JOHN HOWARD BATCHELOR AND KENNETH FUNG AS JOINT AND SEVERAL LIQUIDATORS OF ALLIED WELI DEVELOPMENT LTD v. LAM & CO (A FIRM) AND OTHERS

HCCW 337/2015

[2022] HKCFI 2206

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 337 OF 2015

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D E C I S I O N

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1.  There are before the court 2 appeals brought by the 3^rd to 5^th respondents (“R3-R5”) and the 6^th and 7^th respondents (“R6-R7”) respectively against one of the directions made by Master J Wong on 10 June 2022 on the conduct of private examinations scheduled to be held on various dates in June, July and September 2022. The direction under appeal is as follows (“Direction”):

“(c) each of the 2^nd to 8^th Respondents and their solicitors and counsel are not to disclose the transcripts, any information concerning the examination or disclosed at the examination or any documents given or obtained at the examinations to any other person (including any other person being examined) without leave of the court or the written consent of the Liquidators.”

A.  BACKGROUND

2.  On 29 June 2018, the Liquidators of Allied Weli Development Limited (“Company”) applied under s.286B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“Ordinance”) for production of documents and private examination against R1-R9. The hearing was hotly contested and lasted for 5 days during the period from 11 March to 17 September 2019.

3.  By judgment handed down on 12 May 2021, [2021] HKCFI 1247 (“Judgment”), Recorder Jason Pow SC ordered R2-R8 to produce the specified documents and to attend private examination on the stated matters relating to the Company.

4.  R3-R8 applied for leave to appeal and stay of the examination order, which was dismissed by the Recorder on 6 October 2021, and by the Court of Appeal on 13 May 2022.

5.  Nevertheless, R3-R8’s solicitors through correspondence continued to resist the Liquidators’ effort to fix the dates for the examinations in November 2021 to January 2022. On 18 January 2022, Master Lai directed the parties to fix the examination dates on 24 January 2022.

6.  The examinations were fixed before Master J Wong, with R5 on 16 June 2022; R3 on 21-22 July 2022; R4 on 19-20 September 2022 and R6-R7 on 26-27 September 2022.

7.  The Liquidators through Messrs Kirkland & Ellis’ (“KE”) letter of 25 April 2022 sought R2-R8’s consent on the directions to be sought from the Master to facilitate the examination. Insofar as the proposed Direction was concerned, the Liquidators relied on 2 matters. First, Rule 62(2) of the Companies (Winding-up) Rules (Cap. 32H) (“CWUR”). Second, their claim that “the information and documents provided at the examination and the transcripts of the examination are subject to legal professional privilege of the Liquidators. Such information and documents elicited from, and transcripts of, an individual Respondent should not be shared with any other Respondent or other person” (“LPP Claim”).

8.  Only R2 replied on 3 May 2022 confirming that he would comply with the requirement of s.286C(4) of the Ordinance. No reply was given by R3-R8.

9.  By letter dated 16 May 2022 KE applied to Master J Wong (copied R2-R8’s solicitors) for directions on the conduct of the examinations. In respect of the proposed Direction, the Liquidators relied on (1) Rule 62(2) of CWUR; (2) the order made by Master de Souza in Akai Holdings (in liq) v Grande Holdings Ltd & ors, CACV 327/2008, 20 March 2009 (“Akai v Grande”), and (3) the LPP Claim.

10.  On 26 May 2022, the Master directed the solicitors of the relevant respondents to respond by 2 June 2022 whereupon a decision would be made.

11.  In their letter dated 2 June 2022, Messrs Haldanes, solicitors for R3-R5, objected to the proposed Direction on the following ground:

“We object to paragraph 3(c). As a firm of solicitors we are bound by our professional rules of conduct and in particular we have a duty to act in the best interests of each of our three clients. This means that we have a duty to pass on and use any information which is material to the subject matter of our retainer regardless of the source (see Chapter 8 principle 8.03 to the Guide Professional Conduct for the Hong Kong Solicitors). We cannot therefore agree to this direction as it would put us in breach of our professional obligations.”

12.  Similarly, in their letter dated 2 June 2022 Messrs Hart Giles (“HG”), on behalf of R6-R7, objected to the proposed Direction on one ground:

“We have an objection to the proposed direction 3(c) as we represent two Respondents and insisting on non-disclosure of the transcript, information disclosed at the examination or documents obtained at the examinations to either one or the other of our clients would put us in breach of our professional obligations to both.”

13.  On 6 June 2022, the Master observed that §6 of Akai v Grande “appears to be not very helpful because CA only stated the orders of the Master as a matter of background. Are there any other authorities more directly on the issue?” and directed KE to reply by 9 June 2022.

