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

CACV 326/2008 AND CACV 327/2008

CACV 326/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 326 OF 2008

(ON APPEAL FROM HCCW NO. 49 OF 2000)

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(Heard Together)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  These were appeals from a judgment and orders of Madam Justice Kwan given on 23 October 2008.  The matters before the judge were applications by the fifth and sixth respondents in HCCW 49 of 2000, who are also the first and 19^th defendants in HCCL 37 and 40 of 2005, that they be permitted to provide copies of their respective transcripts of their examinations pursuant to section 221 of the Companies Ordinance Cap. 32 (“the Ordinance”) to each other and 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 2^nd and 7^th Defendants in HCCL 37 and 40 of 2005 (i.e. The Grande Holdings Limited and The Grande Group Limited);

(iii)  Felicity Porter, Associate Director, Legal of 7^th Defendant in HCCL 37 and 40 of 2005 (i.e. The Grande Group Limited);

(iv)  the 2^nd to 18^th and 20^th defendants in HCCL 37 and 40 of 2005, their legal advisers and their Other Advisers.”

2.  The judge made orders which, except in a few respects that are not material to this appeal, followed the applications.  The liquidators, who are the joint and several liquidators of Kong Wah Holdings Ltd (in liquidation) and Akai Holdings Limited (in liquidation) and who will be referred to herein as the liquidators, appealed that order and, at the conclusion of the hearing of these appeals, the orders below were set aside.  This court ordered that the summonses should be dismissed and made an order of costs here and below in favour of the liquidators with reasons to be given in writing.

Background

3.  The two companies, of which the liquidators are the joint and several liquidators, have been in liquidation now for some 9 years.  The history of those companies and the amounts which are said to have been lost leading up to their liquidation is a matter of record in a number of other proceedings and, for the purposes of this judgment need, not be dwelt upon.  Suffice it to say that the conduct of affairs of those companies was put in the hands of the Grande group of companies, of which the first to fourth respondents form part.  The fifth and sixth respondents were, apparently, key personnel in the running of the first to fourth respondents.

4.  On 4 August 2004 the judge below ordered that the fifth and sixth respondents should be examined pursuant to section 221 of the Ordinance.  A few months later, the liquidators caused a writ to be issued against a number of defendants including the fifth and sixth respondents and companies in the Grande group alleging breach of fiduciary duty, as well as breach of contractual, equitable and tortious duties owed by those defendants relating to the dealings with and receipt of the assets of the companies in liquidation.

5.  On 14 February 2006 the solicitors then acting for the liquidators wrote to the solicitors then acting for the fifth and sixth respondents in the following terms:

“1.  As regards your request that you and your Counsel be provided with Live Note terminals at the examination, the Liquidators have no objection.  However, if you wish to use the Live Note service, your client should be responsible for 50% of the cost of the service in addition to the cost of the extra terminal.

2.  In respect of the transcript of the examination, subject to undertakings/orders the Liquidators will be seeking regarding restriction of use and disclosure of transcript, the Liquidators will agree to provide you with a copy of the transcript upon completion of the examinations and your clients signing of the transcripts, subject to your payment of Wordwave’s charges.”

6.  By orders dated 1 August 2006, the Master ordered that permission should be given for transcripts to be taken down by commercial transcript providers, that the fifth and sixth respondents were to sign and return the transcripts of their examinations to the liquidators within 20 working days of their solicitors receiving transcripts from the liquidators and, finally, that the fifth and six respondents and their solicitors and counsel were 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.

The decision below

7.  When the fifth and sixth respondents’ application came before the court below, the judge followed her earlier decision in the case of Akai Holdings Limited (in compulsory liquidation) v Ernst and Young (a Hong Kong firm) that had been upheld in this court.  In that case, both Madam Justice Kwan and this court considered that the liquidators’ evidence relating to whether the record and notes of the examinations were subject to legal professional privilege were heavily hedged.

