The Joint & Several Liquidators of Kong Wah Holdings Ltd (in Compulsory Liquidation) v. The Grande Holdings Ltd and Others

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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BETWEEN

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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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BETWEEN

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(Heard Together)

Before: Hon. Kwan J in Chambers

Date of Hearing: 20 July 2007

Date of Decision: 20 July 2007

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D E C I S I O N

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The applications

1.There are two applications taken out by the 1^st to 3^rd respondents and the 4^th respondent in the liquidation of Akai Holdings Limited and Kong Wah Holdings Limited (“Akai” and “Kong Wah”, collectively “the Companies”).  The summonses were issued on 3 May 2007 and 17 July 2007.  The respondents seek an order that they are entitled to claim legal professional privilege (“LPP”) in respect of various documents they are required to produce under section 221 of the Companies Ordinance, Cap 32, pursuant to the orders I made on 4 August 2005 as varied by the Court  of  Appeal  on 26 April 2006 (“the Production Orders”).

2.In the 6 schedules to the summonses of the 1^st to 3^rd respondents, a total of 264 documents from 6 files are listed for which LPP is claimed.  The liquidators have disputed the claim to LPP in respect of 201 documents.

3.In the annexure to the 4^th respondent’s summonses, a total of 167 documents are listed.  They are among the documents in the 6 files of the 1^st to 3^rd respondents.

4.I understand from Mr Carolan for the 1^st to 3^rd respondents that the documents in file 6 are from a separate source.  The documents in files 1 to 5 comprise documents in the possession of or created by Baker &  Mackenzie, as solicitors for the 4^th respondent, in relation to its interests in the Akai Group and its opposition as a creditor in the winding-up petitions of the Companies during March 2000 to October 2000.  Baker & Mackenzie were the principal legal advisers to The Grande Group in Hong Kong at that time.  Although the 1^st to 3^rd respondents did not appear in the petitions, the 1^st respondent was at that time the parent company of the 4^th respondent and the 1^st to 3^rd respondents were concerned with the affairs of the Akai Group in various ways including the attempt at restructuring the Akai Group, which was advanced as a ground for opposing the winding-up petitions.  These matters have been canvassed in correspondence between the solicitors placed before this court, although there is no affidavit from Baker & Mackenzie.

5.In the order I made on 28 March 2007 on the application of the 1^st to 3^rd respondents for a second extension of time to comply with the Production Orders, I directed the 1^st to 3^rd respondents to produce a list of all the documents within the scope of the Production Orders for which they claim LPP within 14 days thereof, with a letter from their solicitors setting out the basis upon which privilege is claimed.  It was also ordered that if the liquidators should challenge the claim to LPP in respect of any of the documents in the list, the 1^st to 3^rd respondents are to issue a summons seeking determination of the claim to privilege within 7 days thereafter.

6.Pursuant to the above order, the solicitors of the 1^st to 3^rd respondents wrote to the liquidators’ solicitors on 11 April 2007, providing them the 6 schedules setting out the documents for which LPP is claimed and the basis of the claim for each document.  On 26 April 2007, the liquidators’ solicitors gave their response and provided a schedule listing the grounds for challenging LPP in respect of 203 documents.  There were 4 grounds of challenge :

(1)     there is no basis for the claim to LPP (ground 1);

(2)     the privilege claimed by the 1^st to 3^rd respondents is that of the 4^th respondent (ground 2);

(3)     the privilege claimed by the 1^st to 3^rd respondents is that of Akai and/or Kong Wah (ground 3); or

(4)     there was no contemplated litigation (ground 4).

7.The 1^st to 3^rd respondents issued their summonses on 3 May 2007, seeking a determination from the court pursuant to the directions of 28 March 2007.

8.The 4^th respondent was not involved at that stage.  But as one of the grounds of the liquidators’ challenge is that the privilege claimed belongs to the 4^th respondent, the solicitors for the 1^st to 3^rd respondents made inquiries with the 4^th respondent’s solicitors if the 4^th respondent would wish to assert LPP in relation to documents belonging to the ground 2 category.  The 4^th respondent’s solicitors inspected those documents held by the solicitors for the 1^st to 3^rd respondents on 10 May 2007.  On 17 May 2007, the 4^th respondent’s solicitors wrote to the solicitors for the 1^st to 3^rd respondents listing the documents for which the 4^th respondent claims LPP, and their letter was passed on to the liquidators’ solicitors.

9.On 3 July 2007, the liquidators responded to the 4^th respondent’s claim and asserted that neither the 4^th respondent nor the 1^st to 3^rd respondents could assert a claim to LPP for the documents in the ground 2 category, on account of waiver (“the waiver argument”).

10.The 4^th respondent therefore issued its summonses seeking determination of its entitlement to LPP on 17 July 2007.

