SAMUEL TAK LEE AND ANOTHER v. CHAN KING SHEEN AND ANOTHER

HCMP2936/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2936 OF 2002

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J U D G M E N T

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1. The outcome of this originating summons will largely be determined by the true effect and scope of the Court of Appeal's judgment in the related High Court Action HCA994/2001, which was heard on appeal as CACV4039/2001 ("the appeal").

2. By this summons, the 1st and 2nd plaintiffs are seeking declarations and consequent injunctions against the 1st defendant and her solicitors, who are the 2nd defendants. In order to understand how this matter comes about, it is necessary to identify the dramatis personae and the background and history giving rise to HCA994/2001. Normally, I would recite those details in the body of the judgment but, in the interests of economy and because this background has already been fully set out in the judgment of Le Pichon J.A. in the appeal, this will not be necessary. The judgment is at pages 82 to 98 of the court's bundle. The background and history is set out from paragraphs 2 to 11, pages 83 to 88.

3. The plaintiff in that action is the 1st defendant in this summons, who I will refer to as "Madam Chan", and Pang & Associates, to whom reference is made in the Court of Appeal's judgment, are the 2nd defendants before me. The 1st and 2nd intended defendants in that action are the 1st and 2nd plaintiffs in this originating summons.

4. In order to understand my judgment, it will be necessary to have considered the full terms of the Court of Appeal's judgment in that matter, although in the course of this judgment I will, of necessity, be required to make repeated reference to what the Court of Appeal has said.

5. As is apparent, Judge Gill, sitting as a Deputy High Court Judge, having found in favour of Madam Chan, was upheld in the Court of Appeal. Madam Chan had sought and obtained orders directing the return of her papers in the winding-up petition from K C Tsang & Co., her former solicitors in the winding-up petition, HCCW958/2000. Notwithstanding orders to the effect that the papers should be returned to Madam Chan, the plaintiffs declined to return them and have sought undertakings from her as a precondition to their return: that she should not part with or divulge the contents of those documents to the respondents in the winding-up petition, or anybody connected with them, and that she should not divulge their contents to her solicitors Pang & Associates, and further, that she terminate her retainer with Pang & Associates. Undertakings were also sought from Pang & Associates to the effect that they would not seek to obtain copies of those documents from Madam Chan.

6. Although my summary hardly does justice to the careful wording of the undertakings required by the plaintiffs' solicitors on their behalf, this is the effect of what was sought. The purpose of these undertakings was to prevent the respondents to the winding-up petition obtaining information which is, and documents which are, said to be privileged at the suit of the plaintiffs who are petitioners in the winding-up. Those undertakings have not been forthcoming, hence this summons which seeks to achieve the same result. If I do not make the orders sought, it is submitted on behalf of the plaintiffs that they will suffer great injustice in the winding-up, whereby the respondents will have had a sight of "their hand" as it were, before the hearing of the petition. I will need to say more about the way that this matter is advanced presently.

7. It now becomes necessary to analyse as briefly as I properly can the basis of Judge Gill's decision which was upheld by the Court of Appeal. I propose to do so from the judgment of the Court of Appeal but, before I do so, it is helpful to observe at this stage that the defendants submit that the judgment of the Court of Appeal is also determinative of all the matters that the plaintiffs seek to advance in this summons. That being the case, the issues raised in this summons are res judicata and therefore the summons itself amounts to an abuse of the court's process.

8. Mr Coleman for the plaintiffs says that, properly understood, the Court of Appeal's judgment only deals with the narrow issue of whether Madam Chan's ownership of the documents in question defeated the claims of privilege asserted by the intended defendants in that action, two of whom, now as plaintiffs before me, seek to control the use of those documents by Madam Chan and by her solicitors, the 2nd defendants, who are also the solicitors for a number of the respondents in the winding-up petition, HCCW958/2000. Mr Coleman submits that such matters are not covered by the judgment and that, indeed, as will become apparent in a moment, the Court of Appeal envisaged that proceedings of the type now before me might have to be taken out by the plaintiffs if they wished the relief now sought by them.

9. Stated in this way, it is clear that one or other of these parties has fundamentally misunderstood the effect of the Court of Appeal's decision, and I suppose if, in the event of an appeal, my judgment were to be reversed in the Court of Appeal, this court too would have been found guilty of the same misunderstanding.