14.  By letter dated 9 June 2022, KE submitted that:

(1)  Akai v Grande is instructive as the order permitted mutual disclosure of transcripts amongst officers of the company who were represented by the same legal team. At §16 of that judgment the CA observed that the liquidators have the right to enforce their claim for legal professional privilege and whether to waive such privilege;

(2)  whether a particular firm would breach their professional obligations to their clients is irrelevant;

(3)  the liquidators are legitimately concerned about the scope of cross-fertilisation of ideas when legal advisers were advising more than one person from whom the liquidators may wish to obtain information. It is not uncommon for the court to order examinee and his solicitors and counsel not to disclose documents or information relating to the examination with others without the consent of liquidators or leave of the court. For example, Re Kong Wah Holdings Ltd [2008] 1 HKLRD 602 (CA) (“Kong Wah v Kin Yuen”), which was an appeal brought by Kin Yuen against Kwan J’s order requiring the liquidators to provide copies of documents to Yuen 7 days before the date of the examination, on the conditions that (a) Yuen had to keep the documents in strict confidence and to use them solely for the purpose of refreshing his memory and no other purpose (this condition was not challenged on appeal); (b) Yuen was prevented from disclosing or discussing the contents of those documents with his legal representatives without the written consent of the liquidators or leave of the court; and (c) the same restriction was imposed on the solicitors and counsel (§1); and

(4)  the Liquidators do not waive any LPP on the transcripts and any information concerning or disclosed at the examinations or any documents given or obtained at the examinations.

15.  On 10 June 2022, the Master made the Direction.

16.  By letter dated 13 June 2022 to the court, Haldanes asserted that the Direction was made “without allowing [R5] to be heard on the issue and despite the obvious difficulties that the [Direction] will present for us if it is not set-aside (as an ex parte Order) by the Master or reversed on appeal” and requested the Master to suspend the Direction until they could be heard on the issue.

17.  By letter dated 13 June 2022 to the court, HG stated that they agreed with Haldanes and wished to address the court on 16 June 2022 on the matter which, they said, was important to the wider profession.

18.  In response, KE in their letter dated 14 June 2022 to the court stated that they disagreed with Haldanes because (1) the Direction was not made ex parte, but after consideration of the responses from Haldanes and HG; (2) HG were not entitled to attend R5’s examination on 16 June 2022; (3) the only issue was whether R3-R7 would appeal against the Direction and applied for an interim stay. However, to ensure that the examination would proceed on 16 June 2022 without any interruption, the Liquidators proposed that the Master could direct the parties to file written submissions after the examination on 16 June 2022 to deal with the issue provided that (a) R3-R7, their solicitors and counsel do give an undertaking to the court in terms of the Direction pending further order of the Master whereupon the Direction may be suspended, and (b) leave to R3-R7 to file written submissions on the issues stated.

19.  In response to the letters dated 13 June 2022 from Haldanes and HG, the Master recited the correspondence on the application leading to the Direction and stated that the suggestion that the Direction was made ex parte or that R5 was not allowed to be heard “must be wrong”. There was no reason for the Direction to be suspended. The hearing on 16 June 2022 was for examination of R5, and HG should advise R6-R7 as to what should be done.

20.  In their letter dated 14 June 2022, Haldanes asserted that:

(1)  the Direction had been made ex parte and should be suspended until they could be heard, as it was only in KE’s letter of 9 June 2022 that the Liquidators advanced the grounds and authorities for seeking the proposed Direction, and the Direction was made before they could respond to those grounds and authorities;

(2)  the Direction “can always be amended or rescinded as part of the Master’s Case Management of those hearings” under Order 1B r.1(2)(1) and PD 5.2 §39);

(3)  Akai v Grande concerned with provision of transcripts to third parties for other proceedings and provides no relevant guidance;

(4)  Kong Wah v Kin Yuen concerned with the conditions imposed on the documents provided to the examinee in advance of the examination, which is not the same as the Direction;

(5)  the Direction prevents R3-R5 from being advised by their own legal representatives, which constitutes a breach of their constitutional right under Article 35 of the Basic Law; and

(6)  the Direction would force the solicitors and counsel of R3-R5 to choose between obeying the “unconstitutional (and consequently unlawful” Direction or breaching their professional duties and obligations under §8.03 of the Guide in circumstances where the Liquidators clearly intend to enforce the Direction by contempt proceedings.

21.  By letter dated 15 June 2022 to the court, KE stated that the Liquidators were concerned about R3-R5’s latest attempt to derail the examination of R5 on 16 June 2022 and suggested ways to address the potential breach of duties asserted by Haldanes with each of R3-R5 being represented by a different solicitor from the firm and there be no sharing of information between such solicitors, alternatively, R3-R5 may waive the requirement for Haldanes to communicate the information obtained by them in the examination of the other respondent.

22.  The examination of R5 took place as scheduled before the Master.

23.  On 22 June 2022, R3-R5 filed a notice of appeal against the Direction.

24.  By letter dated 23 June 2022 to this court, Haldanes asserted, for the first time, that the Direction was made by the Master “without jurisdiction and therefore irregular”. In addition, they asserted that the Direction was made ex parte, and had the effect of placing them in an “impossible situation” in which they were forced to choose between obeying the Direction or breaching their professional ethics and obligations. Unless the Direction is set aside before 21 July 2022, R3 “will be deprived of his fundamental right to receive legal advice (from the lawyers of his choice) with respect to the forthcoming examination hearing, contrary to Article 35 of the Basic Law”. On these bases, Haldanes requested this court to direct the appeal to be heard with one hour reserved or that the appeal be determined on paper before 21 July 2022.