11.I will deal with the waiver argument first as this would dispose substantially of the objection in ground 2 before I consider other grounds of challenge of the liquidators.

The waiver argument

12.Waiver of LPP is to be judged objectively.  It matters not  whether a party intends to waive privilege in a particular document or not.  What matters is an objective analysis of what that party has done (Documentary Evidence by Charles Hollander, 9^th edition, paragraph 19-17).  Waiver may be express or implied.  Disputes as to implied waiver usually arise from the need to decide whether the particular conduct is inconsistent with the maintenance of the confidentiality which the privilege is intended to protect (Mann v Carnell [1999] 201 CLR 1 at 13, paragraph 29).

13.The liquidators contended that in the case of the 4^th respondent and the 1^st to 3^rd respondents, their waiver of documents in the ground 2 category is express and/or implied.

14.All of the documents in the ground 2 category relate to the winding-up proceedings of the Companies from March 2000 to September  2000.

15.Miss Linda Chan for the liquidators submitted that any privilege to the ground 2 documents can only be asserted by the 4^th respondent, not by the 1^st to 3^rd respondents, as Baker & Mackenzie had only acted for the 4^th respondent in opposing the winding-up petitions.

16.Mr Carolan argued to the contrary.  He claimed that the 1^st to 3^rd respondents are entitled to claim a common interest privilege; they were companies in the same group as the 4^th respondent and had the same interest as the 4^th respondent in consulting and receiving legal advice from Baker & Mackenzie, regarding the opposition to the winding-up petitions.  Common interest privilege is applicable to legal advice privilege and litigation privilege (Documentary Evidence, op. cit. at paragraphs 15-04 to 15-11).  Whilst the majority of the letters named the 4^th respondent as the primary addressee, the copies of such documents in the possession of the 1^st to 3^rd respondents were sent to them as secondary addressee or as copies of documents communicated for the purpose of giving legal advice on an ongoing basis.

17.I think Mr Carolan is correct here.

18.As both the 4^th respondent and the 1^st to 3^rd respondents are entitled to claim LPP in respect of the documents in the ground 2 category, the liquidators would need to make good their assertion that both have waived their claim to privilege in order for the documents to be disclosed.

19.The matters relied on by the liquidators as constituting waiver may be summarised as follows.

20.No claim was made for LPP of documents in the possession of Baker & Mackenzie when all 4 respondents opposed the liquidators’ application for production of documents which led to the Production Orders in August 2005.

21.In September 2005, both the 4^th respondent and the 1^st to 3^rd respondents appealed against the Production Orders.  The 4^th respondent appealed only against a part of the orders.  The 1^st to 3^rd respondents challenged the whole of the orders.  Both applied to stay the orders pending their appeals.  LPP was not raised in any of the grounds of appeal.

22.In the affirmation filed on behalf of the 4^th respondent in support of the stay application, the 4^th respondent’s director Mr Hui described the steps taken by the 4^th respondent to comply with the Production Orders so far, including writing to Baker & Mackenzie to clarify if the solicitors were holding documents within the 4^th respondent’s control and to seek the release of their files.  Mr Hui deposed to his conversation with a solicitor of Baker & Mackenzie in which he was told that the solicitors had probably acted for the 4^th respondent and The Grande Group jointly, and that the solicitors might not be able to release the files to the 4^th respondent without the consent of the other parties.  Hence, the 4^th respondent’s solicitors had written to the solicitors of the 1^st to 3^rd respondents to seek the latter’s consent to release the files.  Mr Hui stated that the 4^th respondent had used its best endeavours to comply with that part of the Production Orders which was not subject to its appeal.

23.In the submissions of the 4^th respondent’s counsel to the court in the stay application, it was emphasised that the 4^th respondent’s appeal was a limited challenge of the scope of the Production Orders, and the scope of the stay sought was confined to the documents being the subject of its appeal.

24.A stay pending appeal was granted on 7 October 2005 on terms, one of the conditions was that the 1^st to 3^rd respondents should provide their written consent to Baker & Mackenzie to release to the 4^th respondent the documents sought in compliance with the Production Orders.

25.Miss Chan submitted that on the above matters, the liquidators and the court in granting the stay were led to believe that the 4^th respondent would be producing the documents held by Baker & Mackenzie once they were released to the 4^th respondent, so the 4^th respondent should not be allowed to resile from its position.

26.As for the 1^st to 3^rd respondents, Miss Chan contended that as the 1^st to 3^rd respondents had given consent to Baker & Mackenzie in November 2005 to release the documents to the 4^th respondent in compliance with the condition imposed in the stay application, the 1^st to 3^rd respondents must be taken to have waived their privilege to those documents.

