Akai Holdings Ltd (in Compulsory Liquidation) v. Ernst & Young (A Hong Kong Firm)

FACV No. 28 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION 

FINAL APPEAL NO. 28 OF 2008 (CIVIL)

(ON APPEAL FROM CACV NO. 233 OF 2008)

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Court : Chief Justice Li, Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ and Lord Hoffmann NPJ

Dates of Hearing : 4 and 5 February 2009

Date of Judgment : 24 February 2009

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J U D G M E N T

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Chief Justice Li :

1.I agree with the judgment of Mr Justice Bokhary PJ and that of Lord Hoffmann NPJ.

Mr Justice Bokhary PJ :

Section 221 private examinations and interviews

2.This appeal concerns the transcripts and notes of a series of private examinations and interviews conducted pursuant to or under threat of s.221 of the Companies Ordinance, Cap.32.  The contest between the parties is whether those transcripts and notes are open to inspection on discovery in the ordinary civil litigation in which they confront each other as adversaries.  Issues as to confidentiality and legal professional privilege are involved.  By the decisions of the courts below, a company in liquidation has been ordered to produce such transcripts and notes for inspection in an audit negligence action commenced by it against an accountancy firm which had been its auditors.  The plaintiff company is the appellant Akai Holdings Ltd (“Akai”).  And the defendant firm is the Hong Kong accountancy firm bearing the worldwide name of Ernst & Young.  I will refer to it as “EYHK”.  When referring to production for inspection, I will use the term “disclosure”.  Akai asks us to set aside, while EYHK asks us to affirm, the disclosure ordered by the courts below.

3.Section 221 reads :

“(1)  The court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs, or property of the company.

(2)  The court may examine him on oath concerning the matters aforesaid, either by word of mouth or on written interrogatories, and may reduce his answers to writing and require him to sign them.

(3)  The court may require him to produce any books and papers in his custody or power relating to the company, but, where be claims any lien on books or papers produced by him, the production shall be without prejudice to that lien, and the court shall have jurisdiction in the winding up to determine all questions relating to that lien.

(4)  If any person so summoned, after being tendered a reasonable sum for his expenses, refuses to come before the court at the time appointed, not having a lawful impediment (made known to the court at the time of its sitting, and allowed by it), the court may cause him to be apprehended and brought before the court for examination.”

4.This section’s purpose and scope are dealt with very clearly and fully in Lord Millett NPJ’s judgment in Joint & Several Liquidators of Kong Wah Holdings Ltd v. Grande Holdings Ltd (2006) 9 HKCFAR 766 at pp 780A-782A.  To that judgment Mr Justice Chan PJ and I added certain observations in a joint judgment in the which we said this at p.774H-J :

“The broad purpose of provisions like s.221 … is to help liquidators to carry out their duties as effectively, quickly and economically as possible.  To that end, liquidators need to identify, at an early stage, what promising paths they can pursue and, let it never be forgotten, what blind alleys they had best avoid so as not to throw good money after bad.”

Rule 62 of the Companies (Winding-up) Rules

5.The next provision to note is rule 62 of the Companies (Winding-up) Rules.  Headed “Depositions at private examinations”, rule 62 provides as follows :

“(1) The Official Receiver or liquidator may attend in person, or by counsel or by solicitors employed for the purpose, any examination of a witness under section 221 of the Ordinance, on whosesoever application the same has been ordered, and may take notes of the examination for his own use, and put such question to the persons examined as the court may allow.

(2) The notes of the depositions of a person examined under section 221 of the Ordinance, or under any order of the court before the court, or before any officer of the court, or person appointed to take such an examination (other than the notes of the depositions of a person examined at a public examination under section 222 of the Ordinance) shall not be filed, or be open to the inspection of any creditor, contributory, or other person, except the Official Receiver or liquidator, or any provisional liquidator other than the Official Receiver, while he is acting as provisional liquidator, unless and until the court shall so direct, and the court may from time to time give such general or special directions as it shall think expedient as to the custody and inspection of such notes and the furnishing of copies of or extracts therefrom.”

This rule safeguards information obtained by means of an extraordinary process.

Order 24 of the Rules of the High Court

6.I should now mention two rules of Order 24 of the Rules of the High Court, which Order is headed “Discovery and Inspection of Documents”.  As its well known, rule 2 provides for discovery without any order of the court while rule 7 provides for specific discovery to be ordered by the court.

Akai’s collapse

7.Akai was an electronics multi-national company incorporated in Bermuda and listed on the stock exchange in Hong Kong.  It is now in compulsory liquidation, orders for its winding-up having been made in Hong Kong on 23 August 2000 and in Bermuda on the 29th of that month.  Its collapse gave rise to what was then, and remained until recently, the largest corporate insolvency in Hong Kong’s history.  Quite plainly, its liquidators were presented with a daunting task.  At the time of their appointment, Akai’s estimated net asset deficiency exceeded US$1 billion.

8.What the liquidators faced and continue to face was described by Lord Millett NPJ in the Kong Wah Holdings case at p.776F-G as “a massive insolvency [involving] the apparent disappearance of substantial assets in a relatively short time in suspicious circumstances”.  And the liquidators themselves say this.  The Akai group’s books and records were insufficient for an operation of its size and complexity.  Those books and records are insufficient to provide them with even a basic understanding of the businesses and operations of Akai and its subsidiaries.  Some of the key directors and executives always resided abroad, and those who resided in Hong Kong have gone abroad.  None have been cooperative.  The claims which have been received from creditors total in excess of US$1 billion, but there are very few assets readily realisable for the benefit of creditors.

9.As to its liquidators’ difficulties, Akai says that the lack of cooperation from persons concerned in its pre-liquidation affairs included a lack of cooperation from its former auditors EYHK.  For three years following the liquidators’ appointment, EYHK refused to provide them with documents relating to its audit of the Akai group.  On 21 July 2003 the liquidators applied under s.221 for the production by EYHK of such documents and for the examination of a partner of EYHK, Miss Choi Bik Hok.  Those applications came before the Companies Court on 23 October 2003.  By that time, Miss Choi had, by agreement with the liquidators, been interviewed by them three days before.  So the application for her examination did not proceed.  As for the application for the production of documents, EYHK had, after the application had been taken out and before it came on for hearing, agreed to produce the documents sought apart from internal review documents ie documents prepared solely for the purposes of EYHK’s internal review and approval process and audit planning and programming.  At the hearing on 23 October 2003, the Companies Court ordered production by EYHK of the documents sought including internal review documents.  EYHK appealed to the Court of Appeal against that production order in so far as it extended to internal review documents.  The Court of Appeal dismissed that appeal on 9 March 2004.

10.Akai says that in terms of disparity between the information available to liquidators and the information available to those concerned in the pre-liquidation affairs of a company in liquidation, it is difficult to conceive of circumstance in which liquidators would be at a greater disadvantage than that suffered by its liquidators.  That is why, Akai says, it was necessary for its liquidators to resort extensively to s.221 in order to obtain information from a variety of persons, including information contained in documents in the hands of its former auditors, EYHK, who had for three years resisted disclosing its audit files to its former client, Akai.

Audit negligence claim against former auditors

11.EYHK is now being sued by Akai for enormous damages for audit negligence in respect of the audit years ended 31 January 1997, 1998 and 1999.  Akai alleges against EYHK, while EYHK denies, breaches of (i) contractual obligations arising from EYHK’s retainer, (ii) statutory duties under the Companies Ordinance and Bermuda’s Companies Act 1981, (iii) EYHK’s duty of care and (iv) its duty to report and warn. The pleadings and documentation are on a very large, although not record-setting, scale. 

12.As indicated above, the present appeal arises out of a dispute over certain documents, namely whether the transcripts and notes of various private examinations and interviews conducted pursuant to or under threat of s.221 are open to disclosure.  That dispute came about in the following way.

13.By May 2004 it had become apparent to Akai’s liquidators that the only assets of the Akai group were potential claims against various person.  And on the 24th of that month, in order to prevent such claims from becoming statute-barred, Akai and a number of other companies in the Akai group issued (with the leave of the Companies Court) a protective writ against EYHK and many others.  The writ was renewed on 29 May 2005 (by order of the Commercial Court).  And on 19 November that year it was amended to do two things.  First, Akai was left as the sole plaintiff and EYHK as the sole defendant.  Secondly, the years ended 31 January 1997 and 1999 were added to the year ended 31 January 1998 in naming the period in respect of which negligence is alleged.  Points of Claim running to 457 pages were served on 21 November 2005, and Points of Defence running to 527 pages were served on 10 November the following year.  Akai has served nine lists of documents listing documents contained in more than 1,000 folders, and EYHK has filed five lists of documents listing documents contained in almost 300 folders.  The trial, which is to take place in the Commercial Court, has been listed for six months starting on 15 September this year.

Extensive s.221-aided investigations conducted

14.During the period between the issuance of the writ on 24 May 2004 and the serving of it with the Points of Claim on 21 November the following year, Akai’s liquidators conducted extensive s.221-aided investigations with a view to determining what (if any) claims should be pursued against EYHK and the other defendants named in the writ.  The liquidators also conducted other s.221-aided investigations.  These were for the purpose of determining what (if any) claims should be brought against others, and have resulted in claims against, among others, Thai Farmers Bank (sued in HCCL No.59 of 2004) and Grande Holdings Ltd and others (sued in HCCL Nos 37 and 40 of 2005).

Disclosure ordered and affirmed in the courts below …

15.By a summons which it took out on 22 October 2007 under Order 24 rule 7 in the audit negligence action being pursued against it by Akai in the Commercial Court, EYHK sought specific discovery, and therefore disclosure, of documents thus identified in the schedule to the summons :

“1. Transcripts and/or notes of interviews conducted pursuant to s.221 … (together with any tape or video recordings of those interviews) of the following interviewees :

i. Philomena (or Filomena) Lee;

ii.   Domine (or Dominic) Ko;

iii.  Simon Fung;

iv. Miranda Hung;

v.   Frank Holmes;

vi. James Ting;

vii.    Chuck Tam;

viii.  Christopher Ho;

ix. Ruby Lee;

x.   Sheryl Simmons; and

xi. Other interviewees who have provided relevant evidence pursuant to s.221 procedures.

2. Any documents produced in the s.221 process by the interviewees.”

With the exception of the interview of Miss Lee (on 29 April 2004) and the first interview of Mr Fung (on 14 May 2004), all those interviews were conducted after the issuance of the writ (on 24 May 2004), and some of them were conducted after the service of the writ with the Points of Claim (on 21 November 2005).  Miss Lee was only interviewed once, but Mr Fung was re-interviewed several times after the issuance of the writ.

16.Who the ten named examinees or interviewees were in relation to Akai may be taken from an affidavit filed by EYHK in support of its summons of 22 October 2007 where this appears :

“(a)  Philomena (or Filomena) Lee – James Ting’s personal secretary and assistant;

(b)   Domine (or Dominic) Ko – accountant employed by Akai;

(c)   Simon Fung – Financial Controller of Akai;

(d)   Miranda Hung – accountant employed by Akai;

(e)   Frank Holmes – Director of Akai;

(f) James Ting – Chairman and Chief Executive Officer of Akai;

(g)   Chuck Tam – Chief Financial Officer of Akai;

(h)   Christopher Ho – Executive Director of Grande Holdings Limited;

(i) Ruby Lee – Director of Legal for Grande Holdings Limited;

(j) Sheryl Simmons – US lawyer employed by the Grande group.”

As for Grande Holdings Ltd, it is said in that affidavit that it “was the company which, in late 1999, took over the management of Akai pursuant to a Management Agreement signed by James Ting.” 

17.Sitting in the court of pending trial the Commercial Court, Stone J transferred EYHK’s discovery summons to the Companies Court.  He did so on the basis that the discretion under rule 62 to grant or withhold disclosure of s.221 depositions was involved and that such discretion was for the Companies Judge to exercise.  So it is true, as EYHK says, that it applied under Order 24 rule 7 of the Rules of the High Court.  And I will, in due course, come to EYHK’s submission in that regard.  But it is also true, as Akai says, that the application was sent to be dealt with under rule 62 of the Companies (Wingding-up) Rules.  And Akai has pointed to statements in EYHK’s skeleton argument before the Companies Court accepting that access to the transcripts and notes concerned was subject to court control under rule 62 and that the court had a discretion thereunder.  On 30 July 2008 Kwan J, sitting in the Companies Court, ordered disclosure in the terms sought by EYHK in its summons for specific discovery.  Her order was affirmed by the Court of Appeal (Rogers VP and Le Pichon JA) on 23 September 2008. 

... and now appealed against in this expedited appeal

18.Now, by leave of the Appeal Committee granted on 17 December 2008, Akai appeals to us.  So much of the order of 30 July 2008 as required production is subject to a stay.  But Akai has served an affidavit identifying the specified documents – or at least the documents which it understood to have been specified – in its possession, custody or power.