8.  In this case, the judge below considered that it was open to her to exercise her discretion in the matter.  There was no precedent that was being set.  The circumstances of the present case - 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 - were entirely exceptional.  On that basis she made the orders.

This Appeal

9.  The decision in the Ernst & Young case had in the meantime been appealed to the Court of Final Appeal.  In a judgment handed down on 24 February 2009, FACV 28 of 2008, the Court of Final Appeal reversed the decision of this court and held that the claim to legal professional privilege in that case was made out.  Since it was a claim to privilege, it could not be overridden, even if the court were to consider that disclosure of the transcripts of the section 221 examination would assist in the fair conduct of the litigation.

10.  In this case, as it happens, very shortly after the decision of this court in the Ernst & Young case, one of the liquidators, Mr Borrelli, filed an affidavit in which he made quite clear that his contention was that the examination under section 221 had been carried out for the purpose of the potential litigation.

11.  Whatever suspicions may be harboured about Mr Borrelli’s 48^th affidavit, the only basis upon which this court can proceed is that the section 221 examinations were undertaken for the purpose of obtaining legal advice which ultimately has led to the proceedings in HCCL 37 and 40 of 2005.  In those circumstances and following the decision of the Court of Final Appeal, it is clear that the liquidators’ claim for legal professional privilege must succeed and prevail.

12.  Faced with this uphill task, Mr Carolan, who appeared for the first to third, fifth and sixth respondents, still maintained, but did not waste time arguing to any extent, the position that the claim to legal professional privilege did not exist in this case.  He went on to argue that the privilege could not be asserted against the respondents because it was said that the transcripts had been brought into existence merely to record information given both to the liquidators and the respondents at their examinations.  The next point argued was that the fifth and sixth respondents were subject to the section 221 examinations precisely because they were directors of the Grande group of companies and, therefore, their transcripts should be available to those companies.  Finally, it was argued that any claim to legal professional privilege had been waived or lost because the transcripts had been provided to the respondents, with the liquidators consent, for consideration and, to a certain extent, have been disclosed and used in court in one of Mr Borrelli’s affidavits.

13.  I regret I see nothing in any of these points.  As with any other section 221 examination, these were conducted in the course of the winding up proceedings of the two relevant companies namely Akai Holdings Limited and Kong Wah Holdings Limited.  Once legal professional privilege is established no other party can have a right to access to those documents irrespective the fact that the fifth and sixth respondents have copies of the transcripts of their examinations.

14.  The fact that the fifth and sixth respondents are directors of companies within the Grande group of companies and have been examined about matters they undertook as directors of companies within the Grande group, does not mean that those companies can have access to the transcripts.  Naturally, the fifth and sixth respondents can give evidence on behalf of those companies and can assist them in the preparation of their defences but without giving them access to the transcripts.  The examinations were carried out by the liquidators of Akai Holdings Limited and Kong Wah Holdings Limited.  It is their legal professional privilege, not the privilege of the companies within the Grande group or their directors.

15.  The point sought to be argued, that there has been a waiver of consent, simply does not stand up to analysis as the very brief chronology in paragraphs 5 and 6 above shows.

16.  It remains to be said that the liquidators and their advisers have attempted to alleviate some of the difficulties with which the defendants in HCCL 37 and 40 of 2005 find themselves by reason of having the same legal representation.  At the hearing of this appeal it was made clear that this court felt itself unable to make an order in terms of that proposed by the liquidators in correspondence despite the fact that the suggestions therein appeared sensible.  The proposals involved slightly complicated restrictions on the use of material, primarily within the solicitors firm acting on behalf of the defendants in those actions.  Those are circumstances which, on the face of the matter, would probably be difficult to police.  Whereas it may be perfectly proper for the liquidators to agree to such arrangements, as far as this court is concerned, the liquidators must have the right to enforce their claim for legal professional privilege and whether or not they choose to waive that, in whole or in part, must be a matter for them.

17.  For these reasons these appeals were allowed and the orders below set aside.

Hon Le Pichon JA:

18.  I agree.