Pacific Harbor Advisors Pte Ltd and Another v. Winson Federal Ltd and Others

CACV 115/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 115 OF 2016

(ON APPEAL FROM HCA NO 1257 of 2013)

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BETWEEN

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.On 10 May 2016, we granted leave to appeal in respect of the decision of Deputy High Court Judge Le Pichon [“the Judge”] of 29 January 2016 on a limited basis. We stated clearly at the oral hearing before us and repeated in our Reasons for Judgment of 12 May 2016 that some of the grounds urged upon us on behalf of the 3^rd Defendant were rejected. Leave was only granted in respect of the tax evasion offence and this principally focused on whether the privilege against self-incrimination [“PSI”] is abrogated by the examination regime under Order 48, see paragraph 12 of our judgment of 12 May 2016.

2.Surprisingly, the Notice of Appeal of the 3^rd Defendant covered some grounds (notably ground 2) which were rejected by us.  This is not a permissible course to take.  The issue which was to be argued in the appeal had been identified at the leave hearing.  We gave directions to facilitate an expedited appeal (in view of the fact that the examination was scheduled to resume on 25 July) on the basis that that would be the issue to be argued in the appeal.  This court would not countenance any attempt to slip in grounds of appeal in respect of which leave had been refused.

3.Further, the skeleton submissions of the 3^rd Defendant filed on 23 May 2016 failed to address the primary issue of abrogation of PSI flagged at the leave hearing.  Instead, counsel proposed to deal with it by way of reply submissions to be filed after seeing the Plaintiffs’ submissions.

4.Though in usual circumstances it is reasonable to expect a respondent to develop his case based on grounds advanced in the respondent notice before an appellant is expected to address the same, the present appeal is governed by directions given at the leave hearing which were designed to facilitate the expedited consideration of the appeal and the issue of abrogation of PSI, as mentioned above, had been clearly raised and flagged as the primary issue in the appeal.  Moreover, the directions were given to facilitate the potential disposal of the matter on paper.  If the appeal were to be processed on paper, under the scheme of the directions given on 10 May 2016 the only opportunity for the Plaintiffs to address the submissions of the 3^rd Defendant would be the written skeleton to be filed after the first round of submissions from the 3^rd Defendant.  Thus, the reservation by counsel for the 3^rd Defendant of his submissions to the second round of submissions would effectively deprive the Plaintiffs of the opportunity to respond to it under the scheme of those directions. 

5.In order to redress the imbalance and to facilitate the court’s preparation of the appeal, this court gave further directions on 2 June 2016 granting leave to counsel for the Plaintiffs to file submissions in response to the 3^rd Defendant’s submissions on abrogation of PSI.  Also, in view of the state of affairs, we directed that the hearing date would not be vacated and we would hear oral submissions on 16 June 2016.

6.At the hearing of the appeal, Mr Duncan SC for the 3^rd Defendant explained that he had misunderstood the extent of leave granted by us.  Very properly, counsel accepted that he should confine the appeal to grounds for which leave had been granted.

7.We shall not repeat what had been said in the judgment of the Judge of 29 January 2016 and our judgment of 12 May 2016 in HCMP 532 of 2016 by way of background.

8.The issues in this appeal, insofar as they are permitted to be canvassed pursuant to the leave given by us, are:

(a)   Whether the Judge erred in concluding the risk of the 3^rd Defendant being prosecuted for tax evasion is fanciful;

(b)  If such risk is not fanciful, whether the scheme for examination under Order 48 impliedly abrogated PSI; and

(c)   If PSI is not abrogated, whether a particular question will increase the risk of the 3^rd Defendant being prosecuted.

9.Mr Duncan helpfully accepted that if we were with him on issues (a) and (b), issue (c) should be left to be canvassed before the master at the examination hearing. 

10.On issue (a), Mr Duncan relied on the witness statement of Mr Allderige to the Commercial Crimes Bureau [“CCB”] to contend that the risk could not be regarded as fanciful.  The alleged tax evasion stemmed from benefits conferred upon the 3^rd Defendant by the companies which (if they were not misappropriations) should be reportable as income for salaries tax purposes.  Mr Allderige also stated that the 3^rd Defendant did not report such items to the Inland Revenue [“IRD”].  He further intimated that he would lodge a complaint to the IRD.

11.Mr Duncan submitted that there could be transmission of information between the CCB and IRD and the prosecution for tax evasion is in the hands of the IRD.

