Companies Winding-up Proceedings2000

RE AKAI HOLDINGS LTD

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63168-EN-2008-10-23

THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (in Liquidation) v. THE GRANDE HOLDINGS LTD AND OTHERS

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED (in Liquidation)	Applicants
	and
	THE GRANDE HOLDINGS LIMITED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED (in Liquidation)	Applicants
	and
	THE GRANDE HOLDINGS LIMITED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

____________

(Heard Together)

Before: Hon Kwan J in Chambers (not open to public)

Date of Hearing: 23 October 2008

Date of Decision: 23 October 2008

______________

D E C I S I O N

______________

The application

1. I have before me an identical summons in each of the proceedings taken out on 30 July 2008by Ho Wing On, Christopher and Ruby Lee Yen Kee (collectively “the applicants”).

2. Mr Ho is thepresident, group chief executive and director of The Grande Holdings Limited. Ms Lee is the head legal counsel of the Grande group of companies. They are the 1^st and 19^th defendants in an action brought by the liquidators of Akai Holdings Limited (“Akai”) and Kong Wah Holdings Limited (collectively “the Companies”) in HCCL Nos. 37 and 40 of 2005. I shall refer to that action as “the Grande Proceedings”.

3. Other defendants in the Grande Proceedings are corporate members of the Grande group, companies no longer related or not related to the Grande group, and a former employee of the Grande group.

4. Mr Ho, Ms Lee and 8 other defendants, being the 2^nd, 4^th, 6^th, 7^th, 9^th, 15^th, 16^th and 20^th defendants are represented by the same firm of solicitors, Messrs Wilkinson & Grist. The other defendants are separately represented. I understand from Mr Paul Carolan with the possible exception of the 4^th defendant, which may be a related company, the companies represented by Wilkinson & Grist are all in the Grande group. The 9^th defendant is a special case in that the interest of the Grande group in this company has been sold recently, so it is anticipated that Wilkinson & Grist may soon cease to act for the 9^th defendant. The 9^th defendant is the entity through which the interest in the Grande group is held in the 10^th to 14^th defendants, the five Zhongshan Kawa companies.

5. In the summonses before me, the applicants seek the following orders:

(1)     they be permitted to provide each other with copies of their respective transcripts of their private examinations conducted by the liquidators of the Companies;
(2)     they be permitted to provide copies of their respective transcripts to the following:
(i)    their legal advisers and any parties assisting such legal advisers (“Other Advisers”);
(ii)    Michael Binney, a chartered accountant and a director of The Grande Holdings Limited and The Grande Group Limited, two of the defendants in the Grande Proceedings;
(iii)    Felicity Porter, Associate Director, Legal of The Grande Group Limited; and
(iv)    the 2^nd to 18^th and 20^th defendants in the Grande Proceedings, their legal advisers and their Other Advisers.

6. Mr Carolan said this application is not an application for discovery and the applicants do not seek discovery from the liquidators, as the applicants each has a copy of his or her own signed transcript, with the consent of the liquidators. He would appear to have accepted that the application is brought under rule 62(2) of the Companies (Winding-up) Rules, by which the court may from time to time give such general or special directions as it shall think expedient as to the custody and inspection of such notes of the depositions of a person examined under section 221 of the Companies Ordinance, Cap. 32, and the furnishing of copies of or extracts therefrom. He also relied on the inherent jurisdiction of the court to entertain this application, so as to vary the orders made by Master de Souza, which I will come to.

7. The liquidators oppose the application. Mr Scott, SC submitted it should be dismissed, alternatively it should be adjourned pending:

(1) all the defendants in the Grande Proceedings filing their defences; and
(2) the outcome of Akai's application for leave to appeal to the Court of Final Appeal in CACV No. 233 of 2008 and any subsequent appeal in the Court of Final Appeal.

8. CACV No. 233 of 2008 is an appeal from an order I made in HCCL No. 29 of 2004, an action brought by the liquidators against Ernst & Young (“the E&Y Proceedings”), in which I ordered the liquidators to give discovery to Ernst & Young of the transcripts of the private examinations of a number of persons, including Mr Ho and Ms Lee.

9. The liquidators contended that the appeal from that order deals with substantially the same questions of law and fact relevant to the present application.

The background

10. On 4 August 2005, I made an order pursuant to section 221 that the applicants be examined on oath before a Master concerning the affairs of the Companies.

11. Three months after the order was made, on 7 and 8 November 2005, the liquidators filed protective writs in relation to the potential causes of action against the applicants and certain of the Grande group of companies. These are the Grande Proceedings.

12. The general indorsement to the writ alleged, among other things, breaches of fiduciary, contractual, equitable and/or tortious duties owed by the defendants to the plaintiffs from November 1999 in respect of the conduct of the affairs of the plaintiffs and dealings with and receipt of assets of the plaintiffs by the defendants during that period.

13. Mr Ho was examined in private for 16 days before Master de Souza between February 2006 and December 2007, Ms Lee was examined in private for 6 days before the Master between November 2006 and May 2007.

14. During the examinations of both, the Master ordered each of them to sign and return to the liquidators the transcript of the examination within a specified time and each of them, their solicitors and counsel are not to disclose “any information or documents given or obtained in the examination to any other person without leave of the Court or the written consent of the liquidators”.

15. On 31 March 2008, the liquidators filed the consolidated points of claim in the Grande Proceedings. There are 17 plaintiffs in that action and 20 defendants, the points of claim took up 274 pages.

16. I have been provided by Mr Carolan’s team with a summary of the key allegations by the plaintiffs, this took up 8 pages closely typed. Defences were due on 14 September 2008. I understand the defendants have sought an extension of time, I am not told what extension of time was given. Discovery has not yet commenced.

17. On 23 September 2008, the Court of Appeal gave judgment in CACV No. 233 of 2008 dismissing the appeal from my order. The liquidators applied to the Court of Appeal for leave to appeal to the Court of Final Appeal. The application was heard on 9 October 2008, judgment was reserved. To date, Ernst & Young has not been permitted to inspect the transcripts ordered to be disclosed, pending the outcome of the liquidators’ application for leave to appeal.

Purpose in seeking the transcripts

18. In the affidavit in support of the application made by Mr Budge, the solicitor for the applicants, he has given these reasons for this application. There are numerous claims against each of the defendants in the points of claim, with detailed references to matters and events in 1999 and 2000. There is need for the applicants to discuss with the co-defendants and persons named in the summons the matters and events as alleged, with reference to the transcripts, to re-construct the sequence of events and clarify what had actually happened.

19. At present, Mr Binney is assisting with forensic accountancy matters regarding the actions. In due course, independent forensic accountants will be instructed to assist. “Other Advisers” referred to in the summonses are expert witnesses to be retained by the defendants to assist in the defence of the actions, since many of the allegations in the points of claim involve complicated financial transactions.

The liquidators’ reasons of opposition

20. Mr Scott submitted the orders sought should be refused for these reasons:

(1)     they are unnecessary for the fair and expeditious disposal of the Grande Proceedings;
(2)     they are premature in the context of the Grande Proceedings where defences have not yet been served and discovery has not yet taken place;
(3)     they are unnecessary for, and contrary to, the beneficial winding up of the Companies;
(4)     they are inconsistent with the statutory purposes of section 221 and rule 62; and
(5)     they are contrary to the Companies’ proper claim to legal professional privilege over the transcripts.

Legal professional privilege

21. I will first deal with the liquidators’ claim for legal professional privilege, which is the last reason of opposition advanced by them.

22. The liquidators claimed the transcripts are subject to proper claims for both legal advice privilege and litigation privilege. A claim for legal professional privilege was made in the application for discovery I heard in the E&Y Proceedings. In my decision on 30 July 2008, I rejected the liquidators’ claim for legal advice privilege on the ground this has no application to transcripts as they are not communications between a lawyer and client seeking or giving legal advice. I rejected the claim for litigation privilege on the ground Akai had not established a factual basis for this and as a matter of law and principle, transcripts of a private examination are not privileged as the dominant purpose test cannot be met or does not apply. I do not propose to recite the detailed reasons in my decision.

23. My decision was affirmed by the Court of Appeal for the reasons given in paragraphs 14 to 19 of the judgment of the Court of Appeal.

24. In this hearing, Mr Scott submitted the decisions in the E&Y Proceedings are in error, for the reasons he advanced in the application for leave to appeal to the Court of Final Appeal. The judgment of the Court of Appeal on questions of law are binding on me. I see no reason why I should adjourn this summons to abide by the outcome of the liquidators’ application for leave to appeal to the Court of Final Appeal and the eventual appeal, if this should take place. I trust any adverse ruling of law made against the liquidators today will be taken on appeal in the same way, and there are measures that could be taken, if necessary, to see to it that any appeal by the liquidators would not be rendered nugatory.

25. As for the ruling in my earlier decision that the liquidators had not made out a factual basis for litigation privilege, it was contended by Mr Scott that the factual basis is established in this instance, relying on the 48^th affidavit of Mr Cosmo Borrelli made in opposition of this summons, paragraphs 8 to 11, 23 to 24.

26. Mr Borrelli had made an earlier affidavit deposing to the purpose of conducting the private examinations of the applicants and others in the E&Y Proceedings. That was considered in paragraphs 27 to 31 of my decision on 30 July 2008.

27. On 29 August 2008, the present summonses came before me and I adjourned them for substantive argument, giving directions to the liquidators to file evidence in opposition within 21 days, by 19 September 2008. On the same day, the appeal from my decision in the E&Y Proceedings was heard in the Court of Appeal and judgment was reserved.

28. The liquidators did not file their affidavit in opposition to this summons within the time as directed.

29. On 23 September 2008, the Court of Appeal handed down its judgment. Rogers VP agreed with my view that the liquidators’ evidence was heavily hedged and did not show the dominant purpose of the examinations as being in relation to existing or contemplated litigation.

30. Mr Borrelli’s 48^th affidavit was filed the day after the judgment of the Court of Appeal was handed down. Mr Scott has explained to the court the affidavit was filed on 24 September 2008 due to circumstances beyond Mr Borrelli’s control, that he did not return to Hong Kong until 22 September 2008 and there was a typhoon on 23 September.

31. Mr Scott asked me to read the 48^th affidavit together with the earlier affidavit. He submitted I would find no substantial difference between the two and informed me on instructions there was no re-drafting of the later affidavit in the light of the judgment of the Court of Appeal.

32. I am not bound to accept assertions on affidavit on their face. There is a difference in emphasis in the two affidavits. It seems to me that paragraphs 9 to 11,23 to 24 of the 48^th affidavit, with the emphasis on “main object”, “overriding purpose” and “dominant purpose”, are prepared with an eye on relevant passages in judgments relied on by the liquidators. The liquidators had not revealed how they had put their applications for private examination when the applications were heard in 2005. This was a point made by Ernst & Young in the Court of Appeal and mentioned in the judgment at paragraph 16. It is still not addressed in the 48^th affidavit. That the applicants could have adduced such evidence, as they were respondents to that application, is neither here nor there, as the onus is on the party asserting privilege to satisfy the court of the factual basis for it.

33. I wish also to point out that the order for examination was made on 4 August 2005, protective writs were not issued until 7 and 8 November 2005. The actual examinations were not conducted until February 2006.

34. In these circumstances, I do not think I can attach significance to the assertions made in the 48^th affidavit. There is no basis to alter my view that the factual basis has not been established for a claim for litigation privilege. I decline to dismiss the summons on the ground of legal professional privilege claimed by the liquidators.

If disclosure of transcripts is inconsistent with the statutory purposes of section 221 and rule 62

35. I turn to the 4^th reason of opposition of the liquidators. This is also a question of law considered in my decision on 30 July 2008and was decided against the liquidators. Argument was advanced on that occasion that the disclosure of transcripts would be to further the private interests of Ernst & Young in defending the E&Y Proceedings, and Ernst & Young would need to show disclosure is for the purposes of the winding up of the Companies and this would be beneficial to or advance the purposes of the winding up. I held that the disclosure of transcripts by a liquidator in civil litigation he has brought in the name of the company for recovery of assets is to assist the beneficial winding up of the company and is a use within the purpose of section 221, applying the decision of the Court of Appeal in Re Wing Fai Construction Company Limited [2004] 3 HKLRD 357. The Court of Appeal in its judgment on 23 September 2008upheld my ruling it was conducive to the beneficial winding up of Akai that the company should fulfil its obligation to give discovery.

36. I am given to understand there is also a pending application for leave to appeal to the Court of Final Appeal against the decision in Wing Fai Construction, to be heard next week.

37. On this question of law, I would apply the question as held by the Court of Appeal and hold that the disclosure of transcripts in these circumstances is not inconsistent with the statutory purposes of section 221 and rule 62.

Exercise of discretion

38. The other three reasons advanced by the liquidators all go to the discretion to be exercised whether disclosure of the transcripts should be allowed under rule 62.

39. No issue was taken with the relevance of the transcripts of the applicants to the issues in the Grande Proceedings. The liquidators accept that the applicants are at liberty to tell each other, their legal advisers and other persons the matters they know which are relevant to the points of claim, but not by reference to the transcripts.

40. The liquidators see nothing objectionable for the applicants’ solicitors to take witness statements from the applicants by reference to the documents in their possession and control, which largely constituted the documents available to the liquidators during the examinations, so long as the statements are prepared without reference to the transcripts.

41. The liquidators also recognise the right of Mr Ho and Ms Lee to discuss their own transcript separately with their legal advisers, provided the legal advisers give an undertaking there would be no dissemination of information to the other defendants.

42. It was contended on behalf of the liquidators that disclosure of the transcripts is not necessary for the expeditious preparation of the defence in the Grande Proceedings. It was not shown that points of defence could not be filed without reference to the transcripts. They said there was no evidence to suggest the applicants cannot recall the events except by reference to the transcripts, the applicants can discuss the events with their solicitors and Other Advisers relying on their independent recollection, using contemporary documents at their disposal. It was contended there was no evidence that the transcripts would assist Mr Binney, Ms Porter or the Other Advisers in their work in the preparation of the defence. Furthermore, it would be premature to order disclosure of transcripts as points of defence have not been filed and discovery has not taken place in the proceedings.

43. I appreciate this is a very early stage in the Grande Proceedings, but these proceedings cannot be regarded as ordinary litigation. The complexity of this litigation is on a par with if not more so than the E&Y Proceedings. The events in question took place in 1999 and 2000.

44. It is unrealistic to suggest that the applicants or their experts advising them would not be assisted by the transcripts, or that the applicants should be expected to rely only on their recollection and contemporary documents at their disposal. As Mr Carolan has said, the applicants do not have the powers of total recall.

45. I see no reason to differ from the way I exercised my discretion in the E&Y Proceedings, so disclosure of the transcripts would have been ordered in any event. The only question is whether I should do so now instead of at the stage of discovery.

46. I have a discretion in this matter. What I do is not to be regarded as setting a precedent. The circumstances here are entirely exceptional – in terms of the complexity and number of issues involved, the considerable lapse of time from the events in dispute, and the intricate interaction of persons and entities.

47. The applicants seek disclosure of their own transcripts, not the transcripts of anyone else.

48. I see nothing sinister in the applicants seeking disclosure of their transcripts to other defendants and their advisers, at least to those defendants within the same group of companies. I decline to infer that is done to put up a “synchronised” defence that would not conflict with what was said in the transcripts.

49. It is appropriate to exercise my discretion and order disclosure to be made at this early stage of the proceedings. I note in Re Buchanan Enterprises Pty Limited [1982] 6 ACLR 733, the courthad declined to allow inspection by a witness of the transcript save for the portions of his evidence quoted in the liquidators’ affidavits, until a defence has been filed. But we have a more open regime now in the conduct of litigation. To allow disclosure at this stage accords with the present trend of conducting litigation on the basis that each party’s evidence is revealed well before trial.

50. So I would grant the application and allow the applicants to show their transcripts to each other. I would also allow the provision of the transcripts to the persons set out in paragraph 2(i) to (iii) of the summons, as well as to those companies in paragraph 2(iv) within the Grande group represented by Wilkinson & Grist, namely the 2^nd, 4^th, 6^th, 7^th 15^th, 16^th and 20^th defendants.

51. I am not minded to grant the application as far as the 9^th defendant is concerned. This company is no longer part of the Grande group, and is soon to be separately represented. I am also not prepared to grant the application to allow the transcripts to be shown to the other defendants at this stage. There is no sufficient information before me why I should exercisemy discretion in their favour. I know very little regarding their circumstances.

52. The liquidators expressed concern if disclosure is ordered at this stage, this may not be subject to the usual implied undertaking regarding the use to which documents disclosed in discovery may be put. I was referred to the decision of Stone J in the Grande Proceedings on 17 June 2008 and the decision of the Court of Appeal in Shun Kai Finance Company Limited v Japan Leasing (HK) Limited (No.2) [2000] 3 HKLRD 539. It was held by the Court of Appeal that the implied undertaking is not applicable where a document was voluntarily referred to in a pleading or affidavit and is required to be produced for inspection under Order 24 rules 10 and 11 of the Rules of the High Court.

53. As Stone J has observed in paragraphs 59 and 60 of his decision, the judgment of the Court of Appeal has in no way precluded the court, in the exercise of its discretion, from requiring an undertakingto be given by the party to whom disclosure is made, if it considers it just and appropriate in all the circumstances, and it is open to a party who is subject to the undertaking to apply to the court to lift the undertaking with respect to any one or more of the documents disclosed on good grounds.

54. The concern of the liquidators would be met by providing that disclosure sought in the summons is to be given subject to an undertaking in these terms: in respect of the persons named in the summons to whom disclosure of the transcripts is given, and any person included but not named in the summons to whom disclosure of the transcripts is proposed to be given, they are required to give an undertaking that the transcripts are not to be used for any purpose other than for the purposes of the Grande Proceedings, such undertaking is formally to be given by a solicitor’s letter.

55. I will give leave to any person who is subject to the undertaking to apply to be released from the undertaking with respect to the transcripts disclosed pursuant to this order.

56. Mr Carolan has informed the court that the applicants are prepared to give the required undertaking.

57. I see no reason why costs should not follow the event in these circumstances. I order the liquidators to pay the costs incurred by the applicants in this application in any event.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr John Scott SC, instructed by Messrs Lovells, for the Liquidators

Mr Paul Carolan, instructed by Messrs Wilkinson & Grist for the 5^th and 6^th Respondents

Appeal allowed: see CACV326/2008 and CACV327/2008 dated 31 March 2009

58771-EN-2007-09-25

THE SECRETARY FOR JUSTICE v. JAMES HENRY TING

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

______________________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32 and rule 62(2) Companies (Winding-Up Rules)

______________________

BETWEEN

	THE SECRETARY FOR JUSTICE	Applicant
	and
	JAMES HENRY TING	Respondent

_________________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

______________________

	IN THE MATTER of AKAI HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32 and rule 62(2) Companies (Winding-Up Rules)

______________________

BETWEEN

	THE SECRETARY FOR JUSTICE	Applicant
	and
	JAMES HENRY TING	Respondent

______________________

(Heard Together)

Before : Hon. Kwan J in Chambers (not open to public)

Date of Hearing : 25 September 2007

Date of Judgment : 25 September 2007

______________________

J U D G M E N T

______________________

1. This is an appeal from the decision of Master de Souza given on 4 May 2007. The decision was made on an application by the Secretary for Justice for the release of the transcript of the private examination of James Henry Ting (“the respondent”), conducted pursuant to the order I made on 7 September 2004 under section 221 of the Companies Ordinance, Cap. 32.

2. The Master granted the application in the exercise of his discretion under rule 62(2) of the Companies (Winding-up) Rules. He ordered the transcript be made available to the Secretary for Justice in the full knowledge it would be passed on to the Commercial Crimes Bureau (“the CCB”). He noted that the information obtained in the depositions of the respondent is solely to assist the CCB in its investigations and not be released to any other party whether within or outside Hong Kong, to address the respondent’s concern that overseas authorities might come into possession of the information. And he ordered that the costs of the application, including the costs reserved, be in favour of the Secretary against the respondent, with certificate for counsel, to be taxed if not agreed.

3. The respondent lodged an appeal against the decision on the same day it was handed down. By an order by consent made by the Master on 9 May 2007, his decision was stayed pending the determination of this appeal.

4. I do not propose to repeat the background that gave rise to the order for examination against the respondent, they are set out in paragraphs 6 to 19 of my decision on 7 September 2004. Nor is it necessary to repeat the background of the companies, Akai Holdings Limited and Kong Wah Holdings Limited (collectively “the Companies”), and the respondent’s substantial involvement in their affairs. I refused the respondent’s application to stay the section 221 examination until the delivery of the verdict in his criminal proceedings. He lodged an appeal to the Court of Appeal. On 13 April 2005, his appeal was dismissed by the Court of Appeal (Re Kong Wah Holdings Limited & Another [2005] 1 HKLRD 847).

5. The respondent stood trial between 3 May 2005 and 24 June 2005 on two counts of false accounting, contrary to section 19(1)(a) of the Theft Ordinance, Cap. 210. He was convicted on 29 June 2005 and sentenced to six years’ imprisonment on both counts.

6. On 10 to 12, 15 to 19 August 2005, he was examined for 8 days before Master de Souza, pursuant to my order which was upheld by the Court of Appeal.

7. The liquidators were permitted to use LiveNote to take down the evidence of the respondent during examination, and the respondent was ordered to review the LiveNote transcript provided by the liquidators on a daily basis and sign the transcript within 21 days of completion of the hearing. So his depositions in the examination were transcribed by LiveNote (“the LiveNote transcript”) and the court’s transcription service (“the court transcript”).

8. The respondent appealed against his conviction to the Court of Appeal. His appeal was allowed on 22 September 2006 but a re-trial was ordered (HKSAR v Ting James Henry [2006] 4 HKC 494). On 5 December 2006, he applied to the Court of Appeal for certification to appeal to the Court of Final Appeal against the order for re-trial, and his application was refused. On 16 March 2007, he sought and obtained leave from the Court of Final Appeal to appeal against the order for re-trial, and leave was granted on the basis of three questions indicating points of law of great and general importance. The hearing of this appeal will take place on 17 and 18 October 2007.

9. Two months after the conclusion of the respondent’s private examination, on 13 October 2005, the Department of Justice wrote to the Master’s clerk seeking a copy of the transcript of the respondent’s examination “for the purpose of [their] on-going criminal enquiries”. It was further stated that the Department of Justice is aware that nothing the respondent said in his examination can be used against the respondent in any criminal charges laid against him.

10. Between October 2005 to December 2005, correspondence was exchanged between the court, the Department of Justice, the respondent and the respondent’s solicitors on the request of the Department of Justice for the transcript.

11. Eventually, on 14 December 2005, the respondent responded through his solicitors that he opposes the application as the Department of Justice appears to be on a fishing expedition, that he wishes to exercise his rights of privilege against self-incrimination and under the Hong Kong Bill of Rights, and there is substantial risk that information gained during his examination may be used by third parties, e.g. criminal authorities in other jurisdictions.

12. The Master directed a hearing to resolve the dispute, and handed down his decision on 4 May 2007.

13. The liquidators appeared before the Master and in this appeal but made no substantive submissions. Their stance, as stated in their letters to the court dated 30 May 2006 and 6 October 2006, is that they are opposed to providing the Secretary for Justice with a copy of the LiveNote transcript; as for release of the court transcript, that is a matter for the sole discretion of the Master, so the liquidators make no comment and raise no objection. In the event any order for the release of the court transcript is made, the liquidators submitted that the court should also make these orders:

(1) the transcript be kept confidential and not be provided to any third party or department outside of the Department of Justice;
(2) it be not disclosed in any other proceedings; and
(3) its use be restricted to solely assisting the Department of Justice in the investigations of the respondent.

14. I understand from Mr Turnbull, who appeared for the Department of Justice, that subject to certain changes, he would not be opposed to the orders sought by the liquidators, in the event that the appeal is dismissed and the court should authorise the release of the court transcript.

15. I should also say at the outset the Department of Justice has confirmed its stance, as it had done before the Master, that the court transcript would not be used against the respondent, whether in his re-trial, if this should take place, or in any other proceedings against the respondent, if the respondent is subsequently charged of other offences, and that the only use of the depositions is a derivative one, namely, to further the investigations of the CCB, such as by using this to acquire evidence from other sources.

16. It is provided in rule 62(2) that the court has discretion whether to direct the notes of the depositions of a person examined under section 221 be open to the inspection of any creditor, contributory or other person, and the court may from time to time give such general or specific directions as it shall think expedient as to the custody and inspection of such notes and the furnishing of copies of or extracts therefrom.

17. It was decided by the Court of Appeal in Re Wing Fai Construction Co Ltd [2006] 4 HKLRD 58 that leave is required under rule 62(2) for the liquidators to supply a copy of the depositions in a section 221 examination to the police; if the liquidators should consider the depositions revealed criminal conduct that should be reported to the authorities, it is for the court to decide, in the exercise of its discretion under rule 62, whether to order disclosure to the police. As stated by Yuen JA, rule 62 is wide enough to give protection to the individual compelled to give self-incriminating answers in private examination which are admissible in evidence against him; he has a right to ask the court to consider whether to protect him, and whether the court would do so would depend on the facts of each case, such as the availability of other evidence, the seriousness of the criminal conduct, the extent of the individual’s involvement, etc. The court has to carry out a balancing exercise, balancing the demand of furthering the public interest with that of safeguarding the right of the individual and this would simply be an extension of the balancing exercise which the court undertakes when it considers whether to order a private examination (at 79I to 80F, paragraphs 95, 96 and 99).

18. For similar statements about the need to balance the right of the individual and the public interest in the context of a private examination, I refer to the judgment of Lord Millett NPJ in Joint & Several Liquidators of Kong Wah Holdings Limited v Grande Holdings Limited (2006) 9 HKCFAR 766 at 780J to 781C, 782B to 783A, paragraphs 26, 29 & 30.

19. The Master’s reasons for allowing the release of the transcript to the Department of Justice for onward transmission to the CCB may be summarised as follows.

20. Firstly, he bore in mind the abrogation of the privilege against self-incrimination in an examination under section 221. He then considered the Court of Appeal judgment in Wing Fai Construction and the restriction on the use of depositions in private examinations, citing the relevant passages in the judgment that I have mentioned earlier. He looked at the derivative use of the depositions, with reference to the judgment of the Court of Final Appeal in HKSAR v Lee Ming Tee [2001] 1 HKLRD 599, in which it was held that whereas section 145(3A) of Cap. 32 abrogated the privilege against self-incrimination and replaced it with a direct use prohibition (i.e. prohibiting the use of questions and answers obtained in the course of an inspection as evidence in criminal proceedings against the person giving the answers), this section inferentially permitted derivative use of questions and answers and, as a matter of statute and common law, the prosecution was entitled to make derivative use of materials handed to the police. The Court of Final Appeal concluded that derivative use of compulsorily obtained self-incriminating materials could be justified if it was not a disproportionate response, and it was a question of striking a fair balance between the general interest of the community in realising the legislative purpose and the protection of fundamental rights of an individual.

21. The Master noted that here the Department of Justice does not seek to use the respondent’s depositions in the re-trial. This would not be permissible by virtue of section 33(1), Cap 210, and what is sought is the release of the transcript for transmission to the CCB, so that information may be used derivatively in furthering on-going investigations into the collapse of the Companies.

22. The Master then embarked on the balancing exercise set out in paragraphs 19 to 24 of his decision. He was of the view that where there are appropriate circumstances, a departure from preserving the confidentiality of private examination may be warranted, after a proper balancing of the competing interests of the private individual with public interests.

23. He had regard to the respondent’s interest, that his constitutional privileges should not be unfairly stripped away, and nothing should be done to prejudice his re-trial. He balanced that with the public interest in the fair administration of justice, and this demands that fraud bringing down listed companies should be fully investigated and identified culprits brought to book with the full force of the law. There was “more than a whiff of fraudulent misconduct” behind the collapse of the Companies, and “the massive insolvency did not result from mere financial incompetence”. He came to the view that the balancing of conflicting claims and interests clearly favours the release of the transcripts to the Secretary for Justice to enable further and continuing investigations be made, the depositions cannot and will not be used in the re-trial and the respondent’s right will be adequately safeguarded by his legal representatives and the trial judge.

24. As this appeal from the Master’s decision is a hearing de novo, I look at the exercise of the court’s discretion under rule 62 and carry out the balancing exercise afresh.

25. Mr Ismail for the respondent laid great emphasis on the need to preserve confidentiality in private examination, owing to the abrogation of the privilege against self-incrimination. He said there is an element of oppression in releasing the transcript which exposes the respondent to potential criminal liability.

26. He has no quarrel with the Master that the need to preserve confidentiality of the depositions is not absolute. He also accepted that wider public interest in the fair administration of justice and in fully investigating the fraud that brought down listed companies and bringing identified culprits to book are capable of amounting to good and clear reasons for not preserving the confidentiality of the depositions.

27. He submitted that here the liquidators have adopted a neutral stance. The liquidators are aware of what the respondent said in the depositions, it is significant that they have not applied to court to disclose the depositions to the CCB. Hence, it should be inferred that the liquidators do not consider the respondent’s depositions have revealed any criminal conduct or fraudulent misconduct worth investigating.

28. Mr Ismail stressed that the liquidators, who have the function of investigating the causes of the Companies’ failure and the conduct of those concerned in their affairs, and have been charged with the duty of reporting misconduct to the authorities for the latter to take appropriate action, have not considered it appropriate in this instance to make any report at all. The liquidators are still charged with this responsibility even though they have adopted a neutral stance in the present application. It may be that if at a later stage the liquidators should form the view that the respondent’s conduct should be investigated by the CCB when the liquidators have more information, they could then apply to the court for disclosure of the respondent’s depositions. In the meantime, public interest has been and is being looked after in that the liquidators have been entrusted with this role as described above. Mr Ismail also submitted there is no urgency in any investigation by the CCB.

29. I do not agree with the above submissions.

30. The liquidators, who appeared by Mr Gall, although making no substantive submissions, did say that no inference should be drawn from the fact that they have adopted a neutral stance and leaving it to the court to decide.

31. I do not think it right to draw the inference suggested by Mr Ismail from the mere fact that the liquidators have not supported affirmatively the application by the Department of Justice. Had the liquidators supported the application, this would of course be a weighty factor in favour of the Department of Justice. The fact that the liquidators have indicated neither support nor opposition cannot possibly be turned into an adverse factor against the applicant. The court has no idea why the liquidators have taken a neutral stance.

32. The liquidators are not the only ones charged with the responsibility of bringing to book culprits in a liquidation, nor are they vested with the primary duty or an initiating role in this respect. There has been a police investigation all this time when the liquidators were charged with the administration of the liquidation. As submitted by Mr Turnbull, the information in the hands of police and the information available to the liquidators are not the same. The information in the liquidator’s hands may not reveal criminal conduct when looked at in isolation, and the lines of enquiry adopted by the police and the liquidators do not coincide. The Department of Justice is not saying at the moment there is a case of criminal conduct against the respondent (other than the charges that the respondent is faced with at the re-trial) or any one else. Investigations are continuing into other aspects relating to the collapse of the Companies and, depending on the results of investigations, further criminal charges may be laid against the respondent and other persons. Releasing the depositions of the respondent to the police would be of use to other lines of investigation which the CCB is currently undertaking.

33. Mr Ismail submitted the Department of Justice has not shown that the depositions are reasonably required by the CCB to carry out its functions, in that no area of investigation has been identified and it has not been demonstrated how the court transcript would help in its investigation, so this is merely a fishing expedition in the hope that something may turn up.

34. I do not accept this either. There is no reason why the Department of Justice should disclose the avenues that the CCB would wish to pursue, to ensure that no attempts would be made to impede the gathering of evidence relating to the enquiries. The submission of Mr Ismail that there is no urgency in providing information to the CCB to assist with investigation is not a realistic one.

35. Mr Ismail further submitted that since 2004, the liquidators have obtained orders for examination and inspection of documents from a number of other sources, including the Companies’ former auditors and the Grande Group of companies, so the state of knowledge of the liquidators as of today should be different from the position in 2004. If by this Mr Ismail is contending that the Department of Justice could have access to other documents or information owing to the further orders obtained by the liquidators under section 221, this has not been made clear to me.

36. I have considered the possible prejudice to the respondent. As indicated earlier, the sole use to which his depositions would be put is a derivative one. The respondent would suffer no prejudice in that his right not to have the depositions used against him in any proceedings is safeguarded. He is intimately involved in the affairs of the Companies, his examination before Master de Souza took 8 days. This court has no knowledge of the answers he gave, but the Master does have knowledge, having been seized of the examination. The Master would not make an order authorising the release of the court transcript if he considered that the depositions would be of no value in assisting the CCB in further investigations.

37. Mr Ismail raised in his submission that section 296(2A) of Cap 32 contravenes article 11(2)(g) of the Bill of Rights. Section 296(2A) provides as follows:

“ An answer given by a person to a question put to him in exercise of powers conferred by rules made under this section may be used in evidence against him.”

38. The Court of Appeal mentioned in Wing Fai Construction that by virtue of this provision, there is no limit to the type of proceedings in which evidence obtained in private examination may be used, and the answers given may be used in civil and criminal proceedings (supra. at 64F, paragraph 10)

39. Mr Ismail said he would reserve the right to challenge in a higher court that a private examination under section 221, with abrogation of the privilege against self-incrimination, when read with section 296(2A), contravenes article 11(2)(g).

40. Article 11(2)(g) is not relevant in the present context. The immunity in that article is a testimonial immunity, it does not prohibit derivative use of materials compulsorily obtained.

41. For above reasons, I see no reason why the Master’s decision should be faulted. I would have come to the same decision myself. On dismissing the appeal, I make these additional orders:

(1) the court transcript is to be kept confidential and other than the CCB, the Department of Justice is not to provide a copy of this to any third party;
(2) the transcript is not to be disclosed by the Department of Justice in any other proceedings; and
(3) the use of the transcript is to be restricted to assisting the CCB in its investigation in matters connected with or arising out of the collapse of the Companies.

42. I order the respondent to pay the costs of the Department of Justice in this appeal, including the costs reserved. I also order the respondent to pay the costs of the liquidators in the hearing before the Master and on this appeal.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr Anthony Ismail, instructed by Messrs Andrew W Y Ng & Co, for the Respondent

Mr R G Turnbull, Senior Assistant Director of Public Prosecution, for the Applicant

Mr Nick Gall of Messrs Laracy Gall, for the Joint and Several Liquidators

58818-EN-2007-09-13

THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

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Released for publication with parts redacted

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

______________________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

______________________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED(IN COMPULSORY LIQUIDATION)	Applicant
	and
	THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED	Respondent

______________________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

______________________

	IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

______________________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED	Applicant
	(IN COMPULSORY LIQUIDATION)
	and
	THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED	Respondent

______________________

(Heard Together)

Before : Hon Kwan J in Chambers (not open to public)

Date of Hearing : 9 August 2007

Dates of Further Written Submissions : 13 and 16 August 2007

Date of Handing Down of Decision : 13 September 2007

______________________

D E C I S I O N

______________________

The application

1. This is an application by the liquidators of Akai Holdings Limited (“Akai”) and Kong Wah Holdings Limited (“Kong Wah”) (collectively “the Companies”) against The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) under section 221 of the Companies Ordinance, Cap. 32. The summonses in each of the proceedings were issued on 2 May 2007.

2. The application arose out of an order I made on 18 January 2006 against HSBC for production of documents and oral examination under section 221 (“the HSBC Order”). I refer to my decision on 18 January 2006 (“the Decision”) for the relevant background matters and the reasons why the HSBC Order was made.

3. In this hearing, both sides seek further directions from the court to deal with various problems arising from the implementation of the HSBC Order, and its interaction with another order for production of documents that I made on 4 August 2005, which was varied by the Court of Appeal on 26 April 2006 (“the Grande Production Order”). The Grande Production Order was made against The Grande Holdings Limited (“Grande”), The Grande Group Limited, The Grande (Nominees) Limited and Omnicorp Limited (“Toyo”; previously named Tomei International (Holdings) Limited, Toyo Holdings Limited, 02 New Technology Limited and Omnitech Group Limited). These four respondents in the Grande Production Order will be referred to collectively as “the Grande respondents”.

Paragraphs 4 to 37 (redacted)

The HSBC manuals

38. The liquidators seek production from HSBC of its internal manuals and guidelines relating to its monitoring of accounts, and the operation and conduct of its credit recovery function. The liquidators claimed the manuals are relevant and necessary to help them understand some of the documents produced by HSBC in their proper context, the nature and purpose of the documents, the procedures and processes of HSBC in the context of the transactions and events under investigation, the application of those procedures and processes to relevant transactions and events, and some of the answers given by HSBC personnel in their examination.

39. HSBC contended that the manuals sought are not within the scope of the HSBC Order and the court has no power to order their production unless they do relate to the Companies (Re Mid East Trading Ltd., supra. at 249b). Mr. Harry submitted that the procedures and processes of HSBC in the context of the transactions and events under investigation and the application of those procedures and processes in respect of those transactions and events cannot be said to relate to the affairs, financial condition, management, control, ownership, assets, liabilities and prospects of the Akai Group. This was explained in some detail in paragraph 192 of the 3^rd affidavit of Mr. Ashbrooke with regard to each of the manuals sought by the liquidators. I agree with the reasoning.

40. In any event, to address the liquidators’ concerns, HSBC has offered to answer any queries which the liquidators may have in relation to the nature or purpose of documents or classes of documents that they are unsure about.

41. I decline to order production of the HSBC manuals.

Legal professional privilege

42. The liquidators seek an order in these terms:

(1) the Respondent do forthwith produce, supply or otherwise make available to the Applicants and the agents or representatives duly appointed by them a list of the documents being withheld from production on the grounds of legal professional privilege, detailing the date of the particular document, the author, the addressee, a brief description of its nature (without disclosing its contents) and the ground of privilege relied upon; and
(2) leave to the Respondent to retrieve from the court the sealed box lodged with the court pursuant to paragraph 8 of the Order made on 18 January 2006 for the purpose of retrieving and producing to the Applicants the “JSM-SC Documents” as defined in paragraph 196 of the 3^rd affidavit of Glenn Ashbrooke.

43. In the event that the court is not minded to order HSBC to provide a list of documents as sought in paragraph 42 (1) above, these alternative directions have been proposed by both sides:

(a) the court should inspect and review the documents in the sealed box, after the JSM-SC Documents have been removed, and determine if HSBC is entitled to claim legal professional privilege for the remaining documents; or
(b) HSBC should submit a list of the relevant documents to the court alone, setting out the dates, addressors and addressees, but not the nature, description or topic on which legal advice was sought, and the court is to determine the question of privilege; if the court should find it necessary to do so, the court is to inspect and review the documents.

44. In the HSBC Order, it was provided in paragraph 8 that in respect of any documents under Schedule 1 which are claimed by HSBC to be legally privileged, HSBC shall produce such documents to the court, within the times as stipulated, in a sealed box. Pursuant to this, on 12 May 2006 HSBC lodged in court the documents for which it claimed legal professional privilege in a sealed box. These documents comprised (a) documents passing between the solicitors retained by HSBC, Johnson Stokes & Master (“JSM”), and HSBC in relation to legal advice from JSM to the steering committee formed by a group of financial creditors of the Companies in January 2000 and led by HSBC as the liaison bank in connection with the Akai workout (these are the JSM-SC Documents referred to above); and (b) other documents that were considered by HSBC and its solicitors in these proceedings, Freshfields, to be legally privileged. Subsequent to the filing of the sealed box, HSBC received from JSM their files relating to the Akai workout. After review of the files, HSBC identified a number of documents which were created in connection with JSM acting for it as a creditor to the Akai Group, and claims privilege for these documents as well.

45. Other members of the steering committee authorised HSBC to provide to the liquidators all information and documentation in relation to the Akai workout. HSBC therefore released to the liquidators all of such documents in the files it has obtained from JSM, on the basis that this does not constitute a collateral waiver of HSBC’s right to claim privilege over any related matters, and in particular without prejudice to any advice given by JSM to HSBC as a creditor, as opposed to being a member of the steering committee. As for the sealed box that has been lodged with the court, as it contains some documents of this kind, HSBC is likewise prepared to release them to the liquidators, on the same basis as before.

46. I therefore make an order in terms of paragraph 42(2) as sought by the liquidators. I turn to the order sought in paragraph 42(1), which is in dispute.

47. The HSBC Order made provision in paragraph 8 how legal professional privilege may be claimed, by lodging the documents in court in a sealed box. That does not mean the parties may not ask the court to revisit the matter, as they were given liberty to apply under paragraph 12. They may seek further or other directions from the court in this regard if it should transpire that the method prescribed of asserting a claim to privilege did not work satisfactorily, or is inappropriate, or if it is envisaged that the claim to privilege may be challenged.

48. The liquidators believed that the withheld privileged documents produced to the court by HSBC will contain information relevant to their investigations. Even if the contents of those documents are not revealed, they believed that information such as the specific dates on which advice was given by JSM, the identity of the persons seeking, providing and receiving advice, and the topics on which advice was sought will be relevant to their investigations. They claimed that there is no or no clear evidence that the communications over which privilege is claimed were confidential, nor is there evidence of the basis or nature of the privilege claim. Further, as JSM acted in a dual capacity in advising HSBC and there did not appear to be any clear distinction in those capacities, the claim for privilege ought to be tested and scrutinised; the distinction between communications relevant to the steering committee and communications relating to HSBC in its individual capacity as a creditor may not always be clear on the face of the documents. The liquidators seek a listing of the withheld documents from HSBC, to assist them with their investigations and to enable the claim for legal professional privilege to be properly tested. They are not seeking a list in such a way as to reveal the nature, contents or subject matter of the legal advice.

49. HSBC is opposed to providing a listing of the documents that were created in connection with JSM acting for it as a creditor to the Akai Group, for which privilege is claimed. If the liquidators are seeking a sufficiently detailed description of each of these documents to test the validity of the claim for privilege, this is an unorthodox approach. Besides, giving a brief description of each document may well necessitate disclosing the subject matter of the legal advice, and would undermine the privilege. I am given to understand the documents for which privilege is claimed take up two to three lever arch files. There is no suggestion that the task of listing such documents would be unduly onerous or oppressive. HSBC is opposed to this as a matter of principle, seeking to uphold the sanctity of legal professional privilege and the constitutional right to confidential legal advice.

50. I had made a similar order on 28 March 2007 in relation to the Grande Production Order requiring three of the Grande respondents to provide a list of documents for which they claimed legal professional privilege. I further directed them to supply a letter from their solicitors setting out the basis on which legal professional privilege was claimed for each of the documents. A determination was then made on 20 July 2007 in respect of those documents for which the liquidators challenged the claim to legal professional privilege. The order was made without the benefit of any authorities cited to the court on the propriety or otherwise of ordering a list of documents where legal professional privilege is claimed.

51. I have now had the benefit of reading the relevant authorities cited by Mr. Harry and Miss Chan. There is no binding authority on me. Although it is recognised that a claim of legal professional privilege may be made in the context of production of documents under section 221 (Re Highgrade Traders Ltd. [1984] BCLC 151), this provision does not have a procedure to deal with a claim for such privilege. Unlike adversarial civil litigation, there is no statutory provision as to when such a claim should be made, the manner in which it should be made, whether the claim is required to be verified on affidavit, and what information ought to be provided to the other side when the claim is made.

52. Mr. Harry submitted that the closest and best analogy to the situation of claiming privilege in the present instance is the regime prescribed in Order 24 rule 5 of the Rules of the High Court. This provision reads as follows:

“ Form of list and affidavit (O. 24, r. 5)
5. (1) A list of documents made in compliance with rule 2 or with an order under rule 3 must be in Form No. 26 in Appendix A, and must enumerate the documents in a convenient order and as shortly as possible but describing each of them or, in the case of bundles of documents of the same nature, each bundle, sufficiently to enable it to be identified.
(2) If it is desired to claim that any documents are privileged from production, the claim must be made in the list of documents with a sufficient statement of the grounds of the privilege.
(3) An affidavit made as aforesaid verifying a list of documents must be in Form No. 27 in Appendix A.”

53. The prescribed form in Form No. 26 in Appendix A makes provision for a Schedule 1 in respect of documents in the possession, custody or power of a party and it is divided into Parts 1 and 2 as follows:

“SCHEDULE 1
Part 1
(Here enumerate in a convenient order the documents (or bundles of documents, if of the same nature, such as invoices) in the possession, custody or power of the party in question which he does not object to produce, with a short description of each document or bundle sufficient to identify it.)
Part 2
(Here enumerate as aforesaid the documents in the possession, custody or power of the party in question which he objects to produce.)”
(italics supplied)

54. Miss Chan submitted that on a plain reading of Order 24 rule 5 and Form 26, no distinction would appear to be made in respect of the identification and listing of documents between documents to be disclosed without objection and those for which privilege is claimed. I am inclined to agree.

55. That, however, is not the law, as established in a long line of English cases on the provision equivalent to our Order 24 rule 5, prior to the Civil Procedure Rules in 1998. An accurate summary of this is given in the Hong Kong Civil Procedure 2007, Vol. 1 at para. 24/5/4:

“ But there is a certain difference between documents for which privilege from production is claimed and other documents. As is said above, the description is not for the purpose of enabling the other party to learn the contents of the document or to test the truth of the plea of privilege. Nor is it for the purpose of causing the party giving discovery to furnish evidence against himself (Gardner v. Irvin (1878) 4 Ex. D. 49 at 53, CA). It is not required that the dates of the documents should be specified nor the names of the makers (ibid.). ‘Correspondence between the (defendant) and his solicitors for the purpose of obtaining legal advice’ is sufficient (ibid.).
Where privilege is claimed for professional communications of a confidential character obtained for the purpose of getting legal advice, the claim for privilege is to be treated as itself a sufficient description of the communications, irrespective of the scale of discovery or the complexity of the issues involved, and consequently the party seeking disclosure is not entitled to satisfy himself by means of fuller description of the communications for which privilege is claimed that it is not claimed for documents outside its proper scope. Moreover the court will not order the party claiming privilege to disclose all communications with his legal advisers, or to provide fuller particulars of such communications, even where it has been shown in relation to one transaction that the advice was sought in furtherance of a fraudulent design, since to order such disclosure would be contrary to the public policy on which legal professional privilege is founded (Derby & Co. Ltd. v. Weldon (No. 7) [1990] 1 WLR 1156; [1990] 3 All E R 161).”

