David John Kennedy v. Kelly Cheng and Another
Read the full judgment text of FACV 30/2008 on BabelCite. This Court of Final Appeal judgment was delivered on 20 October 2009 before Bokhary PJ, Chan PJ, Ribeiro PJ, Mortimer NPJ, Millett NPJ.
Civil law – company winding-up – liquidator's powers and duties – private examinations under s.221 of the Companies Ordinance (Cap.32) – disclosure of transcripts to the police – whether court leave required – whether disclosure without leave constitutes contempt of court – rule 62 of the Companies (Winding-up) Rules – statutory interpretation – Marcel principle – derivative use of compulsorily obtained evidence – protection of examinees' rights – fair trial under Basic Law – The liquidator of Wing Fai Construction Company Limited in compulsory winding-up conducted private examinations of two former directors under s.221 of the Companies Ordinance (Cap.32) – Without seeking the court's leave, the liquidator Mr David John Kennedy supplied the transcripts to the police along with two reports in 2004 alleging misappropriation of company funds, document manipulation, perjury and concealment or destruction of documents – The former directors sought to commit the liquidator for contempt – The High Court (Kwan J) found no case to answer and awarded the liquidator his costs on an indemnity basis – The Court of Appeal initially dismissed the appeal on 18 August 2006 but allowed it on 12 October 2007 on discovering that its earlier decision rested on a mistaken assumption that the liquidator had obtained leave from Barma J – The Court of Appeal set aside the High Court order and remitted the committal motion – Held, allowing the appeal, that a liquidator's functions include investigating wrongdoing and reporting it to the prosecuting authorities, which serves a wider public interest distinct from collecting and distributing assets – A liquidator may supply transcripts of private examinations to the police without first obtaining the court's leave – Rule 62 of the Companies (Winding-up) Rules is for the protection of the liquidation rather than for the protection of the examinee – Case is distinguishable from Hamilton v. Naviede [1995] 2 AC 75, where the liquidator had applied to the court for directions – Even if leave had been required, disclosure without leave would not amount to contempt unless the liquidator knew leave was required and intended to circumvent the requirement and pre-empt the court's decision – Contempt must be proved beyond reasonable doubt – Police may make derivative use of disclosed information in their investigations (HKSAR v. Lee Ming Tee (2001) 4 HKCFAR 133) – Any direct use of compulsorily obtained evidence against an examinee in a criminal prosecution is subject to the criminal court's discretion to exclude involuntary admissions and to ensure a fair trial under art.87 of the Basic Law and art.10 of the Bill of Rights – The Court of Final Appeal set aside the Court of Appeal's judgment and dismissed the former directors' motion to commit the liquidator for contempt – Costs to be dealt with on written submissions, with parties to seek procedural directions from the Registrar
Legal issues: Disclosure of s.221 examination transcripts to police without leave · Disclosure without leave as contempt of court
Outcome: Appeal allowed. The Court of Final Appeal set aside the Court of Appeal's judgment and dismissed the former directors' motion to commit Mr Kennedy for contempt
Cited by 15 cases · Cites 6 cases
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FACV No. 30 of 2008 IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NO. 30 OF 2008 (CIVIL) (ON APPEAL FROM CACV NO. 244 OF 2004) _____________________ Between:
_____________________ Court : Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Mortimer NPJ and Lord Millett NPJ Dates of Hearing : 5 and 6 October 2009 Date of Judgment : 20 October 2009 _____________________ J U D G M E N T _____________________ Mr Justice Bokhary PJ : 1.The main questions of law in this appeal are these. Is a liquidator free to disclose to the police transcripts of private examinations conducted pursuant to s.221 of the Companies Ordinance, Cap.32? Or does disclosure require the court’s leave? What if leave is required but a liquidator makes disclosure without leave? In particular, under what circumstances then would disclosure without leave amount to contempt of court on his part? These questions arise because a liquidator disclosed, without leave, the transcripts of the private examination of two former directors of the company in liquidation, and they seek to have him committed for contempt because he did that. 2.Section 221 provides as follows :
3.The purpose and scope of s.221 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 which we said this at p.774H-J :
As to what a liquidator’s duties are, one must go to Lord Millett NPJ’s judgment where he said this at p.780D-F :