19.On 28 November 2008 Kwan J gave a decision for the purpose of resolving a dispute between the parties as to the scope of the discovery which she had ordered.  She clarified that by saying that it covered not only transcripts and notes of examinations and interviews conducted pursuant to s.221 but also transcripts and notes of examinations and interviews conducted “under threat of” s.221.  And she ordered Akai to file a further affidavit by 19 December 2008.  When granting Akai leave to bring an appeal to us, the Appeal Committee stayed the order for a further affidavit pending the present appeal.  This stay was granted because the Appeal Committee expedited this appeal by fixing 4 and 5 February this year for its hearing, and that left the parties with little time for anything other than the urgent steps necessitated by the expedited hearing.

Companies Court’s reasons

20.Broadly stated, Kwan J’s reasons for ordering disclosure of the transcripts and notes concerned consist of her views to the following effect.  Those transcripts and notes are relevant and necessary to the fair disposal of Akai’s action against EYHK.  Akai had not made out a factual basis on which to establish its claim to legal professional privilege in respect of those transcripts and notes.  In any event, litigation privilege does not, as a matter of law, extend to such transcripts and notes.  Disclosure by way of discovery of the transcripts and notes concerned does not require leave under rule 62.  But if such leave were required, it ought to be granted because the beneficial winding-up of the company is not s.221’s only purpose and, even if it were, disclosing s.221 transcripts and notes to fulfil the company’s obligation to give discovery in an action brought by it to recover assets is conducive to its beneficial winding-up.

21.As to the nature and purpose of s.221, Kwan J said (in para.43 of her judgment) that the section is “a general investigative provision mainly to enable the court to reconstitute the state of knowledge that the company should possess, so as to carry out the liquidation in all its various aspects, of which litigation is just one possibility”.

Court of Appeal’s reasons

22.The Court of Appeal’s reasons for affirming Kwan J’s order are contained in Rogers VP’s judgment with which Le Pichon JA agreed.  So I will refer to the Vice President’s judgment as that of the Court of Appeal. 

23.Saying that the starting point of consideration must be a determination of the purpose of s.221 examinations and interviews, the Court of Appeal, cited what Sir Nicolas Browne-Wilkinson VC (as Lord Browne-Wilkinson then was) said in Cloverbay Ltd v. Bank of Credit and Commerce International SA [1991] Ch.90 at p.102.  They then said (in para. 13 of their judgment) that the purpose of s.221 is “to enable the liquidator or administrator to get sufficient information to reconstitute the state of knowledge that the company should possess”. 

24.Then (in para.14 of their judgment) the Court of Appeal said this :

“  On that analysis it would appear that the notes and transcripts of the examinations in the hands of the liquidators constitute what are, in effect, company records.  They would not, of themselves, attract legal professional privilege because they came about as a result of an inquisitorial process conducted by the court.”

25.As to privilege, the Court of Appeal agreed with Kwan J’s view that Akai’s evidence did not show that the dominant purpose of the examinations and interviews related to existing or contemplated litigation.

26.Turning to the discretion under rule 62, the Court of Appeal said this in para.18 of their judgment :

“  The judge below clearly exercised that discretion.  She came to the conclusion that it was a correct exercise of the court’s discretion to allow discovery of the notes and transcripts.  She went further and said that she considered that it was conducive to the beneficial winding up of the company that the company should fulfil its obligations to give discovery.  In my view, the judge was clearly justified in coming to that conclusion.  On the basis that it had not been established that the examinations had been conducted in circumstances which would otherwise have attracted legal professional privilege, it was open to the court in control of what were documents created as part of its own inquisitional process to order release of the documents for the purpose of discovery.  The court did so because it considered that it was appropriate to do so in the circumstances of the litigation.  That it was clearly entitled to do.”

In fact as we have seen, Kwan J did not exercise any discretion under rule 62 since she did not think that the disclosure sought required leave under the rule.  Adopting a constructive approach to the Court of Appeal’s judgment, I will treat them as considering Kwan J to be justified in her view – and in her reasons for taking the view – that if such leave were required, then it ought to be granted.  Mr Leslie Kosmin QC for Akai did not disagree when I suggested in the course of the argument that it would be appropriate to approach the Court of Appeal’s judgment in that way.

27.Penultimately, the Court of Appeal made these observations:

“  Litigation must be directed to achieving the ends of justice.  As was pointed out in the course of argument, litigation is now conducted on the basis that each party’s evidence is revealed well before the trial takes place so that the parties can present the full picture and, hopefully, a just result can be achieved.  The previous theory that one party was not entitled to ‘look it into its opponents brief’ has lost much of its force because the court procedure of the old days, which might have been termed trial by ambush, has given way to a more open regime.”

28.Finally, the Court of Appeal said that there did not seem to be any difficulty in regard to confidentiality since all documents disclosed on discovery are subject to the rule that use can only be made of them for the purposes of the litigation.  I pause here to observe that Akai’s stance is of course that the transcripts and notes like these in the hands of liquidators are confidential even, perhaps especially, in relation to opponents of the company in liquidation in ordinary civil litigation.

Akai’s contentions as to the implications of the decisions of the courts below

29.Neither side has found any decision (apart from those of the courts below in the present case) in which a company in liquidation has been ordered to disclose the transcripts or notes of private examinations or interviews conducted pursuant to or under threat of s.221 (or any equivalent provision) to its opponent in ordinary civil litigation.  As to the implications of what the courts below have decided, Akai has made a series of contentions, to which I now turn.

30.Akai begins by contending that the disclosure ordered by the courts below represents a fundamental departure from the established law and practice in Hong Kong (and in England too).  To date, Akai contends, private examinations and interviews conducted pursuant to or under threat of provisions such as s.221 have been considered strictly confidential, and the understanding has been that the transcripts and notes thereof are available only (i) for the information of and use by liquidators in the performance of their function and (ii) to third parties who have satisfied the court that there exist exceptional circumstances where the public interest in limited disclosure outweighs the public interest in maintaining confidentiality.  Akai says that such circumstances may arise, for instance, in connection with the investigation or prosecution of crime or regulatory offences.  The present context is not of that nature, this being ordinary civil litigation in which an entitlement to compensation is asserted by one side and disputed by the other.

31.Developing those contentions, Akai says that treating the transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221 as generally open to disclosure in ordinary civil proceedings by or against the company in liquidation and unprotected by legal professional privilege would have a far-reaching and negative impact on the utility of the s.221 procedure.

32.Continuing, Akai contends that if the decisions of the courts below stand, then in circumstances similar to those of this liquidation, where the only remaining assets of the company in liquidation are potential claims against third parties requiring investigation and legal advice for their pursuit, the position would be as follows.  First, liquidators will not be able to conduct s.221 examinations effectively, since they will have to keep a constant eye on the nature of the responses given to questions in a restricted context (where cross-examination is impermissible) and on the possible adverse consequences of their disclosure in future civil proceedings.  Secondly, liquidators will in practice be required to exhaust all possible avenues of confidential and privileged inquiry before invoking the s.221 procedure, and this would defeat the purpose of the section identified by my brother Chan and me in the Kong Wah Holdings case, being the purpose of helping liquidators to carry out their duties as effectively, quickly and economically as possible. 

33.It is to be anticipated, Akai says, that if the decisions of the courts below stand, an application for disclosure of private examination and interview transcripts and notes will be made in almost every civil action brought by or against a liquidator or a company in liquidation.

Essence of Akai’s stance

34.As announced in its printed case and developed in oral argument by Mr Kosmin on its behalf, Akai’s stance in this appeal may be summarised thus :-

(i)    Section 221 confers a power meant to assist liquidators to make informed decisions as effectively, quickly and economically as possible in light of the severe difficulties and disadvantages typically faced by them in winding up the affairs of companies.

(ii)  Disclosure of such transcripts and notes to EYHK, and the proposed use of these documents by EYHK against Akai, would be contrary to the purpose of s.221. Such disclosure is therefore impermissible as a matter of law.

(iii)    There are no countervailing public interests or exceptional circumstances (such as might arise in the administration of the criminal law or a regulatory regime) that would justify disclosure in this case.  The public interest in ensuring that information obtained pursuant to or under threat of compulsory statutory powers such as those conferred by s.221 is used only for the purpose for which it was obtained must prevail in this case.

(iv)   The court's limited discretion to order disclosure ought to be exercised sparingly, in the limited criminal law or regulatory context referred to above.  No such exceptional circumstances exist in the present case, where EYHK is a party to ordinary civil litigation and has no statutory entitlement. Ordering disclosure in circumstances such as those of the present case would be unprecedented and wrong.

(v) In circumstances such as these, wholesale disclosure to and use by EYHK of the transcripts and notes of private examination and interviews conducted pursuant to or under threat of s.221 would radically alter the law and practice which has developed over more than a century. It would severely undermine the utility of what is a fundamental tool by which liquidators obtain information to facilitate the performance of their increasingly difficult and complex task of recovering assets for the benefit of creditors.

(vi)   Moreover, private examinations and interviews such as these are typically conducted – and the transcripts and notes thereof are brought into existence – in contemplation of litigation and for the sole or at least dominant purpose of enabling liquidators to obtain informed legal advice.  Such transcripts and notes are therefore protected by legal professional privilege.

(vii) On the evidence and particularly in light of the issue of the writ on 24 May 2004 and the fact that Akai’s sole remaining assets were legal causes of action, litigation was self-evidently in real prospect. It was expected or pending.  The transcripts and notes concerned are therefore covered by litigation privilege. In any event, even leaving aside the clear evidence that litigation was in real prospect, those documents are covered by legal advice privilege, because they were created to record information to be submitted to Akai’s liquidators’ legal advisers for legal advice.  They are documents created in a relevant legal context for the dominant purpose of litigation or legal advice, such legal purposes constituting the cause of their existence.  These documents are plainly protected from disclosure under both heads of legal professional privilege.

(viii)   Legal professional privilege in Hong Kong is a substantive constitutional right which is absolute.  To require disclosure of the transcripts and notes concerned would be to deprive Akai of the standard protection afforded to parties in modern civil litigation.

(ix)   There is no unfairness to EYHK in the position contended for by Akai.  In the present litigation as in any other, both parties will be at liberty to deliver the witness statements of the witnesses they propose to call, and withhold disclosure of the proofs or statements of, and the notes of discussions with, persons they do not propose to call.  To date, both parties have delivered lengthy expert reports on liability and quantum. On 12 December 2008 EYHK delivered three lengthy witness statements from employees and former employees who were involved in the audit of Akai by EYHK in the relevant years.  And Akai is to deliver its non-expert witness statements by 31 March 2009. It is not presently envisaged that Akai will be delivering witness statements from any of the persons named in the Schedule to Kwan J’s Order of 30 July 2008.

(x) Civil litigation typically involves information held by one party that is not known or available to the other.  No disclosure has been made or is proposed to be made by EYHK of unused materials or the proofs of witnesses from whom EYHK does not propose to adduce evidence at trial.  Moreover, there is no property in witnesses and no restraint upon EYHK from interviewing the examinees and interviewees, obtaining witness statements from them and adducing admissible evidence from any of them at trial.

(xi)   There is no prejudice or injustice to EYHK in the position for which Akai contends.  Conversely, the position for which EYHK contends would result in it obtaining unprecedented and unreciprocated access to Akai’s liquidators’ confidential and privileged information, which would in turn result in severe injustice and unfairness to Akai.  Such disclosure would confer on EYHK an extraordinary forensic advantage.  In this case, there is no public interest (such as may arise in the criminal law or regulatory context) that warrants disclosure or justifies any subordination of Akai’s substantive constitutional rights.

35.For the foregoing reasons, Mr Kosmin submits, Akai’s appeal should be allowed with costs here and below, so as to set aside Kwan J’s Orders of 30 July and 28 November 2008 on the following independent grounds :-

(a)  The transcripts and notes of private examinations and interviews conducted by Akai’s liquidators are confidential to them.  EYHK’s interests in obtaining disclosure of those transcripts and notes are adverse to those of the company in liquidation and therefore inconsistent with s.221’s purpose.  So the disclosure sought by EYHK is to be seen as an attempt to obtain an impermissible forensic advantage over an opponent in ordinary civil litigation.

(b) In any event, those transcripts and notes are protected from disclosure by legal professional privilege.  They are protected by litigation privilege because they were brought into existence by Akai’s liquidators for the dominant purpose of using them and their contents to seek legal advice in connection with litigation that was in real prospect at the time of their creation.  Alternatively, they are protected by legal advice privilege because they were brought into existence by Akai’s liquidators for the dominant purpose of using them and their contents to seek legal advice in connection with Akai’s liquidation and, in particular, as to whether there existed valuable causes of action available to the company in liquidation that could be pursued for the benefit of its creditors.

EYHK’s response

36.EYHK commends and defends the decisions of the courts below, and levels various accusations against Akai, such as : seeking to “shoehorn the historical case law into black and white propositions of invariable application”;  “liberally [advancing] in terrorem arguments”; and taking “many jury points”. 

