Re Hing Wah Blanket Company Limited and Another

HCMP002745/1994

1994 No. MP2745

HEADNOTE

Application for examination under Section 221 of the Companies Ordinance - Manner in which application should be made - Applications should in normal circumstances be made on notice to person to be examined - Secret exhibits not permissible.

1994 No. MP2745

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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Coram: The Hon. Mr. Justice Rogers in Chambers

Date of hearing: 27 October 1994

Date of decision: 27 October 1994

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D E C I S I O N

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1. This is an application under S.221 of the Companies Ordinance that the liquidators may be at liberty to examine on oath a former director of the relevant companies in connection with various transactions.

2. This application came before me in what was hitherto the conventional mode, namely, as an ex parte application which was submitted in writing. I indicated that I had difficulties with the form of the application and with part of the order which was sought. I asked for an oral argument if it was thought desirable to pursue the application.

3. Mr. Vaizey has appeared before me and has produced a range of authorities to show that his application has been made in the conventional manner as was the second part of his application, namely that the report of the liquidator dated the 28th September and the annexures thereto should be kept confidential and placed in an envelope not to be opened without leave of the Court. Again, it has been common that the liquidator's report would not be seen by the person against whom the order was made.

4. It seems to me however, that the practice and procedure which has been customary since the last century may need revisiting. It may need revisiting in two respects. It has hitherto often been the case that once an order was granted, it was served, by accident or by design, at the last minute before it was necessary for the examination to take place. This would give the examinee little, if any, time to challenge the order or prepare for such examination. The idea behind such last minute service of the order has often been expressed to be the fact that it is better to try and keep the person to be examined unaware since he may be more inclined to be truthful in those circumstances.

5. I have two difficulties with the procedure. The first, as I have indicated, is as to the mode of application. In my view, it is not necessary to make these orders on an ex parte application. Neither the statute nor the rules so require. There is no reason why at the very least, notice should not be given to the person who will be examined. If he wishes to attend the application or make any representations then he should be able so to do.

6. I bear in mind, in particular, the judgment of Mr. Justice Chitty In re Greys Brewery Co. [1884] 25 Ch. D. 400. In that judgment, Mr. Justice Chitty explains the need for secrecy surrounding what takes place at the examination. It revolves around this that the liquidator comes new to the company and it is amongst other purposes, to enable him to discover what has been going on in the company that this procedure exists. Whilst he is gathering details of what has happened in the company, he is really putting himself in the position of the directors as they previously were and he is really gathering together private information of the company.

7. For that reason the examination is not open to the public. Furthermore, the examinee and his legal advisors, if they be present, may not be permitted to retain notes of the examination. Chitty J. referred to the procedure of the examination in terms of Star Chamber. In saying that he no doubt bore in mind the need for confidentiality of the investigation. I see no reason to add to that the tactics of a police state in requisitioning the Star Chamber. That the contents of a discussion at an examination might be secret is quite a different proposition from saying that it is necessary to make the order in secret.

8. Even if there could be shown to be a need for secrecy about the making of the order, I can see no justification for making it in the absence of knowledge of the person against whom it is made. Certainly in normal circumstances, there is no need to make the order in secret. The examinee is to be served with it. If there be any merit in the argument that the examinee can apply to set the order aside, then he should be in a position to challenge the making of the order at the outset. I do not lay down as a hard and fast rule that it may never be appropriate to apply ex parte without giving the Respondent notice of the application, but in normal circumstances, I see no reason why notice should not be given.

9. In the circumstances of this case, there is greater reason to believe that there is no reason why notice should not be given. In this case, there has been extensive correspondence between those acting on behalf of the liquidators and the person sought to be examined and, of course, his representatives. In my view, the need for secrecy is totally absent in this case. Whilst I will be prepared to entertain an application at a later stage, it will only be after notice has been served of the time and place at which that application will be made. After that I consider it right to entertain an application for an order for the examination.

10. There is another aspect relating to this application, which again is a matter where the application before me follows the previous practice. It is, as I have indicated, sought to keep the report of the liquidators secret. In comparatively recent times, the question of secret evidence given to the Court and in particular secret exhibits to affidavits was considered in the case of W.E.A. Records Ltd. v. Visions Channel 4 Ltd. In the Court of Appeal, the Master of the Rolls Sir John Donaldson said this at [1983] 2 All E.R. 589 @ 591.

"I do not know what this information was, but I cannot at the moment visualise any circumstances in which it would be right to give a judge information on an ex parte application, which cannot at a later stage be revealed to the party affected by the result of the application."

11. It seems to me that this should apply just as much in applications of this sort as it does in cases of the type with which the Master of the Rolls was dealing namely a case involving an ex parte application in an intellectual property claim. If there is need to maintain secrecy as to information which it is considered necessary to put before the Court, it seems to me that the Applicant should make that and the reasons for it clear to the judge on making the application. Nevertheless, I still do not see that the person against whom an order is made should be debarred from seeing the information which is to be, after all, the basis upon which the order is to be made. Perhaps, in some circumstances, an appropriate condition for allowing him and his advisors to see it, may be the giving of undertakings as to confidentiality and non use of the material.

12. Again, in the present circumstances, I see little need for any confidentiality for this reason that the issues about which it is sought to examine the director have been ventilated in correspondence and indeed the bulk of the exhibits to the report appears to be correspondence between the parties. As I have indicated, there is no need, it seems to me, for any confidentiality in this respect. Mr. Vaizey on his part has indicated that the liquidators are not concerned about the matter of confidentiality in this instance but he was, as I have said, merely following established practice.

13. As a conclusion, I should add that I consider it is necessary from time to time to look at established practice to see whether it is appropriate in the circumstances which now pertain. Where an established practice in one field does not accord with practice in other types of application and rules which the Court now applies in other instances, the time for change may well have come. If necessary, the Companies Court has to change its practice as indeed other Courts have had to change their practice from time to time. In so saying however I do not demur at all from the notion that it is important to follow established practice.

Representation:

Mr. T. Vaizey of Messrs. J.S.M. for the Joint & Several Liquidators.