CACV 358 & 360/2005
CACV 358/2005
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 358 OF 2005
(ON APPEAL PURSUANT TO SECTION 31 OF THE
SECURITIES (INSIDER DEALING) ORDINANCE
(“THE ORDINANCE”), CAP. 395
FROM DETERMINATIONS OF AN INSIDER DEALING TRIBUNAL
IN RELATION TO
EASY CONCEPTS INTERNATIONAL HOLDINGS LTD. AND
EASYKNIT INTERNATIONAL HOLDINGS LTD.)
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BETWEEN
| | KOON WING YEE | Appellant |
| | and | |
| | INSIDER DEALING TRIBUNAL | 1st Respondent |
| | THE FINANCIAL SECRETARY | 2nd Respondent |
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CACV 360/2005
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 360 OF 2005
(ON APPEAL PURSUANT TO SECTION 31 OF THE
SECURITIES (INSIDER DEALING) ORDINANCE (“SIDO”), CAP. 395
FROM DETERMINATIONS OF AN INSIDER DEALING TRIBUNAL
IN RELATION TO
EASY CONCEPTS INTERNATIONAL HOLDINGS LTD. AND
EASYKNIT INTERNATIONAL HOLDINGS LTD.
----------------------
BETWEEN
| | CHAN KIN SHING SONNY | Appellant |
| | and | |
| | INSIDER DEALING TRIBUNAL | 1st Respondent |
| | THE FINANCIAL SECRETARY | 2nd Respondent |
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Before : Hon Ma CJHC, Tang VP & Stone J in Court
Dates of Hearing : 11 & 12 May 2009
Date of Handing Down Judgment : 8 June 2009
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J U D G M E N T
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Hon Ma CJHC :
1. In these appeals, constitutional challenges, among others, have been made to the operation and nature of the former Insider Dealing Tribunal (“the IDT”). With the exception of a dwindling number of cases still being handled by that Tribunal, the functions of the IDT have now been taken over by the Market Misconduct Tribunal set up under Part VIII of the Securities and Futures Ordinance, Cap. 571. We are in these appeals concerned with the IDT, which was set up under the now repealed Securities (Insider Dealing) Ordinance, Cap. 395 (“SIDO”).
2. These appeals, brought by Mr Koon Wing Yee (CACV 358/2005) (“Koon”) and Mr Chan Kin Shing Sonny (CACV 360/2005) (“Sonny Chan”), emanate from a Final Report of the IDT dated 19 January 2006 (“the Report”). The Tribunal was chaired by the Hon McMahon J and had as its other members, Professor Lui Yu Hon and Mr Phil Chan King Fung. Specific challenges are also made to the findings and determinations made by the Tribunal in the Report against Koon and Sonny Chan.
3. Before identifying the issues and other matters that arise in these appeals, I should first set out the underlying facts and the procedural history of the proceedings. The facts will, however, be examined in more detail in the judgment of Tang VP.
Facts
4. The following summary of facts is derived from the Report.
5. The relevant companies, the share dealings in which were the focus of the inquiry by the Tribunal, were Easy Concepts International Holdings Ltd (“Easy Concepts”) and Easyknit International Holdings Ltd (“Easyknit”). The relevant period was in January and February 2000.
6. Easyknit had been a publicly listed company since 1995. At the beginning of 2000, Easyknit owned 75% of Easy Concepts, itself having been a publicly listed company since well before its acquisition in 1997 by Easyknit. The principal business of Easyknit was the merchandizing and export of garments, while Easy Concepts was mainly involved in the operation and management of department stores and other properties.
7. After 1997, both companies experienced financial difficulties, so much so that Easyknit was anxious to sell its controlling interest in Easy Concepts. Though loss-making, Easy Concepts was an attractive investment as it was what was known as a ‘back-door’ listing company for foreign entities wishing to have a presence in the Hong Kong Stock Market. At that time, such companies were particularly attractive to buyers from the Mainland.
8. In January 2000, a PRC conglomerate known as the Pollon Group (“Pollon”), which was involved in energy and high-tech communications in the Mainland, expressed interest in acquiring Easy Concepts from Easyknit. Meetings between the parties took place on 28 January 2000 when negotiations were conducted on the proposed acquisition. The talks took place after the market closed that day (a Friday). Over the weekend, a due diligence examination was conducted and a joint announcement was circulated between the parties for discussion. Intimately involved in the talks were Koon (who was the Chairman of both Easyknit and Easy Concepts) and the Vice Chairman, Mr Alan Tsang.
9. The parties signed a formal acquisition agreement on 7 February 2000 and the acquisition was announced publicly on 18 February 2000.
10. Against this backdrop were the following share dealings : -
(1) From 1999 onwards through to early 2000, shares in both Easyknit and Easy Concepts were on a downward trend. Turnover in both shares were low and on many days there were no trades at all.
(2) On 4 January 2000, the shares in Easyknit stood at $0.40. On 28 January 2000, they closed at $0.275. Over the same period, Easy Concepts dropped from $0.92 to $0.34. These drops exceeded the percentage drop in the Hang Seng Index over this period.
