KIN YUEN v. THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (In Compulsory Liquidation)

FACV No. 3 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION 

FINAL APPEAL NO. 3 OF 2008 (CIVIL)

(ON APPEAL FROM CACV NO. 253 OF 2007)

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D E C I S I O N

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Mr Justice Bokhary PJ :

1.  These are applications by the appellant to withdraw each of these two appeals.  They are taken out under rule 17 of the Hong Kong Court of Final Appeal Rules which reads :

“(1) An application to withdraw an appeal shall be in Form D in Schedule 1 and shall be served on all the other parties as soon as reasonably practicable after it has been filed.

  (2)  The Court may determine an application to withdraw an appeal without a hearing.”

Seven days have elapsed since the Form D notices were served.  The respondents have not notified the Registrar that the granting of leave to withdraw is opposed or that they wish to be heard on any matter arising from these applications.  Indeed the parties are agreed that there should be no order as to the costs of these appeals.  In these circumstances, it is appropriate to determine these applications without a hearing.  And that is how I am determining them.

2.  In dealing with these applications as a single permanent judge, I am exercising the power which s.46(2) of the Hong Kong Court of Final Appeal Ordinance, Cap.484, confers on a single permanent judge to make any incidental order on an appeal that does not involve the decision of the appeal.  Neither granting nor refusing leave to withdraw an appeal would involve deciding the appeal.

3.  The opening clause of art.35 of the Basic Law provides that “Hong Kong residents shall have the right to confidential legal advice”.  If these appeals had proceeded, this would have been the second occasion on which the Court of Final Appeal has had to consider that clause.  The first was in the case of Solicitor v. Law Society of Hong Kong (2006) 9 HKCFAR 175.  In that case the Court of Final Appeal upheld the constitutionality of a statutory provision the side-effect of which would, in some instances and to some extent, inhibit the candour of communications by a client to his solicitor.  The Court of Final Appeal did not think that such instances would be many or such extent large.  The inhibition there was indirect and went to the seeking of confidential legal advice.  In these appeals, however, the complaints which have been made are against so much of each of two court orders as directly inhibits the seeking of any legal advice on certain important matters.  Those orders were made by the High Court (Kwan J) on 17 July 2007 and affirmed by the Court of Appeal (Rogers VP and Le Pichon JA) on 25 October that year.  The circumstances are as appear below.

4.  Kong Wah Holdings Ltd and Akai Holdings Ltd (“the Companies”) used to be listed on the Hong Kong Stock Exchange, but are now in compulsory liquidation pursuant to winding-up orders made in August 2000.  They were members of the Akai Group.  That group has collapsed.  Its collapse has resulted in what appears to be the largest corporate insolvency in the history of Hong Kong.

5.  Turning to the parties to these appeals, the involvement of the appellant (“Mr Yuen”) with the Akai Group included his secondment to Akai Holdings Ltd from January to March 2000 as its Chief Financial Officer.  The respondents are the joint and several liquidators of the Companies.  I will refer to them as “the Liquidators” and to their predecessors as “the former liquidators”.

6.  Mr Yuen has been interviewed twice by the former liquidators.  The first of those interviews took place in May 2001 and the second in June that year.  It would appear that at each of those interviews he was accompanied by his solicitor from whom was able to take legal advice on all matters including documents shown to him in the course of the interview.  In July 2001 Mr Yuen was informed by the former liquidators that they did not wish to interview him again or obtain any further information from him.

7.  Five years later, in August 2006, the Liquidators asked Mr Yuen for a meeting.  He agreed to attend a two-day interview to be held in October that year.  The Liquidators proposed that prior to the interview certain documents be provided to Mr Yuen (for the purpose of refreshing his memory) and to his legal advisers (for the purpose of representing him at the interview).  When putting forward that proposal, the Liquidators sought to impose a number of restrictions to be secured by undertakings.  Mr Yuen was not prepared to submit to those restrictions.  They included ones which – as Kwan J put it when giving the reasons for the orders which she made on 17 July 2007 – would “prohibit [Mr Yuen] from disclosing or discussing the contents of the documents with his legal representatives, and prohibit his solicitors and counsel from disclosing or discussing the contents of the documents with him”.  As a result of the impasse flowing from the Liquidators’ insistence on undertakings which Mr Yuen was not prepared to give, the meeting planned for October 2006 did not take place.

