RE ASHER & COMPANY (HONG KONG) LTD

HCCW 150/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 150 OF 1998

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D E C I S I O N

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Introduction

1. This is an appeal against the decision of Master Woolley made on 6 March 2003 during the course of the Appellant's examination under section 221 of the Companies Ordinance regarding the dealings, affairs or property of Asher & Co. (Hong Kong) Limited ("the Company"). The Appellant was a director of the Company. He refused to answer a certain question put to him by Miss Ismail, counsel for the Official Receiver, on the ground that his answer might incriminate himself. After having been referred to the decision in Re Weihong Petroleum Co. Ltd, [2002] 1 HKLRD 541, in which Madam Justice Kwan held that the privilege against self-incrimination had been impliedly abrogated by section 221 of the Companies Ordinance, Master Woolley ordered the Appellant to answer the question. At the request of the Appellant's counsel, Mr Swaine, and on his undertaking to file the necessary Notice of Appeal, Master Woolley adjourned the examination pending appeal.

2. At the appeal, Mr Swaine submitted that until the decision in Re Weihong, it was generally accepted that the privilege against self-incrimination existed and that it was impossible to read into the words in section 221 of the Companies Ordinance the implied abrogation of such a fundamental right as the common law privilege against self-incrimination. He submitted that Madam Justice Kwan wrongly assumed that the privilege against self-incrimination had been abrogated and transplanted English decisions decided under a different company law and insolvency law regime created by the Companies Act 1985 and Insolvency Act 1986 into Hong Kong. In essence, his submission is that Re Weihong was decided per incuriam and should not be followed. In my view, Re Weihong was a well reasoned decision and I can see no reason to depart from it. However, I shall address the various points raised by Mr Swaine.

Article 11(2)(g) of the Hong Kong Bill of Rights

3. Mr Swaine argued that although Article 11(2) of the Hong Kong Bill of Rights is expressly concerned with determination of a criminal charge, the guarantees under sub-paragraph (g) is meaningless unless it is equally available to a person being asked questions in civil proceedings the answers to which might have the effect of incriminating himself. With respect, I do not agree. The words of Article 11(2) are unambiguous. The guarantees provided under that article are available only to a defendant in the determination of any criminal charge against him. In Re Tse Chu Fai Ronald [1993] 2 HKLR 453, Jones J held that Article 11 of the Bill of Rights has no relevance to the inspector's investigation under section 145 of the Companies Ordinance. Likewise, I hold that the guarantee under Article 11(2)(g) is not available to a person being examined under section 221 of the Companies Ordinance.

Whether the common law privilege against self-incrimination may be invoked

4. The privilege against self-incrimination is such a well known protection to the individual's freedom and liberty that it has become part of our legal heritage. But this privilege may only be invoked by a person exposed to jeopardy of criminal prosecution and is only available where there is a real danger of prosecution and conviction: see Pyneboard Proprietary Limited v. Trade Practices Commission (1983) 45 ALR 609 at 621-622, per Murphy J. The privilege cannot be invoked by showing merely that it was probable that a criminal offence was committed in connection with the affairs of the company and that it was possible, if not probable, that the examinee was a party to the offence. It has to be shown with certainty that the examinee has committed the offence before the privilege can be invoked. In In re Repetition Engineering Service Ltd (1945) 173 LT 75, Cohen J in ordering the examination said at p.76:

"It is true that it also seems probable that a criminal offence was committed in connection with such diversion [of money which ought to have gone into the coffers of the company] and possible, if not probable, that X was a party to the offence. But this is not certain, for X may have been ignorant of the elements which constituted the crime and may be able to answer questions, which will assist the liquidator in his investigation without incriminating himself."

5. In the present case, the Appellant was asked questions relating to a cheque drawn by the Company, in which the Appellant was a director, in favour of the Appellant's solicitors firm purportedly for payment under an annual retainer agreement. So far as could be ascertained from the transcript, the Appellant said he did not recognise the signature on the cheque and when he was shown a bill issued by his firm and asked if the cheque was issued in respect of that bill, the privilege was raised. In my view, whatever would have been his answer to that question or answers to further questions along that line, the Appellant was not at risk of prosecution, let alone conviction. He may be able to answer the question or questions to assist the Official Receiver in his investigation, without incriminating himself. The burden of showing a real danger of prosecution and conviction rests on the party seeking to raise the privilege and the Appellant has utterly failed to discharge that burden. This conclusion alone would be sufficient for me to dismiss the appeal. I shall now turn to the question whether the privilege has been impliedly abrogated by section 221, should the issue arise in the course of further examination.

