The Joint & Several Liquidators of China Medical Technologies, Inc v. Samson Tsang Tak Yung
Read the full judgment text of CACV 46/2015 on BabelCite. This Court of Appeal judgment was delivered on 3 May 2018.
1. I agree with the judgment of Barma JA.
Cites 5 cases
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CACV 46/2015 [2018] HKCA 252 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 46 OF 2015 (ON APPEAL FROM HCCW 435 OF 2012) ---------------------------
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___________________ J U D G M E N T ____________________ Hon Yuen JA: 1.I agree with the judgment of Barma JA. Hon Barma JA: 2.This was an appeal by the Liquidators of China Medical Technologies Inc. (“the Liquidators” and “the Company” respectively) against that part of the Decision of Harris J dated 6 February 2015, by which the judge dismissed an application by the Liquidators for production, pursuant to section 221(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), of an extensive range of documents (described in Appendix 2 to his Decision[1]), by Mr Samson Tsang Tak Yung, a former director and Chief Financial Officer of the Company, and ordered the Liquidators to pay Mr Tsang’s costs of the hearing on 6 January 2015 at which the application was made. 3.The documents were said to go to two broad matters which the Liquidators wished to investigate. These were:
4.Although the judge refused to make an order for the production of the documents sought, he did make an order under section 221(2) of the Ordinance allowing the Liquidators to orally examine Mr Tsang on both of those matters, at an oral examination which had already been fixed to commence on 11 February 2015, under an earlier order made by the judge on 15 September 2014. The earlier order also provided for the production by Mr Tsang of what would appear to be a very substantial amount of documentation, details of which were set out in Appendix 1 to the Decision. 5.The background to the application and this appeal can be briefly summarised as follows:
6.The judge came to this decision because he took the view that the scope of section 221(3), governing the production of documents, was materially narrower than the scope of section 221(2), which deals with oral examination. In coming to this conclusion, the judge applied the earlier decision of Kwan J (as she then was) in Re Weihong Petroleum Co Ltd (No 2) [2003] 2 HKLRD 747, which was to the same effect. 7.Section 221 (so far as material for present purposes) provides:
8.In Weihong, Kwan J considered that by using different terms to describe the matters on which oral examination was permissible (“information concerning the promotion, formation, trade, dealings, affairs or property of the company”) and the nature of the documents that could be ordered to be produced (“relating to the company”), it must have been the intention of the legislature that the scope of oral examination and document production should be different. She held that the wording of section 221(3), referring to documents “relating to the company” was materially narrower and referred to a more restricted range of matters than the “matters aforesaid” on which oral examination was permitted pursuant to section 221(2) – such matters being those “concerning the promotion, formation, trade, dealings, affairs or property of the company” referred to in section 221(1). The judge agreed with this view. 9.The difference in the description of the matters in relation to which examination is permitted and those in relation to which documents may be ordered to be produced underpinned the approach taken by both Kwan J and the judge. Before us, Mr Manzoni SC, appearing for the Liquidators, submitted that the scope of oral examination and document production should be at least coextensive. He also suggested (although he did not need to go so far) that the scope for document production should be understood as being wider than that for oral examination. Mr Alder, who appeared for Mr Tsang, disagreed. 10.Mr Manzoni submitted that the construction of section 221(3) adopted by the judge, according it a narrower scope than section 221(2) was wrong because:
11.Mr Manzoni further contended that even if this was not correct, the documents sought did “relate to” the Company within the meaning of section 221(3), and so production should have been ordered in any event. 12.Mr Alder disagreed with both these contentions, submitting that the judge was right to have concluded that the phrase “relating to the company” in section 221(3) was to be construed more narrowly than the longer phrase used in section 221(1), and that the judge was also right to take the view that the documents sought by the Liquidators did not relate to the Company within the meaning of section 221(3). He also submitted that if, contrary to those submissions, this court were to come to the view (on the basis of either of the broad arguments put forward by Mr Manzoni) that the documents sought were susceptible to production, the matter should be remitted back to the judge for consideration of whether or not production should, as a matter of discretion, be ordered. 