8.  Eight months later, 8 June 2007, the Liquidators took out applications for orders that Mr Yuen be summoned under s.221 of the Companies Ordinance, Cap.32, to be examined on oath before a Master of the High Court concerning the promotion, formation, trade, dealings, affairs or property of the Companies.  On 17 July 2007 Kwan J made two orders, one in respect of each of the Companies, so summoning Mr Yuen.  Each of these two s.221 orders contain the following restrictions by which the seeking of legal advice is inhibited :-

(1)  Mr Yuen “must not … disclose to or discuss the contents of [the documents provided by the Liquidators] with … his legal representatives, whether solicitors or counsel … without the written consent of [the Liquidators] or leave of [the High Court]”.

(2)  The “solicitors and counsel for [Mr Yuen] must not disclose or discuss the contents of [those documents] with … Mr Yuen … without the written consent of [the Liquidators] or leave of [the High Court]”.

Those are the restrictions complained of (which I will call “the disputed restrictions”).

9.  On 25 October 2007 the Court of Appeal dismissed Mr Yuen’s appeal against the disputed restrictions.  He promptly asked them to grant him leave to appeal to the Court of Final Appeal and to stay the s.221 orders pending such appeals.  They refused leave or any stay.  Whereupon Mr Yuen went promptly to Mr Justice Ribeiro PJ sitting as a single permanent judge.  He stayed the s.221 orders pending applications to the Appeal Committee for leave to appeal to the Court of Final Appeal and, if such leave be granted, pending the determination of such appeals.  The Appeal Committee granted leave to appeal.  Hence these appeals, pending the determination of which the s.221 orders have been stayed under Mr Justice Ribeior PJ’s order.

10.  There are two things to do before outlining the reasons which Kwan J gave for imposing the disputed restrictions and the reasons which the Court of Appeal gave for affirming them.  The first is to set out s.221 in full.  And the second is to refer to the Court of Final Appeal’s recent decision in Joint & Several Liquidators of Kong Wah Holdings Ltd v. Grande Holdings Ltd (2006) 9 HKCFAR 766.  That case concerned the purpose and scope of s.221 and the proper exercise of the power thereunder.

11.  Section 221 reads :

“(1) The court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs, or property of the company.

(2)    The court may examine him on oath concerning the matters aforesaid, either by word of mouth or on written interrogatories, and may reduce his answers to writing and require him to sign them.

(3)    The court may require him to produce any books and papers in his custody or power relating to the company, but, where be claims any lien on books or papers produced by him, the production shall be without prejudice to that lien, and the court shall have jurisdiction in the winding up to determine all questions relating to that lien.

(4)    If any person so summoned, after being tendered a reasonable sum for his expenses, refuses to come before the court at the time appointed, not having a lawful impediment (made known to the court at the time of its sitting, and allowed by it), the court may cause him to be apprehended and brought before the court for examination.”

12.  The main judgment in Joint & Several Liquidators of Kong Wah Holdings Ltd v. Grande Holdings Ltd was given by Lord Millett NPJ.  In his judgment, with which the other members of the Court agreed, he said (at p.780D-E) that s.221 is designed to enable a liquidator to carry out his functions and that those functions

“… are twofold : (i) to collect the assets of the company, settle its liabilities and distribute its surplus funds amongst its creditors; and (ii) to investigate the causes of the company’s failure and the conduct of those concerned in its dealings and affairs : see Re Pantmaenog Timber Co Ltd [2004] 1 AC 158 at pp.164, 172-173, 177.  The first of these functions is primarily of concern to the company’s creditors and shareholders; the second serves a wider public interest in enabling the authorities to take appropriate action against those guilty of misconduct in relation to the company.”

13.  Then, after noting the width of s.221, Lord Millett NPJ turned to the balance to be struck between a liquidator’s reasonable requirements and the avoidance of anything unreasonable, unnecessary or oppressive to the party from whom information or documents are sought.  As laid down by the courts over the years, the general principles governing this balancing exercise can be, he said (at pp 782F-783A), summarised as follows :

“(1)  The liquidator must show that the documents are reasonably required to enable him to carry out his functions, not that they are necessary to enable him to do so;

(2)    the case for making an order under the section in respect of a former officer is usually stronger than in respect of a stranger who owes no fiduciary duties to the company and who is not under a statutory duty to assist the liquidator;

(3)    there is an element of oppression in requiring a party to provide information which exposes him to potential liability;

(4)    an order for oral examination is likely to be more oppressive than an order to produce documents;

(5)    it is oppressive to require a person suspected of wrongdoing to prove the case against himself on oath prior to proceedings being brought;

(6)    an order is not necessarily oppressive because it is inconvenient for the party subject to it or causes him a lot of work or may make him vulnerable to future claims;

(7)    in the light of the summary nature of the procedure and the need for expedition, the court cannot be expected to indulge in fine judgments as to the precise width of the order which should be made; and

(8)    the court must take care not to cut down the width of the order sought by the liquidator in a way which would risk making it ineffective.”

