Darach E. Haughey and Joseph Kin Ching Lo, The Joint and Several Liquidators of Weihong Petroleum Company Ltd (in Liquidation) v. Lai Hong San and Others

HCCW 19/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 19 OF 1998

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BETWEEN

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Before: Hon Kwan J in Chambers (not open to public)

Date of Hearing: 29 June 2006

Date of Decision: 29 June 2006

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D E C I S I O N

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1.On 8 October 2003, I made an order giving directions in proceedings brought by the liquidators of Weihong Petroleum Company Limited against 5 former directors of the company under section 276 of the Companies Ordinance, Cap. 32.  The first 4 respondents are individuals.  They and a solicitor, D S Cheung, had been examined orally by the liquidators under section 221.

2.Paragraphs 4 and 5 of my order read as follows:

“4. That the transcript of the examination of a Respondent pursuant to section 221 of the Companies Ordinance and the Order of this court herein dated 10 May 2000 shall, subject to all just exceptions to the admissibility in evidence against him of any of the statements contained in the transcript, be admissible in evidence against that Respondent (as the Liquidators see fit).

5. The question of the admissibility of the transcripts of the examination of the 1^st, 2^nd, 3^rd and 4^th Respondents, and of the transcripts of the examination and of the affidavits and affirmations filed by or on behalf of D S Cheung, Esq., pursuant to Section 221 of the Companies Ordinance and the Order of this Court dated 10 May 2000, generally for the purposes of this application pursuant to section 276 of the Companies Ordinance, against each and every one of the Respondents herein, be adjourned for further argument (if so advised), and the parties are to apply by letter seeking directions on the estimated length of the hearing.”

3.The italicised wording in paragraph 4 of my order tracks the wording of part of rule 59 of the Companies (Winding-up) Rules, which I will come to.

4.The hearing today is to determine the question of admissibility reserved in paragraph 5.

5.The liquidators seek a direction that the transcripts of the private examination of the first 4 respondents and Mr Cheung, and the affidavits filed by Mr Cheung in the private examination, are admissible against each and every one of the respondents in the proceedings they brought under section 276.

6.This is opposed by the 4^th respondent.  His position is that the transcript of any particular respondent in the private examination and the affidavits of Mr Cheung filed in the private examination are not admissible against any other respondent.

7.The 1^st to 3^rd respondents are not legally represented and they have not appeared today.

8.I will first mention the point taken by Mr Ho, SC for the liquidators.  He submitted that I should rule in favour of the liquidators in view of my decision on the proper construction of rule 62(1) and (2) of the Companies (Winding-up) Rules in Re Kennedy (No. 2) [2004] 3 HKC 411 at paragraphs 53 to 75.  I do not agree with this.  What I have said in Re Kennedy does not impinge on the question of admissibility of the transcript of an examinee against any other person.  My decision there does not help to resolve the question reserved in paragraph 5 of my order.

9.There is no legislative provision governing the admissibility of the transcript of a private examination, but there is provision governing the admissibility of the transcript of a public examination ordered under section 222 in rule 59.  The relevant part of rule 59 reads as follows:

“Where in the course of the proceedings in a winding up by the court an order has been made for the public examination of persons named in the order pursuant to section 222 of the Ordinance, then in any proceedings subsequently instituted under any of the provisions of the Ordinance mentioned in rule 58(1), the verified notes of the examination of each person who was examined under the order shall, subject as hereinafter mentioned, and to any order or directions of the court as to the manner and extent in and to which the notes shall be used, and subject to all just exceptions to the admissibility in evidence against any particular person or persons of any of the statements contained in the notes of the examinations, be admissible in evidence against any of the persons against whom the application is made, who, under section 222 of the Ordinance, and the order for the public examination, was or had the opportunity of being present at and taking part in the examination…” (emphasis supplied).

10.The proviso to rule 59 stipulates where the notes of examination are used in subsequent proceedings, notice must be given to the person against whom the notes are used, with liberty to such person to cross-examine or re-examine any person the notes of whose examination are read in evidence.

11.The effect of the above provision is clear.  In a public examination, the transcript of an examinee would only be admitted against a person who “was or had the opportunity of being present at and taking part in the examination”.

12.Mr Shieh, SC for the 4^threspondent has taken me to cases concerning the admissibility of transcripts in a private examination.

13.The propositions derived from these authorities, as analysed by Mr Shieh, would seem to be as follows:

(1) A deposition taken in a private examination is admissible as evidence against the party who is being examined (In re Hercules Insurance Company, Pugh and Sharman’s Case LR 13 Eq 566, at 568 to 569, per Malins VC).

(2) Such a deposition is not admissible against any third party, as such deposition is not taken as evidence in an action, but is taken for the purpose of obtaining information to enable the liquidator to decide on the propriety of bringing or continuing an action.  If the liquidator wishes to make use of the deposition, he must call the examinee as a witness.