13.I shall consider first Mr Manzoni’s argument that section 221(3) should be construed as being co-extensive with (if not wider than) section 221(2), in terms of the nature of the information to be derived from the documents susceptible to an order for production. As noted in paragraph 10 above, Mr Manzoni advanced four reasons to suggest that the judge had erred by construing section 221(3) too narrowly. I will consider each of these reasons below, in explaining why I have come to the conclusion, contrary to the judge and Kwan J in Weihong, that section 221(3) should be read as covering at least the same material as section 221(2) read with section 221(1). 14.When considering these arguments, it is important to bear in mind that, as noted in paragraph 9 above, both the judge and Kwan J before him relied principally on the difference in wording between the terms of section 221(3) and section 221(1) as the reason for holding that they must have been intended by the legislature to have different meanings – in other words, the use of different language to describe the matters that could be the subject of oral examination and documentary production respectively must have been intended to signify that the scope of each was different. This led the judge and Kwan J to the conclusion that the phrase “relating to the company” should be given a more restricted meaning than the longer phrase in section 221(1). In my view, the key issue is whether or not that approach to the construction of the sections was appropriate. 15.Mr Manzoni’s first argument was that the narrower approach to section 221(3) adopted by the judge, relying on the decision in Weihong, was erroneous, having regard to the decisions of the Court of Final Appeal in Joint & Several Liquidators of Kong Wah Holdings Ltd v The Grande Holdings Ltd (2006) 9 HKCFAR 766 and the Court of Appeal in Re Nardu Co Ltd [2008] 4 HKLRD 165. 16.Mr Manzoni suggested that in Kong Wah, the Court of Final Appeal did not draw any distinction between orders for oral examination and production of documents. That is correct as far as it goes. However, it was also the case that the Court of Final Appeal approached the question of documentary production by reference to the “relating to the company” test contained in section 221(3). The issue in controversy in respect of that test was whether documents relating to a company’s subsidiaries could be said to relate to the company itself, and the Court of Final Appeal held that in the circumstances of that case, they could, so that they would be susceptible to production. However, the Court of Final Appeal was not immediately concerned with the question of whether the scope of the two types of orders was different, and thus did not have to express a view as to this. Although Weihong was cited in argument, it was not dealt with in the court’s judgment, no doubt because this issue did not call for decision. I therefore think that, as Mr Alder submitted, Kong Wah is of limited assistance to the Liquidators in this respect. The same is, I think, true of Re Nardu, where a differently constituted division of the Court of Appeal similarly did not differentiate between the test for oral examination and the test for document production, again because the point was not raised for decision. 17.That said, it seems to me that Kong Wah is of importance for present purposes, because it represents an authoritative statement of the purpose of section 221, and of the need to give section 221 a wide interpretation in the light of that purpose. 18.In Kong Wah, Lord Millett NPJ, delivering the leading judgment, explained (at paragraph 23) the purpose of section 221 (and similar overseas enactments) as being to enable a liquidator to carry out his functions, which were twofold: first, to collect its assets, settle its liabilities and distribute its remaining funds among its creditors; and second, to investigate the causes of its failure and the conduct of those involved in its dealings and affairs. At paragraph 25, Lord Millett stated that the section was a vital part of the insolvency regime and was designed to meet the difficulty usually faced by liquidators (who were usually strangers to the company) in finding out about the company’s assets and the reasons for its failure. The section was intended to enable him to carry out his functions effectively and as economically and expediently as possible. At paragraph 26, it was pointed out that the section could be used to discover information not previously known to the company as well as to reconstitute its knowledge. 19.As to the scope of section 221, Lord Millett observed (at paragraph 24 of the judgment) that it had been described as “a section which confers extraordinary powers on the court”. He went on to say (at paragraph 27) that “the legislative purpose demands that the powers conferred on the court by the section … are wide, general and unlimited” and (at paragraph 28) that “the jurisdiction conferred on the court by the section is necessarily wide” (although its severity as against a target was tempered by the court’s discretion to make, limit or refuse the order so as to ensure that it was not oppressive to any person (and particularly third parties) who were subject to it). 