56. Mr. Harry has referred me to this line of English authorities: Taylor v. Batten (1878) 4 Q.B.D. 85 at 87 to 88, per Cotton LJ; Gardner v. Irvin (1878) 4 Ex. D. 49 at 53, per Cotton LJ; Ventouris v. Mountain, The Italia Express [1990] 3 All E R 157 at 160g to h, per Saville J (reversed on appeal on other grounds); Derby & Co. Ltd. v. Weldon (No. 7) [1990] 3 All E R 161 at 178h to 183b, per Vinelott J). He has also cited relevant English textbooks on the position prior to the Civil Procedure Rules: Discovery by Mathews and Malek, 1^st ed., 1992, para. 5.09; Privilege by Colin Passmore, 1^st ed., 1998, pages 248 to 249; Phipson on Evidence, 16^th ed., 2005, para. 23-98; Documentary Evidence by Charles Hollander, 9^th ed., 2006, para. 12-27.

57. Thus, in respect of documents for which privilege is claimed, it would not be required to list them individually and it would be permissible to give a compendious description by type or category, so long as it is possible to identify them, and provided that the ground of privilege and the facts giving rise to the claim for privilege are clearly stated. See, for example, the formulas usually adopted and as approved in Ventouris, supra. at 160g and Derby v. Weldon, supra. at 178j. The rationale behind this is that a more detailed description of the documents might be capable of undermining the privilege by revealing information (Phipson on Evidence, para. 23-98; Documentary Evidence by Charles Hollander, para. 12-27). It is clear from the English authorities that information required to be given of the documents claimed to be privileged is not to enable the other party to test the validity of the claim. The court would accept the list verified by affidavit as conclusive, unless it can be shown clearly that the oath of the deponent cannot be relied upon. Apparently, the court is content to rely on solicitors, as officers of the court, that they would scrutinise documents carefully and make a correct decision in making a claim for privilege on behalf of clients in the list of documents.

58. Mr. Harry reminded the court that legal professional privilege is a fundamental human right long established at common law, it is a necessary corollary of the right of any person to obtain skilled advice about the law, it is enshrined in Article 35 of the Basic Law, legal advice cannot be effectively obtained unless the client is able to speak unreservedly to his legal adviser in confidence, and the court must not in any way encroach on the right of a litigant or potential litigant to seek and obtain legal advice (R (Morgan Grenfell Ltd.) v. Special Commissioner of Income Tax [2003] 1 AC 563 at 606H to 607B, para. 7, per Lord Hoffmann; Ventouris v. Mountain, The Italia Express [1991] 3 All E R 472 at 476f to g, per Bingham LJ).

59. The present position under the Civil Procedure Rules is that the manner in which privileged documents are listed is identical to the manner in which non-privileged documents are listed (see Rule 31.19, the mandatory practice form N265, and Practice Direction 31), although it is noted in Documentary Evidence by Charles Hollander at para. 12-32 that the rule does not appear to have altered the practice of listing privileged documents compendiously and it is not clear how the court will react if the point is taken.

60. Miss Chan emphasised that the claim for privilege is made in the context of an investigative procedure under section 221, the court is not obliged to follow the procedure prescribed in adversarial litigation. Rules for discovery fall to be narrowly construed in adversarial litigation, whereas the authorities on section 221 showed that it is to be given a broad and generous interpretation (Joint and Several Liquidators of Kong Wah Holdings Ltd. v. Grande Holdings Ltd. (2006) 9 HKCFAR 766 at 783B to F, para. 31, per Lord Millett NPJ). She submitted that it is open to this court to prescribe a regime, or determine what directions should be given on a case by case basis – by reference to the particular facts, the reasonable requirements of the liquidators, and the position of the party ordered to produce documents. A blanket claim of privilege of unspecified documents based on a bald assertion would preclude scrutiny, notwithstanding that it was not properly made, and would thwart the investigation of the liquidators.

61. Miss Chan has drawn my attention to a line of authorities in Australia where the courts had adopted a less restrictive approach regarding the information to be provided in adversarial litigation, where a claim for legal professional privilege was made in the context of rules of procedure similar to our Order 24 rule 5, and the other party had applied for a more precise description of the documents in the list to make his own assessment if the claim for privilege was properly made. The courts had ordered a party to give a supplementary list of documents identifying individually the documents over which privilege was claimed, by reference to the date, author, addressee and a brief description of the nature of the document without disclosing its contents. This type of order, known as a “Kadlunga” order, was named after Kadlunga Proprietors v. Electricity Trust of South Australia (1985) 39 SASR 410, a decision of the Full Court of the Supreme Court of South Australia.

62. The propositions in Kadlunga, which Miss Chan has helpfully summarised, may be stated as follows:

(1) The issue was not one of construction of the relevant rule in the Supreme Court Rules in relation to the description and identification of documents claimed to be privileged but in applying “the living spirit of the Rules rather than the dead letter” (at 413).
(2) It is entirely proper for a party seeking discovery to challenge the ground upon which privilege is claimed for any particular document and to question whether that document as described could qualify for protection upon that ground. Accordingly, it is both necessary and desirable that the description of a particular document for which privilege is claimed should be sufficient to disclose quite readily (without disclosing contents) whether or not it is in fact a document to which the head of privilege relied on can extend (at 414).
(3) There is a middle ground between the disclosure of the contents of a protected document and consequential loss of privilege on the one hand, and the adequate description of the nature of the document for which privilege is claimed. It is impossible to discern whether the limits of privilege have been observed without some useful description of the nature of the document. Whilst it must be accepted that the description of a document is conclusive and cannot be challenged by the opposing party, this is only on the basis that the description is truly adequate. If this was not so, the claim to privilege could not begin to be meaningfully tested (at 415).
(4) It is a common occurrence that bona fide mistakes have been made by practitioners as to the scope of privilege and its applicability to particular documents. Reliance on the judgment and integrity of practitioners is not an adequate safeguard or a substitute for adequate description (at 415).
(5) What is required in properly describing discovered documents will vary from case to case depending on the nature of the document and the particular ground of privilege claimed (at 415).

63. Kadlunga had been approved and widely applied in Australia, including in the following cases cited by Miss Chan: JN Taylor Holdings Ltd v. Bond (1991) 57 SASR 21 (Debelle J and, on appeal, the Full Court of the Supreme Court of South Australia); Bradley Phillips Pty. Ltd. v Burn Brite Lights (Vic) Pty. Ltd. [2002] SASC 145 (Supreme Court of South Australia Civil, Master Burley); Boase v. Seven Network (Operations) Ltd. [2005] WASC 174 (Supreme Court of Western Australia, Master Newnes).

64. Mr. Harry has also drawn my attention to two other cases in Australia to show that Kadlunga was not uniformly followed: Lazenby v. Zammit (1987) Tas R 54 (Full Court of the Supreme Court of Tasmania); Stephen David Kenny v. Territory Insurance Office [1994] NTSC 26 (Supreme Court of the Northern Territory of Australia, Master Coulehan).

65. I note these propositions in the subsequent cases which applied Kadlunga:

(1) There are sound reasons to require a party to describe more adequately the documents the subject of a claim for privilege. It will be an unusual case where the description of the documents will betray the line of reasoning of a party’s legal adviser (JN Taylor Holdings Ltd v. Bond, supra. at 36, per Debelle J).
(2) What underlies the reasoning in Kadlunga is the fact that errors can be made, either through negligence or inadvertence, and the need to describe each document reduces the incidence of error. Furthermore, the requirement to examine each document for the purpose of description will focus the solicitor’s mind closely upon the issue and will assist in determining whether in fact the claim for privilege should be made or maintained (Southern Equities v. Arthur Andersen, 11 December 2000, Debelle J, unreported, quoted in Bradley Phillips Pty. Ltd. v Burn Brite Lights (Vic) Pty. Ltd., supra. at para. [21]).
(3) Where a claim of privilege is made, the facts relied upon as giving rise to the privilege must be set out so the claim can be tested, although the facts should not be set out in such detail as would enable the contents of the documents to be ascertained indirectly. An adequate description is required of each of the document for which privilege is claimed, but not one which indirectly reveals its contents (Boase v. Seven Network (Operations) Ltd., supra. at para. [24]).
(4) It is not appropriate, as has been laid down on many occasions, for a claim for privilege to be made simply en globo and by reference to classes of documents. The appropriate method of describing privileged documents is to enumerate them, that is to list them, and then to identify the bases upon which the privilege is claimed (Halliday v. ACN 003 075 394 Pty Ltd, 11 April 1994, Supreme Court of Victoria Appeal Division, unreported, quoted in Boase v. Seven Network (Operations) Ltd., supra. at para. [25]).
(5) “Rolled up” claims of privilege are confusing and inappropriate. Where more than one ground of privilege is relied upon, the specific ground or grounds relied upon for each document must be related to that document, and it is not sufficient to state a number of grounds without specifying which of them relate to which document (Boase v. Seven Network (Operations) Ltd., supra. at paras. [26] and [30]).

66. As for the two Australian cases cited by Mr. Harry, Green CJ and Wright J in their joint judgment in Lazenby v. Zammit, supra. at para. 4 expressed the view that the proposition in Kadlunga had put an “unauthorised gloss” on the plain language of Order 33 rule 16(1) of the Rules of the Supreme Court, and the correct limits of the rule were as stated by the English Court of Appeal in Taylor v. Batten, supra. Nevertheless, the appeal was allowed in that the respondent was ordered to deliver to the appellant a further list of documents claimed to be privileged describing each of them sufficiently to enable it to be identified. As for Stephen David Kenny v. Territory Insurance Office, the Master merely mentioned Kadlunga and Lazenby v. Zammit and stated that there may be a division of opinion as to the extent to which privileged documents must be described in a list of documents and did not analyse the authorities.

67. Miss Chan also referred me to two other Australian cases dealing with a claim for legal professional privilege in the context of production of documents under section 596B of the Corporations Act, which is an investigative procedure similar to our section 221: Re Southland Coal Pty Ltd (2006) 58 ACSR 113 (Supreme Court of New South Wales, Equity Division, Austin J); and Re Moage Ltd, Shehan v. Pitterino (1998) 26 ACSR 726 (Federal Court of Australia, Mansfield J). In the latter case, the court had given directions that the producing party should provide a schedule of documents for which legal professional privilege was claimed, the liquidator was then to respond, and the producing party should provide a schedule of the disputed documents to which the claim for privilege was maintained. Further directions were given in the judgment for the producing party to establish its claim to privilege in a proper manner on affidavit, including a list of the documents for which privilege was claimed.

68. I set out the relevant passages in these judgments:

“ [80] … As I have explained, the person to whom the order is directed may object to producing the document and once the objection is made, cannot be compelled to do so unless and until the objection is overruled. That is the position as a matter of law. If orders were made expressly excluding documents subject to client legal privilege, there would be a risk that the persons to whom the orders were directed would regard themselves as exonerated from taking any co-operative steps with respect to documents they regard as privileged, such as preparing lists or even embarking on any process of review. At least in some cases, it may be preferable simply to add a note to the orders drawing the reader’s attention to the relevant rules. But in my view it is unnecessary to take any such step in a fully contested inter partes matter where the parties are legally represented, and I do not regard the Court of Appeal as suggesting otherwise. In such a case an acceptable course, in accordance with the rules, is to make unqualified orders for production coupled with liberty to apply, which may be exercised for the purpose of giving directions designed to bring forward contested privilege claims for resolution, once specific documents have been identified and particular claims for privilege have been made in respect of those identified documents.
[82] The courts have not yet devised a wholly satisfactory procedure for resolving privilege claims where large quantities of documents are involved. It may be that no single procedure fits every case. But there are some general discretionary considerations to be borne in mind in considering, on an inter partes basis, whether to embark upon any process. They include the justification for imposing onerous obligations on the producing party. It is necessary to weigh up the effort, expense and disadvantage to be borne by the party against whom orders are sought (that is, the effort, expense and other disadvantage involved in identifying and preparing a large quantity of documents for production and assessing whether privilege should be claimed in respect of particular documents) against the prejudice that would be suffered by the party requiring production if the order were refused (in terms of thwarting the exercise of that party’s statutory powers for the benefit of creditors or others whose interests have been recognised by the legislature). …”
(Re Southland Coal Pty Ltd, supra.)
“ Where a claim for privilege is disputed, the determination of the claim will depend upon the facts established in evidence, including the circumstances in which the document came into existence … I propose to reserve to [the liquidator] the right to require of [the producing party] evidence by affidavit in proper form of the basis for the claim to privilege which it asserts in respect of any documents which, by my ruling on the motion to the extent I determine it, are not to be made available to [the liquidator]. (at 730)
As foreshadowed, because there is no affidavit foundation presently laid for the claim to legal professional privilege claimed in those documents, or any detailed list of them, I will permit [the liquidator] to require such affidavit evidence to be provided [by the producing party] and I will permit [the liquidator] to give written notice that a list of those documents be filed and served so that [the liquidator] may consider and, if thought fit, challenge the claim for legal professional privilege.” (at 739)
(Re Moage Ltd, Shehan v. Pitterino, supra.)

69. It would appear from the above that the Australian courts had ordered a detailed list of documents to be provided with affidavit evidence laying the foundation for a claim of privilege in the context of an investigative procedure equivalent to our section 221.

70. I am not persuaded by Mr. Harry that to require a list of the privileged documents with the information sought by the liquidators would undermine or destroy the privilege claimed. The line of cases adopting Kadlunga have demonstrated there could be a middle ground in requiring an adequate description of the privileged documents to enable the other side to assess the propriety of the claim that stopped short of a disclosure, directly or indirectly, of the contents of the document. In seeking a “brief description of its nature” in this instance, the liquidators are not seeking a description of the nature of the advice sought or given, but merely the nature of the document.

71. The direction sought by the liquidators of requiring a list of the privileged documents would seem to me a sensible interim measure, giving sufficient information to the liquidators to determine whether they should challenge the claim for privilege in respect of any document. The matter could then come back to the court for determination of the claim for privilege of any disputed document.

72. I will give the direction sought by the liquidators in terms of paragraph 42(1) as set out above.

Other orders

73. Other directions and orders sought by the liquidators as per their revised draft order are not controversial. These relate to “Reasonable endeavours”, “Retention of documents”, “Return of documents”, “Costs” and “ Liberty to apply”. I will make an order in terms as sought.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Messrs Laracy Gall, for the Applicant

Mr Timothy Harry, instructed by Messrs Freshfields Bruckhaus Deringer, for the Respondent

58648-EN-2007-08-24

THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. FUNG SEE MAN

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

______________________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

______________________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	FUNG SEE MAN (馮思敏)	Respondent
	(also known as SIMON FUNG SEE MAN)

_________________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

______________________

	IN THE MATTER of AKAI HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

______________________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	FUNG SEE MAN (馮思敏)	Respondent
	(also known as SIMON FUNG SEE MAN)

______________________

(Heard Together)

Before : Hon Kwan J in Chambers (not open to public)

Date of Hearing : 24 August 2007

Date of Decision : 24 August 2007

______________________

D E C I S I O N

______________________

1. I have before me a summons issued by the liquidators of Akai Holdings Limited and Kong Wah Holdings Limited (“Akai”, “Kong Wah”, and collectively “the Companies”) on 16 April 2007 in each of the liquidations under section 221 of the Companies Ordinance, Cap. 32. They seek an order against Simon Fung See Man that he be examined orally before a Master concerning the affairs of the Companies, their subsidiaries and associate companies as listed in the schedule to the summons (together “the Akai Group”), and that he is to produce all documents within his custody or power which relate to the Akai Group.

2. As the application is opposed by the respondent, the summonses were adjourned for the filing of evidence and for substantive argument.

3. It is not necessary to set out the background of these liquidations and the massive insolvency. These matters have been canvassed in a number of previous judgments. The liquidators have a very difficult task to perform due to the great complexity of affairs of the Akai Group, the paucity of documents in the beginning and the lack of co-operation of the senior management.

4. The respondent had a long association with the Akai Group. In 1990 to 1991, as an external auditor, he was involved in the audits of Akai. In 1991, he was employed by Akai’s Toronto office as accounting manager and was later promoted to financial controller. In 1997, he was relocated to work for Akai in Hong Kong as the financial controller, reporting to Clara Loh who was the second most senior person in Hong Kong after James Ting and to Chuck Tam, the chief financial officer, the executive vice-president and a director of Akai. The respondent resigned as the financial controller on 30 November 1999, but remained as a director of Akai Electric Company Limited (“AECo”) until 29 June 2000, pursuant to the request of Kin Yuen, who acted as the chief financial officer of Akai from January to March 2000. The respondent had worked with Kin Yuen for a few months before his departure from Akai.

5. As the Group financial controller of the Akai Group, the respondent was responsible for matters in accounting, auditing, restructuring and related duties. He co-ordinated the preparation and distribution of monthly financial statements of the Group and liaised with the auditors of the Group in relation to the consolidated financial statements. He obtained funding in Europe in mid 1999, attended meetings with petitioning creditors and representatives from the Grande entities and their financial advisers, and liaised with Kin Yuen in relation to the restructuring of the Group. These are set out in Mr Borrelli’s 32^nd affidavit, paragraph 9. In addition, the respondent was the director of 13 entities (and with one exception are listed in the schedule of subsidiaries and associate companies annexed to the summons). Seven of the 13 entities were involved in substantial transactions under investigation by the liquidators. In his capacity as a director of AECo, he attended board meetings at which resolutions were purportedly passed to pledge the Akai trademarks to Tremendous Springs Limited against funding allegedly provided by the latter to AECo.

6. The respondent had attended 3 interviews with the liquidators for a total of 6 hours on a voluntary basis in May and July 2004.

7. In January 2006, the liquidators through their solicitors requested the respondent to attend further interviews to assist in their investigation. For the avoidance of doubt, the liquidators made clear that the request for assistance did not concern matters which were the subject of a writ action of Akai against the respondent and another (this is HCCL No. 20 of 2005).

8. The respondent’s solicitors replied asking the liquidators to specify the matters on which they sought to interview the respondent and to confirm that the answers he gave would not be used against him in the police investigation.

9. In the reply of the liquidators’ solicitors dated 8 February 2007, they explained why there is a need for further investigation, as the liquidators are in possession of substantial documentation not available to them when interviews were conducted in 2004, and some of the information previously provided by the respondent did not reconcile with the additional documentation subsequently obtained by the liquidators. The liquidators have no intention of providing the respondent’s answers to the police, and thought it best to examine the respondent in court so that he would have the protection of rule 62 of the Companies (Winding-Up) Rules if the police should seek a transcript of the examination.

10. On 10 April 2007, the respondent’s solicitors stated that he is not prepared to consent to an application under section 221.

11. The principles on the exercise of the court’s discretion under this provision are well established. I have been reminded by both counsel of the relevant propositions which they extracted from the cases frequently cited in this regard, including the judgment of the Court of Final Appeal in Joint & Several Liquidators of Kong Wai Holdings Limited v Grande Holdings Limited (2006) 9 HKCFAR 766. I do not propose to set out the propositions. I merely wish to say that I do not agree with Mr Barlow, SC for the respondent in his submission that the Court of Final Appeal has laid down a requirement, which goes to the jurisdiction of the court in making an order under section 221, that liquidators are required to identify at an early stage of the liquidation what steps are required to be taken to discharge their duties, so that if they should fail to do so owing to incompetence or negligence, their failure could not be condoned and the court would hold that they have not made out a reasonable requirement for an order under the provision. This formulation of Mr Barlow was founded on dicta of Bokhary PJ and Chan PJ at 774I, paragraph 2. I do not think the Court of Final Appeal has laid down any inflexible requirement or obligation of the kind. As submitted by Miss Chan for the liquidators, whether liquidators are able to identify at an early stage of the liquidation what promising paths they can pursue and what blind alleys they had best avoid must depend on what sort of materials that the liquidators have on hand. The present case is a prime example. It was not until late 2004 that the liquidators began to make meaningful headway in obtaining documents and information from various sources.

12. In this application, first and foremost, I would need to be satisfied that the liquidators have established a reasonable requirement to orally examine the respondent and to require him to produce documents in his power and custody.

13. In determining this, I place great weight on the views of the liquidators as they would have detailed knowledge of the problems which existed in relation to the affairs of the Akai Group and the information required of the respondent.

14. The respondent was a senior officer of the Akai Group. He had worked for Akai for 9 years and had substantial duties as the financial controller of the Group. The liquidators say he played a greater role than he had led them to believe in a number of substantial transactions, as a result of their further investigations since late 2004. These transactions resulted in significant losses to the Group. The respondent became a director of a number of companies in the Group at the time when the Grande Group became closely involved in the affairs of the Akai Group. He was involved in assisting the Grande Group in their dealings with AECo after he resigned as the financial controller of Akai until mid 2000. In the 32^nd affidavit of Mr Borrelli, he summarised the transactions in respect of which the respondent’s further assistance is required in paragraph 12, and the areas of investigation he considered the respondent would be able to assist in paragraph 21.

15. I reject without hesitation the respondent’s allegation that the liquidators were incompetent or negligent in that they did not raise with him in the earlier interviews the matters they now seek his further assistance, or that the liquidators were dilatory in the discharge of their duties. Much of the documentation which has assisted the liquidators was only made available to them after the interviews with the respondent in 2004.

16. Mr Barlow advanced other arguments that the jurisdictional basis for making an order is not made out. His arguments ran as follows:

(1) Kong Wah must be considered separately from Akai. The respondent had very little to do with Kong Wah, as he did not hold office in that company.
(2) In the supporting affidavit of Mr Borrelli, he referred to the Akai Group and transactions of various companies in the Akai Group that he would wish to investigate further with the respondent. There is nothing to link these transactions or companies in the Group with Akai or with Kong Wah.
(3) 296 companies were listed in the schedule to the summons, there is no evidence to link these subsidiaries or associate companies with Akai or Kong Wah in that their affairs must relate to Akai or Kong Wah.

17. I reject these arguments. As mentioned earlier, the respondent was the Group financial controller, he had discharged the functions of accounting, auditing, restructuring and other related duties to the Group, not just in relation to Akai, which was the entity that employed him. The respondent has not challenged the correctness of the companies listed as subsidiaries and associate companies in the schedule to the summons. See also the judgment of the Court of Final Appeal at 777J to 778B on the observations as to the group structure of Akai. In an application of this nature, the liquidators are not required to make out a case for documents or information in as much detail as would be required in an application for discovery. Given the complexity of the affairs of the Akai Group, I do not think it would be appropriate to cut down the width of the order sought in the summons.

18. I am satisfied that reasonable requirement is clearly made out in this instance.

19. Next, I would need to strike a balance between the reasonable requirements of the liquidators and the need to avoid making an order that is unreasonable, unnecessary or oppressive to the respondent.

20. The pending action against the respondent in HCCL No. 20 of 2005 is irrelevant, as the liquidators have made clear from the start that further investigation would not cover the subject matter of that action. The respondent’s belief that the present application was made to harass him and force him to make a settlement offer in the pending action is groundless surmise. It is not supported by any cogent evidence. Oral examination could have no possible prejudice to the respondent in his defence of that action.

21. The respondent claimed that it is unnecessary to make a court order as he is prepared to provide voluntary assistance to the liquidators. However, he also stated that he is only prepared to answer written questions and swear an affidavit to verify his answers. He is not prepared to attend an oral interview or examination. I do not consider it satisfactory or appropriate that the further investigation is to be carried out by a questionnaire, in view of the great complexity of the transactions under investigation.

22. The respondent claimed he is not able to assist in providing information on the 296 subsidiaries and associate companies listed in the schedule to the summons. There is no suggestion that he was involved in or has knowledge of each and every one of these companies. There is certainly material to support the liquidators’ belief that the respondent is in a position to give meaningful assistance in respect of the companies in which the respondent was a director, and the companies that are the subject of their further investigation.

23. The respondent said that for the last year, he has been living and working in China, initially in Beijing and now in Shenzhen, and he cannot afford to take time off work to come to Hong Kong for the examination. Further, he has not been served personally with the summons. I fail to see the relevance of these matters.

24. The summons was served on the respondent’s solicitors. Mr Barlow submitted that a respondent to an application for an order for examination under section 221 cannot be compelled to attend for examination before the Hong Kong court, citing Re B+B Construction Company Limited [2005] 2 HKLRD 478 at 483B to D. But Rogers VP also said at 482I that “to suggest that a court should refrain from making an order for examination of an officer of a Hong Kong company under section 221 in circumstances where it otherwise would be appropriate to do so, simply on the basis that he is resident abroad flies in the face of any concept of corporate governance as it is understood.” I am unable to see how the fact that the respondent is residing in China would be a factor in his favour in the exercise of my discretion.

25. As for an order to produce documents, the respondent stated that about a month before he left Akai, James Ting had transferred all Akai’s books and records to the Grande Group and he has no documents in his possession. In the summons, the liquidators seek production of documents in the respondent’s power or custody, not documents in his possession. The liquidators are aware that the respondent was responsible for setting up and maintaining offshore entities on behalf of the Akai Group and their investigations have revealed that the respondent is still listed as the ‘client of record’ with various providers of offshore company services. They consider that the respondent is in a position to authorise third parties holding documents of such offshore companies to release them to the liquidators. I agree that is sufficient basis for an order to be made for the production of documents.

26. The balance clearly comes down in favour of the liquidators. I would make an order in terms of each summons. I order the respondent to pay the liquidators’ costs in the preparation of the 34^th affidavit of Mr Borrelli and the costs of the hearing today.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan instructed by Messrs Johnson, Stokes & Master, for the Applicants

Mr Barrie Barlow, SC instructed by Messrs Susan Liang & Co, for the Respondent

57910-EN-2007-07-20

THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. THE GRANDE HOLDINGS LTD AND OTHERS

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	THE GRANDE HOLDINGS LIMITED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

_________________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	THE GRANDE HOLDINGS LIMITED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

____________

(Heard Together)

Before: Hon. Kwan J in Chambers

Date of Hearing: 20 July 2007

Date of Decision: 20 July 2007

______________

D E C I S I O N

______________

The applications

1. There are two applications taken out by the 1^st to 3^rdrespondents and the 4^th respondent in the liquidation of Akai Holdings Limited and Kong Wah Holdings Limited (“Akai” and “Kong Wah”, collectively “the Companies”). The summonses were issued on 3 May 2007 and 17 July 2007. The respondents seek an order that they are entitled to claim legal professional privilege (“LPP”) in respect of various documents they are required to produce under section 221 of the Companies Ordinance, Cap 32, pursuant to the orders I made on 4 August 2005 as varied by the Court of Appeal on 26 April 2006 (“the Production Orders”).

2. In the 6 schedules to the summonses of the 1^st to 3^rdrespondents, a total of 264 documents from 6 files are listed for which LPP is claimed. The liquidators have disputed the claim to LPP in respect of 201 documents.

3. In the annexure to the 4^th respondent’s summonses, a total of 167 documents are listed. They are among the documents in the 6 files of the 1^st to 3^rd respondents.

4. I understand from Mr Carolan for the 1^st to 3^rd respondents that the documents in file 6 are from a separate source. The documents in files 1 to 5 comprise documents in the possession of or created by Baker & Mackenzie, as solicitors for the 4^th respondent, in relation to its interests in the Akai Group and its opposition as a creditor in the winding-up petitions of the Companies during March 2000 to October 2000. Baker & Mackenzie were the principal legal advisers to The Grande Group in Hong Kong at that time. Although the 1^st to 3^rd respondents did not appear in the petitions, the 1^st respondent was at that time the parent company of the 4^threspondent and the 1^st to 3^rd respondents were concerned with the affairs of the Akai Group in various ways including the attempt at restructuring the Akai Group, which was advanced as a ground for opposing the winding-up petitions. These matters have been canvassed in correspondence between the solicitors placed before this court, although there is no affidavit from Baker & Mackenzie.

5. In the order I made on 28 March 2007 on the application of the 1^st to 3^rd respondents for a second extension of time to comply with the Production Orders, I directed the 1^st to 3^rd respondents to produce a list of all the documents within the scope of the Production Orders for which they claim LPP within 14 days thereof, with a letter from their solicitors setting out the basis upon which privilege is claimed. It was also ordered that if the liquidators should challenge the claim to LPP in respect of any of the documents in the list, the 1^st to 3^rd respondents are to issue a summons seeking determination of the claim to privilege within 7 days thereafter.

6. Pursuant to the above order, the solicitors of the 1^st to 3^rdrespondents wrote to the liquidators’ solicitors on 11 April 2007, providing them the 6 schedules setting out the documents for which LPP is claimed and the basis of the claim for each document. On 26 April 2007, the liquidators’ solicitors gave their response and provided a schedule listing the grounds for challenging LPP in respect of 203 documents. There were 4 grounds of challenge :

(1) there is no basis for the claim to LPP (ground 1);

(2) the privilege claimed by the 1^st to 3^rd respondents is that of the 4^th respondent (ground 2);

(3) the privilege claimed by the 1^st to 3^rd respondents is that of Akai and/or Kong Wah (ground 3); or

(4) there was no contemplated litigation (ground 4).

7. The 1^st to 3^rd respondents issued their summonses on 3 May 2007, seeking a determination from the court pursuant to the directions of 28 March 2007.

8. The 4^th respondent was not involved at that stage. But as one of the grounds of the liquidators’ challenge is that the privilege claimed belongs to the 4^th respondent, the solicitors for the 1^st to 3^rd respondents made inquiries with the 4^th respondent’s solicitors if the 4^th respondent would wish to assert LPP in relation to documents belonging to the ground 2 category. The 4^th respondent’s solicitors inspected those documents held by the solicitors for the 1^st to 3^rd respondents on 10 May 2007. On 17 May 2007, the 4^th respondent’s solicitors wrote to the solicitors for the 1^st to 3^rdrespondents listing the documents for which the 4^th respondent claims LPP, and their letter was passed on to the liquidators’ solicitors.

9. On 3 July 2007, the liquidators responded to the 4^threspondent’s claim and asserted that neither the 4^th respondent nor the 1^stto 3^rd respondents could assert a claim to LPP for the documents in the ground 2 category, on account of waiver (“the waiver argument”).

10. The 4^th respondent therefore issued its summonses seeking determination of its entitlement to LPP on 17 July 2007.

11. I will deal with the waiver argument first as this would dispose substantially of the objection in ground 2 before I consider other grounds of challenge of the liquidators.

The waiver argument

12. Waiver of LPP is to be judged objectively. It matters not whether a party intends to waive privilege in a particular document or not. What matters is an objective analysis of what that party has done (Documentary Evidence by Charles Hollander, 9^th edition, paragraph 19-17). Waiver may be express or implied. Disputes as to implied waiver usually arise from the need to decide whether the particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect (Mann v Carnell [1999] 201 CLR 1 at 13, paragraph 29).

13. The liquidators contended that in the case of the 4^threspondent and the 1^st to 3^rd respondents, their waiver of documents in the ground 2 category is express and/or implied.

14. All of the documents in the ground 2 category relate to the winding-up proceedings of the Companies from March 2000 to September 2000.

15. Miss Linda Chan for the liquidators submitted that any privilege to the ground 2 documents can only be asserted by the 4^threspondent, not by the 1^st to 3^rd respondents, as Baker & Mackenzie had only acted for the 4^threspondent in opposing the winding-up petitions.

16. Mr Carolan argued to the contrary. He claimed that the 1^st to 3^rd respondents are entitled to claim a common interest privilege; they were companies in the same group as the 4^th respondent and had the same interest as the 4^th respondent in consulting and receiving legal advice from Baker & Mackenzie, regarding the opposition to the winding-up petitions. Common interest privilege is applicable to legal advice privilege and litigation privilege (Documentary Evidence, op. cit. at paragraphs 15-04 to 15-11). Whilst the majority of the letters named the 4^th respondent as the primary addressee, the copies of such documents in the possession of the 1^st to 3^rd respondents were sent to them as secondary addressee or as copies of documents communicated for the purpose of giving legal advice on an ongoing basis.

17. I think Mr Carolan is correct here.

18. As both the 4^th respondent and the 1^st to 3^rd respondents are entitled to claim LPP in respect of the documents in the ground 2 category, the liquidators would need to make good their assertion that both have waived their claim to privilege in order for the documents to be disclosed.

19. The matters relied on by the liquidators as constituting waiver may be summarised as follows.

20. No claim was made for LPP of documents in the possession of Baker & Mackenzie when all 4 respondents opposed the liquidators’ application for production of documents which led to the Production Orders in August 2005.

21. In September 2005, both the 4^th respondent and the 1^st to 3^rdrespondents appealed against the Production Orders. The 4^th respondent appealed only against a part of the orders. The 1^st to 3^rd respondents challenged the whole of the orders. Both applied to stay the orders pending their appeals. LPP was not raised in any of the grounds of appeal.

22. In the affirmation filed on behalf of the 4^th respondent in support of the stay application, the 4^th respondent’s director Mr Hui described the steps taken by the 4^th respondent to comply with the Production Orders so far, including writing to Baker & Mackenzie to clarify if the solicitors were holding documents within the 4^th respondent’s control and to seek the release of their files. Mr Hui deposed to his conversation with a solicitor of Baker & Mackenzie in which he was told that the solicitors had probably acted for the 4^th respondent and The Grande Group jointly, and that the solicitors might not be able to release the files to the 4^threspondent without the consent of the other parties. Hence, the 4^threspondent’s solicitors had written to the solicitors of the 1^stto 3^rdrespondents to seek the latter’s consent to release the files. Mr Hui stated that the 4^th respondent had used its best endeavours to comply with that part of the Production Orders which was not subject to its appeal.

23. In the submissions of the 4^th respondent’s counsel to the court in the stay application, it was emphasised that the 4^th respondent’s appeal was a limited challenge of the scope of the Production Orders, and the scope of the stay sought was confined to the documents being the subject of its appeal.

24. A stay pending appeal was granted on 7 October 2005 on terms, one of the conditions was that the 1^st to 3^rd respondents should provide their written consent to Baker & Mackenzie to release to the 4^threspondent the documents sought in compliance with the Production Orders.

25. Miss Chan submitted that on the above matters, the liquidators and the court in granting the stay were led to believe that the 4^threspondent would be producing the documents held by Baker & Mackenzie once they were released to the 4^th respondent, so the 4^threspondent should not be allowed to resile from its position.

26. As for the 1^st to 3^rd respondents, Miss Chan contended that as the 1^st to 3^rd respondents had given consent to Baker & Mackenzie in November 2005 to release the documents to the 4^th respondent in compliance with the condition imposed in the stay application, the 1^st to 3^rdrespondents must be taken to have waived their privilege to those documents.

27. I do not agree with Miss Chan’s submissions.

28. A claim to LPP may be made in respect of documents sought under section 221. It is of course desirable that the claim is made at the first opportunity when the application for a production order is resisted, as in Re Highgrade Traders [1984] BCLC 151. But that is not always possible. The respondent may not have possession of the documents, so he cannot say whether he should claim privilege in respect of any of them. Or, as in the present case, the 4^th respondent had a change of ownership and management and did not even know whether Baker & Mackenzie had acted for it in any of the transactions identified in the Production Orders. It is pertinent to bear in mind that the Production Orders covered a very wide range of documents, so it is understandable that the claim to LPP was not raised at the time the respondents opposed the making of the Production Orders. On any objective view, the fact that the claim for privilege was not made when the Production Orders were resisted at first instance, or on appeal to the Court of Appeal and the Court of Final Appeal, could not be regarded as waiver. Such conduct was not inconsistent with the maintenance of the confidentiality which the privilege is intended to protect.

29. Further, I think it is clear from Mr Hui’s affirmation that even after the Production Orders were made, at the time of the stay application in October 2005, the 4^th respondent did not have possession of the documents and so was not aware of their contents. It was only on 10 May 2007 that the 4^th respondent’s solicitors inspected the documents concerned. With no knowledge of the contents of the documents, it is not possible to make a claim for LPP in a meaningful way. Besides, the focus at the time of the stay application was in identifying the specific transactions that was the subject of the Production Orders, not the 4^threspondent’s opposition to the winding-up petitions.

30. The 4^th respondent’s request to Baker & Mackenzie all along was for the documents to be released to it, not to the liquidators directly. The consent provided by the 1^st to 3^rd respondents in compliance with the order on the stay application, was on the same basis. The conduct of the 4^threspondent and of the 1^st to 3^rd respondents did not mean that the 4^threspondent would simply turn over all the documents received from Baker & Mackenzie to the liquidators, or that the 4^th respondent would not review the documents to ascertain whether any claim to LPP should be made. There was no clear or unequivocal representation to that effect to found waiver.

31. It was only after the stay application that the 1^st to 3^rdrespondents reviewed the files held by Baker & Mackenzie in late October 2005. On 30 November 2005, Baker & Mackenzie asserted that the 1^st to 3^rd respondents had claimed privilege over the files held by them. In early December 2005, the liquidators were first made aware of the claim for LPP.

32. On an objective analysis, I am not able to say that there was waiver of LPP, express or implied, on the part of the 4^th respondent, or of the 1^st to 3^rd respondents. I have no doubt that the waiver issue should be resolved in favour of upholding the privilege. Even if I had some doubt, this should be resolved in favour of the respondents (Goldlion Properties Ltd v Regent National Enterprises Ltd [2006] 1 HKLRD 793 at 805G, paragraph 31).

33. Nor do I think there is unfairness to the liquidators in allowing the respondents to assert LPP for documents in the ground 2 category, notwithstanding the claim for LPP was made very late in the day.

34. Mr Kenneth Ng for the 4^th respondent has referred me to Goldman v Hesper [1988] 1 WLR 1238 at 1240 F to H, for the proposition that as a matter of principle, even where there is a waiver but before the document is actually disclosed, a party is entitled, on taking advice, to withdraw the waiver.

35. That disposes of the waiver argument. Mr Ng submitted that there are 26 other documents for which the 4^th respondent claims LPP but it has not been accepted by the liquidators that the 4^th respondent has a claim in respect of those documents, quite apart from the question of waiver. Miss Chan submitted that for 12 of these 26 documents, no privilege can be claimed as they do not appear to be confidential in character from the description of these documents given in the schedules. I will stand down the matter for the parties to sort out if they can resolve their disputes relating to these documents. If the dispute is not resolved, I will make a ruling on such of the documents, for which the claim to privilege is challenged. Subject to this outstanding matter, I uphold the claim for LPP regarding the documents in the ground 2 category.

Documents in the ground 3 category

36. The opposition in ground 3 is that the privilege belongs to Akai and/or Kong Wah. The liquidators contended that documents in the ground 3 category would include the following:

(1) documents which emanated from or addressed to the Companies or to companies within the Akai Group;

(2) documents sent to or from the employees of The Grande Group that had been seconded to work for the Akai Group, such as Sophia Cheng, Tony Lam, Kin Yuen, Ruby Lee and Felicity Porter;

(3) documents sent to or from the solicitors acting for the Companies and the companies within the Akai Group, being Angela Wang & Co., Siao Wen & Leung, and lawyers in Bermuda, Conyers Dill & Pearman; and

(4) documents sent to or from Ernst & Young, who were the auditors and financial advisors of the Akai Group.

37. I have no difficulty in accepting that in (1) and (3), the privilege claimed belongs to Akai and/or Kong Wah.

38. In respect of (2), I do not think one can make a sweeping statement the mere fact that the documents were sent to or from the employees as listed must mean that the privilege should belong to Akai and/or Kong Wah. If in sending or receiving the documents, the employees did so in their capacity as employees of The Grande Group, not as staff seconded to Akai and/or Kong Wah, I cannot see how Akai and/or Kong Wah could claim privilege to those documents.

39. There is a similar difficulty with Ernst & Young in (4). Ernst & Young were not just the auditors and financial advisors of the Akai Group. They were also the auditors and financial advisers of the 1^st respondent and the 4^threspondent at the time. If the documents were sent or received by Ernst & Young solely in their capacity as auditors and financial advisers of The Grande Group, I do not agree that Akai and /or Kong Wah could claim privilege to those documents.

40. Mr Carolan submitted that in respect of documents in the ground 3 category, where privilege could properly be claimed by Akai and/or Kong Wah, there is a common interest privilege here, so the privilege could also be claimed by the 1^st to 3^rd respondents, as the correspondence concerned addresses, discussions and negotiations between parties with a common interest in opposing the winding-up petitions. The documents found in the files of Baker & Mackenzie were sent to them or by them to the respective addressees for the purpose of giving or getting legal advice, and/or distributing drafts and working papers to facilitate the co-ordination and consistency of that advice. He submitted the fact that the liquidators would be able to get the same documents from, say, the solicitors who acted for the Companies in opposing the winding-up petitions, as they are the Companies’ documents, is beside the point.

41. I agree with Mr Carolan that the 1^st to 3^rd respondents may have a common interest privilege to such documents in the ground 3 category. But I do not agree with the latter part of his submissions. A common interest privilege may be used to resist disclosure (i.e. common interest privilege as a shield), it could also be used to obtain disclosure (i.e. common interest privilege as a sword)(Documentary Evidence, op. cit. at paragraph 15-04). The use of common interest privilege as a sword is well established in cases where the common interest of the parties in the privileged documents was such that one party could not claim privilege against the other, even though privilege could be claimed against the rest of the world (Commercial Union v. Mander [1996] 2 Lloyd’s Rep 640). Besides, if there is a common interest between two parties, there may be no confidence between them in the documents which are supplied by one to the other, so that one cannot claim privilege for those documents against the other, even though they are privileged against the rest of the world (Documentary Evidence, op. cit. at paragraph 15-21).

42. For the above reasons, where the claim to LPP can properly be regarded as a claim belonging to Akai and/or Kong Wah, I hold that such documents must be disclosed to the liquidators.

Documents in the ground 4 category

43. The challenge in ground 4 is that there was no contemplated litigation to found a claim for LPP. Miss Chan again made the point that unlike the 4^th respondent, the 1^st to 3^rd respondents did not appear in the winding-up petitions as opposing creditors. As for documents in 2002, there was no contemplated litigation against the 1^st to 3^rd respondents in 2002.

44. Mr Carolan submitted firstly that although litigation privilege is claimed for many of the documents, legal advice privilege is claimed for all of them. Legal advice privilege and litigation privilege are covered in LPP. In some of the documents in the ground 4 category, the communication was between in-house lawyers within The Grande Group or those lawyers and the external advisers of The Grande Group. I agree with Mr Carolan’s submission in this respect.

45. As for the documents since 23 September 2002, there was the prospect of the liquidators applying for production orders under section 221 against the 1^st to 3^rd respondents. Mr Carolan submitted this was a form of litigation for the purpose of claiming LPP. Whether that is correct or not is not material, as the 1^st to 3^rd respondents should be able to claim legal advice privilege. In relation to earlier correspondence from March 2002 to August 2002, Mr Carolan argued there would be legal advice privilege even if there was not yet sufficient prospect of litigation to found litigation privilege. I also accept his submissions here.

Documents in the ground 1 category

46. There would appear to be only one document in the ground 1 category still in dispute. I will stand down the applications for the parties to sort out the dispute on this item.

47. The parties are to go through the marked up schedules provided by the liquidators in the light of the reasoning in the above decision and let the court know when we resume which of the documents are still in issue. I will then make a ruling on each of the outstanding documents and on the costs of the applications.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Applicants

Mr Paul Carolan, instructed by Messrs Wilkinson & Grist, for the 1^st to 3^rdRespondents

Mr Kenneth W H Ng, instructed by Messrs Stephenson Harwood & Lo, for the 4^th Respondent

57965-EN-2007-07-17

THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD v. [respondent]

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Released for publication with parts redacted

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

______________________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance (Cap 32)

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF	Applicants
	KONG WAH HOLDINGS LIMITED
	(in Compulsory Liquidation)
	and
	[ ]	Respondent

______________________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

______________________

	IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance (Cap 32)

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF	Applicants
	KONG WAH HOLDINGS LIMITED
	(in Compulsory Liquidation)
	and
	[ ]	Respondent

______________________

(Heard together)

Before : Hon. Kwan J in Chambers (not open to public)

Date of Hearing : 17 July 2007

Date of Decision : 17 July 2007

______________________

D E C I S I O N

______________________

1. I have before me two summonses issued by the liquidators of Akai Holdings Limited and Kong Wah Holdings Limited (collectively “the Companies”), under section 221 of the Companies Ordinance, Cap 32, against [respondent] that he is to be orally examined before a Master of the High Court concerning the affairs of the Companies, their subsidiaries and associates.

2. The liquidators believe that [respondent] is uniquely placed to assist them in the discharge of their statutory duties by virtue of his substantial involvement in the affairs and dealings of the Akai Group, The Grande Holdings Limited, The Grande (Nominees) Limited and Omnicorp Limited formerly known as Toyo Holdings Limited. He was [respondent’s position in Akai Holdings Limited] and had been involved personally in quite a number of areas of the Akai Group’s affairs and dealings.

3. The matters that the liquidators consider [respondent] would be able to assist them to advance their investigations are set out in para 47 of the 35^th affidavit of one of the liquidators, Mr. Borrelli.

4. [respondent] had attended two interviews with the liquidators on 31 May 2001 and 22 June 2001 on a voluntary basis, with his solicitors in attendance.

5. In August 2006, the liquidators requested a further interview with [respondent], as they have progressed with their investigation due to documents obtained from other sources and oral examinations they had conducted of people involved in the affairs of the Companies. [respondent] agreed to an interview in October 2006. On 9 October 2006, the liquidators requested [respondent] and his legal advisers to provide an undertaking to maintain the confidentiality of any information or documents that may be supplied to him during the interviews, to preserve the confidentiality and integrity of the liquidators’ investigations. The undertakings sought were to mirror those that had been given in a court conducted examination. [respondent] replied through his solicitors on 21 October 2006 declining to give the undertakings and contending that it would be inappropriate to apply the principles and procedures of a court conducted examination to an informal interview.

6. The present summonses were taken out on 8 June 2007. Correspondence was exchanged between the liquidators’ solicitors and [respondent’s] solicitors after that on the conditions sought to be imposed on each side in the event that an order for examination is made.

7. [respondent] is not opposed to an order for examination all along. I am satisfied that he should be orally examined on the affairs of the Companies, their subsidiaries and associates.