37.Mr Mark Hapgood QC for EYHK began his oral argument by saying that EYHK had three basic points to make.  First, that Akai had failed to discharge its burden to establish legal professional privilege, having failed to do so under either head.  Secondly, that since Kwan J has ruled that the transcripts and notes concerned are relevant and necessary to the fair disposal of the action, there is no jurisdiction to withhold an order for disclosure or, if there is, then it was rightly exercised by her in favour of disclosure.  Thirdly, that the cases on rule 62 and like provisions have no relevance since EYHK never applied under rule 62.  The submissions which Mr Hapgood then proceeded to develop may be summarised thus :-

(i)    As to the listing on discovery of the transcripts and notes concerned, the starting point is Order 24 rule 2 of the Rules of the High Court, not rule 62 of the Companies (Winding-up) Rules.  The Rules of the High Court have statutory force, being subsidiary legislation made under s.54(1) of the High Court Ordinance, Cap.4.  By statute therefore, the giving of discovery is mandatory (under Order 24 rule 1) and must be by the making of a list of documents (under Order 24 rule 2(1)).  EYHK has never sought an order for inspection under rule 62, and has only sought an order for specific discovery under Order 24 rule 7.  If access had been sought under rule 62, that would have raised issues of a type different from those to which much of Akai’s submissions are directed.

(ii)  There is nothing in Order 24 that relieves Akai from the duty to list those transcripts and notes, and Akai has never applied under Order 24 rule 2(6) to be relieved of its obligation to give such discovery.  Although Akai did contend at the hearing before Kwan J that the discovery in question was not necessary for disposing fairly of the cause or matter, this contention was rejected, and is not an issue in respect of which this Court has been asked for (or given) leave to appeal.

(iii)    There are several reported cases where it can be seen that companies in liquidation have given discovery by listing transcripts of private examinations.  It seems to have been accepted without question by such companies that discovery by list is obligatory, and the issue has always turned on whether, on the particular facts, the transcripts were or were not privileged (under the law of privilege as then understood).

(iv)    As to litigation privilege, there is no basis on which to disturb the concurrent findings below that the transcripts and notes concerned had not been obtained for the dominant purpose of litigation and that there was no litigation in reasonable prospect at the time when those documents were obtained.  Indeed, Akai has not merely admitted but positively averred that its evidence on privilege is insufficient.

(v)  Further or alternatively, the s.221 process is an inquisitorial proceeding conducted by the court in furtherance of a statutory purpose, such that litigation privilege is not available whatever may have been the purpose of Akai’s liquidators in applying under the section.

(vi)    Akai’s claim to legal advice privilege, having been rejected by Kwan J, was not pursued in the Court of Appeal.  Even leaving aside the impropriety of now raising an argument not pursued in the Court of Appeal, there are various reasons why Akai’s claim to legal advice privilege cannot succeed. 

(vii)  As with litigation privilege, to enjoy legal advice privilege a document must satisfy the relevant dominant purpose test of having been created for the purpose of obtaining legal advice.  Thus whether on the facts as found by the courts below in the context of litigation privilege, or on the statutory purpose of s.221, legal advice privilege is not available.

(viii)    Further, Kwan J was correct to hold that legal advice privilege cannot protect the s.221 transcripts or notes for the reason that those documents did not represent communications with Akai’s legal advisers.

Origin and early development of the private examination jurisdiction

38.I consider it now appropriate to identify the origin of the private examination jurisdiction and outline its development.  Before doing so, I propose to say a word about Kwan J’s statement that s.221 is “mainly” to reconstitute the company’s knowledge and the Court of Appeal’s statement that the section is for the purpose of getting “sufficient information” to do that.  As to those statements, it is necessary to point to what Lord Millett NPJ, with whose judgment the other members of this Court agreed, said in the Kong Wah Holdings case.  Citing the decisions of the House of Lords in British & Commonwealth Holdings Plc v. Spicer & Oppenheim [1993] AC 426 at p.439 and Re Pantmaenog Timber Co. Ltd [2004] 1 AC 158, he said (at p.780J-781A) that s.221’s purpose

“is not limited to reconstituting the state of the company’s knowledge, even though that may be one of the purposes most clearly justifying the making of an order [and this section] may be used to discover facts and documents relating to potential claims by the liquidator against third parties or to enable him to report to the authorities with a view to taking action against those responsible for the company’s failure”.

In any event, as Lord Hoffmann NPJ observed in the course of the argument, there would still be the question of the purpose for which the company’s knowledge was being reconstituted.  It could be, depending on the circumstances, for the dominant purpose of obtaining legal advice as to possible claims.

39.Turning now to the origin of the private examination jurisdiction, it is obvious that our s.221 – like, I suspect, many (if not all) equivalent provisions elsewhere in the common law world – is derived from s.115 of England’s Companies Act 1862.  And the “whole object of” s.115 was, as Sir George Jessel MR said in Re Gold Company (1879) 12 Ch D 77 at p.85, “to assimilate the practice in winding-up to the practice in bankruptcy, which was established in order to enable [trustees in bankruptcy] to find out facts before they brought an action”.  Shortly afterwards, in Re Greys Brewery Company (1884) 25 Ch D 400 at pp 403-404, Chitty J said as follows.  The “principal object” of s.115 of the 1862 Act was “to obtain information from any persons capable of giving any information concerning the trade and affairs of the company”.  An “examination of this kind must be considered in the nature of a secret proceeding”.  And “the object of the examination [was] to get information in order to see what course ought to be followed with reference to some matter or some claim which the official liquidator when he applies to the Court is allowed to state privately”.

40.The next case to mention is Re Norwich Equitable Fire Insurance Company (1884) 27 Ch D 515.  There the alleged creditors of a company which was being wound up obtained an order giving them liberty to attend the proceedings in the matter at their own expense.  A summons was afterwards taken out by the liquidator under s.115 of the 1862 Act for the examination of a former officer of the company with a view to obtaining information as to the circumstances under which the claims of the alleged creditors arose.  The alleged creditors asserted a right to be present at the examination.  Affirming the decision of Bacon VC, the English Court of Appeal held the alleged creditors ought not to be allowed to attend the examination.

41.As to why they so held, Baggallay LJ said this at p.521 :

“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.

In my opinion this is not a proceeding within the meaning of the order giving the Appellants liberty to attend proceedings.  If the liquidator were applying for leave to commence an action against the Appellants, that application would in some sense be a proceeding, but could it possibly be said that the Appellants had any right to be present?  This, to my mind, is nothing but a preliminary inquiry for the information of the liquidator, and the Appellants have no right to intervene.”

And Cotton LJ said this at p.522 :

“They wish to be present in order to obtain information, not for the purpose of assisting the company, but of establishing a claim against it, and to allow them to do so would be going against the spirit and object of the 115th section.”

42.In Learoyd v. Halifax Joint Stock Banking Company [1893] 1 Ch 686 Stirling J applied to bankruptcy what Chitty J had said about winding-up in Re Greys Brewery.  Doing so, Stirling J held that where witnesses have been examined under s.27 of the Bankruptcy Act 1883, upon the application of a trustee in bankruptcy and with the view of enabling his solicitor to advise him whether an action should be brought with reference to the bankrupt’s affairs, the shorthand-writer’s note of such examination is privileged.

43.At pp 693-694 Stirling J said :

“ The client, then, in this case, having the power of obtaining information conferred upon him by the 27th section of the Act of 1883, goes to his solicitor and asks for his advice. The solicitor says: ‘You have the power of getting information which I advise you to avail yourself of, so that I may have the means of advising you.’  The trustee then takes out a summons, and gets leave to examine certain persons named.  His solicitor personally conducts the examination and gets a transcript of the proceedings.  That transcript is a private document.  It is true that the Rules in Bankruptcy provide that the evidence so taken is to be filed; but they do not say that it is to be filed immediately.  If that was done the main object of the examination might often be defeated.  The point has often been con­sidered both by myself and by other Judges with reference to depositions taken under sect. 115 of the Companies Act, 1862. The practice under that section in all branches of the Court is that the depositions, when taken, shall be returned to the Chief Clerk for use in the liquidation; but they are not filed until the Court is satisfied, through the Chief Clerk, that no harm can be done by their publication.

These depositions are accordingly regarded as private documents; and why should not a document obtained by a trustee in bankruptcy for his own information, in order to enable his solicitor to advise him as to future proceedings, be privileged?  If, instead of putting the Court of Bankruptcy in motion, under sect. 27, the trustee had, at the instance of his solicitor, written to the bank manager making inquiries, and had got a letter stating the facts, that would have been a privileged communication; and I fail to see why a document such as a transcript giving the result of information obtained at an examination for the same purpose should not be privileged likewise.”

44.I turn now to a case relied upon by Mr Kosmin as one with which the present case is “on all fours”.  It is the decision of the English Court of Appeal in North Australian Territory Company v. Goldsborough, Mort and Company [1893] 2 Ch 381, the headnote of which tells us this about the circumstances there:

“The Plaintiffs, a company in liquidation, brought an action against the Defendants to obtain rescission of a contract for the purchase of real property.  In the course of the liquidation and after the commencement of the action certain persons were examined under sect.115 of the Companies Act, 1862, and their depositions were duly taken.  A commission subsequently issued in the action for the examination of witnesses abroad, and one of the persons who had been examined under sect.115 was examined under the commission on behalf of the Defendants.  During this cross-examination on behalf of the Plaintiffs he was asked as to the truth of certain of his answers given in the examination under sect.115, and the answers were read to him from the depositions.  He said that the statements contained in them were correct.  He was also cross-examined as to certain answers given by other persons who had been examined under sect.115, and those answers were read to him.  The Defendants having taken out a summons for leave to inspect and take copies of those depositions which had been used by the Plaintiffs in the cross-examination”.

45.Affirming the decision at first instance to refuse inspection, the English Court of Appeal held that the defendants were not entitled to inspection.  Lord Esher MR said (at p.386) 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”. 

The depositions, he said at p.387,

“are in the nature of information, and there is no injustice in the fact that the person conducting a cause is in possession of information of which the other side is not.”

Having said that he was of the same opinion, Lindley LJ added this at p.387 :

“It is said that they are entitled because these depositions ought to have been scheduled in the Plaintiffs’ affidavit of documents as documents in their possession relating to matters in dispute in the action; but, if they had been scheduled, privilege would as a matter of course have been claimed for them, and the Defendants would never have seen them; and it would not be fair to the Plaintiffs if we were to treat these depositions as documents in their possession unprotected by a claim of privilege.”

The third member of the court, Cotton LJ, simply said that he was of the same opinion.

Recent development of the private examination jurisdiction

46.Coming to the recent development of the private examination jurisdiction, I begin with a bankruptcy case, namely Re Poulson (a Bankrupt) [1976] 1 WLR 1023.  Taking them from the headnote, the circumstances there were these :

“ On an application in April 1973 by the Director of Public Prosecutions under rule 15(2) of the Bankruptcy Rules 1952, the registrar of the county court sitting in bankruptcy gave special leave to a deputy assistant commissioner of police for the inspection of the file of proceedings in the bankruptcy of P and for copies to be taken of such documents on the file as might be necessary, including copies of all such documents as were or might be subject to a ‘stop order’.  In July 1973, on an application by the trustee in bankruptcy under section 25 of the Bankruptcy Act 1914, a private examination was conducted of M, a director of certain companies in which P was interested.  The registrar ordered that certain questions and answers should be left out of the transcript of the bankruptcy proceedings and be recorded and attached only to the court copy, marked ‘most confidential’, and that the transcript itself should not, for the time being, be placed on the file (a ‘stop order’).

In May 1974, the appellants broadcast a programme about P’s business activities and M’s alleged connection therewith to which M took exception.  In September 1974 he issued a writ against them for libel.  For the purposes of evidence in the action, both parties applied to the trustee in bankruptcy for a sight of documents and transcripts on the trustee’s file relating to those business activities, including transcripts of private examinations of persons in the bankruptcy proceedings.  The trustee refused to produce the documents without the direction of the court.  In the event the appellants made a formal application to the county court under rule 15 of the Bankruptcy Rules 1952, with M objecting to the release of the transcript of his private examination.”

The registrar refused to authorise the production of transcripts of private examinations, and such refusal was affirmed on appeal to the Divisional Court in Bankruptcy.

47.Giving the judgment of the Divisional Court consisting of Foster J and himself, Walton J drew a distinction between, on the one hand, the position when access to transcripts of private examinations is sought by private litigants with no public accountability and, on the other hand, the position when such access is sought by those entrusted with the administration of the criminal law.  As to that he said this at pp 1028H-1029B :

“Of necessity, public policy demands that those who are entrusted with the administration of the criminal law should have every legitimate source of information open to their inspection, and that no obstacles should be put in their way in relation to obtaining it.  Such persons are public servants who are accountable to the public through the proper channels for their actions, and would be accountable for their use of misuse of such information.  The appellants – and, for that matter, Mr Maudling himself – have no such public accountability.  We only interpose these observations because Mr Dillon, for the appellants, made great play with the fact that such leave as he was in fact seeking for his own client had in fact been given to the Director of Public Prosecutions.  We do not consider that this fact advances his arguments one whit.”

48.“Shortly put”, Walton J said at p.1032E, “the whole object of such an examination is to enable the trustee to obtain information which will enable him to discover and recover assets for the distribution to creditors in the bankruptcy”.  Continuing, he said (at p.1034G-H) that “it can only be in the most exceptional circumstances that a person not interested in the bankruptcy would be granted leave to inspect”.  Finally he said this at p.1035F-G :

“Rule 15 itself ought, in our view, to be very considerably tightened so as to afford the court a real and unappealable discretion, in all cases where inspection is sought, to refuse it to anybody but the trustee.  We observe that following a similar kind of complaint by Vaughan Williams J. in In re Standard Gold Mining Co. [1895] 2 Ch. 545, 547, a suitable change was made in the company rules.”

