RE WING FAI CONSTRUCTION CO LTD

CACV 244/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 2004

(ON APPEAL FROM HCCW 735 OF 2002 )

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JUDGMENT

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Hon. Tang V-P:

1.  I agree with the judgment of Yuen J.A. and have nothing to add.

Hon Yeung JA:

2.  I agree with the judgment of Yuen JA and have nothing to add.

Hon Yuen JA:

3.  This is an application by the Liquidator for leave to appeal to the Court of Final Appeal from the judgment of this court given on 18 August 2006 and varied on 12 October 2007.  The effect of our order was that Kwan J’s order that the Liquidator had no case to answer on the Directors’ motion to commit him for contempt of Court was set aside and the matter was remitted to her for resumption of the hearing.  

4.  The primary issue is whether this application for leave to appeal should be considered as a civil cause or matter (and thus governed by Part II of the Hong Kong Court of Final Appeal Ordinance Cap. 484) or a criminal cause or matter (and thus governed by Part III HKCFAO).  If it were to be regarded as a “criminal cause or matter”, then this court would have no jurisdiction to grant leave to appeal as only the Court of Final Appeal can grant leave to appeal in criminal matters: s.32(1) HKCFAO.

5.  The second issue is this: if this is a criminal cause or matter, was our decision a final one?  Under s.31(2) HKCFAO, an appeal only lies from a final decision even if this court were to consider that a point of law of great general or public importance is involved in our decision.  

Criminal cause or matter?

6.  Leading counsel for the Liquidator accepts that the contempt that the Directors are seeking to establish falls within the category traditionally classified as “criminal contempt” rather than the alternative category of “civil contempt”.  However he argues that the label of “criminal contempt” does not make this necessarily a “criminal cause or matter” within the meaning of the HKCFAO.  He submits that contempt is sui generis as far as the Court of Appeal is concerned, as it is governed by s.50 High Court Ordinance Cap. 4, thus taking it out of s.13(2) which sets out this court’s civil jurisdiction and s.13(3) which sets out its criminal jurisdiction.  And since it is sui generis, and therefore not a “criminal cause or matter”, it is included as a “civil cause or matter” for the purposes of the HKCFAO as the definition of a “civil cause or matter” in that Ordinance provides that it means “a cause or matter other than a criminal cause or matter”.

7.  In my view the fact that the HCO contains a general provision for appeals in the Court of Appeal in cases of contempt of Court is not conclusive as to whether a specific case of contempt is a civil or criminal cause or matter in the context of an appeal to the CFA.

8.  The court has to ascertain the nature of the cause or matter, adopting a flexible approach with some degree of common sense , and looking at the object and purpose of the relevant cause or matter (So Wing Keung v Sing Tao Ltd [2005] 2 HKLRD 11, para. 31(11)). 

9.  Turning then to the object and purpose of the relevant cause or matter, it is to punish misconduct which is an interference with the administration of justice.  That the motion for committal for contempt of Court was brought in the context of a winding-up does not detract from my view that the motion is a criminal cause or matter (in contradistinction to the winding-up).  The court should look at the substance of the matter before it and not the form.  In this regard, of particular significance is the nature and severity of the potential sanction (Koon Wing Yee v Insider Dealing Tribunal and another FACV19/2007).  In the case of committal for contempt of Court, the penalty is not compensatory in nature but is punitive and deterrent.          

10.  I derive some support for my view from Ambard v Attorney General for Trinidad and Tobago [1936] AC 322, where the Privy Council considered whether it was competent to it to give leave to appeal and to hear an appeal against an order for a penalty imposed for a contempt of Court.  After examining a number of cases, Lord Atkin delivering the judgment of the court held that “interferences with the administration of justice, whether they be interferences in particular civil or criminal cases, ... when they amount to contempt of Court, are quasi-criminal acts, and orders punishing them should, generally speaking, be treated as orders in criminal cases, and leave to appeal against them should only be granted on the well-known principles on which leave to appeal in criminal cases is given” (p.329). 

11.  As for the decision of this court (Stuart-Moore V-P, Yeung JA and Burrell J) in Secretary for Justice v Choy Bing Wing CACV11/2004 (unrep.) 1 March 2005, it would appear that Ambard was not referred to it, the applicant for leave was not legally represented and in any event no point of law of great general or public importance was involved.

12.  Accordingly I take the view that this is a criminal cause or matter for the purposes of the HKCFAO and that this court has no power to grant leave to appeal.

Final decision?

13.  I do not consider that our decision was a “final” decision within the meaning of s.31(a) HKCFAO.  We ordered that the judge’s order that the Liquidator had no case to answer be set aside and that the hearing of the motion be resumed.  In fact there are still some other  arguments on the no case submission which will have to be decided by the judge.  No authority has been placed before us to show our order should be regarded as a final decision.  In contrast, in Loade and others v Director of Public Prosecution [1990] 1 QB 1052, Neill LJ held that the submission of no case to answer by way of a preliminary point was an interlocutory matter and that therefore there was no right of appeal.    

14.  If however I am wrong and this was a “final” decision, then I would be prepared to accept that the question whether a liquidator can disclose transcripts of private examinations ordered under s.221 Companies Ordinance Cap. 32 without first obtaining leave of the Court is a point of law of great general and public importance.  Treating the application as one for certification under s.32(2) HKCFAO, I would certify question (b) in the Notice of Motion.  Question (c) is incidental to question (b) and the same applies. 

15.  Question (a) is in my view drafted too broadly - the issue is not whether the investigation and reporting of suspected criminal conduct to the authorities is within the function and duties of a liquidator; the issue is how he should do so - in particular, if it involves the disclosure of transcripts of private examinations ordered under s.221 Companies Ordinance, whether he should first obtain leave of the court.  Likewise question (d) is drafted too broadly.    

16.  Question (e) was not an issue which was resolved by Kwan J and accordingly it was not dealt with in the appeal.  Nor was it the subject of a Respondent’s Notice.  This court ordered only that the motion be remitted to the Court of First Instance for resumption of the hearing before Kwan J (see para. 27(3) Judgment of 12 October 2007).  We did not make a positive order that there was a case to answer (cf the order sought in the Notice of Appeal).  Accordingly question (e) is premature.   

17.  The result is that the application for leave to appeal to the Court of Final Appeal fails.  I would dismiss the application and make an order nisi that the Respondent pay the costs of the Appellants and the Official Receiver. 

CACV 244/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 2004

(ON APPEAL FROM HCCW 735 OF 2002 )

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J U D G M E N T

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Hon.  Tang V-P:

1.  I agree with the judgment of Yuen JA.

Hon Yeung JA:

2.  I agree with the judgment of Yuen JA and have nothing to add.

Hon Yuen JA:

Committal hearing before Kwan J

3.  In July 2004 Kwan J heard an application by two directors of Wing Fai Construction Co Ltd (“the Directors”) for an order of committal against the liquidator of the company (“the Liquidator”) for contempt on the ground that he had supplied transcripts of their private examinations ordered under s.221 Companies Ordinance, Cap. 32 to the Commercial Crime Bureau without leave of the court.

4.  The hearing took 4 days.  The Liquidator advanced a number of grounds in support of his application that he had no case to answer.  The most important ground was that the Liquidator was not required by law to obtain leave of the court. 

Kwan J’s order

5.  Kwan J held that the Liquidator was not obliged at law to obtain leave of the court and held that he had no case to answer.  On 23 September 2004 the judge gave a number of orders consequential upon that decision.  One of the orders was that the Directors were to pay the Liquidator’s costs on an indemnity basis.  Another order was that the Liquidator was entitled to recover any shortfall in costs out of the assets of the company.

Payment of costs

6.  In November 2004 the Directors paid a sum of about $1.3 million for the Liquidator’s costs and in September 2005, they paid a further sum of about $0.7 million, making up a total sum of $ 2,046,900.

Judgment on appeal: August 2006

7.  The Directors appealed against Kwan J’s decision.  In a judgment handed down in August 2006 this court held that the Liquidator was obliged at law to obtain the court’s leave before disclosing transcripts of the private examinations to the CCB. 

8.  However, we held that Kwan J was nevertheless right to find that the Liquidator had no case to answer as we were then under the impression that Barma J had in June 2004 given leave to the Liquidator to disclose the same or similar statements to the police (“the Barma Order”).  That impression was received as a result of certain submissions made on behalf of the Liquidator which have been reproduced in paras. 17 and 21 of our judgment dated 12 October 2007.  (The materials actually presented to Barma J were sealed and thus noone, except the Liquidator, had access to them). 

