Pacific Harbour Advisors Pte. Ltd. and Another v. Winson Federal Ltd and Others
Read the full judgment text of HCA 1257/2013 on BabelCite. This High Court CFI judgment was delivered on 29 January 2016.
1. Pursuant to an order dated 5 March 2015 (“the examination order”) Cho Woon Ming Vincent, the 3 rd defendant (“D3”), a former director of Winson Federal Ltd (“WFL”) was examined pursuant to Order 48, rule 1(1) of the Rules of the High Court (“RHC”) to determine what debts are owing to WFL and what property WFL has to satisfy the judgment obtained by the plaintiffs from DHCJ B Chu (as she then was) on 1 August 2014. As at 4 December 2015 the repayment figure exceeded US$88 million and, to date,
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HCA 1257/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1257 OF 2013 ________________
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____________________ D I R E C T I O N S Introduction 1.Pursuant to an order dated 5 March 2015 (“the examination order”) Cho Woon Ming Vincent, the 3rd defendant (“D3”), a former director of Winson Federal Ltd (“WFL”) was examined pursuant to Order 48, rule 1(1) of the Rules of the High Court (“RHC”) to determine what debts are owing to WFL and what property WFL has to satisfy the judgment obtained by the plaintiffs from DHCJ B Chu (as she then was) on 1 August 2014. As at 4 December 2015 the repayment figure exceeded US$88 million and, to date, 98% of that sum remains outstanding. 2.The examination began on 14 October 2015 before Master J Wong. Apart from answering a few of the 164 questions in total put by counsel for the plaintiffs, D3 asserted the privilege against self‑incrimination in respect of 140 of the questions and refused to answer them. In substance, D3 was asserting a blanket privilege. 3.In view of D3’s claim to that privilege, the examination was adjourned for directions from this court as to the further conduct of the examination as per the notation at 48/3/7 of the Hong Kong Civil Procedure 2016. Accordingly, the master directed inter alia that:
4.The parties were unable to agree a list of disputed issues. In the result, separate lists were submitted. 5.Mr Chung who (with Mr Au) appeared for D3 submitted D3’s list of disputed issues which read:
Attached to the list were specific directions sought by D3:
6.For his part, Mr Pow SC who (with Mr Kam) appeared for the plaintiffs grouped the unanswered questions put to D3 at the examination totalling 140 under 18 separate and distinct categories. They are the disputed issues listed under categories (a) through (r) of the list attached to the plaintiffs’ skeleton. It can be seen that each category addresses a specific topic. 7.It should be stated that Mr Chung on D3’s behalf had also presented the court with a categorisation of the questions put to his client at the examination but only under 6 categories or headings. 8.The difference in the number of categories reflects the difference in approach but has little practical significance. Background 9.The plaintiffs operate as an investment fund. 10.D2 is the executor who obtained probate of the estate of Cho Yuk Kei Carlos (“Carlos”) who passed away in November 2008. D3 is Carlos’ son. 11.WFL is one of many companies (19 in total) within the estate of Carlos. It was engaged in investment in Hong Kong properties for rental income until about November 2012 when its principal business ceased upon the sale of its property portfolio. 12.Up till Carlos’ death, WFL’s directors were Carlos, D3 and a Japanese gentleman (Mr Kodera) who resigned in September 2009 and was replaced by WP Holdings Ltd (directly and indirectly held as to more than 98% by D2). D3 resigned on 18 June 2013 and was replaced by WP Realtors Ltd which again was directly and indirectly held as to more than 98% by D2. In August 2014, Chang Pao Doreen, D3’s relative was appointed a director of WFL. 13.The 1st plaintiff advanced US$38 million to WFL under two loan agreements in June 2008 for the latter’s property development project in Shenyang. Repayment of this loan and the interest due should have been made by 4 December 2009. All sums due were guaranteed by Carlos pursuant to the agreements. 14.WFL defaulted on interest payments and then failed to repay the sum loaned and most of the interest due thereon. The plaintiffs obtained summary judgment on 1 August 2014. 15.On 3 March 2015, Warren Allderige, a director of the plaintiffs, was appointed receiver and manager of all of WFL’s shares and the estate’s companies. In that capacity Mr Allderige obtained various documents of WFL from its registered office. 16.Following an examination of WFL’s trial balances and accounting ledgers, it transpired inter alia that HK$6,355,572.98 in expenses had been incurred between 1 July 2012 and 30 June 2014. 