8. The liquidators are agreeable to provide to [respondent], 7 days before the examination, copies of documents that may be referred to at his examination, solely for the purpose of refreshing his memory, and to provide a set of such documents to his solicitors and counsel, solely for the purpose of representing [respondent] in the examination. The liquidators seek a number of directions to ensure that the documents provided to [respondent] and his legal advisers as aforesaid would be kept in strict confidence.

9. [respondent] was opposed to all the directions sought by the liquidators when the summonses first came before the court on 29 June 2007. He has now abandoned his opposition to most of the directions, with the exception of two. Hence, he is not opposed to directions that the documents to be supplied by the liquidators are to be maintained by him and his legal advisers in strict confidence, that they must not disclose the documents to or discuss the contents with any other person without the written consent of the liquidators or leave of the court, that they must not make copies of the documents and must return them to the liquidators immediately after the examination was concluded. The two directions that [respondent] remains opposed to prohibit him 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.

10. I should mention at the start that I had previously affirmed directions in respect of another examinee in these liquidations similar to those sought by the liquidators at present, for the reasons given in a judgment on 12 June 2006 on an appeal from Master de Souza.

11. The arguments urged on me by that examinee were much the same as the submissions made by [respondent’s counsel] on behalf of [respondent], although with the usual thoroughness of [respondent’s counsel], I was referred to more authorities than before.

12. I am not persuaded by [respondent’s counsel] that the directions sought by the liquidators are inappropriate.

13. 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 the 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.

14. As stated in my earlier judgment, 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 (paras 13 and 17). I do not propose to repeat the reasons or the cases cited in my earlier judgment, which in my view apply to the present situation. I do not think the circumstances here are materially different from the case that I dealt with in June 2006. I am mindful of the nature and purpose of the oral examination under section 221, and its effect and implication on the examinee.

15. I would merely deal with some of the matters raised by [respondent’s counsel].

16. [respondent’s counsel] submitted that the effect of the directions would seriously curtail [respondent’s] right to obtain legal advice. In my view, the perceived difficulties are overstated. [respondent’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. [respondent] 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 liquidators’ 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 [respondent] 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 qualifications, 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.

17. None of the decisions cited to me by [respondent’s counsel] are squarely on the issue that I am concerned with. The case of Re Spedley Securities Ltd (1990) 2 ACSR 117 at 126 to 127, relied on heavily by [respondent’s counsel], was concerned with a public examination in which an order was made requiring the notes of legal advisers taken at the examination to be destroyed at the end of the examination.

18. One has to approach the matter with common sense and proportionality in order to strike a fair balance. The directions do not impose a blanket prohibition. If [respondent] 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 [respondent] and his legal advisers.

19. The purpose of the directions is to safeguard against or reduce the risk of impermissible drilling, coaching and colouring of [respondent’s] evidence, so that the evidence he gives should be his honest and independent recollection in his own words. They are not designed to surprise, trap or ambush [respondent], and that is why relevant documents that would be referred to are supplied to him a week in advance, giving him sufficient opportunity to refresh his memory on the documents.

20. I do not agree it would be impracticable or unrealistic to impose directions that [respondent] may not confer with his legal advisers on the contents of the documents. The prohibition in the directions is clear. They are prohibited from having a conference to go through the documents supplied by the liquidators.

21. Nor do I accept that the directions should not be made as the court would not be able to inquire into the contents of the advice actually given by the legal advisers to [respondent], as their communications are protected by legal professional privilege. As officers of the court, solicitors are expected to obey the directions of the court. The presupposition that the directions of the court might be disobeyed is not a relevant consideration.

22. Although no time limit is placed on the effect of the directions, there is liberty to apply generally. If the need to preserve the confidentiality should cease to exist, [respondent] or the liquidators may apply to court to have the restrictions lifted. [respondent] would not be hampered in seeking legal advice if proceedings are brought against him in future.

23. I make an order in terms of paragraphs 1 to 12 of the draft order submitted to me in each of the applications.

24. [respondent’s counsel] informed the court that [respondent] would not seek a direction that the hearing dates of his examination be fixed in consultation with [respondent’s] diary or his counsel’s diary. [respondent] would merely put forward specific dates which he will request the court to avoid. This is noted accordingly.

25. I will award the costs of the summonses and of the hearings to the liquidators. The summonses were necessitated because [respondent] had refused to provide any undertaking sought by the liquidators, whether the undertaking in the form as sought on 9 October 2006 or in the terms as sought on 20 October 2006.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Joint & Several Liquidators

[name of counsel], instructed by [name of solicitors firm], for the Respondent

Appeal dismissed: see CACV253/2007 and CACV254/2007 dated 25 November 2007

55821-EN-2007-01-23

THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. THE GRANDE HOLDINGS LTD AND OTHERS

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance (Cap 32)

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	THE GRANDE HOLDINGS LIMTIED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance (Cap 32)

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	THE GRANDE HOLDINGS LIMTIED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

(Heard together)

Before: Hon. Kwan J. in Chambers

Date of Hearing: 23 January 2007

Date of Decision: 23 January 2007

_____________

D E C I S I O N

_____________

1. I have before me a summons issued in each of the proceedings on 12 January 2007 by the 1^st to 3^rd respondents – The Grande Holdings Limited, The Grande Group Limited, and The Grande (Nominees) Limited. These respondents seek an order that they be granted an extension of time to comply with the order in each of the proceedings I made on 4 August 2005, as varied by the Court of Appeal in the judgment dated 26 April 2006 in CACV Nos. 306 and 307 of 2005 (“the Orders”), for three months from the date of the order in this application.

2. I will first set out the history of the matters leading to the present applications. The liquidators first made a request of the relevant documents from these respondents in March 2002. In February 2005, they issued their summonses under section 221 of the Companies Ordinance, Cap. 32. The summonses were heard in July 2005 and I gave a decision on 4 August 2005, ordering production of documents. On 23 September 2005, these respondents issued a summons for stay of execution of my order pending appeal to the Court of Appeal. I granted a stay of execution on 7 October 2005. The appeal was heard in March 2006 and the Court of Appeal dismissed the appeal on 26 April 2006. The respondents issued an application for leave to appeal to the Court of Final Appeal. This application was heard by the Court of Appeal on 24 May 2006 and was refused on 2 June 2006. The Court of Appeal declined to stay execution of the Orders. On the application of the respondents to the Court of Final Appeal, an interim stay of the Orders was granted by Ribeiro PJ on 16 June 2006. On 30 June 2006, the Appeals Committee of the Court of Final Appeal granted leave to appeal and a stay of execution pending appeal. Judgment of the Court of Final Appeal was given on 15 December 2006 dismissing the appeal.

3. From the above history, it would seem that the respondents have had since August 2005, some 18 months, to comply with the Orders. Five years have lapsed since the liquidators first sought the relevant documents from them and it has been 20 months since the respondents started to search for the documents.

4. Following judgment of the Court of Final Appeal, further correspondence was exchanged between solicitors for both parties. On 20 December 2006, solicitors for the respondents wrote to solicitors for the liquidators stating that the time to comply with the Orders should start to run from the date of handing down of the judgment by the Court of Final Appeal on 15 December 2006, so they would have 28 days to comply, i.e. by 12 January 2007. The liquidators took issue with this on 9 January 2007, but stated that they would withhold taking steps to enforce the Orders pending full and proper compliance on or before 12 January 2007.

5. On the same day, 9 January 2007, the respondents’ solicitors wrote to the liquidators’ solicitors, stating that the respondents have located numerous documents, which were put into about 260 files and that the search for documents was continuing. They sought the liquidators’ consent to a general extension of time to complete the ongoing search of documents and to file and serve the affidavit required by paragraph 2 of the Orders. By paragraph 2 of the Orders, the respondents are required to state on oath by a proper officer, where documentation covered by paragraph 1 of the Orders is no longer within their possession, custody or control, the nature and extent of such documentation; the date or dates when such documentation was removed from their possession, custody or control; the identity of persons to whom the documentation was given; and the present whereabouts of the same.

6. On 10 January 2007, the liquidators’ solicitors replied stating that they could not agree to a general, open-ended extension of time. They required by 12 January 2007 a detailed affidavit from the officer of each of the respondents deposing to the steps taken and the enquiries made with third parties; the searches the respondents considered outstanding and how such searches are being progressed and by whom; the reasons why the outstanding searches are not completed and the time frame within which they would be completed. The liquidators’ solicitors stated that they see no reason why the respondents are not able to provide an affidavit in compliance with paragraph 2 of the Orders.

7. On 12 January 2007, the respondents’ solicitors sent 291 lever arch files to the liquidators, in partial compliance with the Orders. The summons for an extension of time for three months was issued on the same day, but the supporting affidavit was not filed until yesterday. This is the 4^th affidavit of Ruby Lee Yen Kee, the Director of Legal for the Grande Group.

8. A number of criticisms were made by the liquidators of Miss Lee’s affidavit, in particular, that no specific details were given of the work undertaken, when documents were retrieved by the respondents, the details of enquiries made with third parties, what searches and enquiries are outstanding, and how such outstanding searches are to be progressed. I think these criticisms are largely justified. A number of loose ends were not satisfactorily addressed in the affidavit. Other than four named third parties that the respondents had written to recently to inform them the respondents have in their possession documents belonging to or relating to the third parties, the respondents did not say in Miss Lee’s affidavit what other third parties they had written to or made enquiries with so far, in order to produce the relevant documents in their possession, custody or control as required by the Orders.

9. Mr Carolan submitted on the respondents’ behalf there is substantial compliance with the Orders. I doubt if that is the case, if only 291 files have been produced so far, and 400 files have been identified but not yet reviewed and not yet produced.

10. Mr Carolan submitted that an extension of time is required for reviewing the 400 files identified and as the liquidators’ resources to review the documents are limited, and that they will need further time to go through the documents already supplied, no prejudice would be occasioned to the liquidators in granting an extension of time. I do not accept this. The resources of the liquidators are not relevant to the indulgence sought for complying with the Orders made 18 months ago. The resources of the respondents in complying with the Orders are relevant. I note that the 1^st respondent is a substantial company, its shares are listed in the Hong Kong Stock Exchange. It seems to me that an extension of three months is far too long. Besides, there is no mention in Miss Lee’s 4^th affidavit when the respondents have identified the 400 files. I am not going to assume that the respondents have only managed to do so recently, nor will I assume that the respondents do not have a filing system to assist them in reviewing the documents kept in their records.

11. Mr Carolan has drawn my attention to Re Bank of Credit and Commerce International SA, Morris and Others v Bank of America National Trust and Savings Association and Others [1997] BCC 561. In that case, Robert Walker J adopted a staged approach for the production of a very substantial volume of documents by members of the Bank of America Group in different countries. Mr Carolan submitted I should use a similar approach and the staged approach he suggested is like this. The respondents are to produce within 14 days hereof documents in their possession that have not been produced; these are the documents in paragraphs 3(xv), (xvi) and (xix) of Miss Lee’s 4^th affidavit. Within two months hereof, the respondents are to produce such of the documents in the 400 files in their possession, when they should have completed review of such documents. There is to be a long stop date of three months, by which time the respondents are to produce any further relevant documents they have been able to obtain, such as the documents in the Zhongshan factories mentioned in paragraph 3(xvii) of Miss Lee’s 4^th affidavit, for which the respondents have sought access from the joint venture companies in China.

12. I agree with Miss Linda Chan for the liquidators that the circumstances in Bank of Credit and Commerce were different. The scale of production there was far more extensive. Of the 291 files produced so far, the liquidators have deposed that from their review to date, at least 170 folders relate to documents associated with trademark registration, infringements and valuations in various countries after 2000. Few of the documents produced fall directly within the categories of documents required to be produced and are at the heart of the investigations. I accept that any further delay is prejudicial to the discharge of the liquidators’ duties. This would add to the difficulties of the liquidators to pursue recovery action, and causes of action may become time-barred.

13. I take into account the history of the matter, the resources at the respondents’ disposal, and that the respondents have not completed their review of the 400 files located. I would only be prepared to grant a relatively short extension of time to comply with paragraph 1 of the Orders.

14. Miss Chan has sought an order as a condition for granting an extension of time to the respondents, leave should be given to the liquidators to apply to commit the respondents for contempt if there should be failure to comply. It does not seem to me appropriate to grant leave to commit for contempt as a condition for giving time to comply with the court order.

15. Miss Chan also submitted that any extension should be given on the respondents’ undertaking not to take any limitation point regarding any claim which may be made by Akai Holdings Limited, Kong Wah Holdings Limited and any company in the Akai Group against the respondents from 2 February 2005, being the date the summonses were issued under section 221, to the date of full compliance with the Orders.

16. I decline to require such an undertaking from the respondents, as the extension I am going to grant is a short one. The liquidators could issue a protective writ to protect their position against the time bar of any potential claim.

17. Miss Chan sought an order that the respondents are to provide to the liquidators within 7 days hereof letters of authorisation from the respondents to various third parties for relevant documents in the possession or custody of these third parties. In view of the unsatisfactory evidence from the respondents as to the efforts on their part to seek relevant documents from third parties, I think it is appropriate to order them to provide these authorisation letters. I will delete the parts in the liquidators’ sample letter asking the third parties to hand over the documents to the liquidators direct, as I agree with Mr Carolan that the respondents should have an opportunity of reviewing the documents to satisfy themselves that the documents produced by the third parties are within the scope of the Orders. I will not order authorisation letters be written to those to whom the respondents have already written; they are the 4^th respondent, Tremendous Springs Limited and Alpha Capital Group Limited.

18. I make an order in these terms:

(1) within 7 days hereof, the 1^st to 3^rd respondents do provide or otherwise supply to the liquidators:
(a) the documents mentioned in paragraphs 3(xv), (xvi) and (xix) of Miss Lee’s 4^th affidavit;
(b) an index of the 291 files supplied to the liquidators on 12 January 2007; and
(c) letters of authorisation in the form of the sample letter submitted by the liquidators as amended in the way indicated above signed by the directors or authorised representatives of the respondents, addressed to the entities mentioned in the submissions of counsel except for the three entities stated earlier;
(2) all other documents within paragraph 1 of the Orders are to be supplied to the liquidators within 42 days hereof.

19. As for the extension of time to comply with paragraph 2 of the Orders in making an affidavit to depose to any relevant documents not in the possession, custody or control of the respondents, I agree with the liquidators there should be no further delay about this and that this should be complied with within 7 days hereof. If in the course of further searches and enquiries, the respondents should come to know of any further relevant documents not within their possession, custody or control, they could file a supplemental affidavit.

20. I make an order in these terms:

(3) there be an extension of time to comply with paragraph 2 of the Orders within 7 days hereof;

(4) in the event any further documents within paragraph 1 of the Orders should come to be identified by the respondents as not within their possession, custody or control, leave to the respondents to file and serve a supplemental affidavit in further compliance with paragraph 2 of the Orders within 42 days hereof.

21. I will give liberty to apply on this order. For the costs of this application, I decline to order costs on an indemnity basis. I order the respondents to pay the liquidators’ costs of this application and of this hearing forthwith on a party and party basis, to be taxed if not agreed.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Joint & Several Liquidators

Mr Paul Carolan, instructed by Messrs Wilkinson & Grist, for the 1^st to 3^rd Respondents

57908-EN-2006-06-12

RE AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION)

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Released for publication with parts redacted

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance (Cap 32)

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance (Cap 32)

____________

(Heard together)

Before: Hon Kwan J in Chambers (not open to public)

Date of Hearing: 12 June 2006

Date of Judgment: 12 June 2006

______________

J U D G M E N T

______________

1. This is an appeal of [examinee] from a ruling given by Master de Souza on 6 June 2006. [Examinee] was the [position] [company examinee worked for]. He has retired from [company] some years ago and now resides in England. On 14 June 2006, the liquidators of Akai Holdings Limited and Kong Wah Holdings Limited (collectively “the Companies”) will commence the oral examination of [examinee] under section 221 of the Companies Ordinance, Cap. 32 before the Master, pursuant to an order I made in January this year.

2. No suggestion has been made by the liquidators that [examinee] was party to any wrongdoing. He is required to be examined orally because of the involvement of [company] in the affairs of the Companies as [role] and [role] and the involvement of [company] with other parties who are the subject of investigation by the liquidators.

3. When I made the order for oral examination, I mentioned in my decision that [solicitors], who acted for [examinee] and [number] of the examinees, had requested the liquidators to provide a list of the topics the liquidators intended to cover in the examination and that I considered this reasonable.

4. On 27 April 2006, the liquidators provided [solicitors] a list of the intended topics of examination for the [number] examinees including [examinee].

5. On 3 May 2006, [solicitors] requested the liquidators to provide to the examinees bundles of relevant documents for use at the examinations and to identify precisely within the bundles in relation to each witness what documents the liquidators intended to concentrate on. The liquidators acceded to the first part of the request but not the latter. Bundles of relevant documents were provided to the examinees shortly before their examination was to commence. [Examinee] is the last of the [number] to be examined. The relevant documents were provided on the basis that they could not be used for any purpose other than to refresh the memory of the examinees and to prepare them for the examination.

6. When relevant documents were sent to [examinee] care of [solicitors] on 2 and 3 June 2006, it was expressly stated in the covering letters of the liquidators that the documents are “confidential and are not to be disclosed to or discussed with anybody including [his] legal advisers”. This statement did not appear in some of the earlier covering letters providing the relevant documents to the other examinees.

7. On receipt of the above letters, [solicitors] wrote to the liquidators on 5 June 2006 objecting to the above term in the covering letters to [examinee] and making clear their position in these respects:

(1) there was no order against [examinee] prohibiting him from seeking or receiving legal advice in relation to the documents provided and no undertaking from [examinee] to this effect either;

(2) in giving legal advice to [examinee] as aforesaid, [solicitors] and counsel would not disclose any information or documents given or obtained by them in the earlier examination of the other examinees; and

(3) the documents provided to [examinee] by the liquidators would not be shown to or discussed with any third party including the other examinees and [company], other than to [examinee]’s legal advisers and that had been the case with the documents provided earlier for the other examinees.

8. On 6 June 2006, counsel for [examinee] sought a ruling from the Master if [examinee] could seek legal advice generally on the documents provided by the liquidators.

9. The Master made a ruling, which is the subject of this appeal, that [examinee] does not have uninhibited ability or a general right to take legal advice prior to the commencement of his examination on the documents provided to him by the liquidators for the limited purpose of refreshing his memory. The Master has made clear in what he said on the day after this ruling that what he had ruled is “obviously in the context of the documents supplied”. In other words, the ruling is confined to legal advice in respect of the documents supplied. The Master has not ruled that [examinee] is not permitted to take legal advice regarding his examination in general, prior to the commencement of the examination, so long as this does not involve [examinee] going through the documents supplied with his legal advisers. Further, if he wishes to seek legal advice before the commencement of his examination on any particular matter arising from the documents supplied, he may apply to court for this purpose, identifying sufficiently the area or areas of his concern to the court and the liquidators and the Master will rule on this after hearing arguments. What he is not permitted to do, by the ruling of the Master, is to take legal advice on the documents in general, without the leave of the court.

10. The scope and purport of the Master’s ruling would appear to be very limited.

11. The reason for this ruling, as the Master has explained, is that he sees a risk that the evidence [examinee] is to give in his examination may be coloured, even with the best will in the world, if he is allowed to go through the documents supplied and to have a general discussion or even a more detailed discussion on points arising from those documents with his legal advisers. He was not saying that [examinee] would be coached in giving evidence, but it is important to “ensure that the witness gives his evidence as best as he can, having refreshed his memory from the documents without any assistance”. He noted that he had made a similar ruling on another occasion, after an examination has commenced, that if a matter should arise which requires legal advice to be taken before further examination is to continue, an application could be made to him for that purpose with the examinee identifying to the court the area of advice he would be seeking. As mentioned earlier, the Master thinks it appropriate to adopt a similar approach in the present situation, before the commencement of the examination.

12. [Examinee] challenges this ruling as a matter of principle. Neither he nor his legal advisers have looked at the documents supplied by the liquidators at this stage.

13. A fair balance is to 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. I am not persuaded by [examinee’s counsel], counsel for [examinee], that the Master has over-stepped the line.

14. [Examinee]’s right to seek legal advice in general on his examination is not curtailed. He was a senior [profession], there is no suggestion that he requires assistance in perusing or understanding the documents provided for the purpose of refreshing his memory.

15. [Examinee’s counsel] has emphasized repeatedly that he and those instructing him are mindful of their professional ethics and duties that they may not coach a witness, and gave assurance that that would not happen in giving legal advice to [examinee] in respect of the documents provided. [Examinee’s counsel] gave as examples the kind of legal advice that may be provided: [examinee] may wish to ascertain from his lawyers if there are other documents which are relevant to an issue but have not been included in the bundle; or he may wish his lawyers to advise him which documents relate to which of the issues to be canvassed in the liquidators’ list of issues as these topics are very broad and general.

16. I agree with Miss Linda Chan for the liquidators there is a heightened risk in this situation if [examinee] is allowed to go through the documents with [examinee’s solicitors] and counsel for seeking legal advice in general, particularly as the legal advisers have advised other examinees and have taken part in earlier examinations and are privy to documents and evidence given in the earlier examinations, which they accept should not be divulged to [examinee]. It seems to me that the legal advisers would be put in a very difficult position. What if some of the documents provided to [examinee] are among the documents canvassed in an earlier examination? And what if another examinee was shown in the examination a document relevant to an issue but not included in the bundle provided to that examinee? Are the advisers of [examinee] to inform him the bundle [examinee] is given is likewise incomplete or show [examinee] that further document? If the legal advisers are to advise him which of the documents are relevant to which of the issues in the liquidators’ list (the topics are common to all the examinees), are they to have regard to their knowledge and information acquired in respect of the previous examinees, or are they to erase from their minds the knowledge and information they have already acquired?

17. Common sense should prevail in this situation. In the ordinary course, the examinee is entitled to advance notice, in general terms, of the topics on which he is to be examined (Re Arrows Limited (No. 4) [1995] 2 AC 75 at 101G to 102A; In re Norton Warburg Holdings Limited and Norton Warburg Investment Management Limited [1983] BCLC 235). There is no invariable rule or practice what further information should be provided to the examinee to prepare him for the examination, it is a matter for the unfettered discretion of tribunal seized with the conduct of the examination to do what is fair in all the circumstances of the case.

18. [Examinee’s counsel] has accepted that it is a basic principle of giving evidence that once an examination has begun, legal advisers would need leave of the court to speak with an examinee. That principle is to guard against the risk that a witness’s testimony may be affected or compromised if he is allowed to consult with his legal advisers in the course of giving evidence. The Master’s assessment of this particular situation is that the risk is not any less. I am inclined to agree with him.

19. [Examinee’s counsel] further submitted there is no clear legal basis to support the Master’s ruling. I disagree.

20. [Examinee’s counsel] said he is not putting his case at a high constitutional level. Nevertheless, he seeks to rely on Article 35 of the Basic Law which provides that Hong Kong residents shall have the right to confidential legal advice for timely protection of their lawful rights and interests. I am given to understand that [examinee] has the status of a Hong Kong permanent resident, notwithstanding he has left Hong Kong to live in England. The right to legal advice is for protection of lawful rights and interests. This right may be restricted where there is danger that the evidence of a witness may be contaminated and there is risk that the course of justice may be compromised. As mentioned earlier, [examinee]’s right to seek legal advice in general on his examination is not curtailed.

21. Miss Chan has cited dicta from various decisions in England and Australia in the context of criminal proceedings and ordinary civil litigation to demonstrate the strictness of the rule designed to guard against the risk of coaching or training witnesses and what is permissible in what is known as “witness familiarisation” (the decision of the English Court of Appeal in R v Momodou [2005] 2 All ER 571 at paragraphs 61 to 65; the decision of Lewison J in Ultraframe (UK) Limited v Fielding (No. 1) [2005] EWHC 1638 at paragraphs 22 to 31; and the decision of Young J in Re Equiticorp Finance Limited; ex parte Brock (No. 2) (1992) 7 ACSR 13 at 16 to 17). I find such dicta helpful and instructive, I do not propose to set them out in extenso. I note that in England, great care is taken in the witness familiarisation process that the process should not touch on any of the matters in issue in the proceedings and nothing in it should play on or trigger the witness’s recollection of events.

22. Lastly as to the point that it would be inimical to confidentiality if [examinee] should be required in applying for leave to disclose to the court the area or matter for which he needs legal advice, I do not see why that should involve divulging confidential information.

23. For the above reasons, I would dismiss this appeal with costs to the liquidators.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Laracy Gall, for the Joint and Several Liquidators

[Counsel], instructed by [solicitors], for the Applicant

57906-EN-2006-03-02

THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. [Respondents]

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Released for publication with parts redacted

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	[Respondents]

_________________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance, Chapter 32

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED	Applicants
	(IN COMPULSORY LIQUIDATION)
	and
	[Respondents]

Before: Hon Kwan J in Chambers (not open to public)

Date of Hearing: 2 March 2006

Date of Decision: 2 March 2006

______________

D E C I S I O N

______________

1. This matter has come before me as an urgent appeal arising out of an application made to Master de Souza in the course of a private examination.

2. The examination has been stood down pending the disposal of this appeal.

3. A very short point is involved here, that is, whether the liquidators should be ordered to provide to the examinee additional documents in advance on questions he may be examined, so that the examinee may have some forewarning of the areas of investigation.

4. The liquidators’ position, as I understand it, is that the answers given by the examinee should be spontaneous, they should not be prepared or rehearsed. So if there are any additional documents not included in the hearing bundles, they could be provided to [name of the examinee], the examinee, there and then, in the course of the examination, and he would be given an opportunity to refresh his memory and consider the documents while he is in the witness box, and then he should answer the questions put to him.

5. [The examinee’s counsel’s] position is that the examinee should not be taken by unfair surprise, he should not be trapped into giving answers he would not otherwise have given if he is made aware of additional documents kept up the liquidators’ sleeve, or driven to say he has no recollection of documents which may put him in a bad light of being unco-operative or evasive in his answers.

6. If this were a simple case, I see nothing wrong or objectionable that a witness is occasionally required to read a document for the first time in the witness box. As stated in Mr Hunsworth’s submission, the extent to which an examinee may be forewarned of the matters to be canvassed at an examination will vary, depending on the factual circumstances of each case. In the context of this case, I do not think the approach suggested by the liquidators is a sensible one for the following reasons:

(1) The documents involved in this examination are voluminous; the transactions under investigation are complex.

(2) The matters that the liquidators are investigating happened more than 10 years ago. A witness cannot be expected to give a meaningful answer, if he is shown a document for the first time in the witness box, with very limited opportunity to react and try to re-construct or recall events or details of what had happened for over a decade.

(3) I have no idea of the volume of additional documents involved. If it is only a small number, I would expect to be told. It may well be that the additional documents are not a small number. That being the case, if a witness is repeatedly shown a document for the first time in the witness box, and he needs time to read it or check it against some other documents he had seen before in order to give a proper response, this may just slow down the progress of the examination and would be undesirable.

(4) If any new avenue of inquiry should crop up in the course of the examination and, as a result, it is necessary to refer the examinee to other documents not provided before, then the court hearing the examination could assess the situation and decide on the best course to take, depending on the nature and volume of new materials to be shown to the examinee.

(5) I do not think the quality of the evidence of the examinee would be compromised if additional documents are provided to him in advance without more, whether he is permitted to consult his lawyers on the additional documents is another matter on which the Master has not ruled.

7. It is a matter for the Master if permission should be given. The court does not know whether permission ought to be given in a particular situation, without knowing what additional documents are to be provided and what purpose is to be served by allowing the examinee to confer with his lawyers on the additional documents.

8. I do not wish to tie the hands of the Master. He is obviously mindful of the need to ensure fair questions are put and fair procedures are observed in the examination, and he has strived to hold a proper balance between the competing interests of the examiner and the examinee throughout.

9. I would only wish to say the following. I do not think it is as of right that an examinee would be allowed to confer freely with his lawyers in the middle of an examination, notwithstanding additional documents are provided. Whether this is to be allowed would depend on what purpose is to be served by such consultation. A blanket statement that it is necessary for the examinee to seek legal advice will not do. It is recognised that drilling, coaching and colouring the evidence of witness are not permissible.

10. I have read the transcript and noted what the [examinee’s counsel] had said about the consultation that may have to follow. At the moment it is not entirely clear to me what would be the purpose of such consultation. It was mentioned by the [examinee’s counsel] that the lawyers of the examinee would need to make proper preparations in the light of any additional document provided. At another point, the [examinee’s counsel] said that if consultation is allowed, perhaps the answers given by the examinee would be “with the benefit of some research”. It seems to me with the training and background of [name of the examinee], he should be perfectly able to understand the additional documents to be disclosed to him. It has certainly not been made clear what sort of preparation his lawyers would be doing on his behalf if additional documents are given. Perhaps it is not possible for them to be specific about this without seeing the additional documents.

11. For the above reasons, I dismiss this appeal and uphold the Master’s order. The liquidators should provide the additional documents first to [name of the examinee] and his lawyers. It would then be for [name of the examinee] to seek such reasonable time as the Master may grant for him and his lawyers to read the additional documents. And if there is any need for [name of the examinee] to confer with his lawyers on the additional documents, an application could then be made to the Master.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr Nicholas Hunsworth, of Messrs Johnson, Stokes & Master, for the Joint & Several Liquidators, the Applicants

[Name of the counsel] instructed by [name of the solicitors firm] for [Respondents]

99776-EN-2006-01-18

RE AKAI HOLDINGS LTD

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

Before: Hon Kwan J in Chambers (not open to public)

Date of Hearing: 10 January 2006

Date of Further Written Submissions: 13 January 2006

Date of Decision: 18 January 2006

_____________

DECISION
_____________

1. The liquidators of Akai Holdings Limited (“Akai”) and Kong Wah Holdings Limited (“Kong Wah”) (collectively “the Companies”) issued three summonses on 16 September 2005, 25 October 2005 and 11 November 2005 under section 221 of the Companies Ordinance, Cap. 32 against seven respondents seeking orders that:

(1) The Hongkong and Shanghai Banking Corporation Limited (“HSBC”), the 1^st respondent herein, do supply documents within its possession, custody or control as set out in Schedule 1 of the summonses in respect of the entities in Schedule 2 (“the Designated Companies”); and
(2) each of the 2^nd to 7^th respondents, who are or were officers of HSBC, be examined on oath concerning the affairs of the Companies.

2. On 15 September 2005, I made an order, which was amended on 21 September 2005, to preserve the confidentiality of all documents filed in relation to the said summonses.

3. The summonses were served on each of the respondents except for the 5^th respondent, Karl Ming Wah Kam. The liquidators’ solicitors have attempted service on him on four occasions at his last known place of residence but without success.

4. I do not propose to set out the background of the Companies and the events leading to their winding up; the management and control of the Companies, their subsidiaries and associates (collectively “the Akai group”) from late 1999; the circumstances in which the assets of the Akai group were purportedly secured in favour of and prima facie realised for the benefit of The Grande Holdings Limited group of companies (“the Grande group”); and the transactions investigated by the liquidators. They were given in some detail in the 8^th affidavit of Cosimo Borrelli, who is one of the liquidators.

5. HSBC was involved in the affairs of the Companies in this way:

(1) it was a principal banker to the Companies throughout the 1990s until their demise in 2000;
(2) it was the key lender to the Companies and is the largest creditor of the Companies;
(3) it was, until its resignation on 23 September 2005, a member of the committee of inspection of each of the Companies;
(4) it was a principal banker to the Grande group;
(5) it was a banker to the former chief executive and chairman of the Companies, James Ting, and his wife Angela Tseng Su Lan, in their personal capacities, as well as other former officers of the Akai group who, as revealed by the liquidators’ investigations, received payments from the funds of Akai which were unusual and which appeared to be outside the ordinary course of business; and
(6) it was the liaison bank for the steering committee formed by a number of the financial creditors of the Companies from January 2000 until the Companies were wound up on 23 August 2000.

6. The five individual respondents who were represented at the hearing indicated that they have no objection to the making of orders for oral examination against them. They have set out in the letter of their solicitors to the liquidators’ solicitors dated 5 January 2006 their non-available dates and requested that the dates for the examination be fixed to accommodate their schedules, in view of their professional and personal commitments and that some are residing outside Hong Kong. They also requested that sufficient notice of the proposed hearing dates be given to them, with a list of the topics that the liquidators intend to cover in the examination. I consider these to be reasonable requests.

7. I make an order for oral examination against each of the 2^nd to 7^th respondents. In respect of the 5^th respondent, who was not represented at the hearing, he would have liberty to apply to set aside the order made in his absence.

8. As to the order for production, the stance of HSBC is as follows. HSBC has always recognised that the liquidators have a public function to perform and that it is necessary and desirable to co-operate with the liquidators’ investigations, to the extent it can reasonably do. At the same time, HSBC has its own duties of care and confidentiality to its own customers with respect to the affairs of its customers. For that reason, it is not possible for HSBC voluntarily to disclose documents and information relating to its customers unless otherwise required by law.

9. Furthermore, as the customers of HSBC are not privy to (due to the confidentiality order made on 15 September 2005) and are not represented in these applications, it falls on HSBC to raise any jurisdictional issues and all relevant matters before the court, so that the court can properly carry out its balancing exercise.

10. HSBC adopts a neutral stance on the production of documents and seeks only to put the liquidators to proof that the full range of documents sought in Schedule 1 is properly within the ambit of section 221(3) of Cap. 32.

11. Without prejudice to the above stance, HSBC has put forward a revised draft order and revised Schedule 1, in the event that the court is satisfied that the documents sought in Schedule 1 in respect of the Designated Companies do relate to the affairs of the Companies. This is in the interest of clarity as where the ambit of the order proposed by the liquidators is extremely broad, it is of great importance to HSBC to know precisely what it must do to comply with the order. HSBC also seeks to agree a protocol with the liquidators to produce documents in stages, to minimise unnecessary disruption. The liquidators are agreeable to this approach.

12. Of a total of 485 Designated Companies, HSBC has identified 164 companies that have been customers of HSBC at some point (“the Designated Customers”), the names of which are not disclosed in the evidence it has filed in this application. The Designated Customers maintained approximately 700 accounts with HSBC. Mr. Borrelli’s 8^th and 19^th affidavits did not describe in any detail how the list of the Designated Companies in Schedule 2 was arrived at, or how each of these 485 companies (with the exception of a few prominent ones) came to be involved in the affairs of the Companies. It was contended by HSBC that there is a lack of “forensic detail”, and this has placed it in a difficult position, particularly in relation to the Designated Customers.

13. Further evidence has since been filed by the liquidators in the 20^th affidavit of Mr. Borrelli on 12 January 2006, to confirm and expand on the matters that Miss Chan has informed the court on instructions of the liquidators at the hearing. Mr. Harry has also provided further submissions in writing on behalf of HSBC on the evidence filed by the liquidators after the hearing, pursuant to the directions I gave.

14. Mr. Harry has drawn my attention to the decision of the English Court of Appeal in Re Mid East Trading Ltd. [1998] 1 BCLC 240, in which Chadwick LJ stated at 248h to 249b as follows:

“Section 236(3) of the 1986 Act [equivalent to our section 221] empowers the court to require any person coming within paras (a) to (c) of s 236(2) to produce any books, papers or other records (‘documents’) relating to the company or the other matters mentioned in sub-s (2)(c) – that is to say relating to the promotion, formation, business, dealings, affairs or property of the company. For convenience we shall use the expression ‘relating to the company’ to include the wider concept.
Persons coming within s 236(2)(b) and (c) of the Act include persons ‘suspected’ of having property of the company in their possession, persons ‘supposed’ to be indebted to the company and persons whom the court ‘thinks capable’ of giving information concerning its affairs. Those are persons who may be summoned to appear before the court under sub-s (2); and who may be required to produce documents under sub-s (3). But, although the persons against whom an order for production may be made may include those whom the court suspects of having the company’s property, or thinks capable of giving information concerning its affairs (as the case may be), the documents which they can be ordered to produce must satisfy the factual test specified in sub-s (3) – that is to say they must be documents relating to the company. It is not enough that the documents may relate to the company or may be thought to relate to the company; unless the documents do relate to the company there is no power to order their production.” (Emphasis supplied)

15. In Mid East Trading, the Court of Appeal took a different view from the finding of fact of the court below and held that the evidence adduced did not establish that the documents in the possession of third parties relating to two other companies must necessarily relate to the company that was in liquidation, so that part of the order of the judge (which provided that for the purpose of production under section 236, the documents relating to the business, dealings, affairs and property of the other two companies were documents relating to the subject company) could not stand for want of jurisdiction. The Court of Appeal substituted for it a different paragraph, to make clear that documents relating to the other two companies would only be treated as documents concerning the business, dealings and affairs of the subject company for the purpose of the production order, where such documents also related to or evidenced transactions effected on behalf of investors (the subject company operated as a financial adviser and investment manager for investors) or any other persons claiming to be creditors of the subject company identified by the liquidators (at 254c to f).

16. The question here is whether on the evidence adduced by the liquidators, the documents sought in Schedule 1 in respect of the Designated Companies satisfy the factual test in section 221(3) – that they do relate to the Companies. I should mention that I am satisfied that documents and information are reasonably required by the liquidators in carrying out their functions. The matters for which the information and documents sought would, in the views of the liquidators, materially assist them in ascertaining are comprehensively set out in paragraph 35 of the submissions of Miss Chan. I attach significant weight to the views of the liquidators, as they would have detailed knowledge of the problems which exist in relation to the affairs of the Companies and the information required. I also bear in mind that an application under section 221 is of a summary nature, the court cannot be expected to indulge in fine judgments as to the precise width of the order which is to be made, and the liquidators are not obliged to make out their reasonable requirement in as much detail as they would be required to do on an application for discovery.

17. Miss Chan has also cited to me the case of Re Bank of Credit and Commerce SA, Morris v. Bank of America National Trust & Savings Association [1997] BCC 561, which showed that the court may make an order for production that is extremely broad in scope in an appropriate case, and the following dicta of Vinelott J in Re Cloverbay Ltd. (1989) 5 BCC 732 at 737E:

“In the ordinary course, disclosure of bank accounts of a company in this position and of correspondence, bank mandates and the like is essential to the discharge of the task of a liquidator or administrator. It cannot be restricted to specific categories without giving rise to a risk that administrators or liquidators will fail to learn of a transaction previously unsuspected which would have founded a claim, whether against in this case BCCI or someone else.”

18. Miss Chan submitted that in an application under section 221, the liquidators are not required to prove, with “forensic detail”, how and to what extent the Designated Companies were involved in the affairs of the Companies; this is particularly so when the liquidators have effectively been kept in the dark as to what documents are held by HSBC and in respect of which companies (cf. Re BCCI, Morris v Bank of America, supra. at 575E to H). In the 8^th affidavit of Mr. Borrelli, he has explained why the liquidators will not be able to give “forensic detail” in relation to the Designated Companies, due to the substantial difficulties encountered by the liquidators in identifying those companies which formed part of the Akai group and the transactions between the Akai group and counter-parties. Their investigations are ongoing.

19. In the 20^th affidavit of Mr. Borrelli, he gave an explanation of the background to and the purpose of the list of the Designated Companies in Schedule 2. He divided these companies into four categories and identified in which of the categories each of the companies would fall.

20. Category 1 is made up of subsidiaries of the Companies at relevant times prior to the winding up of the Companies and which remain subsidiaries of which the liquidators or their nominees are now either directors or liquidators. Category 2 comprises subsidiaries of the Companies at relevant times prior to the winding up of the Companies but which subsequently ceased to be subsidiaries and/or are not under the control of the liquidators. There are a total of 126 companies in these two categories.

21. Category 3 is the largest category, made up of companies which entered into transactions with the Akai group which are the subject of investigations by the liquidators and which appear to have been controlled by and/or related to James Ting and officers under his direction, incorporated in overseas jurisdictions for specific purposes and were recipients of funds from the Akai group, including the “BT Deposit” account or in some cases engaged in specific transactions with the Akai group which appeared to have led to losses having been incurred by the Companies. There are 270 companies in this category.

22. Category 4 is made up of subsidiaries of the Grande group, which, as defined in Schedule 1 to the draft order, includes companies within the Toyo group. There are 89 companies in this category.

23. In respect of the Designated Companies in Schedule 2, the liquidators seek the production of documents listed in paragraphs 1 and 2 of Schedule 1, which relate to their bank accounts and loan facilities, and not in respect of any of the documents listed in the other paragraphs of Schedule 1, with the exception of the companies in category 4, which I shall deal with.

24. I am satisfied that in respect of categories 1 and 2, the bank account records and loan records of these companies are documents relating to the affairs of the Companies and these records are reasonably required by the liquidators to properly understand the affairs of the Companies and the Akai group.

25. For category 3, Mr. Borrelli in his 8^th affidavit has set out the substantial unusual transactions involving the companies in this category with the Companies or with members of the Akai group. I do not think it necessary for the liquidators to identify, in respect of each of the 270 companies in this category, which particular transaction or transactions were entered into by each company and with which member of the Akai group. I should take a pragmatic and broad-brush approach in this application of a summary nature. I am satisfied that the bank account records and loan records of the companies in this category are also documents relating to the affairs of the Companies and that these records are reasonably required by the liquidators to properly understand the affairs of the Companies and the Akai group, in particular, the “BT Deposit” general ledger account and the ultimate destination of the funds paid out of the Akai group under the direction of James Ting.

26. There was an apparently close relationship between the companies in category 4 with the Akai group and the liquidators have identified several highly suspicious transactions between the Akai group and the Grande group. The liquidators accepted that not all of the banking records of the companies in this category would necessarily relate to the affairs of the Companies. They proposed to carve out from paragraphs 1 and 2 of Schedule 1 the companies within the Grande group so that the order for production in respect of the companies in category 4 is subject to the qualification that production is made only where the documents relate to the affairs, financial condition, management, control, ownership, assets, liabilities and prospects of the Akai group. This qualification also applies to the documents in paragraph 3 of Schedule 1, which relates to group credit assessments in connection with HSBC’s consideration of its exposure to the Akai group and the Grande group during the relevant period. The qualification does not extend to Tremendous Springs Limited (“TSL”), which was intimately involved in the affairs of the Companies as explained in Mr. Borrelli’s 20^th affidavit, such that all banking documents held by HSBC in respect of TSL ought to relate to the Companies. With the qualification as proposed, I am satisfied that the records sought to be produced would relate to the affairs of the Companies and that they are reasonably required by the liquidators to properly understand the affairs of the Companies and the Akai group.

27. For the above reasons, I make an order for production of documents and for oral examination of the 2^nd to 7^th respondents. I approve the revised draft order submitted by the liquidators on 12 January 2006, save that all references to “Further Account Related Documents” are to be deleted.

	(S Kwan)
	Judge of the Court of First Instance,
	High Court

Miss Linda Chan, instructed by Laracy Gall, for the Applicants

Mr Timothy Harry, instructed by Freshfields Bruckhaus Deringer, for the 1^st to 4^th, 6^th and 7^th Respondents

The 5^th Respondent, acting in person, absent

57559-EN-2005-11-04

RE AKAI HOLDINGS LTD (In Liquidation)

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

_________________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (In Liquidation)
	and
	IN THE MATTER of Sections 199(3) and 200(3) of the Companies Ordinance (Cap 32) and the Court’s Inherent Jurisdiction

_________________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

_______________

	IN THE MATTER of AKAI HOLDINGS LIMITED (In Liquidation)
	and
	IN THE MATTER of Sections 199(3) and 200(3) and of the Companies Ordinance (Cap 32) and the Court’s Inherent Jurisdiction

________________

(Heard together)

Before: Hon. Kwan J. in Chambers (not open to Public)

Date of Hearing: 4 November 2005

Date of Decision: 4 November 2005

______________

D E C I S I O N

______________

1. I have an ex-parte application by the liquidators of Akai Holdings Limited and Kong Wah Holdings Limited for leave to issue 4 protective writs against various groups of defendants under sections 199(3) and 200(3) of the Companies Ordinance, Cap. 32.

2. The liquidators also seek these directions:

(1) the parties named in the writ be known as “A” in the case of the plaintiffs and “B” in the case of the defendants;
(2) the Registrar be directed to enter the names of parties in the writ as “A” and “B” in the register maintained in the Registry of the High Court until 12 months from the date of the issue of the writ or further order;
(3) the Registrar be directed to cause the file of the action commenced by the writ and contents thereof including the names of parties appearing on the writ be kept confidential until 12 months from the date of issue of the writ or further order; and
(4) the supporting affidavit of the liquidators with exhibits, the skeleton submission, this order and any transcript of any hearings regarding this application be sealed by the court and not be made available for inspection by any other party save with leave of the court upon 7 working days notice being given to the liquidators.

3. Under the inherent jurisdiction of the court to regulate its own process, the court may give directions to ensure that a party is not identified (Re The Takeovers and Mergers Panel [1996] 3 HKC 379 at 382C). I do not think there is any problem with a large part of the directions sought.

4. The only reservation I have is whether I have jurisdiction to restrict the right of access of any member of the public to an originating process as conferred by Order 63 rule 4(1) of the Rules of the High Court.

5. I am satisfied on the information before me that if I have jurisdiction to do so, it would be right and proper to exercise my discretion in this instance and make the directions sought for the reasons set out in detail in Miss Linda Chan’s submission.

6. Miss Chan reminded me that I had made a similar order on 21 May 2004 regarding another protective writ issued by the liquidators.

7. I have looked at the written submission of Miss Chan on that occasion. She had drawn my attention to several Australian cases on the jurisdiction and power to direct the issue of a writ to be kept confidential, but did not address the court on Order 63 rule 4, as she has done on the present occasion.

8. I do not think there is any binding authority on me whether I have jurisdiction to restrict access to an originating process notwithstanding Order 63 rule 4(1).

9. The observations made by the Court of Appeal in Hunsworth v Attorney General [1996] 3 HKC 519 to the effect that the entitlement to access an originating process under Order 63 rule 4 is “unqualified” at 523D, 527I to 528B, 533G to H, 534E to F are obiter. The views expressed by J Chan J in Hunsworth v Registrar of the Supreme Court and Another [1996] 2 HKLR 446 at 458D to 459D that the right of access under Order 63 rule 4(1)(a), although unconditional is not absolute and so does not oust the inherent jurisdiction of the court in granting such relief to ensure that “procedural rules [are] not being misused to defeat proper administration of justice and public good” are likewise obiter.