27.I do not agree with Miss Chan’s submissions.

28.A claim to LPP may be made in respect of documents sought under section 221.  It is of course desirable that the claim is made at the first opportunity when the application for a production order is resisted, as in Re  Highgrade Traders [1984] BCLC 151.  But that is not always possible.  The respondent may not have possession of the documents, so he cannot say whether he should claim privilege in respect of any of them.  Or, as in the present case, the 4^th respondent had a change of ownership and management and did not even know whether Baker & Mackenzie had acted for it in any of the transactions identified in the Production Orders.  It is pertinent to bear in mind that the Production Orders covered a very wide range of documents, so it is understandable that the claim to LPP was not raised at the time the respondents opposed the making of the Production Orders.  On any objective view, the fact that the claim for privilege was not made when the Production Orders were resisted at first instance, or on appeal to the Court of Appeal and the Court of Final Appeal, could not be regarded as waiver.  Such conduct was not inconsistent with the maintenance of the confidentiality which the privilege is intended to protect.

29.Further, I think it is clear from Mr Hui’s affirmation that even after the Production Orders were made, at the time of the stay application in October 2005, the 4^th respondent did not have possession of the documents and so was not aware of their contents.  It was only on 10 May 2007 that the 4^th respondent’s solicitors inspected the documents concerned.  With no knowledge of the contents of the documents, it is not possible to make a claim for LPP in a meaningful way.  Besides, the focus at the time of the stay application was in identifying the specific transactions that was the subject of the Production Orders, not the 4^th respondent’s opposition to the winding-up petitions.

30.The 4^th respondent’s request to Baker & Mackenzie all along was for the documents to be released to it, not to the liquidators directly.  The consent provided by the 1^st to 3^rd respondents in compliance with the order on the stay application, was on the same basis.  The conduct of the 4^th respondent and of the 1^st to 3^rd respondents did not mean that the 4^th respondent would simply turn over all the documents received from Baker & Mackenzie to the liquidators, or that the 4^th respondent would not review the documents to ascertain whether any claim to LPP should be made.  There was no clear or unequivocal representation to that effect to found waiver.

31.It was only after the stay application that the 1^st to 3^rd respondents reviewed the files held by Baker & Mackenzie in late October 2005.  On 30 November 2005, Baker & Mackenzie asserted that the 1^st to 3^rd respondents had claimed privilege over the files held by them.  In early December 2005, the liquidators were first made aware of the claim for LPP.

32.On an objective analysis, I am not able to say that there was waiver of LPP, express or implied, on the part of the 4^th respondent, or of the 1^st to 3^rd respondents.  I have no doubt that the waiver issue should be resolved in favour of upholding the privilege.  Even if I had some doubt, this should be resolved in favour of the respondents (Goldlion Properties Ltd v Regent National Enterprises Ltd [2006] 1 HKLRD 793 at 805G, paragraph 31).

33.Nor do I think there is unfairness to the liquidators in allowing the respondents to assert LPP for documents in the ground 2 category, notwithstanding the claim for LPP was made very late in the day.

34.Mr Kenneth Ng for the 4^th respondent has referred me to Goldman v Hesper [1988] 1 WLR 1238 at 1240 F to H, for the proposition that as a matter of principle, even where there is a waiver but before the document is actually disclosed, a party is entitled, on taking advice, to withdraw the waiver.

35.That disposes of the waiver argument.  Mr Ng submitted that there are 26 other documents for which the 4^th respondent claims LPP but it has not been accepted by the liquidators that the 4^th respondent has a claim in respect of those documents, quite apart from the question of waiver.  Miss Chan submitted that for 12 of these 26 documents, no privilege can be claimed as they do not appear to be confidential in character from the description of these documents given in the schedules.  I will stand down the matter for the parties to sort out if they can resolve their disputes relating to these documents.  If the dispute is not resolved, I will make a ruling on such of the documents, for which the claim to privilege is challenged.  Subject to this outstanding matter, I uphold the claim for LPP regarding the documents in the ground 2 category.

Documents in the ground 3 category

36.The opposition in ground 3 is that the privilege belongs to Akai and/or Kong Wah.  The liquidators contended that documents in the ground 3 category would include the following:

(1)     documents which emanated from or addressed to the Companies or to companies within the Akai Group;

(2)     documents sent to or from the employees of The Grande Group that had been seconded to work for the Akai Group, such as Sophia Cheng, Tony Lam, Kin Yuen, Ruby Lee and Felicity Porter;

(3)     documents sent to or from the solicitors acting for the Companies and the companies within the Akai Group, being Angela Wang & Co., Siao Wen & Leung, and lawyers in Bermuda, Conyers Dill & Pearman; and

(4)     documents sent to or from Ernst & Young, who were the auditors and financial advisors of the Akai Group.