4.Wing Fai Construction Company Limited (“Wing Fai”) is the company in liquidation, an order for its winding-up having been made on a creditor’s petition. Mr David John Kennedy is the liquidator concerned. He is the appellant. Ms Kelly Cheng and Mr Robert Yip are the former directors concerned. They are the respondents. While he was a joint and several liquidator of Wing Fai, Mr Kennedy, without seeking the court’s leave to do so, (i) made use in civil proceedings of the transcripts of Ms Cheng and Mr Yip’s private examinations and (ii) disclosed those transcripts to the police. He maintained that it was proper for him to do so. They maintained that such use and disclosure required the court’s leave and that such use and disclosure without leave amounted to contempt on his part. Eventually they confined their complaint of contempt to disclosure alone. 5.Mr Kennedy had made two reports to the police : one on 20 January 2004 and the other on 31 March that year. In those reports he expressed his belief that Ms Cheng and Mr Yip had : (i) misappropriated monies from Wing Fai’s bank accounts; (ii) manipulated documents; (iii) committed perjury; and (iv) withheld, concealed and/or destroyed documents. The transcripts of Ms Cheng and Mr Yip’s private examinations were among the six lever-arch files of documents which Mr Kennedy supplied to the police in support of his allegations against Ms Cheng and Mr Yip. 6.Their motion to have him committed for contempt came before Kwan J (as she then was) in the High Court. It was heard on 6-8 and 13 July 2004. On the 23rd of that month, Kwan J found that Mr Kennedy had no case to answer, and dismissed the motion to commit him. Then on 23 September 2004 Kwan J (i) awarded Mr Kennedy costs against Ms Cheng and Mr Yip on an indemnity basis and (ii) ordered that Mr Kennedy may recover any shortfall in costs out of Wing Fai’s assets. 7.Ms Cheng and Mr Yip then appealed to the Court of Appeal. On 18 August 2006, after a hearing on 22-24 June the previous year, the Court of Appeal (Yeung, Yuen and Tang JJA) dismissed the appeal. But, the order not having been sealed, Ms Cheng and Mr Yip applied to the Court of Appeal for a variation amounting to a reversal. The application was heard on 3 October 2007. It succeeded. On the 12th of that month, the Court of Appeal (Tang VP and Yeung and Yuen JJA) allowed the appeal so as to : (i) set aside Kwan J’s order that there is no case to answer; (ii) remit the motion for committal to Kwan J for her to resume the hearing thereof; and (iii) make an order nisi that Mr Kennedy pay Ms Cheng and Mr Yip’s costs and the Official Receiver’s costs. 8.On 28 November 2007 a consent order was made (i) setting aside Kwan J’s award of costs and (ii) providing for the repayment of $2,046,900 by Mr Kennedy to Ms Cheng and Mr Yip. Then on 13 May 2008, after a hearing on the 6th of that month, the Court of Appeal made absolute the order nisi as to costs which they had made on 12 October 2007. At the same time ie on 13 May 2008 the Court of Appeal made a order nisi for the payment by Mr Kennedy to Ms Cheng and Mr Yip and to the Official Receiver of the costs of the hearing on the 6th of that month. 9.With leave granted by the Appeal Committee on 31 October 2008, Mr Kennedy now appeals to this Court, seeking the restoration of the first instance decision that there is no case for him to answer. His appeal is supported by the Official Receiver and opposed by Ms Cheng and Mr Yip. High Court’s reasons for finding no case to answer 10.Six points, each sufficient on its own if correct, were put forward in support of the submission made to Kwan J on Mr Kennedy’s behalf that he had no case to answer. Outlining those six points, Kwan J said that they were as follows :
11.Accepting the first of those points, Kwan J expressed herself of the view that “on a proper construction of [rule 62 of the Companies (Winding-up) Rules], no leave of the court is required in respect of the uses and disclosures of the transcripts of the examination by [Mr Kennedy] for the discharge of his duties in the liquidation”. Rule 62 reads :
12.The second point appears to have been made in response to Ms Cheng and Mr Yip’s contention that Mr Kennedy had, by making a report to the police without seeking directions from the court, circumvented the procedures laid down by sections 191(2), 222 and 277(1) of the Companies Ordinance and thus deprived them of an opportunity to be heard. Section 191(2) reads :
There is no need to set out s.222. It contains the further powers which, by virtue of s.191(3), the court shall have in the event of fraud being reported under s.191(2). Section 277(1) reads :
13.Accepting the second point and rejecting the contention to which it was a response, Kwan J said this :
She then cited Lord Browne-Wilkinson’s statement in Hamilton v. Naviede [1995] 2 AC 75 at p.102G that
In speaking of “the Marcel principle”, Lord Browne-Wilkinson was of course referring to the principle in Marcel v. Commissioner of Police of the Metropolis [1992] Ch 225. For present purposes, this principle can be stated thus. Information obtained under compulsory powers can only be used for the purposes for which those powers were conferred. This restriction is enforceable under a duty of confidence not to disclose such information to others unless the court exercises its discretion to override that duty in the public interest. 14.On the third point, Kwan J said this :