20.In their short concurring joint judgment, Bokhary PJ and Chan PJ stated (at paragraph 2) that the purpose of section 221 was to help liquidators to carry out their duties as effectively, quickly and economically as possible, that this involved enabling them to identify what matters to pursue, and what blind alleys to avoid, and that the language and purpose of the section called for a wide interpretation of the court’s powers under it. 21.To my mind, these statements of the purpose of section 221 as a whole, and as to the wide interpretation that should be given to it, while not to be regarded as impliedly overruling Weihong (for the reasons already explained), do give rise to a real question as to whether it is appropriate to adopt a relatively restrictive interpretation of the phrase “relating to the company” so as to exclude (as in Weihong) documents relating to recoverability and tracing in relation to claims that might be made by the company, or (as here) documents said to be needed for similar purposes, or to go to the prospects of Mr Tsang being a worthwhile target to pursue via proceedings that appeared to be open to the liquidators to take against him. This is particularly the case when, as the judge appears to have accepted, it is open to liquidators to seek an order for oral examination in relation to the financial means of a contributory (this being established by a number of English authorities of long standing, e g Re Financial Insurance Co Ltd (1867) 36 LJ Ch 687; Re Bank of Hindustan, China & Japan (1870) LR 10 Eq 675), this forming the basis for his decision to make orders for oral examination of Mr Tsang while refusing the orders for documentary production that are the subject matter of this appeal. 22.On the face of it, it is not clear how the adoption of different tests for oral examination and documentary production could be said to promote the objectives identified by the Court of Final Appeal in Kong Wah as the purposes of section 221. Both of these means of obtaining information are ultimately directed to the same purposes, and it would seem more plausible that they should have the same, or at least a very similar, scope and extent, rather than one being so much narrower than the other that the same sort of information could be obtained by oral examination but not by the production of documents. 23.Moreover, I would regard the phrase “relating to” as one that is of considerable width. As Mr Manzoni pointed out, it has been said (in a different legislative context, that relating to stamp duty and the English Stamp Act 1891) of “relating to” that “there is no expression more general or far reaching than that” (see Commissioners of Inland Revenue v Maple & Co (Paris) Ltd [1908] AC 22 per Lord Macnaghten at page 26). On the face of it, all of the matters referred to in the longer phrase in section 221(1) could, I think, be regarded in a general sense as matters “relating to” the company. It may of course be the case that the relationship to the company may, depending on the circumstances, be more immediate or more remote, but this would seem to me to be a matter that goes more to the exercise of the court’s discretion in a particular case, than to the existence of the jurisdiction to make the order sought, if it be thought appropriate to do so. 24.This leads on, I think, to Mr Manzoni’s second point, which is that the legislative history of section 221 shows that it was not in fact the legislative intention that section 221(3) should be given a narrower interpretation than the longer phrase contained in section 221(1). To make this point good, Mr Manzoni drew our attention to the structure of the original provisions by which these powers were conferred on the court. 25.What is now section 221 was first enacted in Hong Kong as sections 112 and 113 of Companies Ordinance (No. 1 of 1865), which were in identical terms to sections 115 and 117 of the English Companies Act 1862. Sections 112 and 113 (so far as presently material) were in the following terms:
26.It will be seen that what are now sections 221(1) and (3) were formerly combined into a compendious whole in a single section 112, whereas section 221(2) (in a more extended form) was contained in a separate section 113. 27.Mr Manzoni submitted that this format and structure explained the use of the phrase “relating to the company” in relation to documents to be produced. He pointed out that while section 113 relating to oral examination reproduced (with the substitution of “affairs” for “trade”) the matters mentioned in section 112 as being those upon which information was deemed capable of being given by the subject of the order for examination, there was no need to do so in relation to the production of documents, as that was dealt with in section 112 itself, in a clause immediately following on the clause in which those matters were spelt out. It was therefore necessary (or at least desirable, for stylistic purposes) to use some shorthand phrase to refer to those matters, and the phrase chosen was “relating to the company”. From this it followed, said Mr Manzoni, that in the original legislation, that phrase must have been intended to be no less extensive than the range of matters referred to in the previous clause. 