14.  In our joint judgment, Mr Justice Chan PJ and I added (at pp 774H-775A) these concurring observations (with which the Chief Justice and Mr Justice Riberio PJ agreed) :

“The broad purpose of provisions like s.221 of the Companies Ordinance (Cap.32), is plain.  Quite simply, it is to help liquidators to carry out their duties as effectively, quickly and economically as possible.  To that end, liquidators need to identify, at an early stage, what promising paths they can pursue and, let it never be forgotten, what blind alleys they had best avoid so as not to throw good money after bad.  It can be seen – perhaps even more clearly nowadays than in the past – that the section’s language and its purpose combine to call for a wide interpretation of the court's powers thereunder. Whether and if so how those powers ought to be exercised in any given case will depend on all the circumstances of the case.  The court must exercise its powers effectively but of course not so as to support over-zealousness or cause oppression.  The court must do what, all things considered, appears at the time to be just and proper.”

15.  Unlike these appeals, the 2006 case did not involve anything that inhibited the seeking of legal advice.  So it goes only to providing a measure of context for present purposes.

16.  In rejecting the arguments presented on Mr Yuen’s behalf in opposition to the disputed restrictions, Kwan J began by saying this :

“Although it is recognised there is clear distinction between giving proper legal advice to an examinee on the one hand and schooling or colouring the evidence of an examinee on other hand, with the best will in the world there is nevertheless a risk that the evidence of the examinee may be coloured if his legal advisers are permitted to go through with him the documents supplied by the liquidators to be used in the examination.”

And she then said that

“ … a fair balance should be struck between the uninhibited right to legal advice and the need to ensure the integrity and effectiveness of the examination in that the evidence of the examinee should remain his own unrehearsed and untainted evidence and common sense should prevail in this situation.”

No reason is given as to why it is thought – or indeed whether it is thought – that the risk of evidence being coloured is more serious in this sort of situation than in any other situation in which legal advice is sought and obtained.

17.  Next, Kwan J rejected the submission on Mr Yuen’s behalf that the effect of the disputed restrictions would seriously curtail his right to seek legal advice, saying this :

“Mr Yuen’s right to discuss with his legal advisers and seek advice on any matter relating to the examination is not affected, nor would his legal representation be rendered ineffective.  Mr Yuen would have a fairly clear idea as to the areas of investigation by the liquidators.  He had gone through two interviews with the liquidators with his solicitors in attendance, and had given affirmations in the liquidator’s applications under section 221 against other parties.  Prior to his first interview, he was given a very detailed list of some 75 questions.  His solicitors have already acquired some knowledge of the matters under investigation, having attended the previous interviews in 2001, quite apart from the fact that they have acted for other parties involved in some of the material transactions.  The only thing Mr Yuen is not allowed to do is to have his legal advisers go through with him the documents to be supplied by the liquidators, to prepare him for the evidence he is to give at his examination.  As an experienced company director with financial qualification, and with close involvement in the affairs being investigated, he should have sufficient knowledge and understanding of the documents to be able to go through them without assistance from his legal advisers.”

If these appeals had proceeded, it would have been necessary to consider whether that downplays the significance of the documents in comparison with others matters.  If so, there would arise the question : why do those documents call for restrictions which those other matters do not? 

18.  Then Kwan J stressed that the disputed restrictions “do not impose a blanket prohibition”, and said this :

“If Mr Yuen wishes to confer with his legal advisers on any of the documents supplied, he may do so, with leave of the court, or with the written consent of the liquidators, upon identifying the issue or area of his concern.  I do not accept that would involve divulging confidential or privileged communication between Mr Yuen and his legal advisers.”

The seeking of consent or leave if consent were refused could put Mr Yuen to considerable expense if he did so through his legal advisers.  I am not sure what Kwan J had in mind when she said that the divulging of confidential or privileged communication between Mr Yuen and his legal advisers would not be involved.  And on any view, there would be the antecedent problem of how Mr Yuen would instruct his legal advisers to assist him in seeking consent or leave.  That problem would result from the prohibition against disclosure or discussion between him and them of the contents of the documents in advance of consent or leave.

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.