10. Similar views were expressed in Mareva Injunctions and Anton Piller Relief by Steven Gee, 4^th edition, p. 250, in which mention was made of a further basis of jurisdiction for a gagging order in the inherent jurisdiction of the court, “to ensure that its orders are not rendered futile and ineffective to achieve their purpose.”

11. I should mention that I have considered the order made in A Co v B Co [2002] 3 HKLRD 111 at 115D to 116B. I note that apart from the gagging order against the defendant from revealing or disclosing to any third party any information relating to the proceedings, Ma J made an order that the court file be sealed and not be available for further inspection by a third party save with the leave of the court. Presumably this would include the originating process, but there was no discussion in the judgment of Order 63 rule 4(1). So I do not find A Co v B Co of direct assistance to the issue of jurisdiction that I am concerned with, nor do I find section 21L of the High Court Ordinance, Cap. 4, discussed in A Co v B Co,to be of direct relevance, as no injunctive relief is sought in this instance.

12. I am persuaded in the end that the right conferred under Order 63 rule 4(1) is not an absolute right of access, so there is room for inherent jurisdiction to be invoked in an appropriate situation to restrict access to the originating process. In the present case, if a direction is not made to restrict the right of access to the writ and endorsement of claim, this would render the other directions to safeguard confidentiality largely ineffective.

13. I will grant the reliefs sought in the ex-parte applications in respect of the 4 protective writs placed before me.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Joint & Several Liquidators

55814-EN-2005-08-04

THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LTD (IN Compulsory Liquidation) v. THE GRANDE HOLDINGS LTD AND OTHERS

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED	Applicants
	(In Compulsory Liquidation)
	and
	THE GRANDE HOLDINGS LIMITED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED	Applicants
	(IN Compulsory Liquidation)
	and
	THE GRANDE HOLDINGS LIMITED	1^st Respondent
	THE GRANDE GROUP LIMITED	2^nd Respondent
	THE GRANDE (NOMINEES) LIMITED	3^rd Respondent
	OMNICORP LIMITED	4^th Respondent
	HO WING ON, CHRISTOPHER	5^th Respondent
	RUBY LEE YEN KEE	6^th Respondent
	SHERYL SIMMONS	7^th Respondent

____________

Before: Hon Kwan J in Chambers

Dates of Hearing: 13 and 14 July 2005

Date of Handing Down of Decision: 4 August 2005

_____________

D E C I S I O N

_____________

The application

1. This is a summons issued on 2 February 2005 by the liquidators of Akai Holdings Limited (“Akai”) and Kong Wah Holdings Limited (“Kong Wah”) (collectively “the Companies”) under section 221 of the Companies Ordinance, Cap. 32. Initially, the summons was to seek production of documents from four corporate respondents, The Grande Holdings Limited (“Grande HK”), The Grande Group Limited (“Grande Group”), The Grande (Nominees) Limited (“Grande Nominees”) (collectively, “the Grande respondents”) and Omnicorp Limited (“Omnicorp”). The summons was amended on 9 June 2005 to seek relief against three individual respondents for them to be orally examined. They are Ho Wing On Christopher (“Mr. Ho”), Ruby Lee Yen Kee (“Miss Ruby Lee”) and Sheryl Simmons (“Miss Simmons”).

The Companies

2. The Companies were both listed on The Stock Exchange of Hong Kong Limited and were part of the Semi-Tech Corporation Limited group of companies, which was an international conglomerate. The background of the Companies, their group corporate structure, the events leading up to the winding up of the Companies by the courts in Hong Kong and Bermuda in August and September 2000, their financial position on liquidation, and the extent of the assets once owned or controlled by the Companies, their subsidiaries and associated companies that had been disposed of or transferred to the Grande respondents or Omnicorp had been set out in the two judgments I gave on 11 November 2003 and 7 September 2004, in respect of the applications also made under section 221 by the liquidators against the former auditors of the Companies and the former chairman and chief executive officer of the Companies, James Henry Ting (“Mr. Ting”). I do not propose to repeat those matters here.

3. The affairs of the Companies are very complex and substantial, involving a multitude of subsidiaries and associated companies. As mentioned in my previous judgments, the collapse of the Companies, their subsidiaries and associated companies constitutes the largest corporate insolvency in Hong Kong. There is difficulty in identifying all the companies that are, or at one time have been, the subsidiaries and associated companies of the Companies. In the 11^th affidavit of Nicholas Hill, who is one of the liquidators, filed in support of the present application, he listed close to 300 subsidiaries and associated companies of the Companies known to the liquidators in Tab 1 of the documents exhibited. The liquidators cannot be certain of the exact group structure. During the course of their investigation, they have uncovered new entities which had dealings with the Companies or their subsidiaries and which further investigation has shown are or were subsidiaries or associated companies.

4. In the revised draft order placed before the court at the end of the hearing, the liquidators made clear that they would only be seeking production of documents and information from the four corporate respondents that relate to the Companies, their current and former subsidiaries and associated companies as listed in Tab 1, pages 9 to 24 of the documents exhibited to the aforesaid affidavit of Mr. Hill. In this decision, I will refer to the Companies, their subsidiaries and associated companies identified in this way as “the Akai Group”.

The respondents

5. Grande HK is a company incorporated in the Cayman Islands and continued in Bermuda and is currently listed on The Stock Exchange of Hong Kong Limited. Mr. Ho was an executive director of Grande HK from October 1991, its president and group chief executive from at least 1996 to 2001 and is now its chairman. He is also its major shareholder. Mr. Ting was a director of Grande HK from November 1990 to November 1992.

6. Grande Group is a company incorporated in Singapore and a wholly owned subsidiary of Grande HK. Grande Group has provided legal and corporate secretarial support to Grande HK and its subsidiaries.

7. Grande Nominees is a company incorporated in the British Virgin Islands and a wholly owned subsidiary of Grande HK. It was set up to hold shares of various other companies as a nominee.

8. Miss Ruby Lee is a solicitor and holds the position of “Director of Legal” for Grande HK and its subsidiaries. She is a director and the company secretary of Grande Group and a director of Grande Nominees.

9. Miss Simmons is a lawyer trained in the United States and was employed by Grande Group at one time. Her present whereabouts are not known and the liquidators have not been able to serve this summons on her.

10. Omnicorp has been previously named Tomei International (Holdings) Limited, Toyo Holdings Limited, 02 New Technology Limited and Omnitech Group Limited. I propose to refer to it in this decision throughout as “Toyo”, as much of its involvement with the Akai Group took place at a time when it was named Toyo Holdings Limited. It is a company incorporated in Bermuda and its shares are listed on The Stock Exchange of Hong Kong Limited. Until 27 May 1999, Toyo was a subsidiary of Akai, it then became an associated company of Grande HK. Between 11 November 1999 and 30 May 2000, Toyo was a subsidiary of Grande HK. Until 3 November 2000, Toyo was an associated company of Grande HK. Between 27 May 1999 and 3 November 2000, Mr. Ho was its executive chairman. Mr. Ting was a director of Toyo from August 1991 to June 1999.

The transactions under investigation

11. The matters or transactions for which the liquidators seek information and documents from the corporate respondents in this application may be categorised as follows:

(1) the Management Agreement dated 12 November 1999 made between Akai, on behalf of itself and its subsidiaries and affiliates and Grande Group (“the Management Agreement”) and transactions undertaken pursuant thereto;

(2) the engagement of Alpha Capital Group Limited (“Alpha Capital”; a wholly owned subsidiary of Grande HK at the material time) as the financial adviser of Akai and transactions undertaken pursuant thereto;

(3) the assets of the Akai Group including:

(a) the “Akai”, “Sansui” and “Kawa” trademarks;

(b) the shares held by the Akai Group in Toyo;

(c) the shares held by the Akai Group in Akai Electric Company, Limited (“AECo”; a company listed in Japan);

(d) the factories in Zhongshan, Guangdong province, China; and

(e) the shares held by the Akai Group in Merrywide Limited (“Merrywide”) and Shenzhen Kaifa Technology Company Limited (“Shenzhen Kaifa”);

(4) payments made by the respondents on behalf of or at the direction of or relating to the Akai Group and sums received by them on behalf of or at the direction of or relating to the Akai Group; and

(5) the loan agreement dated 15 November 1999 between Akai and Toyo, the loan facility made thereunder and any security provided in respect of the loan (“the Toyo Loan Facility”).

12. The Grande respondents and Toyo have filed evidence giving their account of the above matters and transactions. Whether their account and explanation are to be accepted is not a matter for determination in the present application and I make no findings in this respect. What I am concerned with is whether the liquidators have demonstrated a genuine case and reasonable need to investigate further the transactions in question. With that, I turn to each of the transactions under investigation and the involvement of the respondents in these transactions.

The Management Agreement

13. The Management Agreement was drafted by Miss Simmons, an employee of Grande Group at the time. It was signed by Mr. Ho on behalf of Grande Group and by Mr. Ting on behalf of Akai. According to the Management Agreement, Akai

(1) “transferred” to Grande Group all authority to manage “the Business of Akai”, which was defined to mean “all business activities of [Akai, its subsidiaries and affiliates], including without limitation all financial, operational, legal, corporate, administrative and other matters involving [Akai, its subsidiaries and affiliates]”;

(2) authorised Grande Group “to perform all actions, execute all documents, and otherwise conduct the Business of Akai in such a manner as [Grande Group] shall consider appropriate, in the sole discretion of [Grande Group]”; and

(3) approved, ratified and confirmed all actions taken by Grande Group on behalf of Akai, its subsidiaries and affiliates prior to execution of the Management Agreement.

14. From December 1999 to August 2000, an entity within the Grande group of companies invoiced Akai on behalf of Grande Group a total sum of HK$13.6 million (equivalent to US$1,743,590.00) for “salary and expenses reimbursement” under the Management Agreement, at the rate of HK$1.6 million per month. Of the amounts invoiced, Grande Group admitted it had received HK$11.2 million.

15. As a result of the Management Agreement, the Grande respondents would appear to have been in control of the Akai Group and managing the affairs of the Akai Group. On 3 December 1999, the authorised signatories of all the bank accounts of the Akai Group were replaced in that only the directors, officers and employees of Grande HK and Toyo could sign. Mr. Ho was made an authorised signatory of all the bank accounts of the Akai Group for an unlimited amount and Miss Ruby Lee an authorised signatory to sign any cheque up to HK$2 million jointly with another signatory. Between 5 January 2000 and 21 September 2000, Miss Ruby Lee was a director of at least 15 subsidiaries of the Companies; during this period, all litigation and conveyancing transactions relating to the sale of properties of the Akai Group were handled by the Grande respondents, in particular by Miss Ruby Lee, apparently without reference to the Akai Group. Miss Simmons was also involved in giving instructions on behalf of the Akai Group pursuant to the Management Agreement.

16. Notwithstanding the significant effect of the Management Agreement, its existence was not disclosed to the shareholders of Akai, the steering committee representing the bank creditors of the Companies, The Stock Exchange of Hong Kong Limited, the Securities and Futures Commission and the court hearing the petitions for the winding up of the Companies.

17. The liquidators have made the implementation and effect of the Management Agreement a key area of their investigation, especially in relation to transactions mentioned below that took place at about the time this agreement was entered into or subsequent thereto, in relation to substantial assets of the Companies that no longer appear to be available to the creditors.

18. In the evidence filed on behalf of the Grande respondents, it was asserted that the Management Agreement was prepared with a view to formalise the basis for secondment of staff to Akai by Grande HK and Toyo to assist in the areas of financial, legal, operational and administrative matters and that the staff seconded did not manage the business of Akai. It was claimed that the seconded staff were answerable to the board of directors of Akai and Mr. Ting was at all material times the central decision maker.

19. Be that as it may, the full extent of the respondents’ involvement in the affairs and dealings of the Companies, both before and after the signing of the Management Agreement, would clearly require further investigation, not least because of the contradictory statements made by Mr. Ting and by the Grande respondents. Other than the implementation, the negotiation and drafting of the Management Agreement are areas that should be looked into properly by the liquidators. The fact that The Stock Exchange of Hong Kong Limited did not make further inquiries with Grande HK regarding the Management Agreement after the correspondence exchanged from June to August 2001 is neither here nor there.

Alpha Capital

20. By an engagement letter dated 1 November 1999 signed by Mr. Ho as president and group chief executive of Alpha Capital and Mr. Ting on behalf of Akai, Alpha Capital was appointed as financial adviser to Akai, to advise Akai and its subsidiaries on “operational, financial and treasury matters pertaining to the Group”. It was stated in the engagement letter that Alpha Capital would perform, inter alia, the following services:

(1) “to carry out a complete review of the operations and financial position of all operating units within the Group”;

(2) “to advise [Akai] on various options and strategy for disposing the non-core operations and assets of the Group”;

(3) “to advise [Akai] on various options for re-structuring the financial and treasury operations of the Group”;

(4) “to co-ordinate the work of other professional advisers to [Akai] … on any plan to disposal of non-core assets and injection of funds by outside investors”; and

(5) “to oversee the completion of any disposal of non-core operations and injections of funds by interested investors”.

21. In respect of the above services, Akai was required to pay a substantial advisory fee of US$5 million upfront upon signing the engagement letter, notwithstanding Akai’s cash flow problems at that time. The liquidators consider the arrangements contemplated under the engagement letter highly unusual. Despite their investigations, to date they have not been able to locate any work product resulting from the engagement letter.

22. The Grande respondents claimed that Alpha Capital has since been sold by Grande HK to an unrelated third party, which was not identified, and its books and records are no longer with them. The disposal of Alpha Capital was in June 2004, more than two years after the liquidators first sought information from the Grande respondents. In her 2^nd affirmation filed two days before the hearing, Miss Ruby Yen produced two public notices in relation to the proposed convertible bond open offer to the existing shareholders of Akai in November 1999 and February 2000 and a debt restructuring proposal of the Akai Group in March 2000, being documents in respect of transactions undertaken by Alpha Capital. These could only have been a very small part of the documents generated from the work of Alpha Capital.

The Toyo Loan Facility

23. By a facility letter dated 15 November 1999 (“the Facility Letter”) signed by Mr. Ho on behalf of Toyo and Mr. Ting on behalf of Akai, Toyo purported to extend an on demand revolving loan facility of HK$630 million to Akai for funding its operating capital requirements. It was a term of the Facility Letter that the use of the funding had to be approved by Toyo from time to time and that notice of drawing had to be given by Akai to Toyo.

24. At a directors’ meeting of Grande Nominees held on 16 November 1999, Miss Ruby Lee reported that Grande Nominees had been appointed the same day as a corporate director of Tremendous Springs Limited (“TSL”; which was then a wholly owned subsidiary of Akai) and it was resolved that any one director of Grande Nominees be appointed as the authorised representative to attend all board meetings and to execute all documents pertaining to all business transactions of TSL on behalf of Grande Nominees as a corporate director.

25. On 18 November 1999, Akai, Grande HK and Toyo jointly announced the open offer of convertible bonds to existing shareholders of Akai, to raise HK$335 million through the issue of the bonds with Toyo as the underwriter. Mr. Ho signed the underwriting agreement on behalf of Toyo.

26. Akai purportedly entered into a series of share mortgages with Toyo and TSL dated 6 December 1999, the same day that the petitioning creditors made a formal demand to Akai for repayment of US$19 million. No mention was made in the Facility Letter, the minutes of the board meeting of Akai on 15 November 1999, or the joint announcement on 18 November 1999 of any security created by Akai in favour of Toyo, whether in respect of the Toyo Loan Facility or any loans said to have been advanced by Toyo to Akai. None of the share mortgages and assignments was ever registered at the Companies Registry and none was disclosed to the Companies’ creditors or the liquidators until August 2000. These share mortgages and assignments, signed by Mr. Ho on behalf of Toyo and TSL, were as follows:

(1) a share mortgage over Akai’s entire beneficial interest in TSL in favour of Toyo, purportedly in consideration for Toyo continuing to extend facilities to Akai pursuant to the Facility Letter;

(2) a share mortgage over Akai’s shares in Guestlink Investment Limited (“Guestlink”) in favour of TSL, purportedly granted as security to TSL for any amounts “which are now or at any time may become payable” by Akai;

(3) a share mortgage over Akai’s shares in Eveland Investments N.V. (“Eveland”) in favour of TSL, the main asset of Eveland was its indirect interest through subsidiaries of Akai’s major stake in AECo;

(4) a share mortgage over Akai’s convertible preference shares in The Singer Company N.V. (“Singer”) in favour of TSL; and

(5) an assignment of accounts receivable over all accounts receivable of Akai in favour of TSL, which extended to all the loans and receivables due to Akai including those owed by Akai’s subsidiaries and associated companies, as security for Akai’s indebtedness under the Facility Letter.

27. Toyo had obtained control over TSL by enforcing the share mortgage in respect of the TSL shares. By taking over TSL, Toyo effectively took over the shares in Eveland, Guestlink and Singer, as well as all the accounts receivable due to Akai. Toyo has given various justifications for enforcing the share mortgage of the TSL shares:

(1) Toyo claimed that it had advanced US$108 million to Akai. The liquidators do not, however, consider Toyo, Grande HK or TSL to have provided any meaningful explanation for this lending, to what use it was put or why Toyo was entitled to realise the security purportedly created by Akai in its favour.

(2) In the public announcements made by Akai, Toyo and Grande HK from March 1999 to November 2000, Toyo claimed to have advanced over US$108 million to Akai. It was only after the Companies were ordered to be wound up that the liquidators discovered such of the advances they were able to identify, of approximately US$42.5 million, were made to, or on behalf of, the Companies or their subsidiaries by or through TSL. Of this US$42.5 million, at least US$36 million related to transactions which the liquidators believe are suspicious. They do not think the Companies’ books and records available to them are sufficient to substantiate the amounts paid to, or on behalf of, the Companies.

(3) In its annual report for 2001, Toyo stated that HK$600 million had been advanced to Akai under the Toyo Loan Facility, arising from its involvement with the rescue of the Akai Group in late 1999. It was stated, for the first time, that the funding had been made by Grande HK, at that time the parent company of Toyo, through a subsidiary of Toyo, Prosperous Finance Limited (“PFL”), as a result of which PFL was indebted to Toyo in the sum of HK$600 million. To settle the matter, PFL issued a promissory note to Toyo, which Toyo in turn endorsed to Grande HK, so Grande HK thereby became a direct creditor of PFL. The liquidators have not found information in the books and records of the Companies regarding the above transactions described in Toyo’s 2001 annual report.

28. In September 2000, TSL was sold or transferred to Always Win Company Limited (“Always Win”), which is alleged by the Grande respondents and Toyo to be an independent third party.

29. On 22 May 2002 Toyo sold PFL, with its parent company Towering Finance Limited (“TFL”), to Grande HK for a nominal price. Toyo claimed that it had passed on to Grande HK the books and records of TFL and PFL. Nine days later, Grande HK sold TFL and PFL to an unidentified party alleged to be independent. Grande HK claimed that all the books and records of PFL were transferred to this purchaser which it has declined to identify.

The AECo shares and trademarks

30. It was the liquidators’ understanding that AECo had entered into a loan agreement with Toyo on 28 January 2000 whereby Toyo obtained security and subsequently control over the “Akai”, “Sansui” and “Kawa” trademarks, following AECo’s default under the loan agreement. The liquidators pointed out that according to the annual report of Toyo for the year ended 31 December 2000 and the annual report of Grande HK for the year ended 31 December 2001, the loan said to have been advanced by Toyo to AECo was the Toyo Loan Facility.

31. Toyo alleged that the above understanding of the liquidators is incorrect in that the Akai trademark was sold by AECo to Toyo pursuant to a sale and purchase agreement dated 28 January 2000, subject to a buy back option exercisable by AECo at a higher price by 28 April 2000. AECo did not exercise its buy back option. Toyo further claimed that on 11 September 2000, it had assigned the benefit of the sale and purchase agreement to Phenomenon Agents Limited (“Phenomenon”), which was alleged to be beneficially owned by Toyo. Toyo had refused to supply a copy of the sale and purchase agreement to the liquidators. Eventually, a copy of the sale and purchase agreement, a copy of the assignment to Phenomenon and a copy of a sale and purchase supplement dated 14 September 2000 were produced by Miss Ruby Lee for the Grande respondents in her 2^nd affidavit made two days before the hearing. Miss Ruby Lee had signed the sale and purchase agreement and the assignment on behalf of Toyo. She further deposed that the sale and purchase agreement was structured in the way it was on the advice of Toyo’s lawyers in Japan.

32. In November 2000, AECo initiated civil restructuring proceedings in the Tokyo District Court. The rehabilitation plan was made on the basis of support from Grande HK and its subsidiaries. Eventually AECo’s existing shares were cancelled and new shares were issued to its creditors. According to the plan submitted to the Tokyo District Court dated 16 April 2001, the “Akai” trademark was to be taken over by Grande HK in this way:

(1) Toyo was described as the owner of the trademark and whose rights would be transferred to Phenomenon, all the shares of which were held by Grande HK. Grande HK would contribute all its shares in Phenomenon to AECo and Phenomenon would give AECo the license of the trademark.

(2) Through the rehabilitation plan, Grande HK obtained 85% shareholding in AECo and thus control over the trademark.

33. As for the “Sansui” trademark, Miss Lee produced belatedly in her 2^nd affidavit a copy of a sale and purchase agreement dated 30 November 1999 made by Sansui Electric Co., Ltd. (“Sansui”; a company listed in Japan, in which Akai acquired a 46.5% interest in 1992) and Toyo by which Sansui sold this trademark to Toyo, also with a buy back option exercisable by Sansui at a higher price by 31 May 2000. She also produced a supplemental agreement dated 24 December 1999 in which Sansui sold its patents to Toyo, again with a buy back option. Miss Ruby Lee claimed that the sale and purchase agreement was structured in this manner as advised by Toyo’s Japanese lawyers and as Sansui was unable to exercise the buy back options, Toyo proceeded to deal with the intellectual property rights after the option periods had expired. On 11 September 2000, Sansui, Toyo and Almaden Agents Limited (“Almaden”; subsequently re-named Sansui Acoustics Research Corporation) entered into an agreement by which Toyo agreed to assign the “Sansui” trademark to Almaden. All these agreements were signed by Miss Ruby Lee on behalf of Toyo. Almaden signed the last mentioned agreement by a director who was also a director of Phenomenon.

34. The “Kawa” trademark was owned by Zhongshan Kawa Electric Group Limited (“ZKEG”; this company is dealt with in the next part of this decision). In her 2^nd affidavit, Miss Ruby Lee produced an agreement for assignment of trademarks dated 1 January 2003 entered into between ZKEG and a company owned by Grande HK called Tomei Kawa Electronics International Limited. Pursuant to this agreement, the “Kawa” trademark was sold to the latter entity at RMB 2.9 million.

35. By January 2003, all the trademarks and patents which were recorded in the audited financial statements of Akai to have a value of US$483.4 million as at 31 January 1999, have been managed by Grande HK. As with the major assets, the majority shareholding of Akai in AECo and the trademarks were taken away from Akai at a time when the Akai Group was under the control of the Grande respondents and Toyo. The liquidators wish to investigate if these were bona fide arms length commercial transactions as asserted by the respondents.

The Zhongshan factories

36. Kong Wah International Company Limited (“KWIC”) was once a subsidiary of Kong Wah and has later become a subsidiary of Akai. KWIC held at least 75% interest in eight joint venture companies, collectively referred to as the Zhongshan Kawa Group. The Zhongshan Kawa Group was at one time the largest television manufacturer in Asia, outside of Japan, and forms a large industrial complex in Zhongshan known as the Kawa Electronic City.

37. In April 2000, when the Akai Group was under the management control of the Grande respondents and Toyo, TWD Asia Limited (“TWD”) successfully applied to the Commission of Foreign Trade and Economic Cooperation to obtain a controlling stake in the issued capital of the Zhongshan Kawa Group. As a result, KWIC’s equity was reduced to between 39% and 49%. On 7 July 2000, Grande Nominees acquired 100% of TWD’s issued share capital.

38. On 10 July 2000, ZKEG, one of the biggest companies in the Zhongshan Kawa Group, resolved to admit TWD as a new investor. As a result, TWD allegedly invested HK$137 million in ZKEG for a 50.1% equity interest. Similar dilution of Akai’s shareholding took place in respect of other companies within the Zhongshan Kawa Group.

39. Miss Ruby Lee claimed in her 2^nd affidavit that Grande HK had injected capital of HK$284 million through TWD to assist in rescuing the Zhongshan factories in August 2000, and that in exchange, TWD was given shares in the Zhongshan Kawa Group.

40. Although one of the liquidators was appointed a director of ZKEG, the liquidators have not been able to obtain any meaningful information in relation to the companies which comprise the Zhongshan Kawa Group.

Shares in Merrywide and Shenzhen Kaifa

41. Between November 1997 and August 1998, the Akai Group purportedly invested HK$982.25 million in Merrywide, the major assets of which were shares purportedly purchased in Shenzhen Kaifa. Some of these purchases were made by Toyo (when it was a subsidiary of Akai) through its wholly owned subsidiary Match Top Limited. Subsidiaries and associated companies of the Companies, including Toyo, appeared on Merrywide’s share register until April 2001, when those shares were recorded as being transferred to third parties.

42. Despite the contents of the share register, the liquidators have been advised by a director of Merrywide that Akai and its subsidiaries never had any interest in Merrywide. The liquidators’ investigations into the payments by the Companies purportedly relating to the investments in Merrywide and Shenzhen Kaifa shares are continuing. So far, they have not been able to find evidence to indicate that the payments set out in the sale and purchase agreements were made to the owners of the shares. To date, their work indicates that most of the payments allegedly made in respect of the Merrywide investment would appear to be a “round robin” of payments.

Payments and receipts of the respondents

43. The liquidators’ investigations have revealed a number of transactions involving the payments of significant but unexplained amounts from the Akai Group’s bank accounts to various recipients, including Toyo, during the period leading up to the appointment of the liquidators. Some of these substantial payments identified to date, which took place in 1997 and 1998, are set out in paragraph 12.2 of the 12^th affidavit of Mr. Hill.

The applicable principles

44. The applicable principles by which the court may exercise its discretion to order production of documents and examination of individuals under section 221 are not in dispute. The liquidators would have to satisfy the court that the information or documents sought are reasonably required in carrying out their functions. In determining what are the reasonable requirements of the liquidators, and whether the order should be made, great weight should be given to the views of the liquidators as they would have detailed knowledge of the problems which exist in relation to the affairs of the company and the information required. The purpose of section 221 is to enable the company’s knowledge to be reconstituted, but that is not its sole purpose. In exercising its discretion, the court must carefully strike a balance between the liquidators’ reasonable requirements and the need to avoid making an order that is wholly unreasonable, unnecessary or oppressive to the person concerned (Re New China Hong Kong Group Ltd. [2003] 3 HKC 252, paragraphs 18 to 26).

45. Also of relevance to the present situation is that the case for making an order against an officer or former officer would usually be stronger than it would be against a complete outsider. “Officer” in section 221 is defined in section 2(1) to include “a director, manager or secretary”. A “director” is defined in section 2(1) to include “any person occupying the position of director by whatever name called”. A “manager” is defined in section 2(1) to mean “a person who, under the immediate authority of the board of directors, exercises managerial functions …’. In view of the terms of the Management Agreement set out earlier, I am satisfied that Grande Group, and some of the officers or employees of the Grande respondents and Toyo that had substantial involvement in carrying out the management of the Companies, such as Mr. Ho, Miss Ruby Lee and Miss Simmons, may be regarded as former officers of the Companies for the purpose of section 221. They are certainly capable of giving information concerning the affairs of the Companies.

Reasonable requirement for information and documents

46. I have set out in some detail the transactions the liquidators would wish to investigate further and the involvement of the respondents in these transactions. I have no difficulty in coming to the view that the liquidators have made out a case that the information and documents sought in the summons are reasonably required to enable them to carry out further investigation. I bear in mind the extent of the insolvency in these liquidations and the public interest involved in investigating the causes of failure of the Companies and the conduct of those involved in the management. Each of the transactions is a matter in which the Grande respondents or Toyo were substantially involved. What then are the reasons for denying the liquidators the relief sought in this application?

47. Mr. Grossman, SC, who appeared for Toyo, and Mr. Carolan, who appeared for the other respondents except Miss Simmons, have advanced these principal objections:

(1) the Grande respondents and Toyo do not have possession of the documents sought and all relevant documents have already been provided to the liquidators;

(2) the respondents have no knowledge of the information sought;

(3) the liquidators are not entitled to some of the information and documents sought;

(4) the exercise of the discretion should be balanced against the consideration that the liquidators may well decide to sue the respondents;

(5) the production of documents and oral examination should be deferred, until after the oral examination of Mr. Ting in August 2005 or after written interrogatories have been served on the individual respondents; and

(6) the scope of the documents sought is too broad, it would be oppressive and unworkable for an order to be made in terms of the draft order.

I turn to consider each of the above objections.

Not in possession of documents

48. The Grande respondents claimed that all the books and records of the Companies were handed over to the liquidators by Yuen Kin Samuel (“Mr. Yuen”), who was seconded by Grande Group as the corporate controller of the Akai Group. In January 2000, Grande Group made arrangements to retrieve the books and records of Akai and bring them back to Singapore to be tabulated, collated and organised. This sorting out exercise in Singapore took almost six months. All the files and records were handed over to Mr. Yuen in Singapore on 15 June 2000 and he in turn handed them over to the liquidators in June 2001 (214 boxes) and August 2001 (106 boxes). The liquidators collected another 2,223 boxes of documents, which had all along been kept at a warehouse in Zhongshan, in February 2002. Miss Ruby Lee exhibited to her 1^st affidavit a list of the tabulation prepared by the legal department of Grande Group of the documents shipped to Singapore and a list prepared by the legal department of the files and documents that were handed over to Mr. Yuen.

49. No list was given of the documents transferred to the liquidators in June and August 2001 at the time of the transfer. The liquidators said they had requested a list during the transfer. Mr. Yuen alleged in his affidavit made two days before the hearing that the liquidators did not agree to give them time to compile a list. The fact remains that no list of any kind was ever provided to the liquidators until the 1^st affidavit of Miss Ruby Lee was served in April 2005, notwithstanding that the Grande respondents had in their possession two lists already prepared by the legal department.

50. The liquidators have reviewed these lists and identified in Tab 4 of the documents exhibited to the 4^th affidavit of Cosimo Borrelli the documents which had been taken by Mr. Yuen but not returned to the liquidators. Mr. Borrelli set out in paragraph 19 of his affidavit some examples of the documents which have not been provided to the liquidators and are crucial to their investigations. He also pointed out that the documents listed are incomplete. One obvious example is the bank documents of the Akai Group. To the liquidators’ knowledge, the Akai Group had maintained over 200 bank accounts with 50 banks. The liquidators have only been able to locate a handful of incomplete company secretarial files and some of the accounting files, after a thorough review of the documents returned by the Grande respondents.

51. The Grande respondents also claimed that much of their involvement in the affairs of the Akai Group under the Management Agreement was conducted orally. This would seem unlikely, having regard to the departments and number of staff involved; the fact that Miss Ruby Lee was able to give details of transactions that took place more than six years ago, some of which she was not even involved in; and there must have been documents generated in dealing with the numerous suits brought against the Akai Group especially in the United States, other than the correspondence sent on Akai’s letterhead which the liquidators have been able to locate.

52. As for the documents belonging to entities that had been sold by the Grande respondents which they have refused to identify, the disposals all took place after the liquidators had first sought information and documents from the Grande respondents since March 2002. At the very least, the Grande respondents should have in their possession, custody or control documents relating to the disposal of PFL, TFL and Alpha Capital.

53. As pointed out by Miss Linda Chan for the liquidators, the Grande respondents have claimed all along that any further documents requested by the liquidators had all been returned and it was not until two days before the hearing when Miss Ruby Lee made her 2^nd affidavit and Mr. Yuen his 1^st that some additional documents were produced. Even in Miss Ruby Lee’s 2^nd affidavit, it would appear that steps are still being taken to ascertain if the Grande respondents would have any further documents.

54. I do not agree with Mr. Carolan’s submission on behalf of the Grande respondents that to order production of documents in such circumstances would be a pointless exercise. The Grande respondents have not confirmed on oath that they do not have possession, custody or control of the documents sought in this application. The liquidators seek an order that the Grande respondents be required to procure parties who have possession of relevant documents to produce them to the liquidators, this would cover the former auditors of the Companies and regulatory authorities. In respect of transactions which involved both Akai and the Grande respondents, I do not agree with Mr. Carolan’s suggestion that the liquidators should have already obtained all necessary documents and information from the source of Akai and there would be no need to probe into the source of the Grande respondents. I agree with Miss Chan that for the liquidators to discharge their duties properly, they should review the documents and information held by all parties involved in the events and transactions.

55. Toyo also claimed that all documents relating to the liquidators’ inquiries have already been provided to them and there is nothing further which Toyo can provide. It denied involvement in any transactions identified by the liquidators prior to the rescue of the Akai Group in about November 1999, other than the change in Akai’s shareholdings in Toyo in May and September 1999. TSL was sold by Toyo to Always Win in September 2000. After the current management took over the board of Toyo in November or December 2000, Toyo had disposed of TFL and PFL to Grande HK in May 2002. Hence, Toyo is unable to provide information and documents relating to the funding movements of the Toyo Loan Facility made through TSL.

56. Miss Chan pointed out that from the affirmations filed on behalf of Toyo in this application, made by its deputy chief executive officer Hui Tung Wah (“Mr. Hui”), it would appear that Mr. Hui has had “full access” to “the documents in the possession” of Toyo relating to the matters identified by the liquidators and has reviewed such documents and public documents for the purpose of making his three affirmations. She submitted that at the very least, Toyo should have in its possession or control the following documents relevant to the liquidators’ investigation:

(1) documents relating to the foreclosure of the TSL shares and the onward sale of TSL to Always Win;

(2) documents relating to the loan allegedly advanced by Grande HK to Toyo for the purpose of the Toyo Loan Facility, the subsequent repayment of the loan and the sale of TFL and PFL to Grande HK; and

(3) each of the payments or receipts by or on behalf of Toyo to the Akai Group pursuant to the Toyo Loan Facility.

57. I am inclined to agree with the above submissions. As stated earlier, it was a term of the Facility Letter that the use of the funding had to be approved by Toyo from time to time and Akai had to give notice of the drawing to Toyo. I note also that Toyo was able to give details of the loans advanced by or through TSL in its annual report for 2001 and in its correspondence with the liquidators. It is quite clear from the evidence filed by Toyo that firstly, it has within its power and control documents relevant to the liquidators’ investigation that have not been released to the liquidators, such as the documents in the possession of its present and former auditors; and secondly, as admitted in the affirmations of Mr. Hui, Toyo has in its possession “documents relating to the settlement of loan due to [Grande HK] and the sale of TFL and PFL to [Grande HK]”, and documents and information relating to “a reconciliation of the gross advance [to the Akai Group] of HK$908 million, the provision of HK$308 million and the resulting net amount of HK$600 million”, but has objected to production of any of these documents on the ground that the liquidators are not entitled to see documents that related to “internal matters” of Toyo.

58. I reject the suggestion that since the Toyo Loan Facility was mentioned in the annual reports of Toyo and Grande HK which had been audited by their auditors, it would not be necessary for the liquidators to review the primary documentation relating to the funds alleged to have been provided by Grande HK, as this would be to assume that the information and documents provided by Toyo and Grande HK to their respective auditors were complete, true and accurate.

59. In this connection, Toyo has produced letters dated 27 August 2003 to its past and current auditors, Ernst & Young and Moore Stephens respectively, seeking information and documents requested by the liquidators regarding inter alia the Toyo Loan Facility. No reply was received apparently, and Toyo wrote nearly two years later on 11 May 2005 to chase for response. However, the liquidators had received a letter from the solicitors of Ernst & Young earlier dated 8 November 2004 stating that Toyo has refused to consent to the release of the audit working papers of Ernst & Young relating to Toyo to the liquidators. The solicitors suggested that the liquidators should seek a court order for the release of the audit working papers, to ensure that Ernst & Young would not be held to have breached its duty of confidentiality to Toyo. Ernst & Young also alluded to this letter when they replied to Toyo’s letter dated 11 May 2005. In response to Ernst & Young, Toyo stated in its letter dated 29 June 2005 that it did not think it necessary for the liquidators to review all the working papers of the auditors; further, although it has “no objection in principle” to production of working papers in respect of the Toyo Loan Facility, Toyo would require to review the relevant working papers before any release to the liquidators.

60. I reject Mr. Grossman’s submission that it would be a pointless and time wasting exercise to make an order for production of documents in the possession, power and custody of Toyo. In view of Toyo’s instructions to Ernst & Young in its letter dated 29 June 2005 that Toyo must review the working papers before release, I do not think it justifiable for Toyo to complain that it would be unduly burdensome to require them to give production of documents.

No knowledge of information sought

61. Mr. Grossman submitted that there had been substantial changes in the shareholdings and management of Toyo since November 2000 and the present management of Toyo has no knowledge of the information and documents sought by the liquidators. I do not think this is a material consideration. The present management can seek the assistance of the employees or the former officers to enable them to comply with the court order.

No entitlement to information and documents

62. Toyo asserted that the liquidators are not entitled to obtain these documents:

(1) documents relating to the shares in AECo and the trademarks, as these transactions were not between Toyo and the Akai Group and “fall outside the scope of the liquidators’ powers under section 221”; and

(2) documents relating to treatment of the loan advanced to Akai under the Toyo Loan Facility, the settlement of the loan due to Grande HK and the sale of PFL and TFL, as these are “internal matters” of Toyo.

63. I agree with Miss Chan that these objections are not well founded. The AECo shares and the trademarks were at one time very valuable assets of the Akai Group. Akai had acquired 55% of the shares in AECo in February 1995 and its shareholding was increased to 74.4% in December 1999. The AECo shares and the trademarks were taken away when the Akai Group was under the management and control of the Grande respondents and Toyo. Even with the documents produced in the 2^nd affidavit of Miss Ruby Lee, not all the documents relating to Akai’s shares in AECo and the trademarks have been produced. As for the documents relating to the loans advanced to Akai under the Toyo Loan Facility, they formed the very basis upon which Toyo had relied to take over the most valuable assets of the Companies.

64. I see no basis for the contention that the liquidators are not legally entitled to production of documents which clearly relate to the Companies.

Litigation contemplated against the respondents

65. This was a contention advanced by Mr. Carolan. He submitted that it was reasonable to infer that the purpose of this application was for the liquidators to better arm themselves for litigation. The liquidators had long since been provided with lots of documents and it was apparent from the correspondence exchanged since March 2002 that they were just seeking to fill in the missing details to perfect their formulation of recovery claims. I was referred to Cloverbay Ltd. v. B.C.C.I. Ltd. [1991] Ch. 90. The court should be circumspect in granting relief under section 221 in these circumstances.

66. The liquidators are still at the stage of investigating the transactions, which are of some complexity. It does not appear from the evidence that the liquidators are seeking to dot the i's and cross the t’s of fairly clear claims by seeking production of further documents and examination of the individual respondents. I do not think the risk of possible oppression should out weigh the reasonable requirements of the liquidators in this situation. I also take into account that Grande Group was not a third party in view of the powers and responsibilities conferred on it under the Management Agreement.

Production of documents and oral examination be deferred

67. Both Mr. Grossman and Mr. Carolan submitted that production of documents should be deferred until after the examination of Mr. Ting, which is to take place in August 2005. It was contended that with the information that may be provided by Mr. Ting in his examination, the liquidators may become more “focused” in their investigation and this may narrow the scope of the inquiry they would wish to pursue with the respondents.

68. The benefit envisaged by counsel may or may not happen. I do not regard that as a sufficient reason to defer the reliefs sought against the respondents.

69. The application for oral examination was also opposed for a number of reasons:

(1) The application was made only in June 2005, notwithstanding that the liquidators have been seeking documents and information from the respondents for three years.

(2) Mr. Ho has offered to answer written questions but the liquidators declined to provide any questionnaire for this purpose.

(3) No case has been made out for requiring the individual respondents to be examined orally. The mere fact that Mr. Ho and Miss Ruby Lee had signed various documents investigated by the liquidators is not sufficient to show how they were personally involved in the affairs of the Companies. There was no or no adequate explanation why they can be reasonably expected to insist the liquidators in the transactions under investigation.

(4) Both Mr. Ho and Miss Ruby Lee are resident in Singapore. In the exercise of its discretion, the court should decline to order these individuals to attend for an examination in Hong Kong.

70. I reject each of the above contentions. The lateness of the application for oral examination is neither here nor there. Having regard to the matters to be investigated, it is clearly inappropriate for the investigation to proceed solely by way of written questionnaire. A round or several rounds of written questions and answers would not have dispensed with the need for oral examination, so I see no particular advantage in deferring examination until after this method has been tried out. I do not agree with the suggestion that the involvement of Mr. Ho and Miss Ruby Lee in the transactions under investigation was minimal. They and Miss Simmons are clearly in a position to provide material information. In view of the extent of their involvement in the affairs of the Companies, I do not think this is a proper case to decline to order Mr. Ho and Miss Ruby Lee to attend for examination notwithstanding they are resident outside Hong Kong.

The scope of the order

71. Both Mr. Grossman and Mr. Carolan submitted that even though the liquidators have put forward a revised draft order to meet the criticism that the scope of the documents sought is far too wide, the draft order is still unworkable and unduly oppressive.

72. In the revised draft order, the liquidators have limited the number of subsidiaries and associated companies to nearly 300 entities as listed in the exhibit that I have mentioned. They have also put a limit as to the time for which the documents are sought, from 1 January 1997 up to present. I recognise that the ambit of the documents sought is still very wide, but at least it is not open ended as to time, the identity of the entities involved, or the transactions in respect of which production of documents is required.

73. Toyo also pointed out that of the nearly 300 entities listed in the Akai Group, ten of them are current subsidiaries of Toyo, they were acquired from independent third parties not connected with the Companies (which have not been identified) or were formed after 4 November 2000 at the earliest (when Toyo ceased to be an associated company of Grande HK). It was asserted that as none of these companies could have been involved in the transactions under investigation, it would be wholly inappropriate to make any order in respect of these companies. Of these ten subsidiaries, the liquidators are aware that Vandyke Limited is associated with investigations by the Commercial Crime Bureau.

74. I am not persuaded it is appropriate or feasible to cut down the scope of the documents sought, having regard to the substantial involvement of the Grande respondents and Toyo in the affairs of the Companies, the nature and ambit of the transactions that would require investigation, and the massive insolvency in these liquidations.

Conclusion and orders

75. For the above reasons, I grant the reliefs sought by the liquidators in the amended summons. There will be an order in terms of paragraphs 1 to 8 of the revised draft order with the following changes:

(1) In paragraph 1, the time for compliance with the order is changed from “14 days” to 28 days.

(2) In paragraph 1, the period within which documents are to be supplied to the liquidators is to run from 1 January 1997 up to the date of the order herein.

(3) In paragraph 2, the time for compliance with the order is changed from “14 days” to 28 days.

76. As Miss Simmons was absent at the hearing, I give her leave to apply to set aside the order for her oral examination, this is provided for in the revised draft order.

77. Regarding the costs of this application, I make an order nisi that the liquidators’ costs of the application and of the hearing on 13 and 14 July 2005 are to be paid by the 1^st to 6^th respondents, to be taxed if not agreed. I have noted the stance adopted by the Grande respondents in the letters of their solicitors, that the affidavit of Miss Ruby Lee was stated to be filed “in reply” to the supporting evidence of the liquidators and not “in opposition”. The fact remains that the Grande respondents did not consent to an order for production of documents against them and have raised a number of reasons at the hearing why relief should not be granted at all or should be deferred. The liquidators have succeeded to a large extent on their application. There is no reason why costs should not follow the event.

78. Mr. Grossman sought an order that the liquidators should indemnify Toyo for its expenses in complying with the order to search for and produce documents, especially as Toyo was “a stranger to the litigation against whom no allegations are made”. He cited the decision of Chu J in Shanghai Merchants Holdings Ltd (in receivership) & Anr. v. Great Center Ltd., HCA No. 2433 of 2003, 21 October 2004. There the receivers of the plaintiff companies sought a Norwich Pharmacal type of order against some of the defendants and orders were made by consent providing that the plaintiffs should reimburse these defendants their reasonable costs of complying with the discovery orders on an indemnity basis. It was not an application under section 221 and the decision does not provide any support that the costs for complying with an order to produce documents under section 221 should be paid out of the assets of the company in liquidation.

79. The liquidators have indicated their willingness to pay photocopying charges incurred by the respondents in providing documents to them. I am not inclined to allow any other expenses incurred by the respondents in complying with the order.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Applicants

Mr. Paul Carolan, instructed by Messrs Wilkinson & Grist, for the 1^st to 3^rd, 5^th and 6^th Respondents

Mr. Clive Grossman, S C, instructed by Messrs David Lo & Partners, for the 4^th Respondent

The 7^th Respondent, acting in person, absent

50898-EN-2005-02-17

THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (In Liquidation) v. THE STOCK EXCHANGE OF HONG KONG LTD

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED (In Liquidation)	Applicants
	and
	THE STOCK EXCHANGE OF HONG KONG LIMITED	Respondent

____________

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (In Compulsory Liquidation)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED (In Liquidation)	Applicants

	and
	THE STOCK EXCHANGE OF HONG KONG LIMITED	Respondent

____________

(Heard together)

Before: Hon Kwan J in Chambers

Date of Hearing: 17 February 2005

Date of Decision: 17 February 2005

_____________

D E C I S I O N

_____________

1. This is an application taken out under section 221 of the Companies Ordinance, Cap. 32 by the liquidators of Kong Wah Holdings Limited and Akai Holdings Limited (collectively “the Companies”) against The Stock Exchange of Hong Kong Limited (“HKSE”) in each of the proceedings, for HKSE to produce to the liquidators the following documents:

(a) all announcements issued by each of the Companies;

(b) all correspondence between each of the Companies and HKSE;

(c) all correspondence between third parties and HKSE which relates to each of the Companies, their affairs, dealings or assets;

(d) copies of all information, documentation, representations or submissions made or provided by or on behalf of each of the Companies to HKSE; and

(e) copies of all information, documentation, representations or submissions made or provided by third parties on behalf of or in relation to each of the Companies to or for HKSE

for the period from 1 January 1995 to 23 August 2000, subject to the liquidators’ undertaking to the court that the documents so disclosed will be used by the liquidators solely for the purpose of the administration of each of the Companies unless otherwise permitted by leave of the court.