9.  As we considered that consequently there would have been no significant or adverse effect on the administration of justice which was a necessary element of contempt of court, we upheld Kwan J’s order that the Liquidator had no case to answer and the appeal was dismissed.

10.  We gave a costs order nisi that the Liquidator should pay the costs of the Directors and the Official Receiver up to the date of the Barma Order and thereafter the Directors should pay the costs of the Liquidator and the Official Receiver.

December 2006 hearing

11.  In September 2006 the Directors applied to vary the costs order nisi and for leave to appeal to the Court of Final Appeal.  One of the grounds of appeal concerned this court’s mistaken belief that the subject-matter of the Barma Order included the transcripts of the private examinations.  The Directors had a “strong suspicion” that that was not so.  

12.  A few days before the hearing, on 17 December 2006 the Liquidator’s solicitors wrote to the Directors’ solicitors with instructions to confirm that the materials provided to Barma J did not in fact refer to or contain transcripts of the private examinations of the Directors.  It should be noted that this had not been drawn to the attention of the court at any time after the judgment was handed down in August 2006 even though the court’s order had not been sealed, neither party having submitted a draft order for approval.

13.  On 21 December 2006, we reviewed the submissions made during the appeal which led to the impression we had received, and the hearing was then adjourned to enable transcripts of those submissions to be provided.

Variation of  the court’s order on appeal: October 2007

14.  After reviewing those submissions, the Directors then applied to this court to vary the order we had made in August 2006 on the ground that the court’s decision had been reached on an incorrect premise.

15.  For reasons given in our judgment handed down on 12 October 2007, we varied our order of August 2006 so as to allow the Directors’ appeal from Kwan J’s order, set aside the judge’s order that there be no case to answer, and remitted the motion for committal to Kwan J for resumption of the hearing. 

16.  We also gave an order nisi that the Liquidator should pay the costs of the Directors and the Official Receiver of the appeal, including the December 2006 hearing and the application for variation of our order in October 2007.

Consent Order for repayment of costs

17.  On 28 November 2007, a Consent Summons was filed for an order that the costs order made by Kwan J be set aside and that the sum of $2,046,900 be repaid by the Liquidator to the Directors forthwith.  A Consent Order was given the same day.

Applications to vary costs order nisi

18.  There are now a number of applications before us.  I shall deal first with the Directors’ application (by an Amended Notice of Motion) that the costs order nisi we gave in October 2007 be varied so that:

(1) their costs and the Official Receiver’s costs for the Liquidator’s submission of no case to answer before Kwan J be paid by the Liquidator in any event;

(2) their costs for the hearing in December 2006 and for the application for variation in October 2007 be taxed on an indemnity, alternatively, common fund basis;

(3) the Liquidator be ordered to pay interest on the sum of

$2,046,900 which he has repaid to the Directors.  (Strictly speaking this may not be relevant to our costs order nisi, but no point has been taken by the Liquidator on this).      

19.  On the first issue, as we have ordered that the matter be remitted to Kwan J for resumption of the committal hearing, I do not consider it appropriate for this court to give an order for costs regarding a part of the matter only.  Any decision as to the allocation of costs should best be left to the judge seized of the matter. 

20.  On the second issue, the principles governing an award of costs on the indemnity basis have been set out by the Court of Final Appeal in Town Planning Board v Society for Protection of  the Harbour Ltd (No. 2) [2004] 7 HKCFAR 114 paras. 16-18 and are not disputed.  The fact of the matter in the present case is that as a result of certain submissions made on behalf of the Liquidator (reproduced in para. 17 of the judgment handed down in October 2007), this court proceeded on a false premise.  That the court received that false impression was apparent from the “no harm done” exchange between the court and Leading Counsel for the Directors (reproduced in para. 21 of the same judgment), which did not meet with clarification or rectification on behalf of the Liquidator. 

21.  Mr Jonathan Harris SC who now appears for the Liquidator stated on instructions that the Liquidator’s solicitors and leading counsel at the appeal were “fully aware of the terms of the Barma Order and the fact that the Barma Order did not cover the transcripts that were passed to the CCB and which were the subject-matter of the appeal and previously the committal application”.  No doubt that statement was made to show that it was not a situation where the Liquidator had misled his own legal advisers.  But the fact was that the court was misled.  The fact that the Liquidator’s team knew of the true position does not improve and depending on the circumstances may exacerbate the situation.

22.  In any event it is not material for present purposes whether it was simply an unfortunate misunderstanding of ill-chosen words or something more serious.  We are now dealing only with the basis of taxation of the costs of hearings which were required to rectify the situation.  In this respect even if the court’s understanding of the Liquidator’ s submissions had not been apparent at the appeal, it would have been obvious from the judgment handed down in August 2006 as well as the costs order nisi where the cut-off date for the Liquidator’s liability for costs was the date of the Barma Order.

23.  However the Liquidator made no attempt to disabuse the court of that false premise so that it could rectify the position as soon as possible.  This was regrettable particularly as the Liquidator is an officer of the court and was the only party who knew for a fact that the Barma Order did not include transcripts of the private examinations.   

24.  Despite the passage of time since the handing down of the judgment in August 2006 and the Directors’ filing of an appeal in September 2006, it was not until a few days before the December 2006 hearing that the Liquidator confirmed that the Barma Order did not include the transcripts of the private examinations.  The Liquidator also actively resisted the application in October 2007 to vary the order even though by then the transcripts of the submissions on appeal had been provided.  Those hearings would not have been necessary had the Liquidator been more forthright in his approach.  The court is entitled in the exercise of its discretion to take this conduct into account.  In my view this is a situation which merits an order that the appellants’ costs of the hearing in December 2006 and of the application for variation in October 2007 be taxed on an indemnity basis.

25.  Finally, as to the interest on the costs which have been repaid by the Liquidator to the Directors, Mr Harris does not dispute that interest is payable and made submissions only on the rate of interest.  I see no reason not to follow the Court of Final Appeal’s approach in Man Ping Nam v Man Fong Hang [2007] 1 HKLRD 763 and would order that interest be paid at the rate of 1% over the HSBC best lending rate from the dates the sums were respectively received by the Liquidator to the date of the Consent Order (28 November 2007) and thereafter at judgment rate until the date of repayment.

26.  Dealing now with the Liquidator’s application to vary the costs order nisi, he has asked that the order that he bear the Official Receiver’s costs be removed and that the Official Receiver bears his own costs of the appeal and the application for variation.

27.  I see no reason to make that variation.  The question whether leave of the court was required before a liquidator disclosed transcripts of private examinations is an important issue which applies generally to this area of company law.  No doubt it was for that reason that Kwan J gave an order on 20 May 2004 that both parties in the committal application were to serve their documents on the Official Receiver, thereby making the Official Receiver a party under s.2 High Court Ordinance, Cap.4.  The Official Receiver was served with the papers for the appeal as well as for the hearings in December 2006 and October 2007.  No objection was raised by the Liquidator to the presence of lawyers representing the Official Receiver at any stage.  There is no reason why the losing party should not bear the Official Receiver’s costs. 

28.  Finally there is the Official Receiver’s suggestion that para. 1 of Kwan J’s order dated 23 September 2004 be set aside.  That was an order that the Liquidator is entitled to recover any shortfall in his costs of the committal application out of the assets of the company.  Obviously that order was made consequential upon the judge’s order that the Directors pay the Liquidator’s costs.  Now that we have given an order that the committal application is to resume before Kwan J, it must logically follow that this order should be set aside so that the judge can exercise her discretion as to costs afresh at the conclusion of that hearing.

29.  As for the costs of this hearing, costs should follow the event, and taking a global view of the issues, I would give an order nisi that the Liquidator pay the costs of the Directors and the Official Receiver on a party and party basis.

CACV 244/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 2004

(ON APPEAL FROM HCCW 735 OF 2002 )

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______________________

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JUDGMENT

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Hon. Tang V-P:

1.  I agree with Yuen JA’s judgment and have nothing to add.

Hon Yeung JA:

2.  I agree with Yuen JA’s judgment.

Hon Yuen JA:

3.  This is an application by the Applicants for this Court to vary the order set out in its judgment handed down on 18 August 2006.  The order has not been sealed.

Variation of order before sealing

4.  It is common ground that before an order is sealed, a court has jurisdiction to vary its order.  However, strong reasons are required before the court would do so and this power would only be exercised in exceptional cases.  I believe the present to be an exceptional case for the reasons appearing below.