The proper approach to construction of section 221

6. Like any common law right or privilege, the privilege against self-incrimination may be taken away by the legislature. It is common ground that section 221 does not expressly abolish this privilege. Thus the question raised by this appeal is whether on a true construction of section 221 of the Companies Ordinance, the privilege has been impliedly abrogated. The answer to this question is to be found in the language, the character of the provision and the purpose which the provision was intended to achieve. The privilege is impliedly abrogated if the obligation to provide information or produce documents is expressed in general terms and it appears from the character and purpose of the provision that the obligation was not intended to be subject to any qualification and that unless the privilege is abrogated the purpose of the provision could not be achieved. If the liquidator's investigation into the affairs of the company is in the public interest and the information or documents sought is peculiarly within the knowledge or possession of the person being examined and who cannot reasonably be expected would provide the information or documents otherwise than under a statutory obligation, then it can be inferred that the obligation was not intended to be subject to any qualification. Thus whether the examinee is under a statutory obligation or owes a duty to furnish information sought and whether there is any public interest in the liquidator's investigation are the keys to the true construction of section 221. The above approach deduced from the basic rules of statutory interpretation indeed explains the test in In re Levitt Ltd [1992] Ch 457 adopted by Madam Justice Kwan in Re Weihong. In my view, this approach is applicable in construing any statutory provision whether under the new or old regime. I think Mr Swaine's criticism of the decision in Re Weihong is without merit.

The practice prior to In re Levitt Ltd

7. Before turning to the construction of section 221, I shall first examine the position in Hong Kong prior to the decision in Re Weihong and the position in the United Kingdom before in In re Levitt Ltd. The development of company law and insolvency law in the United Kingdom has taken a different course from that in Hong Kong since 1985. Hong Kong's Companies Ordinance is based on the United Kingdom's Companies Act of 1948. Following the Report of the Review Committee on Insolvency Law and Practice (1982), Cmnd. 8558, ("the Cork Report"), there were substantial changes in company law and insolvency law in the United Kingdom which resulted in the enactment of the Companies Act 1985 and the Insolvency Act 1986 providing a regime for personal as well as corporate insolvency. These Acts are not applicable to Hong Kong.

8. Prior to the decision in Re Weihong in Hong Kong in 2002 and In re Levitt Ltd in the United Kingdom in 1992, it has always been assumed in Hong Kong as it was in the United Kingdom that the privilege against self-incrimination was available to an examinee under section 268 of the Companies Act 1948 or our section 221. This proposition of the law could be traced back to Buckley on the Companies Act, 2nd ed. (1875) at p.252, where the eminent author wrote in respect of section 115 of the Act of 1862:

"The only matters as to which the witness can refuse to answer are matters in which he may incriminate himself, and matters involving professional confidence."

That passage was approved by Baggallay LJ in In re Silkstone and Dodworth Coal and Iron Co (Whitworth's Case), (1881) 19 Ch D 118 at 121 and has since appeared in every subsequent edition of Buckley and was never doubted until In re Levitt Ltd. That proposition of the law has also found its way into the 20th century company law text books and In re Silkstone and Dodworth Coal and Iron Co. was cited as the authority in support of the proposition: see for example, Pennington's Company Law, 3rd ed., at p.709.

9. However, in In re Silkstone and Dodworth Coal and Iron Co the question was whether a director summoned under the equivalent section of the Companies Act 1862 could be examined by counsel for the contributories. The Court of Appeal held he was a witness summonsed by the court and he could be so examined. There was no dispute that the questions asked were proper and the question of self-incrimination did not actually arise. Thus, strictly speaking, that statement of the law is obiter and unnecessary for the decision.

10. Another decision which could be said to be supportive of the above proposition is In re Repetition Engineering Service Ltd, which I have referred to above. In that case, the registrar refused an application by the liquidator for an order for examination of a former employee on the ground of self-incrimination. In reversing the decision of the registrar, Cohen J proceeded on the assumption that the privilege against self-incrimination was available. The privilege was assumed and not argued.