2. I do not propose to go into the complex history of the Companies’ operations and dealings, which has been rehearsed on more than one occasion in similar applications made by the liquidators. There are a number of transactions, all involving substantial assets, which require further investigation by the liquidators. Such investigations have been substantially hampered by lack of available books and records, limited meaningful assistance from former directors and officers, and lack of financial resources to complete the investigations required.

3. Both Companies were listed on HKSE. Their compliance with the Listing Rules would have required the Companies to submit regular reports, information and submissions to HKSE, including documentation in support of requests for necessary approvals from HKSE and in response to queries or requisitions raised by HKSE.

4. The liquidators wish to inspect such documents and other information that HKSE has in its possession, power and custody and believe that the information sought would help to advance these areas of investigation:

(1) the information available to the Companies at various points in time in relation to the affairs of the Companies and the substantial transactions which the liquidators would need to investigate;

(2) documentation and information supplied to HKSE in relation to the Companies’ financial statements and analysis of them;

(3) the individuals representing the Companies or others involved in providing HKSE with documentation and information on behalf of and in relation to the Companies;

(4) the legal and other advisers acting for or in relation to the Companies;

(5) the roles of representatives of James Ting, the Grande Group, Toyo Holdings Limited in relation to the affairs of the Companies; and

(6) details of the employees and directors of the Companies dealing with HKSE and their roles and responsibilities.

5. The liquidators have ascertained from HKSE that they have no objection to the terms of the order sought in the summons.

6. It would be appropriate to exercise my discretion to grant the relief sought. I make an order in terms of the draft order submitted to me.

	(S Kwan)
	Judge of the Court of First Instance,
	High Court

Mr C Dobby, of Messrs Johnson, Stokes & Master, for the Applicants

The Respondent, absent

44077-EN-2004-12-08

THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (IN LIQUIDATION) v. HERBERT TSOI & PARTNERS (a firm) AND OTHERS

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HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER of Section 221 of the Companies Ordinance (Cap 32)

BETWEEN
	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED (IN LIQUIDATION)	Applicants
	and
	HERBERT TSOI & PARTNERS (a firm)	1^st Respondent
	TSOI HAK KONG, HERBERT	2^nd Respondent
	AKAI ELECTRIC COMPANY LIMITED	3^rd Respondent
	SANSUI ACOUSTIC RESEARCH CORPORATION	4^th Respondent
	GUESTLINK INTERNATIONAL LIMITED	5^th Respondent

____________

Before: Hon Kwan J in Chambers

Date of Hearing: 8 December 2004

Date of Decision: 8 December 2004

_____________

D E C I S I O N

_____________

1. On 19 November 2004, I gave leave to the applicants, the liquidators of Akai Holdings Limited (“Akai”), to amend their summons under section 221 of the Companies Ordinance, Cap. 32 by adding three respondents, Akai Electric Company Limited (“AECo”), Sansui Acoustic Research Corporation (“Sansui Acoustic”) and Guestlink International Limited (“Guestlink”), as the 3^rd to 5^th respondents in this application and leave to serve the amended summons on AECo and Sansui Acoustic out of the jurisdiction. The reasons appear in my decision at paragraphs 28 to 36.

2. The liquidators have filed further evidence in support of their amended summons.

3. The amended summons was served on each of the 3^rd to 5^th respondents on 22 November 2004 and correspondence has been exchanged between them and the liquidators’ solicitors, so they all have notice of the hearing. None of these respondents have appeared today. I have been provided with the letters they wrote to the liquidators’ solicitors on 6 and 7 December 2004, stating that they do not agree to their former solicitors, Messrs Herbert Tsoi and Partners, the 1^st respondent herein, to provide to the liquidators for inspection the documents sought in the amended summons. Each has contended that the liquidators have not established the relevance of the documents sought to their investigations.

4. I do not propose to set out the background to the present application, as this has been set out at some length in my previous decisions on 11 November 2003 and 19 November 2004. For present purpose, I would like to mention the following.

5. One of the matters the liquidators would wish to investigate in this complex litigation is a series of transactions which took place not long before the liquidation of Akai, by which valuable assets of the Akai group ended up in the control of companies of the Grande group. These transactions include a management agreement entered into in November 1999 and a series of share mortgages and assignments in December 1999. As a result of the enforcement of the share mortgages, Akai lost its indirectly held majority interest in AECo.

6. In January 2000, AECo entered into a loan agreement with Toyo Holdings Limited (“Toyo”), by which Toyo obtained security over some valuable trademarks being the “Akai”, “Sansui” and “Kawa” trademarks. Toyo took control of these trademarks on AECo’s default under the loan agreement and the trademarks were subsequently re-assigned to AECo by Toyo via another company, as part of a civil rehabilitation scheme in Japan in April 2001, under which 32 million shares in AECo were issued to a “Grande Group Company”.

7. Although the work done and services provided by the 1^st respondent to the 3^rd, 4^th and 5^th respondents were at a time when these companies have apparently ceased to be part of the Akai group, the liquidators say that these documents are reasonably necessary to enable them to advance their investigations, for the reasons mentioned below. On 2 December 2004, the 1^st respondent, with the consent of the 3^rd to 5^th respondents, voluntarily provided to the liquidators a summary of the relevant files in which they had acted for the 3^rd to 5^th respondents. These files include trademark applications for the trademarks of “Akai” and “Sansui” as well as litigation in various matters.

8. The liquidators say that the documents in these files held by the 1^st respondent would assist them to understand at least the following matters and help to advance their investigations:

(1) the identity of those controlling or representing the 3^rd, 4^th and 5^th respondents;

(2) Akai’s interest in these respondents;

(3) the circumstances under which these respondents and/or their assets were purportedly removed from the Akai group;

(4) the identification of what, if any, assets are realisable for the benefit of creditors;

(5) the identification of other advisers to entities within the Akai group of companies who may have pertinent information relating to the various transactions discussed in the latest affidavit of the liquidators;

(6) the role, if any, of Mr James Ting and/or other members of Akai’s management with the 3^rd, 4^th and 5^th respondents; and

(7) other transactions or involvement of the 3^rd, 4^th and 5^th respondents which the liquidators are at present unaware.

9. I am satisfied that the liquidators have made out a case of reasonable requirement for the documents they seek in the amended summons.

10. I therefore grant the relief sought in paragraphs 1, 2 and 3 of the amended summons. I will give liberty to apply. There will be no order as to the costs of the amended summons.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr C Dobby, of Messrs Johnson, Stokes & Master, for the Applicants

The 3^rd, 4^th and 5^th Respondents, absent

57542-EN-2004-11-19

THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LTD (IN LIQUIDATION) v. HERBERT TSOI & PARTNERS (a firm) AND ANOTHER

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER OF SECTION 221 OF THE COMPANIES ORDINANCE

BETWEEN
	THE JOINT & SEVERAL LIQUIDATORS OF KONG WAH HOLDINGS LIMITED (IN LIQUIDATION)	Applicants

	and
	HERBERT TSOI & PARTNERS (a firm)	1^st Respondent
	TSOI HAK KONG, HERBERT	2^nd Respondent

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)
	and
	IN THE MATTER OF SECTION 221 OF THE COMPANIES ORDINANCE

BETWEEN
	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED (IN LIQUIDATION)	Applicants
	and

	HERBERT TSOI & PARTNERS (a firm)	1^st Respondent
	TSOI HAK KONG, HERBERT	2^nd Respondent

____________

Before: Hon. Kwan J. in Chambers

Date of Hearing: 19 November 2004

Date of Decision: 19 November 2004

_____________

D E C I S I O N

_____________

The applications

1. I have before me two identical summonses issued on 19 August 2004 by the liquidators of Akai Holdings Limited and Kong Wah Holdings Limited (“Akai”, “Kong Wah”, and collectively “the Companies”) under section 221 of the Companies Ordinance, Cap. 32 against a firm of solicitors, Herbert Tsoi & Partners (“the 1^st respondent”), and a partner therein, Mr Tsoi Hak Kong Herbert (“the 2^nd respondent”), for disclosure of documents in relation to professional services rendered by the 1^st respondent to the Akai group of Companies and the Kong Wah group of companies (they are to include subsidiaries and associated companies), and for an order to examine the 2^nd respondent on oath. A large measure of agreement has been reached since the summonses were issued, and a consent order was made on 5 November 2004 in respect of what the parties were able to agree. The only issues outstanding relate to documents sought for some of the companies which are no longer the subsidiaries of the Companies and the question of costs of these applications.

The background

2. Both Akai and Kong Wah were listed on the Hong Kong Stock Exchange, they are part of the Semi-Tech Corporation (“STC”) group. STC was listed on the stock exchanges in Toronto and New York until 1999.

3. The founder of STC, James Ting was the director and chairman of each of the Companies when they were wound up on 23 August 2000 in Hong Kong. Mr Ting has also been the executive director or director of The Grande Holdings Limited (“Grande HK”) and Toyo Holdings Limited (“Toyo”).

4. Investigation of the liquidators has indicated that major assets once owned by the Companies are now owned or controlled by Grande HK or companies associated with Grande HK. Grande HK now claims to own an estimated value of at least US$700 million of assets once owned by the Akai Group.

5. I have gone into the background of the Companies, the events leading up to the winding up of the Companies, their financial position upon liquidation, and areas that require investigation in my Reasons for Decision given on 11 November 2003 in a similar application of the liquidators against Ernst & Young, the former auditors of the Companies. I do not propose to repeat them. There are numerous and substantial transactions and events which the liquidators require further investigation.

6. The liquidators’ investigations were hampered by the lack of available books and records of the Companies, limited assistance from the former directors and officers, and lack of financial resources to complete their investigations. The Companies had no staff or premises or business when they were wound up; the books and records which the liquidators have managed to locate were clearly insufficient for an operation of the size and complexity of these groups of companies, and the books available were unable to give even a basic understanding of the Companies and their operations.

The respondents’ involvement

7. The 1^st respondent commenced business in 1999. It acted as a legal adviser to Akai, members of the Akai Group and Kong Wah in relation to various matters, including litigation and legal advisory matters.

8. The 2^nd respondent, who is a partner of the 1^st respondent, also acted as a non-executive director of Grande HK since at least 15 January 1999.

9. In response to the liquidators’ previous request on 24 October 2001, the 1^st respondent had provided the liquidators 10 lever arch files in December 2001, in relation to a legal proceeding in which the 1^st respondent had acted for Kong Wah.

10. As a result of the review of files recently obtained by the liquidators from Ernst & Young, the liquidators became aware that the 1^st respondent was also involved in providing legal opinion to Akai regarding various properties in the Mainland held by the Akai Group on 6 December 1999. However, this was not mentioned when the 10 lever arch files were provided in December 2001.

11. Due to the paucity of books and records available to the liquidators, they did not know the full extent of the services provided by the 1^st respondent to the Akai Group. The liquidators did know however that the 1^st respondent was engaged in providing legal services to the Akai Group since at least 1999, when significant activity and numerous transactions were undertaken by the Companies.

Previous requests for assistance

12. On 25 March 2004, the liquidators wrote to the 1^st respondent noting that despite the previous assistance of the 1^st respondent, they had not provided copies of other documents relating to other services provided for the Akai Group and requested to review the files for the transactions of properties in the Mainland in the 1^st respondent’s office to identify relevant documents.

13. An informal response was received on the telephone in April 2004 that the files were being retrieved. However nothing happened thereafter. On 10 June 2004, the liquidators sent a follow up letter to the 1^st respondent requesting delivery of all documents or information relating to the Akai Group which should include the categories of documents set out in that letter.

14. On 18 June 2004, the 1^st respondent replied stating that the disclosure sought was onerous, unreasonably wide and would lead to breach of client confidentiality. The 1^st respondent further claimed a lien on the papers of the Companies on account of unpaid costs and expenses.

15. On 28 June 2004, the liquidators replied by their solicitors stating that the documents sought are necessary for the liquidators to properly discharge their statutory duty and giving grounds why the liquidators believe that the 1^st respondent is in a position to materially assist their investigation. The categories of documents for which disclosure was sought were listed in the letter. A request was also made to interview the 2^nd respondent on a voluntary basis. In the event that voluntary assistance was not forthcoming the liquidators would apply under section 221.

16. On 30 June 2004, the 1^st respondent replied reiterating that the disclosure sought was unreasonably wide in that the liquidators have not pointed to which relevant cases or transactions they wanted to investigate and complaining that the request for assistance was made without providing for their fees in answering the request. The 1^st respondent offered to allow the liquidators to attend their office to review two files they have retrieved.

17. On 9 July 2004, the liquidators’ solicitors explained why the liquidators cannot identify specific transactions in this large and complex insolvency due to the unavailability of adequate records. They suggested that the 1^st respondent should make available a list of all the files or matters handled by them for the Akai Group so that the liquidators would be able to narrow down what files they would need to review. The liquidators agreed to pay the photocopying charges of the documents but not the time costs of the 2^nd respondent in attending the interview with the liquidators.

18. On 14 July 2004, the 1^st respondent asked the liquidators’ solicitors for a list of the companies that the liquidators consider are within the Akai Group before they were to consider the request made in the letter of the liquidators’ solicitors of 9 July 2004.

19. A list of 5 pages of these companies headed “subsidiaries”, which is not exhaustive, was provided by the liquidators’ solicitors on 20 July 2004.

20. The 1^st respondent replied on 23 July 2004 stating that the 1^st respondent could not have any of the information the liquidators requested from January 1997 up to the commencement of their practice, and as the 2^nd respondent would be on vacation, he could only review all the files in September 2004.

21. On 26 July 2004, the liquidators’ solicitors asked if any member of the 1^st respondent’s firm had done work for the Akai Group before the commencement of practice of the firm, whilst noting that this was the third time the liquidators were asking if the 1^st respondent would assist on a voluntary basis.

22. No substantive reply was given up to the time the summonses were issued on 19 August 2004.

The Respondents’ position

23. In the 2nd respondent’s affidavit filed in opposition to these summonses on 20 October 2004, he stated that the 1st respondent “does not object in principle to production of documents of companies in the Akai Group”, “provided that such companies are identified and that they have remained wholly owned subsidiaries of Akai Holdings or Kong Wah Holdings”.

24. He pointed out that the list provided by the liquidators’ solicitors to the 1^st respondent in July 2004 is not exhaustive, and consisted only of subsidiaries. The liquidators have not provided a list of associated companies in the Akai Group.

25. It was only in mid October 2004 that progress was made with a view to resolving this application and consent summonses were signed by the liquidators and the 1^st respondent in respect of 9 companies in the Akai Group. As the 2^nd respondent is now willing to attend an interview with the liquidators, it was agreed to adjourn sine die with liberty to restore the application for an order to examine him on oath. The order by consent was made on 5 November 2004.

26. Apart from the costs of the summonses, there was only one major outstanding matter, this related to the companies which were once subsidiaries in the Akai Group but no longer so. There are 3 such companies for whom the 1^st respondent had acted. They are Akai Electric Company Limited (“AECo”), Guestlink International Limited (“Guestlink”) and Sansui Acoustics Research Corporation (“Sansui Acoustics”). In respect of a fourth company, Serlen Limited (“Serlen”), it would appear that the liquidators’ solicitors have provided wrong information to the 1^st respondent’s solicitors in October 2004 as to its status and that Serlen has remained a subsidiary in the Akai Group. The 1^st respondent indicated on 9 November 2004 they are willing to disclose documents relating to Serlen. Leaving aside the question of costs, I will make a consent order in the same terms as the consent order on 5 November 2004 in respect of the documents of Serlen, save that the time for the production of documents in paragraph 1 thereof would be altered to “by 7 December 2004”.

27. The 1^st respondent confirmed that other than the 13 companies referred to above, they are not aware of any other companies for whom they have acted and which formed or had formed part of the Akai Group.

The former subsidiaries

28. AECo was a major operating subsidiary of Akai. Akai acquired 55% shares in this company in 1999 and this was increased to 74.4% in April 1999. As a result of various transactions, Akai’s shares were reduced to 38.1% in March 2000.

29. Guestlink was 99.99% held by a company incorporated in the British Virgin Islands which was in turn a subsidiary of Akai. On 6 December 1999, Akai purportedly entered into a series of share mortgages and assignments, as a result of which its indirect interest in Guestlink was transferred to Tremendous Springs Limited (“TSL”), a wholly owned subsidiary of Akai. Further, as a result of the enforcement of the purported share mortgage to Toyo, Akai lost control of TSL and hence Guestlink on 6 December 1999. The share mortgages to TSL and to Toyo are among the matters that the liquidators would wish to investigate.

30. Sansui Acoustics, a company incorporated in the British Virgin Islands, is believed to be a subsidiary of Sansui Electric Company Limited (“Sansui Electric”). Akai held a substantial equity interest in Sansui Electric from 1992 to 1999. Very little is known about Sansui Acoustics.

31. The 1^st respondent took the view that in relation to these former subsidiaries, consent for release of their documents must be obtained from them.

32. The 1^st respondent also provided the information that work was carried out by them for these companies after they were no longer subsidiaries in the Akai Group, according to the dates as provided by the liquidators’ solicitors.

33. The 1^st respondent’s solicitors have written to these companies requesting consent for release of their documents. A copy of each of the summonses was enclosed, the transaction for which the 1^st respondent had acted for the company concerned was summarised in the appendix attached, and the companies were informed of the hearing date of the summonses and requested to respond well before the hearing date. They were also told that the 1^st respondent has no objection to assisting the liquidators.

34. No response has been received from Guestlink to date. AECo and Sansui Acoustics wrote on 10 November 2004 stating that they do not consent to the 1^st respondent complying with the order sought in the liquidators’ summonses, before the liquidators have identified and particularised the relevance of any of the documents owned by them. The replies of AECo and Sansui Acoustics were received by the 1^st respondent’s solicitors on 16 November 2004 and provided to the liquidators’ solicitors on the same day.

35. For the documents sought from the 1^st respondent in respect of their professional services rendered for these 3 former subsidiaries, it seems to me that the proper way to proceed is to join them as respondents to the summonses, as no exceptional circumstances have been made out why the application should proceed in their absence (see Morris v. Director of the Serious Fraud Office [1993] Ch 372 at 384B to E, 385B to D and 387F; Soden v Burns [1996] 1 WLR 1512 at 1529B to E, 1531F to G; Re Zhu Kuan Group Company Limited, HCCW No.874 of 2003, 3 November 2004, Barma J, paras 31 to 38).

36. The liquidators have applied at the hearing today to amend their summonses to join the 3 former subsidiaries as respondents to the applications. I have made an order giving leave to amend and adjourning the amended summonses to 8 December 2004. I have further provided in the order that it is not necessary for the 1^st and 2^nd respondents to be further involved in the amended summonses, as their counsel has indicated that the 1^st respondent would abide by whatever order the court may make regarding these 3 companies.

Wasted Costs

37. In relation to Serlen, Mr Jenkin Suen who appeared for the 1^st and 2^nd respondents submitted that unnecessary costs have been wasted in relation to discovery of the documents of Serlen, as this company could have been dealt with by consent on 5 November 2004, but for the fact that the liquidators’ solicitors gave wrong information about the status of this company. He sought an order that the liquidators should pay the respondents the wasted costs in relation to Serlen. I think that must be right. I order that the wasted costs for the documents sought relating to Serlen be awarded to the 1^st and 2^nd respondents against the liquidators. I have assessed these on a gross sum basis at HK$4,000.00.

Costs of the summonses

38. There was no agreement between the parties on the costs of the summonses, although the liquidators have agreed that in respect of the consent summonses there should be no order as to costs for that application alone. I have set out in some detail the correspondence exchanged by the parties from March 2004 down to the time the summonses were issued on 19 August 2004. It seems to me that much work could and would have been saved if the respondents had cooperated with the liquidators at the outset by responding in a more constructive manner to the request made on 9 July 2004, and made available to the liquidators a list of all the matters or files handled by them for the Akai Group so that the liquidators would be able to narrow down the scope of their request for disclosure. I note that a complaint was made that the liquidators did not define what they meant by associated companies when they sought disclosure. That complaint was raised however only in October 2004.

39. The mere fact that the summonses were adjourned insofar as some of the documents sought related to 3 former subsidiaries is not a reason that the liquidators should not have the costs incurred for obtaining disclosure of documents of the 10 other companies. The 1^st respondent has only agreed to give disclosure of these documents well after the summonses were issued, and after fruitless correspondence was exchanged for 4 or 5 months.

40. The hearing today was needed in any event to resolve the question of costs. The response of 2 of the former subsidiaries has come too late for the liquidators to bring them in as additional respondents for the hearing today.

41. It was not feasible for the liquidators to notify the associated companies or other third parties for which they wish to seek disclosure until they were given a list of the companies for whom the 1^st respondent had acted. This was only provided to them after mid October 2004. The complaint made at the outset that the discovery was unreasonably wide is not in my view justified.

42. For the above reasons, I make the following order as to costs. The costs of the summonses including the hearing today, save for the costs in respect of the consent order made on 5 November 2004, and save for the wasted costs relating to disclosure for the documents of Serlen, are to be paid by the 1^st and 2^nd respondents to the liquidators, to be taxed if not agreed.

(S Kwan)
Judge of the Court of First Instance
High Court

Miss Linda Chan, instructed by Messrs Johnson, Stoke & Master, for the Joint and Several Liquidators

Mr Jenkin Suen, instructed by Messrs S H LEUNG & Co., for the 1^st and 2^nd Respondents

43227-EN-2004-09-07

RE AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

IN THE MATTER of Kong Wah Holdings Limited (In Compulsory Liquidation)

and

IN THE MATTER of S. 221, Companies Ordinance, Chapter 32

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF	Applicants
	KONG WAH HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	JAMES HENRY TING	Respondent

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)

and

IN THE MATTER of S. 221, Companies Ordinance, Chapter 32

____________

BETWEEN

	THE JOINT & SEVERAL LIQUIDATORS OF	Applicants
	KONG WAH HOLDINGS LIMITED
	(IN COMPULSORY LIQUIDATION)
	and
	JAMES HENRY TING	Respondent

____________

(Heard together)

Before: Hon Kwan J in Chambers

Date of Hearing: 5 May 2004

Dates of Further Submissions in Writing: 7 and 11 May 2004

Date of Handing Down of Decision: 7 September 2004

_____________

D E C I S I O N

_____________

The applications

1. I have before me two applications in each of the liquidations. The earlier application is that taken out by the liquidators of Akai Holdings Limited (“AHL”) and Kong Wah Holdings Limited (“Kong Wah”) (collectively “the Companies”) on 6 November 2003 under section 221 of the Companies Ordinance, Cap. 32, seeking an order that James Henry Ting (“Mr. Ting”) is to be examined on oath and to produce any books, correspondence, papers and documents in his custody or power relating to the Companies and their subsidiaries. Mr. Ting was the chairman and chief executive of AHL and a director of Kong Wah.

2. The other application is a summons issued by Mr. Ting in each of the liquidations on 29 December 2003 and amended on 5 May 2004 seeking a stay of the liquidators’ aforesaid application pending:

(1) the final determination of all appeals against the judgment of Puisne Judge Ian C. Kawaley delivered on 24 February 2004 in Civil Action No. 412 of 2003 in the Supreme Court of Bermuda (“the Bermuda Action”), including the Notice of Appeal lodged on 2 April 2004 and the Notice of Motion for Leave to Appeal lodged on 8 April 2004; and

(2) the delivery of verdicts in the existing Hong Kong criminal proceedings brought against Mr. Ting and in any further criminal proceedings also relating to the group of companies to which AHL and Kong Wah belonged.

3. Mr. Ting’s grounds to stay the liquidators’ application are as follows:

(1) the liquidators’ application was commenced in breach of contract, namely, a Settlement Agreement entered into by the liquidators and Mr. Ting on 30 December 2002 (“the Settlement Agreement”); and/or

(2) the liquidators’ application was commenced in disregard of the Bermuda Action and the pending appeals and the exclusive jurisdiction contract between the parties to the Settlement Agreement requiring any such litigation to be brought in Bermuda; and/or

(3) the liquidators’ application is oppressive and/or an abuse of process not only because of the Hong Kong criminal proceedings which are pending; and/or

(4) the liquidators’ application is oppressive because of jeopardy to Mr. Ting’s right against self-incrimination at common law and under Article 11(2)(g) of the Hong Kong Bill of Rights (“the Bill of Rights”) contained in the Hong Kong Bill of Rights Ordinance, Cap. 383, or if that right is exercised, the application will be pointless in any event.

4. I understand from Mr. Griffiths, SC, who appeared for Mr. Ting, that although his summonses asked for dismissal of the liquidators’ applications, alternatively a stay in the terms as related, he would not pursue the application for dismissal.

5. Subsequent to the hearing, Mr. Ting’s appeal in the Bermuda Action was heard in the Court of Appeal for Bermuda on 23 and 24 June 2004. Judgment was given on 2 July 2004 and the appeal was dismissed. The letter of the liquidators’ solicitors dated 5 July 2004 advising the court of the outcome of the appeal was copied to the solicitors for Mr. Ting. I have not heard from the latter of any further appeal that has been or is intended to be pursued against the judgment of the Court of Appeal for Bermuda. In the light of that development, I do not need to consider if the stay of the liquidators’ applications should be granted pending the final determination of all appeals against the judgment in the Bermuda Action on the grounds as advanced in the summonses.

The background

6. Until 1999, AHL was part of the Semi-Tech Corporation Limited (“STC”) group of companies, which was listed on the stock exchanges of Toronto and New York. Mr. Ting was in control of STC, as well as a number of other listed companies, of which he was the chairman, and in most cases, the chief executive officer. In the annual report of AHL for 1996, the STC group was described as an international business comprising numerous public companies listed on the world’s leading stock exchanges, with market capitalisations aggregating US$4.5 billion (equivalent to about HK$35 billion), and employing 100,000 people in over 120 countries worldwide. The Companies were listed among the principal assets of STC in that report.

7. The shares of AHL were listed on The Stock Exchange of Hong Kong Limited (“the HKSE”) since 1987. Its corporate domicile was transferred from Hong Kong to Bermuda in 1991. The annual report of AHL for 1999 listed 20 subsidiaries and associated companies held directly or indirectly by AHL (“the Akai Group”), with net assets of over US$1 billion as at 31 January 1999. Mr. Ting was the chairman and chief executive of AHL.

8. Kong Wah was incorporated in Bermuda in 1991, and was at one time a listed company in Hong Kong and the largest television manufacturer in Asia, outside Japan. In 1995 it was acquired by AHL through Akai Electric Co. Limited, in 1996 it was privatised. The annual report of Kong Wah for 1999 listed 25 subsidiaries and associated companies held directly or indirectly.

9. Petitions were presented in Hong Kong to wind up the Companies on 13 January 2000 and winding-up orders were made on 23 August 2000. On 29 September 2000, the Companies were ordered to be wound up by the Supreme Court of Bermuda. On 6 February 2004, an order was made whereby the liquidators of the Companies in Hong Kong were empowered and authorised to enter into and implement a cross-border protocol between themselves and the liquidators of the Companies in Bermuda, who are the same individuals.

10. The collapse of the Akai Group constitutes the largest corporate insolvency in the history of Hong Kong. The liquidators have discovered that as at the date of the winding-up orders, AHL was massively insolvent, it had no business, staff or premises of its own and barely any relevant documentary records in relation to what had been, and purported to be, an international conglomerate. The Akai Group appeared to have liabilities in excess of US$1 billion, but few assets remaining in the possession or control of AHL which could be realised for the benefit of the creditors, as many assets now appear to be controlled by or are claimed to be beneficially owned by The Grande Holdings Limited (“Grande HK”) or companies controlled by or associated with Grande HK.

11. On 12 November 1999, AHL entered into a management agreement (“the Management Agreement”) with a subsidiary of Grande HK registered in Singapore, The Grande Group Limited (“Grande Singapore”), by which AHL gave complete and unfettered authority to Grande Singapore to manage and conduct the business of AHL and its subsidiaries. The existence of the Management Agreement was not disclosed to the shareholders of AHL, the steering committee representing the bank creditors of the Companies, the HKSE, the Hong Kong Securities and Futures Commission, and the court hearing the winding-up petitions. This only came to the knowledge of the provisional liquidators in September 2000. Mr. Ting has subsequently claimed that he ceased to have any role in the affairs of the Companies since 12 November 1999. However, this would appear to be at odds with his active participation in opposing the winding up of the Companies, the six affidavits and affirmations he made in the winding-up proceedings, the transactions he had entered into on behalf of AHL after the Management Agreement as mentioned below, and the public announcements he made on behalf of AHL after November 1999.

12. Mr. Ting was an executive director and substantial shareholder of Grande HK from September 1990 to November 1992. At this time, and from July 1997, he was chairman and/or chief executive of Toyo Holdings Limited (“Toyo”). The president and group chief executive of Grande HK, Christopher Ho, was the former executive chairman of Toyo. Three days after the Management Agreement, Mr. Ting on behalf of AHL and Toyo entered into an underwriting agreement (“the Toyo Underwriting Agreement”), by which Toyo agreed to subscribe for convertible bonds in AHL. The Toyo Underwriting Agreement as revised was not completed due to the winding-up petitions. In the public announcements made in relation to this, statements were made of independence between AHL, Toyo and Grande HK. It was stated that arm’s length negotiations were conducted and that Toyo was independent of and not connected with AHL, any of its directors, chief executives, substantial shareholders or any of its subsidiaries or associates. Such statements were apparently incorrect.

13. On the same day as the Toyo Underwriting Agreement, Mr. Ting on behalf of AHL entered into a revolving “on demand” loan facility with Toyo for HK$630 million (“the Toyo Loan Facility”). The liquidators are unable to identify how the Toyo Loan Facility was applied in purportedly funding the working capital requirements of the Akai Group.

14. Most of the key directors and executives of the Akai Group had left Hong Kong or were uncooperative with the liquidators and their requests for assistance. Grande HK, Grande Singapore and Toyo have all refused to provide any meaningful assistance. The investigation of the financial affairs has been severely hampered by the lack of sufficient books and records. Although 650 boxes of records have since been taken into possession in relation to AHL and 1,800 boxes in relation to Kong Wah, in the light of the size of the businesses of the Companies, these clearly do not constitute the entire books and records by any means.

15. To date, the liquidators have identified and/or taken control of US$2.39 million worth of assets, the majority of which are subject to alleged claims by third parties. The liquidators have not been able to confirm, in any detail, the extent of the assets which had been owned or controlled by AHL and what they comprised, how, when and why they were allegedly disposed of or transferred to Grande HK or third parties controlled or previously controlled by Grande HK. Even now, some subsidiaries of the Companies and their roles are unknown to the liquidators.

16. Mr. Ting is the most important and crucial person to provide information to the liquidators. In the principal supporting affidavit in this application, the liquidators have identified 18 areas of concern involving US$1.5 billion for which they require information from Mr. Ting. Various matters as described in the affidavit went back to 1998, so claims in relation to which Mr. Ting’s assistance is required would become time-barred against third parties fairly soon, unless protective writs are issued by the liquidators or unless the liquidators are able to postpone the limitation period by virtue of fraud, concealment or mistake under section 26 of the Limitation Ordinance, Cap. 347. There is clearly a need for the liquidators to be assisted by Mr. Ting with a first-hand account of the complex events and transactions, which contributed to the massive collapse of the Akai Group. The provision of a statement of affairs by Mr. Ting and answers in writing to a questionnaire could not be considered adequate in the circumstances.

17. After the winding up of the Companies, and over a period of more than three years, there was a lengthy exchange of correspondence between the Official Receiver as the provisional liquidators, the liquidators, the solicitors of the liquidators, with Mr. Ting and his solicitors, requesting Mr. Ting’s attendance at an interview. Despite his professed willingness to meet with the then provisional liquidators, and despite being in Hong Kong on at least one occasion in October 2000, Mr. Ting did not meet with the provisional liquidators. It is alleged that he was in Shanghai from about the time of the winding up of the Companies on 23 August 2000 until his return to Hong Kong on 30 April 2003. The liquidators have again attempted to meet with Mr. Ting since his return, but he has refused to cooperate. Hence, the present summonses were issued.

18. On 2 May 2003, Mr. Ting was arrested by the Commercial Crime Bureau of the Hong Kong Police (“the CCB”) and charged with an offence of false accounting under section 19(1)(a) of the Theft Ordinance, Cap. 210. On 5 March 2004, four additional charges of false accounting were laid against Mr. Ting. All the charges of false accounting relate to documents required for accounting purpose in respect of AHL. It is alleged that for the audited accounts of AHL for 1999, Mr. Ting falsified a document purporting to show that AHL had an interest in an associated company, namely 50% shareholding in MicroMain Systems Limited (“MicroMain”); that he falsified documents purporting to show that AHL made a payment of US$12,936,610.61 on behalf of Fortune 2000 Limited (“Fortune 2000”) in relation to an investment; and that he falsified a document purporting to show that AHL had purchased certain shares held by Winsoft Limited in MicroMains at a consideration of US$38.46 million.

19. Of the 18 areas of concern identified by the liquidators in the main supporting affidavit as requiring investigation, one of them is in respect of an investment loss of HK$300 million purportedly made by AHL through its wholly owned subsidiary, Fortune 2000, to purchase 50% of the equity of MicroMain. The liquidators would wish Mr. Ting to explain the payments made from the bank accounts of AHL supposedly in accordance with the share sale and purchase agreement for the equity interest in MicroMain, and to identify the information and documents provided to the auditors of AHL to perform their audit of the MicroMain investment.

The Settlement Agreement and the Bermuda Action

20. On 30 December 2002, the Settlement Agreement was reached between, inter alia, Mr. Ting and the liquidators in relation to a scheme of arrangement, whereby Mr. Ting agreed to withdraw, inter alia, his opposition to the sale of the listing status of AHL on the HKSE. In return, the liquidators agreed in clause 3 not to “sue or otherwise pursue any claims against Mr. Ting … from any and all past, present and future rights, claims, demands, debts, causes of action and suits at law or in equity of any kind or nature whatsoever … [in] Hong Kong, Bermuda, PRC and any other competent jurisdiction arising out of or in connection with [the Companies] and/or their respective Liquidators [sic].” Having regard to the imminent long-stop date on 31 December 2002 (when the shares of AHL would be de-listed if there was no completion of the transaction in the scheme of arrangement), and that the objection application of the liquidators to the votes against the scheme cast by the entities controlled by Mr. Ting could not be heard by the Bermuda court before the long-stop date, the liquidators exercised their discretion to enter into the Settlement Agreement, so as to liberate funds to be made available for the liquidations as a whole.

21. The Settlement Agreement contained an exclusive jurisdiction clause vesting jurisdiction in the Bermuda court and a provision that the interpretation and validity of the agreement are to be governed by the laws of Bermuda.

22. There are no claims and proceedings being undertaken or contemplated by the liquidators against Mr. Ting. In the liquidators’ letters to Mr. Ting’s solicitors in November 2003 and their supporting affidavits, the liquidators stated clearly that they have not undertaken and are not undertaking any investigations with a view to or in connection with issuing proceedings or making claims against Mr. Ting, as they accepted to do so would breach clause 9 of the Settlement Agreement. They are merely seeking to secure Mr. Ting’s assistance in ascertaining the truth about the affairs of the Companies, in the context of the existing winding-up proceedings, and in helping to locate the assets of the Companies. The results of the examination may be used by the liquidators in subsequent proceedings against relevant parties, but not against Mr. Ting, owing to the Settlement Agreement. The liquidators have also given an undertaking that no claim for costs, even if awarded by this court in their favour in the present applications, would be enforced against Mr. Ting.

23. When the liquidators requested for Mr. Ting’s assistance with their inquiries on a voluntary basis in May 2003, failing which an application for private examination would be made, Mr. Ting’s solicitors responded that the liquidators’ request was in breach of clause 3 of the Settlement Agreement. On 10 October 2003, Mr. Ting and others issued the writ in the Bermuda Action (served only on the liquidators on 17 December 2003 after it was amended), alleging among other things breach of the Settlement Agreement and seeking inter alia an injunction that the liquidators be restrained from pursuing further claims against him, that they should cease all further investigations for this purpose, and that they should be restrained from issuing any proceedings or summons against him in relation to the affairs of the Companies. Upon the application of the plaintiffs in the Bermuda Action in December 2003 for an interim injunction against the liquidators pending trial, an order was made by consent for the speedy trial of that action. By similar orders by consent made on 20 January 2004 in Hong Kong, upon the liquidators’ undertaking not to proceed with their section 221 applications until delivery of judgment in the Bermuda Action, the summonses of Mr. Ting to stay the liquidators’ applications were adjourned sine die with liberty to restore.

24. Judgment in the Bermuda Action was given against the plaintiffs on 24 February 2004. In short, the Supreme Court of Bermuda held that the natural and ordinary meaning of the words of clause 3 does not extend to the summonses to examine Mr. Ting under section 221 and that clauses 3 and 9 are complementary provisions, so that the latter is not breached by the section 221 summonses, where the investigation is not undertaken with a view to issuing proceedings or making claims against Mr. Ting. The trial judge also rejected an alternative claim based on an alleged separate oral agreement that Mr. Ting should be “left alone”. On appeal, the alternative claim was not pursued. The Court of Appeal for Bermuda upheld the construction of clauses 3 and 9 of the court below that the liquidators’ action in seeking to examine Mr. Ting otherwise than to advance a substantive claim against him does not contravene either provision.

25. Mr. Griffiths has contended that although the nature of the section 221 applications differs from the Bermuda Action, the issues in the two proceedings (of breaches or otherwise of the Settlement Agreement) are similar if not the same. Given the exclusive jurisdiction clause in the Settlement Agreement, the more appropriate forum to resolve such issues is the court in Bermuda and such issues should be litigated to finality in Bermuda before the Hong Kong court is to consider the section 221 applications. He also invoked the principle of lis alibi pendens that the additional inconvenience and expense of two sets of proceedings in two different jurisdictions could not be justified in these circumstances, particularly where the proceedings in Bermuda have reached an advanced stage. So for these reasons, he submitted that the liquidators’ applications in Hong Kong should be stayed until the Bermuda Action is “finally concluded” in Bermuda.

26. Were it necessary to decide whether I should exercise my discretion to stay the liquidators’ applications pending the conclusion of the proceedings in Bermuda, I would have no hesitation in refusing a stay. The liquidators’ applications were adjourned by consent until after the delivery of judgment in the Bermuda Action. The appeal against that judgment was dismissed by the Court of Appeal for Bermuda, after the hearing of the liquidators’ applications. Mr. Ting has failed twice in litigating his case that the liquidators have breached the Settlement Agreement by seeking an order of private examination against him. No good grounds were made out why his further appeal (even if he were minded to appeal further) should have been determined before the Hong Kong court should adjudicate on the liquidators’ applications.

27. As I have indicated at the outset, it is now unnecessary to consider if the liquidators’ applications should be stayed pending the resolution of the appeal in the Bermuda Action. As things now stand, the Bermuda Action has been litigated to finality. I have mentioned the Settlement Agreement and the Bermuda Action at some length only because they are relevant to the consideration if it would be oppressive to order Mr. Ting to attend for private examination. It is pertinent to bear in mind the objective of the investigation sought by the liquidators against Mr. Ting and their acceptance that the information obtained would not be used in connection with issuing proceedings or making claims against him, and the findings of the court in Bermuda that the liquidators’ applications are not in breach of the Settlement Agreement.

Stay pending conclusion of criminal proceedings

28. It would be seen from the above that one of the 18 areas of investigation intended to be pursued by the liquidators with Mr. Ting overlaps with the subject of the criminal charges that have been laid against him. Further charges may still be laid against Mr. Ting. It was contended that it would be oppressive to order him to attend for private examination, as this would erode his right to a fair hearing in his criminal case, drawing on the principles relating to the inherent power of the court to stay civil proceedings pending the resolution of criminal proceedings against the defendant in respect of the same subject matter (Jefferson v. Bhetcha [1979] 1 WLR 898; Petroliam Nasional Berhad & Ors. v. Tan Soon-gin & Ors. [1990] 1 HKLR 4 at 9E to 10B; Wang Din Shin v. Nina Kung, CACV No. 1479 of 2001, 11 July 2001). This is particularly so in the present case as criminal charges have been laid, the criminal trial is “imminent” (at the hearing of the application in May 2004, I was given to understand that the criminal charges would “shortly” be committed to the High Court for trial before a judge and jury; I have not since been provided with any information by Mr. Ting’s solicitors of any significant progress in the criminal proceedings), and Mr. Ting should have the full protection under Article 11(2)(g) of the Bill of Rights.

29. Mr. Griffiths has not contended that there should be an absolute bar to ordering a person to attend for private examination after he has been charged with a criminal offence, but there is a discretion in this situation not to make any order, or to stay the application for such an order or the enforcement of such an order if made, if the court is satisfied that the element of unfairness or oppression to the individual concerned in the particular circumstances would outweigh the public interest in ordering an examination or in ensuring that an examination should be conducted without any further delay. In carrying out the balancing exercise, the abrogation of the privilege against self-incrimination is a factor that may be taken into account (Bishopsgate Investment Management Ltd. v. Maxwell [1993] Ch 1 at 63C).

30. Mr. Griffiths pointed out that in the cases in Hong Kong (both decided at first instance, Re Weihong Petroleum Co. Ltd. [2002] 1 HKLRD 541; and Re Asher & Co. (Hong Kong) Ltd. [2004] 330 HKCU 1) where it was held that the privilege against self-incrimination at common law has been implicitly abrogated by section 221, the individuals concerned were not charged with any criminal offence, hence it was rightly decided in those cases that the separate immunity under Article 11(2)(g) would not need to be considered (In re Tse Chu-fai, Ronald [1993] 2 HKLR 453 at 461 to 462; HKSAR v. Lee Ming Tee & Anr. [2001] 1 HKLRD 599 at 635F to G, 636B). The present situation is different in that Mr. Ting has been charged with criminal offences, so the decisions in Weihong Petroleum and Asher are not applicable.

31. In this connection, I think it is pertinent to note that the common law privilege is broader in scope than the immunity under Article 11(2)(g), a point made by Ribeiro PJ in Lee Ming Tee, supra. at 635B to G. He has quoted Lord Mustill in R v. Director of Serious Fraud Office, ex p Smith [1993] AC 1 at 30 (that the common law privilege is “a general immunity, possessed by all persons and bodies, from being compelled on pain of punishment to answer questions the answers to which may incriminate them”) and commented that the common law privilege is “self-evidently of a broad application, protecting every person against any questioner”. See also Fu Kin Chi Willy v. The Secretary for Justice [1998] 1 HKC 411 at 419D, per Li CJ, that the common law privilege is “capable of application in non-judicial proceedings”.

32. In contrast, Article 11(2)(g) provides as follows:

“(2) In the determination of any criminal charge against him, everyone shall be entitled to the following minimum guarantees, in full equality –

…

(g) not to be compelled to testify against himself or to confess guilt.”

33. Hence, Ribeiro PJ stated at 635F that the Article “only applies to persons who face a criminal charge and the immunity then conferred is only a testimonial immunity, namely, the right ‘not to be compelled to testify against himself or to confess guilt’.” Further, derivative use of independently obtained evidence, “even if obtained pursuant to clues provided by the compelled testimony falls outside the purview of Article 11(2)(g) since, in adducing such independent, albeit derivative, evidence, the prosecution does not seek to compel [the accused] to testify against himself or to confess guilt” (at 635J to 636A).

34. The present case would appear to be the first occasion in which the court has to resolve squarely if the separate immunity conferred by the Article has been abrogated under section 221. I maintain the views I expressed in Weihong Petroleum, supra. on the implicit abrogation of the privilege against self-incrimination at common law. I should mention that in approaching the question in the way I did in Weihong Petroleum as a matter of statutory interpretation with regard to the purpose of an examination under section 221, although I had considered safeguards with the abrogation of the privilege in paragraphs 18 and 19 of the decision (at 546D to F), it was not necessary in that situation to consider the adequacy of the safeguards by applying the proportionality test from the perspective of the Bill of Rights, as no criminal charge was laid against the examinee. I note also that in Fu Kin Chi Willy, supra. where it was held that the common law privilege against self-incrimination has been implicitly abrogated by the relevant provisions in the Police Force Ordinance, Cap. 232 so that the privilege would not be available to a police officer in a disciplinary investigation, the Court of Final Appeal did not find it necessary to pursue the situation where the disciplinary offence is also a criminal offence as this “raises another question” (at 420F to G).

Whether Article 11(2)(g) is applicable in an examination under section 221

35. Before I consider whether the immunity under Article 11(2)(g) has been abrogated under section 221, it is necessary first to deal with an issue raised by Mr. Sheppard for the liquidators that this Article does not apply in an application under section 221 or an examination conducted under the same, by virtue of section 7 of the Hong Kong Bill of Rights Ordinance, Cap. 383 and the decision of the Court of Appeal in Tam Hing-yee v. Wu Tai-wai [1992] 1 HKLR 185. I do not think Article 11(2)(g) can apply to an application under section 221 at all, if this is meant to be an application for an order that a person is to be examined or to produce documents. As stated in Lee Ming Tee, the immunity in this Article is a “testimonial immunity”. I cannot see how an application for an order under section 221 would involve a person being “compelled to testify against himself or to confess guilt”. That would only happen in the course of an examination, if an order is made under this provision for a person to be examined on oath. It seems to me that Mr. Sheppard’s argument on the non-applicability of Article 11(2)(g), if properly framed, must relate only to an examination conducted under section 221.

36. Section 7 of Cap. 383 provides as follows:

“7. Binding effect of Ordinance

(1) This Ordinance binds only -

the Government and all public authorities; and

any person acting on behalf of the Government or a public authority.

(2) In this section –

‘person’ includes any body of persons, corporate or unincorporated.”

