AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. ERNST & YOUNG (A HONG KONG FIRM)

HCCL 29/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 29 OF 2004

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D E C I S I O N

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1.  On 30 July 2008, I granted the defendant’s application for specific discovery and handed down my decision (“the Decision”).  The relevant part of the order (“the Order”) is in these terms：

“(1)  the plaintiff do within 21 days from the date hereof make and file and serve on the defendant an affidavit or affirmation stating whether the documents or classes of documents specified in the schedule attached hereto are, or have at any time been, in its possession, custody or power, and if not then in its possession, custody or power when it parted with them and what has become of them;

(2)  subject to paragraphs 3 and 4 hereof, the plaintiff do within 14 days thereafter make available for inspection the documents or classes of documents specified in the said schedule subject to redaction of those parts that are both irrelevant and deal with matters confidential to the plaintiff;

(3)  the plaintiff do forthwith notify the persons interviewed or examined whose transcripts and/or notes of interviews are to be disclosed of the terms of this order, by writing to them at their last known address or to the solicitors who represented them at the interview or examination.”

2.  The schedule to the Order refers to two items.  The first item is “transcripts and/or notes of interviews conducted pursuant to section 221 of the Companies Ordinance (Cap. 32) (“section 221”) (together with any tape or video recordings of those interviews)” of 10 named individuals and “other interviewees who have provided relevant evidence pursuant to section 221 procedures”.  The second item is “any documents produced in the section 221 process by the interviewees”.

3.  The plaintiff being Akai Holdings Limited in liquidation appealed the Decision.  On 1 August 2008, I granted a stay of paragraph 2 of the Order pending appeal but not paragraphs 1 and 3, though time was ordered not to run during vacation.  The notice under paragraph 3 was ordered to be served by 1 September 2008 and the time for compliance with paragraph 1 was to expire on 20 September 2008.

4.  On 23 September 2008, the Court of Appeal dismissed the plaintiff’s appeal.  On the same day, the plaintiff filed the 6^th affirmation of Cosimo Borrelli, who is one of the liquidators, to comply with paragraph 1 of the Order.

5.  In the 6^th affidavit of Mr Borrelli, he made the following assertions:

(1)  The scope of the Order is confined to the transcripts of examinations conducted in court.

(2)  Of the 10 named individuals, only 4 of them (James Ting, Chuck Tam, Christopher Ho and Ruby Lee) had been formally examined in court following an order under section 221, and 2 of them (Simon Fung and Frank Holmes) had been both formally examined and informally examined.  Of further persons not named in the schedule, their interviews were conducted in the absence of orders made under section 221.  The plaintiff is not required to give discovery of records or notes of any interviews conducted outside court.

(3)  The hearing of the defendant’s summons for specific discovery before this court in July 2008 concerned questions of law and principle and the court did not adjudicate upon the individual circumstances of interviews conducted by the liquidators in the Decision.

(4)  The plaintiff re-asserted the claim to legal professional privilege in respect of all the interviews of all named individuals, save for James Ting, Chuck Tam, Christopher Ho and Ruby Lee, and of all unnamed individuals who were interviewed.

(5)  The records of examination and interviews of Ruby Lee and Sheryl Simmons are irrelevant and the record of examination of Christopher Ho is largely irrelevant.

6.  On the above contention, the plaintiff would only need to give discovery of the transcripts of examination in court of Simon Fung, James Ting, Chuck Tam, and a small number of pages of the transcript of examination of Christopher Ho.

7.  The defendant disagrees with the position taken in Mr Borrelli’s 6^th affidavit and seeks a hearing to determine whether the plaintiff should be required to file and serve a further affidavit to comply with paragraph 1 of the Order and to demonstrate whether and how it has complied with paragraph 3 of the Order.

8.  There are 2 issues before me.  The first is the scope of the Order.  The second is whether it is permissible for the liquidators to re-assert the claim for legal professional privilege over the documents in the schedule to the Order.