10. In order to decide whether the matters now raised by the plaintiffs were in fact resolved by the Court of Appeal, it is necessary to understand what it is that Judge Gill had been asked to decide in 994/2001. His judgment is exhibited to the affidavit of Melissa K Pang, sworn on 22 November 2001. The judgment starts at page 205 of the bundle. Paragraphs 32 to 47 of the judgment relate to Madam Chan's right to call for the return of her documents from her solicitors once they had been dispensed with by her.

11. The judge concluded that Mr S T Lee, the 1st plaintiff, was acting as Madam Chan's agent in instructing K C Tsang & Co., and that he was not acting as principal on his own behalf. The judge held that K C Tsang & Co. were only acting for Madam Chan in her particular and unique complaint against the company, which was its refusal to register her late husband's shares into her name. When it came to her becoming a petitioner in the winding-up with the other petitioners, the judge was of the view that she "joined the vehicle" rather than as a member of a group acting as one entity which had given joint instructions. She became the petitioner to address her own particular grievance against the company. Accordingly, Madam Chan and the other petitioners had not given K C Tsang & Co. joint instructions. The question of confidentiality and/or privilege did not arise for any serious or prolonged discussion as to the documents which were being asked for. They were hers and she was entitled to have them back.

12. Before the Court of Appeal, the issue of privilege assumed larger importance. Discussion of the argument starts at page 15 of the Court of Appeal's judgment, bundle page 91. It is clear that the judge's approach was endorsed by the court which had been addressed on the issue of joint privilege. Firstly, the court saw a clear distinction between the position of the 1st plaintiff (S T Lee) and the other petitioners in the winding-up, which was that he was not a member of the company whilst they were. As to the remaining petitioners, joint privilege simply did not arise because the instructions were not joint and, in any event, the court relied on the passage in Phipson, 15th edition at 21-01 which states that:

"Persons who grant a joint retainer to solicitors, retain no confidence against one another. If they subsequently fall out and sue one another, neither can claim privilege against the other in respect of the documents generated in respect of the joint retainer."

13. Having disposed of the claim of joint or common interest privilege in this way, the court then made this observation - which Mr Coleman now relies on - at page 93E to I, Le Pichon J.A. said the following:

"A right to a document and the right to use it in a particular manner are separate and distinct rights. So even assuming that the intended defendants, or some of them, have a valid basis for objecting to a particular use to which the plaintiff may put the documents, that is a matter for separate injunctive relief and cannot of itself disentitle the plaintiff to her own documents."

14. Mr Coleman therefore submits that a plain distinction was being drawn by the court between Madam Chan's rights as the owner of the documents to call for their return from her former solicitors and the right to use them as she may wish to, which may be amenable to an order, in certain circumstances, to restrain their use in a particular way. It is this which the plaintiffs now seek to do by the relief asked for in this summons.

15. Mr Coleman has also sought to draw support for his submission that the court was only concerning itself with the narrow point of Madam Chan's right as the owner of the documents to call for their return, from the fact that the citation from Phipson (Supra) stopped where it did; this, he says, was done advisedly. The next two sentences are to this effect:

"Against the rest of the world, however, either can maintain he claimed for privilege in respect of such documents. Because the privilege is joint, it can be waived only jointly and not by one party alone."

16. It must follow, therefore, that this further passage was not referred to simply because it was surplus to requirements, given the narrow point that the court considered itself to be deciding.

17. Mr Leong, SC, for Madam Chan and for the 2nd defendant, has submitted very powerfully that it would be a wrong approach to pick out the passage that I have cited at page 93E to I and read it in isolation from the rest of the court's judgment. It needs to be read in the context of the judgment as a whole. Mr Leong submits that the ratio of the judgment on this issue must be that no question of joint privilege between the petitioners can attach to these documents. That being so, the other petitioners in the winding-up petition could lay no claim to them and, as these documents clearly belong to Madam Chan, she was entitled, qua owner, to their return. That issue has been decided. Mr Coleman cannot go behind it; nor can this court, with the result that this must dispose of the summons.

18. As against the 2nd defendants, their situation is equally unassailable. Madam Chan must be free to do with these documents as she chooses, including revealing their contents to them and obtaining their advice on them. In relation to their position as solicitors for some of the respondents to the winding-up petition, they must be trusted to do what is right. At this stage it is premature to make any orders restricting their freedom to act as they see fit in the conduct of their professional duties.