The proceedings

5.  The history of these proceedings can be seen in the judgment.   In it I have endeavoured to explain why I considered (contrary to Kwan J’s judgment from which this was an appeal) that as a matter of law, liquidators were obliged to obtain the approval of the Court first before supplying the police with transcripts of examinees’ depositions given in private examinations ordered by the Court under s.221 of the Companies Ordinance Cap. 32.

Liquidator’s supply of private examination depositions to CCB

6.  In the present case the Liquidator had not sought the Court’s approval before providing to the Commercial Crime Bureau (CCB) in January and March 2004 transcripts of the Applicants’ depositions given in private examinations in July 2003.  This was despite the fact that the Liquidator had in correspondence with the 1^st Applicant in November and December 2003 indicated that he would be making a report to the Court. 

Examinees’ motion for committal of Liquidator

7.  On the basis that the Liquidator was obliged at law to obtain the Court’s approval first and that the supply of the transcripts to the CCB was an interference with the administration of justice, the Applicants sought leave to apply for an order of committal against the Liquidator for criminal contempt.  On 20 April 2004 Kwan J gave leave (under Order 52 rule 2 of the Rules of the High Court) to the Applicants on their ex parte application. 

Before Kwan J.

8.  The motion was heard in July 2004.  At the conclusion of the Applicants’ case, Mr Yu SC (then counsel for the Liquidator) made a submission of no case to answer for one or more of the reasons set out in paragraph 4 of the judge’s judgment handed down on 23 July 2004. 

9.  Apart from the submission that in law, leave of the Court was not required for the Liquidator to supply transcripts of private examination depositions to the police, it was also argued on behalf of the Liquidator that:

“

(4)

there is no basis on which the court may be satisfied beyond reasonable doubt as to the actus reus and mens rea of interference with the administration of justice, which is necessary in a criminal contempt”.

10.  According to the judge’s judgment (para. 5), the submission of no case to answer was “primarily based on the contention that as a matter of law, no case for contempt had been made out”. 

11.  The judge first held as a matter of construction of the statute that leave of the Court was not required for the disclosures of the transcripts to the CCB (para. 80).

12.  The judge also went on in paras. 93-102 to discuss the Liquidator’s submission relating to the actus reus and mens rea of criminal contempt.  As far as actus reus was concerned, the judge stated that “no evidence had been led by the applicants to demonstrate any significant and adverse impact on the administration of justice as a result of the acts complained of” (para. 98).  As far as mens rea was concerned, the judge concluded that there was no evidence of any intention on the part of the Liquidator to circumvent any statutory procedure, the evidence only showing that he had changed his mind about proceeding under s.277(1).  In the result the judge was not satisfied that mens rea would have been established (para. 102).

Before this Court

13.  The Applicants appealed to this court.  The appeal was heard in June 2005. 

14.  For the reasons set out in my judgment, I took the view that the Liquidator was obliged at law to obtain the Court’s leave before disclosing transcripts of private examinations to prosecuting authorities.  The Court’s leave was a means of protecting individuals who are compelled to attend examinations if they are “capable of giving information about the company”, who cannot claim privilege against self-incrimination and whose evidence is admissible against them in civil and criminal proceedings.

This Court’s understanding of  the Barma Order

15.  However having arrived at that conclusion as a matter of law, I held that the judge was nevertheless right in finding that there was no case to answer.  This was because I thought that ex post facto, in June 2004 the Liquidator had obtained leave ex parte from the Court (Barma J) to make the same (or at least a similar) statement to the CCB as he had done in March 2004 which had enclosed the transcripts of the private examinations. 

16.  Had that been the case, there would have been no significant and adverse effect on the administration of justice which is needed for the actus reus of contempt of court.  In Attorney-General v Newspaper Publishing Plc [1997] 1 WLR 926, it was held that conduct which was inconsistent with a court order (or in the present case, a statutory provision) in only a trivial or technical way was insufficient to constitute the actus reus of contempt (p.936).  If Barma J had -  just 2½ months after the non-approved disclosures - given leave to the Liquidator to submit the same (or similar) statements to the CCB, then any interference with the administration of justice in making the non-approved disclosures would have been only technical or trivial. 

17.  The situation which gave rise to this understanding on the part of the Court was as follows.  In the course of arguments, counsel for the Liquidator referred to the Barma Order in the following way (Appeal Bundle J, p.2355):

“

MR YU : But my Lady, I will come back to the filter argument, but it is really, with respect, a separate argument because, if I may just put the point that if the court can do it, in other words if the court can make a direction that the matter be reported to the CCB as in fact in this case, I will show your Ladyship and your Lordships that Justice Barma actually made an order to direct that the matter be reported to CCB.  That was done by the application of my client on the basis without prejudice to there being a need to do so but because there was the complaint that what you are doing is a contempt of court.  So he actually did proceed to apply for leave and he got leave from Justice Barma”.  (Emphasis added).

The Barma Order was further referred to in the following way (Appeal Bundle J, pp.2375-6):

“	MR YU : ... I mentioned that in the course of these proceedings, there has been an order made by Justice Barma.  Your Ladyship and Lordships will find it in bundle A at page 1.  And this was an order dated 8th June 2004.  And it was an application made ex parte pursuant to section 200(3), not under section 277.  And it was ordered that the liquidators be granted leave and are directed to submit the revised statement to the Commercial Crime Bureau.  Now if my learned friend be right, even that could not happen.  And it also shows how technical the argument is in this case because this order was made in June 2004 and the judgment of Madam Justice Kwan was in July 2004.
	MR JARVIS : My learned friend refers to this, I think he needs to do so in the context that when this was revealed to us recently, we wrote to his solicitors and said would they please indicate the base upon which the order was made, please provide indication of what disclosure was made because all this was going to be highly material to know whether for example, disclosure was made to Mr Justice Barma that when granting the order for further examination, the safeguards have been put forward.  And we’ve had a blank refusal to provide information in relation to this so we have no idea on what basis this order was in fact obtained.
	MR YU : That’s not an issue in this appeal.  All I’m saying is that one can see how technical this so-called contention is. ...”.  (Emphasis added).

18.  The Barma Order gave leave to the Liquidator and directed him to submit a revised statement to the Commercial Crime Bureau, but it was also ordered that the statements and a letter from the Liquidator be sealed so there was no right of inspection by any party without leave of the court.

19.  As the documents remained under seal, only the Liquidator knew what exhibits had been attached.  I, for one, understood from Mr Yu’s reference to the proximity of the dates (between the Barma Order and the hearing of the motion for committal before Kwan J) that in effect “no harm had been done” from the initial failure to obtain the Court’s leave for the non-approved disclosures.  Otherwise it would be difficult to see why the Barma order and its proximity in time to the committal proceedings would render the Applicants’ case for contempt “technical”.

20.  That understanding was reinforced by the first passage of Mr Yu’s submissions reproduced in para. 17 above (that “Justice Barma actually made an order to direct that the matter be reported to CCB”) and also by his final submissions that there cannot be a “technical contempt” (Appeal Bundle J, p.2449).

21.  The understanding was further reinforced by the fact that when the Barma Order was referred to by the Court on the mistaken assumption that it covered the same subject-matter as the non-approved disclosures, nothing was done on behalf of the Liquidator to disabuse the Court of that belief.  This can be seen from the following discussion between the Court and leading counsel for the Applicants, which did not meet with any clarifications or rectifications on behalf of the Liquidator (Appeal Bundle J, p.2516):

“	JUSTICE TANG : The fact that they could and did obtain an order from Mr Justice Barma, would that have any bearing on your submission on significant and adverse impact on the administration of justice?
	MR JARVIS : My Lord, no, because this is after the event.  The application had been made.  We had made our contempt application.  And I think my learned friend said to the court –
	JUSTICE TANG : I appreciate it took place afterwards but the question that I have in mind is, what was the harm done as it were?  If it is something that they thought it was necessary, they could have applied even before the report was made.
	MR JARVIS : My answer to that very simply is, we would have liked some frankness now.  If that is what they are now saying is, look, there’s no harm done, this is what happened.  We’ve asked them to show us what was given to the judge, what happened and there was a refusal.  I’ve raised it here.  So we have no idea what was presented to the judge at that stage –
	JUSTICE TANG : Alright, thank you.
	MR JARVIS : – it’s been kept totally secret.  That raises more questions than it answers.  And so we would simply say that that really can’t answer the point about damage to the administration of justice”.  (Emphasis added).

