Re Peregrine Investments Holdings Ltd. and Another

HCMP1968/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1968 OF 1999

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Reasons Handed Down : 19 April 1999

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R E A S O N S

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1. The Applicants Philip Tose, Francis Leung, Alan Mercer and Peter Wong are former directors of Peregrine Investment Holdings Limited ("Holdings"). Two of the Applicants, Philip Tose and Francis Leung are also former directors of Peregrine Fixed Income Limited ("PFIL"). They wish to inspect the court file relating to the application by the Financial Secretary for the appointment of an inspector pursuant to section 143 of the Companies Ordinance ("the section 143 Application"). After hearing submissions, I dismissed the application. The reasons appear below.

2. The Applicants are not parties to those proceedings which were filed on 31 March 1999. On the same day, the court ordered and directed that Exhibit PRB-1 to the affirmation of Paul Richard Bailey not be disclosed without the leave of the court to any person not a party to the section 143 Application and that 48 hours' notice of any application for leave be given to the Secretary for Justice acting for the Financial Secretary.

3. The present application was made on 1 April 1999, following the press release announcing the section 143 Application. Upon receiving the Applicants' request dated 1 April 1999, having regard to the order made on 31 March 1999, I directed that the application to inspect the court file be made inter partes.

4. Under Order 63, rule 4 of the Rules of the High Court, the Applicants as members of the public are entitled to obtain copies of the originating process and any order given or made in court. A copy of any other document can only be obtained with the leave of the court which may be granted on an application made ex parte : Order 63, rule 4(1)(c). The rights of parties to the cause or matter are different : see Order 63, rule 4(2). Since the Applicants are not "parties" to the section 143 Application, their application could only have been one under Order 63, rule 4(1)(c) and was so treated. Although the Department of Justice, pursuant to the court's direction to supply the Applicants' solicitors with a copy of the Notice of Motion and the order made on 31 March 1999 had apparently complied with that direction immediately by faxing the same to Richards Butler, for reasons which cannot be explained, they were never received. Copies have now been supplied and no issue arises in relation to those documents.

5. There is an affidavit of Mr Tose filed in support of the present application stating,inter alia, that the Applicants have every intention of cooperating with the inspector and were not minded at this stage to oppose the section 143 Application. Paragraph 5 referred to a press announcement dated 5 March 1999 in which "the failure of a rescue plan in early January 1998" was mentioned. Mr Morrison who appeared for the Applicants submitted that that was a reference to the Zurich Centre Investments ("ZCI") and as such was inaccurate because there was no rescue plan by ZCI. In fact, the Applicants' solicitors had already written on 29 March 1999 to the Department of Justice to complain about the inaccuracy. It was submitted that the documents filed with the court in support of the section 143 Application may similarly contain inaccurate statements of fact.

6. Mr Reyes, counsel for the Financial Secretary, produced to the court a letter dated 18 March 1998 from Richards Butler (acting, inter alia, for the Applicants) to the Stock Exchange of Hong Kong Limited. Paragraphs 42 - 45 (inclusive) of that letter set out the events that occurred between 9 and 12 January 1998. It is there clearly stated that on 9 January 1998 the Company had approached the Hong Kong Monetary Authority for short term financing in order to avoid defaulting on payment obligations which would trigger cross-defaults on all the Company's debt which request was refused. Further discussions then took place with the Company's principal bankers to obtain further short term funding which were also unsuccessful. This led to the board's decision to place the Company into provisional liquidation. The letter also referred to the withdrawal of ZCI which arose as a consequence of the unprecedented collapse of the Asian financial markets. As Mr Reyes pointed out, the press release made no reference to ZCI. The Applicants chose to read into the press release a reference to ZCI. Having regard to terms of the letter of 18 March 1998, the statement in the press release with which the Applicants take issue has not been shown to be inaccurate. The Applicants have failed to show that there is any justifiable concern as to possible inaccurate statements.

7. It was further submitted on behalf of the Applicants that as directors of Holdings and/or PFIL, they are "interested parties" who will be touched or affected by the appointment of an inspector in that their conduct whilst acting as directors may come under scrutiny. It was submitted that natural justice required that the Applicants know what, if anything, has been said of them and have an opportunity to be heard. Mr Morrison again stressed that it is the Applicants' intention to cooperate fully with the inspector and that there is no present intention to oppose his appointment.

8. Under the provisions of section 143 of the Companies Ordinance, the Financial Secretary -

"(1)...

(a) shall appoint one or more competent inspectors to investigate the affairs of a company and to report thereon in such manner as the Financial Secretary may direct, if the court by order declares that its affairs ought to be investigated by an inspector appointed by the Financial Secretary; and

...."

