Chen Yung Ngai Kenneth and Another v. Hugill & Ip (A Firm) and Another
Read the full judgment text of HCB 3819/2011 on BabelCite. This HCB judgment was delivered on 13 January 2023.
1. By this summons, the applicants (“ Trustees ”) apply for an order against the respondents, (respectively “ H&I ” and “ OLN ”; collectively, “ the 2 Firms ”) under section 29 of the Bankruptcy Ordinance, Cap 6 (“ BO ”). The 2 Firms are asked to produce documents concerning the Discharged Bankrupt, David Ho, and various entities who are said to be his nominees. The 2 Firms had acted for the nominees (“ 971 Defendants ”) in HCA 971/2012 (“ 971 Action ”).
Cited by 6 cases · Cites 10 cases
|
HCB 3819/2011 [2023] HKCFI 151 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO 3819 OF 2011 ____________ Re: HO YUK WAH DAVID (the “Discharged Bankrupt”) ____________ BETWEEN
____________ Before: Hon Au-Yeung J in Chambers Date of Hearing: 15 September 2022 Closing Date of Submission: 6 October 2022 Date of Decision: 13 January 2023 ____________ D E C I S I O N ____________ A. Introduction 1.By this summons, the applicants (“Trustees”) apply for an order against the respondents, (respectively “H&I” and “OLN”; collectively, “the 2 Firms”) under section 29 of the Bankruptcy Ordinance, Cap 6 (“BO”). The 2 Firms are asked to produce documents concerning the Discharged Bankrupt, David Ho, and various entities who are said to be his nominees. The 2 Firms had acted for the nominees (“971 Defendants”) in HCA 971/2012 (“971 Action”). 2.Six Categories of documents are sought by the Trustees:
3.H&I maintain a neutral stance and their attendance was excused. 4.OLN also maintain a neutral stance but have made written submission to assist the Court (for which the Court is grateful) and seek costs. The following analyses address OLN’s submissions, but the reasoning and conclusion will ultimately apply to H&I. 5.OLN’s submissions are these:
6.Accordingly, the Trustees have since reduced the scope of the order sought. The only substantive dispute remains that of LPP. B. Legal Principles under Section 29 BO 7.Section 29 BO provides as follows:
8.The applicable principles for considering whether to make an order under section 29 BO have been set out in Re Ho Yuk Wah David (No. 5) [2020] HKCFI 578, §§22 and 31, Au-Yeung J; CA Judgment (“83 Judgment”) [2022] HKCA 110, §12. In gist, the Trustees must satisfy the Court that the information or documents “relate to the bankrupt, his dealings or property”; the provision of information or documents is reasonably required for him to carry out the Trustees’ functions; and the respondent is able to provide such information or documents. The standard of proof is reasonable suspicion: 83 Judgment, §14. 9.Under sections 29(1A) and (3) of BO, the court may order the respondent to answer interrogatories by way of an affidavit, or order a respondent to submit an affidavit to the court containing an account of his dealings with the bankrupt. However, section 29 does not confer power on the court to order the making of an affidavit to produce documents or to explain what has become of documents no longer in the respondent’s possession. Re Ho Yuk Wah David [2019] 1 HKLRD 961, §§40 and 42, Recorder Eugene Fung SC. 10.Confidentiality is no bar to an order for disclosure in a section 29 application: The Joint and Several Trustees in Bankruptcy of Nanik Dayaram (also known as Nanik Dayaram Hathiramani) v Lee Pei Yin, HCB 7651/2011, 6 November 2015, §62, Ng J. C. Legal Principles on Legal Professional Privilege 11.The principles on LPP have been summarized in HKSAR v Wong Chi Wai (2013) 16 HKCFAR 539, at §§34-37. It is for the party refusing disclosure to establish LPP: Wauth v British Railways Board [1980] AC 521, at 541G. Once established, LPP cannot be overridden by the court: Wong Chi Wai, §37. 12.LPP falls into 2 categories, legal advice privilege and litigation privilege. The latter covers all documents brought into being for the purposes of litigation. The former covers communications between lawyers and their clients whereby legal advice is sought or given: Three Rivers District Council & ors v Governor and Company of the Bank of England (No.6) [2005] 1 AC 610, §10, Lord Scott. 13.Privilege does not attach to everything a claimant says to the lawyer. It is the purpose of the communication (ie to enable the client to seek advice or for the lawyer to give it) contained in a document that determines whether or not LPP attaches. Privilege, Colin Passmore, 4th ed, at §2-012. 14.Using the test in §§12 and 13 above, the following documents are confidential but should not automatically be regarded as privileged in their entirety in the light of Three Rivers (No. 6): The Law of Privilege, Bankim Thanki QC, 3rd ed, at §2.128-2.129.