19. But Mr Coleman invites me to consider what he says is a different aspect of privilege not touched upon by the Court of Appeal, not in its context of competing proprietary rights as between Madam Chan and the petitioners but in relation to the privilege that the petitioners seek to assert against others, or for other purposes. To the extent that such aspects of privilege were clearly not addressed by the Court of Appeal because they did not call for a decision, Mr Coleman must be right, and I propose to now consider those submissions. It must follow therefore that I am against Mr Leong on his primary submission.

20. Mr Coleman's analysis is as follows: the 1st plaintiff had been granted power of attorney in respect of all the four original petitioners and so became their non-professional agent. As such, communication between the 1st plaintiff and the solicitors K C Tsang & Co. made for the purpose of the winding-up petition created a privilege over such communications that could be asserted by each and every petitioner as principal. The law is clear on this and the authorities in support of this proposition appear in the note to Order 24 of the Rules of the High Court (see Hong Kong Civil Procedure 2002 24/5/13). It matters not that the Court of Appeal has found that Madam Chan was not bound by any joint privilege with the other petitioners because, in any event, the 2nd plaintiff maintains a joint privilege with the other petitioners, including the 1st plaintiff, over all documents generated in respect of their retainer of K C Tsang.

21. Although, as the Court of Appeal has found, that privilege cannot be asserted against Madam Chan to defeat her claim to possession of the documents, nor against the other joint retainers (see Phipson 21-01), that privilege can be asserted against the rest of the world, which includes the 2nd defendants and their clients.

22. Reliance is also placed on the fact that neither Judge Gill nor the Court of Appeal inspected the documents, nor found it necessary to do so. This, Mr Coleman submits, is because, having regard to the issue that they were required to decide, that need did not arise. Now, when one considers the schedule of documents, there may be documents there which relate to Madam Chan's withdrawal from the winding-up proceedings which must have been created after her termination of K C Tsang's retainer. If such documents exist, Mr Coleman submits that these would be subject to an assertion of privilege by both plaintiffs, and indeed to a proprietary right in them. This cannot be established without examining those documents in order to make a proper analysis of them.

23. In view of the fact that the matter is now put in this way, says Mr Coleman, his clients are at least entitled to inspection to see whether their case can be advanced any further. The real mischief that the plaintiffs seek to avoid is that Madam Chan and her solicitors, the 2nd defendants, who are solicitors for the main respondents to the winding-up petition, will get a sight of the documents and, as such, prejudice the petitioner in the winding-up and, indeed, undermine the possibility of a fair hearing of their petition. Attention is drawn to the fact that should the 2nd defendants come into possession of these documents through Madam Chan, or learn of their contents, they would be duty-bound to draw the documents, or the information contained in them, to the attention of their other clients, the respondents to the winding-up petition. Mr Coleman submits that the principle to be safeguarded which underlies the rules of privilege is that a person is entitled to consult his lawyers without fear that the communications between the two will become available to an outsider, especially his opponents in litigation.

24. This principle has been restated by the House of Lords in R v Derby Magistrates ex parte B [1996] 1 AC 487 and more recently applied in Hong Kong in Rockerfeller & Company Inc. v Secretary for Justice [2000] 3 HKC 48. The Derby Magistrates case is further discussed to the same effect at page 504 in the current edition of Phipson.

25. From those authorities, the way the matter is put is that if I were to dismiss the summons, there is the real risk that these documents may come into the hands of the 2nd defendants through Madam Chan, notwithstanding her expressed view that she is disinterested in, or at least neutral, in the winding-up. As against the 2nd defendants, Mr Coleman puts the case even more strongly because he says that they can have no legitimate independent interest to these documents, and they certainly have no proprietary interest in them. In such circumstances, they can have no legitimate answer to the orders sought against them.

26. Lastly, as to Madam Chan, she has no pressing need for her documents. Where originally she had required them to complete the probate matters in relation to her late husband's will, she has done that without the need to resort to them. In any event, the order restraining her use of them would be limited only to the conclusion of the winding-up proceedings. Whilst as owner, she prima facie is entitled to do what she likes with them, in the current circumstances, passing them on to her solicitors, the 2nd defendants, who as I already said, more than once, act for the main respondents to the petition, would not be a proper exercise of her ownership, or a proper purpose, as Mr Coleman describes it, and she should be subjected to this temporary restraint which will, in fact, cause her no inconvenience.

