Re Akai Holdings Ltd
Read the full judgment text of HCCW 49/2000 on BabelCite. This High Court CFI judgment was delivered on 23 October 2003.
1. These applications were issued by the liquidators of Akai Holdings Limited ("Akai") and Kong Wah Holdings Limited ("Kong Wah") (collectively, "the Companies") on 21 July 2003 under section 221 of the Companies Ordinance, Cap. 32. The 1st respondent is Ernst and Young ("E & Y"), the former auditors of Akai and Kong Wah. The 2nd respondent, Choi Bik Hok ("Miss Choi"), is a partner of E & Y. The liquidators seek an order for the production of certain documents in the possession of E & Y and for
Cites 2 cases
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HCCW000050E/2000 HCCW 49/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) NO. 49 OF 2000 ____________
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____________ AND HCCW 50/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) NO. 50 OF 2000 ____________
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____________ (Heard together) Coram: Hon Kwan J in Chambers Date of Hearing: 23 October 2003 Date of Decision: 23 October 2003 Date of Handing Down of Reasons for Decision: 11 November 2003 __________________________________ R E A S O N S F O R D E C I S I O N __________________________________ The applications and the orders made 1.These applications were issued by the liquidators of Akai Holdings Limited ("Akai") and Kong Wah Holdings Limited ("Kong Wah") (collectively, "the Companies") on 21 July 2003 under section 221 of the Companies Ordinance, Cap. 32. The 1st respondent is Ernst and Young ("E & Y"), the former auditors of Akai and Kong Wah. The 2nd respondent, Choi Bik Hok ("Miss Choi"), is a partner of E & Y. The liquidators seek an order for the production of certain documents in the possession of E & Y and for the examination of Miss Choi. As a result of correspondence exchanged between solicitors after the summonses were issued, E & Y have agreed to give access to virtually all of the documents sought by the liquidators, save for those documents "prepared solely for the purposes of [E & Y's] internal review and approval process and audit planning and programming" (I shall refer to this excepted category as "the internal review documents"), and following the affirmation filed by Miss Choi, Miss Choi has agreed to an interview by the liquidators and she was interviewed three days before the hearing. In view of that, the liquidators did not proceed with their application against Miss Choi. 2.Only two matters were left to be resolved at the hearing. The first was whether the internal review documents should be provided to the liquidators and the second was what provision should be made regarding the costs of the applications. Mr Coleman, who appeared for the respondents, submitted that the mere fact that the applications were largely dealt with by consent or compromise does not mean that there are overwhelming merits in the applications, quite apart from his contention that no case is made out by the liquidators to give them access to the internal review documents. Hence, notwithstanding much was agreed between the parties as to the reliefs to be granted, it is still necessary to go into the merits of the applications for the purpose of deciding on costs. 3.At the conclusion of the hearing, I ruled against E & Y on the exclusion of the internal review documents. I made an order that E & Y do make available to the liquidators the following documents in their possession, custody or control:
The documents referred to above included all correspondence exchanged between E & Y and the Companies including their subsidiaries from 1 January 1996 onwards. 4.I have also made orders permitting the liquidators to take copies of the above documents and to the extent that such documents are not in the possession or custody of E & Y, they are to provide such assistance as may be necessary to enable the liquidators to inspect and take copies of them. For the avoidance of doubt, I provided that discovery of documents made pursuant to the order herein is subject to the undertaking of the liquidators that the documents are to be used solely for the purpose of the administration of the liquidation of the Companies and not for any other purpose without the leave of the court. I awarded the costs of the applications to the liquidators. These are the reasons for my decision. The Companies 5.Akai was incorporated in 1982. Its parent company is Semi-Tech Corporation Limited ("STC"), a listed company in Canada, which was owned and controlled by James Henry Ting ("Mr Ting") as to 44% of the total voting rights. In the annual report of Akai for 1996, the STC group was described as an international business headed by STC and consisted of numerous listed companies around the world with total market capitalization of US$4.5 billion and sales turnover of US$5 billion. Mr Ting was the chairman and chief executive officer of STC. 6.Akai was the investment arm within the STC group, responsible for acquiring companies with turnaround potential and assisting them to return to profitability. It was a listed company in Hong Kong from 1987 onwards. 