49.Turning to the winding-up context, I come to Dubai Bank Ltd v. Galadari [1990] BCLC 90 where the circumstances, taking them from the headnote, were these :

“In their action against the defendants the plaintiffs sought disclosure of transcripts of an examination of the second defendant together with any documents there referred to.  The examination had been sought by joint liquidators of OCL under s.561 of the Companies Act 1985 and the first and second defendants’ solicitors had been supplied with copies of part of the transcripts and the documents there referred to.  Parts of the transcripts had been disclosed to the plaintiffs’ solicitors but not to the plaintiffs pursuant to an order made against the first and second defendants for the disclosure of information relating to their assets.  None of the documents supplied by the liquidators to the defendants’ solicitors had been disclosed to the plaintiffs or their solicitors.”

Vinelott J held that the plaintiffs were entitled to inspect and take copies of the documents referred to in the transcripts, but not the transcripts themselves.  After considering Re Greys Brewery, Learoyd’s case and the North Australian Territory cases, he held that where a liquidator seeks an order for the examination of a person under s.561 of the 1985 Act in order that he might obtain legal advice as to whether to institute proceedings, transcripts of the examination are protected by legal professional privilege.

Special circumstances that might call for disclosure

50.There can be special circumstances that call for disclosure of transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221.  One feature of the recent development of the private examination jurisdiction is recognition that there can be such circumstances.  I begin with the decision of Millett J (as Lord Millett then was) in Re Barlow Clowes Gilt Managers Ltd [1992] Ch 208 .  As summarised in the headnote, the circumstances of that case were these :

“ The company, B. Ltd., was ordered to be compulsorily wound up and joint liquidators were appointed, one of whom was also one of two joint liquidators of a sister company which had been placed in compulsory liquidation in Gibraltar.  Between June and November 1989 a number of individuals were interviewed by or on behalf of the liquidators to ascertain the facts generally, with particular reference to establishing whether civil claims could be brought against the companies on behalf of those who had deposited moneys with the companies for investment, or by either of the companies against third parties.  Transcripts were made of the information thus obtained.  Those who were interviewed submitted voluntarily, and in circumstances of confidentiality, it being made clear that the information obtained would be used solely for the purposes of the liquidation.  Later the same people were interviewed by inspectors appointed by the Department of Trade and Industry, and transcripts of those interviews were passed on to the Serious Fraud Office.  Meanwhile criminal proceedings had begun against four defendants connected with the companies, on charges of conspiracy to contravene section 13(1) of the Prevention of Fraud (Investments) Act 1958, and with numerous counts of theft. The defendants, who had been supplied with copies of the interviews conducted by the Department of Trade and Industry, asked for copies of the transcripts of the interviews conducted by the liquidators to be supplied to them, but they were informed that the liquidators would not voluntarily release the transcripts and would if necessary object to being compelled to produce them, on grounds of public interest immunity. Accordingly a witness summons was issued out of the Central Criminal Court directed to one of the liquidators calling for production of the transcripts. The judge adjourned the criminal proceedings to enable the liquidators to apply to the Companies Court for directions.”

51.Hearing the liquidators’ application to the Companies Court, Millett J reasoned and held as follows (at pp 216H-217D, 220A-B and 224E).  In considering whether the transcripts should be made available to the defendants, it was essential to distinguish clearly between the functions of the Companies Court responsible for the winding-up of B Ltd and those of the Crown Court responsible for the conduct of criminal proceedings brought against the defendants.  The information concerned was obtained in circumstances of confidentiality and by assurances, express or implied, given by officers of the Companies Court that it would be used only for the purposes of the liquidation.  When anyone seeks to use such information for purposes collateral to the liquidation and foreign to those for which it was obtained, it ought to be unthinkable that the Companies Court should authorise its own officers to renege on their assurances in such circumstances in the absence of some compelling reason to do so.  Accordingly, the liquidators were directed (i) to restore the application to the Crown Court, (ii) to claim public interest immunity if necessary and (iii) not to disclose the transcripts unless ordered to do so by the Crown Court.  As we learn from R v Clowes [1992] BCLC 1158 at p. 1174 and Re Arrows Ltd (No.4) [1993] BCLC 424 at p. 431, what the Crown Court decided was that the interests of justice due to the accused persons who sought disclosure outweighed the public interest of affording immunity to examinations of this kind.

52.At p.222D-E Millett J observed :

“ Given the liquidators’ powers to obtain information by compulsion, it has become the widespread practice for responsible persons to whom requests for information are addressed by liquidators to co-operate with the liquidators and to provide them with copy documents and other information and to submit to being questioned on an informal basis and without a formal order of the court. This is done on the implicit – if not explicit – understanding that the information supplied will be treated as confidential and will not be used except for the purpose of the liquidation.”

And then (at p.223F) he said that

“the proper and efficient functioning of the process of compulsory liquidation would be jeopardised if transcripts of the informal interviews of witnesses carried out by liquidators were to be made generally available to defendants to criminal proceedings.”

That is, Mr Kosmin submits, a fortiori the position in the case of defendants in ordinary civil proceedings.  I can see Mr Kosmin’s point because in such proceedings the liberty of the individual is not at stake, and there is no demand for disclosure in the public interest such as there might be in a criminal law or regulatory context.

53.Having begun with Re Barlow Clowes, I should now mention two earlier decisions.  One is Millett J’s own decision in Re Esal (Commodities) Ltd (No.2) [1990] BCC 708 in which he said (at p.723G-H) that

“where leave is sought to make use of material obtained by the use or under the threat of sec.268 proceedings, then, save in exceptional circumstances, leave should be granted only if the use proposed to be made is within the purpose of the statutory procedure, that is to say, that the use proposed to be made of the material is to assist the beneficial winding-up of the company.”

The other is the decision at first instance of Sir Nicolas Browne-Wilkinson VC in Marcel v. Commissioner of Police of the Metropolis [1992] Ch 225 in which (at p.237C) he articulated

“the underlying principle is that private information obtained under compulsory powers cannot be used for purposes other than those for which the powers were conferred”. 

Information is, in my view, obtained “under” compulsory powers not only if it is obtained pursuant to such powers but also if it is obtained under threat thereof.  In Re Barlow Clowes at p.218E-F Millett J summarised what Marcel’s case decided as

“that the public interest in ensuring that documents obtained by compulsory powers should be used only for the purpose for which they were obtained should be inviolate, and outweighed the countervailing public interest that all relevant information should be available to a civil court”.

54.I turn now to the decision of the House of Lords in Hamilton v. Naviede [1995] 2 AC 75.  N had been examined pursuant to s.236 of the Insolvency Act 1986 by the liquidators of a company which he had run prior to its collapse.  He was charged with criminal offences. The Director of the Serious Fraud Office served a notice, under s.2(3) of the Criminal Justice Act 1987, requiring the liquidators to produce the transcripts of the examination with a view to those transcripts being used as evidence in the criminal proceedings against N.  On an application by the liquidators to the Companies Court, Vinelott J directed that they release and disclose the transcripts to the Director, but only upon his undertaking not use them as evidence in the criminal proceedings.  The Court of Appeal released the Director from his undertaking.  N’s appeal to the House of Lords was dismissed.  Their Lordships’ reasons may be taken from Lord Browne-Wilkinson’s speech (with which three of the other Law Lords simply agreed and to which one of them added some concurring observations). 

55.At p.102D-F Lord Browne-Wilkinson referred to Millett J’s statement made in Re Esal and repeated in Re Barlow Clowes about the grant of leave to make use of material obtained by the use or under the threat of s.268.  This was the “save in exceptional circumstances, [such leave] should be granted only if the use proposed to be made is within the purpose of the statutory procedure, that is to say, that the use proposed to be made of the material is to assist the beneficial winding up of the company”.  And then Lord Browne-Wilkinson said this at F-G on the same page :

“In the present case, Dillon LJ [1993] Ch. 452, 468 and Steyn LJ at pp 475-476, considered these remarks were too wide.  I agree.  Although the primary purpose of a section 236 examination is to assist the beneficial winding up of the company, it is not its only purpose.  In my view, where information has been obtained under statutory powers the duty of confidence owed on the Marcel principle cannot operate so as to prevent the person obtaining the information from disclosing it to those persons to whom the statutory provisions either require or authorise him to make disclosure.”

In fairness to Millett J, I feel bound to draw particular attention to the qualification which he introduced by the formula “save in exceptional circumstances”.  Does that not accommodate a public interest exception in the criminal law or regulatory context?

56.In para.54 of her judgment in the present case, Kwan J said that “it is not obligatory for leave to be given for the liquidators to disclose [the transcripts and notes concerned], although it is more prudent for liquidators…to seek directions from the court under rule 62 before making disclosure”.  As to that, Mr Kosmin draws attention to Lord Browne-Wilkinson’s statement (at page 104D-E) that “it is important that no doubt should be cast on the discretion of the court to decide who shall have access to such information”.

57.After examining the relevant legislation, Lord Browne-Wilkinson said (at p.107D-E) that

“although the judge had a discretion under rule 9.5 of the Insolvency Rules 1986 whether or not to authorise the unconditional release of the transcripts, it was an improper exercise of that discretion by a judge of the Companies’ Court to seek to prevent the use by [the Serious Fraud Office] of those transcripts in the criminal proceedings.  Parliament having made the transcripts admissible, it is for the judge at the criminal trial alone to decide, in the light of all the circumstances known to him but not to the judge of the Companies’ Court, whether the admission of the transcripts will prejudice a fair criminal trial.”

58.An obvious point is that the context in Hamilton v. Naviede was of criminal proceedings and not civil litigation.  Additionally, I would point out, the disclosure with which their Lordships were concerned was, as Lord Browne-Wilkinson stressed at p.102G, to persons to whom statute required or authorised disclosure.  It is also to be noted that at p.104C-D Lord Browne-Wilkinson said that a provision like rule 9.5 of the Insolvency Rules 1986 is “not mere machinery” and that :

“The extraction of private and confidential information under compulsion from a witness otherwise than in the course of inter partes litigation is an exorbitant power.  It is right that such information should not be generally available but should be used only for the purposes for which the power was conferred.”

That bears out Millett J’s inclusion (in Re Barlow Clowes at p.222C-D) of rule 9.5 among the provisions that form a “necessary safeguard” against misuse of information obtained by extraordinary means.  As I have already said, rule 62 of our Companies (Winding-up) Rules safeguards information obtained by such means.  It is more than mere machinery.

Special class of confidential information or company records?

59.In the present case, the Court of Appeal expressed themselves of the view that in the hands of liquidators the transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221 are in effect company records.  And that view forms their reason for holding, or at least a part of their reasoning in holding, that such transcripts and notes do not attract legal professional privilege.  Mr Kosmin accepts of course that contemporaneous documents obtained through s.221 would be company records in the true sense, and must therefore be disclosed in the normal way on discovery.  Such contemporaneous documents have been disclosed in this case – to the tune of some 200,000 sheets, Mr Kosmin estimates.  But as far as the transcripts and notes themselves are concerned, Mr Kosmin submits that treating them as in effect company records runs counter to established principles concerning the nature of information compelled pursuant to or under threat of statutory powers and the use to which such information may be put.  This submission is, in my view, amply borne out by the cases to which I have referred.  In particular, we have just seen Lord Browne-Wilkinson’s reference in Hamilton v. Naviede at p.104C-D to private and confidential information extracted from witnesses under compulsion of an exorbitant power, and his reference to such information rightly not being generally available.

Whether obtainable by third parties under rule 62 to advance adverse interests

60.As we have seen, one of the grounds on which Akai asks that its appeal be allowed is that EYHK’s interests in obtaining access to the transcripts and notes concerned is adverse to the interests of the company in liquidation and that such access is therefore impermissible by reason of inconsistency with s.221’s purpose.  This raises the question of whether transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221 may be obtained by third parties under rule 62 to advance interests adverse to those of the company in liquidation.

61.The cases which constitute the development of the jurisdiction under compulsory powers such as s.221 show that the purpose of such powers is to assist in the beneficial winding up of companies in liquidation.  Those cases establish the general principle that, subject to any countervailing public interest that favour disclosure, access to information obtained under such powers should only be granted for the purpose of such assistance.  As appears from para.59 of her judgment, Kwan J took the view that decisions of the English Court of Appeal and the House of Lords subsequent to Re Barlow Clowes cast doubt on that general principle.  Mr Hapgood goes further and says that Millett J’s observations in Re Esal have been disapproved by the House of Lords.  As it seems to me, however, all that the subsequent decisions have done is to reiterate the public interest qualification to the general principle.  It has been recognised that such an interest may arise in the criminal law or regulatory context, but it has not hitherto been recognised that such an interest may arise in the context of civil litigation.  In such litigation the interests of an opponent of a company in liquidation are axiomatically adverse to the interests of the company unless the lower courts are correct in the proposition, propounded by Kwan J and affirmed by the Court of Appeal to which I now turn.