28.I agree with this submission. I would add that, having identified as one of the potential targets of a summons under section 112 any person deemed capable of “giving information concerning the trade, dealings estate or effects of the company”, it would be extremely odd if such a person, having been summoned, could not be required to produce documents (documentary production being the subject matter of the same section 112) dealing with those very matters, on the basis that “relating to the company” had a narrower and more restrictive meaning. 29.In England, the structure of sections 115 and 117 was changed by the Companies (Consolidation) Act 1908 to the structure that is found in what was to become section 221 of the Ordinance. This was done by section 174 of that Act, which was enacted in identical terms in Hong Kong as section 169 of the Companies Ordinance (No. 58 of 1911). Section 169 bears a marked similarity to section 221, with the issue of a summons being dealt with in section 169(1), oral examination in section 169(2) and production of documents in section 169(3), in much the same way that these matters are dealt with in sections 221(1), (2) and (3) (subject to some minor differences in wording). In effect, what was section 112 of the 1865 Ordinance was split into sections 169(1), (3) and (4) (the last of which is not material for present purposes), while section 113 became section 169(2), although, as it was now part of a single section, the repetition of the types of information mentioned in section 112 was dropped in favour of a reference to “the same” (now “the matters aforesaid” in section 221(2)). 30.As its name states, the 1908 Act was a consolidating enactment, and as such would not have been intended to effect any change in the law. This was in fact stated by the then President of the Board of Trade (Sir Winston Churchill) when describing the bill in his Second Reading Speech. 31.The change in structure in the United Kingdom thus did not denote any legislative intention to change the substance of the legislation, and there is no reason to think that the legislature in Hong Kong had any such intention either. There is, therefore, no reason to think that there was a deliberate legislative decision to narrow the scope of what was to become section 221(3) as compared to what was to become section 221(2). 32.The earlier legislation was not placed before Kwan J in Re Weihong, and she therefore did not consider it. It is therefore not surprising that, in its absence, she thought it appropriate to apply the general approach to construction that different words in the same section must have different meanings. Had the legislative history been brought to her attention, she may well have come to a different conclusion. Although the earlier legislation (or at least the 1865 Ordinance) was put before the judge, the argument before him does not appear to have been put in the way that Mr Manzoni developed before us, and it is therefore possible that he too may have come to a different conclusion if presented with the argument as presented to us. 33.Mr Alder sought to suggest that there was justification for giving the test for production of documents a narrower scope than that for oral examination, on the basis that production of documents was potentially more oppressive than oral examination. I cannot agree with that submission. There are many authorities which have stated just the opposite, not least Kong Wah, where Lord Millett observed at paragraph 30(4) of his judgment, summarising the effect of earlier authorities, that “an order for oral examination is likely to be more oppressive than an order to produce documents”. 34.In the course of argument, Mr Alder also submitted that “relating to the company” should be understood as requiring that the documents to be produced should be documents of the company. This too, is not right. If it were, it would not be possible for a liquidator to obtain documents such as an auditor’s working papers, which is a class of documents that is frequently the subject of an application under section 221. Such documents belong to the auditors and not the company, but they would clearly relate to the company. 35.I therefore am of the view that the construction of section 221 should be approached without the presumption that the phrase “relating to the company” must have been intended to have some different meaning from the matters referred to in section 221(1). Rather, for the reasons explained in paragraphs 27 and 28 above, it was not so intended. 36.Turning to Mr Manzoni’s third point, which is that similar legislation exists in other jurisdictions, but in none of those jurisdictions was the narrow approach adopted by the judge adopted. Mr Manzoni drew our attention to legislation in the United Kingdom, Australia and Singapore. However, as Mr Alder correctly noted, the legislation currently in force in the United Kingdom and Australia is materially different from the Hong Kong provisions, in that in both of those jurisdictions it is made explicitly clear that the scope of documentary production is the same as that for oral examination, and the scope of the former is stated by reference to the latter. The provisions pertaining in those jurisdictions do not, therefore, provide a valid point of comparison that assists the Liquidators. That said, it is fair to say that they do provide some support for the argument that in other jurisdictions with legislation whose purpose is similar, the approach is to have the same scope for both forms of information gathering by liquidators. 