I take that to mean that she was confident in her view that the first two points were correct but would have resolved them in Mr Kennedy’s favour even if she was in a state of doubt as to whether or not they were correct. 15.The fourth point concerns, as we have seen, both actus reus and mens rea. As to actus reus, Kwan J said that she was “inclined” to agree with Mr Kennedy’s counsel’s submission that the court could not be satisfied that any of the disclosures made by [Mr Kennedy] would amount to a significant interference with the administration of justice, even if one were to assume against [Mr Kennedy] that the disclosures complained of were prohibited by statute. And as to mens rea, Kwan J took the view that even if disclosure to the police were prohibited, there was no evidence that Mr Kennedy was aware of any such prohibition or that he intended to circumvent any statutory procedure. 16.On the fifth point, Kwan J (citing a number of decisions including that of this Court in G v. S (2000) 4 HKCFAR 419) said that “contempt proceedings should only be brought as a last resort when no alternative powers of the court could be invoked”. She was of the view that even if Ms Cheng and Mr Yip’s complaints were justified, it is clear that there were other steps that they could have taken. There was, she said, “simply no need to resort to contempt proceedings”. 17.The sixth point was left open. As to why she did not decide the question of locus on this occasion, Kwan J gave an explanation to the following effect. The question was an important and difficult one which it was undesirable to decide without hearing the Secretary of Justice. And deciding it was unnecessary since Mr Kennedy would win however it was decided. Court of Appeal’s reasons for holding that there is a case to answer 18.Both for dismissing Ms Cheng and Mr Yip’s appeal and then for allowing it, the Court of Appeal’s reasons were given by Yuen JA. On the occasion when that appeal was dismissed, Yuen JA, having said that there was no objection to Mr Kennedy’s use of the transcripts in civil proceedings, then turned to the question of the supply of the transcripts to the police. After discussing the relevant legislation and a number of cases, she concluded that Mr Kennedy should not have supplied the transcripts to the police without the court’s leave. 19.Having said that (in para.107 of her judgment of 18 August 2006), Yuen JA went on (in paras 108 to 111 of that judgment ) to say as follows :
20.In the final paragraph of that judgment (para.112) Yuen J said this :
21.When the Court of Appeal subsequently held that there was a case to answer, it did so for reasons which may be taken from paras 15 and 24 to 26 of Yuen JA’s judgment of 12 October 2007. In para. 15 Yuen JA said that the reason why she had earlier considered that there was no case to answer was because she had thought that “ex post facto, in June 2004 [Mr Kennedy] had obtained leave ex parte from [Barma J] to make the same (or at least a similar) statement to [the police] as he had done in March 2004 which had enclosed the transcripts of the private examinations.” 22.And then in paras 24 to 26 Yuen JA said as follows :
Submissions made on Mr Kennedy’s behalf 23.Mr Robin Dicker QC for Mr Kennedy began by stressing that liquidations concerned not only with the collection and distribution of assets, but are also meant to serve a wider public interest. As to this wider public interest, Mr Dicker deployed able arguments in support of these propositions :-
24.Turning to section 168I of the Companies Ordinance (dealing with the matters that liquidators must report to the Official Receiver who may report the same to the Financial Secretary) and sections 191 and 277 (referred to earlier in this judgment), Mr Dicker made the point that the Companies Ordinance contains various provisions designed to ensure that wrongdoing is reported to the appropriate authorities. Mr Dicker then dealt with the position of the Official Receiver. 25.And then Mr Dicker submitted that the following conclusions can be drawn in regard to reporting :-
26.Having made the foregoing submissions, Mr Dicker turned to rule 62. The starting position for understanding rule 62 is, Mr Dicker submitted, that information obtained on compulsion should not be generally available, but should be used only for the purposes for which the powers of compulsion were conferred. That, Mr Dicker submitted, is the only restriction on the use that a liquidator is entitled to make of s.221 transcripts. As to that Mr Dicker cited what Sir Nicolas Browne-Wilkinson V-C (as he then was) said in Marcel’s case at p.237C, what Lord Browne-Wilkinson (as he had become) said in Hamilton v. Navide at p.102E-G and what I said (at para.55) Akai Holdings Ltd v. Ernst & Young [2009] 2 HKC 245, a recent decision of this Court on s.221 transcripts. 27.Mr Dicker’s submissions as to what rule 62 operates to do are these. The rule is intended to secure compliance with the requirement that s.221 transcripts be used only for the purposes of the liquidation. To this end, it operates to prevent third parties from obtaining access to such transcripts without the court’s leave. But the rule also operates for the benefit of the liquidation. As a result, such information as a liquidator obtains through a private examination remains private in his hands unless and until he discloses it in the course of performing his functions. The rule does not restrict the ways in which he may use s.221 transcripts in accordance with his functions. 