37. In Tam Hing-yee, it was held by the Court of Appeal that by virtue of section 7 of Cap. 383, the Bill of Rights would have no application to a dispute between private individuals. Mr. Sheppard submitted that as Tam Hing-yee is still good law, Article 11(2)(g) cannot be invoked in an examination under section 221 as this is a civil proceeding between private parties, and the court in conducting an examination under section 221 is not a part of “the Government” or a “public authority” or “acting on behalf of the Government or a public authority” within section 7(1) of Cap. 383. Besides, the court in conducting the examination is not determining any criminal charge against the examinee; this Article “arises only in relation to criminal proceedings, and not civil proceedings”. Whether any evidence obtained from the examinee under compulsion in the private examination may be used against him in his criminal trial would be a matter for the criminal court subsequently and need not concern the court conducting the examination.

38. In A Solicitor v. The Law Society of Hong Kong, CACV No. 302 of 2002, 18 February 2004, the Court of Appeal (Woo VP, Cheung JA and Burrell J) had considered a submission by the appellant that Tam Hing-yee is no longer good law. The submission was on the following lines. The ruling in Tam Hing-yee was reversed by the Hong Kong Bill of Rights (Amendment) Ordinance 1997, which came into effect on 30 June 1997 in that section 3 of Cap. 383 was amended by the addition of these two subsections:

“(3) It is hereby declared to be the intention of the legislature that the provisions of this Ordinance, including the guarantees contained in the Bill of Rights, apply to all legislation, whether that legislation affects legal relations between the Government, public authorities and private persons, or whether it affects only relations between private persons.

(4) For the avoidance of doubt, subsection (3) shall come into operation upon commencement of the Hong Kong Bill of Rights (Amendment) Ordinance 1997 (107 of 1997).”

39. Thus, when the Hong Kong Special Administrative Region came into existence on 1 July 1997, the ruling in Tam Hing-yee that was reversed by section 3(3) of Cap. 383 was no longer part of “the laws previously in force in Hong Kong” and was not adopted as the law of the Special Administrative Region under Articles 8 and 18 of the Basic Law. Although the amendment ordinance in 1997 was suspended on 18 July 1997 and was repealed on 28 February 1998 by the Provisional Legislative Council under the Hong Kong Bill of Rights (Amendment) Ordinance 1998, by virtue of section 23(a) and (b) of the Interpretation and General Clauses Ordinance, Cap. 1, the repeal of the amendment to section 3 of Cap. 383 does not “revive anything not in force or existing at the time at which the repeal takes effect”.

40. The Court of Appeal, by a majority (Woo VP and Cheung JA), took the view that the Solicitors Disciplinary Tribunal is a “public authority” within section 7(1) of Cap. 383. As for the question whether the Bill of Rights could be applied to the proceedings before the Solicitors Disciplinary Tribunal because the parties to the proceedings, namely the Law Society of Hong Kong and the solicitor concerned, are private persons, Tam Hing-yee posed a hurdle in that it was held that the Bill of Rights would have no application to “inter-citizen litigation”. Woo VP and Cheung JA resolved this question in different ways.

41. Woo VP was inclined to think that Tam Hing-yee is still binding, the ruling in that case was not an interpretation of the provisions of section 3 of Cap. 383, but was a construction of section 7. Hence, the amendment to section 3 in 1997 did not reverse the ruling of Tam Hing-yee in the context of the proper construction of section 7, “because the application of the HKBORO to legal relations between private persons introduced by the amendment to section 3 of HKBORO, which amendment should be viewed as widening the scope of section 7, was repealed and section 7 has remained intact” (at paragraph 104). However, even though the court would be precluded from applying the Bill of Rights to inter-citizen litigation, Woo VP considered that the court could apply an article in the International Covenant on Civil and Political Rights (“the ICCPR”) which is identical to the article in question in the Bill of Rights, by virtue of section 6(1) of Cap. 383, and following the approach of the Court of Appeal in Cheung Ng Sheong Steven v. Eastweek Publishers Ltd. (1995) 5 HKPLR 428 at 436D to 437GF and 451H to I (at paragraphs 105 to 109).

42. Cheung JA took the view that Tam Hing-yee is no longer binding and the court is free to look at the matter afresh (at paragraph 208) and to adopt a “more comprehensive interpretation of section 7” (at paragraph 214). The fact that “individuals” is not mentioned in section 7 does not mean that the Bill of Rights is not applicable. In deciding whether the Bill of Rights applies, the status of the parties is “only one factor to be considered”; the Bill of Rights “will be engaged if the dispute is concerned with a legislation which is promulgated by the government through the legislative branch which also comes into within [sic] the definition of a public authority” (at paragraph 212). Thus, if the Solicitors Disciplinary Tribunal in the adjudication of disputes of private individuals should make an order pursuant to a statute, “such an order is equally subject to the application of the HKBORO because the Tribunal is a public authority and is bound by the HKBORO” (at paragraph 213).

43. In the present situation, it does not matter if the reasoning of Woo VP or that of Cheung JA is to be followed, as either route would lead to the same result. Article 11(2)(g) of the Bill of Rights is identical to Article 14.3(g) of the ICCPR, if the approach of Woo VP of applying an identical provision in the ICCPR is adopted. An examination under section 221 is sui generis, it is an inquisitorial procedure conducted by the court for the purpose of obtaining information necessary for the proper conduct of the winding up (Re Rolls Razor Ltd. (No. 2) [1970] 1 Ch 576 at 592A to B, per Megarry J). Such an examination is not just a private matter concerning the creditors and shareholders of a company, as it has long been recognised that insolvency proceedings serve another purpose apart from the orderly settlement of a company’s liabilities and the distribution of surplus assets; public interest is involved in another aspect which is the investigation of the causes of failure of a company and the conduct of those concerned in its management (In re Pantmaenog Timber Co. Ltd. [2004] 1 AC 158 at 173C to D, 177E to G, and 180F to G). In ordering an examinee to answer a question in an examination under section 221 notwithstanding that his answer might tend to incriminate him, the power of the court is founded on a statutory provision, namely section 221. Thus, the Bill of Rights will be engaged where the exercise of the power by the court in this situation is pursuant to a legislation promulgated by the legislative branch of the government, using the approach of Cheung JA in adopting a “more comprehensive interpretation of section 7”.

44. As to Mr. Sheppard’s argument that Article 11(2)(g) should have no application to an examination under section 221 because the examination is not “the determination of any criminal charge” against the examinee, I do not think this Article should be construed and applied in such a restrictive manner. Where the examinee has been charged with a criminal offence, and there is possibility that any evidence given by him in the examination may be used against him in the criminal trial, this is sufficient to invoke the immunity under the Article.

45. For the above reasons, I hold that Article 11(2)(g) applies to an examination conducted under section 221 where the examinee has been charged with a criminal offence. I turn to consider whether the immunity under this Article has been abrogated in this situation.

Whether the immunity under Article 11(2)(g) has been abrogated

46. As I understand Mr. Griffiths, he has not contended that the immunity under Article 11(2)(g) cannot be abrogated by statute. The issue, as he framed it, is “whether the right under Article 11(2)(g) (as opposed to the common law right) is implicitly abrogated on the basis and justification that it will not be a disproportionate response to a serious social problem and that it will not undermine the respondent’s right to a fair trial viewed in the round, the ‘proportionality test’”, citing Lee Ming Tee, supra. at 640 to 641. In his submissions that the privilege under Article 11(2)(g) has not been implicitly abrogated by section 221, Mr. Griffiths made the following points.

47. Section 221 should be contrasted with other provisions in Cap. 32 relating to examinations of other kinds and other powers of investigation.

48. For instance, section 222(5) provides that “all questions” should be answered by the person examined in a public examination; section 222(7) permits the notes of the public examination to “be used in evidence” against the examinee and this is supplemented by rule 59 of the Companies (Winding-up) Rules (“the Winding-up Rules”). It would appear that section 222 has abrogated the privilege against self-incrimination.

49. Another example is section 145(3A) which provides that in an examination conducted by an inspector appointed by the Financial Secretary, “a person is not excused from answering a question put to him under this section by an inspector on the ground that the answer might tend to incriminate him but, where such person claims, before answering the question, that the answer might tend to incriminate him, neither the question nor the answer shall be admissible in evidence against him in criminal proceedings other than proceedings in relation to a charge of perjury or proceedings for an offence under section 36 of the Crimes Ordinance (Cap. 200) in respect of the answer”. Section 145(3AA) provides that “if a claim of tendency to incriminate is not made in advance under subsection (3A), an answer given by a person to a question put to him in exercise of powers conferred by this section may be used in evidence against him.” Here, the privilege is expressly abrogated and compensatory protection is given by a “direct use prohibition”, which “only applies to the questions asked and answers given”, but permits inferentially “derivative use of the questions and answers obtained in the course of an inspection” (Lee Ming Tee, supra. at 625A and 634C to E).

50. In contrast, section 221 is silent on all these issues. It does not use words like “answer all questions”. It is silent as to both direct use and derivative use of answers which may tend to incriminate. Given this status, Mr. Griffiths submitted that subject to any restrictions that could be imposed by the court based on rule 62(2) of the Winding-up Rules, there is apparently no restriction on the usage of the notes of a private examination and that is highly prejudicial to a person faced with a criminal charge as there are no safeguards. One cannot discount the possibility of the police having access to the notes of examination by means of a search warrant. That creates a real risk of prejudice in that the notes could be used against the examinee in his criminal trial where he could be cross-examined on his deposition in the private examination based on the doctrine of previous inconsistent statement. Mr. Griffiths pointed to In re Arrows (No. 4) [1995] 2 AC 75 for the proposition that although the Companies Court judge has a discretion under rule 9.5 of the Insolvency Rules 1986 whether to authorise the unconditional release of the transcripts of a private examination, it is not for the Companies Court judge to exercise that discretion so as to prevent the prosecuting authorities from obtaining and leading in evidence the transcripts; it is for the judge at the criminal trial alone to decide, in the light of all the circumstances known to him but not to the Companies Court judge, whether the admission of the transcripts would prejudice a fair criminal trial.

51. Mr. Griffiths further submitted that in applying the “proportionality test” and in balancing the interest of the community against the protection of the rights of the individual, the court must bear in mind the competing public interest in an accused being assured of a fair trial. If prosecuting authorities were given access to material through the “back door” when that could not be done under normal circumstances, this would lead to a fundamental erosion of the rule of law and would promote underhand tactics by the prosecuting authorities.

52. The above submissions are directed against an implicit abrogation of the privilege against self-incrimination. Neither Mr. Griffiths nor Mr. Sheppard has alluded to section 33(1) of the Theft Ordinance, Cap. 210, which provides as follows:

“(1) A person shall not be excused, by reason that to do so may incriminate that person … of an offence under this Ordinance –

from answering any question put to that person in proceedings for the recovery or administration of any property, for the execution of any trust or for an account of any property or dealings with property; or

from complying with any order made in any such proceedings,

but no statement or admission made by a person in answering a question put or complying with an order made as aforesaid shall, in proceedings for an offence under this Ordinance, be admissible in evidence against that person …”.

53. As mentioned earlier, the five existing charges laid against Mr. Ting are in respect of an offence under section 19(1)(a) of Cap. 210. The immunity in Article 11(2)(g) from answering any question tending to incriminate in an examination under section 221 of Cap. 32, which may be regarded as “proceedings for the recovery or administration of any property”, is expressly abrogated by virtue of section 33(1) of Cap. 210, insofar as these criminal charges relate to an offence under Cap. 210. Section 33(1) also provides for a direct use prohibition of any answer which may tend to incriminate in the criminal trial of Mr. Ting in respect of these charges. This compensatory protection is similar to the safeguard found in other statutory provisions, such as sections 145(3A) and 152A of Cap. 32, section 359(4) of the Securities and Futures Ordinance, Cap. 571, sections 19(10) and 29(3B) of the Bankruptcy Ordinance, Cap. 6. I should mention that the last two provisions, relating to public and private examinations in bankruptcy proceedings, were enacted following the recommendations in the Report on Bankruptcy (May 1995) of the Law Reform Commission of Hong Kong, Chapters 11 and 12, which have taken into account the implication of Article 11(2)(g). I am satisfied that the mechanism adopted in section 33(1) of Cap. 210 is not “a disproportionate response to a serious social problem”. Here, a fair balance has been struck between the general interest of the community as canvassed in Lee Ming Tee, supra. at 640G to J and the protection of the rights of the individual. I hold that the express abrogation of the immunity under Article 11(2)(g) by section 33(1) is not in breach of the Bill of Rights.

54. The above is sufficient to dispose of the argument advanced by Mr. Griffiths that there should be no implicit abrogation of the immunity under Article 11(2)(g) in the present situation. As it is not strictly necessary to consider whether the immunity under Article 11(2)(g) is to be regarded as implicitly abrogated in the event that Mr. Ting should be charged with some other offence not under Cap. 210, I would leave this difficult question to another occasion.

Whether it would be oppressive to order private examination

55. Mr. Griffiths raised other matters that may render a private examination oppressive in this situation, apart from the abrogation of the privilege against self-incrimination. They are as follows.

56. The winding up of the Companies has been widely publicised locally and internationally and many articles have been written in the press about Mr. Ting. Mr. Ting’s criminal hearing, which is expected to take place fairly soon, could be prejudiced in one or more of these respects:

(1) The mere fact that Mr. Ting has been examined is in itself prejudicial on the minds of potential jurors, even though the examination is to take place in chambers and the reporting of which is barred.

(2) The private examination will entail Mr. Ting answering questions on matters for which he has been charged, as one of the areas of concern identified by the liquidators as requiring investigation relates to the interest held by AHL in MicroMain.

(3) The examination will also cover many areas for which Mr. Ting might be charged. There is a real possibility that the transcript of the examination might come into the hands of the prosecuting authorities and a risk that this might provide a lead to the police towards other areas for which further charges might be laid; in other words, the police could make derivative use of the materials obtained in the examination.

57. I do not think the mere fact that Mr. Ting has been examined would have caused such prejudice on the minds of potential jurors as to render the holding of a private examination oppressive. I have held that the effect of section 33(1) of Cap. 210 is that any answer which tends to incriminate Mr. Ting in respect of his charges under Cap. 210 would not be admissible in the criminal trial, so the second matter, which is said to prejudice a fair trial of the criminal case, does not arise. As to the other 17 areas of concern which are not the subject of any criminal charge at present and which the liquidators may wish to investigate in the examination, I see no reason why it should be regarded as necessarily oppressive even if the prosecuting authorities were to obtain the transcripts and make derivative use of the information obtained, such as by following the leads provided to pursue further investigation or bringing further charges against Mr. Ting. After all, derivative use of such information obtained compulsorily is not prohibited, whether at common law or under the Bill of Rights (Lee Ming Tee, supra. at 634C to E, 640A to 641D, 642J to 643B).

58. I bear in mind that in exercising my discretion whether to order Mr. Ting to attend for private examination, I ought to balance the reasonable needs of the liquidators to obtain information by this method and the possible oppression and hardship that may be occasioned to Mr. Ting. I ought also to balance the public interest in ordering an examination to be conducted without further delay and any element of real danger that a fair trial of the criminal proceedings might be prejudiced. I am satisfied that the balance is clearly in favour of ordering a private examination without further delay. There is a pressing need of the liquidators for first-hand information from the most important person in the management, to assist them to disentangle complex relationships and transactions and to trace and recover assets in a massive liquidation. Due to the Settlement Agreement, the information obtained by the liquidators in the examination would not be used against Mr. Ting to pursue any claim against him. I am not satisfied, for the reasons I have given earlier, that if Mr Ting were to be examined in a private examination prior to his criminal trial (for which no hearing date would appear to have been fixed as yet), this would cause a miscarriage of justice in the criminal proceedings.

Orders

59. For the above reasons, I grant the liquidators’ application in each of the proceedings for an order that Mr. Ting should attend court on a date to be fixed to be examined on oath concerning the affairs of the Companies and their subsidiaries. Mr Ting’s summons in each of the proceedings to stay the liquidators’ application is dismissed.

60. The liquidators also seek an order that Mr. Ting is to produce documents in his custody or power relating to the Companies and their subsidiaries. As Mr. Ting has not mentioned in any of his opposing affirmations he has no such documents, I order him to produce to the liquidators all documents relating to the Companies and their subsidiaries in his custody or power within 28 days hereof.

61. As for the costs of these four applications in the two proceedings, in view of clause 3 in the Settlement Agreement and the undertaking given by the liquidators they will not enforce any claim for costs against Mr. Ting even if costs were awarded in their favour, I make an order nisi in each of the proceedings there be no order as to costs save that the liquidators’ own costs will be paid out of the assets of the company concerned.

(S Kwan)
Judge of the Court of First Instance
High Court

Mr. Andrew James Sheppard, of Holman Fenwick & Willan, for the Applicants

Mr. John Griffiths, SC and Mr. Peter Pannu, instructed by Andrew W.Y. Ng & Co., for the Respondent

Appeal by the Respondent to Court of Appeal. Appeal dismissed. Please refer to the appeal judgment of CACV304/2004 and CACV305/2004.

37235-EN-2004-02-06

RE AKAI HOLDINGS LTD (In Compulsory Liquidation)

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HCCW000050F/2000

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

IN THE MATTER of KONG WAH HOLDINGS LIMITED (In Compulsory Liquidation)

AND

IN THE MATTER of the Companies Ordinance, Chapter 32

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

IN THE MATTER of AKAI HOLDINGS LIMITED (In Compulsory Liquidation)

AND

IN THE MATTER of the Companies Ordinance, Chapter 32

____________

(Heard Together)

Coram: Hon Kwan J in Chambers

Date of Hearing: 6 February 2004

Date of Decision: 6 February 2004

_____________

D E C I S I O N

_____________

1. I have before me two identical summonses issued by the liquidators of Kong Wah Holdings Limited (In liquidation) and Akai Holdings Limited (In liquidation) (collectively "the Companies") in each of the winding up proceedings relating to the company in question. The summonses are issued under section 200(3) of the Companies Ordinance, Cap. 32, which provides that the liquidator may apply to Court for directions "in relation to any particular matter arising under the winding up".

2. The summonses were served on the Official Receiver. The Official Receiver has no comment or objection to the applications and has sought to be excused from attendance.

3. In each summons, the liquidators seek an order that they be empowered and authorised to enter into and implement a cross-border protocol between themselves and the liquidators of the Companies appointed by the Supreme Court of Bermuda (who are the same individuals appointed as liquidators by the Hong Kong Court) and an order that the protocol be approved.

4. Similar applications were made by the Bermudian liquidators to the Supreme Court of Bermuda and an order was granted in each of the proceedings relating to the Companies on 8 January 2004.

5. I was reminded by Mr Bartlett, who appeared for the liquidators, that the courts in Hong Kong have approved protocols in similar forms in a number of cases, and he has given the examples of Peregrine Investments Holdings Limited, Greater Beijing Expressways Limited, and Jinro (HK) International Limited.

6. The general approach of the Court in this kind of application is to adopt a limited supervisory role. The Court will of course not approve whatever protocol is placed before it without the exercise of its own discretion. Having said that, in ordinary situations, there is no reason why the court should not accept the professional judgment of insolvency practitioners appointed to act as liquidators who have put together the protocol as a pragmatic solution to harmonise and co-ordinate concurrent liquidations (see Cross-Border Insolvency by Philip Smart, 1998 ed, pages 336 to 337).

7. In this instance, there are concurrent liquidations proceeding in Hong Kong and Bermuda with the Bermudian liquidation being the principal liquidation as the Companies were incorporated in Bermuda. As mentioned, the same individuals were appointed as liquidators for each of the Companies in the two jurisdictions. Most, if not all, of the creditors have already submitted proofs of debt in one or other of the jurisdictions. The insolvency laws in Hong Kong and Bermuda are largely identical.

8. The objective of the protocols is that whilst acknowledging Bermuda as the primary liquidation, both the Hong Kong liquidation and the Bermudian liquidation are to be administered simultaneously from Hong Kong, which was the principal place of business of the Companies. The protocols are drafted to take into account the relevant provisions of Hong Kong and Bermudian insolvency laws and rules, to be consistent with generally accepted notions of comity, not to infringe on the jurisdictions of either of the two courts, and to enable the liquidators to administer both liquidations in the most economical way, reducing the conflicts and complications which may arise in cross-border insolvency matters.

9. I am satisfied that the protocols do not conflict with any principle of comity. In the situation of a liquidation or some other form of collective insolvency process, the principle of comity has been expressed by the United States Court of Appeals, Second Circuit, in Cunard Steamship Company Limited v. Salen Reefer Services AB 773F 2d 452(1985) at 458 as follows:

"The granting of comity to a foreign bankruptcy proceeding enables the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic or piecemeal fashion. Consequently, American courts have consistently recognised the interest of foreign courts in liquidating or winding up the affairs of their own domestic business entities. ... It has long been established that foreign trustees in bankruptcy were granted standing as a matter of comity to assert the rights of the bankrupt in American courts. Although the early cases upheld the priority of local creditors' attachments ... the modern trend has been toward a more flexible approach which allows the assets to be distributed equitably in the foreign proceeding."

10. Here, there is no question of one party or one court seeking to impose terms on another. The liquidators in Hong Kong and Bermuda have consensually adopted by way of contract, subject to approval by the courts in the two jurisdictions, protocols for the purpose of co-ordinating the concurrent liquidations. No issue arises of any dis-application of the Hong Kong statutory scheme of distribution, unlike In Re Bank of Credit and Commerce International SA (No. 10) [1997] Ch 213.

11. I am also satisfied that the liquidators have endeavoured to observe the principle of equality of treatment for all creditors in the protocols.

12. Unlike the United Kingdom, we have no legislative provision equivalent to section 426 of the Insolvency Act 1986. In the absence of legislation to deal with matters affecting cross-border insolvency, the pragmatic exercise proposed to be adopted by way of the protocols does seem to me to best serve the interests of creditors.

13. I therefore grant the reliefs sought in the summons as per the draft orders submitted to the Court.

	(S Kwan)
	Judge of the Court of First Instance
	High Court

Representation:

Mr Jeremy Bartlett, instructed by Allen & Overy, for the Applicants

35720-EN-2003-11-11

RE AKAI HOLDINGS LTD

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HCCW000050E/2000

HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

____________

	IN THE MATTER of KONG WAH HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)

	AND

	IN THE MATTER of sections 221 and 255 of the Companies Ordinance, Cap. 32

____________

BETWEEN
	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED AND KONG WAH HOLDINGS LIMITED (BOTH IN COMPULSORY LIQUIDATION)	Applicants

	AND

	ERNST & YOUNG (a firm)	1st Respondent
	CHOI BIK HOK	2nd Respondent

____________

AND

HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

____________

	IN THE MATTER of AKAI HOLDINGS LIMITED (IN COMPULSORY LIQUIDATION)

	AND

	IN THE MATTER of sections 221 and 255 of the Companies Ordinance, Cap. 32

____________

BETWEEN
	THE JOINT & SEVERAL LIQUIDATORS OF AKAI HOLDINGS LIMITED AND KONG WAH HOLDINGS LIMITED (BOTH IN COMPULSORY LIQUIDATION)	Applicants

	AND

	ERNST & YOUNG (a firm)	1st Respondent
	CHOI BIK HOK	2nd Respondent

____________

(Heard together)

Coram: Hon Kwan J in Chambers

Date of Hearing: 23 October 2003

Date of Decision: 23 October 2003

Date of Handing Down of Reasons for Decision: 11 November 2003

__________________________________

R E A S O N S F O R D E C I S I O N

__________________________________

The applications and the orders made

1. These applications were issued by the liquidators of Akai Holdings Limited ("Akai") and Kong Wah Holdings Limited ("Kong Wah") (collectively, "the Companies") on 21 July 2003 under section 221 of the Companies Ordinance, Cap. 32. The 1st respondent is Ernst and Young ("E & Y"), the former auditors of Akai and Kong Wah. The 2nd respondent, Choi Bik Hok ("Miss Choi"), is a partner of E & Y. The liquidators seek an order for the production of certain documents in the possession of E & Y and for the examination of Miss Choi. As a result of correspondence exchanged between solicitors after the summonses were issued, E & Y have agreed to give access to virtually all of the documents sought by the liquidators, save for those documents "prepared solely for the purposes of [E & Y's] internal review and approval process and audit planning and programming" (I shall refer to this excepted category as "the internal review documents"), and following the affirmation filed by Miss Choi, Miss Choi has agreed to an interview by the liquidators and she was interviewed three days before the hearing. In view of that, the liquidators did not proceed with their application against Miss Choi.

2. Only two matters were left to be resolved at the hearing. The first was whether the internal review documents should be provided to the liquidators and the second was what provision should be made regarding the costs of the applications. Mr Coleman, who appeared for the respondents, submitted that the mere fact that the applications were largely dealt with by consent or compromise does not mean that there are overwhelming merits in the applications, quite apart from his contention that no case is made out by the liquidators to give them access to the internal review documents. Hence, notwithstanding much was agreed between the parties as to the reliefs to be granted, it is still necessary to go into the merits of the applications for the purpose of deciding on costs.

3. At the conclusion of the hearing, I ruled against E & Y on the exclusion of the internal review documents. I made an order that E & Y do make available to the liquidators the following documents in their possession, custody or control:

(1) documents relating to the audits of Akai for the years ended 1 January 1996 to 31 January 1999 and the audits of Kong Wah for the years ended 1 April 1996 to 31 January 1999;
(2) documents relating to the unaudited financial statements, memoranda and reports of the Companies and their subsidiaries from 1 February 1999 to 24 May 2001;
(3) documents relating to the provision of financial, tax, accounting or other advice by E & Y to Akai from 1 January 1996 to 24 May 2001 and to Kong Wah from 1 April 1996 to 24 May 2001; and
(4) documents relating to business advisory work provided by E & Y to Akai from 1 January 1996 to 24 May 2001 and to Kong Wah from 1 April 1996 to 24 May 2001 including the restructuring or rescue proposals.

The documents referred to above included all correspondence exchanged between E & Y and the Companies including their subsidiaries from 1 January 1996 onwards.

4. I have also made orders permitting the liquidators to take copies of the above documents and to the extent that such documents are not in the possession or custody of E & Y, they are to provide such assistance as may be necessary to enable the liquidators to inspect and take copies of them. For the avoidance of doubt, I provided that discovery of documents made pursuant to the order herein is subject to the undertaking of the liquidators that the documents are to be used solely for the purpose of the administration of the liquidation of the Companies and not for any other purpose without the leave of the court. I awarded the costs of the applications to the liquidators. These are the reasons for my decision.

The Companies

5. Akai was incorporated in 1982. Its parent company is Semi-Tech Corporation Limited ("STC"), a listed company in Canada, which was owned and controlled by James Henry Ting ("Mr Ting") as to 44% of the total voting rights. In the annual report of Akai for 1996, the STC group was described as an international business headed by STC and consisted of numerous listed companies around the world with total market capitalization of US$4.5 billion and sales turnover of US$5 billion. Mr Ting was the chairman and chief executive officer of STC.

6. Akai was the investment arm within the STC group, responsible for acquiring companies with turnaround potential and assisting them to return to profitability. It was a listed company in Hong Kong from 1987 onwards.

7. Before its demise, Kong Wah was the largest television manufacturer in Asia outside Japan. It had been acquired by Akai through Akai Electric Company Limited ("AECo"; a listed company in Japan) in August 1995 and was privatized in 1996. Its major asset was a 35% interest in Konka Group Company Limited ("Konka Group"; a television manufacturer listed in the Shenzhen Stock Exchange).

8. Between 1988 and 1996, Akai made many substantial acquisitions as a result of which it had interest in at least 160 subsidiaries and associated companies, including The Singer Co. N.V. ("Singer"), Toyo Holdings Limited ("Toyo"), Sansui Electric Company Limited ("Sansui"), GM Pfaff ("GMP"), AECo and Kong Wah. Between 1997 and 1999, Akai sold part of its interest in the major companies it had acquired, mostly to companies within the Akai group. The sale involved disposal of interest in Sansui, GMP, Konka Group and AECo.

The respondents

9. E & Y were the auditors of Akai from 1992 and of Kong Wah from 1997 to 31 January 1999. They audited the accounts of Akai for the years ended 31 January 1996 to 31 January 1999 and the accounts of Kong Wah for the years ended 31 March 1996 to 31 January 1999. In addition to being the auditors of the Companies, they had provided tax, accounting and other business advisory services to the Companies and their subsidiaries including the attempts to rescue the Companies in 1999 and 2000. In respect of each of the accounts audited, E & Y gave an unqualified opinion on the financial statements.

10. Miss Choi's involvement was in the provision of corporate finance services to the Companies in late 1999 and 2000 as a partner of E & Y. In particular, she presented the rescue proposal and had attended various meetings with the financial creditors as the representative of Akai. For the purpose of putting forward the rescue proposal, E & Y had conducted a due diligence exercise and prepared information memoranda distributed to the financial creditors in December 1999, January 2000 and April 2000 ("the December EY Report", "the January EY Report" and "the April EY Report" respectively).

Events leading up to the winding up of the Companies

11. In September 1999, GMP filed for insolvency protection in Germany and Singer and STC also sought court protection from creditors in the United States.

12. On 12 November 1999, Akai and The Grande Group Limited ("Grande Singapore", a subsidiary of Grande Holdings Limited ("Grande HK")) entered into a management agreement which gave full management and decision making control of Akai and its subsidiaries to Grande Singapore.

13. On 18 November 1999, Akai announced attempts to raise HK$335 million through the issue of convertible bonds with Toyo as the underwriter and an underwriting agreement was entered into between Akai and Toyo whereby Toyo fully underwrote the convertible bonds issue.

14. On 3 December 1999, all signatories of all Hong Kong bank accounts maintained by Akai were replaced with directors and employees of Grande HK and Toyo.

15. On 9 December 1999, a meeting was held between the financial creditors, Grande HK, Akai and E & Y in which Grande HK advised that they had instructed E & Y to conduct a due diligence exercise and compile financial report on the current situation of the Akai group.

16. On 13 January 2000, a banking syndicate issued winding-up petitions in Hong Kong against the Companies. On 23 August 2000, the Companies were ordered to be wound up in Hong Kong and on 29 September 2000 they were ordered to be wound up in Bermuda.

Financial position upon liquidation

17. In her written submissions, Miss Linda Chan, counsel for the liquidators, has helpfully identified for the court these pertinent aspects of the financial position of the Companies taken from the audited reports and various information memoranda prepared by E & Y in 1999 and 2000.

18. In the years ended 31 January 1998 and 31 January 1999, Akai recorded exceptional losses in the sums of US$100.5 million and US$1,751 million respectively.

19. There was a very substantial decrease in the total assets and the net assets of Akai in the twelve months before its liquidation as could be seen from these figures set out below:

As at
31 January 1999 31 July 1999 31 January 2000
Total assets (US$) 2,324.8 m 1,961.8 m 264.7 m
Net assets (US$) 1,049.8 m 1,025.9 m 632.3 m

20. The diminution of assets was attributed to the provision for or writing off of accounts receivable and investment in various subsidiaries and associated companies and in particular, the provision for loss of trademarks and patents which accounted for a loss of US$417 million. However, the lack of information available to the liquidators has frustrated any meaningful analysis of the exceptional items of losses.

21. The liquidators' investigations have revealed that at least the following major assets once owned by the Companies are now owned or controlled by Grande HK or Toyo:

(1) shareholding in Toyo, AECo, the trademarks of "Akai", "Sansui" and "Kawa" and factories in Zhongshan;
(2) convertible preference shares in Singer; and
(3) account receivables of Akai.

22. Furthermore, the following major assets set out in the Companies' financial statements have either become worthless, or are not traceable or identifiable:

(1) land and buildings with net book value of US$377.1 million in the 1999 accounts, US$148.9 million in the January EY Report, US$75.6 million in the April EY Report, and US$57.8 million in the statement of affairs;
(2) accounts receivables and prepayments of US$370.7 million in the 1999 accounts, US$369.4 million in the January EY Report, US$63.6 million in the April EY Report and US$282.6 million in the statement of affairs; and
(3) investments in 160 subsidiaries and associated companies of which 20 were described as principal subsidiary or associated companies in Akai's 1999 accounts and 25 as principal subsidiary or associated companies in Kong Wah's 1999 accounts.

23. In addition, the liquidators have specifically identified six substantial transactions as requiring further investigation:

(1) acquisition of 50% interest in MicroMain Systems Limited for US$300 million, all of which was reported to have been lost;
(2) investment in Shenzhen Kaifa Technology Company Limited or Merrywide Limited for US$39.5 million, which was subsequently transferred to third parties;
(3) acquisition of 74.4% in AECo, all of which was sold by Definite Holdings B.V. but the amount due by Definite Holdings B.V. to Akai was written off in full;
(4) the complete transfer of authority to manage Akai to Grande Singapore;
(5) the guarantee by Akai of an aggregate sum of US$51.4 million due by Goaltop Limited and Gold Talents Ventures Limited, resulting in liabilities of Akai to repay the same to the subsidiaries of Grande HK; and
(6) acquisition of 75% interest in Zhongshan Kawa Group which had assets of HK$1 billion in December 1999, of which 26% to 36% was transferred to a subsidiary of Toyo.

24. To date, the liquidators have managed to identify or take control of only some US$2.39 million worth of assets, the majority of which are subject to claims by third parties. Their efforts to identify and locate assets have been and continue to be hampered by a lack of documentation or information and the refusal of Mr Ting and former directors of the Companies, Grande HK, Grande Singapore or Toyo to provide any meaningful assistance. Unless further information is forthcoming, it is unlikely that significant recoveries will be made for the benefit of creditors.

25. The liquidators have approximately 650 boxes of books and records in relation to Akai and 1,800 boxes in relation to Kong Wah. They believe that the 2,450 boxes of documents are not all the books and records of the Companies. This is not a large volume of documents for entities like the Companies, in view of the size and nature of transactions undertaken by them. They seek to gain access to the information and documents previously made available by the Companies to E & Y in the course of their audits and the provision of advisory services to the Companies.

Previous requests for information

26. On 29 August 2000, the solicitors for the Official Receiver, who was then the provisional liquidator, requested E & Y to provide copies of certain documents relating to the Companies pursuant to section 197 of Cap. 32. E & Y responded by letter of their solicitors Kennedys (then known as Skrine Thomas Sharrock) that they do not believe any of the documents in their possession would have constituted "property" to which the Companies are entitled under section 197. Further correspondence was exchanged between the Official Receiver's solicitors and Kennedys on this between September 2000 and January 2001. None of the documents requested were provided by E & Y.

27. On 29 June 2001, the liquidators served two notices on E & Y and Miss Choi pursuant to inter alia section 211 of Cap. 32, requiring them to deliver as "agent or officer" of the Companies any "books and papers in [their] hands to which [the Companies are] prima facie entitled". On 12 July 2001, E & Y and Miss Choi replied by letters of Kennedys stating that section 211 does not apply to them as they were not agents or officers of the Companies and that the Companies are not prima facie entitled to the documents in their possession.

28. On 5 March 2002, a meeting was held between the representatives of the liquidators and E & Y at which the liquidators requested E & Y for the first time for access to the entirety of E & Y's papers relating to the Companies and their subsidiaries. On 27 March 2002, before E & Y had formally replied to the request, E & Y were faxed two search warrants issued out of the Eastern Magistracy pursuant to which the Commercial Crime Bureau ("the CCB") effectively seized all documents relating to the Companies in the possession of E & Y. The search warrants were formally served on E & Y on 12 April 2002. On the same day, the chief operating officer of E & Y, Marshall Henry Byres ("Mr Byres") attended a meeting with the CCB and was told that the existence of the search warrants must be kept confidential. Hence, when Mr Byres wrote to the liquidators on 17 April 2002 stating that he was "unable" to accede to the request to allow access to the files of E & Y, he did not give any reason.

29. On 13 June 2002, the liquidators requested E & Y to provide a summary of all amounts paid to them by the Companies from May 1998 to August 2000 and copies of all their invoices issued to the Companies. On 18 July 2002, Kennedys asked the liquidators to explain why they needed the information. The liquidators explained in their reply dated 1 August 2002 that they have very limited information in relation to the Companies and as it is evident that E & Y have information including the books and records of the Companies, such information would assist the liquidators in reconstructing the assets and liabilities of the Companies. Kennedys responded on 15 August 2002 stating that E & Y are not in possession of the books and records of the Companies and that the liquidators had failed to explain how the information requested as to the payments to them by the Companies could help their investigations.

30. On 7 September 2002, the liquidators again sought to explain why they believe the information required to fulfil their duties is in the possession of E & Y and stated that it is not their intention to seek the "wholesale disclosure" of the files of E & Y, notwithstanding that they consider they must at least be entitled to view them, or to embark on any investigation associated with E & Y. They sought information of the fees paid to E & Y to assist the reconstruction process and to identify the matters specifically dealt with by E & Y and which are of specific interest to the liquidators. They also explained why Miss Choi would be helpful to them in understanding the events leading up to the liquidation of Akai.

31. On 23 September 2002, Kennedys stated that E & Y would provide copies of their invoices to the liquidators notwithstanding the reasons given by the latter for these documents are "unconvincing". However, it was not until 18 February 2003 that E & Y provided a two-page summary of the invoices and copies of the invoices were supplied only on 26 February 2003. Kennedys further stated on 23 September 2002 that Miss Choi "has no obligation to meet with [the liquidators'] representatives and indeed to do so would clearly be premature since [the liquidators] have not completed [their] investigations into Akai and/or Kong Wah". Kennedys maintained that the liquidators have no legal entitlement to "trawl through" the papers of E & Y, and subject to the liquidators having exhausted all other lines of enquiry, E & Y remain willing to consider "specific requests for information" from the liquidators.

32. By their letter dated 7 October 2002, the liquidators raised specific enquiries with Kennedys relating to "land and buildings", "other fixed assets", "investments", "other assets" and "investment held for disposal" recorded in the 1999 accounts and requested detailed breakdown of each. The substantive response, which only came on 18 February 2003, is that as the liquidators were presumably aware that the CCB had obtained court approval to take possession of all documents relating to the Companies and their subsidiaries (the seizure of documents by the CCB was reported in BusinessWeek in August 2002), "what was already a very difficult request to comply with, is now not one which [E & Y] can even entertain at present".

33. Eventually, the liquidators retained Johnson Stokes & Master ("JSM") to act for them and JSM wrote to Kennedys on 7 May 2003 seeking a response that E & Y would allow the liquidators access to review and take copies of documents relating to the Companies in their custody and to give the CCB such authorisation as may be required to allow the liquidators access to such documents handed over by E & Y to the CCB. JSM requested Kennedys to provide the contact details of Miss Choi and further stated they had instructions to apply for relief under section 221 if there was no favourable response by the stated time.

34. Kennedys replied on 17 May 2003 stating that E & Y is unable to provide the authorisation to the CCB or to provide access to the documents requested and that it would seem "premature" for the liquidators to have a meeting with Miss Choi until they have completed investigations. On 5 June 2003, JSM informed Kennedys they were instructed to issue the summons under section 221 and asked if the latter had instructions to accept service for Miss Choi as well.

35. On 10 June 2003, Kennedys informed JSM they were waiting a response from the CCB and queried what advantage there could be in JSM taking action until Kennedys had received clarification from the CCB. JSM replied on 17 June 2003 that as E & Y had refused to give consent by letter to the CCB to allow the liquidators to inspect the documents seized, they had no option but to have recourse to section 221.

36. On 18 June 2003, Kennedys provided to JSM a schedule of properties in response to only one out of the four specific enquiries made by the liquidators on 7 October 2002 and which they had stated in February 2003 they were unable to entertain. By a without prejudice letter of the same date (privilege from production of without prejudice letters was waived by E & Y for the purpose of this application), Kennedys offered to allow the liquidators to have access to the files of E & Y on the following terms: inspection should be carried out at such times and period to be agreed with E & Y; a representative of E & Y would be present at all inspections; the liquidators would pay the costs of E & Y of attendance at the inspections at a rate commensurate with the charge out rate of the fee earners; E & Y would consider requests for taking copies of documents on a case by case basis and would charge HK$3.00 per copy for photocopying; the inspections would be subject to such other terms and conditions as appropriate; and the existence of the offer and any subsequent inspection of the files by the liquidators would be kept entirely confidential.

37. JSM replied on 20 June 2003 stating that it was the liquidators' understanding that all that the CCB requires to allow inspection is either a court order or a letter of consent from E & Y. As Kennedys had cited their correspondence with the CCB as a reason for delay in giving a substantive response, JSM requested them to state the nature of their inquiries with the CCB. JSM also inquired whether Miss Choi would be willing to assist voluntarily by attending interviews with the liquidators.

38. As for the without prejudice offer, JSM replied on 20 June 2003 as follows: the liquidators required a firm timetable to be put in place so that inspection could be carried out in a timely manner; they do not consider it necessary for a representative of E & Y to be present at the inspections and it is not reasonable for the liquidations to bear such unnecessary expense; they do not consider it appropriate that the approval of E & Y must be sought on a case by case basis for copies to be made of documents, although they would agree to the photocopying charge; E & Y were asked to specify what other terms and conditions they were minded to impose for the inspections; the liquidators would agree to keep the inspected documents confidential but if the inspection should yield information concerning assets or causes of action, the liquidators would reserve their right to seek leave of the court to use the disclosed documents in the absence of consent from E & Y. JSM further stated that as substantial progress was made in the preparation of the application under section 221, they would hold off issuing the summons just for a few days.

39. By the letter of Kennedys dated 5 July 2003, it was stated that the CCB had indicated to E & Y that they "will not allow any third party access to the material subject to the search warrant" and that a court order would be required to obtain release of the material from police custody. Kennedys further stated that they had instructions to oppose an application made under section 221.

40. On 7 July 2003, JSM sought clarification from the CCB if they would allow the liquidators to inspect and copy documents covered by the search warrant with consent given by E & Y to such inspection or whether they would require a court order for that purpose. The CCB informed JSM on 14 July 2003 that they have no objection in principle for documents seized under the search warrant to be inspected and copied by the liquidators, "subject to consent of the owner of the documents and that the administration of justice would not be prejudiced".

41. E & Y had no knowledge of the above clarification provided by the CCB to JSM as this was only exhibited to the supporting affidavit of the liquidators when the application was taken out. In another without prejudice letter dated 10 July 2003, Kennedys maintained that a letter of consent from E & Y would not be acceptable to the CCB. E & Y would not be prepared to make further approaches to the CCB unless the liquidators would agree to the conditions set out in the letter of Kennedys dated 18 June 2003. It was stated that E & Y would require a senior manager to be present at the inspections and whose hourly charge out rate would be approximately HK$3,000.00. Further, E & Y would not provide copies of "for example, any of their work papers which relate to the audit process", as such documents cannot possibly assist the liquidators in the performance of their duties. E & Y also insisted they must retain the right to impose "suitable terms and conditions where appropriate". As for Miss Choi, provided that agreement could be reached on inspection along the lines as indicated, E & Y "may be prepared to put [the liquidators'] specific questions to her on an informal basis" and the liquidators should then provide a list of questions which could be put to Miss Choi "for her consideration".

42. As no agreement was reached, on 21 July 2003 the summonses under section 221 were issued and the supporting affidavit was served on the respondents.

43. On 8 August 2003, Kennedys wrote to JSM complaining that the letter of the CCB providing clarification on 14 July 2003 was not disclosed to them at the time and stating that that letter would appear to contradict the earlier advice which the CCB had given to E & Y (the CCB later clarified the position to Kennedys on 11 August 2003 in response to the latter's inquiry on 31 July 2003). It was alleged that the liquidators had no real interest in resolving the matter without resorting to proceedings, as the lengthy supporting affidavit must have been prepared whilst without prejudice discussions were conducted. Kennedys stated that they had instructions to oppose the application.

44. On 19 September 2003, an affirmation in opposition to the application made by Mr Byres was filed on behalf of E & Y.

Voluntary assistance provided by the respondents

45. On 3 October 2003, Miss Choi filed an affirmation in which she set out for the first time the extent of her involvement with the Companies and the events surrounding the preparation of the various information memoranda and the presentation of rescue proposals to the financial creditors between December 1999 and August 2000. She also set out the extent of her knowledge of the transactions identified in the liquidators' supporting affidavit as requiring investigation. On receiving Miss Choi's unsworn affirmation on 30 September 2003, JSM wrote to Kennedys requesting to hold an interview with Miss Choi to clarify matters in her affirmation and indicating that if she should provide the required information, this might obviate the need to seek an order for examination. Kennedys replied on 7 October 2003 that Miss Choi is willing to assist voluntarily. Miss Choi was interviewed on 20 October 2003.

46. As for E & Y, by an open letter dated 10 October 2003, Kennedys offered to permit the liquidators to have access to the following categories of documents:

(1) the audit files for the years ended 31 January 1996 to 1999 and copies of documents given to E & Y for the purpose of the audits, but excluding the internal review documents;
(2) correspondence relating to billing issues;
(3) files relating to the tax affairs of the Companies; and
(4) files of Miss Choi insofar as they relate to attempts to restructure the Companies.

47. Kennedys further stated in this letter that a representative of E & Y must be present during the inspections, that the representative would be charging at the rate of HK$2,000.00 per hour, and there should be no order as to the costs in respect of the summonses.

48. The open offer was not acceptable to the liquidators owing to the exclusion of the internal review documents. Further, the liquidators would not agree to bear the cost of the representative of E & Y in attendance throughout the inspections or that there should be no order as to the costs of the application in view of the lateness of the offer.

The merits of the application

49. Mr Coleman submitted that the scope of the documents sought to be disclosed by the liquidators here is extremely wide. Leaving aside the question of the internal review documents, he made no concession that the liquidators are necessarily entitled to all the documents that E & Y have agreed to disclose to them voluntarily in the open offer of 10 October 2003. He submitted that if I were not persuaded that the liquidators would be entitled to an order in the broad terms sought but for the offer of E & Y, there would be justification in not awarding the costs of the application to the liquidators or to make no order as to costs.

50. Miss Chan recognised the exceptional width of the disclosure order sought but submitted that it is not without precedent and is justified in the circumstances of this case. She has referred me to orders of similar width made against former auditors of companies in liquidation in Re British & Commonwealth Holdings plc (Nos. 1 and 2) [1992] Ch 342 at 350H to 351B and Joint Liquidators of Sasea Finance Ltd v. KPMG [1998] BCC 216 at 217G.