12.On the other hand, Mr Joffe for the Plaintiffs submitted that there is no real risk of such prosecution in light of the following,

(a)   Despite what Mr Allderige said in the witness statement, there has not been any complaint to the IRD;

(b)  The Plaintiffs were prepared to give an undertaking to the court not to provide any answers or materials derived from the examination to any third parties, including but not limited to the Department of Justice, the IRD and the Police;

(c)   The Plaintiffs would undertake not to oppose the examination to be conducted in camera;

(d)  A non-party could not inspect the court file without leave of the court;

(e)   In the absence of information from the Plaintiffs and absence of access to the answers and materials arising from the examination, the IRD would not (and could not) begin to investigate;

(f)   There is no basis for the submission of transmission of information by the CCB to the IRD; and

(g)   It is clear from the witness statements that the focus was on the misappropriation aspect as the evidence in that regard was much stronger and the prospect of an alternative of tax evasion was thus reduced to a vanishing point.

13.We have identified the relevant test at paragraph 5 of our judgment of 12 May 2016 in light of the authorities: there has to be a real risk of prosecution, not a theoretical or fanciful one.  In assessing such risk for the purpose of PSI considerations, the matter must be looked at realistically and the court will have regard to the substance of the matter in light of all the materials before it.

14.It is a strange feature in this case that neither side put in any affidavit evidence in support/opposition to the claim of PSI.  The witness statements were simply put before the master and included in the hearing bundle before the judge.  We have to say that this is not a proper course to take.  Whilst we can understand such a course being taken when a plea of PSI was initially made before the master, when it became apparent that the plea was seriously contested and the matter had to be referred to a judge there should have been proper evidence by affidavits from both sides on the contested issue.  In this connection, we draw the attention of practitioners to what had been said repeatedly by this court on the need to support a plea of privilege (whether it be PSI or legal professional privilege or other privilege) with proper evidence in Secretary for Justice v FTCW [2014] 1 HKLRD 849 at paragraphs 120 to 121; Citic Pacific Ltd v Secretary for Justice (No 2) [2015] 4 HKLRD 20 at paragraphs 14 and 76(1)(c); Super Worth International Ltd v Commissioner of ICAC [2016] 1 HKLRD 281 at paras 10 and 11.

15.The upshot in the present case is that there was simply no proper evidence before us.  Be that as it may, since the witness statements were considered by the Judge, we were urged by Mr Duncan to take them into account. 

16.In his written submissions, Mr Joffe advanced the case that notwithstanding what was said in the witness statements, the Plaintiffs had not made any complaint to the IRD.  Counsel submitted orally that if necessary this could be verified on oath.

17.Mr Duncan opposed further evidence being admitted.

18.In our judgment, given the unsatisfactory state of evidence, this court should do the best it can based on existing materials.  In that connection, even without any affidavit evidence from the Plaintiffs, we can certainly take account of the fact that the witness statement of Mr Allderige was made some time ago in April 2015.  Notwithstanding the lapse of time, there is no evidence from the 3^rd Defendant that he has been notified of any investigation by the IRD.  Thus, we can safely infer that the intimation by Mr Allderige of making a complaint to the IRD had not materialised.  

19.Quite apart from the witness statements, Mr Duncan did not refer us to any other evidence supporting his submission that the risk of prosecution by IRD for tax evasion is not fanciful.  Having considered all the materials before us, we accept Mr Joffe’s submission that in the present circumstances the 3^rd Defendant has failed to show that there is any real risk of him being prosecuted for that offence.  We agree with counsel that if there were to be any prosecution, it would be a prosecution for the offence under the Theft Ordinance and the 3^rd Defendant would be protected by Section 33(1) of the Theft Ordinance.  

20.We reject Mr Duncan’s submission that we should take judicial notice of the transmission of information between CCB and IRD. Nowadays, with proper understanding of data privacy and the restriction on use of materials obtained by an authority under a criminal investigation process as illustrated in the recent case of Keen Lloyd Holdings Ltd v Commissioner of Customs and Excise CACV 97 and 107 of 2015, 22 April 2016, this does not seem to be a valid assumption.

21.We accept the undertakings from the Plaintiffs in para 12(b) and (c) as proffered by Mr Joffe on their behalves. 

22.In respect of the hearing of the examination in camera, we agree with Mr Duncan that the court must have regard to the right to public hearing under article 10 of the Hong Kong Bill of Rights [“BoR”].  As such, the court could only hold the examination in private if one of the exceptions specified in that article is applicable.  In the present context, the only arguable exception is “to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice”.