11. This assumption continued under the new insolvency regime in the United Kingdom until the decision in Barlow Clowes Gilt Managers Ltd. (Liquidator) v. Mitchell (unreported), 31 July 1990 in which Ferris J, after reviewing the authorities, held that the privilege against self-incrimination was available under the new regime to a person examined pursuant to section 236 of the Insolvency Act 1986. However, in In re Levitt Ltd, decided two years later, Vinelott J took a contrary view. In re Levitt Ltd was approved by the Court of Appeal in Bishopsgate Investment Management Ltd v Maxwell [1993] Ch 1. Thus it has been authoritatively decided in the United Kingdom that the privilege is no longer available under the new regime. Without going into the position in the United Kingdom, it would be helpful to refer to the following observation of Vinelott J on In re Repetition Engineering Service Ltd about the assumption. The learned judge said at p. 467:

"Clearly Cohen J assumed that the privilege would be available. In neither [In re Repetition Engineering Service Ltd nor In re Silkstone and Dodworth Coal and Iron Co] was the question whether a witness could rely on the privilege against self-incrimination directly in issue, and in neither of these cases, nor in the notes to Buckley, is the decision in Ex parte Schofield, 6 Ch D 230 referred to. Mr Trace invited me to say that the assumption made by the Court of Appeal in Whitworth's Case, 19 Ch D 118 and by Cohen J in In re Repetition Engineering Service Ltd 173 LT 75 was not well founded. It is unnecessary that I should express any opinion on this question which is now of historic importance. I should, however, point out that the assumption, that a person summoned under section 268 and the antecedent sections could not be asked questions the answer to which might incriminate him, might have been founded on the view that no public interest was served in an examination under section 268, and that such an investigation was directed solely to enabling the liquidator to carry out his duty of getting in the assets of the company for the benefit of creditors and deciding whether proceedings should be instituted for the recovery of property or damages from third parties: that is, in Lord Hanworth M.R.'s words in In re Paget [1927] 2 Ch 85, 87, that the inquiry was concerned with mere debt collecting and distribution of assets."

12. Thus, under the old insolvency regime in the United Kingdom, which is the same as the current regime applicable under our Companies Ordinance, it was assumed that the privilege survived section 268 of the Companies Act 1948 or section 221 of our Companies Ordinance. This assumption was founded on the somewhat erroneous view as to the purpose of the section, i.e. that the investigation by the liquidator was a private matter of debt collection and distribution of assets without any element of public interest. With that in mind, I now turn to what I consider as the purpose of section 221.

The purpose of section 221 and public interest in the investigation

13. The dominant purpose in construing a statute is to ascertain the intention of the legislature as expressed in the statute, considering it as a whole. Particularly, in ascertaining the implied intention of the legislature, it is important to find out what purpose the statute was intended to serve. A narrow reading of section 221 is that the section is directed solely at enabling the liquidator to carry out his duty of getting in the assets of the company for the benefit of creditors and deciding whether proceedings should be instituted for the recovery of property or damages from third parties. That is the trap we have contained ourselves in the past fifty years. Indeed, in my view there is a much wider interest to be served than just getting in the assets of the company for distribution to all the creditors. I agree wholeheartedly with Buckley J in Re Rolls Razor Ltd [1968] 3 All ER 698 that the powers conferred by section 268 of the English Companies Act, which is equivalent to our section 221, are directed to enable the court to help a liquidator to discover the truth of the circumstances connected with the affairs of the company, information of trading, dealings and so forth, in order that the liquidator may be able, as effectively as possible, with as little expense as possible and with as much expedition as possible, to complete his function as liquidator, to put the affairs of the company in order and to carry out the liquidation in all its various aspects, including, the getting in of any assets of the company available in the liquidation

14. Corporate insolvency is a matter in which the public has an interest. Corporate transactions account for a significant proportion of our business and commercial activities. These transactions dominate our international business scene. When a company becomes insolvent, the public is affected. It affects the public who put funds in these companies and affects the public who advance money or provide credit to these companies in the ordinary course of business. Where a company is a public listed company, the effect is more manifest, but that does not mean public interest is totally absent in the event of winding up of a private company. Because of its corporate personality, creditors may only recover their debts against the company's assets. There is therefore a public interest in that the liquidator may discharge his function as effectively, expeditiously and with as little expense as possible. There is also a public interest to ensure that people to whom the responsibility in the management and operation of a company are delegated and people who deal with a company know that their activities in or with the company are not just private matters between themselves, their shareholders or creditors, but matters in which the public has an interest and over which the public may scrutinise if the insolvency of the company has anything to do with their affairs in or with the company. When this element of public interest is properly recognised instead of being totally ignored as in the past, the construction to which section 221 should be given must be viewed in a different light. It is with this public interest in mind that one should construe section 221.

Obligation to provide information v. privilege against self-incrimination

15. To consider whether the examinee is under an obligation to answer questions in an examination under section 221, it is important to understand right at the very beginning the nature of the examination process. The examination under section 221 is an extraordinary procedure and is inquisitorial in nature. It is a secret mode of obtaining information necessary for the proper conduct of the winding up borrowed from the law of bankruptcy. It is available against people who are in a peculiar, though not necessarily fiduciary, relationship with the company. This relationship may arise as a result of their position in the company, namely as directors or officers of the company; or by reason of their possession of the company's property under circumstances where an explanation is called for; or by reason of their failing to account for debts owed to the company; or as a result of such circumstances that the court deems them capable of giving useful information to the liquidator. A company can only act through natural persons and with natural persons. Thus given the public interest attached to such an inquiry which is of an inquisitorial nature, these examinees are under an obligation to answer questions or provide documents. The obligation is particularly obvious in the case of directors and officers of the company as they are fiduciaries through whom the company acts.