37.On the other hand, the legislation in Singapore (section 285 of the Companies Act of Singapore, Cap 50, 2006 revised edition) is materially identical to section 221, and the Singapore Court of Appeal has stated in PricewaterhouseCoopers LLP v Celestial Nutrifoods Ltd (in compulsory liquidation) [2015] 3 SLR 665 that “the provision does not differentiate between the production of documents and the oral examination of witnesses.” This, therefore, does support the position taken by the Liquidators. 38.Turning to Mr Manzoni’s fourth point, this is that the narrow interpretation of section 221 favoured by the judge was contrary to the purpose of the provision and the way in which it should be taken as being intended to operate. For the reasons already adumbrated in paragraphs 21 to 23 above, I think this point is well-founded. 39.Thus, for the foregoing reasons, I would agree with Mr Manzoni, and with respect, differ from the judge and Kwan J, and hold that the phrase “related to the company” in section 221(3) should be construed as including at least the matters set out in the longer phrase used in section 221(1). 40.In my view, adopting such a construction, the documents sought by the Liquidators, although widely defined, do relate to the Company, in that they are either relevant to:
41.Documents described in paragraph 2 of the draft order provided for the hearing before the judge (set out in Appendix 2 to the judgment) recording Mr Tsang’s ownership of real or personal property and relating to trusts controlled by him, documents relating to his or his family’s disposal of assets outside the ordinary course of business, agreements under which Mr Tsang is indemnified against liability to the Company, would assist in the assessment of whether or not it would be worthwhile to sue Mr Tsang. 42.Documents relating to Mr Tsang’s apparent divorce (the genuineness of which is questioned by the Liquidators), his bank statements, and documents relating to companies controlled by him (ie those referred to in paragraph 3 of the said draft order) would be similarly relevant to that question. They might also be relevant to the tracing of the Company’s assets. 43.Finally, the sort of documents described in paragraph 4 of the said draft order, ie those recording persons, companies or other entities that received assets once belonging to the Company and documents recording the acquisition by Mr Tsang or his wife of assets with the assets that formerly belonged to the Company, would be relevant to the tracing exercise described above. 44.Having come to this conclusion, it is not necessary to consider the second ground of appeal put forward by Mr Manzoni, namely whether, even on the narrower construction of section 221(3) preferred by the judge, the documents sought “related to the Company”. 45.In a Respondent’s Notice, Mr Tsang sought to contend that the judgment should be affirmed because the documents sought related to other persons and entities rather than the Company. However, it does not follow from the fact that the documents might relate to other persons or entities that they do not also relate to the Company. For the reasons given in paragraphs 40 to 43 above, I would accept that they do also relate to the Company. 46.Mr Tsang also sought to raise an argument that the orders sought would violate his constitutional right to privacy. However, this was not an argument made below, and I do not think that it should be permitted to be raised on appeal, when it is said by the Liquidators that had the argument been made, they would have wished to adduce evidence to show that the documents sought were not likely to be private communications. 47.Finally, Mr Alder suggested that if we were to differ from the judge in relation to the question of whether or not the court had the jurisdiction to make the orders for production sought pursuant to section 221(3) properly construed, the matter should be remitted to the judge for consideration as to whether or not the court should exercise its discretion to make the orders. With respect, that does not follow. It is, in the circumstances, open to this court to exercise the discretion afresh, and in my view this would be the appropriate course to take. Having regard to the Liquidator’s limited information as to what became of the Company’s assets, to Mr Tsang’s role as an officer of the Company with a central role in the dealing with those assets, and Mr Tsang’s hitherto plain reluctance to provide information or assistance to the Liquidators, I am satisfied that notwithstanding the wide terms of the orders for production sought, it would be appropriate to make such orders. 48.I would accordingly allow the appeal, and make the orders for production that were sought by the Liquidators. 49.So far as the costs of the appeal are concerned, both counsel accepted at the end of the hearing that these should follow the event. Accordingly, I would make an order that the costs of this appeal and of the hearing below be paid by Mr Tsang to the Liquidators, to be taxed on the party and party basis if not agreed. Hon McWalters JA: 50.I agree with the judgment of Barma JA.