The burden is upon the Financial Secretary to satisfy the court that it ought to declare that the affairs of the companies in question ought to be investigated by an inspector. If the court were to make such a declaration leading to the appointment of an inspector, the probability is that such an inspector would, in the course of carrying out his investigation into the collapse of Holdings and/or PFIL, interview all former directors. In my judgment, this does not make the Applicants "interested parties". They are not parties to the section 143 Application and there is no application before the court for the Applicants to be made parties. The fact that they may be interviewed or be asked to explain matters to any inspector, if one be appointed, does not render them "interested parties".

9. The Applicants' submission comes to this : because it is likely (if not probable) that the Applicants would be interviewed if an inspector were appointed, they are entitled to inspect the court file relating to the section 143 Application to ensure that it contains no inaccurate statements. It must follow that if any statement were in the Applicants' view (as with the press announcement) to be inaccurate, they would or could take action. But what action? They are not parties. Moreover, I cannot conceive it to be the court's function to be ruling on such issues when the only question before it is whether a case has been made out that the affairs of Holdings and/or PFIL ought to be investigated by an inspector.

10. It was also submitted that if allowed to inspect the file, the Applicants would be better prepared to meet any allegations that might be made against them. It is tantamount to a claim to a right to screen or vet the section 143 Application in case it and, in particular, the report of the Securities and Futures Commission made under section 29A of the Securities and Futures Ordinance ("SFCO") which is part of the supporting papers should contain any allegations against the Applicants or criticize their conduct. In that eventuality, one has to assume that the Applicants may decide to oppose the section 143 Application. But again, not being parties, what is their locus? That apart, the reason advanced is in any event not a valid reason since, in my judgment, it is entirely premature.

11. In this regard, the principles stated in Norwest Holst Ltd v Secretary of State for Trade [1978] 1 Ch 201 are relevant. In that case the Department of Trade pursuant to statutory provisions appointed two inspectors to investigate the company's affairs under a provision that is equivalent to section 143(1)(c) of Cap.32. The company's board objected stating that there appeared no circumstances justifying the appointments and asked that before any investigation was begun, the department should disclose the circumstances and indicate any evidence relied on to justify the appointments. The department replied that it was neither present practice nor a requirement under the Act to make such disclosure. The company protested that that placed a wide category of persons under possible suspicion of having been guilty for serious offences and that the department's failure to disclose anything seemed hardly just or equitable. The company thereupon moved the court for a declaration that the appointment of the inspectors was unlawful and ultra vires. The judge struck out the company's action. The company's appeal was dismissed. Counsel for the appellant submitted that the practice in England before 1962 (which was to hear both sides before deciding whether or not an inspector should be appointed) was required by the common law. He submitted that the principles of natural justice are to be applied but this was rejected. Lord Denning MR held (at 224A-D) :

" That may have been the practice of the Board of Trade in those years: but I do not think that it was required by the common law. There are many cases where an inquiry is held-not as a judicial or quasi-judicial inquiry-but simply as a matter of good administration. In these circumstances there is no need to give preliminary notice of any charge, or anything of that sort. Take the case where a police officer is suspected of misconduct. The practice is to suspend him pending inquiries. He is not given notice of any charge at that stage, nor any opportunity of being heard. The rules of natural justice do not apply unless and until it is decided to take proceedings. Other instances can be given in other fields. For instance, the Stock Exchange may suspend dealings in a company's shares. They go by what they know, without warning the company beforehand.

Equally, so far as section 109 is concerned, when the officers of the Department of Trade are appointed to examine the books, there is no need for the rules of natural justice to be applied. If the company was forewarned and told that the officers were coming, what is to happen to the books? In a wicked world, it is not unknown for books or papers to be destroyed or lost.

So also with the appointment of inspectors, under section 165(b)(ii). The inspectors are not to decide rights or wrongs. They are to investigate and report. This inquiry is a good administrative arrangement for the good conduct of companies and their affairs. It is not a case to which the rules of natural justice apply. There is no need for them to be given notice of a charge, or a fair opportunity of meeting it."

Mr Morrison sought, unsuccessfully, to distinguish this case on the ground that it concerned an ongoing company whereas here the companies are in liquidation. Whether the company is in liquidation cannot alter the nature of the inquiry by an inspector which is to investigate and report.

12. Mr Reyes referred to section 59 of the SFCO as another reason why the present application ought to be rejected. But the application can be disposed of without the need to rely to section 59. For the court's discretion under Order 63, rule 4(1)(c) to be exercised in favour of the Applicants, cogent reasons have to be advanced. None of the reasons put forward on their behalf has any merit, and accordingly, the application is dismissed with costs.