7.Before its demise, Kong Wah was the largest television manufacturer in Asia outside Japan. It had been acquired by Akai through Akai Electric Company Limited ("AECo"; a listed company in Japan) in August 1995 and was privatized in 1996. Its major asset was a 35% interest in Konka Group Company Limited ("Konka Group"; a television manufacturer listed in the Shenzhen Stock Exchange). 8.Between 1988 and 1996, Akai made many substantial acquisitions as a result of which it had interest in at least 160 subsidiaries and associated companies, including The Singer Co. N.V. ("Singer"), Toyo Holdings Limited ("Toyo"), Sansui Electric Company Limited ("Sansui"), GM Pfaff ("GMP"), AECo and Kong Wah. Between 1997 and 1999, Akai sold part of its interest in the major companies it had acquired, mostly to companies within the Akai group. The sale involved disposal of interest in Sansui, GMP, Konka Group and AECo. The respondents 9.E & Y were the auditors of Akai from 1992 and of Kong Wah from 1997 to 31 January 1999. They audited the accounts of Akai for the years ended 31 January 1996 to 31 January 1999 and the accounts of Kong Wah for the years ended 31 March 1996 to 31 January 1999. In addition to being the auditors of the Companies, they had provided tax, accounting and other business advisory services to the Companies and their subsidiaries including the attempts to rescue the Companies in 1999 and 2000. In respect of each of the accounts audited, E & Y gave an unqualified opinion on the financial statements. 10.Miss Choi's involvement was in the provision of corporate finance services to the Companies in late 1999 and 2000 as a partner of E & Y. In particular, she presented the rescue proposal and had attended various meetings with the financial creditors as the representative of Akai. For the purpose of putting forward the rescue proposal, E & Y had conducted a due diligence exercise and prepared information memoranda distributed to the financial creditors in December 1999, January 2000 and April 2000 ("the December EY Report", "the January EY Report" and "the April EY Report" respectively). Events leading up to the winding up of the Companies 11.In September 1999, GMP filed for insolvency protection in Germany and Singer and STC also sought court protection from creditors in the United States. 12.On 12 November 1999, Akai and The Grande Group Limited ("Grande Singapore", a subsidiary of Grande Holdings Limited ("Grande HK")) entered into a management agreement which gave full management and decision making control of Akai and its subsidiaries to Grande Singapore. 13.On 18 November 1999, Akai announced attempts to raise HK$335 million through the issue of convertible bonds with Toyo as the underwriter and an underwriting agreement was entered into between Akai and Toyo whereby Toyo fully underwrote the convertible bonds issue. 14.On 3 December 1999, all signatories of all Hong Kong bank accounts maintained by Akai were replaced with directors and employees of Grande HK and Toyo. 15.On 9 December 1999, a meeting was held between the financial creditors, Grande HK, Akai and E & Y in which Grande HK advised that they had instructed E & Y to conduct a due diligence exercise and compile financial report on the current situation of the Akai group. 16.On 13 January 2000, a banking syndicate issued winding-up petitions in Hong Kong against the Companies. On 23 August 2000, the Companies were ordered to be wound up in Hong Kong and on 29 September 2000 they were ordered to be wound up in Bermuda. Financial position upon liquidation 17.In her written submissions, Miss Linda Chan, counsel for the liquidators, has helpfully identified for the court these pertinent aspects of the financial position of the Companies taken from the audited reports and various information memoranda prepared by E & Y in 1999 and 2000. 18.In the years ended 31 January 1998 and 31 January 1999, Akai recorded exceptional losses in the sums of US$100.5 million and US$1,751 million respectively. 19.There was a very substantial decrease in the total assets and the net assets of Akai in the twelve months before its liquidation as could be seen from these figures set out below:
20.The diminution of assets was attributed to the provision for or writing off of accounts receivable and investment in various subsidiaries and associated companies and in particular, the provision for loss of trademarks and patents which accounted for a loss of US$417 million. However, the lack of information available to the liquidators has frustrated any meaningful analysis of the exceptional items of losses. 21.The liquidators' investigations have revealed that at least the following major assets once owned by the Companies are now owned or controlled by Grande HK or Toyo:
22.Furthermore, the following major assets set out in the Companies' financial statements have either become worthless, or are not traceable or identifiable:
23.In addition, the liquidators have specifically identified six substantial transactions as requiring further investigation:
24.To date, the liquidators have managed to identify or take control of only some US$2.39 million worth of assets, the majority of which are subject to claims by third parties. Their efforts to identify and locate assets have been and continue to be hampered by a lack of documentation or information and the refusal of Mr Ting and former directors of the Companies, Grande HK, Grande Singapore or Toyo to provide any meaningful assistance. Unless further information is forthcoming, it is unlikely that significant recoveries will be made for the benefit of creditors. 25.The liquidators have approximately 650 boxes of books and records in relation to Akai and 1,800 boxes in relation to Kong Wah. They believe that the 2,450 boxes of documents are not all the books and records of the Companies. This is not a large volume of documents for entities like the Companies, in view of the size and nature of transactions undertaken by them. They seek to gain access to the information and documents previously made available by the Companies to E & Y in the course of their audits and the provision of advisory services to the Companies. Previous requests for information 26.On 29 August 2000, the solicitors for the Official Receiver, who was then the provisional liquidator, requested E & Y to provide copies of certain documents relating to the Companies pursuant to section 197 of Cap. 32. E & Y responded by letter of their solicitors Kennedys (then known as Skrine Thomas Sharrock) that they do not believe any of the documents in their possession would have constituted "property" to which the Companies are entitled under section 197. Further correspondence was exchanged between the Official Receiver's solicitors and Kennedys on this between September 2000 and January 2001. None of the documents requested were provided by E & Y. 27.On 29 June 2001, the liquidators served two notices on E & Y and Miss Choi pursuant to inter alia section 211 of Cap. 32, requiring them to deliver as "agent or officer" of the Companies any "books and papers in [their] hands to which [the Companies are] prima facie entitled". On 12 July 2001, E & Y and Miss Choi replied by letters of Kennedys stating that section 211 does not apply to them as they were not agents or officers of the Companies and that the Companies are not prima facie entitled to the documents in their possession. 28.On 5 March 2002, a meeting was held between the representatives of the liquidators and E & Y at which the liquidators requested E & Y for the first time for access to the entirety of E & Y's papers relating to the Companies and their subsidiaries. On 27 March 2002, before E & Y had formally replied to the request, E & Y were faxed two search warrants issued out of the Eastern Magistracy pursuant to which the Commercial Crime Bureau ("the CCB") effectively seized all documents relating to the Companies in the possession of E & Y. The search warrants were formally served on E & Y on 12 April 2002. On the same day, the chief operating officer of E & Y, Marshall Henry Byres ("Mr Byres") attended a meeting with the CCB and was told that the existence of the search warrants must be kept confidential. Hence, when Mr Byres wrote to the liquidators on 17 April 2002 stating that he was "unable" to accede to the request to allow access to the files of E & Y, he did not give any reason. 29.On 13 June 2002, the liquidators requested E & Y to provide a summary of all amounts paid to them by the Companies from May 1998 to August 2000 and copies of all their invoices issued to the Companies. On 18 July 2002, Kennedys asked the liquidators to explain why they needed the information. The liquidators explained in their reply dated 1 August 2002 that they have very limited information in relation to the Companies and as it is evident that E & Y have information including the books and records of the Companies, such information would assist the liquidators in reconstructing the assets and liabilities of the Companies. Kennedys responded on 15 August 2002 stating that E & Y are not in possession of the books and records of the Companies and that the liquidators had failed to explain how the information requested as to the payments to them by the Companies could help their investigations. 