23.The rules do not expressly require an examination to be held in public. However, in view of the risk of imprisonment by reason of Order 49B Rule 1B (applicable also to examination under Order 48), the general practice is to hold such examination in open court.  However, even in a criminal matter, the court has the power to conduct part of the trial in camera. 

24.The principle of open justice must be observed, but it also has room for exceptions: see ATV v Communications Authority [2013] 2 HKLRD 354; TCWF v LKKS CACV 154 and 166 of 2012, 29 July 2013.  Where the court comes to the view that the holding of examination in open court would prejudice the interests of justice, directing a part of the hearing be held in camera is compatible with article 10. 

25.In the present context, we do not see any difficulty with the proposition that part of the examination should be held in camera if the court is satisfied that the disclosure of information at an open hearing would prejudice the 3^rd Defendant in terms of the release of incriminatory information (given under compulsion) to the public domain.   

26.We agree with Mr Joffe that the court retains control over the release of records regarding the examination to non-parties. In light of the background, it is unlikely that the court will release such records to the IRD without the consent of the parties. 

27.Mr Duncan submitted that these safeguards are irrelevant to the question which we have to ask, viz whether there is any real risk of incrimination.  In our view, the assessment of the risk of incrimination can be examined conceptually in two different dimensions: (1) in general, without regard to the information and materials to be obtained from the examination, whether there is any risk of prosecution for tax evasion; and (2) whether the disclosure of the information and materials gathered at the examination would tend to expose him to the risk of such prosecution.  The safeguards are relevant to (2) but not to (1).

28.However, what we said at paras 18 to 20 above were conclusions that we reached on (1) without any regard to the safeguards and issue (2).

29.We further hold that the 3^rd Defendant has to satisfy us on issue (2) before he can succeed in this appeal.  PSI is only available if the answers given by him in the examination would tend to expose the examinee to criminal investigation or prosecution of an offence.  It is not enough for an examinee to establish that he is facing a real risk of prosecution of a particular offence.  He must also establish that requiring him to answer questions in this examination has a tendency to expose him to a criminal charge, see the classic statement of PSI by Goddard LJ in Blunt v Park Lane Hotel Ltd [1942] 2 KB 253 at 257.  Because of the safeguards available, we are not satisfied on issue (2).  

30.We therefore agree with the Judge that the risk of prosecution for tax evasion is fanciful.  We also hold that in light of the safeguards in place, there is no real risk that the 3^rd Defendant’s answers in this examination would be accessible to the IRD.  Hence, he could not refuse to answer questions at the examination by reason of PSI.  It follows that the appeal must be dismissed.

31.Having reached this conclusion, it is not strictly necessary for us to consider the question of implied abrogation of PSI.  However, in deference to counsel’s industry, we will address this issue briefly.

32.Mr Joffe submitted, by analogy with Re Weihong Petroleum Co Ltd [2002] 1 HKLRD 541 and other cases where the courts held that a statute had impliedly abrogated PSI, that PSI has been abrogated for the purpose of Order 48 examination.  Counsel accepted that it also follows from such abrogation that the answers given under compulsion in an Order 48 examination cannot be adduced as evidence in a subsequent criminal prosecution as held by the English Court of Appeal in R v K (A) [2010] QB 343. 

33.Whilst there are undoubtedly instances where the court has construed a piece of legislation as having the effect of abrogation of PSI by necessary implication, it is ultimately a matter of construction of the particular statutory provision in question.  In our judgment, one must start with the following reminders in such an exercise.  First, though PSI has been subject to some judicial comments, it remains as part of our law.  As Lord Neuberger said in his judgment in the Court of Appeal in Gray v News Group Newspaper Ltd  [2013] 1 AC 1, reiterated by Lord Walker in the Supreme Court at [11], “it is for the legislature, not the judiciary, to remove it, or to cut it down.”

34.Second, the principle of legality requires the court to be cautious: one must not come to the conclusion of PSI being cut down too readily as fundamental rights like PSI cannot be overridden except by clear words or necessary implication, see A v Commissioner of ICAC (2012) 15 HKCFAR 362 at [24] and [71], R v Secretary of State for the Home Department, ex p Simms [2000] 2 AC 115 at 131 and Secretary for Justice v FTCW [2014] 1 HKLRD 849 at [68] to [69].

35.Third, PSI is actually a bundle of rights and the protection under common law is wider than the protection afforded under Articles 10 and 11 of the BoR, see A v Commissioner of ICAC, supra at [111]; R v Director of Serious Fraud Office, ex p Smith [1993] AC 1 at p.30-31.  The relevant right with which we are concerned in the present context is item (2) in Lord Mustill’s list of six different rights in R v Director of Serious Fraud Office, ex p Smith, supra: “a general immunity, possessed by all persons and bodies, from being compelled on pain of punishment to answer questions the answers to which may incriminate them”.