25.  On 23 June 2022, this court directed R3-R5’s appeal to be heard on 7 July 2022.

26.  On 24 June 2022, R6-R7 filed notice of appeal against the Direction and fixed it to be heard on 7 July 2022 without leave from the court. This is unacceptable. The hearing was set down for one hour for the purpose of dealing with R3-R5’s appeal. It was not properly open to HG to fix R6-R7’s appeal at the same time without leave of the court.

B.  GROUNDS OF APPEAL

27.  In the appeal, Mr Barrie Barlow SC (leading Mr Pat Chan), counsel for R3-R5, submits that the Direction should be set aside on the following grounds:

(1)  It was “unreasonable” for the Master to make the Direction on an ex parte basis without hearing R3-R5 and without giving any reasons for making the same (Ex parte ground);

(2)  The Direction is a “prohibitory injunction order” which the Master did not have jurisdiction to make (Jurisdiction ground).

(3)  The court does not have jurisdiction, whether under s.286B or s.286C of the Ordinance, to make the Direction which has the effect of restricting or inhibiting R3-R5’s right to obtain confidential legal advice under Article 35 of the Basic Law (Article 35 ground).

(4)  The Direction placed R3-R5’s legal representatives, who represent R3-R5 in the examinations and in HCA 57/2018 brought by the Company against them, in an “impossible dilemma” and, if not set aside, “it will unlawfully force” them to resign from continuing to represent them in either or both of the examination and/or HCA 57/2018. It also deprives R3-R4’s rights under Article 35 of the Basic Law and s.286C(3) of the Ordinance (Impossible Dilemma ground).

28.  Mr Toby Brown, counsel for R6-R7, adopts all the grounds advanced by Mr Barlow. He makes a further point that the Master does not have the power under s.286B and s.286C of the Ordinance or Rule 62 to make the Direction over the documents provided by the Liquidators to the examinees for the purpose of the examinations (“Documents”) (Restriction on Documents ground).

29.  I shall deal with each of these grounds in turn.

B1.  Ex parte ground

30.  The Ex parte ground is wholly devoid of merit. As is clear from the events described in §§9 - 19 above, the Direction was made by the Master after he had considered the comments and objections raised by Haldanes and HG in their letters dated 2 June 2022.

31.  Mr Barlow tries to get around the fact that Haldanes and HG had the opportunity to and did provide their responses to KE’s proposed Direction on 2 June 2022 by contending that it was only until KE’s letter of 9 June 2022 that the Liquidators advanced their grounds and authorities for seeking the Direction. I do not think this is right.

(1)  In KE’s letter dated 16 May 2022, the Liquidators already made their application for the proposed Direction and identified (a) Rule 62 of CWUR, (b) the terms of the order made by Master de Souza in Akai v Grande; and (c) the LPP Claim as the bases of their application.

(2)  For reason never explained by Haldanes and HG, they did not provide any response to the application. This led to the Master directing Haldanes and HG to provide their response to the application by 2 June 2022.

(3)  KE’s letter of 9 June 2022 were the Liquidators’ responses to the points raised by Haldanes, HG and the Master on the proposed Direction. They did not depart from the grounds already set out in KE’s letter of 16 May 2022.

(4)  The Direction was only made by the Master after considering all the points made by the parties.

32.  As the Liquidators did not apply for the Direction on an ex parte basis, they were not under any duty to make full and frank disclosure or to draw to the attention of the Master all the authorities said to be relevant to the application as Mr Barlow suggests.

33.  As regards the belated suggestion that the Master did not give reasons for the Direction, it is equally without merit. The Direction was sought and decided by the Master alongside with other directions governing the conduct of the examinations of R2-R8. It was not necessary for the Master to give any reasons for the Direction. In any event, neither Haldanes nor HG have ever requested the Master to give any reasons for the Direction.

B2.  Jurisdiction ground

34.  The point is only raised for the first time in the notice of appeal filed by R3-R5.

35.  Mr Barlow characterises the Direction as a “gagging order”. He submits that the Direction has the effect of restricting R3-R5, their solicitors and counsel from disclosing the examination materials and, therefore, is in the nature of a prohibitory injunction. Section 38 of the High Court Ordinance (Cap. 4) and Order 32 rule 11(1)(d) of the Rules of the High Court make clear that a Master occupies a statutory judicial office without inherent jurisdiction. Nor does a Master have jurisdiction to grant any injunction.

36.  I do not think it is right or helpful to characterise the Direction as a “gagging order” or “prohibitory injunction”. The Direction was given by the Master alongside with other directions for the proper conduct of the examinations. Once made, the Direction binds the parties and their legal representatives. They are required to comply with the Direction, no matter how they characterise it.

37.  In my view, the Master has jurisdiction to make directions on the conduct of the private examinations of R2-R8 including the Direction. The jurisdiction derives from s.286E of the Ordinance which provides that:

“Unless otherwise ordered by the court in a particular case, the Registrar may exercise and perform the powers and duties conferred or imposed on the court by sections 168IA, 286A, 286B and 286C”.

38.  Since the “court” is defined in s.2 of the Ordinance as “the Court of First Instance”, the Registrar has the same powers as the Court of First Instance save for the power to make an order for committal of a person for contempt of court, which is specifically excluded by s.286E(6) of the Ordinance. For this purpose, there is no difference between the Registrar and a Master, as s.38(2) of the High Court Ordinance provides that a Master has “all the jurisdiction, powers and duties conferred or imposed on the Registrar”.