9.  Mr Scott, SC for the plaintiff contended the court should determine the scope of the Order by construing the wording in the schedule to the Order, which is the same as the schedule to the summons for specific discovery.  He submitted that “interviews conducted pursuant to section 221” should mean examinations conducted in court in accordance with an application under section 221.

10.  Mr Lam, SC for the defendant argued the scope of the Order should not be given such a narrow interpretation.  He submitted that the scope of the documents in the schedule would include these 3 categories:

(1)  the transcript of a formal examination in court conducted pursuant to an order under section 221;

(2)  the transcript or note of an informal interview conducted after an order had been obtained under section 221; and

(3)  the transcript or note of an informal interview made under the threat of section 221 procedures but without a formal order having been obtained.

11.  Mr Scott submitted if the defendant intends to seek discovery of documents of the scope as set out above, the defendant would need to take out a fresh application.

12.  I was taken by both sides to the history of the application, the evidence filed by both sides in the application, the written submissions of both sides before Stone J, the written submissions before me, the written submissions in the Court of Appeal, and the Decision.  I do not intend to cite the many references.

13.  It is apparent the application had all along been clearly understood by all concerned as covering formal examinations in court as well as informal out-of-court interviews made under threat of section 221 procedures or after an order had been obtained under section 221.  Particularly telling is Mr Borrelli’s 5^th affidavit in which he referred to the defendant’s application as “the defendant’s summons for discovery of transcripts of examinations and interviews conducted by the liquidators under section 221 of the Companies Ordinance or voluntarily”.  Similar reference was made in the plaintiff’s written submissions in the hearing before me.  Mr Borrelli also set out in his 5^th affidavit in respect of the 10 named individuals whether they had been formally examined or informally interviewed, and whether any order had been obtained under section 221.

14.  I have no doubt that was the basis on which both parties had proceeded in the application at all times.  That was the basis on which I gave judgment, as it is apparent from paragraphs 5, 8, 13 and 50 of the Decision.  There was no challenge in the Court of Appeal that the Order wrongly extended to transcripts of out-of-court interviews.  It would be wrong to adopt now a literal interpretation of the scope of the Order.

15.  The position of Mr Scott is untenable and unreal, as is his claim that the plaintiff would have been denied procedural fairness if the court should hold otherwise.  It is simply not open to the liquidators to adopt a volte face in the 6^th affidavit of Mr Borrelli.

16.  There is no merit in the contention of Mr Scott there is ambiguity of an interview alleged to have been made under threat of section 221 procedures.  I see no reason why the defendant would need to “define the particular circumstances of interview” where the interview was conducted under threat of section 221 procedures for the liquidators to assess “whether there was any, or the requisite level of, threat”, as submitted by Mr Scott.  I do not consider any one applying common sense should have any difficulty of understanding what it means to have an interview conducted under threat that the section 221 procedures may be resorted to, if there is failure to co-operate with the liquidators and attend a voluntary interview.  As Mr Lam pointed out, the term “under threat of section 221” was used in the plaintiff’s skeleton before me and in the skeleton of the plaintiff before Stone J.

17.  I turn to the other point.  It was contended that the hearing before me was only concerned with “questions of law and principle”, so the liquidators “did not address the particular factual circumstances supporting the claims to legal professional privilege”.  It was further contended that paragraph 50 of the Decision was not a rejection of all specific claims that the plaintiff may have that particular records of interview are subject to legal professional privilege.  It was submitted that the plaintiff was not given an adequate opportunity to lead relevant evidence of particular circumstances and the purpose of individual interviews in support of the claim for privilege.

18.  This contention is equally without merit.  There is no reason to say that the hearing before me was only concerned with “questions of law and principle”.  A whole section in the Decision was devoted to whether privilege exists in fact.

19.  The plaintiff had contended in that hearing that the documents in the schedule are subject to litigation privilege as a matter of fact, and a ruling was made against the plaintiff, see paragraphs 19 to 31 and 50 of the Decision.  That ruling was upheld by the Court of Appeal, see the judgment in CACV No. 233 of 2008 on 23 September 2008 at paragraphs 15 to 16.