Whether disclosure of s.221 information benefits the winding-up

62.In para.60 of her judgment, Kwan J said that “disclosure of the transcripts by way of fulfilling the company’s obligation to give discovery in an action brought by the company for the purpose of recovering assets is conducive to the beneficial winding up of the company”.  And, as we have seen from para.18 of the Court of Appeal’s judgment, they agreed with that.  Whether the transcripts and notes concerned were open to disclosure was in issue.  Indeed, it is the issue.  Yet both courts below appear to have simply proceeded on the basis that disclosing those documents would be in fulfilment of an obligation.  To assume that the company is obliged to disclose the transcripts and notes concerned wholly begs the question of whether those documents are open to disclosure.

63.The effect of the approach of the courts below is, Mr Kosmin says, that if liquidators commence proceedings on behalf a company, or indeed if the company is sued, it will be obliged to disclose to its opponent on discovery any s.221 transcripts and notes, as this will always be considered in the interests of the beneficial winding-up of the company. 

Australian insolvency examinations

64.I pause to say a word about the Australian cases on insolvency examinations which we have been shown.  As Mr Kosmin says and Mr Hapgood accepts, such examinations there are normally conducted in public.  It is true that the examinations in Southern Cross Airlines Holdings Ltd (in liquidation) v. Arthur Andersen & Co. (1998) 28 ASCR 455 were conducted in private.  But that was by reason of an order made by the Queensland court on the liquidator’s application.  And that application was made on the ground, to which the Queensland court was apparently sympathetic, that having the examinations conducted in private would enable the liquidator to withhold the transcripts from the persons whom he was suing in the Federal Court.  Unless the Federal Court considered that a legitimate ground for conducting the examinations in private, it is hardly to be expected that the Federal Court would give weight to the fact that the examinations were conducted in private rather than in public as usual.  And there is no indication that the Federal Court considered that ground a legitimate one for conducting the examinations in private.  Indeed, the indications are to the contrary.

Settled practice

65.Reverting to insolvency examinations conducted in private, I turn to Mr Kosmin’s submission that there is settled practice, attested by the cases, on how a discretion like that conferred by rule 62 is exercised.  I need not repeat what I have already said in summarising what he says that practice is.  On the exercise of jurisdiction in accordance with settled practice, he relies on many statements including those which Lord Scott of Foscote NPJ (at pp 566E-567B) and I (at p.554E-G) made in Re Chime Corp Ltd (2004) 7 HKCFAR 546 and which Lord Millett NPJ (at p.775C-E) made in the Kong Wah Holdings case.  I accept that even where a discretion is conferred in apparently wide terms and is therefore theoretically at least of wide ambit, it is normally to be exercised in accordance with any settled practice, under which the discretion may be more limited for practical purpose.  Otherwise the law would lack the certainty that it ought to have.

Fundamental nature and policy rationale of legal professional privilege

66.Turning to legal professional privilege, I begin by repeating some observations which I made (and with which the other members of the Court agreed) in Solicitor v. Law Society of Hong Kong (2006) 9 HKCFAR 175.  As to the policy rationale underlying legal professional privilege, I said this at p.185A-B :

“It is obviously conducive to the due administration of justice that clients candidly reveal the unvarnished truth to their lawyers.  And of course the law is not so naïve as to imagine that such candour can confidently be expected in practice if disclosure of the contents of client-lawyer communications may be compelled, to a client’s prejudice and contrary to his wishes.”

Legal professional privilege being a practical thing, the protection it affords to lawyer-client communications is naturally not confined to what lawyers and clients say or write to each other, and naturally extends to information gathered or generated in certain circumstances and under certain conditions.

67.As to the fundamental nature of legal professional privilege, this is what I said at p.185C-F :

“Legal professional privilege is the name given to the common law rule which protects client-lawyer communications from disclosure to a client’s prejudice and contrary to his wishes.  Although too well established to be abandoned lightly, this name is perhaps not a happy one, for it might conjure up the image of a questionable advantage enjoyed by lawyers.  But in truth legal professional privilege, as Lord Denning MR emphasised in A-G v Mulholland & Another [1963] 2 QB 477 at p.489, ‘is not the privilege of the lawyer but of his client’.  And the rule constituted by this privilege is a rational and practical one which exists in the public interest and involves an important right belonging to the client.  In Hong Kong this right is a constitutional one.  It is contained in the confidential legal advice clause of art.35 of the Basic Law.  By this clause it is provided that ‘Hong Kong residents shall have the right to confidential legal advice’ – a right which our courts will always be vigilant to accord proper protection.”

This right is entrenched for all persons in Hong Kong.  It is so entrenched by two constitutional provisions.  Both are contained in Chapter III of our constitution the Basic Law.  That is the chapter which I described in Stock Exchange of Hong Kong v. New World Development Co. Ltd (2006) 9 HKCFAR 234 at p.243C as “the chapter containing the constitutional rights and freedoms enjoyed in Hong Kong”.  One of those two constitutional provisions is the confidential legal advice clause of art.35 which provides that “Hong Kong residents shall have the right to confidential legal advice”.  And the other is art.41 which extends the rights and freedoms prescribed in Chapter III to “[p]ersons in … Hong Kong … other than Hong Kong residents”.  The right so entrenched is a “fundamental human right long established in the common law”, for that is what Lord Hoffmann called legal professional privilege in R (Morgan Grenfell & Co. Ltd) v. Special Commissioner of Income Tax [2003] 1 AC 563 at p.606H.

68.Our proper approach to the interpretation of the rights and freedoms contained in Chapter III is clear.  It has been clear ever since the decision in Ng Ka Ling v. Director of Immigration (1999) 2 HKCFAR 4.  As the Chief Justice famously said in that case at p.29A, the courts should give “a generous interpretation” to those rights and freedoms in order to give to persons in Hong Kong “the full measure of fundamental rights and freedoms so constitutionally guaranteed”.  Information can be acquired for the dominant purpose of seeking confidential legal advice in connection with litigation that was in real prospect.  Or it can be acquired for the dominant purpose of seeking confidential legal advice on whether a cause of action exists.  In either case, the fundamental right to confidential legal advice entrenched by the confidential legal advice clause can protect the information from disclosure.

69.Many courts have underlined the fundamental nature and policy rationale of legal professional privilege.  They include the European Court of Justice (in A M & S Europe Ltd v. Commission of the European Communities [1983] QB 878) and the High Court of Australia (in Carter v. Northmore Hale Davy & Leake (1995) 183 CLR 121).  And there is of course Lord Chief Justice Taylor’s memorable characterisation of legal professional privilege as “a fundamental condition on which the administration of justice as a whole rests” (in R v. Derby Magistrates’ Court, ex p B [1996] AC 487 at p.507D).  At p.508D-E he explained the absolute character of legal professional privilege by pointing out that it was not subject to any balancing exercise and “applied across the board in every case, irrespective of the client’s individual merits”.

70.Having referred to Solicitor v. Law Society of Hong Kong, I should say a word on what happened in that case.  One of the Law Society’s statutory powers is to appoint inspectors to assist it in verifying compliance by solicitors with the rules governing their conduct and activities.  The statute provides that where inspectors reasonably suspect that any documents are relevant to the performance of their task, they may require a solicitor to produce those documents even if they are subject to solicitor-client privilege.  To protect the client’s interests, the statute provides that the documents produced may only be used for the purposes of an inquiry or investigation under the statute.  In other words, such documents may not be used against the client.  After considering that safeguard and other safeguards provided by the statute, we were satisfied that such production was compatible with the client’s constitutional right to confidential legal advice.  We therefore dismissed the solicitor’s constitutional challenge to so much of the statute as provided that production cannot be resisted on the ground of privilege.  This was done, as can be seen, on the basis that the interests of the person to whom the privilege belongs are so safeguarded as to render production compatible with his privilege.

71.Since the present case concerns both litigation privilege and legal advice privilege, it is to be stressed that, as Lord Scott of Foscote pointed out in Three Rivers District Council v. Bank of England (No.6) [2005] 1 AC 610 at p.646G-H

“legal advice privilege has an undoubted relationship with litigation privilege.  Legal advice is frequently sought or given in connection with current or contemplated litigation.  But it may equally well be sought or given in circumstances and for purposes that have nothing to do with litigation.  If it is sought or given in connection with litigation, then the advice would fall into both of the two categories.  But it is long settled that a connection with litigation is not a necessary condition for privilege to be attracted.”

Thus in Stock Exchange of Hong Kong v. New World Development Co. Ltd Mr Justice Ribeiro PJ said (at p.255D-E) that

“the right to confidential legal advice is a right which is protected even where such advice does not bear on any existing or contemplated court proceedings.  This was recognised in the decision recently handed down in Solicitor v. Law Society of Hong Kong.”

72.In dismissing Akai’s claim to legal advice privilege on the law as she viewed it, Kwan J did so in a single paragraph of her judgment (para.22) in which she said this :

“ Legal advice privilege has no application to the transcripts of examination, as they are clearly not communications between the client and the lawyer seeking or giving legal advice. This category of privilege applies only to communications between a client and his legal adviser, to documents evidencing such communications, and to documents that were intended to be such communications even if not in fact communicated. The privilege does not extend to preparatory materials, even if prepared for the purpose of being shown to the lawyer or prepared at the lawyer’s request, and even if subsequently sent to the lawyer (Three Rivers District Council v. Bank of England (No. 5) [2003]QB 1556 at 1562D to 1563C, 1575H, 1577C to E, 1578E to 1579B and 1580H, paras.4 to 6, 21, 24, 26 and 31; leave to appeal was refused by the House of Lords, see 1583G; see also Three Rivers District Council v. Bank of England (No. 6), supra. at 642C to 643F, paras.10 to 13).”

Mr Kosmin says that the approach to legal advice privilege adopted by the English Court of Appeal in Three Rivers District Council v. Bank of England (No.5) [2003] QB 1556 is too narrow on any view.  And, he says, Kwan J has taken that approach at its narrowest.

73.When she came to dismiss Akai’s claim to litigation privilege on the facts as she viewed them, Kwan J did so in three paragraphs of her judgment (paras 26 to 28) in which she said this :

“ The liquidators’ solicitor said in his affidavit that the interviews were all ‘conducted with a view to investigating and ascertaining whether [Akai] may have available to it valuable and recoverable causes of action including through legal proceedings’. This would seem to suggest that investigating the possibility of bringing proceedings was but one of several purposes.  He did not put forward any basis for regarding it as the dominant purpose.  Nor did he indicate that the legal proceedings referred to were reasonably in prospect.  The prospect of litigation did not have to be greater than 50% for privilege to apply, but a mere possibility of litigation would not suffice (USA v. Philip Morris Inc., supra. at 856A to H, paras.66 to 68).

In the affidavit made by one of the liquidators, he stated that the examination ‘has been undertaken to enable the liquidators to discover information and documents which may be relevant to the identification and recovery of the assets of Akai through potential claims against third parties’.  He went on to state that ‘there is also an important public interest in liquidators obtaining information to understand the company's affairs and to identify those guilty of misconduct’, that is not a purpose which would attract litigation privilege.  He confirmed that each of the examinations or interviews ‘has been conducted as part of investigations to determine whether or not there may be recoverable assets available to Akai through litigation’, and ‘a principal or dominant purpose of conducting the examinations and/or interviews is to submit the transcripts thereof to the liquidators’ legal advisers, to obtain advice and, subject to that advice, to pursue the recovery of assets through litigation, in the proper discharge of the liquidators’ duties.’

Mr. Lam has criticised the statements in this affidavit as heavily hedged and not in any way showing the dominant purpose of the examinations.  I am inclined to agree.  It is not sufficient for the relevant purpose to be ‘a principal or dominant purpose’, as this may suggest there are other principal or dominant purposes, and ‘the element of clear paramountcy which should ... be the touchstone’ (Waugh v. British Railways Board, supra. at 543H) would be lacking. Furthermore, it does not appear from the above statements that at the time the examinations or interviews were conducted, legal proceedings were reasonably in prospect. ‘A mere vague apprehension of litigation generally is not sufficient’ (Jarman v. Lambert & Cooke Contractors Ltd. [1951] 2 KB 937 at 946, cited in USA v. Philip Morris Inc., supra. at 854H, para.63).”

74.The Court of Appeal (in para.26 of their judgment) simply agreed with Kwan J’s reasons for dismissing Akai’s claim to legal professional privilege.

75.Pointing to those paragraphs in their judgments, Mr Kosmin says that it is notable that neither Kwan J nor the Court of Appeal made any reference to the nature of legal professional privilege or its policy rationale.  And he submits that the courts below gave no weight to the existence of, or the protection due to, Akai’s constitutional right in this context.  This is, he submits, a fundamental deficiency in the reasoning of the courts below.

76.Before moving on, there are two things which I would do.  First, I would cite the way in which Millett J, in Plummers Ltd v Debenhams plc [1986] BCLC 447, explained the concept of a real prospect of litigation.  He said (at p.454a-b) that “[t]here must be a real prospect of litigation.  Where it is neither pending nor threatened, it must be in the active contemplation of the party seeking advice”.  This seems to me to be a helpful way of putting it, since legal professional privilege is a fundamental right meant to operate in a realistic and practical way. 