17.On 14 April 2015 Mr Allderige made a statement (“the 1st statement”) to the Commercial Crimes Bureau (“CCB”) alleging that the books and records in his possession as receiver revealed criminal offences on D3’s part in relation to the latter’s handling of the business activities of WFL and the other estate companies. There were subsequent statements including a statement dated 22 April 2015 made by Tin Lap Yan (“the 2nd statement”), who had assisted Mr Allderige in handling debt recovery from WFL. The statements 18.In perusing the statements, it is important to have in mind the purpose and parameters of the Order 48, rule 1 examination. The stated purpose is to determine what debts are owing to WFL and what property WFL has to satisfy the judgment. 19.So while Mr Allderige’s office as receiver is broader than simply WFL’s property and assets, the examination is necessarily circumscribed and is strictly limited to WFL’s property and assets. It is important to bear in mind when reading the background section of the 1st statement that mentioned “fund misappropriation, suspected fraud on creditors and tax evasion committed by [D3] by virtue of his capacity as the then‑director of the Companies” and that the receiver “suspected that [D3] has acted in concert with other directors of the Companies, including Wilson, Ruby and Mr Tsui Hung Biu (the day and company secretary of the Companies) …”. 20.Allegations concerning dealings with assets of other estate companies and potential offences relating thereto are irrelevant. 21.Section 4 of each of the statements focused on dealings with WFL’s assets as well as the assets of another estate company (“ABCL”). For present purposes, it is only what is said in respect of Winston’s assets that is relevant. 22.Part 4(1) of the 1st statement and part 4(A) of the 2nd statement dealt exclusively with WFL. They are substantially similar in content except that part 4 of the 2nd statement contains one additional item (namely staff quarters) and had the effect of increasing the overall amount of expenditure by WFL from a little over HK$5.5 million to a little over HK$6.355 million. 23.It is alleged that those expenses incurred by WFL were neither related to WFL’s business nor commensurate with its level of business. Specifically, they were purely personal expenses of D3 and further that all such expenses had been incurred without the knowledge or approval of D2. 24.Particulars of the expenses were conveniently tabulated in the 2nd statement as follows:
25.None of items (2) to (7) was debited against D3’s current account with WFL and it is apparent that those items were largely for D3’s personal benefit. Further, there was no shareholders’ approval given for D3’s remuneration as director of WFL. 26.Beyond that, D3 continued to receive director’s remuneration for the period after he ceased to be a director on 16 June 2013. The receiver considered that a particularly blatant example of misappropriation of WFL’s funds. 27.Again, there did not appear to be any shareholders’ approval for the provision of staff quarters to D3 as a director of WFL. Moreover, he continued to receive housing benefits even after he ceased to be a director. The suspected thefts emerging from those documents were reported to the police. 28.It is common ground that the investigation is ongoing. 29.The 140 questions D3 refused to answer have been categorised by the plaintiffs. The headings provide a useful overview of the topics. The plaintiffs wished to explore at the examination, namely:
30.It is D3’s case that the questions put to him could give rise to a real and appreciable risk of prosecution for the following offences:
The applicable legal principles 31.Mr Chung placed considerable reliance on the decision of the English Court of Appeal in Den Norske Bank ASA v Antonatos & Anor [1999] QB 271 as summarised in the following passage in Archbold Hong Kong 2016 at 12‑94:
32.I have no quarrel with the general principles set out in the passage but, for my part, without putting the relevant principle in context, it is often difficult to discern its proper scope and I do not consider those statements were meant to be applied literally. Further, it is guidance as to the practical application of the principles to the facts that is useful but which I am unable to discern from Den Norske. 33.A differently constituted English Court of Appeal in Renworth Ltd v Stephansen and another [1996] 3 All ER 244 (decided some two years before Den Norske) does offer practical guidance (at p 250). It is to be noted that Renworth was not referred to the court in Den Norske. 34.In Renworth, Neill LJ stated (at 250e‑j) as follows:
