 3 HKLRD 539.  It was held by the Court of Appeal that the implied undertaking is not applicable where a document was voluntarily referred to in a pleading or affidavit and is required to be produced for inspection under Order 24 rules 10 and 11 of the Rules of the High Court.

53.  As Stone J has observed in paragraphs 59 and 60 of his decision, the judgment of the Court of Appeal has in no way precluded the court, in the exercise of its discretion, from requiring an undertakingto be given by the party to whom disclosure is made, if it considers it just and appropriate in all the circumstances, and it is open to a party who is subject to the undertaking to apply to the court to lift the undertaking with respect to any one or more of the documents disclosed on good grounds.

54.  The concern of the liquidators would be met by providing that disclosure sought in the summons is to be given subject to an undertaking in these terms: in respect of the persons named in the summons to whom disclosure of the transcripts is given, and any person included but not named in the summons to whom disclosure of the transcripts is proposed to be given, they are required to give an undertaking that the transcripts are not to be used for any purpose other than for the purposes of the Grande Proceedings, such undertaking is formally to be given by a solicitor’s letter.

55.  I will give leave to any person who is subject to the undertaking to apply to be released from the undertaking with respect to the transcripts disclosed pursuant to this order.

56.  Mr Carolan has informed the court that the applicants are prepared to give the required undertaking.

57.  I see no reason why costs should not follow the event in these circumstances.  I order the liquidators to pay the costs incurred by the applicants in this application in any event.