77.Next, I would mention this about the dominant purpose test which was propounded by Barwick CJ in Grant v. Downs (at a time when the High Court of Australia applied a sole purpose test).  The dominant purpose test was adopted by the House of Lords in Waugh British Railways Board [1980] AC 521.  And it was eventually re-exported to Australia with success when it was adopted by the High Court of Australia in Esso Australia Resources Ltd v. Commission of Taxation (1999) 201 CLR 49 after Waugh’s case, among other authorities, had been cited to their Honours.  Ever since Waugh’s case, the dominant purpose test has been applied in Hong Kong.

View of courts below and EYHK’s submissions on legal advice privilege

78.I have already quoted para.22 of Kwan’s judgment in which she dismissed Akai’s claim to legal advice privilege on the law as she viewed it.  Mr Hapgood submits that, whatever approach is taken, the transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221 are not capable of enjoying legal advice privilege.  He identifies two approaches.  One is what he describes as “the orthodox approach adopted in” the decision of English Court of Appeal in Three Rivers (No. 5).  And the other is what he describes as “the alternative approach suggested in” the decision of the full court of the Federal Court of Australia in Pratt Holdings Pty Ltd v. Commissioner of Taxation (2004) 136 FCR 357.

79.First, Mr Hapgood submits that under the Three Rivers (No.5) approach, the transcripts and notes concerned do not qualify for legal advice privilege because neither are they communications between Akai (or any intermediary) and its legal advisers, nor do they provide a sufficient basis for inferring the content of such communications.  Secondly, he submits that under the Pratt Holdings approach, they similarly do not qualify because, in addition to the Three Rivers (No.5) reasons, they are not communications between Akai and a third party.  Thirdly, he submits that under either approach, they do not qualify because the dominant purpose behind their creation was not the seeking or giving of legal advice. 

Alleged admission or averment

80.Mr Kosmin says that Akai has never admitted or averred that its evidence on privilege is insufficient.  EYHK’s allegation that Akai had made such an admission or averment is, he says, based on taking out of context what Mr Cosimo Borrelli, one of Akai’s liquidators, said in his sixth affidavit (“Borrelli 6”) about his fifth affidavit (“Borrelli 5”).  Relevantly to this alleged admission or averment, all that Borrelli 6 says is that Borrelli 5 did not address the particular factual circumstances supporting claims to legal professional privilege in regard to the informal interviews because Akai’s understanding of Kwan J’s Order of 30 July 2008 was that the Order was limited to the formal examinations and interviews.

Akai’s submissions on legal advice privilege

81.Akai being the party seeking a reversal of what has been decided and ordered below, I will set out Mr Kosmin’s submissions in some detail.  His submissions on legal advice privilege are essentially to the following effect :-

(i)    The courts below applied too narrow a test for legal advice privilege.  Correctly understood, the applicable law is this.  Legal advice privilege covers a document brought into existence by a person for the dominant purpose of using it or its contents in order to obtain legal advice in a relevant legal context, where the document constitutes or forms part of a communication between lawyer and client, or where the document was created preparatory to seeking legal advice and forms an essential part of the overall process by which legal advice is obtained.

(ii)  What Three Rivers (No 5) has generally been treated as deciding consists of two propositions.  First, that in the corporate context, a narrow view of who it is that constitutes the client should be taken when assessing claims to legal advice privilege.  Secondly, that documents created preparatory to seeking legal advice and for the dominant purpose of seeking that advice, but not themselves constituting the relevant communication, are not protected by legal advice privilege.  However, its precise ratio is unclear.  In particular, it is not clear that the second of those two propositions is part of the ratio.  The English Court of Appeal’s reasoning is – and has been widely criticised as – unsatisfactory by reason of the narrow approach it takes to the doctrine of legal advice privilege and the classes of documents protected from disclosure.  There is no policy reason to narrow the scope of legal advice privilege, which is recognised as a fundamental right in Hong Kong and elsewhere. 

(iii)    Three Rivers (No.5) was expressly rejected by the full court of the Federal Court of Australia not only in the Pratt Holdings case but also in Kennedy v. Wallace (2004) 142FCR 185.  In Skandinaviska Epskilda Banken AB (Publ) v. Asia Pacific Breweries (Singapore) Pte Ltd [2007] SGCA 9, the Singaporean Court of Appeal preferred the Pratt Holdings approach to the approach in Three Rivers (No.5).  It is said in Hollander on Documentary Evidence, 9th ed. (2006) para.13-10 that the position on legal advice privilege resulting from the decision in Three Rivers (No.5) is “as unsatisfactory as is possible to imagine” and (in para.13-12) that “there is a powerful case to be made for overruling” the decision.  The same sort of criticism of the decision in Three Rivers (No.5) can be found in Passmore on Privilege, 2nd ed. (2006).  It is there said: (in para.2.029) that the decision has created an “unnecessary muddle” as to who can constitute a client for the purposes of legal advice privilege; (in para.2.035) that it “is causing significant problems for large organisations dependent on a large range of employees to prepare materials to instruct the organisation’s lawyers”; and (in para.2.037) that “there is every prospect that [it] will belatedly be overruled and this sorry episode consigned to history”.  Various criticisms of the decision in Three Rivers (No.5) are made in Thanki on the Law of Privilege (2006).  They are to be found in paras 2.19 to 2.24 and 2.145 to 2.155, and include the statement that the decision is based on a flawed reading of a number of 19th century authorities.

(iv)   In Three Rivers (No.6) the House of Lords declined to express a view on the correctness of the English Court of Appeal’s decision in Three Rivers (No.5).  Indeed, that decision of the English Court of Appeal is difficult, if not impossible, to apply in practice.  As has been widely recognised, it turned on a misconstruction of the dominant purpose test first articulated in the High Court Australia by Barwick CJ in Grant v. Downs (1976) 135 CLR 674 at p.677 and an incomplete analysis of English law.  It was wrongly decided and ought not to be adopted as the law of Hong Kong.

(v) But even if Three Rivers (No.5) were good law, the transcripts and notes concerned in the present case would not be excluded from the ambit of legal advice privilege thereby.  This is because there is in the present case no lack of identity between the author of the relevant documents and the party seeking legal advice (ie the Akai liquidators on behalf of the company in liquidation).

(vi)   In an insolvency like the present one, which is a large and complex modern insolvency of a publicly-listed company, judicial notice may be taken of the fundamental necessity for liquidators to obtain legal advice in respect of most of the material aspects of the liquidation, in particular in respect of those involving the recovery of assets or the pursuit of legal claims.

(vii) The private examinations and interviews and the transcripts and notes thereof in the present case constituted an essential part of the process of obtaining legal advice. The Akai liquidators were not in a position to apprise their lawyers of Akai’s knowledge relevant to the necessary legal advice sought, without first ascertaining the relevant knowledge by use of the examination and interview processes (in the presence of their legal advisers) to that end, and then passing that information in the form of transcripts and notes to the legal advisers.

(viii)   Hence those transcripts and notes do not simply record communications between the client liquidators and persons who should be regarded as “third parties” for the purposes of legal advice privilege.  Rather, they constitute the means by which those liquidators, having acquired information through the s.221 process, are able readily to lay such information before their legal advisers in a form suitable for the purpose of seeking legal advice.

(ix)   The specific information contained in the transcripts and notes of private examinations and interviews conducted by the Akai liquidators came about as a result of their own efforts and their legal advisers’ consideration, analysis and legal advice.  Further, the notes and transcripts were generated by the Akai liquidators “for [their] own use” (with assistance from their legal advisers) in accordance with rule 62(1).

(x) Critically, those transcripts and notes did not exist before the need to seek legal advice arose, and they would not have come into existence but for the need for the Akai liquidators to obtain legal advice as to what should prudently and sensibly be done in the Akai liquidation. This puts beyond any doubt that the transcripts and notes were prepared in a relevant legal context and are protected from disclosure by legal advice privilege.

(xi)   The Akai liquidators’ purpose in creating those transcripts and notes was to provide a basis for legal advice in connection with the existence of rights of recovery for the benefit of creditors, and the existence of causes of action (whether or not they constituted claims in reasonable prospect at the time when the documents were created). The Akai liquidation, coupled with the very nature of seeking and obtaining orders for private examinations, comprised the relevant legal context.

(xii) In Rockefeller & Co. Inc. v. Secretary for Justice [2000] 3 HKLRD 351, Rogers JA (as he then was) cautioned against taking too narrow a view of what can constitute documents protected by legal professional privilege.  That case concerned the status of notes of interviews with the managing director of a subsidiary company, conducted by the senior manager of the parent company (in the presence of the parent company’s forensic accountants and legal advisers).  The parent company had been approached about the interviewee's conduct by the Securities and Futures Commission, and that is what precipitated the interview.  Those notes were held to be the subject of legal advice privilege notwithstanding that they did not themselves constitute a communication between the interviewer and his lawyers.

(xiii)   At p.365H-I Rogers JA said that

“the argument before this Court turned more upon whether whoever did cause these documents to come into existence, whether it be the applicant or its Hong Kong subsidiary, was not seeking legal advice at that time. That, in my view, is an argument which takes too narrow a view of what can constitute documents protected by legal professional privilege. In my view, the inquiries by the SFC alone would have been sufficient to cause any inquiries made by lawyers acting on behalf of a client to constitute documents which came into existence for the broader purpose dealing with the SFC enquiries. It can be assumed that the SFC would not be acting officiously and hence, any inquiries made by them could be supposed to be likely to lead to action and consequences where legal advice would be necessary.”

And at pp 368I to 369B Keith JA said this :

“I would not want Rockefeller's claim to founder on the rocks of inadequate drafting, and I can assume, I think, that the typed up notes came into existence for the purpose of having a record of what Mr Lee and other interviewees had said in the interviews. The question then was: what was the purpose of having a record of those interviews? In light of Mr Mok's affidavit, it can, 1 think, be said that a record of the interviews was required so that informed legal advice could be given to Rockefeller in the event that the events about which the interviews took place gave rise to litigation or continued regulatory investigation.  Thus, the dominant purpose for which the documents were brought into existence was a purpose which resulted in the documents acquiring legal professional privilege.”

(xiv) It is not accurate to say, as EYHK does, that legal advice privilege was not pursued before the Court of Appeal.  Although no oral argument on legal advice privilege was presented to the Court of Appeal, legal advice privilege was raised in Akai’s notice of appeal for its appeal to that court. All that Akai refrained from doing before the Court of Appeal was to argue, as it does now, that Three Rivers (No.5) was wrongly decided.  To argue that is not to contend for a major development of the law in Hong Kong.  It is merely to contend for the preservation of Hong Kong law on the point prior to the decisions of the courts below in the present case.  One of the questions on which the Appeal Committee granted leave to bring the present appeal is the question of the applicable test for legal advice privilege.

82.That last submission of Mr Kosmin’s is directed to meeting Mr Hapgood’s attempt to bring the circumstances of the present case within the second rule in Flywin Co. Ltd v Strong & Associates Ltd (2002)5 HKCFAR 356, which is stated at p. 369C-H.  This is that even where a new point is not barred by the first rule in that case (being the rule which lays down  the “state of the evidence” bar), there is still a high hurdle facing a party who seeks to raise in the final appellate court a point which was not pursued in the intermediate appellate court, especially when entertaining the new point and accepting it would constitute a major development of the law.

View of courts below and EYHK’s submissions on litigation privilege

83.I have already quoted paras 26 to 28 of Kwan J’s judgment in which she dismissed Akai’s claim to litigation privilege on the facts as she understood them.  And I have already mentioned that Mr Hapgood says these two things about litigation privilege, which is as follows.  First, there is no basis on which to disturb the concurrent findings below that the transcripts and notes concerned had not been obtained for the dominant purpose of litigation and that there was no litigation in reasonable prospect at the time when those documents were obtained.  Further or alternatively, the s.221 process is an inquisitorial proceeding conducted by the court in furtherance of a statutory purpose, such that litigation privilege is not available whatever may have been the purpose of Akai’s liquidators in applying under the section.

84.The only other aspect of Mr Hapgood’s argument on litigation privilege which I propose to mention at this stage is a particular aspect of his submissions as to how concurrent findings of fact are to be approached.  Citing our decision in Sky Heart Ltd v. Lee Hysan Co. Ltd (1997-98) 1 HKCFAR 318, Mr Hapgood draws attention to my statement (at p.337I-338A) that

“this Court’s proper approach to appeals against concurrent findings of fact must be the same as that of the Privy Council subject only to this.  In those rare and exceptional cases in which an appellant has otherwise got a viable challenge to even concurrent findings of fact, he will never face in this Court the additional obstacle (which appellants before the Privy Council have sometimes faced) of appearing before a final appellate court less familiar than the courts below with local conditions.”

Taking it from para.55 of EYHK’s printed case, Mr Hapgood says that “the present case comes very close [to that situation because while] Kwan J does not of course sit in a different country, nonetheless by virtue of her role in supervising Akai’s liquidation, she is uniquely placed to assess the liquidators’ assertions as to the purposes of their actions at various times”.  Without saying anything else at this stage about Mr Hapgood’s submissions on concurrent findings, I say at once that there is no scope for introducing anything like a “local conditions” inhibition into this Court’s approach to concurrent findings of fact.