51. I do not propose to set out the principles applicable to the exercise of the discretion in an application under section 221. I have made a summary gleaned from the cases in a recent decision (Re New China Hong Kong Group Ltd [2003] 3 HKC 252 at 259I to 261F). I am satisfied in this instance the liquidators have established that the documents sought are reasonably required to permit them to carry out their functions. I bear in mind the massive scale of the liquidations, the highly unusual or doubtful transactions which had taken place not long before petitions were presented to wind up the Companies, the important gaps in the liquidators' knowledge of the affairs of the Companies, the specific substantial transactions identified by the liquidators as requiring investigation, and the refusal of former directors, officers and related companies to provide meaningful assistance. I then balance the reasonable requirements of the liquidators against the need to avoid making any order which is unreasonable, unnecessary or oppressive to E & Y. I am satisfied that the overwhelming balance is in favour of requiring E & Y to disclose the documents sought in the summonses. Any prejudice that may be suffered by E & Y is outweighed by the public interest in requiring them to give assistance to the liquidators in this situation.

The internal review documents

52. I turn to consider the internal review documents which E & Y have not agreed to disclose voluntarily.

53. The fact that these documents are internal documents of E & Y does not necessarily mean that they should be excluded from production but is merely a factor to be taken into account in the balancing exercise. Mr Coleman submitted that there is no reasonable need for the liquidators to have access to these documents as all that the liquidators "reasonably" require could be gleaned from other documents to be provided or from other sources available to them. That, I think, merely begs the question as to what the liquidators do reasonably require.

54. It is not suggested by E & Y that the internal review documents do not contain pertinent information. In the liquidators' view, they clearly do, as they may contain information relating to the management of the Companies at the time of the audits, the interaction between the Companies and their overseas subsidiaries and associates, the queries raised by E & Y in respect of the assets and liabilities in the audits and how they were dealt with by the management, the accounting policies adopted, the accounting treatment of specific items and proposed adjustments. The pertinent information that may be contained in the internal review documents may not be available in the underlying audit working papers; as to this Kennedys have asserted otherwise in their letter dated 22 October 2003. However, I have reservations about the accuracy of this assertion, as according to that letter, "many thousands of documents" would be made available to the liquidators by E & Y. I doubt if E & Y could be certain as to what each of the documents they have agreed to disclose might contain.

55. I am mindful that the disclosure of the internal review documents might expose E & Y to the risk of a negligence action by the liquidators if these documents should reveal any breach of duty on their part. That was a factor considered by Ralph Gibson LJ in Re British & Commonwealth plc, supra. at 383D to G. As in that case, I take the same view that the risk of oppression to E & Y is plainly outweighed by the reasonable requirement of the liquidators to have access to the internal review documents. I order that they should not be excluded from the documents required to be disclosed.

Costs as regards the respondents

56. The liquidators have succeeded in their application against E & Y, is there any reason why costs should not follow the event in this instance?

57. Mr Coleman submitted that E & Y were earlier given to understand by the CCB that for the documents subject to the search warrant, it was necessary to obtain a court order and that consent or authorisation from E & Y to allow third party inspection would not do. It was not unreasonable for Kennedys to have adopted the stance they took in the correspondence with JSM until they had learned of the clarification given by the CCB to JSM which involved a shifting of position on the part of the CCB. I do not think there is merit in this submission.

58. When E & Y wrote to the CCB on 3 June 2003 to inquire about the latter's position regarding the liquidators' request to be allowed access to the documents, E & Y's inquiry was couched in this way:

"For the avoidance of doubt, separately from the Warrant, we are under no obligation to provide the liquidators with these documents and we are currently reviewing the situation with our legal advisers. That notwithstanding, we have been advised that, irrespective of our own stance vis-à-vis allowing inspection of the documents, allowing inspection without your consent in circumstances where the relevant documents are subject to the Warrant would constitute a criminal offence.

In these circumstances, we should be grateful for your comments and directions on this issue. If we were to consent to the liquidators' request and you were to authorise such a release, we would require the relevant comfort (in the form of an immunity/indemnity) before allowing any access." (emphasis supplied)

59. The relevant part in the reply of the CCB on 18 June 2003 is as follows:

"The Hong Kong Police is not in the position to authorise a third party to access material subject to seizure under the power of a search warrant. If any third party wishes to obtain access to such material, a court order has to be sought for its release from police custody."

60. In contrast to the reply given by the CCB to JSM in July 2003, in the above reply to E & Y, the CCB made no mention that they would have no objection to allow inspection by a third party if that was done with the consent of the owner of the documents, as an alternative to a court order authorising release of the documents. It seems to me that the incomplete reply given to E & Y was attributable to the way in which their inquiry was framed in their letter dated 3 June 2003. It would not be unreasonable for the CCB to think that E & Y would not give consent to the liquidators to have access to the documents. As consent from the owner of the documents would appear not to be forthcoming, the CCB might well be forgiven in not mentioning that as a method to allow inspection by a third party. In any event, the CCB had clarified the position for E & Y in their reply to Kennedys dated 11 August 2003, so any confusion that might have been caused in this regard could no longer be used as a ground or justification in opposing this application.

61. I have already set out the offers made in the without prejudice and open letters in some detail. It does not seem to me that the liquidators have acted unreasonably in declining to accept the terms and conditions sought to be imposed by E & Y to allow inspection of their files. I do not think it justified that the expenses of E & Y in arranging a representative to attend the inspections to protect their own interest should be paid out of the Companies' assets. I also reject the submission that the application was taken out prematurely because the parties were in negotiation. The liquidators had requested documents from E & Y over a long period (although the earlier requests were not made under section 221 or that section 221 was not specifically mentioned) and had received only the invoices issued by E & Y after much delay. I do not think the liquidators can be criticised in issuing the summonses.

62. Mr Coleman further submitted that as it is necessary for the liquidators to satisfy the court that the documents requested are reasonably required, costs are necessarily incurred by the liquidators in any event. That is no justification. The liquidators had to come to court to seek the order because E & Y had declined to allow access to the documents voluntarily.

63. I see no grounds to depart from the usual rule that E & Y should pay the costs of the liquidators who have succeeded in this application.

64. As for Miss Choi, the liquidators also seek costs against her. Until her affirmation was served on 30 September 2003, she had declined to provide any information to the liquidators despite repeated requests. Her previous stance was that it would be premature to meet with the liquidators until they have completed their investigations. It was only on 7 October 2003 that she indicated willingness to assist by attending an interview. Although the liquidators did not find it necessary to proceed with their application against her, substantial costs have already been incurred by the time Miss Choi chose to provide information on affidavit and made a late offer to be interviewed. In these circumstances, I think it appropriate to order that Miss Choi should bear the liquidators' costs.

	(S Kwan)
	Judge of the Court of First Instance
	High Court

Representation:

Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Applicants

Mr Russell Coleman, instructed by Messrs Kennedys, for the Respondents

20880-EN-2001-05-24

RE AKAI HOLDINGS LTD

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HCCW 50/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2000

IN THE MATTER OF AKAI HOLDINGS LIMITED

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HCCW 49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2000

IN THE MATTER OF KONG WAH HOLDINGS LIMITED

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(Heard together)

Coram: Hon. Yuen J in Court

Dates of Hearing: 9-10 May 2001

Date of Decision: 24 May 2001

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DECISION

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1. This is the hearing of an application under s.194(1)(c) of the Companies Ordinance and Rule 45(2) of the Winding-Up Rules by the Official Receiver in his capacity as provisional liquidator of Akai Holdings Ltd ("Akai") and Kong Wah Holdings Ltd ("Kong Wah").

2. Section 194(1)(c) CO provides that where meetings of the creditors and contributories of a company have been called in connection with the appointment of a liquidator, and there is a difference between the determination of those meetings, the court shall decide the difference and make such order thereon as it may think fit.

3. Rule 45(2) W-Up Rules provides that where the resolutions passed at the meetings of the creditors and contributories in connection with the appointment of a liquidator are not identical in effect, the court shall on the application of the provisional liquidator fix a time and place for considering the resolutions and determinations (if any) of the meetings, deciding differences (if any) and making such order as shall be necessary.

4. Although they are normally chambers matters, these applications were heard in open court on the Official Receiver's request as a number of matters were already in the public domain.

5. Before I deal with the differences and resolve them, it would be helpful to set out a brief history of the relevant facts.

Petitions

6. On 13 January 2000, petitions were presented in Hong Kong for the winding-up of Akai and Kong Wah. Both Akai and Kong Wah were incorporated in Bermuda but had a principal place of business in Hong Kong. Akai was listed on the Hong Kong Stock Exchange.

7. The petitioning creditors (being Den Danske Bank, the Bank of Scotland and Emirates Bank International) and the indebtedness were the same in both cases as Akai was the guarantor of Kong Wah's debt. There was one supporting creditor in the Kong Wah petition and four supporting creditors in the Akai petition.

8. After the petitions were presented, an opposing creditor Toyo Holdings Ltd ("Toyo") presented itself as a potential investor or "white knight" in a proposed restructuring agreement. Adjournments of the petitions were sought by the companies and Toyo.

9. After some 7 months however, on 23 August 2000, Le Pichon J (as she then was) made winding-up orders in both petitions. The Official Receiver became the provisional liquidator for both companies by virtue of s.194(1)(a) CO.

Companies' financial situation

10. According to the Official Receiver, Akai has suffered the largest loss in Hong Kong corporate history. There was apparently an operational loss of US$1,820m for the year ending 31 January 2000. According to the Statement of Affairs affirmed by James Henry Ting, a former director, Akai's estimated deficiency (i.e. the difference between its total assets and total liabilities) is said to be nearly US$760m., or HK$6,000m. Kong Wah's estimated deficiency is said to be about HK$2,640m

11. Those figures are alarming by any standards. Moreover, it has now emerged that shortly before the petitions were presented, Akai was involved in an unusual arrangement.

Management Agreement

12. In an affirmation (made before a notary public on the mainland) which was supplemental to the Statement of Affairs, Mr Ting disclosed a "Management Agreement" dated 12 November 1999 made between Akai (on behalf of itself and its subsidiaries and affiliates) and The Grande Group Ltd ("Grande").

13. Under this Management Agreement, Akai transferred to Grande all authority to manage all business activities of Akai and its subsidiaries and affiliates, at the sole discretion of Grande and in such manner as Grande considered appropriate. In his affirmation Ting says that from the date of the Management Agreement, he was no longer involved in the conduct of Akai's affairs and had no ready access to its books.

14. Even though Akai was listed on the Stock Exchange of Hong Kong, the authorities were not apprised of this extensive transfer of management.

Granting charges over assets

15. Thereafter, Akai executed certain security documents over its assets, charging listed and unlisted shares, trademarks and other assets. These security documents included charges made in favour of a company called Tremendous Springs Ltd and also Toyo (there is a dispute as to the extent of advances provided to Akai). Toyo was then a subsidiary of Grande.

16. According to the annual returns for 2000 of Toyo (now called O2New Technology Ltd and said to be in different hands), Toyo has exercised its rights under the security documents.

Need for investigation into companies' affairs

17. The complete transfer of Akai's management to Grande was not revealed, either by Akai or by Toyo (Grande's subsidiary), during the period of 7 months when the restructuring proposal was considered before winding-up orders were made. The companies judge was under the impression, shown in the Reasons for Decision dated 11 September 2000, that only some personnel from Grande /Toyo had been seconded to Akai.

18. It is not seriously disputed by any of the parties appearing before this Court that, given the magnitude of the losses suffered by Akai and Kong Wah and their substantial deficiencies, and the transfer of management and extent of charges granted, a prompt and thorough investigation of the companies' affairs is warranted. Clearly, it is imperative that competent and committed liquidators should be appointed as soon as possible to undertake this task.

Official Receiver

19. The question is who should be appointed liquidators. Under s.194(1)(a) CO, on a winding-up order being made, the Official Receiver by virtue of his office became the provisional liquidator until he or another person becomes liquidator.

20. However, it has always been the Official Receiver's position that he would be unable to undertake the work of a liquidator in these two cases. His office has neither the manpower or resources, or the connections with overseas insolvency practitioners or accountants required to undertake these liquidations with their international dimensions. Akai is for instance connected with a Japanese company of the same name, and there already has been litigation involving associated companies in Australia and the United States of America. There are also subsidiaries in Europe and the PRC.

Application for appointment of special managers

21. On 25 August 2000, an application was made by the Official Receiver for the appointment of Mr Joseph Fan and Mr Stephen Wong of RSM Nelson Wheeler Corporate Advisory Services Ltd, the corporate advisory and insolvency arm of Nelson Wheeler CPA ("Nelson Wheeler") as special managers under s.216 CO. The judge was concerned whether these two individuals had the necessary amount of experience to carry out liquidations of this size and nature. The judge preferred an appointment from the "Big 5" firms of accountants, but they had all been conflicted out. The matter was then adjourned to early September 2000.

22. It may be mentioned that at this hearing, presumably in an attempt to persuade the judge of the confidence that at least some of the creditors had in Nelson Wheeler, the judge was told that Standard Chartered Bank, one of the supporting creditors, was prepared to put up a fund of $10m. on the basis that Nelson Wheeler (by which is meant appointees from that practice) would be appointed. This funding arrangement has now become a source of controversy as will appear later.

Appointment of provisional liquidators by court of Bermuda

23. On 28 August 2000 meanwhile, Mr Craig Christensen of Arthur Morris, Christensen & Co., Bermuda, was appointed provisional liquidator by the court in Bermuda. Apparently his firm is a member of RSM International ("RSM").

24. On the same day, Mr Christensen appointed Nelson Wheeler to be his agent in Hong Kong. Nelson Wheeler is also a member firm of RSM.

25. On 1 September 2000, the court of Bermuda appointed Mr Fan and Mr Damien Hodgkinson (also of Nelson Wheeler) joint provisional liquidators with Mr Christensen.

26. On 29 September 2000, the companies were wound up in the Bermudan courts.

Appointment of liquidators by court of Bermuda

27. On 7 February 2001, there was a hearing in the court of Bermuda of an application for the appointment of the joint provisional liquidators (viz. Christensen, Hodgkinson and Fan) as permanent liquidators. This was heard together with a counter-application for their removal and for the appointment of the Official Receiver of Bermuda as liquidator.

28. On 16 March 2001, the Chief Justice of Bermuda gave judgment concluding that "in the eyes of a reasonable observer the joint provisional liquidators have performed their duties to the general advantage of persons interested in the winding up and should be allowed to continue to do so". He made an order appointing Christensen, Hodgkinson and Fan as liquidators and dismissed the application for their removal.

29. I have been told that an appeal has been lodged against this judgment and I have noted the points which are said will be taken upon it. No date however has yet been set for the hearing of the appeal.

Position in Hong Kong

30. The position in Hong Kong was complicated by the application for the appointment of special managers, which was eventually withdrawn by the Official Receiver after a judgment was handed down on 4 October 2000. Since that judgment was handed down in open court, it is not necessary for me to summarize it here.

31. After October 2000, meetings of creditors and contributories were held in connection with the appointment of liquidators for the companies. The latest meeting was in February 2001.

Akai

32. At the Akai creditors' meeting, 62% of the creditors in value voted in favour of appointing Christensen, Hodgkinson and Fan, with 38% voting in favour of Kennic Lui, Lauren Lau and Ruby Leung of Kennic L.H. Lui & Co., a local accountancy firm.

33. At the Akai contributories' meeting, 15 contributories were present. Ten abstained. Of the shares represented, 70% of the vote was in favour of Lui, Lau and Leung (of Kennic Lui), with apparently more than 67% of the votes cast coming from one company called Blossom Assets Ltd.

Kong Wah

34. At the Kong Wah creditors' meeting, 84% of the creditors in value voted in favour of Christensen, Hodgkinson and Fan. No other liquidators were proposed.

35. At the Kong Wah contributories' meeting, the two contributories who controlled the entire shareholding of the company voted that the Official Receiver should be liquidator.

Applications before the Court

36. These different determinations of the meetings led to these applications to Court to decide the differences. On 23 March 2001, I gave directions to the Official Receiver to advertise the hearing under Rule 45(3) W-Up Rules. An advertisement was published by the Official Receiver on 20 April 2001.

37. At the hearing, submissions were made on behalf of the Official Receiver, by leading counsel for the petitioning creditors and by leading counsel for Crescent Court Enterprises Ltd.

38. Crescent Court is a creditor of Akai. Apparently Crescent Court took an assignment of a debt due from Akai to a bank called Unibank in December 1999 although it was not until October 2000 that it notified the Bermudan provisional liquidators of the assignment. It is not disputed that it is connected with Grande.

39. The petitioners urged the Court to appoint Christensen, Hodgkinson and Fan. Crescent Court argued against this appointment. It has no "favourite" alternative candidate, and it has nominated Lui, Lau and Leung simply to avoid criticism that it had not put forward an alternative.

40. The Official Receiver's position as provisional liquidator is that whilst he has no reason to oppose the appointment of either Christensen, Hodgkinson and Fan or Lui, Lau and Leung, both being Panel A members, he considers that there would be advantages in appointing Christensen, Hodgkinson and Fan as he has been co-operating with them in their capacity of Bermudan provisional liquidators and in the course of that co-operation, has noted "their expertise, perseverance and commitment in this most difficult of liquidations".

Principles

41. It is common ground that the Court has a wide discretion when appointing liquidators. It is not bound by the determinations of the meeting of the creditors or of the meeting of contributories, although the Court would of course have due regard to those determinations. Nor is the Court bound by the decision of the Bermudan court, although the effect of the nationality by incorporation principle is that the Hong Kong liquidation is ancillary to the principal Bermudan liquidation.

42. In deciding whom to appoint as liquidators, the Court considers what is in the best interests of all persons interested in the winding-up.

43. Naturally any appointment that would result in a saving in the time and costs of investigating the companies' affairs should be preferred. This consideration hardly needs articulation, but it has to be emphasized in the present cases, where much money has already been lost to creditors (with the proofs of debt accepted for voting purposes amounting to more than $3,000m.) and where a great deal of time has been taken only to get to this stage of the liquidation process in Hong Kong. It is now 1 year and 4 months since the petitions were presented.

Benefits of appointing Christensen, Hodgkinson and Fan

44. With the above in mind, it is clear that Christensen, Hodgkinson and Fan would be the natural choice as liquidators. They have been involved as provisional liquidators in Bermuda for the past 8 months and they have been the Hong Kong agents for Mr Christensen for a similar period. There is an obvious advantage in appointing the same persons as liquidators in both jurisdictions because of the benefits (both in time and costs) of sharing information and co-ordinating investigative and other activities.

45. To date, Christensen, Hodgkinson and Fan have, in their capacity of initially Bermudan provisional liquidators and now Bermudan full liquidators, conducted an "intensive review" of Akai's books. They have liaised with overseas associates in connection with reviews of European sales and distributions operations and valuations of Japanese assets. They have also been in contact with lawyers concerning litigation in the United States. Directors have been put in place on the boards of many subsidiaries all over the world.

46. Christensen, Hodgkinson and Fan are thus high up on the "learning curve" of these companies' affairs. By contrast, any responsible liquidators coming on board only now would obviously have to take time and expend costs in acquainting themselves with the companies' affairs and possibly having to put new people into place. Some sort of protocol would also have to be agreed and established with the Bermudan liquidators for matters affecting both sets of liquidations.

47. Christensen, Hodgkinson and Fan also have an international network by reason of the RSM connection, said to be the 8th largest accounting and consultancy organization in the world. With the "Big 5" conflicted out, an established international network such as that enjoyed by RSM members would surely be of assistance in these liquidations which require international logistical support.

48. It should also be noted that Christensen, Hodgkinson and Fan have the confidence of the majority of creditors. This is important when there is little in the way of assets in the companies, so that the process of liquidation will have to be financially supported by funds raised from creditors.

49. Against this analysis of the substantial benefits that would be gained from the appointment of Christensen, Hodgkinson and Fan, I consider the objections that have been raised by Crescent Court.

Objections by Crescent Court

50. The objections can be listed as follows:-

(1) there is an appearance of a lack of independence and impartiality of Christensen, Hodgkinson and Fan
(2) Christensen, Hodgkinson and Fan have breached the scope of their authority in the Bermudan liquidation and have been in breach of a section in the Hong Kong Companies Ordinance

(3) Christensen, Hodgkinson and Fan lack experience and expertise.

Breach of authority and of Companies Ordinance

51. I will deal with this objection first as a matter of convenience. The first point concerning authority is that although the Bermudan court had appointed Mr Hodgkinson to act jointly, and not jointly and severally, as provisional liquidator, he had thereafter done certain acts on his own and had signed some letters in which he is described (clearly in error) as "joint and several" provisional liquidator.

52. His response to that on affidavit is that the joint provisional liquidators were in regular weekly telephone contact and agreed on the strategic direction of the provisional liquidation. Each had been consulted in respect of acts taken, save where time zone constraints had made that impossible, when reports were made at the earliest practicable opportunity and actions were ratified. In my view, that is an adequate explanation. There was no breach of authority. I would add that the appointment as liquidators in March 2001 was as joint and several liquidators.

53. As for the letters Mr Hodgkinson has signed, this objection is not of great consequence. Of course Mr Hodgkinson should have been more careful in checking how his position is typed in his correspondence, but this is a matter of form rather than of substance. What is important is that no breach of authority has been shown as far as actions or decisions are concerned. There is another point concerning authority which will be dealt with in a latter part of this decision.

54. As for the point of breach of the Companies Ordinance, this has arisen from the appointment of a BVI company with no registered office or place of business in Hong Kong as company secretary for eight Hong Kong companies. This was in breach of s.154(2) CO but the matter has apparently been rectified. Mr Hodgkinson has referred to this as an "administrative oversight". In any event, it would appear to be no more than a technical error of no real significance.

Lack of experience and expertise

55. Apart from the points arising from the description of "joint and several" provisional liquidators and the technical error referred to in the preceding paragraph, which I have dealt with above, Crescent Court has criticized Christensen, Hodgkinson and Fan for not reporting in advance of the 1st creditors meeting of Akai and for abandoning certain claims overseas, including claims against the Singer group of companies in the United States and against the Graeme group. The latter has also led to an accusation by Crescent Court of lack of authority.

56. I shall first deal with the criticism that there was no report in advance. This has been explained by Mr Hodgkinson in paragraph 29 of his affidavit. He has explained that one of the reasons why the report could not be provided in advance was because progress has been impeded by the lack of co-operation from companies and individuals connected with the Akai group. I have been taken to correspondence written by the Bermudan provisional liquidators asking for meetings with various individuals, which have not been successful. Attempts to obtain information from Toyo, Tremendous Springs and Grande have also been unsuccessful. It is apparent that this liquidation is an extremely challenging one and I do not consider it an indication of lack of experience or expertise by reason only that no report had been provided in advance of the meeting.

57. As for the abandonment of claims, it is apparent that these are extremely complicated areas of mixed law and fact, the law including foreign law. The claims are at different stages of litigation and it would be necessary to consider the opinions of foreign lawyers as to the merits or demerits of particular claims. There is also the question of funding. For instance, in the Singer claims in the US Bankruptcy Court, a payment into court of US$8m. was required. It has not been suggested by Crescent Court that these funds were available. The abandonment of the claim has also been approved by the Chief Justice of the court of Bermuda, and it would appear that there was no limit on the provisional liquidators' powers under the terms of appointment in Bermuda.

58. It is not for this Court in an application of this nature to go into such complex factual and legal problems. If it is to be suggested by Crescent Court that Christensen, Hodgkinson and Fan have been 搃ncompetent" in their handling of these matters, that would have to be clearly shown. I am far from being persuaded that that is so on the materials before me now.

Appearance of lack of independence and impartiality

59. It is well-established that liquidators should not only be independent and impartial, but should also be seen to be so. Any conflict of interests or even over-familiarization should be discouraged. On the other hand, it is not every connection or action that can give rise to an allegation of an appearance of lack of independence and impartiality on which the Court should act.

60. Crescent Court's allegations in this regard can be summarized as follows:-

(a) Nelson Wheeler had been engaged by the petitioning creditors in February/March 2000 at a discounted fee of $100,000 as "investigative accountants";

(b) Nelson Wheeler were appointed provisional liquidators in Bermuda even though the judge in Hong Kong had concerns about their proposed appointment as special managers here;
(c) Standard Chartered Bank ("SCB") had entered into a funding agreement on the basis that Christensen, Hodgkinson and Fan (and any other persons reasonably acceptable to SCB) would be appointed, and a set-off by SCB may have to be investigated in the liquidation process;
(d) the Bermudan provisional liquidators had called a meeting of bank creditors in Hong Kong without inviting non-bank creditors.

61. When properly analysed, these allegations are not sufficient to cause me to appoint liquidators other than those resolved upon by the majority at the creditors' meetings (viz. Christensen, Hodgkinson and Fan) and who, by reason of the force of circumstances set out above, are the natural choice.

62. As for (a), Mr Hodgkinson has sworn on affidavit that Nelson Wheeler's role in February/March 2000 was limited to performing research of publicly available information. As a result of an advance agreement on fees, a lump sum of $100,000 was contracted.

63. The advisors to the steering committee, which included the petitioning creditors, on the restructuring proposal were not Nelson Wheeler, but Ferrier Hodgson CPA.

64. In my view, the remit to gather publicly available information is not such a relationship as should lead to a proper perception that Christensen, Hodgkinson and Fan, if appointed as liquidators, would be partial to the petitioning creditors.

65. As for (b), the court of Bermuda had been informed of the views expressed by the judge here. Possibly as a result, Mr Wong (whose experience had been questioned by the judge here as he had been on Panel A for only 2 years) was not appointed. Mr Hodgkinson has had 11 years of experience in insolvency work both in Hong Kong and abroad. This Court must respect this decision of the court of Bermuda.

66. I do not see how the petitioning creditors' decision to apply to wind-up the companies at their places of incorporation should impact negatively on the integrity or independence of the proposed liquidators, or anyone's perception of them.

67. As for (c), the provisions of the funding agreement have been considered in detail. It was executed on behalf of Christensen, Hodgkinson and Fan as Bermudan provisional liquidators after obtaining the sanction of the Bermudan court which considered it in the light of the Hong Kong judge's comments.

68. Even apart from that, I do not see any difficulties with the terms of the funding agreement save one provision with which I had some difficulty. This was cl. 6.1.2(b) which was not well drafted. There is obviously an error in the typing, but apart from that, the word "reports" is ambiguous. If it was intended to include confidential reports, then this was a clause which independent liquidators should not have agreed to. However, I am told that this was not so, whether in intention or execution and this was not challenged by leading counsel for Crescent Court.

69. As for the funding, it is well-established that the fact that a creditor is funding the liquidation (or even only specific parts or steps in the liquidation) is not a reason for criticism. Indeed it has been accepted that "where a company is being wound up and it has no assets, or insufficient assets, to enable the due processes of the liquidation to be carried through, a creditor is to be encouraged, rather than criticized, in making funds available to the liquidators. Nor need a liquidator be diffident in accepting funds or indemnities from creditor so as to enable a winding-up to proceed" (Re Allebart Pty Ltd [1971] 1 NSWLR 24, 28).

70. So the fact that a creditor is funding the liquidators does not mean that liquidators are "in the pocket", or would be properly perceived to be "in the pocket" of a creditor. Nor the fact that a creditor would only fund certain liquidators. A creditor who has already lost his money is reasonably expected to be careful that he is not throwing good money after bad. He is entitled to make sure that the funds are not wasted and to be vigilant that the liquidators who will be expending the funds are worthy of his confidence. In my view it was reasonable for SCB to provide that Christensen, Hodgkinson and Fan and, importantly, "any other persons reasonably acceptable to SCB" would be appointed. That does not make them beholden to it.

71. Of course the court must be alert to see if, in the process of accepting funding, the liquidator would be (or might be perceived to be) surrendering his independence in any way.

72.Re Goodway Ltd [1999] 1 HKC 141 was a case where there was considerable sensitivity and distrust between two creditors, and the liquidators' own remuneration, even though approved by the rest of the creditors, was at the mercy of the funding creditor.

73. The present funding agreement does not disclose control by SCB of the actions of the Bermudan provisional liquidators. The control is of costs rather than actions or decisions. If a creditor can restrict his funding to specific steps in the liquidation, I do not see why he cannot require a liquidator to inform him what the money is needed for, so long as the liquidator is free to act as he thinks fit and is free to get funding from elsewhere. This would include getting costs to pursue SCB if there is a case of possible fraudulent preference as Crescent Court suggests.

74. Indeed, in the present case, the Bermudan provisional liquidators did call a meeting of bank creditors to attempt to get further funding. This takes me to (d). On 15 September 2000, the Bermudan provisional liquidators called a meeting to be held on 25 September 2000 to hear the report of the provisional liquidators and to discuss funding. This is clear from the Agenda which lists "funding and budget requirements".

75. Crescent Court's complaint is that it and other non-bank creditors were not invited to the meeting. There is nothing in its complaint that it was not invited because at that time it had not yet notified the provisional liquidators of the assignment of the debt from Unibank to it. Unibank was invited to the meeting.

76. As for the other non-bank creditors, the reason given by the Bermudan provisional liquidators was that the meeting was to discuss funding, and it was not anticipated that non-bank creditors would have either the interest or the resources to provide funding. In any event, the report given to the bank creditors on 25 September 2000 was identical to that given to all the creditors at a meeting the next day.

77. In my view, it would have been more prudent for the Bermudan provisional liquidators to have informed all creditors of their meeting with the bank creditors and of the purpose of that meeting. However, as it was not unreasonable for them to think that non-bank creditors would not be interested and importantly, in light of the fact that the report given was identical to that given to all creditors the next day, I accept that their failure to do so should not lead to a perception that they are biased towards bank creditors only.

Conclusion

78. In conclusion, in the exercise of the Court's discretion having considered the matters set out above, I would appoint Christensen, Hodgkinson and Fan as liquidators of both Akai and Kong Wah.

79. As a matter of completeness, I would only add that the suggestion of leading counsel for Crescent Court that the Official Receiver should be the liquidator or should remain provisional liquidator, appointing special managers ad hoc to deal with specific areas or claims is impracticable. This liquidation needs to be tightly run and efficiently managed. With no disrespect, I cannot see how such an ad hoc process managed by an office which has admitted to a lack of manpower or expertise could achieve that.

80. Finally there is the matter of the composition of the Committee of Inspection. No evidence was adduced or submissions made on this aspect. I have considered the reports of the Official Receiver relating to the determinations of the respective meetings.

81. For Akai, I would appoint HSBC, Bank of Scotland, SCB (having the largest number of votes in favour than votes against at the creditors' meeting). There were no nominations at the contributories' meeting.

82. For Kong Wah, I would appoint similarly HSBC, Bank of Scotland, SCB (being the 3 members nominated at the creditors' meeting) and the majority contributory to the Committee of Inspection.

83. I will hear counsel on the issue of costs at a date to be fixed.

	(MARIA YUEN)
	Judge of the Court of First Instance High Court

Representation:

Mr Jeremy Glen of the Official Receiver's Office

Mr John Bleach SC instructed by Holman Fennick & Willan for Petitioners on both Petitions

Mr Winston Poon Sc and Mr Godfrey Lan instructed by Baker & McKenzie for Crescent Court, creditor in HCCW 50/00

22937-EN-2000-10-04

RE AKAI HOLDINGS LTD. (FORMERLY KNOWN AS SEMI-TECH (GLOBAL) CO. LTD.)

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HCCW000050A/2000

HCCW49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO.49 OF 2000

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IN THE MATTER OF THE COMPANIES ORDINANCE, CAP.32

and

IN THE MATTER OF KONG WAH HOLDINGS LIMITED

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AND	HCCW50/2000

COMPANIES (WINDING-UP) NO.50 OF 2000

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IN THE MATTER OF THE COMPANIES ORDINANCE, CAP.32

and

IN THE MATTER OF AKAI HOLDINGS LIMITED (FORMERLY KNOWN AS SEMI-TECH (GLOBAL) COMPANY LIMITED)

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Coram: Hon Le Pichon J in Chambers

Dates of Hearing: 25 August, 5, 8 and 12 September 2000

Date of the 4th Report of the Official Receiver: 25 September 2000

Date of Handing Down of Judgment: 4 October 2000

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J U D G M E N T

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1. This is an application by the Official Receiver and Provisional Liquidator ("the Official Receiver") of Kong Wah Holdings Limited ("Kong Wah") and Akai Holdings Limited ("Akai") (collectively "the Companies") for the appointment of special managers pursuant to section 216 of the Companies Ordinance. The hearings have been held in chambers. The reasons for my decision to adjourn the application into court are twofold : first, issues of law arise; second, the creditors should be apprised of developments in the liquidation.

Background facts

2. The application arises out of winding-up orders in respect of the Companies made on 23 August 2000. Reasons for the making of those orders were handed down on 11 September 2000. In summary, the debts underlying the creditors' petition were undisputed and despite several adjournments granted to enable the Companies to put forward a restructuring proposal that had the requisite in-principle support, they were unable to do so and upon a further application for an adjournment being refused on 23 August, winding-up orders were made.

3. As appears from the Reasons, the petitioning creditors had taken out a summons for the appointment of Damien Hodgkinson and Fan Wai-keung of Nelson Wheeler Corporate Advisory Services Limited ("Nelson Wheeler") as provisional liquidators. Much of the evidence filed by the petitioning creditors was germane to that application which in the event was abandoned. It transpired that Nelson Wheeler had been retained by the petitioning creditors and the Standard Chartered Bank ("SCB"), a supporting creditor to ferret out information and, it would appear, they had been responsible for supplying much of the material which formed the basis of serious allegations of misconduct made against the Companies and Toyo (which had taken over the management of the Companies) to support the case for the appointment of provisional liquidators. As that application did not proceed, it did not become necessary to consider whether those allegations were well-founded. The evidence filed explained that principals in Nelson Wheeler had been selected because none of the partners from the "Big 5" accounting firms was in a position to accept an appointment due to conflict problems.

4. By reason of section 194(1)(a), the Official Receiver became the provisional liquidator.

The application

5. The application was an ex parte paper application which reached me on the morning of 25 August. The Report of the Official Receiver and the Provisional Liquidator in support of an application for the appointment of special managers was dated 25 August 2000 ("the 1st Report"). The Official Receiver applied to have Stephen Wong Tak-man and Fan Wai-keung ("the proposed special managers"), partners of Nelson Wheeler appointed as special managers. Coincidentally, it would appear, Nelson Wheeler was the next firm available on the roster system. The Panel A list consists of 14 member firms only, including the "Big 5" and each member firm in turn had principals who (as individuals) were also Panel A members. As will appear below, the appointment is of individuals but the roster operates by reference to member firms.

6. In the 1st Report, the Official Receiver confirmed the conflict of interest of the "Big 5". He stated that he was satisfied that the proposed special managers have the capacity to carry out the assignment. Further, it was proposed that instead of "standard" powers and duties, the special managers be given extremely wide powers. In effect, inter alia, what was contemplated was a wholesale delegation by the court to the Official Receiver of its powers of sanction under section 199(1) of Cap.32.

7. Annexed to the 1st Report was an appendix listing some 80 subsidiaries and affiliates known to the petitioning creditors. A quick perusal showed that those companies operated in many different jurisdictions. Apart from Hong Kong, North America, Europe, Japan and the PRC appeared to have the largest concentration of subsidiaries and affiliates.

Preliminary hearing : 25 August

9. After perusing the papers, and in view of my absence from Hong Kong the following week, I scheduled a preliminary hearing in chambers for that afternoon so that I could convey to the Official Receiver my preliminary views concerning his application which was far from routine. Conflict of interest considerations apart, the size and global nature of the liquidations indicated that principals from one of the "Big 5" should be appointed as special managers.

10. At the hearing, it was explained to the Official Receiver that the circumstances of the liquidations were such that it was not a question of simply appointing insolvency practitioners from the firm next on the list according to the Panel A roster operated by his Office; rather, as the "Big 5" were conflicted out, one needed to 'survey the field' out of what was left to identify the best candidates for the job. It was necessary to consider the comparative resources and capabilities of the remaining firms (numbering no more than nine) on the Panel A list as well as the profile of its principals who were insolvency practitioners. It was also a consideration that anyone appointed special manager was likely to become liquidator in due course. Given the liquidations in question, one would look for highly experienced insolvency practitioners with sufficient exposure to large and complex liquidations. In other words, they should be persons of standing. With no disrespect to the proposed special managers, their names would not have immediately sprung to mind. The court also intimated that if need be, partners of an international firm of solicitors experienced in insolvency work should be considered.

11. Objections were put forward by the Official Receiver on the grounds that any departure from the roster system would excite ICAC interest and that the Official Receiver felt himself bound by the Panel A scheme. Quite apart from not crediting the ICAC with ordinary common sense, the Official Receiver appeared to overlook the fact that the appointment would be made by the court rather than the Official Receiver. The court's concern was that persons best qualified should be appointed given that this was hardly a run-of-the-mill liquidation. It appeared to the court that the interests of the creditors in this case may require and justify a departure from the Panel A scheme.

12. It was at that point that the court was informed that Standard Chartered Bank ("SCB"), one of the supporting creditors wished to appoint Nelson Wheeler and for that purpose was willing to put up $10 million as an investigation fund forthwith. (Pausing here, under the current law, there is no question of a 'firm' being appointed as liquidator or special manager. The appointment is of an individual although that individual is a partner/principal of an accounting firm. To approach the appointment in terms of the firm is simply wrong.) But quite when the proposed funding first arose is unclear. In any event, the proposed funding did not appear to be sufficient reason to justify an immediate appointment since it did not address the fundamental issue arising which was to identify the persons best suited to take up the appointment. The need to take stock of who was available and to identify the candidates best suited was reiterated and the Official Receiver was asked to provide the relevant information in order to assist the court. I also intimated that I would deal with the application on my return on 4 September.

13. The hearing was followed by specific directions given by letter the following morning in these terms :

"The Official Receiver do provide to the court a report of such of the firms of Panel A (other than the firms listed in paragraph 55 of the 4th Affidavit of Andrew James Sheppard filed on 22nd August 2000) as have overseas offices and/or connections with particular reference to the size of the relevant firm, and the profile of the most experienced insolvency practitioners."

The second hearing : 5 September

15. Pursuant to the directions given on 26 August, the Official Receiver filed a Second Report dated 2 September ("the 2nd Report"). It transpired that there was much activity during the intervening week.

16. After the Hong Kong winding-up orders were made, the petitioning creditors petitioned to wind up the Companies in Bermuda where they were incorporated. On 28 August, they succeeded in procuring the appointment of one Craig Christensen to be the provisional liquidator of the Bermudan Companies. The basis of the applications is not known. In any event, Mr Christensen lost no time in appointing Mr Hodgkinson and Mr Fan of Nelson Wheeler as his agents the same day (i.e. 28 August). Then on 1 September, Mr Christensen applied to the Bermudan court for the extension of the appointment of provisional liquidator of the Bermudan Companies to Messrs Hodgkinson and Fan. It would appear that through this tactical move, the petitioning creditors (and SCB) who together hold less than 7% of the overall indebtedness were able to achieve the appointment of provisional liquidators of their choice in the state of incorporation of the Companies. Under the law as it stands, the Bermudan provisional liquidators have jurisdiction over all the assets of the Companies outside Hong Kong. Quite what powers were conferred on them has not been disclosed. Be that as it may, the fact that provisional liquidators have been appointed in Bermuda is unlikely to cause this court to make an appointment that it would otherwise not be disposed to make. (As to the relationship between the Bermudan and Hong Kong liquidations, reference should be made to the section headed 'The nationality (by incorporation) principle' below.)

17. Meanwhile, the letters despatched by the Official Receiver pursuant to the 26 August directions elicited responses from insolvency practitioners from the other nine Panel A member firms ("the remaining firms") all of whom expressed interest in the appointment. So far as resources and capability were concerned, reading the material submitted, it was far from obvious that Nelson Wheeler was the front runner. As regards the profile of the insolvency practitioners, in terms of depth of insolvency experience and exposure to large liquidations, the proposed special managers were hardly in the running. Although qualified as accountants for upwards of 15 years, their insolvency experience is no more than 6 years each having started the insolvency department in Lai & Fan, Sothertons in 1994. This firm merged with Nelson Wheeler in 1999. Judging from the requirements for admission to the Administration Panel of Insolvency Practitioners for Court Winding-up (APIPCW), it would have taken each of them three years at a minimum to acquire the necessary experience for admission. It emerged in other proceedings that Mr Wong has only been a Panel A member for two years. It was therefore questionable that they possessed the necessary standing and depth of experience. Since the person appointed would have the carriage of the liquidation, it is he rather than his firm who must manage and direct the liquidations, take the necessary decisions and prioritize (if necessary) the tasks at hand. The appointee must necessarily have a "hands-on" approach. Hence the relevance and importance of his standing and experience.

18. The responses from the remaining firms had in a sense been overtaken by events which appeared to render the appointment a little less urgent. As one of the responses was not to be available in full until 4 September, the second hearing was scheduled to take place the following day.

19. The 2nd Report dealt, inter alia, with the subject of "funding". The court was informed that SCB had indicated that it was prepared to provide funding if Nelson Wheeler was appointed as special managers. The 2nd Report read :

"10. ... the offer of funding was made with the intention that Nelson Wheeler would act as special managers. I am informed that, if someone other than Nelson is appointed as special managers, Standard Chartered bank will review its offer of funding.

...

12. It appears therefore that ... the Official Receiver is not in a position to apply for any other Panel A member to be appointed as special managers to the companies as the Official Receiver as provisional liquidator would be unable to pay the fees of the special managers from the estates of either company and there would be no certainty that the special managers would receive funding from creditors."

The Official Receiver was accordingly asked to advise the court of the terms of the offer of funding. Shortly before the hearing, the court received from the Official Receiver a draft of a Funding Agreement which is of some complexity. Due to time constraints, the court did not have the opportunity of reviewing it in detail prior to the hearing. What was immediately clear was the fact that contrary to the impression gained at the preliminary hearing, funding was not to be "free" in that monies to be advanced by SCB would attract interest at prime plus 2%. In other words, the creditors would have to bear the cost of funding if sufficient assets were realized.

20. The 2nd Report further raised the point as to the court's jurisdiction under section 216 to appoint a special manager of its own choice irrespective of the application made by the Official Receiver.

21. At the hearing, the court sought clarification on the following matters :

(i) SCB's decision to fund the special managers;
(ii) whether SCB will be seeking to recover funding costs out of the estate;
(iii) why was SCB only prepared to fund Nelson Wheeler and not another firm.

The answer to (ii) was to be found in the draft Funding Agreement. The answers to the other points were not then available. It was left that the relevant explanations would be provided in due course. Moreover, given the length and complexity of the draft Funding Agreement, the Official Receiver who would be party to it if the funding went ahead, was asked to provide a 'road map' of the salient provisions.

22. During the hearing, the court was informed that on the previous day, the Steering Committee held a meeting and six out of the eight banks that formed the Steering Committee had orally indicated that they were willing in principle to contribute to the funding of the liquidation. The court was also informed that the Official Receiver had seized documents from the offices of the Companies and that amongst them were documents that gave rise to grave concerns. The court was presented with a bundle of documents but as the Official Receiver himself had not had enough time to fully digest the documents, no coherent much less cogent case was presented. The court was therefore not in a position to assess whether the concerns expressed (relating to the transfer of the management of the listed company, the whereabouts of some HK$2 billion and suggestions of fraud) were well-founded. It appeared to the court that perhaps conclusions were being drawn too hastily and without due consideration.

23. By letter dated 6 September, the Official Receiver sought to provide answers to the queries raised which explanations the court did not find entirely satisfactory. A 'road map' was provided but that was prepared not by the Official Receiver's Office but by Lovells, solicitors representing SCB. By then it had become apparent that the draft Funding Agreement contained highly unusual provisions designed to give SCB (who holds 1% of the overall indebtedness) total control over who was to be special manager/liquidator, inter alia, in the Hong Kong liquidations for the duration of the Funding Agreement. An event of default would arise under that Agreement unless Mr Wong and/or Mr Fan and/or any other person reasonably acceptable to SCB was the relevant office holder. In other words SCB would in that event be at liberty to withdraw funding. As noted above, SCB only holds 1% of the overall indebtedness and the funding costs would ultimately be borne not by SCB alone but by all the creditors save to the extent that the assets realized in the liquidations prove to be insufficient. That type of provision is likely to deter any creditor from seeking to remove Mr Wong and Mr Fan as special managers/ liquidators even if for cause and so have the effect of entrenching them in office come what may. Further, if such an application were made, the court would find itself in an invidious position as removal might result in the drying up of funds.

24. It is hardly surprising that this aspect of the draft Funding Agreement caused the court to approach the application with even more circumspection. Would SCB stand to derive some advantage or benefit from such an arrangement? Why else would it to go to such lengths not only to secure but also to entrench the appointment of the proposed special managers? The fact that SCB expressed itself wholly satisfied with work done by Nelson Wheeler relating to the liquidations is no sufficient answer. The winding-up orders made did not turn on the allegations as to misconduct based on research provided by Nelson Wheeler. In this connection, it is to be noted that as a result the petitioning creditors and SCB had adopted a very aggressive stance on the misconduct issues. In the normal case, the liquidator/special manager would come in and investigate the allegations with an open and impartial mind and the petitioning and supporting creditors drop out of the picture. It would not be the case here.

25. By letter dated 7 September, the Official Receiver was directed to advise the court :

(a) whether it was the SCB's position that it was not prepared to fund special managers if they are from a firm other than Nelson Wheeler; and
(b) whether the banks who attended the meeting on 4 September who have indicated a willingness to contribute to the funding share that position.