35.Morritt LJ observed (at 252h‑j) that the purpose of the English equivalent to section 33 of the Theft Ordinance is, in the circumstances in which it applies, to substitute for what is colloquially known as “the right to silence” the more limited rights to have excluded from evidence that which was obtained in consequence of being required to answer the question or produce the document or thing. 36.Morritt LJ agreed that in the case postulated (ie if a non‑theft charge were added in proceedings for theft), the court would have to consider the substance of the proceedings and the real reason why he had not been excused from compliance with the order. In his view, the solution was to consider the matter from the point of view of separate claims to privilege in respect of both the Theft Act offence and the second non‑Theft Act offence. In each case the test would be — whether to answer the question would tend to expose the relevant person to proceedings for the relevant offence in the sense of creating or increasing the risk of proceedings for that offence. In the case of the non‑Theft offence that test will be whether to answer the question etc would create or increase the risk of proceedings that offence, separate and distinct from its connection with the Theft Act offences: Renworth, at 254g‑j. 37.It is noteworthy that the Court of Appeal refused to leave to appeal to the House of Lords and the Appeal Committee of the House of Lords also refused leave to appeal. 38.I agree with Mr Pow SC that the Renworth approach has much to commend it. It would be appropriate to adopt and apply that approach in the present case. Application to the facts 39.It is common ground that section 33 of the Theft Ordinance abrogated the privilege to self‑incrimination as regards offences under Cap 210 and replaced it with a more limited protection. 40.At the forefront of Mr Chung’s submissions was the possibility of D3 being charged with offences other than under the Theft Ordinance if he were to answer the questions to which he has asserted privilege. Specifically, he raised the spectre of D3 being exposed to serious charges such as to a charge for conspiracy to defraud at common law and section 159E (3) of the Crimes Ordinance and/or an offence for money laundering under section 25 of the OSCO. In addition, he also mentioned the possibility of offences under section 373 of the Companies Ordinance for failing to maintain proper records and for tax evasion under section 82 of the Inland Revenue Ordinance. 41.Before considering those possible offences in turn, it is worth revisiting §§18 to 21 above and to have those matters firmly in mind when considering the question whether in respect of any of the possible offences identified by Mr Chung there is a “serious risk of prosecution”. 42.The context, overriding purpose and parameters of the Order 48 examination admit of no ambiguity: the creditors (ie the plaintiffs) seek information to determine what debts are owing to WFL and what assets/property it has to satisfy the outstanding judgment which is of a considerable magnitude obtained by the plaintiffs. The reason is blindingly obvious. If recoverable, they would go towards reducing the outstanding judgment debt. 43.The plaintiffs have identified an amount of approximately HK$6.35 million in total that they consider might properly be held to be WFL’s assets/property that had been wrongfully paid or applied and recoverable. 44.The questions are designed to elicit information concerning the application and whereabouts of the sums paid/applied totalling that amount. The obvious offences are theft and false accounting contrary to sections 9 and 19 of Cap 210 in respect of which the privilege has been abrogated. 45.As to the possibility of a charge other than under Cap 210, as is apparent from Renworth, one has to assess the possibility by looking at the possibility “realistically” or as Stephenson LJ put it in Khan the court should “consider the substance of the proceedings”. Conspiracy to defraud 46.In my view, on the facts and in the context, the possibility of a conspiracy charge is remote and fanciful for the following reasons. To found a charge of conspiracy there has to be evidence of some agreement on the part of D3 with someone else. The statements contain no allegation of any agreement between D3 and anyone else to make any of those payments. Rather, the statements point to D3 acting on his own. There is simply no allegation and no evidence of the existence of any agreement. 47.Further, the notion that the answers could lead to a conspiracy charge is analogous to the scenario postulated by Stephenson LJ in Khan of a forgery charge being added to charges under the Theft Act in that case. Stephenson LJ’s observations in Khan (at 519) with which Morritt LJ agreed in Renworth (at 253h‑j) are pertinent:
48.In his judgment in Renworth, Neill LJ also considered the same point. He expressed his agreement with the judge below in that case who had this to say when the possibility of a conspiracy charge being added to the Theft Act offences was put to him:
49.That approach also accords with the statement at §36–57 of Archbold Hong Kong 2016 that:
While there are exceptions to the general rule stated in (1), on the facts, they are inapplicable to the present case. Money laundering 50.Without going into the niceties of the elements that constitute an offence of money‑laundering contrary to section 25 (1) of the OSCO, for present purposes, I will proceed on the assumption that it is (theoretically) possible for a money laundering charge to be brought, for example, in respect of any misappropriation of WFL’s assets that would form the predicate offence even though it does not accord with what is generally perceived to be “money laundering” that has been described in HKSAR v Lung Yun Ngan and another, unreported, CACC 482/2010, 12 May 2011 as:
51.So, for example, when D3 paid his monthly rent with WFL’s cheque, that could constitute a misappropriation of WFL’s assets. Technically, it may be possible to treat the transfer made in the split second thereafter as a “dealing” in WFL’s assets for the purposes of a money laundering offence. 52.In that regard, it is relevant to bear in mind the observations of Stock JA in HKSAR v Chan Kim Chung, Nelson [2012] 2 HKLRD 263 at §16:
53.So unless the facts give rise to “additional culpability” for which the money laundering charge is laid to meet, such an additional charge would be wholly inappropriate. That is very much in line with the underlying approach of the court in Verrier v DPP. 54.On the facts as disclosed in the hearing bundles, I consider an alternative charge of money laundering to be but “a contrived addition to other charges”. Looked at realistically, it is highly unlikely to happen. Offences against the Companies Ordinance 55.The notion that a prosecutor would add quasi criminal offences where there is sufficient evidence to support a case for misappropriation and false accounting strikes one as fanciful and wholly detached from reality particularly when, as here, the plaintiffs are prepared to give an undertaking not to make such a complaint. 56.In my view, a court must be vigilant and scrutinise all claims of privilege carefully to prevent abuse. On the facts of the present case, I do not accept that there is a “real and appreciable” risk of such an additional charge being brought. Tax evasion 57.The reference in the statements to tax evasion has to be seen against the backdrop of the purpose of the Order 48 examination. The thrust of what was being said was that the payments made with WFL’s monies to settle the personal expenses of D3 must have been misappropriations or embezzlement for otherwise they would have been reported to the Inland Revenue as benefits/income received by D3. In that sense it was used rhetorically. 58.Again, the substance of the proceedings against D3 would be for misappropriation/false accounting/embezzlement of amounts that the plaintiffs consider to belong to WFL and which the plaintiffs are anxious to recover. I do not regard that in the circumstances there is any real and appreciable risk of criminal charges for tax evasion being brought whether alone or in addition to charges for offences under the Theft Ordinance. The suggestion that D3 will expose himself to tax evasion charges if he is compelled to answer the questions has no real substance. Conclusion 59.I would stress again that it is imperative to scrutinise each and every claim to privilege. It behoves a person asserting privilege “to explain, in so far as the description itself does not do so, why it is potentially incriminating”: JSC BTA Bank v Ablazov [2014] 2 CLC 1029 at §39. 60.In the present case, D3 simply claimed privilege in response to each of the 140 unanswered questions. It will be appreciated that there is ample scope for abuse particularly when the examinee asserts a blanket privilege. Distinguished English judges have expressed some very trenchant criticisms of the privilege:
61.While it would appear that the legislature has not yet taken heed of the criticisms and the privilege remains the law, those criticisms do highlight the need for very careful scrutiny of any claim to privilege. I need hardly add that the absence of such scrutiny would have the effect of emasculating the whole purpose and objective of Order 48 examinations. Directions 62.I have reviewed all 140 unanswered questions in light of the legal principles and approach set out above. I direct D3 to answer all 140 unanswered questions at the resumed hearing of the examination before Master J Wong. Costs 63.There is to be an order nisi of costs in favour of the plaintiffs.
Mr Jason Pow SC and Mr Hugh Kam, instructed by Oldham, Li & Nie, for the 1st and 2nd plaintiffs Mr Bernard Chung and Mr Au Lut Chi, instructed by Tsang, Chan & Woo, for the 3rd defendant |
Cases cited in this judgment
Further hearings and rulings under HCA 1257/2013