22.  Although the Applicants asserted that on their side they believed that the Barma Order did not involve the disclosure of transcripts, that could not have been other than a hypothesis as the Liquidator’s application was made ex parte and the documents remained under seal.  The Liquidator was the only party who knew for a fact that the Barma Order did not cover the same subject-matter of the committal proceedings and no transcripts had been disclosed.  It is unfortunate that even though the Court articulated its “no harm done” impression at the hearing, the Liquidator did not disabuse the Court of that impression.  In reply counsel for the Liquidator reiterated the confidentiality of the Barma Order, but the Liquidator would not have been breaching any confidentiality by telling this Court what it did not cover, he would only have been breaching it by disclosing what it did cover.  The end result was that the Court’s misconception that the Barma Order gave leave to the Liquidator to make a statement to the CCB enclosing the transcripts was perpetuated by the Liquidator’s silence.

23.  The matters set out above led the Court to take a mistaken view of the facts which for my part had a significant bearing on my judgment that the judge was correct to find that the Liquidator had no case to answer.  This was reflected in the original order nisi for costs which was that the Liquidator bear the Applicants’ costs and the Official Receiver’s costs of the application for the period before Barma J’s order and that the Liquidator’s and the Official Receiver’s costs thereafter be paid by the Applicants. 

Case to answer

24.  It was on that mistaken assumption that the Barma Order covered the same (or similar) subject-matter as the non-approved disclosures that I took the view that no substantial harm had been done to the  administration of justice, which was necessary to constitute the actus reus for contempt.  Had I not been labouring under that mistaken premise, I for one would have found that the judge was in error in finding that there was no case to answer. 

25.  In my view the actus reus comprised of the supply by the Liquidator of the transcripts of the private examinations to the CCB without first obtaining leave of the Court, contrary to rule 62 of the Winding Up Rules (which has effect as if enacted by the Ordinance).  The integrity of the Court’s process under s.221 and rule 62 was compromised by that conduct.  That was sufficient evidence of a substantial interference with the administration of justice, there having been no mitigation of its effect because (as we now know) no leave was obtained at any stage and the Liquidator did not attempt to argue that leave would have been obtained if sought.

26.  As for the mens rea, there is at least prima facie evidence in that the Liquidator had twice referred to his intention to approach the Court but eventually failed to do so.  An intention to interfere with the administration of justice (to be distinguished from a motive or desire to do so) can be inferred from all the circumstances including the foreseeability of the consequences of the conduct (Attorney General v Newspaper Publishing Plc [1988] Ch 333, 374H-375A).  In supplying the transcripts to the CCB, the Liquidator must have known that he was destroying the confidentiality of the depositions which rule 62 was intended to prevent (Attorney-General v Punch Ltd [2003] 1 AC 1046 para. 52).  It is inappropriate to comment any further at this stage. 

Variation of Court’s order

27.  I would propose that the following order be made in place of the order which was made on 18 August 2006 but which has not been sealed:

“	(1)	the Applicants’ appeal be allowed,
	(2)	the judge’s order that there be no case to answer be set aside,
	(3)	the motion be remitted to the Court of First Instance for resumption of the hearing before Kwan J. and
	(4)	there be an order nisi that the Respondent pay the costs of the appeal of the Applicants and the Official Receiver including the costs of the hearing before us in December 2006 and of the application for variation”.

28.  After the hearing before this Court on 3 October 2007, the parties have by way of correspondence made submissions to the Court as to whether the motion should be remitted to another judge for re-trial or whether it should be remitted to Kwan J for resumption of the hearing before her.  There is no allegation of actual bias and as a professional judge, Kwan J is well able to re-consider relevant issues as to actus reus and mens rea in accordance with the views expressed by this Court in its judgment.  I am also conscious of the question of costs that would be wasted should there be a re-trial, and of the risk that at a re-trial, the parties may seek to supplement the evidence originally presented.

29.  Finally as a matter of completeness I would record that Miss Chan for the Official Receiver also sought to take the opportunity to re-argue some other parts of the judgment handed down in August 2006.  We declined to hear her application as we did not think that strong reasons existed for us to do so.

CACV 244/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 2004

(ON APPEAL FROM HCCW 735 OF 2002 )

______________________

----------------

JUDGMENT

----------------

Hon.  Yeung JA:

1.  I have had the advantage of reading the judgment of Yuen JA.  I agree with her judgment and the order set out in paragraph 112 hereof.

Hon. Yuen JA:

2.  On 23 July 2004, Kwan J. dismissed an application by Kelly Cheng      Kit Yin and Robert Yip Kwong, both former directors of Wing Fai      Construction Co Ltd ("the Company") for an order to commit David   John Kennedy ("the Liquidator"), one of the liquidators of the   Company, for criminal contempt of court.  The application was  dismissed by the judge on the ground that the Liquidator had no case   to answer.  The applicants appealed. 

3.  As a matter of completeness I should add that after the hearing of this appeal in June 2005, there was an application by the appellants to amend the Notice of Appeal to include an appeal against the judge’s decision given on 23 September 2004 in respect of costs.  On 6 October 2005, the application to amend was allowed and directions given in respect of the costs issue.  On 14 October 2005, an Amended Notice of Appeal was filed. 

Issue

4.  This appeal raises an interesting and important issue on the use to which liquidators may put depositions given under compulsion in private examinations ordered under s.221 Companies Ordinance ("the Ordinance") and undertaken under rule 62 of the Winding-Up Rules ("W-Up Rules"), in particular the supply of depositions to the police directly without first seeking the approval of the court who had ordered the examination.

5.  There are two competing forces at work.  On the one hand, there are the concerns of the individuals whose depositions were given - under compulsion - in circumstances conferring a certain degree of confidentiality.  On the other hand, there is the public interest in the furtherance of good corporate governance which may involve,  where appropriate, the prosecution of those who may be criminally liable. 

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

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

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

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

(Emphasis added).

The following points are notable:

- this section applies only in a winding-up by the court, not a voluntary winding-up; but

- it applies to all persons, whether officers of the company or not; and

- merely so long as the person is deemed capable of giving information about the company.

- Further, s.296(2A) of the Ordinance provides:

"an answer given by a person to a question put to him in exercise of powers conferred by rules made under this section [which include the Winding-Up Rules] may be used in evidence against him".  (Emphasis added).

As there is no limit to the type of proceedings in which the evidence may be used, the answers may be used in civil and criminal proceedings.

11.  Section 221 operates however together with rule 62 of the W-Up Rules, which under s.296(2) of the Ordinance, "shall have effect as if enacted by this Ordinance". 

12.  Rule 62 of the W-Up Rules provides:

"62.   Depositions at private examinations

(1) The Official Receiver or liquidator may attend in person, or by counsel or by solicitor employed for the purpose, any examination of a witness under section 221 of the Ordinance, on whosesoever application the same has been ordered, and may take notes of the examination for his own use, and put such question to the persons examined as the court may allow.

(2) The notes of the depositions of a person examined under section 221 of the Ordinance, or under any order of the court before the court, or before any officer of the court, or person appointed to take such an examination (other than the notes of the depositions of a person examined at a public examination under section 222 of the Ordinance) shall not be filed, or be open to the inspection of any creditor, contributory, or other person, except the Official Receiver or liquidator, or any provisional liquidator other than the Official Receiver, while he is acting as provisional liquidator, unless and until the court shall direct, and 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 and the furnishing of copies of or extracts therefrom".

(Emphasis added).

The import of these provisions will be discussed later. 

Public examination - s.222 and rule 59

13.  By way of contrast with private examination under s.221 and rule 62, it may be convenient to set out here the provisions for public examination under s.222 and rule 59 which were enacted at the same time and which remain in force.  

14.  Section 222 provides:

"222. Power to order  public examination of promoters, directors, etc.

(1) Where an order has been made for winding up a company by the court, and the Official Receiver or liquidator has made a further report under this Ordinance stating that in his opinion–   

(a) a fraud has been committed by any person in the promotion or formation of the company or by any officer of the Company in relation to the Company since its formation; or

(b) [repealed]

the court may, after consideration of the report, direct that that person or officer shall attend before the court on a day appointed by the court for that purpose and be publicly examined as to the promotion or formation or the conduct of the business of the company or as to his conduct and dealings as officer thereof.

(2) The Official Receiver or liquidator, as the case may be, shall take part in the examination, and for that purpose may, if specially authorized by the court in that behalf, employ a solicitor with or without counsel.

(3) The Official Receiver or the liquidator, where he is not the party making the further report, and any creditor or contributory, may also take part in the examination either personally or by solicitor or counsel.