The following directions were also given :

"The Official Receiver do forthwith :
(1) advise Panel A members who have responded to the Official Receiver's letter of 28 August 2000 of -
(a) the appointment of Craig Christensen as provisional liquidator of AHL and KWHL in Bermuda ("the Bermudan companies") by the High Court of Bermuda on 28 August 2000 pursuant to petitions filed by the petitioning creditors to wind up the Bermudan companies;
(b) the appointment of Damien Hodgkinson and Joseph Fan of Nelson Wheeler in Hong Kong by the Bermudan provisional liquidator as his agents in relation to the assets of the companies outside Bermuda; and

(c) the extension by the High Court of Bermuda of the appointment of provisional liquidators of the Bermudan companies to Damien Hodgkinson and Joseph Fan on 1 September on the application of Craig Christensen;

(2) advise such members that minimal assets have so far been recovered by the Official Receiver who as provisional liquidator of the Hong Kong companies would not be able to fund the fees of the special managers from the estates of either of the Hong Kong companies;
(3) advise such members that there would be no certainty that if appointed special managers, they would receive funding from creditors; and
(4) inquire of such members whether, in view of the matters set out in (1), (2) and (3), any of them has any interest in taking up an appointment as special managers of the Hong Kong liquidations."

26. In addition, having by then perused the draft Funding Agreement, the Official Receiver was advised that :

"It contains provisions (such as clause 7.1.4) to which creditors may legitimately object. Therefore any Funding Agreement has to be subject to creditors' approval. Accordingly, if the Official Receiver is minded to be party to such an agreement prior to receiving creditors' approval (to be determined by reference to the value of debt held), he may only do so by making the agreement subject to a condition subsequent, i.e. the approval of the creditors at the first or any subsequent meeting of creditors and if such approval is not forthcoming, the agreement must cease to have effect."

Quite apart from the entrenching provisions referred to above which could be rendered unobjectionable only with creditor approval, it was not entirely clear if an event of default would accelerate the repayment obligation which would be objectionable even if creditor consent were forthcoming. There were also drafting issues that needed to be clarified. Accordingly, a further chambers hearing was scheduled for the following morning.

The third hearing : 8 September

28. At that hearing, the Official Receiver was unable to give the clarification sought, apparently because he had not read the agreement in detail. This was somewhat surprising since it was an agreement he was prepared to execute. Be that as it may, the Official Receiver was informed that because of the somewhat unusual provisions of the draft Funding Agreement, if he was minded to be party to it, he should only do so by making the draft Funding Agreement subject to the approval of the creditors as a condition subsequent. If the creditors' approval was not forthcoming, it would have to come to an end. The court also intimated that so far as the proposed "extraordinary" powers to be conferred on the special managers were concerned, the court would need to be satisfied that such "extraordinary" powers were justified and as matters then stood, it was not apparent why a wholesale delegation of the court's discretion to the Official Receiver was considered appropriate.

29. The Official Receiver then submitted that because of the high public interest in this liquidation, his office might come under pressure to issue a public statement about the status of the application which had been with the court for two weeks. For that reason he submitted that an order had to be made that day.

30. I did not and do not accept that it would be right for the court to make a decision on the application when relevant information was still outstanding. In that connection, the recipients of the letters sent out by the Official Receiver that morning pursuant to the court's directions of 7 September had not yet had time to respond. In the event of any Panel A member better qualified than the proposed special managers coming forward and willing to take up the appointment without up-front funding, that would be beneficial from the point of view of the general body of creditors. It would be a factor that would weigh with the court. That apart, the unusual entrenching provision gave rise to a sense of unease : for an office holder to be beholden to a particular creditor was a situation that was highly undesirable. All this coupled with the court's reservations as to the ability of the proposed special managers to lead and conduct this liquidation with unquestioned impartiality led to my refusal to take a decision at that point.

The fourth hearing - 12 September

32. On 11 September, the Official Receiver requested a further hearing which was fixed for the following day. A Third Report was filed shortly before the hearing which exhibited replies that had been received to the letter sent to the remaining Panel A firms on 8 September ("the 3rd Report").

33. The first part of the hearing dealt with matters arising from the draft Funding Agreement. For that purpose, Mr Bannister of Lovells who had drafted the document attended that part of the hearing. Lovells are the solicitors for SCB. For reasons which were not explained, they were also the Official Solicitor's agent "for certain purposes".

34. Mr Bannister accepted that from a drafting point of view, certain revisions were required. Mr Bannister further confirmed that as drafted, SCB would have total discretion over who the "Appointee" (broadly speaking the office holder in the liquidation) is to be. He stated that if someone from a firm other than Nelson Wheeler were appointed at any stage, SCB would have the right to withdraw funding. Nevertheless, it was Mr Bannister's understanding that SCB was not saying that it will not fund if a member of another firm is appointed. It was left that the matters clarified at the hearing would be confirmed in writing. It was also made clear that if the Funding Agreement were to go forward, containing as it does the entrenching provisions, it had to be made subject to creditors' approval.

35. So far as the powers sought were concerned, it transpired that they were not even drafted by the Official Receiver's Office. In their original form as presented to the Official Receiver's Office, presumably by those sought to be appointed special managers or on their behalf, the powers were to be exercisable without reference to either the Official Receiver or the court. I find it extraordinary and disturbing that the Official Receiver should align himself so readily with the wishes and interests of those anxious to promote the proposed appointments. The court reiterated its position that the wholesale delegation proposed was not acceptable.

36. The court then enquired as to the position of the other banks. Notwithstanding the oral indication from six of them as to their willingness, in principle, to contribute, no confirmation in writing had been forthcoming. The Official Receiver had no indication whether they also 'insist' on the proposed special managers being appointed. At any rate, it would not appear that the Official Receiver had taken any steps to ascertain their stance notwithstanding the terms of the court's letter dated 7 September.

37. Turning to the responses from Panel A members received as at 12 September, it was plain that three of the four firms who responded were not prepared to take up the appointment without the certainty of funding. As to the fourth, its position was not entirely clear and the Official Receiver was asked to clarify the position. The hearing was then adjourned sine die with liberty to restore.

38. So at the conclusion of the fourth hearing, a written confirmation relating to the issues arising from the draft Funding Agreement and clarification of the response from one of the Panel A members remained outstanding. Neither of those matters would have taken long to resolve.

39. Unexpectedly, nothing was heard for some two weeks. Then on 25 September the court received the Fourth Report ("the 4th Report").

The 4th Report

40. On 25 September, two weeks after the fourth hearing, the Official Receiver filed the 4th Report (erroneously intituled as the Fifth Report). It is necessary to quote this report in extenso :

"2. The current position in these matters is that 4 weeks have passed since the making of the Winding Up Order on 23rd August 2000, but no Special Managers have yet been appointed.
3. In my reports, and in my submissions before the Court, I have endeavoured to make it clear that I regard these matters as urgent. Akai is a listed company and Kong Wah has considerable business interests. There are also grave suspicions of asset stripping (which may be ongoing). Both cases are large and complex. It is important that the position is regularised in Hong Kong given that the primary listing of Akai and the places of business of both companies are located here. It is therefore in the interests of both the creditors and also the Public Interest that Special Managers be appointed at the earliest opportunity.

4. As was stated in the 2nd Report, paragraph 35, the ORO is neither staffed nor resourced to undertake the administration of these liquidations taking into account their size, complexity and multi-jurisdictional aspects."

Paragraphs 5 and 6 dealt with the "suitability" of the proposed special managers. Paragraph 7 dealt, inter alia, with two incidents concerning one of the directors of Nelson Wheeler (not being one of the proposed special managers) in his capacity as liquidator which I will deal with later. There followed the following paragraphs :

"8. I submit that the role of the Official Receiver under Section 216, Companies Ordinance, is to propose who should be appointed as Special Manager. The role of the Court is either to confirm such appointment (which should normally be a formality) or to refuse to do so, giving reasons for such refusal based on the evidence before the Court.
9. I submit that Section 216 confers on the Court no power to substitute another choice of Special Managers, nor to appoint anyone as Special Manager except on the application of the Official Receiver. While the Court does have the power under Section 216 to refuse to appoint the candidate selected by the Official Receiver, any such refusal must be made on judicial grounds:-

(1) giving due weight to the fact that the Official Receiver has made the application; and
(2) having given to the candidates concerned the opportunity to correct any misapprehension and if necessary to refute by evidence allegations which may affect them; and
(3) subject to appeal.

10. Any such refusal must be given in the form of a written decision together with reasons.
11. I sought such reasons at the hearings on 25th August 2000 and 8th September 2000. The latter request was followed by the Court's letter of the same date reminding me that it was 'incumbent on you to explain ... why your application is still under consideration by the Court'.
12. The Court will appreciate that the Official Receiver as the Public Officer charged with the supervision of matters relating to corporate insolvency, and operating a Government approved scheme, cannot conduct the duties of the office unless a reasoned decision based on the evidence before the Court is handed down.
13. I respectfully request the Court now give written reasons:-

(1) for its decision for or against my application to appoint Nelson Wheeler or practitioners of that firm as Special Managers in these cases; or, failing that
(2) for its decisions to adjourn these proceedings on 25th August 2000, 5th September 2000, 8th September and 12th September 2000."

Exception could well be taken to an officer of the court who is subject to its supervision and control rendering a report to the court in those terms. The implication that the court might act otherwise than on judicial grounds is discourteous and little short of an affront, unbefitting the holder of the office of Official Receiver. But I let that pass. The real issue which arises is one of law i.e. the scope of the court's jurisdiction when an application is made under section 216.

The court's jurisdiction

42. Section 216(1) reads :

" (1) Where the Official Receiver becomes the liquidator of a company, whether provisionally or otherwise, he may, if satisfied that the nature of the estate or business of the company, or the interests of the creditors or contributories generally or there are other grounds therefor, require the appointment of a special manager of the estate or business of the company other than himself, apply to the court, and the court may on such application, appoint a special manager of the said estate or business to act during such time as the court may direct, with such powers, including any of the powers of a receiver or manager, as may be entrusted to him by the court."

Even when read literally, section 216(1) does not have the meaning which the Official Receiver ascribes to it. I accept that unless and until an application is made by the Official Receiver for the appointment of a special manager, the court's jurisdiction under section 216 is not engaged. The application is for the appointment of "a special manager". In such applications, it is usual for the Official Receiver to put forward the name of the proposed office holder. The court's power under section 216(1) is to appoint "a special manager" on such an application being made. It is to be noted that the Ordinance does not seek to circumscribe the discretion vested in the court. It does not provide, for example, that the appointment, if made, could only be of the person proposed by the Official Receiver. As a matter of construction, it is not permissible to read into the provision the restriction suggested by the Official Receiver. The court's discretion is untrammelled so that if the person proposed was not suitable for whatever reason, some other suitable candidate could be appointed.

43. Even if I were wrong in the construction of section 216, the court has inherent jurisdiction to make such an appointment. This arises from the fact that supervision of the conduct of a liquidation rests with the court : that is the statutory scheme contemplated by the Companies Ordinance. If warranted by the circumstances of the case, the court may exercise its inherent jurisdiction to appoint someone other than the person proposed by the Official Receiver. For example, where the person proposed is unsuitable and the Official Receiver's Office does not have the resources to undertake the administration of the liquidations because of their "size, complexity and multi-jurisdictional aspects", the Official Receiver may not simply "withdraw" his application as was suggested in his 2nd Report : the interests of the creditors would require that someone suitable be appointed. In this connection, I do not consider that once an application has been made, it can be withdrawn without the leave of the court. The reason is that once the court's jurisdiction is engaged, then unless it is satisfied that any withdrawal would not adversely affect those who are interested in the liquidations, e.g. the creditors and/or contributories, to allow the withdrawal of the application would be an abnegation of judicial responsibility.

Paragraph 9(2) of the 4th Report

45. The suggestion that a practitioner whom the Official Receiver has nominated for appointment as special manager should have some locus to address the court is flawed. Such a practitioner has no standing to demand any such privilege. It is for the Official Receiver to make such application as he sees fit together with any information or submissions that are appropriate. If he fails to satisfy the court that a particular appointment is appropriate, no one else has any right to demand appointment. If there is any misapprehension, it would be as a result of failure to inform the court of relevant matters.

Paragraph 7 of the 4th Report

47. Quite why the Official Receiver saw fit in paragraph 7 of the 4th Report to refer to two incidents relating to one of the directors of Nelson Wheeler who is not one of the proposed special managers is unclear. Those incidents are irrelevant so far as the present application is concerned and it is unnecessary to say more about them save that the remarks made relating in particular to CWU No.655 of 1997 (Tai Hing (Engineers & Builders) Ltd) do not accurately portray what actually took place in that case, nor the issue which arose.

Conclusion

49. Although more than two weeks have elapsed since the fourth hearing, the Official Receiver has not provided the clarification sought in the 4th Report recently filed, or updated the court as to whether or not there have been further developments in the interim, for example, further responses from the remaining Panel A members, or clarified the stance of the other banks regarding the proposed special managers. For these reasons, I regard the application as still pending.

Panel A

50. The present liquidations have brought into sharp focus the deficiencies in the present administrative scheme. Why liquidation work involving companies with assets over $200,000 should be the preserve of a privileged few is difficult to fathom. The scheme as currently operated ensures that insolvency practitioners on the Panel A list (who come from a total of 14 firms) and no one else are appointed liquidators and special managers. That cannot be in the public interest.

51. As a matter of principle, I cannot see that an experienced solicitor is not qualified to take on the work. If I am not mistaken, the Official Receiver is himself a qualified solicitor. As a general rule, competition is likely to drive down costs and simultaneously raise standards. Where, as in most cases, accountancy services are required, the office holder would instruct accountants for that purpose in much the same way as currently solicitors are retained to advise on specific or general aspects of a liquidation. It is high time that this 'monopoly' is reviewed.

The 'nationality (by incorporation) principle'

52. It is perhaps timely for me to comment on what is sometimes known as the nationality (by incorporation) principle.

53. Hong Kong law following English law defers to the law of the place of incorporation of foreign companies as governing the attributes of a corporation. The nationality of a company is determined by its state of incorporation. Under this nationality (by incorporation) principle, the Companies are not Hong Kong companies but 'foreign' companies notwithstanding that their principal activities are not in the state of incorporation but in Hong Kong. In contrast, as explained in Ho on Public Companies and Their Equity Securities at 1051, under French law, the nationality of a company depends on the actual, not declared, situs of its siege social or executive head offices. In other words, the place of incorporation is not determinative of the company's nationality and governing law.

54. As is common knowledge, the majority of companies listed in Hong Kong are "foreign" companies. As at 31 December 1997, 3% of listed companies were incorporated overseas and truly foreign. 5.9% were incorporated on the mainland and 60.3% of companies listed on the SEHK were incorporated overseas but whose principal activities were in Hong Kong : see SEHK, Stock Exchange Fact Book 1997, at 126 cited in Ho on Public Companies and Their Equity Securities at 1005. Such companies (incorporated elsewhere but conducting its principal business in Hong Kong) are rightly described as "pseudo-foreign companies". By selecting the place of incorporation, local law can be avoided. Nevertheless, under the existing law applicable in Hong Kong, where a foreign company is being wound up in the place of incorporation, that foreign winding-up is "normally" regarded as the principal winding-up and the local winding-up as merely ancillary thereto. See Re Bank of Credit & Commerce International SA (No.10) [1997] Ch 213 at 246C. Applying that principle to the present facts, the Hong Kong liquidation would "normally" be regarded as ancillary to the Bermudan winding-up.

55. This raises the question whether it continues to be desirable for the "normal" rule referred to in the BCCI case to apply to such pseudo-foreign companies. Unlike the siege social approach, the nationality (by incorporation) principle does not reflect reality. Is it not time for legislative reform? See generally Ho on Public Companies and Their Equity Securities at 1055-6.

The Official Receiver

56. It is a matter of regret that I feel compelled to comment on the Official Receiver's conduct in this case.

57. The Official Receiver did not seem able to approach this application from a wholly impartial standpoint. Implicit from the rigid adherence to the Panel A roster is a reluctance to acknowledge the simple fact that not all Panel A members have the same insolvency experience or ability. Whilst they have all clocked up the necessary hours to qualify for admission to Panel A, it does not follow that they are all equally able. The circumstances of this case required a different approach.

58. Whilst the need for prompt action is appreciated and indeed the history shows that the Official Receiver's reports have received prompt attention in the form of immediate hearings, that need should not result in applications being made to court to approve appointments which would entail those responsible for the supervision of liquidation in signing documents the contents of which they are ignorant. Still less does it justify the Official Receiver on two occasions demanding that appointments be made immediately when the concerns of the court had not been addressed or answered.

Generally

59. The reasons for the present impasse appear from the account of the history of and developments in this application. SCB as well as such of the banks as are minded to contribute to the proposed funding should be invited to reassess their respective positions as regards their apparent preference for the proposed special managers.

	(Doreen Le Pichon)
	Judge of the Court of First Instance High Court

Representation:

The Official Receiver : Mr O'Connell

18974-EN-2000-08-23

RE AKAI HOLDINGS LTD. (FORMERLY KNOWN AS SEMI-TECH (GLOBAL) CO. LTD.)

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HCCW000050/2000

HCCW49/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO.49 OF 2000

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IN THE MATTER OF THE COMPANIES ORDINANCE, CAP.32

and

IN THE MATTER OF KONG WAH HOLDINGS LIMITED AND IN THE MATTER OF A PETITION DATED 13 JANUARY 2000

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AND	HCCW50/2000

COMPANIES (WINDING-UP) NO.50 OF 2000

--------------------------

IN THE MATTER OF AKAI HOLDINGS LIMITED (FORMERLY KNOWN AS SEMI-TECH (GLOBAL) COMPANY LIMITED)

and

IN THE MATTER OF THE COMPANIES ORDINANCE, CAP.32

-------------------------

Coram: Hon Le Pichon J in Court

Date of Hearing: 23 August 2000

Date of Order: 23 August 2000

Date of Handing Down of Reasons: 11 September 2000

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R E A S O N S

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1. On 13 January 2000, the petitioning creditors who are a syndicate of three banks (Den Danske Bank Aktieselskab, Bank of Scotland and Emirates Bank International) presented petitions to wind-up Kong Wah Holdings Limited ("Kong Wah") and Akai Holdings Limited ("AHL") (collectively "the Companies"). The petitions were supported by Barclays Bank PLC, Singer Company N.V. and The Standard Chartered Bank, and in the case of AHL, also by Graeme Limited and opposed by the Companies and the proposed investor Toyo Holdings Limited ("Toyo"). As the submissions made on behalf of the petitioning creditors were adopted by the supporting creditors, for convenience, references hereafter to the petitioning creditors extend to the supporting creditors unless the context otherwise requires.

2. At the adjourned hearing of the petitions on 23 August 2000, winding-up orders were made. The reasons appear below.

Events prior to 23 August

3. The petitions first came before me on 27 March 2000. Prior to that hearing, as early as 18 January 2000, a preliminary restructuring concept had been formulated and a bank creditors' meeting held on 31 January 2000 when a steering committee of the bank creditors of the Akai Group was formed with HSBC acting as liaison bank. The steering committee had appointed Ferrier Hodgson ("FH") as financial adviser at the end of February 2000. Ten days prior to the March hearing, a proposal was sent by Toyo to Akai and the steering committee for consideration. The steering committee, through its financial adviser, sought an "Information Memorandum" from Messrs Ernst and Young, auditors and financial advisers of Grande Holdings Limited (the parent of Toyo), Toyo and AHL. Because of the matters that had to be covered, the Information Memorandum was not expected to be available until mid-April after which FH would have to conduct a diligence review of the underlying information. At the request of the petitioning creditors, the Companies and Toyo the petitions were adjourned for five weeks to 2 May 2000.

4. As noted above, Toyo, in addition to being an opposing creditor, was also interested in salvaging the Companies as investor. In fact, prior to the presentation of the petitions, it was approached by the Akai Group to inject cash in return for an equity participation. Before reaching a decision, Toyo engaged accountants to conduct a due diligence exercise. Pending that exercise, the Group experienced deep liquidity problems. Toyo agreed to underwrite an issue of convertible bonds to shareholders of up to HK$670 million which issue eventually fell through. It also extended loan facilities to the Group of approximately HK$630 million for funding approved operating working capital requirements. When key personnel of the Companies left in November 1999, certain Toyo/Grande staff were seconded to the Companies.

5. At the adjourned hearing on 2 May 2000, it transpired that the Information Memorandum was only made available on 27 April to the steering committee. Only one of the petitioning creditors was a member of the steering committee. The Companies gave an undertaking to provide the petitioning creditors with a copy of the Information Memorandum and directions were given for the filing of further evidence relating to the proposed restructuring. The petitions were adjourned to 26 June 2000. Meanwhile, on 8 June, FH reported to the steering committee. On 15 June, the steering committee indicated that the proposal was unacceptable and a meeting between the steering committee and Toyo was scheduled for 27 June. In those circumstances, when the petitions were restored for hearing on 26 June, it was accepted by all parties that they had to be further adjourned.

6. By this stage, some three months had elapsed since the original restructuring proposal was first put forward. In granting the further six-week adjournment sought, the court stated in no uncertain terms that unless at the next adjourned hearing (i.e. on 23 August) there was evidence of a restructuring proposal that had the requisite in-principle support of the creditors, no further adjournments would be entertained and specific directions for the filing of evidence to that end were given, viz.

"The Company and the Opposing Creditors do have leave to file and serve Affidavits in support of the restructuring proposal showing the necessary in principle support on or before 14 August 2000."

The petitions

7. These came on for hearing on 23 August 2000. From the evidence filed, it appeared that the petitioning creditors were seeking a winding-up order and the appointment of provisional liquidators simultaneously. Since the debts underlying these petitions were not disputed, much of the evidence filed was essentially in support of the application for the appointment of provisional liquidators. Procedurally there was an inconsistency in this dual approach : if a winding-up order were made, the Official Receiver would become provisional liquidator by virtue of section 194 of Cap.32 and no question of appointing provisional liquidators would arise. Alternatively, the petitioning creditors could proceed with their section 193 application either on the basis that the petitions were to be further adjourned or if no winding-up orders were made at that hearing. The two could not proceed in tandem.

8. Upon that intimation from the court, the petitioning creditors decided to proceed with the winding-up petition rather than with their application for the appointment of provisional liquidators. They did not pursue the contention (foreshadowed in their supporting affidavits) that to obviate the need for the Official Receiver to become provisional liquidator pursuant to section 194(1)(a), it was open to the court to appoint provisional liquidators pursuant to section 193 immediately prior to making a winding-up order without, as it were, hearing a substantive application for the appointment of provisional liquidators. The purpose of such an exercise would be nothing less than to 'circumvent' the application of section 194(1)(a). Had it been necessary to decide that question, which would have involved construing sections 193 and 194(1)(a), I have no doubt that I would have ruled against the petitioning creditors. The device proposed was artificial and contrary to the spirit and intendment of those provisions.

The Companies' application for an adjournment

9. At the hearing, the Companies (supported by Toyo) applied for a four-week adjournment. Whilst accepting that they were not in a position to demonstrate the in-principle support required, the Companies submitted that the restructuring proposal was proceeding in a "positive fashion". A document described as "Revised Restructuring Proposal" dated 16 August 2000 ("the Revised Restructuring Proposal") had been circulated to all bank creditors who together held 54% of the overall indebtedness of the Companies. It was submitted, inter alia, that because the Akai group of companies is a global conglomerate, the proposal restructuring was necessarily complex and more time was therefore required.

10. There was a conflict of evidence as to the number of proposals preceding the Revised Restructuring Proposal, whether the earlier proposals had been rejected outright as unacceptable and/or whether counter-proposals had been made such that negotiations had never broken down. For present purposes, it is unnecessary to resolve those differences.

11. As to the Revised Restructuring Proposal itself, the petitioning creditors maintained that that had been rejected by the steering committee. The Companies and Toyo disagreed.

12. It is common ground that on 16 August, an all-banks meeting was held. Whilst it was accepted that there was no consensus as to the terms of the Revised Restructuring Proposal as at the date of the hearing, the position of the Companies and Toyo was that the Revised Restructuring Proposal was still alive and under active consideration and that HSBC had informed the Companies that they considered that there was "evidence of a continuing willingness on all parties to seek a deal that would be satisfactory". A further meeting had in fact been set up for the afternoon of the day of the hearing itself. The Companies maintained that the purpose was to continue discussions with a view to 'finalizing' the terms of the Revised Restructuring Proposal.

13. HSBC and the Bank of Nova Scotia filed affidavits in support of the adjournment sought. The contents were substantially similar. The deponents being the relevant bank officers involved in the negotiations concerning the Revised Restructuring Proposal stated that :

"...the proposed restructuring of the Akai group is proceeding in a positive fashion. The Revised Restructuring Proposal gives me confidence that, ultimately, a restructuring of the indebtedness of the Company will result in the creditors of the Company receiving more than they would in an immediate winding up of the Company."

Pausing there, whatever the status of the Revised Restructuring Proposal, it is clear that negotiations as to its terms had not come to an end but were still ongoing as at the date of the hearing.

14. The deponents further opined that an immediate liquidation of the Companies would not be in the best interests of the creditors. As regards the benefits which would result from a restructuring, counsel for the Companies referred to the estimate of liquidation recoveries under a liquidation scenario contained in the Information Memorandum made by FH, predicated on the recovery of over US$100 million from pledged assets outside Hong Kong as well as to the Revised Restructuring Proposal which set out initial and potential recoveries calculated by reference to the relative share price of Akai Electric Company Limited ("AEL"). It was contemplated that creditors would be issued AEL shares as part of the restructuring exercise. If the AEL shares were to reach the base share price of 20 yen shown for the initial recovery only and not the higher share price, the initial recovery still compared favourably with the anticipated liquidation recovery. The petitioning creditors were sceptical of the anticipated recovery rate under the Revised Restructuring Proposal since it was predicated upon enlarging the shareholding of AEL from 425 million shares to 1698 million shares. Suffice to say that the court cannot realistically form a view as to which of these is to be preferred without the assistance of experts and it would be presumptuous for it to do so.

15. HSBC and the Bank of Nova Scotia together hold approximately 25% of the overall indebtedness. Although initially it was submitted on Toyo's behalf that it held 17% of the overall indebtedness, counsel for Toyo later accepted that 12% would be more accurate. On that basis, taken together, creditors holding some 37% of the overall indebtedness supported the adjournment. It was urged that the court ought to have regard to the wishes of the majority. In this context, the petitioning creditors and the supporting creditors together hold only about 5.4% of the overall indebtedness.

16. But the matter was not as simple as that. The percentages mentioned above were referable to the overall indebtedness rather than unsecured indebtedness. Most of the bank creditors were partially secured. Obviously the rate of recovery under a restructuring would vary greatly depending on the extent of that security. Appendix A to the Revised Restructuring Proposal showed that the initial recovery rate (including the secured portion) for bank creditors ranged from 4% to 100%. For this reason, the percentages of overall indebtedness relied on were not of particular assistance. No one saw fit to approach the question from the perspective of unsecured indebtedness.

17. The petitioning creditors were also critical of the failure of the Companies and/or Toyo to address in any meaningful way the numerous areas of concern elaborated at great length in the several affidavits filed by the petitioning creditors relating to the absence of any sufficient explanation for the huge operation loss of US$1.82 billion suffered by the Group for the year to 31 January 2000, the lack of information regarding the Companies' financial position for the period from February to July 2000, and 'loss' of assets since the presentation of the petitions. Implicit in all of this were allegations of serious misconduct on the part of the Companies and/or Toyo and/or those who control them. As noted earlier, the evidence filed by the petitioning creditors served a dual purpose, the "areas of concern" being of particular relevance to the issue of the appointment of provisional liquidators. The evidence filed by the Companies and Toyo did not address those allegations substantively which may have been due to time constraints since the section 193 summons was only taken four days prior to the hearing and the issue in the earlier hearings was confined to restructuring. Had the section 193 application been the substantive application, it would have been surprising if leave would not have been sought to adduce evidence in opposition. As that issue was not before the court, it serves no purpose to dwell further on those allegations or to express any views about their merits.

18. In the course of his reply during the afternoon of the hearing, counsel for the Companies produced a schedule to illustrate the extent of support for an adjournment. If the Revised Restructuring Proposal were implemented, certain debts including inter-company debts would be waived, such that of the overall indebtedness of US$856 million, the scheme debts would be of the order of US$633 million. Counsel for the Companies contended that the adjournment had the support of creditors holding in the aggregate 66.5% of the scheme debts :

Scheme debts	US$million	Support US$million		Oppose US$million		Not yet discussed (sic) US$million
banks	362	247	Note 1	44	Note 3	71
Other creditors	271	174	Note 2	1	Note 4	96
	633	421		45		167
	100.0%	66.5%		7.1%		26.4%

The notes to the Schedule identified those in support and in opposition to the adjournment. At first blush, the percentages shown bore little relation to the evidence that had been adduced. Then, inexplicably belatedly and out of the blue, letters from five creditors allegedly supporting an adjournment were produced for the first time.

19. Some of these letters were proforma responses attached to letters sent from AHL duly completed and returned by the relevant recipient as to whether or not it supported an adjournment. It would appear that at least two letters had been sent by AHL, one dated 19 August and the other 21 August seeking support for an adjournment. The petitioning and supporting creditors did not know anything about the AHL letters and the scope of circulation is an unknown factor. Neither letter was mentioned in any of the affidavits filed on behalf of AHL and no reference was made to such letters at the outset of the hearing which I find incredible.

20. Be that as it may, there were proforma replies from the Bank of Tokyo-Mitsubishi Limited, Hang Seng Bank Limited and Ing Bank N.V., which appeared to support an adjournment. The fourth was a letter from Bank of America but its support for an adjournment was qualified :

"... If your Company and the White Knight are prepared to aggressively pursue with sincerity from now on unlike before, we are prepared to support a further adjournment of the winding-up petition for not more than one month subject to a meaningful restructuring proposal in place."

Finally, there was also a letter from a non-bank creditor, Sansui Electric Company Limited ("Sansui"), giving in-principle conditional support subject to acceptable legal documentation. All the responses other than the one from Sansui were dated 22 August. Plainly the Companies were in a position to disclose those letters prior to the commencement of the hearing but they must have made a conscious decision not to do so. What was even more surprising was the fact that neither of the AHL's letters dated 19 and 21 August was available in court.

21. As regards Sansui's reply, that was dated 23 August, the date of the hearing itself. Hitherto, restructuring negotiations had not involved creditors other than bank creditors. Sansui's letter was thus a total surprise. It then emerged that Akai owned 42% of Sansui and Toyo and Sansui had a common chairman.

22. What is the court to make of all this? The Companies' approach to the hearing is, to say the least, incomprehensible given the specific directions made on 26 June 2000 set out above. The surreptitious manner in which "additional support" for an adjournment was presented to the court in the course of the Companies' reply and the unavailability of the Companies' circular letters dated 19 and 21 August in court are considerations which affect the court's assessment of the Companies' sincerity and good faith, and in particular, whether they have made a full and frank disclosure to the court of circumstances relevant to the exercise of the court's discretion.

23. Leaving aside the court's serious reservations, and assuming in favour of the Companies and Toyo that creditors holding 66.5% of the scheme debts support an adjournment, that of itself would not be sufficient reason for the discretion to be exercised in favour of the Companies. It is not the case that the Revised Restructuring Proposal was acceptable in principle to 66.5% of the scheme creditors; rather, that Proposal had not even been finalized, being subject to further negotiations. Whether or not those would culminate in an agreement which could then form the basis for seeking in-principle support is entirely speculative. It would have been different had there been an agreement as to the terms of the restructuring which had the support of 66.5% of the scheme creditors. Had that been the case, a short adjournment might have been justified to enable the Companies to obtain the support of creditors holding another 10% or so of scheme debts.

24. Further, the evidence filed on behalf of HSBC and the Bank of Nova Scotia was couched in guarded terms. That negotiations were proceeding in a "positive" fashion could mean any number of things. The word used was too elastic and imprecise. How close the parties were to a consensus remained a matter for speculation. If the meeting fixed for the afternoon of the date of the hearing was for "finalization" of the Revised Restructuring Proposal as was the Companies' position, (the implication being that the parties, or at least the Companies, Toyo and the steering committee were very close to reaching a consensus,) I would have expected HSBC and the Bank of Nova Scotia to have said so. They did not. Further, the absence of any explanation as to why the meeting scheduled for the afternoon of the date of the hearing could not have taken place earlier smacked of a ploy to gain further time.

25. The court has already been more than indulgent in terms of adjournments granted, with full regard to the complexity of the restructuring exercise. Much more than the conventional four week period has been given to enable the Companies to come up with a restructuring proposal acceptable to the majority of the creditors. At least four months have come and gone without any consensus being reached as to its basic terms. In the circumstances, the case for a further adjournment has not been made out and it would not be right to exercise my discretion in favour of the Companies' application.

Conclusion

26. As the debts were undisputed, winding-up orders must necessarily follow the refusal of the application for an adjournment.

	(Doreen Le Pichon)
	Judge of the Court of First Instance High Court

Representation:

Mr Anderson Chow, instructed by Messrs Holman, Fenwick & Willan, for the Petitioners in both petitions

Mr William Wong, instructed by Messrs Angela Wang & Co., for the Companies in both petitions

Mr Eugene Fung, instructed by Messrs Baker & McKenzie, for the Opposing Creditor (Toyo Holdings Limited) in both petitions

Mr Anderson Chow, instructed by Messrs Linklaters, for the Supporting Creditor (Barclays Bank Plc) in both petitions

Mr Rimsky Yuen, instructed by Messrs Denton Wilde Sapate, for the Supporting Creditor (Singer Company NV) in HCCW 50/2000

Mr Anderson Chow, instructed by Messrs Lovells, for the Supporting Creditor (Standard Chartered Bank) in HCCW 50/2000

Mr Jonathan Harris, instructed by Messrs CMS Cameron McKenna, for the Supporting Creditor (Graeme Limited) in HCCW 50/2000

Mr J. Glen, for the Official Receiver

(1)	the transcript be kept confidential and not be provided to any third party or department outside of the Department of Justice;
(2)	it be not disclosed in any other proceedings; and
(3)	its use be restricted to solely assisting the Department of Justice in the investigations of the respondent.

(1)	the court transcript is to be kept confidential and other than the CCB, the Department of Justice is not to provide a copy of this to any third party;
(2)	the transcript is not to be disclosed by the Department of Justice in any other proceedings; and
(3)	the use of the transcript is to be restricted to assisting the CCB in its investigation in matters connected with or arising out of the collapse of the Companies.

(a)	the court should inspect and review the documents in the sealed box, after the JSM-SC Documents have been removed, and determine if HSBC is entitled to claim legal professional privilege for the remaining documents; or
(b)	HSBC should submit a list of the relevant documents to the court alone, setting out the dates, addressors and addressees, but not the nature, description or topic on which legal advice was sought, and the court is to determine the question of privilege; if the court should find it necessary to do so, the court is to inspect and review the documents.

“	Form of list and affidavit (O. 24, r. 5)
	5.	(1)	A list of documents made in compliance with rule 2 or with an order under rule 3 must be in Form No. 26 in Appendix A, and must enumerate the documents in a convenient order and as shortly as possible but describing each of them or, in the case of bundles of documents of the same nature, each bundle, sufficiently to enable it to be identified.
		(2)	If it is desired to claim that any documents are privileged from production, the claim must be made in the list of documents with a sufficient statement of the grounds of the privilege.
		(3)	An affidavit made as aforesaid verifying a list of documents must be in Form No. 27 in Appendix A.”

(1)	The issue was not one of construction of the relevant rule in the Supreme Court Rules in relation to the description and identification of documents claimed to be privileged but in applying “the living spirit of the Rules rather than the dead letter” (at 413).
(2)	It is entirely proper for a party seeking discovery to challenge the ground upon which privilege is claimed for any particular document and to question whether that document as described could qualify for protection upon that ground. Accordingly, it is both necessary and desirable that the description of a particular document for which privilege is claimed should be sufficient to disclose quite readily (without disclosing contents) whether or not it is in fact a document to which the head of privilege relied on can extend (at 414).
(3)	There is a middle ground between the disclosure of the contents of a protected document and consequential loss of privilege on the one hand, and the adequate description of the nature of the document for which privilege is claimed. It is impossible to discern whether the limits of privilege have been observed without some useful description of the nature of the document. Whilst it must be accepted that the description of a document is conclusive and cannot be challenged by the opposing party, this is only on the basis that the description is truly adequate. If this was not so, the claim to privilege could not begin to be meaningfully tested (at 415).
(4)	It is a common occurrence that bona fide mistakes have been made by practitioners as to the scope of privilege and its applicability to particular documents. Reliance on the judgment and integrity of practitioners is not an adequate safeguard or a substitute for adequate description (at 415).
(5)	What is required in properly describing discovered documents will vary from case to case depending on the nature of the document and the particular ground of privilege claimed (at 415).

(1)	There are sound reasons to require a party to describe more adequately the documents the subject of a claim for privilege. It will be an unusual case where the description of the documents will betray the line of reasoning of a party’s legal adviser (JN Taylor Holdings Ltd v. Bond, supra. at 36, per Debelle J).
(2)	What underlies the reasoning in Kadlunga is the fact that errors can be made, either through negligence or inadvertence, and the need to describe each document reduces the incidence of error. Furthermore, the requirement to examine each document for the purpose of description will focus the solicitor’s mind closely upon the issue and will assist in determining whether in fact the claim for privilege should be made or maintained (Southern Equities v. Arthur Andersen, 11 December 2000, Debelle J, unreported, quoted in Bradley Phillips Pty. Ltd. v Burn Brite Lights (Vic) Pty. Ltd., supra. at para. [21]).
(3)	Where a claim of privilege is made, the facts relied upon as giving rise to the privilege must be set out so the claim can be tested, although the facts should not be set out in such detail as would enable the contents of the documents to be ascertained indirectly. An adequate description is required of each of the document for which privilege is claimed, but not one which indirectly reveals its contents (Boase v. Seven Network (Operations) Ltd., supra. at para. [24]).
(4)	It is not appropriate, as has been laid down on many occasions, for a claim for privilege to be made simply en globo and by reference to classes of documents. The appropriate method of describing privileged documents is to enumerate them, that is to list them, and then to identify the bases upon which the privilege is claimed (Halliday v. ACN 003 075 394 Pty Ltd, 11 April 1994, Supreme Court of Victoria Appeal Division, unreported, quoted in Boase v. Seven Network (Operations) Ltd., supra. at para. [25]).
(5)	“Rolled up” claims of privilege are confusing and inappropriate. Where more than one ground of privilege is relied upon, the specific ground or grounds relied upon for each document must be related to that document, and it is not sufficient to state a number of grounds without specifying which of them relate to which document (Boase v. Seven Network (Operations) Ltd., supra. at paras. [26] and [30]).

“	[80]	… As I have explained, the person to whom the order is directed may object to producing the document and once the objection is made, cannot be compelled to do so unless and until the objection is overruled. That is the position as a matter of law. If orders were made expressly excluding documents subject to client legal privilege, there would be a risk that the persons to whom the orders were directed would regard themselves as exonerated from taking any co-operative steps with respect to documents they regard as privileged, such as preparing lists or even embarking on any process of review. At least in some cases, it may be preferable simply to add a note to the orders drawing the reader’s attention to the relevant rules. But in my view it is unnecessary to take any such step in a fully contested inter partes matter where the parties are legally represented, and I do not regard the Court of Appeal as suggesting otherwise. In such a case an acceptable course, in accordance with the rules, is to make unqualified orders for production coupled with liberty to apply, which may be exercised for the purpose of giving directions designed to bring forward contested privilege claims for resolution, once specific documents have been identified and particular claims for privilege have been made in respect of those identified documents.
	[82]	The courts have not yet devised a wholly satisfactory procedure for resolving privilege claims where large quantities of documents are involved. It may be that no single procedure fits every case. But there are some general discretionary considerations to be borne in mind in considering, on an inter partes basis, whether to embark upon any process. They include the justification for imposing onerous obligations on the producing party. It is necessary to weigh up the effort, expense and disadvantage to be borne by the party against whom orders are sought (that is, the effort, expense and other disadvantage involved in identifying and preparing a large quantity of documents for production and assessing whether privilege should be claimed in respect of particular documents) against the prejudice that would be suffered by the party requiring production if the order were refused (in terms of thwarting the exercise of that party’s statutory powers for the benefit of creditors or others whose interests have been recognised by the legislature). …”
	(Re Southland Coal Pty Ltd, supra.)
“	Where a claim for privilege is disputed, the determination of the claim will depend upon the facts established in evidence, including the circumstances in which the document came into existence … I propose to reserve to [the liquidator] the right to require of [the producing party] evidence by affidavit in proper form of the basis for the claim to privilege which it asserts in respect of any documents which, by my ruling on the motion to the extent I determine it, are not to be made available to [the liquidator]. (at 730)
	As foreshadowed, because there is no affidavit foundation presently laid for the claim to legal professional privilege claimed in those documents, or any detailed list of them, I will permit [the liquidator] to require such affidavit evidence to be provided [by the producing party] and I will permit [the liquidator] to give written notice that a list of those documents be filed and served so that [the liquidator] may consider and, if thought fit, challenge the claim for legal professional privilege.” (at 739)
	(Re Moage Ltd, Shehan v. Pitterino, supra.)

(1)	Kong Wah must be considered separately from Akai. The respondent had very little to do with Kong Wah, as he did not hold office in that company.
(2)	In the supporting affidavit of Mr Borrelli, he referred to the Akai Group and transactions of various companies in the Akai Group that he would wish to investigate further with the respondent. There is nothing to link these transactions or companies in the Group with Akai or with Kong Wah.
(3)	296 companies were listed in the schedule to the summons, there is no evidence to link these subsidiaries or associate companies with Akai or Kong Wah in that their affairs must relate to Akai or Kong Wah.

(1)	the parties named in the writ be known as “A” in the case of the plaintiffs and “B” in the case of the defendants;
(2)	the Registrar be directed to enter the names of parties in the writ as “A” and “B” in the register maintained in the Registry of the High Court until 12 months from the date of the issue of the writ or further order;
(3)	the Registrar be directed to cause the file of the action commenced by the writ and contents thereof including the names of parties appearing on the writ be kept confidential until 12 months from the date of issue of the writ or further order; and
(4)	the supporting affidavit of the liquidators with exhibits, the skeleton submission, this order and any transcript of any hearings regarding this application be sealed by the court and not be made available for inspection by any other party save with leave of the court upon 7 working days notice being given to the liquidators.

(a)	all announcements issued by each of the Companies;

(b)	all correspondence between each of the Companies and HKSE;

(c)	all correspondence between third parties and HKSE which relates to each of the Companies, their affairs, dealings or assets;

(d)	copies of all information, documentation, representations or submissions made or provided by or on behalf of each of the Companies to HKSE; and

(e)	copies of all information, documentation, representations or submissions made or provided by third parties on behalf of or in relation to each of the Companies to or for HKSE

for the period from 1 January 1995 to 23 August 2000, subject to the liquidators’ undertaking to the court that the documents so disclosed will be used by the liquidators solely for the purpose of the administration of each of the Companies unless otherwise permitted by leave of the court.

(1)	the information available to the Companies at various points in time in relation to the affairs of the Companies and the substantial transactions which the liquidators would need to investigate;

(2)	documentation and information supplied to HKSE in relation to the Companies’ financial statements and analysis of them;

(3)	the individuals representing the Companies or others involved in providing HKSE with documentation and information on behalf of and in relation to the Companies;

(4)	the legal and other advisers acting for or in relation to the Companies;

(5)	the roles of representatives of James Ting, the Grande Group, Toyo Holdings Limited in relation to the affairs of the Companies; and

(6)	details of the employees and directors of the Companies dealing with HKSE and their roles and responsibilities.

(1)	documents relating to the audits of Akai for the years ended 1 January 1996 to 31 January 1999 and the audits of Kong Wah for the years ended 1 April 1996 to 31 January 1999;

(2)	documents relating to the unaudited financial statements, memoranda and reports of the Companies and their subsidiaries from 1 February 1999 to 24 May 2001;

(3)	documents relating to the provision of financial, tax, accounting or other advice by E & Y to Akai from 1 January 1996 to 24 May 2001 and to Kong Wah from 1 April 1996 to 24 May 2001; and

(4)	documents relating to business advisory work provided by E & Y to Akai from 1 January 1996 to 24 May 2001 and to Kong Wah from 1 April 1996 to 24 May 2001 including the restructuring or rescue proposals.

	As at
	31 January 1999	31 July 1999	31 January 2000

Total assets (US$)	2,324.8 m	1,961.8 m	264.7 m

Net assets (US$)	1,049.8 m	1,025.9 m	632.3 m

(1)	shareholding in Toyo, AECo, the trademarks of "Akai", "Sansui" and "Kawa" and factories in Zhongshan;

(2)	convertible preference shares in Singer; and

(3)	account receivables of Akai.

(1)	land and buildings with net book value of US$377.1 million in the 1999 accounts, US$148.9 million in the January EY Report, US$75.6 million in the April EY Report, and US$57.8 million in the statement of affairs;

(2)	accounts receivables and prepayments of US$370.7 million in the 1999 accounts, US$369.4 million in the January EY Report, US$63.6 million in the April EY Report and US$282.6 million in the statement of affairs; and

(3)	investments in 160 subsidiaries and associated companies of which 20 were described as principal subsidiary or associated companies in Akai's 1999 accounts and 25 as principal subsidiary or associated companies in Kong Wah's 1999 accounts.

(1)	acquisition of 50% interest in MicroMain Systems Limited for US$300 million, all of which was reported to have been lost;

(2)	investment in Shenzhen Kaifa Technology Company Limited or Merrywide Limited for US$39.5 million, which was subsequently transferred to third parties;

(3)	acquisition of 74.4% in AECo, all of which was sold by Definite Holdings B.V. but the amount due by Definite Holdings B.V. to Akai was written off in full;

(4)	the complete transfer of authority to manage Akai to Grande Singapore;

(5)	the guarantee by Akai of an aggregate sum of US$51.4 million due by Goaltop Limited and Gold Talents Ventures Limited, resulting in liabilities of Akai to repay the same to the subsidiaries of Grande HK; and

(6)	acquisition of 75% interest in Zhongshan Kawa Group which had assets of HK$1 billion in December 1999, of which 26% to 36% was transferred to a subsidiary of Toyo.

(1)	the audit files for the years ended 31 January 1996 to 1999 and copies of documents given to E & Y for the purpose of the audits, but excluding the internal review documents;

(2)	correspondence relating to billing issues;

(3)	files relating to the tax affairs of the Companies; and

(4)	files of Miss Choi insofar as they relate to attempts to restructure the Companies.