37.I have no difficulty in accepting that in (1) and (3), the privilege claimed belongs to Akai and/or Kong Wah.

38.In respect of (2), I do not think one can make a sweeping statement the mere fact that the documents were sent to or from the employees as listed must mean that the privilege should belong to Akai and/or Kong Wah.  If in sending or receiving the documents, the employees did so in their capacity as employees of The Grande Group, not as staff seconded to Akai and/or Kong Wah, I cannot see how Akai and/or Kong Wah could claim privilege to those documents.

39.There is a similar difficulty with Ernst & Young in (4).  Ernst & Young were not just the auditors and financial advisors of the Akai Group.  They were also the auditors and financial advisers of the 1^st respondent and the 4^th respondent at the time.  If the documents were sent or received by Ernst & Young solely in their capacity as auditors and financial advisers of The Grande Group, I do not agree that Akai and /or Kong Wah could claim privilege to those documents.

40.Mr Carolan submitted that in respect of documents in the ground 3 category, where privilege could properly be claimed by Akai and/or Kong Wah, there is a common interest privilege here, so the privilege could also be claimed by the 1^st to 3^rd respondents, as the correspondence concerned addresses, discussions and negotiations between parties with a common interest in opposing the winding-up petitions.  The documents found in the files of Baker & Mackenzie were sent to them or by them to the respective addressees for the purpose of giving or getting legal advice, and/or distributing drafts and working papers to facilitate the co-ordination and consistency of that advice.  He submitted the fact that the liquidators would be able to get the same documents from, say, the solicitors who acted for the Companies in opposing the winding-up petitions, as they are the Companies’ documents, is beside the point.

41.I agree with Mr Carolan that the 1^st to 3^rd respondents may have a common interest privilege to such documents in the ground 3 category.  But I do not agree with the latter part of his submissions.  A common interest privilege may be used to resist disclosure (i.e. common interest privilege as a shield), it could also be used to obtain disclosure (i.e. common interest privilege as a sword)(Documentary Evidence, op. cit. at paragraph 15-04). The use of common interest privilege as a sword is well established in cases where the common interest of the parties in the privileged documents was such that one party could not claim privilege against the other, even though privilege could be claimed against the rest of the world (Commercial Union v. Mander [1996] 2 Lloyd’s Rep 640).  Besides, if there is a common interest between two parties, there may be no confidence between them in the documents which are supplied by one to the other, so that one cannot claim privilege for those documents against the other, even though they are privileged against the rest of the world (Documentary Evidence, op. cit. at paragraph 15-21).

42.For the above reasons, where the claim to LPP can properly be regarded as a claim belonging to Akai and/or Kong Wah, I hold that such documents must be disclosed to the liquidators.

Documents in the ground 4 category

43.The challenge in ground 4 is that there was no contemplated litigation to found a claim for LPP.  Miss Chan again made the point that unlike the 4^th respondent, the 1^st to 3^rd respondents did not appear in the winding-up petitions as opposing creditors.  As for documents in 2002, there was no contemplated litigation against the 1^st to 3^rd respondents in 2002.

44.Mr Carolan submitted firstly that although litigation privilege is claimed for many of the documents, legal advice privilege is claimed for all of them.  Legal advice privilege and litigation privilege are covered in LPP.  In some of the documents in the ground 4 category, the communication was between in-house lawyers within The Grande Group or those lawyers and the external advisers of The Grande Group.  I agree with Mr Carolan’s submission in this respect.

45.As for the documents since 23 September 2002, there was the prospect of the liquidators applying for production orders under section 221 against the 1^st to 3^rd respondents.  Mr Carolan submitted this was a form of litigation for the purpose of claiming LPP.  Whether that is correct or not is not material, as the 1^st to 3^rd respondents should be able to claim legal advice privilege.  In relation to earlier correspondence from March 2002 to August 2002, Mr Carolan argued there would be legal advice privilege even if there was not yet sufficient prospect of litigation to found litigation privilege.  I also accept his submissions here.

Documents in the ground 1 category

46.There would appear to be only one document in the ground 1 category still in dispute.  I will stand down the applications for the parties to sort out the dispute on this item.

47.The parties are to go through the marked up schedules provided by the liquidators in the light of the reasoning in the above decision and let the court know when we resume which of the documents are still in issue.  I will then make a ruling on each of the outstanding documents and on the costs of the applications.

Miss Linda Chan, instructed by Messrs Johnson, Stokes & Master, for the Applicants

Mr Paul Carolan, instructed by Messrs Wilkinson & Grist, for the 1^st to 3^rd Respondents

Mr Kenneth W H Ng, instructed by Messrs Stephenson Harwood & Lo, for the 4^th Respondent