(4) The court may put such questions to the person examined as the court thinks fit.

(5) The person examined shall be examined on oath, and shall answer all such questions as the court may put or allow to be put to him.

(6) A person ordered to be examined under this section shall, before his examination, be furnished with a copy of the further report, and may at his own cost employ a solicitor with or without counsel, who shall be at liberty to put to him such questions as the court may deem just for the purpose of enabling him to explain or qualify any answers given by him: 

Provided that, if any such person applies to the court to be exculpated from any charges made or suggested against him, it shall be the duty of the Official Receiver or liquidator, as the case may be, to appear at the hearing of the application and call the attention of the court to any matters which appear to him to be relevant, and if the court, after hearing any evidence given or witnesses called by the Official Receiver or liquidator, as the case may be, grants the application, the court may allow the applicant such costs as in its discretion it may think fit.

(7) Notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined, and may thereafter be used in evidence against him, and shall be open to the inspection of any creditor or contributory at all reasonable times.

(8) The court may, if it thinks fit, adjourn the examination from time to time"             

(Emphasis added).

The following points are notable:

- as with s.221, s.222 applies only in a winding-up by the court, not a voluntary winding-up;

- it applies only where the Official Receiver or the liquidator suspects fraud committed by promoters or officers;

- a ‘further report’ (i.e. after the usual ‘preliminary report’)  by the Official Receiver or liquidator is required - this is provided for in s.191(2) and (3);

- the court has a discretion whether to order a public examination after consideration of the further report;

- if a public examination is ordered, the examinee is given a copy of the further report before the examination; and

- the examinee may before the examination apply to be exculpated.

15.  Section 222 operates with r. 59 which provides:

"59.Use of depositions taken at public examinations

Where in the course of the proceedings in a winding up by the court an order has been made for the public examination of persons named in the order pursuant to section 222 of the Ordinance, then in any proceedings subsequently instituted under [s.276: damages against delinquent officers, etc.; s.275(1), (2) or (4): fraudulent trading; s.168I: disqualification of directors; s.358(2): relief from claims], the verified notes of the examination of each person who was examined under the order shall, subject as hereinafter mentioned, and to any order or directions of the court as to the manner and extent in and to which the notes shall be used, and subject to all just exceptions to the admissibility in evidence against any particular person or persons of any of the statements contained in the notes of the examinations, be admissible in evidence against any of the persons against whom the application is made, who, under section 222 of the Ordinance, and the order for the public examination, was or had the opportunity of being present at and taking part in the examination:

Provided that before any such notes of a public examination shall be used on any such application, the person intending to use the same shall, not less than 15 days before the day appointed for hearing the application, give notice of such intention to each person against whom it is intended to use such notes, or any of them, specifying the notes or parts of the notes which it is intended to read against him, and furnish him with copies of such notes, or parts of notes (except notes of the person’s own depositions), and provided also that every person against whom the application is made shall be at liberty to cross-examine or re-examine (as the case may be) any person the notes of whose examination are read, in all respects as of such person had made an affidavit on the application".          

16.  Sections 221 and 222 and rules 62 and 59 were modelled on English legislation which has now been amended.  This will be discussed later. 

17.  It may be convenient now to briefly set out the facts which led to this appeal. 

Factual background

18.  The Company was part of the China Rich Group of companies.  On 6 July 2002, a petition was presented to wind up the Company.  The Respondent Mr Kennedy and Cosimo Borelli, both of RSM Nelson Wheeler Corporate Advisory Services Ltd (“RSM Nelson Wheeler”), were appointed provisional liquidators.  On 9 December 2002, the Company was wound up.  On 28 February 2003, they were appointed full liquidators.

19.  Since the appointment of provisional liquidators, the Company has become involved in various proceedings, including winding-up proceedings of another company and writ actions against companies and individuals.

20.  The materials before us show that the relationship between the liquidators and the former directors was, to use a neutral term, difficult.  The liquidators considered the former directors to be uncooperative, and the former directors considered the liquidators to be overly aggressive.  It is not necessary for present purposes to decide who was right on which occasion.  Any judge who has dealt with compulsory liquidations would have had experience of liquidators being over-suspicious and former directors being over-defensive.    

Order for private examination

21.  On the liquidators’ application, Deputy Judge To made an order under s.221 on 25 March 2003 for the private examination of (amongst others) Miss Cheng and Mr Yip, both former directors of the Company ("the Examinees").  We were not referred to the grounds for the application.  As a matter of completeness, I would mention that neither Examinee has been charged with criminal offences.

22.  The examinations took place in July 2003.  There was another round of examination for Mr Yip which took place in February 2004.

Liquidator’s letter of 24 November 2003 to Miss Cheng

23.  However on 24 November 2003, a letter under RSM Nelson Wheeler’s letterhead and signed by the Liquidator was sent to Miss Cheng ("the 24.11.2003 letter").  This letter was marked ‘Private and Confidential’ but was faxed to Miss Cheng’s office. 

24.  The Liquidator’s letter referred to inconsistencies between Miss Cheng’s "previous sworn evidence and either subsequent sworn evidence of yourself or evidence obtained by us from other sources".  It went on to say:

"Based on the information that I have and your failure to clarify any inconsistencies, I am firmly of the view that you have perjured yourself in both current proceedings on foot and your Section 221 examination.  I am also firmly of the view that you have manipulated documentation to support your various claims in the various proceedings.  Whilst these are very serious allegations I consider that you have done so having been motivated by a desire to defraud creditors of [the Company]".  (Emphasis added).

Parts of Miss Cheng’s depositions at the private examination, amounting to about 2½ pages, were then set out verbatim in the 8-page letter.  The letter concluded with the following statement:

"I have a duty under s.277 of the Companies Ordinance to report to the Court if I suspect a former director of the company in Liquidation has committed a criminal offence.  Based on the evidence I have gathered in the course of the Liquidation, it is my view that you may have committed several serious criminal offences.  I am now in the process of providing my evidence to the Court with a view to obtaining instructions from the Court to refer the matter to the Department of Justice.  If you have anything that you wish to add or clarify with respect to the above prior to me doing so then I request you do so within 14 days, failing which I shall make my report based on my understanding of the position and the evidence in my possession".  (Emphasis added).

25.  Section 277, to which the Liquidator referred, provides (where relevant) as follows:

"277. Prosecution of delinquent officers and members of company

 (1) If it appears to the court in the course of a winding up by the court that any past or present officer or member of the company has been guilty of any offence in relation to the company for which he is criminally liable, the court may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator to refer the matter to the Secretary for Justice".  (Emphasis added).

Defamation action issued by Miss Cheng against the Liquidator

26.  Miss Cheng’s response to the 24.11.2003 letter (apart from a brief denial of the allegations) was to issue a writ on 5 December 2003 against Mr Kennedy and RSM Nelson Wheeler for defamation, on the ground that the letter had been sent to a fax machine in the general office where it was published to third parties.

27.  On 9 December 2003, the Liquidator wrote to Barlow Lyde and Gilbert, Miss Cheng’s solicitors, referring to the intention expressed in the 24.11.2003 letter (of making a report to the Court under s.277) and said amongst other things:

" ... I shall make my report to Court based on information currently in my possession".  (Emphasis added).

The Liquidator did not however make a report to the Court. 

Liquidator’s supply to police of private examination depositions

28.  Instead on 20 January 2004, the Liquidator made a Report directly to the Commercial Crime Bureau of the police.

29.  In this report, of which we now have a redacted version, the Liquidator alleged that Miss Cheng had:

"knowingly perjured herself in sworn testimony with the intent of defeating lawful claims of [various companies including the Company] against herself [and others], and also with the intent to defraud creditors of [various companies including the Company]".

30.  Annexed to the report was a copy of the 24.11.2003 letter which, as I have mentioned, contained verbatim extracts from Miss Cheng’s depositions at the private examination.

31.  Further on 31 January 2004, the Liquidator made a Statement to the police, of which we also have a redacted version.  Attached to this statement were the transcripts prepared from Miss Cheng’s depositions at the private examination.   

32.  On 31 March 2004, the Liquidator made a Further Statement to the police, this time including allegations against Mr Yip.  We have also been supplied with a redacted version of this statement.  Although there is a reference to Mr Yip’s examination in February 2004, his depositions on that occasion do not appear to have been supplied.