14.These are the relevant dicta in the authorities for the proposition in (2):

“I consider that the power given by sect. 115, though it is a strong power, is intended to put the liquidator, so far as can be, in the same position as if he were making inquiries through his solicitor from persons who were willing to give information; the object is that he may see what it is advisable for him to do.  The depositions are not evidence, though they can be made evidence by being embodied in an affidavit, or by examining in the presence of the opposite party the person who has made them.  No doubt the liquidator gains a great advantage by this mode of ascertaining what evidence can be had, but it is an advantage which the Legislature intended to give him.” (Re Norwich Equitable Fire Insurance Company (1884) 27 Ch D 515 at 521, per Baggallay LJ).

“The committee of the Law Society are a body of lawyers, and they will not attach the slightest importance to these documents, which are not, per se, evidence against the debtor of any sort or kind.  The witnesses would have to be called in the presence of the debtor, and he would have the fullest opportunity of cross-examining them, and he would no doubt be very much assisted in his cross-examination by having seen the depositions, and he might if necessary be able to show that a great deal of what the witnesses had said in them was untrue.” (Re Beall, ex parte Beall [1894] 2 QB 135 at 140, per Lopes LJ)

“But in the present case the witness when examined under the commission was also asked questions as to what other people had said in the previous examination under sect. 115; that is, he was told what they had said, and was asked whether he contradicted their evidence.  Such questions ought never to have been put; they were objected to, and the commissioner, who had no power to disallow them, took down the objections as he was bound to do.  If at the trial before the Court an endeavour were made to read these questions and answers, the Court would at once say that such questions ought never to have been asked, and would decline to admit them as evidence; therefore the answers could never be given in evidence at all.  It comes then to this, that answers given in an examination under sect. 115 never can be used as evidence or as proof, except for the purpose of contradicting a witness; they are not taken as evidence in an action, but for the purpose of obtaining information to enable the company or its liquidator to decide as to the propriety of bringing or continuing an action; they are not proofs and never can be used as proofs.  Therefore what Mr Murray Smith said when examined under sect. 115 could not be put in as evidence in the action when it came on to be tried; it could not be put in as evidence of what he said without calling him; as I have before said, it could only be used for the purpose of contradicting him, and for that purpose it must be used in the way I have explained.”  (North Australian Territory Company v Goldsborough, Mort and Company [1893] 2 Ch 381 at 385 to 386, per Lord Esher, MR)

15.The other two members of the court in North Australian Territory Company, Lindley LJ and Bowen LJ expressed agreement with Lord Esher.  The dicta of Lord Esher were the subject of comments and approval by Harman J in Re Keypak Homecare Ltd [1990] BCLC 440 at 447a to c.  Harman J affirmed the “basic rule”, laid down by Lord Esher in “plain, clear and unequivocal terms, agreed to by the other members of the court, that answers given on private examination are not admissible in evidence save that they may be used in cross-examination of the witness to show previous inconsistent statements and to challenge his evidence”.

16.The present position in England is governed by section 433 of the Insolvency Act 1986 and by rule 9.4(7) of the Insolvency Rules 1986.  By virtue of section 433, a deposition taken in a private examination under section 236 is admissible in any proceedings, whether or not under the Insolvency Act, against “any person making or concurring in making the statement”.  Rule 9.4(7) provides that the written record may, in any proceedings whether under the Insolvency Act or otherwise, be used as evidence against the respondent of any statement made by him in the course of his examination.  This seems to accord with the position at common law.

17.So even under the present English legislation, the transcript in a private examination of an examinee is not admissible generally against another examinee.

18.The position in common law accords with the principle of fairness.  I do not think the abrogation of the rule against hearsay evidence in civil proceedings should alter this position.  The basic rule is based not just on the exclusionary rule against hearsay evidence but on the principle of fairness as well.  Other than the party having the conduct of the examination and the examinee, no third party is allowed to take part in a private examination.  It would be wholly unfair to a third party to admit in evidence against him the deposition of an examinee in an examination in which the third party plays no part and is given no opportunity to examine or cross-examine the person who made the deposition.  I see no reason to depart from the basic rule, and to adopt a course different from rule 59 which governs the admissibility of a deposition in a public examination.  I am unable to discern any good reason why a deposition in a private examination should be treated differently from a deposition in a public examination as regards the admissibility as evidence in other proceedings.

19.Mr Ho submitted that the liquidators would run into serious difficulties if the directions sought are refused.  But if the proceedings are brought in England, the liquidators would be faced with the same situation.

20.For the above reasons, I decline to give the directions sought by the liquidators.  I order the liquidators to pay the costs of the 4^th respondent of and occasioned by this application for directions, such costs are to be paid out of the estate of the company.

Mr Ambrose Ho, SC, instructed by Messrs Holman, Fenwick & Willan, for the Applicants

The 1^st, 2^nd and 3^rd Respondents, absent

Mr Paul Shieh, SC & Miss Grace Chow, instructed by Messrs Anthony Chiang & Partners, for the 4^th Respondent