27. It is plain from that outline of Mr Coleman's submissions that this is not what the Court of Appeal was concerned to decide. This argument falls outside the ambit of its judgment. The question is whether this assertion of privilege by the plaintiffs is one that is sustainable against Madam Chan and the 2nd defendants. The position of the defendants is different. The court would be slow to restrain use by an owner of documents unless a proper legal basis existed for such restraint.

28. I am bound to say that the facts of this matter are highly unusual. In the case of the 1st plaintiff, real concerns about his bona fides have been raised. In relation to Madam Chan, there must be at least a suspicion that he brought her into the winding-up without fully informing her of the ramifications of what he was letting her into. This amounts to a "clean hands" argument which would always sound in the discretion that it is her involvement in this way which has caused this dispute to come about. That having been said, his own participation as a petitioner cannot be questioned, and his status and the merits of that petition remain to be decided. But such considerations do not arise in the case of the 2nd plaintiff; no clean hands argument can lie against him.

29. I have decided that whilst there may be a suspicion that the 1st plaintiff was not entirely straightforward with Madam Chan, that has not been proved to be the case on the present material because she has signed documents authorising her being joined in the petition. On balance, any clean hands argument against the 1st respondent would not succeed. It seems to me that the privilege which the two plaintiffs now assert against the outside world has been made out. It clearly exists for the reasons advanced by Mr Coleman and it differs from the issues decided by the Court of Appeal. It is a privilege which is assertable against both of the defendants. The balance of convenience clearly favours the granting of the injunctions preventing the use of the documents by the defendants in a way which would reveal their contents to the respondents in the winding-up petition.

30. That being so, the course that I intend to adopt is one that will cause Madam Chan the minimum inconvenience:

I direct the documents will remain in the possession of Herbert Smith & Company until further order.

The plaintiffs and their solicitors and, if necessary, counsel be at liberty to inspect them for the purpose of identifying which documents they assert privilege over. That inspection must be completed within seven days from today.

Those documents to which the plaintiffs do not assert privilege must be returned to the 1st defendant or her nominated representatives immediately thereafter.

The documents over which privilege is asserted will be listed and described, but not the contents thereof.

In the event that the 1st defendant (the 2nd defendant can have no direct interest in this matter) wishes to contest the validity of the claim to privilege, then the matter must be restored for further argument before me, and I will give directions as to how the issue is to be resolved.

In the event that no issue arises between the parties as to the plaintiffs' claim to privilege in respect of the documents to which they may claim such privilege, then those documents must also be returned to the 1st defendant on terms that she will not divulge the contents of those documents to Messrs Pang & Associates, or to the respondents in the winding-up petition, or their servants or agents until after the conclusion of the winding-up petition, and also that the 2nd defendants will be ordered not to seek to obtain from Madam Chan, nor from her servants or agents, any information contained in those documents, and if they come into such possession, not to pass that information on to those respondents until after the conclusion of the winding-up petition.

31. The precise terms of these orders will need to be drawn up by the plaintiffs' solicitors to reflect the purport of what I have just indicated. I would have thought that the order would need to follow the wording employed in paragraphs 2, 3 and 4 of the proposed undertakings contained in the plaintiffs' solicitors' letter dated 4 October 2001, which would be appropriate.

32. Lastly, turning to costs, I would be content to make an order for costs now to reflect the merits up to this point, although I can imagine that I may be required to give further directions once a list of allegedly privileged documents has been drawn up on behalf of the plaintiffs. I could therefore also wait and make the order for costs at that time, treating the matter as part-heard until then. Nevertheless, it may be advantageous to make an order now in the event of an appeal so the matter could go up complete up to this point.

(Argument on costs)

33. Whilst I do have great sympathy for Madam Chan's position - and I do not say that in any forensic sense, it is a genuine sympathy - at the end of the day, this has been a legal issue. An opportunity was given by the plaintiffs to the defendants to avoid these proceedings on the basis of undertakings. Those undertakings were not forthcoming. The plaintiffs have come, they have succeeded, and I direct that they must have their costs of this summons.

34. I make that an order nisi for reasons that I indicated at the start of this particular inquiry as to costs. I think it is only fair because I had released counsel for the defendants. They are not here today and they ought to have an opportunity to consider their position in relation to this. So that deals with costs.