39.  It is not suggested by Mr Barlow or Mr Brown that the Court of First Instance does not have jurisdiction or power under ss.286B and 286C to give directions on the conduct of the examinations. Any such suggestion would be untenable. Sections 286B and 286C confer jurisdiction on the court to order private examination of persons concerned with a company in liquidation and to conduct such examination. As explained by Lord Millett NPJ in Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766, §§23-28:

(1)  The sections are designed to enable a liquidator to carry out his functions viz. to collect assets of the company, settle its liabilities and distribute its surplus funds amongst its creditors and to investigate the causes of the company’s failure and the conduct of those concerned in its dealings and affairs. The liquidator relies on orders for examination of production of documents to reconstitute the knowledge of the company and to carry out his functions effectively and with as little expense and as expediently as possible (§§23, 25).

(2)  The sections confer extraordinary powers on the court (§24).

(3)  The sections may be used to discover facts and documents relating to potential claims by the liquidator against third parties or to enable him to report to authorities with a view to taking action against those responsible for the company’s failure (§26).

(4)  The legislative purpose demands that the powers conferred on the court by the sections are wide, general and unlimited (§27).

(5)  The jurisdiction conferred on the court by the sections is necessarily wide, and being of an inquisitorial nature it is capable of working with great severity against third parties. The width and potentially oppressive nature of the jurisdiction is tempered by the fact that the court is not bound to make an order merely because it has jurisdiction to do so. It has a discretion to make or refuse the order sought or to modify or limit its terms (§28).

(6)  The court must endeavour to strike a balance between the liquidators’ reasonable requirements and the need to avoid making an order that is unreasonable, unnecessary or oppressive to the party from whom the documents or information are sought (§29).

40.  In view of the unlimited and extraordinary nature of the powers conferred by ss.286B and 286C, the court must have power to make such directions and order for the purposes of facilitating the conduct of the examination, protecting the confidentiality of the information derived from the examination and protecting the liquidators’ LPP over the information obtained in the examination.

41.  So far as confidentiality of private examination is concerned, Ms Jacqueline Law, counsel for the Liquidators, points to the following:

(1)  Rule 5(2) of CWUR, PD 25.1 §4(a) and Schedule 2 §(3) and PD 25.2 §§1-2 together provide that the press and the public are excluded from attending the private examination. No report should be made of the proceedings to the public without the authority of the master or the judge before whom the proceedings were conducted.

(2)  In Akai Holdings Ltd v Ernst & Young (2009) 12 HKCFAR 649 (“Akai v EY”), the CFA accepted that the “settled practice” is that private examinations are “strictly confidential” and the transcripts and notes thereof are available only (a) for the information and use by the liquidators in the performance of their functions; and (b) to third parties who have satisfied the court that there exist exceptional circumstances where the public interest in limited disclosure outweighs the public interest in maintaining confidentiality (§§30, 58-59, 65, 104-105).

(3)  Rule 62 of CWUR provides that the notes and transcripts of the examination shall not be filed or be open to inspection unless and until the court shall so direct, and the court may give such general or special directions as it shall think expedient as to the custody and inspection of such notes. As described in Akai v EY, Rule 62 “safeguards information obtained by means of an extraordinary process”, and the transcripts and notes of the examination are confidential and not to be disclosed until directed by the court (§§5, 104-105).

(4)  Similarly, in Wing Fai Construction Ltd (2009) 12 HKCFAR 601, the CFA accepted that Rule 62 of CWUR “operates for the benefit of the liquidation”, and the information obtained by the liquidator through a private examination “remains private in his hands unless and until he discloses it in the course of performing his functions” (§§27, 34-35).

42.  As for the need to protect the liquidators’ LPP over the information obtained from the examination, it is now settled that:

(1)  where the liquidators carry on the examination for the purpose of obtaining legal advice in connection with the company, including to ascertain whether there exist valuable causes of action which may be pursued by the company for the benefit of its creditors, the transcripts and notes of the examination are protected by legal advice privilege; and

(2)  where the dominant purpose of the examination is to obtain information to seek legal advice in connection with litigation that was in “real prospect” or if litigation was “in the active contemplation of the party seeking advice”, the transcripts and notes of the examination are protected by litigation privilege (Akai v EY §§34-35, 66-68, 76).

43.  Mr Barlow submits that there is no factual foundation for the Liquidators to make the LPP Claim over the information derived from the examinations. I do not accept Mr Barlow’s submission. There is ample factual foundation for the LPP Claim:

(1)  As stated in the Judgment, §§28-32 and 72, the Liquidators issued a number of protective writs in HCA 2995/2017, HCA 2996/2017 and HCA 57/2018 in which they identified the potential claims against various defendants. They are unable to assess the merits of the claims or to form any view as to the prospects of recovery. They require information from R2-R8 to determine whether the potential claims are meritorious and whether one or more of the claims may be successfully pursued and, if necessary, to narrow the scope of the claims described in the protective writ and remove any unnecessary defendants. As the stated purpose of the examinations is for the Liquidators to obtain legal advice on the potential claims sought in the protective writ, the information obtained from the examinations must be covered by legal advice privilege as well as litigation privilege.