33.  What were however supplied to the police were the entire transcripts of the private examination in July 2003.

Use of depositions in civil proceedings

34.  I have referred earlier to the fact that since the appointment of provisional liquidators, the Company has become involved in a number of proceedings.  Between September 2003 and April 2004, the Liquidator also quoted and exhibited the Examinees’ depositions in those proceedings, as well as in the defamation action which was brought against himself personally (and RSM Nelson Wheeler).

Application for committal for contempt

35.  In April 2004, the Examinees applied for an order of committal of the Liquidator, on the grounds that he was in contempt of court in supplying the depositions from the private examination directly to the police without the court’s approval and also in using the depositions in those civil proceedings.

36.  On 20 April 2004, Kwan J gave leave for the application to issue.

Dismissal of application for committal

37.  At the hearing of the application, the applicants were cross-examined.  At the conclusion of their case, the judge held (amongst other things) that as a matter of law the Liquidator did not need to obtain the court’s approval to supply the depositions to the police and that there was no case to answer.  The application was dismissed.

Discussion

38.  Whilst I agree that the court’s leave was not necessary for the use of the depositions in the civil proceedings, with great respect to the judge, I do not agree that leave was not required for the supply of the depositions to the police.

Genesis and development of private examination

39.  It may be helpful to start with a word on the genesis of these examinations.  It would appear that in England the procedure of examination started with examination of bankrupts, whose harsh treatment  in Dickensian times was notorious.  It was then introduced to corporate insolvencies.  Private examination was first introduced, followed by public examination and the relevant rules.

40.  In Hong Kong, the Companies Ordinance was first modelled on the 1929 Companies Act, some amendments being made later, consequent on new enactments in the 1948 Companies Act.  However the Insolvency Act 1985-6 effected significant changes to the English legislation, and some of the statute law introduced by this Act and other relevant enactments have not been adopted in Hong Kong.

41.  The following index of section numbers (not meant to be comprehensive) may be useful when referring to some of the English cases, subject to the caveat that section numbers shown against the Insolvency Act are not intended to refer to equivalent sections but only to those provisions where the relevant English legislation can now be found. 

Cos Act/Cos Ord.	s.221	s.222	r.62	s.277
1862	s.115
1890		s.8
1908	s.174	s.175
1929	s.214	s.216	r.72	s.277
1948	s.268	s.270	"	s.334
Insolvency Act
1986	s.236	s.133	r.9.4	s.218(1)
			&  r.9.5

New approach in English legislation after Insolvency Act 1985-6

42.  Apart from the Insolvency Act, the Company Directors Disqualification Act was also enacted in 1986.  Some of the provisions in the latter act have been adopted in Hong Kong and incorporated into the Companies Ordinance under Part IVA (s.168C - s.168T).

43.  However, the approach of the Insolvency Act in assimilating personal and corporate insolvencies into one single statutory regime was not adopted in Hong Kong.  The courts in England have however held that "the primary task of the courts is to construe the Insolvency Act 1986 as it stands, without regard to the legislative histories of its various components” (Bishopsgate Investment Management Ltd (in provisional liquidation) v Maxwell, p.21 per Dillon LJ).

Other relevant enactments in England

44.  Apart from that approach in the Insolvency Act, there are now some additional enactments in England that are relevant to the law on private examination but which have not been adopted in Hong Kong.   

45.  The first example is s.235 I.A. which imposes on a wide class of persons concerned with the running of a company a mandatory duty to give such information as the office-holder (such as a liquidator) may “reasonably require”.  No application to the court is required and there is no discretion in the matter.  This section has not been adopted in Hong Kong.

46.  A second example is that s.218(3) I. A. now imposes a statutory obligation on liquidators in a winding-up by the court to report criminal activity by officers and shareholders to the Official Receiver.  This section has not been adopted in Hong Kong.

47.  A third example is that the Serious Fraud Office (“the SFO”) has been given special inquisitorial powers under the Criminal Justice Act in the investigation and prosecution of serious fraud.  There are conferred on the Director powers to put questions to persons under investigation (which answers are not however admissible in criminal proceedings) and to serve notice requiring documents from any persons (which as we shall see includes liquidators).  We have not been referred to any equivalent statute in Hong Kong.

48.  A fourth example is the amendment to s.133 which omits the requirement of the further report in the process of applying for a public examination.  This has not been adopted in Hong Kong.

49.  I have pointed out these differences as a reminder that it is important to consider the Hong Kong legislation on its own and as it stands, because part of the rationale expressed in the more recent English decisions may not be applicable.

50.  In relation to the Hong Kong legislation, I have earlier referred to some notable features of s.221 (private examination) and s.222 (public examination).  They may be considered in juxtaposition. 

Features of public examination

51.  A public examination can be attended by all, including the police.  The examinee is compelled to answer questions.  It has long been accepted (since 1896, according to Bishopsgate, p.45)that the examinee cannot claim privilege against self-incrimination.  His answers can be used in evidence against himself.  

52.  However a public examination can only be held after (i) fraud has been asserted by the Official Receiver or the liquidator in a further report, (ii) after the court has considered the materials in that report, and (iii) after the examinee has failed in his attempt to exculpate himself. 

53.  It is clear from the number of stages set out above that the legislature does not expect an allegation of fraud to be made lightly, or a public examination to be ordered easily.  That is understandable because of the draconian ramifications I have summarized in paragraph 51.

Features of private examination

54.  In a private examination however,

(1) the threshold requirement is substantially lower.  The applicant need only show that the individual to be summoned is “capable of giving information” about the company: s.221(1);

(2) and the range of purposes for which an application may be made is not limited to getting in the assets;

(3) nevertheless an examinee has no privilege against self-incrimination;

(4) and, as we have seen, s.296(2A) provides that answersmay be used in evidence against the examinee. 

55.  Comparing the above, one may well ask the question – what features does a public examination have that a private examination does not have (and with less demanding requirements)?  If nothing, what does the legislature intend by maintaining these two separate types of examination?

56.  In my view, the difference is that the privacy of a s.221 examination is protected by the court under rule 62, and whilst a liquidator may use the depositions to fulfill his functions as a liquidator, those functions do not include the supply of depositions to the police without the approval of the court.

Purpose of private examination

57.  In my view, this is consistent with the purpose of a private examination.  The statute does not expressly state the purpose for which an order of private examination may be given, but through the years the courts have developed the range of purposes for which an order may be made.

58.  It has long been established that the primary purpose was to enable liquidators to complete their functions as effectively as possible, with as little expense as possible and with as much expediency as possible (In re Rolls Razor Ltd [1968] 3 All ER 698, p.700).  It is not restricted to getting information to assist liquidators in getting in the assets of the company, although that would usually be the primary purpose (Hamilton v Naveide on appeal from Re Arrows (No.4) [1995] 2 AC 77, H.L., p.102).    

59.  It has therefore been held that the Official Receiver may apply for a private examination to obtain information to enable him to consider whether to institute directors disqualification proceedings (C.A. Pacific Finance Co Ltd HCCW 36/1998, unrep. 6 Nov. 2001), a decision consistent with the decision in England in In re Pantmaenog Timber Co Ltd [2004] 1 AC 158, H.L..

60.  A  liquidator is obliged under statute to report conduct which may render a person unfit to be a director: s.168I(3).  (This is however just the first step of a reporting chain.  The liquidator makes a report to the Official Receiver, not to the police.  The Official Receiver himself then has a discretion whether to make a report to the Financial Secretary, who then considers if disqualification proceedings should be brought).

61.  However, notwithstanding that statutory obligation, Lord Millett held inPantmaenog Timber that it would not be unreasonable for a liquidator torefuse to apply for a private examination at the expense of the estate where the sole purpose would be to obtain information for disqualification considerations (para. 71).

62.  If that is so where the liquidator has a statutory obligation to report such conduct, then it is unlikely that the legislature intended a liquidator to apply for a private examination solely to obtain information to be supplied to the police.  I shall discuss in more detail later (paras.90-93) the provisions in the Hong Kong legislation regarding the part that liquidators are intended to play in the reporting of criminal conduct of which they become aware. 

63.  In Barlow Clowes Gilt Managers Ltd [1992] Ch 208, Millett J (as he then was) held that “whenever there are parallel investigations by the police, the Department of Trade and Industry and the liquidators of a collapsed company, as in the present case, the task of the liquidators is to obtain information, not evidence” (p.220).

64.  In any event in my view a court would not exercise its discretion to give an order for private examination for the purpose of enabling liquidators to supply information to the police.  The courts have always safeguarded its power to order a private examination.  It has been accepted that it is an oppressive process, and that is so whether for third parties or for officers of the company (Shierson v Rastogi [2003] 1 WLR 586).