30.On 7 September 2002, the liquidators again sought to explain why they believe the information required to fulfil their duties is in the possession of E & Y and stated that it is not their intention to seek the "wholesale disclosure" of the files of E & Y, notwithstanding that they consider they must at least be entitled to view them, or to embark on any investigation associated with E & Y. They sought information of the fees paid to E & Y to assist the reconstruction process and to identify the matters specifically dealt with by E & Y and which are of specific interest to the liquidators. They also explained why Miss Choi would be helpful to them in understanding the events leading up to the liquidation of Akai. 31.On 23 September 2002, Kennedys stated that E & Y would provide copies of their invoices to the liquidators notwithstanding the reasons given by the latter for these documents are "unconvincing". However, it was not until 18 February 2003 that E & Y provided a two-page summary of the invoices and copies of the invoices were supplied only on 26 February 2003. Kennedys further stated on 23 September 2002 that Miss Choi "has no obligation to meet with [the liquidators'] representatives and indeed to do so would clearly be premature since [the liquidators] have not completed [their] investigations into Akai and/or Kong Wah". Kennedys maintained that the liquidators have no legal entitlement to "trawl through" the papers of E & Y, and subject to the liquidators having exhausted all other lines of enquiry, E & Y remain willing to consider "specific requests for information" from the liquidators. 32.By their letter dated 7 October 2002, the liquidators raised specific enquiries with Kennedys relating to "land and buildings", "other fixed assets", "investments", "other assets" and "investment held for disposal" recorded in the 1999 accounts and requested detailed breakdown of each. The substantive response, which only came on 18 February 2003, is that as the liquidators were presumably aware that the CCB had obtained court approval to take possession of all documents relating to the Companies and their subsidiaries (the seizure of documents by the CCB was reported in BusinessWeek in August 2002), "what was already a very difficult request to comply with, is now not one which [E & Y] can even entertain at present". 33.Eventually, the liquidators retained Johnson Stokes & Master ("JSM") to act for them and JSM wrote to Kennedys on 7 May 2003 seeking a response that E & Y would allow the liquidators access to review and take copies of documents relating to the Companies in their custody and to give the CCB such authorisation as may be required to allow the liquidators access to such documents handed over by E & Y to the CCB. JSM requested Kennedys to provide the contact details of Miss Choi and further stated they had instructions to apply for relief under section 221 if there was no favourable response by the stated time. 34.Kennedys replied on 17 May 2003 stating that E & Y is unable to provide the authorisation to the CCB or to provide access to the documents requested and that it would seem "premature" for the liquidators to have a meeting with Miss Choi until they have completed investigations. On 5 June 2003, JSM informed Kennedys they were instructed to issue the summons under section 221 and asked if the latter had instructions to accept service for Miss Choi as well. 35.On 10 June 2003, Kennedys informed JSM they were waiting a response from the CCB and queried what advantage there could be in JSM taking action until Kennedys had received clarification from the CCB. JSM replied on 17 June 2003 that as E & Y had refused to give consent by letter to the CCB to allow the liquidators to inspect the documents seized, they had no option but to have recourse to section 221. 36.On 18 June 2003, Kennedys provided to JSM a schedule of properties in response to only one out of the four specific enquiries made by the liquidators on 7 October 2002 and which they had stated in February 2003 they were unable to entertain. By a without prejudice letter of the same date (privilege from production of without prejudice letters was waived by E & Y for the purpose of this application), Kennedys offered to allow the liquidators to have access to the files of E & Y on the following terms: inspection should be carried out at such times and period to be agreed with E & Y; a representative of E & Y would be present at all inspections; the liquidators would pay the costs of E & Y of attendance at the inspections at a rate commensurate with the charge out rate of the fee earners; E & Y would consider requests for taking copies of documents on a case by case basis and would charge HK$3.00 per copy for photocopying; the inspections would be subject to such other terms and conditions as appropriate; and the existence of the offer and any subsequent inspection of the files by the liquidators would be kept entirely confidential. 37.JSM replied on 20 June 2003 stating that it was the liquidators' understanding that all that the CCB requires to allow inspection is either a court order or a letter of consent from E & Y. As Kennedys had cited their correspondence with the CCB as a reason for delay in giving a substantive response, JSM requested them to state the nature of their inquiries with the CCB. JSM also inquired whether Miss Choi would be willing to assist voluntarily by attending interviews with the liquidators. 