RE X LTD

HCCW 382/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 382 OF 2006

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REASONS   FOR   DECISION

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1.  I have before me an application by the Provisional Liquidators of X Limited for an order that a protective writ that they wish to issue against the former auditors and various officers and employees of the company be entered in the court registry in the names “A” and “B” in order to provide anonymity.  In other word the Provisional Liquidators seek a form of gagging order.

2.  They wish to do so for reasons which differ depending on the identity of the Defendants.  In the case of the officers and employees of the company they are concerned that if they are alerted to the existence of the proceedings before the liquidators have finished their investigations into the matters which cause them to wish to issue a writ they may take steps to hinder the prosecution of the claim.  In the case of the auditors the concern is different.  It is not suggested that the auditors would, for example, destroy records.  First, they are concerned that as they had not yet been able to fully investigate the potential claim against the auditors they would be disadvantaged if the auditors were made aware of the proceedings and applied for the writ to be served against them.  Secondly, they feel this it is fair to the auditors that the protective writ remains confidential until they have decided whether there is a basis for proceeding against them.  They assume that the auditors are unlikely to wish adverse publicity if it can be avoided.

3.  I accept that the Provisional Liquidators have shown grounds for the court making a gagging order in respect of the directors and officers.  I think the position is less clear in respect to the auditors.  If the auditors take the view that the litigation advantage to be secured by requiring the Provisional Liquidators to proceed immediately with an action against them outweigh the disadvantage of the adverse publicity generated by the writ becoming public that in my view, is a matter for them.  It needs to be borne in mind when considering an application at this sort that although the company’s court has on previous occasions accepted that such an order can properly be made to assist liquidators in pursuit of claims on behalf of a company effectively (see Re Kong Wah Holdings Limited (in liquidation), HCCW 49/2000, unreported, 4 November 2005) such orders are exceptional and should not be granted unless the court is satisfied that is in the circumstances it is justified.  In A Co. v B Co. (2003 3 HKLRD 111, Ma J (as he then was) summarised the relevant legal principles as follows:

“(1)    A gagging order is granted whether there are grounds to believe that once a wrongdoer is aware he is being pursued, steps may be taken by him to frustrate any claim that may be made against him or any investigations being carried out. (at 123B)

(2)   Gagging orders are also exceptional remedies.  By depriving the party affected of the opportunity to investigate facts in circumstances where that party may incur personal liability, is a serious intrusion into what otherwise would be a party’s basis rights.  It also in a sense condemned the person identified as a wrongdoer without a balanced picture being provided in the court at this stage.” (at 123F)

4.  I am satisfied that it is consistent with these principles to grant a gagging order in the case of the claim against officers and employees of the company.  In the case of the auditors in my view the appropriate course is to require a separate protective writ to be issued against them and for a gagging order to be granted but to direct that the auditors are made aware of the order and given liberty to apply to have it set aside if they so wish.

5.  The Provisional Liquidators’s solicitor are to provide me with revised draft orders and to send a copy of this decision to the auditor’s solicitors.