Akai’s submissions on litigation privilege

85.Just as I have set out Mr Kosmin’s submissions on legal advice privilege in some detail because Akai is the party seeking a reversal of what has been decided and ordered below, so will I set out his submissions on litigation privilege in some detail.

86.As I have already noted, Akai’s case on litigation privilege is that the transcripts and notes concerned are covered by such privilege because they were brought into existence by its liquidators for the dominant purpose of using them and their contents to seek legal advice in connection with litigation that was in real prospect at the time of their creation.  Mr Kosmin submits that the concurrent findings to the contrary cannot stand because they were reached as a result of : (i) failing to have any regard to the context in which those transcripts were brought into existence, namely the particular circumstances of the Akai litigation; and (ii) ignoring critical evidence.

87.The particular circumstances of the Akai litigation on which Mr Kosmin relies are these.  First, the only assets of the company in liquidation are potential causes of action requiring investigation and litigation for their realisation.  Secondly, the main object of the liquidators in carrying out their functions is the realisation of such causes of action as are established through investigation and legal advice.  Thirdly, a protective writ was issued to preserve those causes of action pending their investigation through private examinations and interviews conducted pursuant to or under threat of s.221.  In such circumstances, Mr Kosmin submits, the transcripts and of such private examinations and interviews are prima facie subject to legal professional privilege.

88.I turn now to the evidence which Mr Kosmin says is critical evidence ignored by the courts below in finding that no litigation was in reasonable prospect.  This is what appears in paras 17 to 30 of Borrelli 5:

“17. The Writ in this Action was issued (with leave of the Companies Court) in May 2004 and was served on the Defendant in November 2005.  During this period, various investigations were undertaken by the Liquidators and certain other actions were also issued.

18.  The primary purpose of these investigations has been the identification and recovery of the assets of Akai.  The recovery of the company’s assets is one of the primary duties of the Liquidators.

19.  In Akai’s case, its primary remaining assets are causes action and potential cases of action against third parties, which are capable of recovery only through legal proceedings.

20.  A necessary aspect of the Liquidators’ investigations, undertaken for the purpose of identifying and recovering the assets of Akai, has been the interview and examination of persons who were involved in the affairs of Akai.

21.  The interview and/or examination of these persons has been undertaken to enable the Liquidators to discover information and documents which may be relevant to the identification and recovery of the assets of Akai through potential claims against third parties.

22.  The information and documents obtained may include matters which were previously in the knowledge of the company, such that their discovery assists the Liquidators to reconstitute the knowledge of the company, or they may be matters which were not previously in the knowledge of the company but which may be relevant to the affairs of the company.  In either case, the information and documents form part of the factual basis upon which the Liquidators obtain legal advice so as to identify whether there are claims or potential claims available to Akai and, if so, against whom.

23.  There is also an important public interest in liquidators obtaining information to understand the company’s affairs and to identify those guilty misconduct.

24.  The process of recovering assets through legal proceedings by its very nature involves the obtaining of legal advice.  That legal advice includes the analysis and assessment of any potential legal claim which may be available to the liquidators or the company.

25.  In each case the interview or examination is a step in the investigative process which has as its objective the recovery of assets through legal proceedings.  In some instances the interview or examination advances this objective and in other instances it does not.  In some instances, the legal advice coupled with commercial considerations leads to legal proceedings being commenced and in others it does not

26.  In the case of the liquidation of Akai, I confirm that:

26.1 Each of the examinations and/or interviews conducted by the Liquidators has been conducted as part of investigations to determine whether or not there may be recoverable assets available to Akai through litigation.

26.2 Each of the examinations and/or interviews conducted by the Liquidators has been provided to time Liquidators’ legal advisers for the purpose of obtaining legal advice as to whether or not there may be recoverable assets available to Akai through litigation.

26.3 The examination and /or transcripts are an essential part of the Liquidators’ and decision making process and are essential to the obtaining of legal advice as to the recoverability or otherwise of assets in the form of causes of action, through litigation.

26.4 A principal or dominant purpose of conducting the examinations and/or interviews is to submit the transcripts thereof to the Liquidators’ legal advisers, to obtain advice and, subject to that advice, to pursue the recovery of assets through litigation, in the proper discharge of the Liquidators’ duties.

27.  I further confirm that:

27.1 The interviews of Ms F Lee (29 April 2004), Mr Fung (14 May 2004), Mr Ko (29 May 2004) and Ms Hung (21 July and 11 August 2004) were confidential and were conducted voluntarily, without any order having been made under s221.

27.2 The examinations of Mr Ting, Mr Tam, Mr Ho and Ms R Lee were conducted in the period 2005 to 2007 before the Court in private, pursuant to orders made under s221.

27.3 Mr Holmes has been interviewed confidentially, initially voluntarily without any order having been made under s221 and subsequently at his request after an order was made under s221.

27.4 Ms Simmons has been interviewed confidentially, after an order was made under s221 and in substitution of a formal private examination before the Court.

27.5 Other interviews or examinations conducted by the Liquidators fall within one or more of the same categories as those identified above.

28.  In the case of the examinations or interviews identified by the Defendants in their Summons, only the interview of Ms F Lee (29 April 2004) and Mr Fung (4 May 2004) were conducted before the Writ in this Action was filed (24 May 2004).  Further Writs in other actions have been issued subsequent to the issue of the Writ in this Action, as I have stated above.

29.  The interviews and transcripts identified above constitute part of the confidential investigation and/or preparation of this Action and other actions by the Liquidators and their legal advisers.  In the same way, the Defendants and their legal advisers have been conducting confidential interviews and other investigations in the course of their preparation of the defence of this Action, the fruits of which may or may not be disclosed when/it witness statements are delivered.

30.  The only difference is that the defendant’s investigations/preparations are taking place without disclosure of the identity of the persons from whom they have obtained information, whereas in the case of the Liquidators because it has been necessary for them to enlist the assistance of the Companies Court and as a result of the criminal trial of Mr Ting, the names and in some cases dates of the persons wit whom the Liquidators have spoken has become known to the Defendants.”

89.Mr Kosmin complains that in finding that there was no litigation in reasonable prospect, Kwan J had (in para.27 of her judgment) selectively referred only to paras 21, 23, 26.1 and 26.4 of Borrelli 5.  Thus, Mr Kosmin complains, Kwan J had ignored critical evidence, including evidence as to: (i) the filing of the writ (in paras 17 and 28 of Borrelli 5); (ii) the primary purpose of the liquidators’ investigations being the recovery of Akai’s assets (in paras 18, 25, 26.2 and 26.3 and 29 of Borrelli 5); (iii) the necessity for the liquidators to obtain legal advice (in paras 22, 24, 25 and 26.4 of Borrilli 5); and (iv) the fact that the primary remaining assets of Akai were legal claims (in para.19 of Borrelli 5).

90.The issuance of the writ naming EYHK as the first defendant was, Mr Kosmin says, a crucial event to which Kwan J had failed to make any reference.  This failure was, Mr Kosmin says, compounded by Kwan J’s failure to have any regard to these facts.  Akai’s detailed investigation into a claim against EYHK was precipitated by EYHK’s disclosure, under compulsion of a s.221 document production order, of its audit work papers from about October 2003.  The private examinations and interviews concerned were conducted during and after the 18-month period between the issuance of the writ in May 2004 and its amendment on 19 November 2005 to make EYHK the sole defendant.  Less than a week after this amendment, Akai delivered its lengthy Points of Claim.

91.Mr Kosmin submits that the particular circumstances of the Akai liquidation and Akai’s evidence clearly show that litigation was in real prospect at the time when the transcripts and notes concerned where brought into existence.  And he submits that Kwan J went fatally wrong in accepting the submission made to her on EYHK’s behalf that Akai’s evidence was “heavily hedged”, which it plainly was not.

92.In paras 41 and 43 of her judgment, Kwan J held that s.221’s purpose is inquisitorial and not dominantly connected with litigation and that the court’s purpose is indistinguishable from that purpose.  Then she held (in para.47 of her judgment) that “it is the court’s purpose in ordering the examination, not the avowed purpose of the liquidators (or any other applicant) in invoking the procedure, which should constitute the relevant purpose for the dominant purpose test”.  The effect of this reasoning, which the Court of Appeal affirmed, would be, Mr Kosmin says, that legal professional privilege can never protect transcripts and notes like these.  And that would, he submits, run counter to hitherto uncontroversial authority.  As to that, Mr Kosmin points to para.221.10 of Butterworth’s Hong Kong Company Law Handbook, 10th ed., for its statement (citing Learoyd’s case, the North Australian Territory case and Dubai Bank case) that “[n]otes or a transcript if notes of the examination made under [2.221] are private documents and privileged.

93.What the courts below did, Mr Kosmin submits, is to confuse the question of whether legal professional privilege is available with the question of whether transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221 derive confidentiality from the purpose of the section.  Mr Kosmin contrasts s.221’s purpose with the dominant purpose of liquidators who bring such transcripts and notes into existence.  The former, he says, operates as a constraint on the exercise of the rule 62 discretion to permit access to transcripts and notes like these.  And the latter, he says, determines whether such transcripts and notes are privileged.

94.In any event, Mr Kosmin submits, s.221’s purpose and the court’s purpose in making orders under the section are both to facilitate the purpose of liquidators in resorting to the section.  Thus in Re Arrows Ltd (No.4) [1993] Ch 452 at pp 466H-467C, Dillon LJ observed that “immediate purpose” of examinations and interviews like these is to enable liquidators to get information and, where appropriate, documents in relation to the affairs of the company in liquidation, and that the “main objects” of liquidators in conducting such examinations and interviews are to “see if it is possible to trace and get in further assets of the company and to see if it is possible to establish money claims, for the benefit of the company, against persons currently being examined or against someone else”. (Emphasis supplied).

95.Mr Kosmin contrasts the fire report in Re Highgrade Traders Ltd [1984] BCLC 151 with the railway accident report in Waugh’s case.  The former was directed to establishing legal responsibility for the cause of a fire and informing the insurers’ commercial decision whether or not to litigate.  But the latter was directed not only to obtaining legal advice in anticipation of litigation but at least equally to the board’s function as to safety in future.  In the context of the Akai litigation, Mr Kosmin submits, the transcripts and notes concerned are analogous to the privileged report in the Highgrade case, not the non-privileged report in Waugh’s case.

96.I come now to Kwan J’s view (stated in para. 48 of her judgment) that “as the proceedings under section 221 are inquisitorial, litigation privilege does not extend to protect the documents and information obtained in the course of the non-adversarial proceedings”.  In para. 17 of their judgment, the Court of Appeal said that there was “nothing which takes the notes and transcripts of the examination out of the position where they constitute notes and transcripts of an inquisitorial process conducted by the court”.  Mr Kosmin says that these views, if correct, would mean that the product of non-adversarial proceedings that are inquisitorial can never be the subject of legal professional privilege even if the intended use of such protect is dominantly connected with adversarial litigation in real prospect .  The courts below regarded the decision reached by the House of Lords (by a majority of 3 to 2) in Re L (a Minor) [1997] AC 16 as a authority for so wide a proposition as that.

97.The product concerned in Re L was the report of a medical expert made in care proceedings under the Children Act 1989.  Those proceedings were precipitated by the fact that the child had ingested a quantity of methadone.  The report was on the likely frequency of the child’s methadone consumption.  It was prepared on the mother’s instructions, using court papers by leave of the court given on the basis that it would be available to all parties to the care proceedings.  As it turned out, the report cast doubt on the mother’s account that the child’s ingestion of methadone was an accident.  Learning of the report’s existence, the police sought access to it for the purpose of investigating whether a criminal offence had been committed.  The mother sought, unsuccessfully, to block such access, by claiming legal professional privilege and privilege against self-incrimination.

98.Mr Kosmin submits that Re L cannot stand for so wide a proposition as that the product of non-adversarial proceedings that are inquisitorial can never be the subject of legal professional privilege.  Such a proposition would, he says, be inconsistent with the authorities on private examinations and interviews.  The decision in Re L was, he says, necessarily dominated by the interests of the child in care proceedings and the processes thereunder, and has to be read with that in mind.  He points in particular to what Lord Jauncey of Tullichettle (with whose speech Lord Lloyd of Berwick and Lord Steyn agreed) said in that regard.  As one sees at p. 27C-F, Lord Jauncey said that the court

“is seeking to reach a decision which will be in the best interests of someone who is not a direct party and is granted investigative powers to achieve that end.  In these circumstances I consider that care proceedings…are so far removed from normal actions that litigation privilege has no place in relation to reports obtained by a party hereto which could not have been prepared without the leave of the court to disclose documents already filed or to examine the child…I would add that if litigation privilege were apply to [the] report it could have the effect of subordinating the welfare of the child to the interests of the mother in preserving its confidentiality.  This would appear to frustrate the primary object of the Act.