Mr Charles Manzoni SC, instructed by Lipman Karas, for the applicant / appellant Mr Edward Alder, instructed by PC Woo & Co, for the respondent Appendix 1 3. The Respondent deliver up and produce to the Applicants within fourteen (14) days hereof the following documents, whether in printed or documentary form or any other form including computer generated records and information inscribed on, stored in or otherwise fixed in a tangible medium or that are retrievable in a perceivable form, including those stored, in particular, on computer hard drive, floppy disk, compact disk, USB flash drive, memory card and/or zip storage device, in the Respondent's possession, custody or control: 3.1 all books, records, correspondence, emails and other documents of or relating to the Company and/or its subsidiaries and former subsidiaries, including all documents of or relating to the Company’s negotiations with Supreme Well Investments Limited (“Supreme Well”) concerning the Company’s purported acquisition of fluorescent in situ hybridization (“FISH”) and surface plasma resonance (“SPR”) technology from Supreme Well; 3.2 all books, records, correspondence, emails and other documents, including all correspondence between the Company, Bank of China (Hong Kong) Limited (“BOCHK”) and/or The Bank of East Asia Limited (“BEAHK”), in respect of the payments or transfers by the Company to Supreme Well and all other entities and individuals of cash or other assets belonging or once belonging to the Company; . 3.3 all documents relating to all past or present offices held by or employment of the Respondent with the Company or its subsidiaries and former subsidiaries, including all service and/or employment contracts, payroll receipts and all correspondence including email between the Respondent and the Company or its subsidiaries and former subsidiaries relating to all such offices and/or employment; and 3.4 all documents relating to the Respondent's resignation from all offices held by or employment with the Company or its subsidiaries and former subsidiaries, including all resignation letter(s), documents regarding his payment(s) in lieu of notice and annual leave pay together with supporting documentation. 4. The Respondent deliver up and produce to the Applicants within seven (7) days from the date of this Order the following documents, whether in printed or documentary form or any other form including computer generated records and information inscribed on, stored in or otherwise fixed in a tangible medium or that are retrievable in a perceivable form, including those stored, in particular, on computer hard drive, floppy disk, compact disk, USB flash drive, memory card and/or zip storage device, in the Respondent’s possession, custody or control:
5. The Respondent deliver up and produce to the Applicants within seven (7) days from the date of this Order the following documents, whether in printed or documentary form or any other form including computer generated records and information inscribed on, stored in or otherwise fixed in a tangible medium or that are retrievable in a perceivable form, including those stored, in particular, on computer hard drive, floppy disk, compact disk, USB flash drive, memory card and/or zip storage device, in the Respondent's possession, custody or control:
6. To the extent that the documents described in paragraphs 3 to 5 are not within the Respondent’s custody:
Appendix 2 1. The permissible scope of the oral examination of Mr Tsang ordered on 15 September 2014 includes:
2. Mr Tsang produce to the Provisional Liquidators of the Company (“PLs”)within twenty one (21) days from the date of this Order every document in his possession or control evidencing or referring to:
3. Without limitation to paragraph 2 above, Mr Tsang produce to the PLs within twenty one (21) days from the date of this Order every document in his possession or control evidencing or referring to:
4. Without limitation to paragraph 2 or 3 above, Mr Tsang produce to the PLs within twenty one (21) days from the date of this Order every document in his possession or control evidencing or referring to:
5. Costs of this application be paid by Mr Tsang to the PLs, such costs to be taxed if not agreed. | ||||||||||||||||||||||||||||||
and individuals listed in 5.1 above) of cash or other assets belonging or once belonging to the Company, including all correspondence between the Supreme Well Payees and all banks.Cases cited in this judgment
Further hearings and rulings under CACV 46/2015