(2)  The Liquidators made the LPP Claim in KE’s letter of 25 April 2022 when they sought R2-R8’s consent on the directions to be sought from the Master.

(3)  The Liquidators again made the LPP Claim in KE’s letter of 16 May 2022 when they applied to the Master for directions on the conduct of the examinations.

44.  As the examinations and the information derived thereof are covered by legal advice privilege, which is a constitutional right under Article 35 of the Basic Law, it is “not subject to any balancing exercise” (Akai v EY, §§66-69). Further, “no other party can have a right to access to those documents irrespective of the fact that the [examinees] have copies of the transcripts of their examinations” (Akai v Grande, §13).

45.  For the above reasons, the Master has jurisdiction to make the Direction for the purpose of protecting the confidentiality of the examinations, including the Documents and any information derived from the examinations. The exercise of his power to make the Direction is amply justified by the need to protect the confidentiality of the examinations and the Documents.

B3.  Restriction on Documents ground

46.  Mr Brown contends that there is no proper basis for the Master to make the Direction for the purpose of protecting the confidentiality of the examinations. More importantly, the authorities cited by the Liquidators only concern the need to protect the confidentiality of the transcripts and notes of the examination, but not the documents provided to the examinees in advance of the examination. I disagree.

47.  The rationale and bases for protecting the confidentiality of the examinations and the information derived from the examinations are well supported by the provisions and the authorities discussed in §41 above. The same rationale and bases apply to the Documents provided to the examinees in advance of the examinations. This is because the Documents were obtained by the liquidators from the persons having possession or power of the documents relating to the Company by compulsory power, either pursuant to orders made by the court under s.286B of the Ordinance or the threats to seek such order against the persons concerned. They are documents which can only be used by the liquidators for the purpose of performing their functions and should be kept confidential. This accords with the principle discussed in Re Esal (Commodities) Ltd (No 2) [1990] BCC 708 at 723G-H; Marcel v Commissioner of Police of the Metropolis [1992] Ch 225 at 237C; and Re Barlow Clowes Gilt Managers Ltd [1992] Ch 208, at 222D-E, as approved by the CFA in Akai v EY (§§50-55).

48.  Mr Brown accepts that the notes and transcripts of the examinations are covered by LPP but submits that the same does not apply to the Documents.

49.  As far as I understand it, the Liquidators did not (and still do not) suggest that the Documents are covered by LPP. In any event, once it is established by the Liquidators (as I so hold) that there is a proper basis to protect the confidentiality of the Documents, it is sufficient to justify the Direction.

B4.  Article 35 ground

50.  R3-R7 relies on the first paragraph of Article 35 of the Basic Law which provides as follows:

“Hong Kong residents shall have the right to confidential legal advice, access to the courts, choice of lawyers for timely protection of their lawful rights and interests or for representation in the courts, and to judicial remedies.”

51.  Mr Barlow submits that the Master wrongly disregarded R3-R5’s challenge to the Direction based on the “clear and undeniable breaches of the constitutional entitlements which are guaranteed to each of them by Article 35 of the Basic Law” for the following reasons.

52.  First, Article 35 is one of the entrenched fundamental rights of Hong Kong residents within Chapter III of the Basic Law. Each of those constitutional guarantees must be broadly construed in a manner that recognises its full scope and effect. The principle was stated by Li CJ in Ng Ka Ling v Director of Immigration (1999) 2 HKCFAR 4, at 28J-29B:

“What is set out in Chapter III … are the constitutional guarantees for the freedoms that lie at the heart of Hong Kong’s separate system. The courts should give a generous interpretation to the provisions in Chapter III that contain these constitutional guarantees in order to give to Hong Kong residents the full measure of fundamental rights and freedoms so constitutionally guaranteed.”

53.  Second, in respect of each of R3-R8, Article 35 guarantees her/his entrenched fundamental rights to:

(1)  obtain “confidential legal advice” from the lawyers of their choice - without the pool of lawyers being narrowed or reduced to lawyers deemed acceptable to her/his opponents or the judicial officers overseeing the s.286C examinations; and/or

(2)  have unimpeded “access to the courts” through the lawyers whom she/he has chosen to represent her/him therein; and/or

(3)  “choice of lawyers for timely protection of their lawful rights and interests”, including any legal rights or interests beyond the instant proceedings such as HCA 57/2018 or any other related proceedings; and/or

(4)  “choice of lawyers for … their … representation in the courts” including in the examinations and/or in HCA 57/2018 (and/or in any other related proceedings); and/or

(5)  “choice of lawyers for the timely protection of their lawful rights and interests … in … and to judicial remedies” including in the examinations and/or in HCA 57/2018 (and/or in any other related proceedings).

54.  Third, the authorities cited by KE do not provide any guidance or precedent for the Direction in that:

(1)  Akai v Grande concerned with an order which restrained the publication of transcripts to third parties involved in separate proceedings. Even without the order, it would be a breach of the parties’ implied undertaking not to disclose documents obtained through compulsion (Harman v Secretary of State for the Home Department [1983] AC 280). Although Akai v Grande followed the CFA decision in Akai v EY. The statement in §16 of Akai v Grande does not assist the Liquidators as the liquidators were entitled to assert LPP over the transcripts of the examination in the context of the discovery process in a hostile civil litigation between Akai and EY. The CFA rejected the liquidators’ proposals for “Chinese Wall” direction, which was what KE suggested in their letter dated 9 June 2022.