16. Liquidators are usually strangers to the affairs of a company which has become insolvent. When they take possession of the company, books, accounts and records are often incomplete or unavailable. Often the insolvency may be the result of misconduct or impropriety, rather than mis-management, on the part of those concerned with the management of the company who have obvious motives of being uncooperative with the liquidator's inquiries. Likewise, others who are wholly innocent of any wrongdoing may have motives for concealing what was done. Very often, the information or documents sought are peculiarly within the knowledge or control of these persons, who because of their personal interest are most unlikely to be willing to cooperate with the investigation of the liquidator. Thus unless these persons are compellable to answer questions in examination or produce documents, there is no way a liquidator can perform his duty of putting the affairs of the company in order and carrying out the liquidation in all its various aspects as effectively as possible, with as little expense as possible and with as much expedition as possible. For such inquiries, time is of the essence. The longer it takes to find out the true state of affairs of the company, the more remote is the chance of recovering the company's assets and collecting its debts. If the privilege against self-incrimination is available to the person examined, the purpose of section 221 would be easily frustrated and the extraordinary inquisitorial process would be rendered nugatory. Having regard to the purpose of the section, the public interest in ensuring the liquidator may discharge his duty as effectively, expeditiously and with the least expenses possible, the peculiar position of the examinee vis-à-vis the company and that the information or documents sought are peculiarly within the possession and control of the examinee who cannot reasonably be expected would provide the information or documents unless under a statutory obligation, it must have been the intention of the legislature that the privilege so far as they relate to the person ordered to be examined under the section has been impliedly abrogated by section 221.

Other sections compared

17. Mr Swaine referred to the public examination under section 222 and section 168IA. These sections were introduced in 2000. Where the Official Receiver or liquidator has made a further report under the Ordinance stating that in his opinion a fraud has been committed by any person in the promotion or formation of the company or by an officer of the company in relation to the company since its formation, the court may direct that person or officer to be examined under section 222. Subsection (5) provides that the person examined shall answer all such questions as the court may put or allow to be put to him and subsection (7) provides that the notes of the examination shall be read over and signed by the person examined and may be used in evidence against him. Likewise, where the Official Receiver or liquidator has made a report stating that in his opinion a person should be disqualified from holding the office of a director, manager or liquidator of a company, the court may require that person to be examined. Similarly subsections (6) and (9) respectively provide that the person shall answer all questions and the notes of examination shall be admissible in evidence against him in any proceedings under Part IVA of the Ordinance. Mr Swaine said that subsections (5) and (7) of section 222 and subsections (6) and (9) of section 168IA are similar to provisions under the Insolvency Act 1986 but are missing from section 221. Hence, he submitted that in the absence of such similar provisions in section 221, the abrogation could not be implied.

18. While it could be said that express reference of the obligation to answer all questions put and admissibility of the notes of examination under sections 168IA and 222 and the absence of similar provisions in section 221 could lead to the inference that section 221 should be construed differently, I think all depends on what is the true construction of the various sections when considered in their proper context and in the context of the Ordinance as a whole. In my view, the difference between sections 168IA and 222 on the one hand and section 221 on the other reflects more as a change in legislative drafting style than difference in substance. Sections 168IA and 222 were grafted in 2000 into an Ordinance which was more than half a century old. Differences in drafting style is only to be expected. But can it be said that without expressly providing for the obligation on the part of the examinee to answer all questions and the use to which the notes of examination may be put in section 221, the privilege against self-incrimination is thereby preserved? I think the answer is "no". In statutory interpretation, differences in drafting style adopted for different sections are matters to be taken into consideration but such consideration cannot outweigh the significance to be attached to the language and the character of the provision and the purpose which the section was intended to achieve.

Conclusion

19. Having regard to the language and character of section 221 and the purpose which the section was intended to achieve, I find on a true construction of the section 221 that the common law privilege against self-incrimination has been abrogated. The Appellant is required to answer such questions or produce such books and papers as the Master may order, notwithstanding that it may incriminate himself. Accordingly, the appeal is dismissed with costs to the Official Receiver. Such costs are to be taxed if not agreed. The matter is remitted back to Master Woolley for the further conduct of the examination.