65.  In In re Spiraflite Ltd [1979] 1 WLR 1096, Megarry J said that a court would not just make an order merely for the asking.  A private examination is held under the auspices of the court, insolvency being “a process conducted by, or under the control of, the court acting through its officers, the liquidators” (Hamilton v Naviede, p.102).

66.  The courts have therefore always been careful not to let its process be used unfairly, especially if the powers exercisable are unusually wide and the ramifications particularly serious for the individuals subjected to the process.

67.  In my view, the bringing of proceedings against delinquent officers is not a predominant purpose justifying an order for private examination against which no countervailing factors can be placed.  Before considering whether to order a private examination, the court always takes into account all the circumstances to see if a private examination would  offend against elemental fairness, such as the availability of other sources of information, the urgency of the need for information, and in the case of civil proceedings whether they are contemplated or pending (Shierson v Rastogi paras. 56, 58). 

68.  That this balancing exercise was undertaken by the Court of Appeal in Shierson v Rastogi before ordering a private examination against a director - even though s.235 I.A. now makes it mandatory for officers to give information to liquidators (para. 26) - shows that the court is still wary of the oppressive nature of a private examination and would not order a private examination without due circumspection even for well-established purposes for which an order may be made.

Use of depositions in civil proceedings 

69.  At this stage it may be convenient to briefly deal with the Liquidator’s use of the depositions in the civil proceedings.  It is clear in my view that the use was covered by rule 62(1).  That rule allows a liquidator to attend a private examination and make notes of the examination for his “own use”.  In my view that refers to use by the liquidator in that capacity in the course of administering the estate.  That would include the various civil proceedings in which the Company is involved. 

70.  Since Cloverbay Ltd v BCCI [1991] Ch 90, the courts have done away with the rule that a private examination would not be ordered after the liquidators have made a firm decision to sue the proposed examinee.  It is now accepted that there is “a distinction ... between applications for the (impermissible) purpose of improving the liquidators’ position in current civil litigation against the proposed examinee and applications for a permissible purpose which may at the same time have the result of improving the liquidator’s position in other respects” (Shierson v Rastogi para. 58).

71.  Further it has been recognized that the use of depositions in administering a company may be extended to its subsidiaries, to enable the assets of the subsidiaries to be got in for the good of the parent (Re Esal (Commodities) Ltd [1989] BCLC 59, p.65). 

72.  Finally as for the defamation proceedings, although the Liquidator has been sued in his personal capacity, the depositions were referred to in response to Miss Cheng’s assertions in the writ and she must be taken to have waived the Liquidator’s duty of confidentiality accordingly.

73.  I do not see therefore any objection to the Liquidator’s use of the depositions in the civil proceedings.

74.  With that I return to the nub of this appeal - the Liquidator’s supply of the depositions directly to the police without first seeking the approval of the court. 

No privilege against self-incrimination

75.  The most oppressive aspect (or as Mance LJ preferred to describe it in Shierson v Rastogi, the most draconian aspect) of a private examination is the abrogation of the privilege against self-incrimination. 

76.  In England it had previously been thought that the privilege was only abrogated in public examinations but after the passing of the Insolvency Act 1986, it was held first by Vinelott J in In re Jeffrey S.  Levitt Ltd [1992] Ch 457 and then by the Court of Appeal in Bishopsgate that the privilege has been impliedly abrogated in private examinations as well.  This was taken by the House of Lords in Hamilton v Naviede to be the law.    

77.  The primary rationale in Bishopsgate was that as a result of the overall review of insolvency law after the Cork Report, individual insolvency has been assimilated with corporate insolvency and there was no reason why a private examinee in corporate insolvency should have the privilege when it was not available for bankrupts (Bishopsgate p. 31, p.41).

78.  In Hong Kong that rationale does not apply but in Re Weihong Petroleum Co Ltd [2002] 1 HKLR 541, Kwan J held that adopting a purposive approach, the common law privilege has been impliedly abrogated in private examinations.  In Joint and Several Liquidatorsof Kong Wah Holdings Ltd (in compulsory liquidation) v James Henry Ting HCCW 49/2000, unrep. 7 September 2004, Kwan J held, in respect of an individual who had been charged, that private examination could take place notwithstanding the common law privilege which, as far as testimony was concerned, was enshrined in Article 11(2)(g) of the Hong Kong Bill of Rights. 

79.  On appeal in Kong Wah, this court (Ma CJHC and Rogers V-P) upheld the judge’s decision (CACV 304/2005, unrep. 13 April 2005).  In that case, a charge had been laid under the Theft Ordinance, so s.33(1) of that Ordinance provided "compensatory protection" for the individual.   Section 33(1) says that “a person shall not be excused, by reason that to do so may incriminate that person of an offence under [the Theft 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 ... but no statement or admission made by a person in answering a question put ... shall, in proceedings for an offence under the Ordinance, be admissible in evidence against that person ...”.  (Emphasis added). 

80.  I should however add that one of the reasons given by the Court of Appeal in Kong Wah - that there was no equivalent section to s.433 I. A. in Hong Kong (para. 15) - may have been in error, as s.296(2A) appears to have escaped the court’s notice.  Be that as it may, it is common ground between the parties in this case that the privilege against self-incrimination has been abrogated in private examination so I shall say no more on this aspect.

81.  In HKSAR v Lee Ming Tee [2001] HKLRD 599, the Court of Final Appeal also held that the privilege against self-incrimination had been abrogated for answers given to inspectors appointed under s.145 of the Ordinance, although the section offered some protection to individuals in that if they claimed the privilege before answering, neither the question nor the answer would be admissible in evidence against him except for two limited offences.

82.  That however may be contrasted with the position under s.221, which - if the Liquidator is right - would allow him to supply directly to the police answers given by private examinees with no protection at all.  Section 296(2A) makes the answers admissible in evidence against the individual compelled to give them.  Counsel for the Liquidator did not proffer any rationale for this inconsistency save to argue that s.33(1) of the Theft Ordinance was a “quirk”.

Recapitulation

83.  In summary, so long as an individual (whether an officer or third party) is simply deemed capable of giving information about a company, in a private examination

- he would be compelled to answer self-incriminating questions, 

- his answers would be admissible in civil and criminal evidence against himself,

- and if the Liquidator is right, those answers could be supplied directly to the police without any process of filter or safeguard however serious the allegations made against the individual, in contrast to

- the elaborate system of safeguards for public examination (s.222),

- the protection given to individuals under s.33(1) Theft Ordinance (as in Kong Wah), and

- the protection given to individuals under s.145 of the Ordinance (as in Lee Ming Tee).

84.  That scenario is so extraordinary that one’s immediate natural reaction is that serious consideration must be given to the question whether the legislature did so intend, or whether the legislature intended that the individual retained a measure of “substituted protection”.

Protection provided by court control of depositions 

85.  In my view, the protection for the individual lies in the court’s control of the depositions under rule 62.  The House of Lords has held in Hamilton v Naviede that the rules are not “mere machinery” (p.104).  It has also been held by Millett J that the process of getting leave from the court is not to dispense with the general principle of confidentiality but to secure compliance with it (Barlow Clowes p.218).

86.  It has been argued by the Liquidator that the supply of the depositions is part of his “own use” of them under rule 62(1) because it is his duty to report criminal conduct to the police. 

Contrast with position in voluntary winding-up

87.  First, we have been referred to s.277(2) of the Ordinance which provides that a liquidator in a voluntary winding-up has a mandatory duty to report criminal conduct to the Secretary for Justice.  There is no provision that he should first seek the approval of the court.  It was argued that if a liquidator in a voluntary liquidation has such a duty, then likewise for a liquidator in a winding-up by the court and s.277(1) did not affect that position.

88.  In my view, the answer to that argument lies in the fact that a liquidator in a voluntary liquidation does not have the powers given to a liquidator in a winding up by the court, in particular the power to seek a private examination.  His materials would not have been obtained through compelling an individual to answer self-incriminating questions.  And since a voluntary winding up is not held under the auspices of the court, it is not surprising that there are no references to a prior application to the court (save to compel the voluntary liquidator to make a report: s.277(3)). 

Expansion of liquidators’ functions

89.  Secondly, emphasis has also been placed by the Liquidator on the passages in the speeches of the House of Lords in Pantmaenog Timber on the expansion of liquidators’ functions to include investigation of the cause of the company’s failure and the conduct of those concerned in its management. 

