In the recent Court of Final Appeal (“CFA”) decision of David John Kennedy v Kelly Cheng and Another (unreported, FACV30/2008), the liquidator was held not to be in contempt of Court for releasing the transcripts of private examinations conducted under s.221 of the Companies Ordinance (Cap.32) (“CO”) to the Police without obtaining leave of the Court.  This is the latest decision relating to transcripts of s.221 private examinations and which involves the liabilities and/or obligations of liquidators.

Introduction

s. 221(1) CO provides for certain persons to be examined in private under oath, those persons being, “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”.

While s.221 private examinations can be a useful tool and sometimes a powerful weapon for liquidators, the further or other use of the transcripts and notes of the examination have been vigorously opposed (by the examinee) often appealing all the way to the CFA.  We have previously discussed s.221 private examinations in our earlier newsletter articles, Release of Private Examination Transcript to CCB held not to Infringe Human Right and The Court of Final Appeal Affirmed Notes and Transcripts of Examination Obtained in Private Examination May Attract Legal Professional Privilege

Is leave of the Court pursuant to CWUR Rule 62 mandatory?

In the case of David John Kennedy v Kelly Cheng and Another (unreported, FACV30/2008) that went on appeal to the CFA, the examinees (being, 2 former directors of a company in liquidation) sued the liquidator for contempt of Court because he failed to seek leave from the Court before handing over the transcript of their examination under s.221 to the police.  The thrust of the arguments put forward by the examinees was that because s.221 private examinations compel answers from the examinee and thus abrogate the rule against self-incrimination (that is, the protection of a person not to be compelled to testify against himself), the only proper safeguard for the examinee, having given evidence under compulsion, is that the Court controls the transcripts of the examination and the use to which such evidence is put.

Rule 62 of the Companies (Winding-up) Rules (“CWUR”) was cited by the examinees as being in clear terms in providing that the documents on the court file, which includes the transcripts held by the liquidators, cannot be inspected by any other person.  Therefore, the liquidator was clearly bound and ought to have brought an application under CWUR rule 62(2), by which 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 or extracts therefrom’.

However, the CFA held that leave was not required.  Bokhary PJ found that the liquidator could have sought, but was not bound to seek the Court’s directions before disclosing the transcript of the s.221 examination to the police.  It was a matter of discretion for the liquidator, as the relevant officer of the court.

Functions of a liquidator include investigating wrongdoing and reporting the same to the authorities

Bokhary PJ in the Kennedy case set out that 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 investigation (as well as for the purposes of his other functions), a liquidator is entitled to apply for an order for a s.221 private examination.  He may use and disclose any information obtained through such examinations to perform his functions, including that of reporting wrongdoing to the authorities (by supplying them the transcripts of private examinations).  In doing so, 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.  Bokhary PJ further stated that CWUR Rule 62 is not for the protection of the examinee, but of the liquidation.

What are the safeguards for an examinee when s.221 examination transcripts are used in prosecution?

In the Kennedy case, the CFA went on to say that after being supplied with s.221 transcripts, the police would be free to make any derivative use of them in their investigations.  “Derivative evidence”, means “evidence which is obtained from other sources in consequence of answers given by the witness in his examination” - as neatly put by Chief Justice Mason in Hamilton v. Oades (1989) 166 CLR 486.

However, the CFA stressed that where 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.

The CFA referred to the judgment by Chief Justice Li in Secretary for Justice v. Lam Tat Ming (2000) 3 HKCFAR 168 where it was pointed out that a court’s overriding duty to ensure a fair trial invests the court with a judicial discretion to exclude even admissible evidence, in order to secure a fair trial.  Further, in Hong Kong, the right to a fair trial is guaranteed by art. 87 of the Basic Law as well as by art. 10 of the Bill of Rights as entrenched through art. 39 of the Basic Law.  It was stated that these are clear, focused, real and effective safeguards for an examinee and such safeguards do not lie in CWUR Rule 62.

Conclusion

In the Kennedy case, Bokhary PJ found that the liquidator was entitled to do what he did - as leave was not required, the liquidator had no case of contempt to answer.  In his view, a liquidator who reports wrongdoing to the police may supply them with the transcripts of s.221 private examinations and does not need the Court’s leave to do so.