In stressing that passage, Mr Kosmin points to the cautionary note sounded by Lord Nicholls of Birkenhead in a powerful speech with which Lord Mustill agreed.  Lord Nicholls, as one sees at p. 32A-D, pointed out that “the contrast between inquisitorial and adversarial…can all too easily divert attention from the crucial question”. 

99.As a matter of law, Mr Kosmin submits – and I hold – litigation privilege can cover the transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221.  Does it do so in the present case?

Protected from disclosure by litigation privilege

100.That turns on the issue of dominant purpose.  On this issue, I am persuaded that the courts below ignored crucial evidence in the form of (i) the circumstances of this liquidation and (ii) the evidence filed by these liquidators.  In my view, justice demands that we consider that evidence.  We might have been at a disadvantage in doing so if oral evidence had been given below.  But all the evidence is on paper.

101.I need not repeat what I have already noted as to the content of the crucial evidence on the dominant purpose issue when summarising Mr Kosmin’s submissions thereon.  Upon considering that evidence, I find that it points strongly to this conclusion.  In resorting to private examinations and interviews pursuant to or under threat of s.221, the liquidators did so for the dominant purpose of bringing the transcripts and notes of those examinations and interviews into existence for them to be placed before the legal advisers of the company in liquidation in order to obtain legal advice in connection with litigation that was in active contemplation and therefore in real prospect at the time.  Indeed, there was, in my view, no evidence that any other purpose could have been the dominant one.  And as Lord Thankerton in Devi v. Roy [1946] AC 508 at p.521 and Lord Hoffmann NPJ in ADS v. Brothers (2003) 3 HKCFAR 70 at p.84F underlined, the question of whether there is evidence on which to make a finding of fact is a question of law.

102.Accordingly, I am persuaded that this is one of those rare and exceptional cases in which this Court should review and reverse concurrent findings.  Reversing the concurrent findings to the contrary, I conclude that litigation was in real prospect and that the dominant purpose test is satisfied so as to bring the transcripts and notes concerned under the protection of litigation privilege and shield them from disclosure.  This is a sufficient basis for allowing this appeal.

No decision on legal advice privilege needed

103.So there is no need to decide the issue of legal advice privilege.  The circumstances do not preclude a decision by us on the issue.  But it is preferrable not to decide it since there is no need to do so and we do not have the opinion of the Court of Appeal on it.  Suffice it to say this for any future case that requires a decision on a legal advice privilege issue.  Legal advice privilege, being a category of legal professional privilege, is of course to be approached in a manner appropriate to a fundamental right.

Confidentiality

104.Since it has been addressed by the courts below and we have heard full argument thereon, I should say something on the issue of confidentiality even though a decision in Akai’s favour on the issue of legal professional privilege is a sufficient basis on its own for allowing the appeal.  Are the transcripts and notes of private examinations and interviews conducted pursuant to or under threat of s.221 automatically liable to disclosure on discovery in ordinary civil litigation once they are not covered by legal professional privilege?  The courts below appear to have answered this question in the affirmative.  My answer is that such transcripts and notes are subject not only to the discovery regime under Order 24 of the Rules of High Court but also to the insolvency regime under s.221 of the Companies Ordinance and rule 62 of the Companies (Winding-up) Rules.  Even where such transcripts and notes are not covered by legal professional privilege, their disclosure will still require the court’s order under rule 62. 

105.Since the s.221 transcripts and notes in the present case are covered by legal professional privilege, I do not regard this as an appropriate occasion on which to pronounce on the criteria to be applied when a court, exercising its rule 62 discretion, has to decide whether to order or withhold disclosure of s.221 transcripts and notes that are not covered by legal professional privilege.

Conclusion

106.Having held that the transcripts and notes concerned are covered by litigation privilege, I would allow this appeal so as to set aside the orders for their disclosure.  As to costs, I would make an order nisi awarding Akai costs here and in the courts below, such order to become absolute 21 days from today unless a written application seeking, and containing reasons put forward for, some other order as to costs is received by the Registrar before the expiry of that period.  And I would order that if such an application is received within time, costs be dealt with on written submissions in accordance with procedural directions to be given by the Registrar.

107.I turn now to the stay of so much of Kwan J’s Order of 28 November 2008 as required a further affidavit from Akai.  As I have already said, the Appeal Committee granted that stay because the appeal had been so expedited as to leave the parties with little time for anything other than the urgent steps necessitated by the expedited hearing.  The further affidavit ordered is one

“(i) setting out a full chronological list of all examinations and interviews that have taken place to which [Kwan J’s order of 30 July 2008] applies with the dates thereof;

(ii)    stating whether [Akai] has or has at any time had in its possession, custody or power any transcripts or notes of such examination or interview and any tape or video recordings thereof (and if not now in its possession, custody or power when it parted with them); and

(iii)   stating whether any documents were produced by the examinees or interviewees and identifying any documents so produced.”

108.It is to be noted that the stay granted by the Appeal Committee was granted on Akai’s undertaking to file and serve the further affidavit concerned within 14 days of the determination of Akai’s appeal in the event of the appeal being dismissed.  Mr Hapgood said that since the further affidavit concerned goes to discovery short of disclosure, the stay ordered by the Appeal Committee should be lifted even if the appeal were to be allowed.  In reacting to that, Mr Kosmin began by pointing to how oppressive complying with item (iii) would be.  Whereupon Mr Hapgood said that EYHK dropped that item.  Grateful as he was for that, Mr Kosmin was not so grateful as to concede items (i) and (ii).  But I think that EYHK is entitled to items (i) and (ii) if it wants them, which it does.  Accordingly, I would lift the stay in relation to them, so that they have to be supplied by an affidavit to be filed and served within 14 days of today.

109.Finally, I wish to thank both legal teams for their assistance in this expedited appeal.  Special thanks are of course due to Mr Kosmin and Mr Hapgood for the clarity and concision of their excellent arguments.  Those are the qualities that enable courts to assist parties by expediting matters despite a heavy case-load that limits the time available for each case.

Mr Justice Chan PJ :

110.I agree with the judgment of Mr Justice Bokhary PJ and the judgment of Lord Hoffmann NPJ.

Mr Justice Ribeiro PJ :

111.I agree with the judgment of Mr Justice Bokhary PJ and the judgment of Lord Hoffmann NPJ.

Lord Hoffmann NPJ :

112.When Akai Holdings Ltd (“the company”) was compulsorily wound up in 2000, the liquidators found little left to satisfy claims by creditors in excess of US$1 billion.  The only significant source of assets appeared likely to be claims against the former management, who had made away with the company’s money, and the former auditors, who had not prevented them from doing so.  But in practical terms such claims were not likely to be enforceable except through litigation.  That required the liquidators to investigate what had happened and consider (with legal advice) whether the company had causes of action.

113.In making these investigations, the liquidators were handicapped by the sparseness of the written records which came into their hands and the unwillingness of both the former management and the auditors to assist them.  The lack of progress during the first two or three years of the liquidation created a risk that any claims might become statute barred before the liquidators were in a position to decide whether the company was entitled to sue.  The liquidators therefore caused a protective writ to be issued, naming as plaintiffs both the company and a number of its subsidiaries and as defendants a large number of people, including the auditors, Messrs Ernst & Young (Hong Kong) (“EYHK”). 

114.The liquidators then invoked their powers under s.221 of the Companies Ordinance, Cap.32, to apply for a private examination of a number of people whom they thought might be able to give them useful information :

“(1) The court may …summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs, or property of the company.

(2) The court may examine him on oath concerning the matters aforesaid…and may reduce his answers to writing and require him to sign them.”

115.This provision is as old as English company law and derives from even earlier provisions of the Bankruptcy Acts.  The liquidators and their solicitors made notes and transcripts of the examinations.

116.The proceedings against EYHK were activated in November 2005 when the writ was served on EYHK and amended to leave the company as the only plaintiff and EYHK as the only defendant.  Pleadings have been exchanged and a date of trial fixed for later this year.  In October 2007 EYHK issued a summons for specific discovery of the transcripts of the examinations and certain informal interviews said to have been conducted under threat of an application under s.221.  The liquidators resisted on the ground that the documents were privileged.  Kwan J rejected the claim of privilege and her decision was affirmed by the Court of Appeal (Rogers VP and Le Pichon JA).  The liquidators appeal.

117.The case in my opinion depends upon the answers to two simple questions.  First, did the liquidators conduct the examinations for the sole or dominant purpose of obtaining advice from their solicitors as to bringing or conducting legal proceedings?  Secondly, were such proceedings reasonably anticipated at the time?  These questions are an application to the facts of this case of the general principles of legal professional privilege stated by the House of Lords in Waugh v British Railways Board [1980] AC 521.

118.A good deal of effort has been devoted to making the case seem more complicated.  The judge rejected the claim to privilege on a number of grounds, one of which appears to have been that privilege could never be claimed for examinations under s.221 because such a claim was inconsistent with the statutory powers under which the information had been obtained.  What mattered, she said, was not the purpose of the liquidators in obtaining the information but the purpose of the statute which enabled it to be obtained.  It was not altogether clear what she considered the statutory purpose to be : in Cloverbay Ltd v Bank of Credit and Commerce International SA [1991] Ch 90, 102 the statutory purpose was said to be to “reconstitute the state of knowledge that the company should possess.”  No doubt that is often true.  But for present purposes the relevant question is why the liquidators wanted to reconstitute the state of knowledge of the company.  If it was for the dominant purpose of obtaining legal advice in connection with anticipated litigation, then privilege attaches.

119.The judge also said that privilege could not attach because an inquiry under s.221 is inquisitorial and not adversarial.  She referred to Re L (A Minor) [1997] AC 16, in which it was decided that litigation privilege did not apply to a report prepared for the purpose of inquisitorial care proceedings under the Children Act 1989.  But the analogy was mistaken.  The judge was looking at the wrong proceedings.  The examinations in this case were for the purpose of adversarial litigation, between the company and EYHK.  The fact that s.221 proceedings are not adversarial is nothing to the point.

120.Another red herring was the discussion in the course of argument about the private nature of the records of examinations under s.221 and the limited circumstances in which their disclosure will be ordered by the Companies Judge under rule 62 of the Companies (Winding-up) Rules.  For the purposes of a claim for legal professional privilege, the only relevance of the learning on this topic is that it shows that the transcripts are private documents.  If they were open to public inspection, it would be difficult to claim that privilege attached to them.  Otherwise, it does not matter whether the information was obtained under s.221 or in any other way.  If the transcripts did not qualify for privilege, there might be an argument as to whether the Companies Judge should nevertheless refuse to order their disclosure under rule 62.  But this question does not arise and I prefer to say nothing about it.

121.The two cases which seem to me most in point are Learoyd v Halifax Joint Stock Banking Company [1893] 1 Ch 686 and Dubai Bank Ltd v Galadari [1990] BCLC 90.  In these two cases, a century apart, the judges simply asked themselves whether the trustee in bankruptcy (in the first case) or the liquidator (in the second) had conducted the examinations for the dominant purpose of obtaining material on which they could seek advice from their lawyers as to whether to bring proceedings.  Neither appeared to think it made any difference that the information had been obtained under statutory powers rather than in some other way.  And the authority of these cases has never been questioned.

122.I come therefore to the two relevant questions.  The judge answered both of them in the negative.  First, she said that the dominant purpose of the examinations was not to submit the information to the solicitors for advice about legal proceedings.  She described the language of the affidavits sworn by or on behalf of the liquidators as “heavily hedged”.  I do not read them in that way at all.  The liquidators made it perfectly clear that the purpose for which the information was sought was to see whether the company had a viable cause of action against any of its former management or auditors.  It is true that they did not say that the company would definitely bring or continue proceedings.  As responsible liquidators, they would presumably have abandoned the proceedings if advised that they had no case.  But that does not mean that the information was not obtained for the dominant purpose of advice as to anticipated litigation.

123.Secondly, the judge said that litigation was not reasonably in prospect.  I find this hard to understand.  All but two of the interviews took place after the writ had already been issued.  Litigation had actually been commenced.  The liquidators had spent money instructing their lawyers to commence the action.  Even the two earlier interviews had been held within the previous month, when the writ was no doubt in preparation.  The conclusion that litigation was, in language quoted by the judge, “a mere vague apprehension”, seems to me quite irrational.

124.Both of these points involve findings of fact on which the lower courts concurred.  But the conclusions were reached on the basis of affidavit evidence which this Court is in as good a position to assess as the judge.  That would not in itself have been a reason for departing from the practice that this Court does not interfere with concurrent findings of fact if the conclusion had been one which the evidence could reasonably support.  In my opinion, however, that was not the case.

125.I would therefore allow the appeal and make the orders proposed by Mr Justice Bokhary PJ.

Chief Justice Li :

126.By the unanimous decision of the Court : the appeal is allowed; the orders for disclosure are set aside; there will be an order nisi as to costs in the terms proposed by Mr Justice Bokhary PJ; and the stay granted by the Appeal Committee will be lifted in the terms proposed by him.

Mr Leslie Kosmin QC and Mr John Scott SC (instructed by Messrs Lovells) for the appellant

Mr Mark Hapgood QC and Mr Godfrey Lam SC (instructed by Messrs Barlow Lyde & Gilbert) for the respondent