90.  We have seen that it is part of the liquidators’ statutory functions to report to the Official Receiver conduct that may render a person unfit to be a director.  In England, s.218(3) I.A. also now provides:

"If in the case of a winding up by the court in England and Wales it appears to the liquidators, not being the official receiver, that any past or present officer of the company, or any member of it, has been guilty of an offence in relation to the company for which he is criminally liable, the liquidators shall report the matter to the Official Receiver".

91.  It would first be noted that the statutory obligation in England is to report to the Official Receiver, not the police, so there is therefore a filtering process built into the regime.  In Scotland, where s.218(3) I.A. does not apply, it is considered that liquidators should apply to the court to make a report (Sealy & Milman: Annotated Guide to the Insolvency Legislation 2005/2006, 8th ed vol. 1 p.237).

92.  Although there is no statutory equivalent to s.218(3) in Hong Kong,  I do not say that liquidators should not report criminal conduct.  The issue is how he does so.  Where the winding up is by the court, with very powerful weapons such as s.221 at the liquidators’ disposal, reading the legislation as a whole (including s.222 and s.277(1), together with contrasting provisions in s.33(1) of the Theft Ordinance and s.145 of the Ordinance) I think that the “own use” to which a liquidator may put the depositions, were he to consider a report to the police appropriate, is to employ the depositions to support his application to the court under s.222 and/or s.277 (which application may be ex parte in the first instance).

93.  Whatever his functions, a liquidator’s documents (be they his own notes or his copy of official transcripts) are not his private records, for him to deal with as he pleases.  They are held to the order of the court (Hamilton v Naviede pp. 102, 104) and they should not be allowed to leave his control except in accordance with statutory intention.  It is well-established that once documents are disclosed, a civil court would not be able to place restrictions on what a criminal court may or may not admit as evidence (Rank Film Distributors Ltd v Video Information Centre [1982] AC 380, H.L.).

Umbrella of rule 62 protection

94.  As for the Liquidator’s argument that rule 62 was only for the protection of liquidators (which the judge agreed with), I see no reason why the section should be read down in that way.  Certainly I would agree that in a situation where say, a former book-keeper is examined, rule 62(2) serves to protect the privacy of the information so obtained by the liquidator, away from say, a creditor to whom the company may or may not owe what is claimed.  But that is simply because the cause of the winding up would not be assisted by such disclosure.  

95.  In my view, rule 62 is wide enough to protect whoever the court thinks it just and fair to be protected.  The individual who is compelled to give self-incriminating answers which are admissible in evidence against himself has a right to have a court at least consider whether to protect him. 

96.  The court may or may not give him that protection.  It 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 examinee’s involvement, etc.  But at least he is not at the mercy of liquidators who may be misguided or ‘trigger-happy’ or at worst, may succumb to the temptation of using self-incriminating answers as an unspoken  threat.

97.  In Spiraflite, Megarry J (as he then was) recognized that "liquidators are of course human and from time to time there may be liquidators whose discoveries or suspicions in their investigation of a company’s affairs produce in them an excess of zeal; and there may be other failings too" (p.1101). 

98.  Whilst a liquidator may have powers conferred under the Ordinance or by the court, as Nourse LJ noted, referring to a liquidator’s need for information conflicting with oppression to the examinee in the context of contemplated civil litigation: "that does not mean that he [the liquidator] is cast in some quasi-judicial role, anymore than is counsel or a solicitor. ... Least of all does he have either the duty or the competence to balance the two conflicting principles" (Cloverbay v BCCI, p.107).

99.  The court is on the other hand well-suited for and is experienced in the role of balancing the demand of furthering the public interest with that of safeguarding the individual.  It would simply be an extension of the balancing exercise which the court undertakes when it considers whether to order a private examination.  The courts have long recognized the "desirability of examinees having the right to have the unfettered discretion of the judge brought to bear on any exercise of this extraordinary jurisdiction" (In reRolls Razor (No. 2) [1970] 1 Ch 576, p.591, emphasis added).

100.  Unrestricted direct divulgence to the police of depositions taken at a private examination (in which an individual would be compelled to answer incriminating questions which may be used in evidence against him) in my view

- is not articulated in the Ordinance,

- would undermine the legislative purpose of the safeguards built into the public examination process (s.222),   

- would not be a permissible purpose for an order for private examination and 

- would be inconsistent with other statutory provisions (including the protection given to the individual under s.145 of the Ordinance and s.33(1) of the Theft Ordinance).

If a liquidator considers that the depositions reveal criminal conduct that should be reported to the authorities, it is for the court in the exercise of its discretion to decide whether to approve disclosure of those depositions. 

101.  This view is consistent with the decision of the House of Lords in Hamilton v Naviede.  In that case after certain persons were arrested and charged, liquidators sought an order for their private examination.  The judge directed the liquidators that if the SFO should require the liquidators to produce the depositions (as the Director was entitled to do under the Criminal Justice Act), they should first seek directions from him.

102.  When later the SFO served notice on the liquidators to  produce the depositions, the liquidators duly applied to the judge for directions.  He ordered that the depositions should be supplied only upon an undertaking by the SFO not to use them except under certain conditions.

103.  The House of Lords held that notwithstanding the statutory right of the SFO under the Criminal Justice Act to require the liquidators to produce the depositions, the judge still had a discretion under rule 9.5 of the Insolvency Rules whether or not to authorize the unconditional release of the depositions.  However it was a wrong exercise of discretion by the judge (of the Companies Court) to impose conditions for the SFO’s use of the depositions.

104.  The House of Lords’ insistence that the court still has a discretion over disclosure of the depositions, even in the face of a Criminal Justice Act notice,  is significant.  It is also noteworthy that it was argued by counsel for the SFO that rule 9.5(4) - which provides that the court has powers over custody and inspection of depositions - applied only to the transcripts in the possession of the court and not those with the liquidators (p.90F).  It was obvious from the decision of the House of Lords that this argument was rejected. 

105.  In other words, when the liquidators were approached for the depositions, they had no right to supply them directly (notwithstanding the statutory duty under s.218(3) I.A. to report criminal conduct to the Official Receiver).  If that is so, then even less would the liquidators have the power to decide whether to supply them without a notice of production from the SFO.

106.  Kwan J held that rule 62(1) which gives the liquidators the right to make notes of the examination for “his own use” had no equivalent in rules 9.4 - 9.5.  I do not think that is a material difference, for the liquidator’s own use must be restricted to legitimate use within the statutory regime. 

Conclusion

107.  For the reasons above, with respect to the judge, I do not think the Liquidator should have supplied the depositions to the police without first obtaining the leave of the court.

No contempt

108.  However that is not to say that in this case, the judge was wrong in finding that there was no case to answer on the application for an order of committal.  It is well-established that to constitute contempt, the act in question had to have a significant and adverse effect on the administration of justice (AG v Newspaper Publishing plc [1997] 1 WLR 926), in thwarting the purpose of the court (AG v Punch Ltd [2003] 1 AC 1046).

109.  Here assuming that the purpose of the court is the protection of the integrity of its process under s.221 and rule 62 so as to preserve the confidentiality of examinees’ depositions, there was no adverse effect on the administration of justice because as events transpired, subsequent to Kwan J giving leave to issue the Examinees’ application, the court (Barma J) actually gave leave to the Liquidator to disclose part of the depositions to the police.  Whilst that would mean that the Liquidator had no leave to disclose the balance of the depositions, it was not contended that the disclosure of those parts had a significant and adverse effect on the administration of justice.

110.  The judge found that no evidence had been led by the applicants to demonstrate any significant and adverse impact on the administration of justice as a result of the acts complained of (para. 98).  The Liquidator argued before this court that that was because it was thought that the arguments before the judge at that stage were restricted to points of law only.  However, para. 5  of the judgment shows that the submission was "primarily" based on the arguments of law, in other words that other arguments were also advanced - as was indeed the case as shown in para. 4 of the judgment.

111.  Accordingly it cannot be said that the judge erred in her conclusion that there was no prima facie case of a significant and adverse impact on the administration of justice as a result of the acts complained of.

Order

112.  In the circumstances, I would dismiss the appeal with an order nisi that the Respondent bear the Appellants’ costs and the Official Receiver’s costs (if any) of the application for the period before Barma J’s order and that the Respondent’s and the Official Receiver’s costs thereafter be paid by the Appellants.  The parties have liberty to apply for directions consequential upon the amendment of the Notice of Appeal.

Hon. Tang JA:

113.  I agree.