28.As to a liquidator being subject to the control of the court, Mr Dicker’s points are these. It is accepted that a liquidator, at least in a compulsory liquidation, is an officer of the court and is subject to the control of the court. In other words, the court can give a liquidator directions, either on an application by the liquidator or a third party or, indeed, of the court’s own motion. Such directions serve two different purposes. One is to regulate how the liquidator carries out his functions, given that ultimately it is the court which is conducting the liquidation, through its own officers. The other purpose is that of deciding difficult points. 29.Mr Dicker also accepted that one can say that the liquidator holds the transcripts “to the order of the court”. But that does not mean that a liquidator must ask the court for permission before he ever uses the transcripts. All that it means is that a court can give directions as to what should or should not be done with the transcripts. 30.Finally, Mr Dicker submitted that even if the disclosure which Mr Kennedy made without leave required leave, his making such disclosure without leave would not amount to contempt unless he had acted in the knowledge that leave was required and had made disclosure intending to circumvent such requirement. Official Receiver’s stance 31.The Official Receiver’s stance may be summarised thus. One of a liquidator’s functions, which exists in the wider public interest, is to investigate suspected criminal conduct and report the same to the prosecuting authorities. There is therefore nothing to prevent a liquidator from disclosing private examination transcripts in the exercise of that function. In any event, committal being a remedy of last resort, it would not be an appropriate remedy in the present case even if the disclosure made by Mr Kennedy required leave. Ms Cheng and Mr Yip’s points 32.Mr John Jarvis QC for Ms Cheng and Mr Yip skilfully contended on their behalf (i) that the disclosure which Mr Kennedy made required the court’s leave and (ii) that his having made such disclosure without leave has given rise of a case of contempt for him to answer. The points put forward in support of those contentions are these :-
No constitutional challenge involved in the present case 33.It is to be noted that the present case does not involve any challenge to the constitutionality of s.221’s effect of requiring persons to answer questions even if their answers would be self-incriminatory. Leave not required : therefore no case to answer 34.On the question of whether a liquidator is free to disclose private examination transcripts to the police, I accept at least the general drift of Mr Dicker’s submissions. In my own way, I would put it as follows. 35.A liquidator’s functions include serving the wider public interest by investigating wrongdoing and reporting the same to the authorities so as to enable them to take appropriate action. For the purposes of his function of conducting such investigations (as well as for the purposes of his other functions), a liquidator is entitled to apply for an order for private examinations. He may use any information obtained through such examinations to perform his functions, including that of reporting wrongdoing to the authorities. In so reporting, he may disclose such information. And he may make such disclosure by supplying the transcripts of private examinations to the authorities. In doing that, he would not be violating any confidence. No restriction against the disclosure of information obtained under compulsory powers would arise unless making such disclosure would put the information to a use beyond the purposes for which those powers were conferred. Section 62 is not for the protection of the examinee, but of the liquidation. 36.The statements in Hamilton v. Naviede are, for the purposes of the present case, to be read in the context of the following material differences between the circumstances of that case and those of this one. In that case the judge who made the order for a private examination had made it clear by his order that the examination was to be conducted on the basis that the court would decide what (if any) access to the record should be afforded to the Serious Fraud Office (“the SFO”). And when the SFO eventually requested copies of the transcripts of the private examination, the liquidators applied to the court for directions, leaving it to the SFO to persuade the court, if it could, to direct release to it of the transcripts. In those circumstances, the court had of course to exercise its discretion as to whether or not to direct such release. The circumstances of the present case are wholly different. Mr Kennedy considered it right to report the matter to the police and supply them with the transcripts of Ms Cheng and Mr Yip’s private examinations. He could have sought, but was not bound to seek, the court’s directions before doing so. It was his discretion as the relevant officer of the court. 37.Having been supplied with those transcripts, the police were free to make derivative use of them in investigating this matter. That is so for the reasons given in HKSAR v. Lee Ming Tee (2001) 4 HKCFAR 133 at pp 156D-179F by Mr Justice Ribeiro PJ with whom the other members of this Court agreed. In a context like the present, “derivative evidence” means, as Chief Justice Mason neatly put it in Hamilton v. Oades (1989) 166 CLR 486 at p.496, “evidence which is obtained from other sources in consequence of answers given by the witness in his examination”. 