(2)  Kong Wah v Kin Yuen concerned with a conditional order in favour of the examinee (Yuen), giving him a conditional entitlement he did not otherwise have, namely, the provision by the liquidators in advance of examination copies of all documents to be put to him in the upcoming examination, provided that he complied with the confidentiality conditions. Yuen challenged the conditions. The CA held that if Yuen wanted to avail himself of the indulgence of advance notice of the examination documents, then he needed to comply with the conditions or he could choose not to receive the conditional indulgence; there was no breach of Article 35 because Yuen had no legal right or equitable entitlement to advance copies of the documents and so his rights were not affected by the conditions, which he remained fully entitled to accept or reject.

55.  Fourth, the CA’s judgment in Kong Wah v Kin Yuen has been the subject of an appeal to the CFA and the impugned order was stayed pending determination of the appeal. Mr Barlow says that the liquidators abandoned their intended examination, thereby tacitly conceded the appeal. In granting leave to Yuen to withdraw the appeal, Bokhary PJ in Kin Yuen v The Liquidators of Kong Wah Holdings Ltd (in liq) (2008) 11 HKCFAR 497 (“Kin Yuen v Kong Wah”) made the following observations:

“19. There is no suggestion by Kwan J that restrictions like the disputed restrictions form an ordinary feature of s.221 examinations. She did not say why or indeed whether she considered the present circumstances extraordinary. Certainly she quite rightly refrained from questioning Mr Yuen’s integrity or that of his legal advisers.

20. It is to be observed that Kwan J’s reasoning does not include any statement as to the source of any power to inhibit a s.221 examinee’s right to seek legal advice. She appears to have proceeded on the assumption that such power exists.

…

26. Mr Yuen would have invited the Court of Final Appeal to conclude that by prohibiting disclosure and discussion between a person and his legal advisers, the disputed restrictions inhibit that person’s exercise of a constitutionally entrenched right, namely the right to seek legal advice. Suppose there is a law which would, if constitutional, authorise the imposition of such a restriction. Such a law would have to be examined with a view to seeing if it is compatible with the constitutional right to seek legal advice. If it is incompatible with that right, it would be liable to be declared unconstitutional. Upon such a declaration, any restriction made in purported reliance on it would have to be set aside. If there is no law that even appears to authorise such a restriction, then any such restriction would be liable to be set aside simply for the want of any law at all authorising it.

27. As to whether there is any law authorising or purporting to authorise the disputed restrictions, it would appear that the only possible candidate as such a law is s.221 itself. The section certainly does not expressly authorise any such restriction. Does it do so by implication? It would have to be an inescapable implication to do so. The question of constitutionality arises only if such an implication appears. If not, the disputed restrictions would be liable to be set aside for the simple reason mentioned above, namely the want of any law at all authorising them.

28. Article 35 is to be found in Chapter III of the Basic Law, commonly known for good reason as the fundamental rights chapter. Speaking for the Court of Final Appeal in Ng Ka Ling v Director of Immigration (1999) 2 HKCFAR 4, the Chief Justice addressed the proper approach to fundamental rights. …

Consistently with that approach and established principles of construction, it is only to be expected that the courts, always slow to find an implication restricting any right, will be particularly slow to find an implication restricting or purporting to restrict an entrenched right

29. As I understand Mr Yuen’s stance, it is to the following effect. Section 221 does not contain any hint of an implication, let alone an inescapable implication, that it authorises or purports to authorise any restriction like the disputed restrictions. There is nothing in the language of s.221 that supports such an implication. Nor does the nature of s.221 examinations begin to generate such an implication. There is nothing to show that the possibility of a person’s evidence being contaminated as a result of consulting lawyers is greater in such examinations than in other processes. Nor is there anything to show that the harm that contaminated evidence would do to such examinations is likely to exceed the harm that it would do to other processes.” (underlined added)

56.  Mr Barlow submits that Kin Yuen v Kong Wah is the authority in support of his contention that:

(1)  Kong Wah v Kin Yuen does not provide any legitimate precedent for the making of the Direction;

(2)  Neither s.286B or s.286C provides or confers any statutory power or authority for making the Direction; and

(3)  Neither the Master, nor this Court has been empowered to make the Direction since it restricts or inhibits the guaranteed fundamental rights of R3-R8 to seek and obtain confidential legal advice from the lawyers of their choice.

57.  Mr Brown submits that there is no basis for the Direction to prevent an examinee, after the completion of his/her examination, from discussing the examination with any person including another examinee, or sharing the notes produced by the examinee’s legal team.