21.  In affirming the disputed restrictions, the Court of Appeal did not adopt Kwan J’s reasoning.  Nor did they accept the Liquidators’ argument that s.221 impliedly authorises restrictions that inhibit an examinee’s right to seek legal advice.  Their reasoning is contained in the judgment which Rogers VP gave and with which Le Pichon JA agreed.  Rogers VP said that he was attracted to the arguments presented on Mr Yuen’s behalf because

“… if for no other reason, it seemed … that if an examinee were entitled to consult lawyers about the facts relating to a company in respect of which he was to be examined, there could be little practical purpose in preventing him from considering relevant documents with his lawyers.  Furthermore, as the case in the 19th century made clear, it was appropriate that an examinee should be represented at his examination by lawyers for the purpose of clarifying matters.  The argument that somebody seeking to re-examine a witness needs to know the detailed background facts is clearly a strong one.  In those circumstances it seemed that it would also be relevant for the lawyers who would be present to be informed of relevant facts relating to any particular document.”

22.  But then Rogers VP said this :

“Nevertheless, after reflecting, I consider that the order made should be allowed to stand.  I look upon the order requiring the production of documents prior to the examination as being a contraction of the examination process.  The reason for the early production of the documents is so that a series of adjournments would not be necessary in order for the examinee to be able to recollect matters in relation to events which took place many years earlier.  It is possible that the examinee may be able to produce other documents which bear upon the matter.  That is, however, likely to be pure conjecture.”

23.  Turning to art.35, Rogers VP expressed these views :

“Importantly, I do not consider that the order made constitutes an infringement of the rights under Article 35.  The right to confidential legal advice has not been infringed.  Neither has the right to have that advice for timely protection of the examinee’s lawful rights and interests been infringed.  If documents were shown to an examinee in the course of his examination, the examinee would have no right to ask for an adjournment in order to be able to consult his legal advisers.  He would not be able to consult his legal advisers during an adjournment either.  He might make a request to be able to do so, but the permission and consent of the judge before whom the examination were taking place would be necessary, but that is all.  In this instance, so too, the order provides that the examinee can consult his legal advisers provided he obtains the consent of the court or the liquidators.”

24.  As Rogers VP rightly recognised, a s.221 examinee is entitled to be accompanied by his legal advisers at, and take advice from them during, his examination.  And there would seem to be no denying that Mr Yuen may reasonably wish to take legal advice on the documents provided.  Indeed, that would appear to be recognised by the making of provision for him to seek consent or leave to take such advice.  What is the reason for providing him with documents before his examination?  As I understand Mr Yuen’s position, the following points are among the ones which would have been urged on his behalf if these appeals had proceeded.  The obvious reason for providing him with documents before his examination is that he would need time to consider them before being examined.  Documents that he needs time to consider before being examined are inherently likely to be, or at least include, ones on which it would be natural for him to seek legal advice beforehand.  Moreover there is a real question as to what the position would be if he was provided with a document during the examination and wanted to seek legal advice on that document before answering questions on it.  It is not possible to pronounce in unqualified terms that preventing him from doing so would always or even generally be compatible with his constitutional right to seek legal advice.

25.  For the foregoing reasons, Mr Yuen would have invited the Court of Final Appeal to reject the view that the disputed restrictions are merely part of an arrangement to be accepted as a “contraction” of the examination process.  That view forms the basis of Rogers VP’s conclusion to the effect that, even though the disputed restrictions expressly prohibit disclosure and discussion between a person and his legal advisers, they nevertheless do not inhibit the right to seek legal advice entrenched by art.35.  And Mr Yuen would of course have invited the Court of Final Appeal to reject that conclusion along with the view on which it is based.

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, saying (at p.29A) that :

“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.”

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.

30.  An unscrupulous lawyer may deliberately coach a client, and a careless lawyer may inadvertently do that.  But whatever negative things some lawyers may sometimes do, legal advice and services are fundamental elements of a legal system like ours.  Is there anything to show that the possibility of coaching is greater in s.221 examinations than in other processes?  And is there anything to show that the harm that coaching would do to such examinations is likely to exceed the harm that it would do to other processes? 

31.  The points of law raised by these appeals are very worthy of the Court of Final Appeal’s attention.  But that must await another occasion.  This is because the parties have now agreed that no examination of Mr Yuen will take place.  Consequently the disputed restrictions have fallen away.  In such circumstances, there is no justification for forcing the parties to proceed with these appeals.  So leave to withdraw these appeals is granted.  And, as agreed between the parties, there will be no order as to the costs of these appeals.