15.Parts of the documents in the preceding paragraphs which are subject to LPP can be covered up, whilst parts which are not subject to LPP should not: Ainsworth v Wilding [1900] 2 Ch 315, at 325 (fee note). D. Application of the Legal Principles under Section 29 BO 16.David Ho and the following entities were/are defendants to the 971 Action:
17.One Asia Pac Infrastructure Development Limited (“APIDL”) was D6 in the 971 Action. 18.D2-D5, D8 and D9 (971 Defendants) were represented by H&I between 11 December 2018 and 17 July 2019; and then by OLN from 17 July 2019. 19.According to Ms Chiu who appeared on behalf of OLN at the call-over hearing of this summons on 15 September 2022, there was a natural person who gave her instructions on behalf of the 971 Defendants. However, OLN had not informed that natural person of this summons because the Trustees asserted that “any unauthorized disclosure or divulge of information about the Defendants and other related companies will be regarded as a breach of confidentiality and will be dealt with professionally”. 20.It is not clear why the Trustees needed to assert that position since the documents sought were historical in nature and there was no secrecy or urgency involved in the summons. However, I agree with the Trustees that the natural person is not a party to this application and it is not known in what capacity he/she was instructing OLN at the time. He/she has no right to be heard. 21.All the 971 Defendants have been struck off or dissolved after the Judgment. However, D2 and D9 have been restored by the Trustees for the purpose of enforcing the Judgment and Orders in the 971 Action. The summons and supporting affirmation have been served on D2 and D9 but they have not responded. 22.On paper, Mr Yu Yang owned and controlled the 971 Defendants and APIDL. The Trustees’ case is that D2 held 1 share in APIDL since about 2004. David Ho sold 999,999 shares of APIDL to APIHL, which ultimately ended up in the hands of D5. D3 and D4 recapitalized APIDL in December 2007. D8 was a guarantor for D3’s recapitalization. D9’s shares were held by D2 and an entity called Ferdinan. 23.Ng J handed down judgment on 28 September 2020 in Chen Yung Ngai Kenneth & anor v Ho Yuk Wah David (a bankrupt) & ors [2020] HKCFI 2518 (“971 Judgment”). It was found, amongst others, that:
24.The shareholding position of the 971 Defendants is as follows:
25.Yu Yang was the former brother-in-law of David Ho. Yu Yang was held to be David Ho’s nominee shareholder of D2, D3 and Ferdinan (971 Judgment, §§160, 178, 163). 26.Liu Shu was a director of D2, D3, D5, D6, an employee of the Asia-Pacific Group and alleged colleague of David Ho in 2007 (971 Judgment, §59). She was held to be a person closely associated with David Ho by reason of her association with Yu Yang (footnote 45 at page 63 of the 971 Judgment). 27.Yu Yang and Liu Shu made witness statements but refused to testify at the trial (971 Judgment, §52). The assertions in the witness statements that Yu Yang was the ultimate beneficial owner of the corporate entities (including the 971 Defendants) was found to be bare assertions and rejected by Ng J (§§55-58, 66-67, 134-142). 28.It has always been the Trustees’ reasonable suspicion that David Ho has always been the beneficial owner of APIDL and that his estate is entitled to any surplus funds of APIDL (§6 of the 83 Judgment). This has become an eventuality by virtue of the 971 Judgment when Ng J found that (i) the 971 Defendants were all nominees of David Ho and/or beneficially owned by him; and (ii) Yu Yang and Liu Shu were nominees acting under David Ho’s instructions. 29.The Trustees consider themselves to have stepped into the shoes of David Ho and essentially own and/or control all the 971 Defendants. I agree. 30.The Trustees have always suspected that the Bankrupt was involved in funding arrangements for various actions (§§2, 8 of the 83 Judgment). They draw the conclusion that those nominees’ litigation expenses for the trial of the 971 Action must have been funded or at least related to David Ho. The present application is primarily to ascertain the “fund flows” or payment records against the 2 Firms, to ascertain if funds are available for David Ho’s estate. 31.I am satisfied from the facts in this Section that the Trustees have demonstrated reasonable grounds for suspecting that the documents or information sought are related to David Ho, his dealings or his property and that the Trustees require them to carry out their functions. 32.There is no issue that the 2 Firms are able to produce the documents or information, if ordered, that are in their possession, custody or control. E. Legal Professional Privilege 33.OLN assert LPP in respect of part of Categories 1 and 2 and the whole of Category 5. OLN point out that they can redact Categories 1 and 2 but the LPP in Category 5 is in such a classic sense that redacting certain parts of the documents may give away clients’ instructions to OLN. 34.OLN point out that Ng J only ordered the following to be transferred to the Trustees (§§20 and 188 of the 971 Judgment):