58.  Ms Jacqueline Law, counsel for the Liquidators, does not dispute that the right to obtain legal advice is protected by Article 35 of the Basic Law and that such right is a fundamental right. She submits that the examinees’ right under Article 35 is not infringed because:

(1)  the Direction does not contain express restriction on R3-R7’s right to consult their lawyers before the examinations, it only restricts such communication during and after the examinations. R3-R7 may discuss their own transcripts separately with their lawyers provided that they are subject to the same order against dissemination of information to other persons. Kwan J did not find the requirement[1] to be wrong in law (The Joint & Several Liquidators of Akai Holdings Limited v The Grande Holdings Ltd & ors, HCCW 49-50/2000, 23 October 2008 (“Akai v Grande CFI”);

(2)  the examinees may tell each other, their legal advisers and other persons matters they know about the Company which are relevant to the claims in the pending litigation. They merely cannot do so by reference to the transcripts. The legal advisers may take witness statements from the examinees by reference to documents in their possession and control (Akai v Grande CFI, §§39-40);

(3)  the exercise of R3-R7’s right to choose their lawyers “must be subject to restraint if in the exercise of those rights they are unwilling to put these measures in place, thereby giving rise to a conflict with the Liquidators’ right to [LPP], the settled law and practice on the conduct of private examinations and its confidentiality, and those lawyers’ duties to abide by the law and court orders”;

(4)  Bohkary PJ’s analysis on the examinee’s right to seek legal advice is in the context of another aspect of restrictions imposed by the court, which feature is absent in the Direction.

59.  In my view, the Direction does not have the effect of restricting or limiting the right of R3-R7 under Article 35 of the Basic Law for the following reasons.

60.  First, the Direction does not have the effect of prohibiting or restricting R3-R7’s right to consult their solicitors and counsel or be represented by them, whether at the examinations or in respect of any other legal proceedings. In particular, the restriction on disclosure is not directed at the solicitors and counsel of the examinees (or vice versa). Rather, the restriction is directed at the disclosure from the examinees, their solicitors and counsel to “any other person (including any other person being examined)”.

61.  Second, it seems to me that R3-R7’s arguments are premised on the assumption that in seeking legal advice from their solicitors and counsel, R3-R7 have to disclose the transcripts and the Documents to their solicitors and counsel. The assumption cannot be right. This is because each of the examinee, his/her solicitors and counsel will attend the same examination and be provided by the Liquidators with the same Documents for use at the examination. There is no need for the examinee to disclose any transcripts or Documents to his/her solicitors and counsel for the purpose of seeking legal advice, whether in respect of the examinations or any other proceedings.

62.  Third, I do not think that Kin Yuen v Kong Wah supports Mr Barlow’s argument. The conditions challenged by Yuen (summarised in §(b) and (c) in §14(3) above) had the effect of preventing him from discussing the contents of the documents with his legal representatives or seeking legal advice from his solicitors and counsel. The observations of Bokhary PJ were made in respect of such conditions. Those observations have no application to the Direction as it does not have the effect of preventing the examinees from seeking legal advice from their solicitors and counsel.

63.  Fourth, the suggestion that the Direction deprives R3-R4’s rights under Article 35 of the Basic Law and s.286C(3) of the Ordinance cannot be right. The suggestion is premised on the assumption that R3-R4 have the right to obtain the transcripts of the examination of R5 and the Documents provided to R5 for his examination. Mr Barlow has not identified the basis for suggesting that R3-R4 have the right to obtain the transcripts and Documents of R5 which, as explained in §§40 - 41 above, are confidential to the Liquidators, and in the case of the transcripts, also covered by the Liquidators’ LPP.

64.  Lastly, if and insofar as it is suggested that in future, the transcripts and Documents may need to be disclosed to the other examinees or any other parties, there is no reason why that examinee cannot apply to the court for leave to make such disclosure. Needless to say, before the examinee can make such disclosure, he/she will have to justify why the court should allow the disclosure, bearing in mind that there is a need to protect the confidentiality of the examinations and the Documents as well as the Liquidators’ LPP over the information derived from the examinations.

B5.  Impossible Dilemma ground

65.  Mr Barlow contends that the Direction, if not set aside, would put R3-R5’s legal representatives, who represent R3-R5 in the examinations and in HCA 57/2018, in an “impossible dilemma” and would force them to resign from continuing to represent them in either or both of the examination and/or HCA 57/2018. Reliance is placed on:

(1)  Chapter 8 of the Hong Kong Solicitors Guide to Professional Conduct, including §8.03 setting out the mandatory duty of Haldanes to their clients (R3-R5) to “… pass on to [their] client and use all information which is material to the subject matter of the retainer regardless of the source of that information” (underlined added); and

(2)  Chapter 10 of the Code of Conduct of the Bar of the Hong Kong SAR, including the following rules:

“10.13 (a) A practising barrister owes his primary duty as between the lay client and any other person to the lay client and must not permit any other person to limit his discretion as to how the interests of the lay client can best be served.

10.15 A practising barrister must promote and protect fearlessly and by all proper and lawful means the lay client’s best interests and do so without regard to his own interests or to any consequences to himself or to any other person (including any professional client or other intermediary or another barrister).

10.16 A practising barrister has the same privilege as his client of asserting and defending the client’s rights by the statement of every fact and the use of every argument that is permitted by the principles and practice of the law.” (underlined added)

66.  This ground does not concern R6-R7. This is because their examination will be conducted at the same time (on 26-27 September 2022) and the same Documents will be provided by the Liquidators to HG prior to their examination. During the examination, R6-R7, HG and counsel engaged by R6-R7 will be present. There is no question of HG or counsel disclosing any information derived from the examination or any Documents to R6 or R7. Mr Brown accepts that if the examination of R6-R7 is to be conducted at the same time, there is no basis to suggest that HG or counsel will be put in a dilemma. Nevertheless, I will consider the ground as if it is available to R3-R8.