36.Fourth, this particular limb of PSI was considered by the House of Lords in A T & T Istel Ltd v Tully [1993] AC 45.  Putting aside the trenchant criticism by Lord Templeman regarding the exploitation of PSI in civil proceedings to deprive a plaintiff of his civil rights and remedies, the majority (Lord Templeman, Lord Ackner and Lord Goff) agreed that the court could make a specific order to protect the defendant from potential risk of incrimination in place of PSI in order to do justice between the parties in the civil proceedings, see p.63 G.  This approach was endorsed by the Court of Final Appeal in HKSAR v Lee Ming Tee (2001) 4 HKCFAR 133 at p.169I.  The order made in Tully was paragraph 33 of the order of Buckley J which prohibited the use of the material disclosed pursuant to his order.  On the facts of that case, there was also a letter from the Crown Prosecution Services indicating that they would not need to resort to such materials.  

37.Fifth, PSI does not protect a person from being required to produce documents which have existence independent of the person claiming the privilege, see HKSAR v Lee Ming Tee, supra p.177; Saunders v United Kingdom (1997) 23 EHRR 313.  Thus, an examinee under Order 48 can be required to produce documents shedding light on his assets and financial situation even if he claims PSI.

38.Bearing these matters in mind, notwithstanding the forceful submissions of Mr Joffe, we are not persuaded that the scheme of Order 48 necessarily abrogates PSI by implication.  Though we agree with Mr Joffe that it is in the public interest that a judgment of the court can be effectively enforced through the examination process under Order 48, we do not think it necessarily requires the complete abrogation of PSI to preserve the effectiveness of an examination under Order 48.  The same public interest can be marshalled in respect of the effective protection of the interest of a plaintiff by way of pre-trial measures like Mareva injunction and the ancillary order for disclosure.  Yet subject to statutory exceptions like section 33 of the Theft Ordinance and Section 44A of the High Court Ordinance, the courts have always regarded PSI as an available ground for resisting disclosure in those contexts. 

39.Further, as illustrated by A T & T Istel Ltd v Tully, supra, with additional safeguards in place (which would not be necessary if PSI is held to be abrogated), there could still be meaningful use of the examination procedure.  In those circumstances, as Lord Ackner put it at p. 62G, PSI is not abolished or abridged, rather its invocation is merely rendered superfluous.

40.The facts of the present case also demonstrate that very often adequate safeguards could be devised to render PSI superfluous.

41.In this connection, though we had previously expressed doubts in Secretary for Justice v FTCW [2014] 1 HKLRD 849 regarding the conclusion of the English Court of Appeal in R v K (A) [2010] QB 343 on the wholesale abrogation of PSI in discovery in matrimonial litigation, we did not disagree with the holding in that case that materials obtained from that process should not be admitted as evidence in a subsequent criminal trial for tax evasion.  We are prepared to say that aspect of the decision is, with respect, plainly right.  Thus, even in the very unlikely event that the IRD were able to obtain access to the answers given in the examination, it would not be able to use such materials directly for prosecution.

42.It may still be argued that derivative use can be made of such materials.  However, as held by Ribeiro PJ in HKSAR v Lee Ming Tee, supra p.167 to 170, there is no common law PSI protection against derivative use. 

43.In light of the above analysis, we do not see a compelling case for holding that PSI has been abrogated by Order 48 by necessary implication.  We are also hesitant to reach a conclusion on abrogation as Section 54 of the High Court Ordinance, the primary legislation under which the Rules of High Court was made, only provides for rules to be made for “regulating and prescribing the procedure … and the practice to be followed in the High Court”.  That wording is not apt to encompass the abrogation of fundamental rights. 

44.We also note that despite the industry of counsel there is no English case suggesting that PSI has been abrogated in the context of Part 71 of the CPR, the equivalent of Order 48.

45.For these reasons, we dismiss the appeal and order the 3^rd Defendant to pay the costs of the Plaintiff in this appeal and the leave application.  There will be certificate for 2 counsel in respect of the costs of the appeal.

46.Last but not least, we are grateful to counsel for their assistance.

Mr Victor Joffe and Mr Hugh Kam, instructed by Oldham, Li & Nie, for the 1^st and 2^nd plaintiffs

Mr Peter Duncan SC and Mr Au Lut Chi, instructed by Tsang, Chan & Woo, for the 3^rd defendant