20.  The issue is res judicata.  There is no justification for reading paragraph 50 of the Decision to refer only to interviews conducted informally after a section 221 order had been made, as contended by the liquidators.

21.  Nor do I accept that the plaintiff had no or no reasonable opportunity to lead evidence of particular circumstances and purpose of individual interviews in support of its claim for privilege.

22.  Mr Borrelli made his 5^th affidavit to address the criticisms in the defendant’s submissions before Stone J of the 3^rd affidavit of his solicitor Mr Dobby, that there is no evidential basis on which to conclude that the documents in question would meet the “dominant purpose” test for litigation privilege.

23.  In the plaintiff’s submissions before me, the position taken was that the plaintiff was not required to give detailed grounds of objection in its claim for litigation privilege, in particular, the plaintiff was not required to adduce its evidence in support for the section 221 orders.  Alternatively, the plaintiff had filed 2 affidavits, Mr Dobby’s 3^rd affidavit and Mr Borrelli’s 5^th affidavit, “to explain in detail the purposes of the examinations and interviews conducted under section 221 (or the threat of it)”, and the evidence adduced is sufficient for the purpose of claiming privilege.

24.  A deliberate decision was made by the plaintiff as to what evidence to place before the court and ample opportunity had been given to the plaintiff for that purpose.

25.  It is not permissible for the liquidators to re-assert the claim for legal professional privilege over the documents in the schedule to the Order, as the issue had already been decided against the plaintiff by this court and the Court of Appeal.

26.  Mr Borrelli’s 6^th affidavit is not in compliance with paragraph 1 of the Order.  He is required to make a proper affidavit.

27.  Mr Lam has also complained that Mr Borrelli’s assertions of irrelevance of some of the transcripts of interview in the 6^th affidavit appear to be sweeping and perfunctory, in contrast to his 5^th affidavit in which he said it would be necessary to review each transcript of each examination and interview page by page and line by line to determine if any relevant material was contained.  The defendant is concerned when purporting to comply with paragraph 1(xi) of the schedule which refers to “other interviewees who have provided relevant evidence pursuant to section 221 procedures”, the liquidators might have applied an inappropriate test of relevance.

28.  Mr Lam seeks an order that the plaintiff is to file a further affidavit to comply with paragraph 1 of the Order in these terms:

(1)  setting out a full chronological list of all examinations and interviews that have taken place to which the Order applies with the dates thereof;

(2)  stating whether the plaintiff has or has at any time had in its possession, custody or power any transcripts or notes of such examination or interview and any tape or video recordings thereof (and if not now in its possession, custody or power when it parted with them and what has become of them); and

(3)  stating whether any documents were produced by the examinees or interviewees and identifying any documents so produced.

29.  It is appropriate to make an order in the above terms, subject to hearing from counsel the time within which this further affidavit should be filed.

30.  Mr Lam also seeks an order that the plaintiff should confirm on affidavit whether and how it has complied with paragraph 3 of the Order, specifying to whom the notice was sent, the date of the notice and what if any response has been received.

31.  The plaintiff had refused to supply the information when requested in correspondence.  In the submissions of Mr Scott, he has confirmed that the plaintiff’s solicitors had sent written notification in the manner prescribed by the Order to each of the 10 individuals named in the schedule and to another interviewee named in an affidavit of the defendant’s solicitor.  So far no one has made any application to discharge paragraph 2 of the Order.  In view of the information provided, it would not be necessary to require that an affirmation be filed by the liquidators.  Insofar as there are other interviewees within paragraph 1(xi) of the schedule, they should of course be notified by the liquidators in accordance with paragraph 3 of the Order.

32.  I order the costs of today be paid by the plaintiff to the defendant forthwith instead of in any event.  The matter today is wholly discreet and irrespective of the outcome of the plaintiff’s intended appeal from the Order to the Court of Final Appeal.  The stance of the liquidators I found to be unreasonable and wholly devoid of merit.  That is sufficient to justify an order for payment of costs forthwith and I would make a gross sum assessment.