Ng J did not order the shares in any of the 971 Defendants to be transferred to the Trustees. 35.Accordingly, OLN submit that it does not appear to be correct to say that D2-D5 now “belong” to the Trustees. At most the Trustees are now the shareholders of APIDL (D6), but D6 was not one of the 971 Defendants and was never a client of OLN. The Trustees do not even assert that they are directors, shareholders or liquidators of any of the 971 Defendants (except 50% shareholder of D9). 36.Despite the 971 Judgment, it is not clear to OLN that the documents created and prepared prior to that Judgment for the sole benefit of the 971 Defendants in defending the 971 Action belong to the Trustees. 37.In the premises, OLN do not believe that it can safely assume that the Trustees are able to waive privilege on behalf of the 971 Defendants or at least D2-D5. 38.I am unable to agree. Having regard to the express findings (set out in §§23-28 above) that D2, D3, D5 and D9 (not just their shareholders or directors) were nominees of David Ho, the Trustees would step into the shoes of these 971 Defendants. On top of that, D2 and D9 have not responded to the summons to assert LPP. That being the case, LPP of the nominees cannot be asserted against the Trustees. F. Categories 1 to 3 – Details of Payments and Retainers 39.Insofar as OLN raise an issue of LPP, it cannot stand in the light of the holding in §38 above. As for the other documents in these Categories, OLN say that they are confidential but does not raise an issue of LPP. These include the contact information of the transferors and transferees under the payment records. Confidentiality does not preclude an order for production: §10 above. If LPP does not attach to client’s identity, there is even less reason for LPP to attach to non-clients’ identity: §14(2) above. I make an order to produce these 3 Categories. G. Category 4 – Amount of Funding to OLN 40.OLN submit that this is confidential but not privileged. OLN are willing to provide an affidavit confirming the amount. I accept this approach. H. Category 5 – Communications, Witness Statements and Affirmations of Liu Shu 41.In respect of communications with Liu Shu, OLN assert LPP. That cannot stand in view of the express finding of Ng J that Liu Shu is a nominee of David Ho and hence the Trustees step into the shoes of Liu Shu. 42.In respect of witness statements and affirmations, OLN are not aware of their existence other than in the 971 Action and is willing to say so an affidavit. The Trustees do not object. I accept this approach. I. Category 6 – Communications with David Ho 43.OLN have confirmed that they never had any dealings or communication with David Ho and are willing to say so on affidavit. The Trustees do not object. I agree with OLN’s approach. J. Costs 44.OLN have communicated substantively with the Trustees as early as 11 April 2022 before the summons was taken out. They reviewed and collated documents sought by the Trustees, assessed whether they were confidential or privileged and responded to the Trustees’ submission. They seek an order for costs against the Trustees personally. 45.The Trustees oppose and suggest that costs should be limited to reasonable photocopying charges: The Joint and Several Liquidators of Kong Wah Holdings Limited and Akai Holdings Limited v Ernst & Young (unreported, CACV 356/2003, 17 March 2004) at §§37-39. Upon compliance with the order to be made, if OLN are shown to be fully co-operative with the Trustees in providing the necessary information, an order may be made that OLN be paid reasonable costs incurred by them in providing such information, to be paid out of the estate, under rule 87C of the Bankruptcy Rules (Cap 6A): Re Ho Yuk Wah David (bankrupt) (No.2), (§§12-13), Au-Yeung J. 46.The grounds of OLN’s application for costs are these:
47.In deliberating on the question of costs, I have disregarded the Trustee’s submission that OLN were not analogous to a completely innocent party under a Norwich Pharmacal application because OLN were acting for David Ho’s corporate nominees and were receiving instructions from Yu Yang and Liu Shu. This is because there is nothing before the Court to justify any insinuation that OLN were complicit in the actions of David Ho or his nominees at the time OLN acted for the 971 Defendants. 48.Even so, I am unable to agree with OLN. 49.With regard to ground 1, there should not be a personal costs order against the Trustees as there was no litigation conduct on their part that required punishment on costs. Even OLN accept that the Trustees are just doing their duty. Difficulty in recovering costs from the bankrupt’s estate is not a reason to order the Trustees to personally bear costs. 50.With regard to ground 2, Re Lee Shuk Yee concerns hostile litigation taken by a personal representative. However, a section 29 BO application is far removed from hostile litigation. It is a “fishing expedition” made on reasonable suspicion of a trustee in bankruptcy, to discover whether he has further avenues to recover the bankrupt’s assets for the benefit of the creditors: Re Ho Yuk Wah David (No. 5), §22(8). 51.With regard to ground 3, both an auditor and a solicitor would need to incur time to peruse the s.29 BO summons and supporting affidavit, collate and review documents sought and make proposals on production. The auditor in Kong Wah was not allowed to recover the aforesaid costs; neither would the solicitor. The only thing that distinguishes the solicitor from the auditor is that the former has to consider questions of LPP but the latter does not. The costs for considering LPP (and any redaction) would be adequately covered by the proposed order of the Trustees under section 87C of BO. Moreover, it has been clear from the express findings of the 971 Judgment who were the nominees of David Ho such that LPP cannot be raised against the Trustees. 52.For the reasons given in §§49-51 and without disrespect, I reject OLN’s submission for costs and accept the costs order proposed by the Trustees. K. Conclusion and Orders 53.I make an order for H&I and OLN to disclose, within 28 days from the handing down of this decision, the following documents which are in their respective possession, custody or power:
54.I thank Mr Joseph Wong and OLN for their assistance.
Mr Joseph Wong, instructed by Lee, Wong, Lam, for the Applicants Attendance of the 1st Respondent was excused Ms Eunice Chiu, of Oldham, Li & Nie, for the 2nd Respondent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Other judgments that cite this case
Further hearings and rulings under HCB 3819/2011