38.What about direct use? In Koon Wing Yee v. Insider Dealing Tribunal (2008) 11 HKCFAR 170 this Court deprived the Insider Dealing Tribunal’s proceedings of its criminal character by (i) declaring invalid a statutory provision which empowered the tribunal to impose a penalty amounting to a fine and (ii) setting aside the fine which the tribunal had imposed. That preserved the disqualification, disgorgement and costs orders which, under other provisions of the statute, the tribunal had made on the basis of its findings of insider dealing. Those findings could not have stood if the tribunal’s proceedings had not been deprived of its criminal character. One of the reasons why those findings could not have stood if the tribunal’s proceedings were of a criminal character is because those findings were reached on evidence which included compulsorily obtained evidence. 39.If in any given case an examinee is prosecuted and the prosecution seeks to make direct use of his or her transcripts supplied to the authorities, it would be for the criminal court to rule on whether that is to be permitted. It might be held that any admission made by the examinee would be involuntary and therefore inadmissible. Moreover, as was pointed out in Secretary for Justice v. Lam Tat Ming (2000) 3 HKCFAR 168 at pp 178J-179A by Chief Justice Li with whom the other members of this Court agreed, a court’s overriding duty to ensure a fair trial invests the court with a judicial discretion to exclude even admissible evidence, including a voluntary confession, if doing so is necessary in order to secure a fair trial. In Hong Kong the right to a fair trial is guaranteed by art.87 of our constitution the Basic Law as well as by art.10 of the Bill of Rights entrenched through art.39 of the Basic Law. 40.Those are the safeguards in the circumstances of cases such as the present one. They are clear, focused, real and effective safeguards. The safeguards in such circumstances do not lie in rule 62. 41.In my view, a liquidator who reports wrongdoing to the police may supply them with the transcripts of private examinations, and does not need the court’s leave to do so. Mr Kennedy was entitled to do what he did. It cannot be contempt on his part. On that basis, his appeal must succeed. No case to answer even if leave were required 42.Nevertheless, it should be made clear that Mr Kennedy would not have had a case of contempt to answer even if the disclosure which he made without leave had required leave. Mr Jarvis submitted that Mr Kennedy’s point to that effect was not open because such leave to appeal as the Appeal Committee had given did not cover it. I think that the point should be addressed. All the arguments on the point have been heard, and if the leave to appeal granted does not cover the point, it should be enlarged to do so. 43.On the merits, I accept the point. All that has to be said in accepting it is this. Contrary to what Mr Jarvis suggested, such a situation as the one in question is not to be equated with the breaching of an order of the court. If leave had been required, disclosure without leave would still not have been contempt unless the person making such disclosure without leave had acted in the knowledge that the court’s leave was required and had made the disclosure intending to circumvent such requirement and pre-empt a decision by the court on disclosure. Contempt, as this Court recognised in Solicitor (24/07) v. Law Society (2008) 11 HKCFAR 117 at p.151A-D, has to be proved beyond reasonable doubt. And there is no evidence capable of supporting a sure conclusion that Mr Kennedy had the requisite knowledge or intent for contempt. Redaction 44.Before concluding this judgment, I would mention that there may be instances in which it would be appropriate for private examination transcripts to be disclosed, at least initially, only after they have been redacted to excise irrelevant, scurrilous or defamatory matters. The question of redaction is of course one on which liquidators may but are not bound to seek directions from the Companies Court. So is the question of any subsequent supply of initially excised portions. Conclusion 45.For the foregoing reasons, I hold that Mr Kennedy has no case of contempt to answer. Accordingly, I would allow the appeal to set aside the Court of Appeal’s judgment and dismiss Ms Cheng and Mr Yip’s motion to commit Mr Kennedy for contempt. Subject to any agreement thereon, costs here and below should be dealt with on written submissions in respect of which the parties should seek procedural directions from the Registrar. Mr Justice Chan PJ : 46.I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Ribeiro PJ : 47.I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Mortimer NPJ : 48.I agree with the judgment of Mr Justice Bokhary PJ. Lord Millett NPJ : 49.I agree with the judgment of Mr Justice Bokhary PJ. Mr Justice Bokhary PJ : 50.The Court unanimously allows the appeal in the terms set out in paragraph 45 above, costs to be dealt with as stated therein.
Mr Robin Dicker QC and Ms Roxanne Ismail (instructed by Messrs Clifford Chance) for the appellant liquidator Mr John Jarvis QC, Mr Joseph Fok SC and Mr Eugene Yim (instructed by Messrs Barlow Lyde & Gilbert) for the respondent former directors Miss Linda Chan (instructed by the Official Receiver) for the Official Receiver |
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