67.  Ms Law submits that there is no merit in the Impossible Dilemma ground given that the issue of conflict of interest is not caused by the Direction. Nor can it be resolved by setting aside the Direction. Her arguments run like this:

(1)  A solicitor should take care to avoid disclosure to one client confidential information concerning or received from another client and should decline instructions where there is a reasonable likelihood that such disclosure would be required (Principles 8.03 (Commentary 2) and 9.03, HK Solicitors’ Guide to Professional Conduct).

(2)  Irrespective of the Direction, Haldanes and HG may find themselves in a position of conflict where their obligation under one retainer to pass on all information material to the subject matter of that retainer regardless of the source of that information may conflict with their duty of confidentiality owed to another client or at law under another retainer. This is the “root cause” of Haldanes and HG’s potential inability to represent multiple examinees in the examinations and in the other proceedings.

(3)  A solicitor must not act, or must decline to act further, where there is, or is a significant risk of, a conflict of interest. A conflict may arise as between two existing clients being represented jointly by the same solicitor or firm; it may also arise as between a solicitor’s duty to his client and his duty to the court or under the law. A solicitor thus has both an ethical and legal duty to avoid conflict (Principles 5.07 and 9.01 (Commentaries 1 to 3), Solicitors’ Guide).

(4)  Thus, the examinees represented by the same firm may originally see themselves to have common interests, and the information which they provide in their own examinations to the Liquidators may not be in conflict or inconsistent with each other. However, their interests may no longer be aligned following an examination, thereby triggering the legal advisers’ alleged duty and obligation to inform their other clients about matters of another client’s examination.

(5)  The potential problems of divided loyalties, risk of breach of confidentiality and risk of or actual conflict may – or may not – be resolved if the clients give appropriate waiver and consent to the firm (The Professional Conduct of Lawyers in Hong Kong, Vol 2 at Division IX [105]-[152]).

(6)  If Haldanes and HG are satisfied that it is proper for members of their firms to continue to represent multiple examinees without any risk of conflict of interests, or breaches of professional conduct, court orders and the law, the alleged dilemma can be avoided by putting in place “Chinese Wall” policies or confidentiality rings amongst different teams of solicitors representing different examinees. Such arrangement can prevent confidential information concerning the examination of one client from being communicated from the solicitors acting for him/her to other solicitors in the firm acting for another client (The Professional Conduct of Lawyers in Hong Kong, Vol 2 at Division IX [1404]).

(7)  It is wrong for Haldanes and HG to refuse to put in place any arrangement within the firms to preserve the sanctity of the examinations, but insist on the court removing the confidentiality of the examinations altogether and to require the Liquidators to waive their LPP over the information derived from the examinations.

68.  In my view, the so-called “impossible dilemma” is not a ground for setting aside the Direction.

69.  First, the duty owed by Haldanes and HG to their clients is subject to, and may be overridden by the duty owed to the court or under the law (Principles 5.07 and 9.01 (Commentaries 1 to 3), Solicitors’ Guide, described in §67(3) above). They are not required to disclose confidential information to their clients where such disclosure is prohibited by an order of the court. None of the paragraphs in the Code of Conduct of the Bar cited by Mr Barlow suggests that counsel engaged by Haldanes and HG are subject to the same duties as Haldanes and HG.

70.  Second, if contrary to my view, Haldanes and HG consider that notwithstanding the Direction, they are duty bound to disclose the information derived from the examination of one client to the other clients, it is obviously open to them to arrange different solicitor to attend the examination of each examinee to ensure that they would not be in breach of their duty owed to their clients. This is a matter for Haldanes and HG.

71.  Third, the information derived from the examinations is covered by the Liquidators’ LPP and is confidential to the Liquidators while the Documents are confidential to the Liquidators. There is no basis for R3-R7 to ask the court to remove the protection simply because Haldanes and HG (or the counsel retained by them) consider that they are or may be in a position of conflict or that they do not want to put in place any arrangement to allay their professed concern about the actual or potential conflict of interest.

C.  DISPOSITION AND COSTS

72.  For the reasons set out above, I dismiss R3-R5 and R6-R7’s appeals against the Direction.

73.  As for costs, I make a costs order nisi that R3-R5 and R6-R7 do pay the costs of and occasioned by their respective appeal to the Liquidators, to be assessed by way of gross sum assessment and be paid forthwith. For the purpose of apportionment, R3-R5 should pay 65% of the costs incurred by the Liquidators in respect of the appeals while R6-R7 should pay 35% of the Liquidators’ costs. This reflects the fact that most of the grounds of appeal are advanced by R3-R5. The Liquidators claim $210,779 as their costs of the appeals, which is considerably lower than the total costs claimed by R3-R5 ($621,279) and R6-R7 ($154,600). My provisional view is that the costs claimed by the Liquidators should be allowed in full. If R3-R7 have any comments on the statement of costs, they may lodge and serve their comments within 3 days of this Decision.