38.As for the without prejudice offer, JSM replied on 20 June 2003 as follows: the liquidators required a firm timetable to be put in place so that inspection could be carried out in a timely manner; they do not consider it necessary for a representative of E & Y to be present at the inspections and it is not reasonable for the liquidations to bear such unnecessary expense; they do not consider it appropriate that the approval of E & Y must be sought on a case by case basis for copies to be made of documents, although they would agree to the photocopying charge; E & Y were asked to specify what other terms and conditions they were minded to impose for the inspections; the liquidators would agree to keep the inspected documents confidential but if the inspection should yield information concerning assets or causes of action, the liquidators would reserve their right to seek leave of the court to use the disclosed documents in the absence of consent from E & Y. JSM further stated that as substantial progress was made in the preparation of the application under section 221, they would hold off issuing the summons just for a few days. 39.By the letter of Kennedys dated 5 July 2003, it was stated that the CCB had indicated to E & Y that they "will not allow any third party access to the material subject to the search warrant" and that a court order would be required to obtain release of the material from police custody. Kennedys further stated that they had instructions to oppose an application made under section 221. 40.On 7 July 2003, JSM sought clarification from the CCB if they would allow the liquidators to inspect and copy documents covered by the search warrant with consent given by E & Y to such inspection or whether they would require a court order for that purpose. The CCB informed JSM on 14 July 2003 that they have no objection in principle for documents seized under the search warrant to be inspected and copied by the liquidators, "subject to consent of the owner of the documents and that the administration of justice would not be prejudiced". 41.E & Y had no knowledge of the above clarification provided by the CCB to JSM as this was only exhibited to the supporting affidavit of the liquidators when the application was taken out. In another without prejudice letter dated 10 July 2003, Kennedys maintained that a letter of consent from E & Y would not be acceptable to the CCB. E & Y would not be prepared to make further approaches to the CCB unless the liquidators would agree to the conditions set out in the letter of Kennedys dated 18 June 2003. It was stated that E & Y would require a senior manager to be present at the inspections and whose hourly charge out rate would be approximately HK$3,000.00. Further, E & Y would not provide copies of "for example, any of their work papers which relate to the audit process", as such documents cannot possibly assist the liquidators in the performance of their duties. E & Y also insisted they must retain the right to impose "suitable terms and conditions where appropriate". As for Miss Choi, provided that agreement could be reached on inspection along the lines as indicated, E & Y "may be prepared to put [the liquidators'] specific questions to her on an informal basis" and the liquidators should then provide a list of questions which could be put to Miss Choi "for her consideration". 42.As no agreement was reached, on 21 July 2003 the summonses under section 221 were issued and the supporting affidavit was served on the respondents. 43.On 8 August 2003, Kennedys wrote to JSM complaining that the letter of the CCB providing clarification on 14 July 2003 was not disclosed to them at the time and stating that that letter would appear to contradict the earlier advice which the CCB had given to E & Y (the CCB later clarified the position to Kennedys on 11 August 2003 in response to the latter's inquiry on 31 July 2003). It was alleged that the liquidators had no real interest in resolving the matter without resorting to proceedings, as the lengthy supporting affidavit must have been prepared whilst without prejudice discussions were conducted. Kennedys stated that they had instructions to oppose the application. 44.On 19 September 2003, an affirmation in opposition to the application made by Mr Byres was filed on behalf of E & Y. Voluntary assistance provided by the respondents 45.On 3 October 2003, Miss Choi filed an affirmation in which she set out for the first time the extent of her involvement with the Companies and the events surrounding the preparation of the various information memoranda and the presentation of rescue proposals to the financial creditors between December 1999 and August 2000. She also set out the extent of her knowledge of the transactions identified in the liquidators' supporting affidavit as requiring investigation. On receiving Miss Choi's unsworn affirmation on 30 September 2003, JSM wrote to Kennedys requesting to hold an interview with Miss Choi to clarify matters in her affirmation and indicating that if she should provide the required information, this might obviate the need to seek an order for examination. Kennedys replied on 7 October 2003 that Miss Choi is willing to assist voluntarily. Miss Choi was interviewed on 20 October 2003. 46.As for E & Y, by an open letter dated 10 October 2003, Kennedys offered to permit the liquidators to have access to the following categories of documents:
47.Kennedys further stated in this letter that a representative of E & Y must be present during the inspections, that the representative would be charging at the rate of HK$2,000.00 per hour, and there should be no order as to the costs in respect of the summonses. 48.The open offer was not acceptable to the liquidators owing to the exclusion of the internal review documents. Further, the liquidators would not agree to bear the cost of the representative of E & Y in attendance throughout the inspections or that there should be no order as to the costs of the application in view of the lateness of the offer. The merits of the application 49.Mr Coleman submitted that the scope of the documents sought to be disclosed by the liquidators here is extremely wide. Leaving aside the question of the internal review documents, he made no concession that the liquidators are necessarily entitled to all the documents that E & Y have agreed to disclose to them voluntarily in the open offer of 10 October 2003. He submitted that if I were not persuaded that the liquidators would be entitled to an order in the broad terms sought but for the offer of E & Y, there would be justification in not awarding the costs of the application to the liquidators or to make no order as to costs. 50.Miss Chan recognised the exceptional width of the disclosure order sought but submitted that it is not without precedent and is justified in the circumstances of this case. She has referred me to orders of similar width made against former auditors of companies in liquidation in Re British & Commonwealth Holdings plc (Nos. 1 and 2) [1992] Ch 342 at 350H to 351B and Joint Liquidators of Sasea Finance Ltd v. KPMG [1998] BCC 216 at 217G. 51.I do not propose to set out the principles applicable to the exercise of the discretion in an application under section 221. I have made a summary gleaned from the cases in a recent decision (Re New China Hong Kong Group Ltd [2003] 3 HKC 252 at 259I to 261F). I am satisfied in this instance the liquidators have established that the documents sought are reasonably required to permit them to carry out their functions. I bear in mind the massive scale of the liquidations, the highly unusual or doubtful transactions which had taken place not long before petitions were presented to wind up the Companies, the important gaps in the liquidators' knowledge of the affairs of the Companies, the specific substantial transactions identified by the liquidators as requiring investigation, and the refusal of former directors, officers and related companies to provide meaningful assistance. I then balance the reasonable requirements of the liquidators against the need to avoid making any order which is unreasonable, unnecessary or oppressive to E & Y. I am satisfied that the overwhelming balance is in favour of requiring E & Y to disclose the documents sought in the summonses. Any prejudice that may be suffered by E & Y is outweighed by the public interest in requiring them to give assistance to the liquidators in this situation. The internal review documents 52.I turn to consider the internal review documents which E & Y have not agreed to disclose voluntarily. 53.The fact that these documents are internal documents of E & Y does not necessarily mean that they should be excluded from production but is merely a factor to be taken into account in the balancing exercise. Mr Coleman submitted that there is no reasonable need for the liquidators to have access to these documents as all that the liquidators "reasonably" require could be gleaned from other documents to be provided or from other sources available to them. That, I think, merely begs the question as to what the liquidators do reasonably require. 54.It is not suggested by E & Y that the internal review documents do not contain pertinent information. In the liquidators' view, they clearly do, as they may contain information relating to the management of the Companies at the time of the audits, the interaction between the Companies and their overseas subsidiaries and associates, the queries raised by E & Y in respect of the assets and liabilities in the audits and how they were dealt with by the management, the accounting policies adopted, the accounting treatment of specific items and proposed adjustments. The pertinent information that may be contained in the internal review documents may not be available in the underlying audit working papers; as to this Kennedys have asserted otherwise in their letter dated 22 October 2003. However, I have reservations about the accuracy of this assertion, as according to that letter, "many thousands of documents" would be made available to the liquidators by E & Y. I doubt if E & Y could be certain as to what each of the documents they have agreed to disclose might contain. 55.I am mindful that the disclosure of the internal review documents might expose E & Y to the risk of a negligence action by the liquidators if these documents should reveal any breach of duty on their part. That was a factor considered by Ralph Gibson LJ in Re British & Commonwealth plc, supra. at 383D to G. As in that case, I take the same view that the risk of oppression to E & Y is plainly outweighed by the reasonable requirement of the liquidators to have access to the internal review documents. I order that they should not be excluded from the documents required to be disclosed. Costs as regards the respondents 56.The liquidators have succeeded in their application against E & Y, is there any reason why costs should not follow the event in this instance? 57.Mr Coleman submitted that E & Y were earlier given to understand by the CCB that for the documents subject to the search warrant, it was necessary to obtain a court order and that consent or authorisation from E & Y to allow third party inspection would not do. It was not unreasonable for Kennedys to have adopted the stance they took in the correspondence with JSM until they had learned of the clarification given by the CCB to JSM which involved a shifting of position on the part of the CCB. I do not think there is merit in this submission. 58.When E & Y wrote to the CCB on 3 June 2003 to inquire about the latter's position regarding the liquidators' request to be allowed access to the documents, E & Y's inquiry was couched in this way:
59.The relevant part in the reply of the CCB on 18 June 2003 is as follows:
60.In contrast to the reply given by the CCB to JSM in July 2003, in the above reply to E & Y, the CCB made no mention that they would have no objection to allow inspection by a third party if that was done with the consent of the owner of the documents, as an alternative to a court order authorising release of the documents. It seems to me that the incomplete reply given to E & Y was attributable to the way in which their inquiry was framed in their letter dated 3 June 2003. It would not be unreasonable for the CCB to think that E & Y would not give consent to the liquidators to have access to the documents. As consent from the owner of the documents would appear not to be forthcoming, the CCB might well be forgiven in not mentioning that as a method to allow inspection by a third party. In any event, the CCB had clarified the position for E & Y in their reply to Kennedys dated 11 August 2003, so any confusion that might have been caused in this regard could no longer be used as a ground or justification in opposing this application. 61.I have already set out the offers made in the without prejudice and open letters in some detail. It does not seem to me that the liquidators have acted unreasonably in declining to accept the terms and conditions sought to be imposed by E & Y to allow inspection of their files. I do not think it justified that the expenses of E & Y in arranging a representative to attend the inspections to protect their own interest should be paid out of the Companies' assets. I also reject the submission that the application was taken out prematurely because the parties were in negotiation. The liquidators had requested documents from E & Y over a long period (although the earlier requests were not made under section 221 or that section 221 was not specifically mentioned) and had received only the invoices issued by E & Y after much delay. I do not think the liquidators can be criticised in issuing the summonses. 62.Mr Coleman further submitted that as it is necessary for the liquidators to satisfy the court that the documents requested are reasonably required, costs are necessarily incurred by the liquidators in any event. That is no justification. The liquidators had to come to court to seek the order because E & Y had declined to allow access to the documents voluntarily. 63.I see no grounds to depart from the usual rule that E & Y should pay the costs of the liquidators who have succeeded in this application. 64.As for Miss Choi, the liquidators also seek costs against her. Until her affirmation was served on 30 September 2003, she had declined to provide any information to the liquidators despite repeated requests. Her previous stance was that it would be premature to meet with the liquidators until they have completed their investigations. It was only on 7 October 2003 that she indicated willingness to assist by attending an interview. Although the liquidators did not find it necessary to proceed with their application against her, substantial costs have already been incurred by the time Miss Choi chose to provide information on affidavit and made a late offer to be interviewed. In these circumstances, I think it appropriate to order that Miss Choi should bear the liquidators' costs.
Representation: Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Applicants Mr Russell Coleman, instructed by Messrs Kennedys, for the Respondents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCCW 49/2000