(3) Yet, on 31 January 2000, the price of both Easyknit and Easy Concepts (in particular) surged before trading in them was suspended. In the 48 minutes of trading on that day, Easyknit went from $0.275 to $0.36 (with a turnover of over 5.3 million shares), Easy Concepts from $0.34 to $2.10 (with a turnover of over 4.2 million shares). It will be recalled that the talks with Pollon over the acquisition of Easy Concepts took place after trading had ended on 28 January 2000.
(4) On the resumption of trading on 18 February 2000, following the announcement of the acquisition of Easy Concepts by Pollon, the share price of Easyknit closed at $1.22, and that of Easy Concepts closed at $10.05. These represented massive increases on the share price for both companies since the closing prices on 31 January 2000 alone.
(5) Mr Sonny Chan, who was a business associate of Koon, purchased on 31 January 2000 (before the suspension of trading) 568,000 shares in Easy Concepts and 100,000 shares in Easyknit.
(6) The same day, and once again just before the suspension, a Mr Lam Ping Wan (“Lam”) purchased 3.2 million shares in Easy Concepts.
(7) There were other dealings in Easy Concepts shares by other persons. We are not concerned with them in these appeals.
11. On 26 May 2003, pursuant to section 16(2) of SIDO, the Financial Secretary required the IDT to inquire into the share dealings in Easyknit and Easy Concepts on 31 January 2000. This notice was replaced by another one dated 7 January 2005 to reflect the change in name of Easy Concepts (by then it was renamed CITIC 21CN Company Ltd).
12. The Tribunal was constituted on 18 May 2004. After counsel were appointed, Salmon letters were sent in October 2004 to various implicated persons, including Koon and Sonny Chan. Essentially, these letters warned the recipients that there was suspected insider dealing in relation to the shares of the two companies and that they might be implicated or concerned. They were required to attend an inquiry. A synopsis of the results of the investigations by the SFC into the said share dealings was enclosed with the Salmon letters.
13. The hearing proper of the inquiry commenced on 28 February 2005. Altogether, 32 witnesses were called to give evidence, including 7 of the implicated persons (of these, Koon and Sonny Chan gave evidence).
14. The Tribunal produced an Interim Report dated 7 October 2005. This ran to some 176 pages together with annexures. The Report concluded that : -
(1) Koon was an insider dealer (in breach of section 9(1)(a) of SIDO) regarding the purchase on 31 January 2000 by Lam Ping Wan of 3.2 million shares in Easy Concepts. The Tribunal concluded, by inferring from the evidence, that Lam was in effect some form of employee or agent of Koon who did his “bidding”. The probability was that the purchase by Lam of 3.2 million shares in Easy Concepts on 31 January 2000 was encouraged or procured by Koon. The evidence was that the monies used by Lam to pay for the shares originated from Koon.
(2) Koon was an insider dealer (in breach of sections 9(1)(a) and (c)) in respect of Sonny Chan’s purchase of 568,000 shares in Easy Concepts on 31 January 2000. The basis of this finding was that Koon had ‘tipped’ Sonny Chan about the effect of the acquisition negotiations with Pollon, this leading to the various purchases made by Sonny Chan on 31 January 2000. The Tribunal noted the volume of phone calls (11) between the two persons following the meeting with Pollon on 28 January 2000 and on the morning of 31 January 2000 before trading commenced (there were 9 calls that day alone). The evidence of telephone calls was restricted to mobile calls; there was no evidence of any landline calls. The Tribunal was satisfied, therefore, that Koon had divulged relevant information regarding the Pollon acquisition to Sonny Chan in such a way as to encourage him to make the purchases of shares.
(3) Sonny Chan was an insider dealer (in breach of section 9(1)(c) of SIDO), as a result of the information received by him from Koon as to the Pollon acquisition, in respect of the purchases of 568,000 shares in Easy Concepts and 100,000 shares in Easyknit on 31 January 2000.
15. A central finding made by the Tribunal in its Report was regarding the relevant information possessed by Koon which led to the various purchases on 31 January 2000. The possession of relevant information by a person connected with a relevant company, and the use he or she makes of it, are the essentials of what is commonly known as insider dealing: in common parlance, a person with inside knowledge of a company and who is connected with that company, makes use of it or informs others about that inside knowledge, with the result that there are dealings in the shares of the company in question. There are other examples of insider dealing but the situation I have identified is the most common. The concepts of ‘relevant information’, ‘connection with a company’, ‘dealing in securities’ and ‘insider dealing’ are all defined in sections 4, 6, 8 and 9 of SIDO.
16. In the present case, the relevant information possessed by Koon (who was without doubt connected to Easyknit and Easy Concepts given his position as Chairman of both companies), was obviously the acquisition by Pollon of the controlling interest in Easy Concepts.
17. The Final Report of the Tribunal (dated 19 January 2006) was sent to the parties on 20 January 2006. The Report followed further submissions made by the parties regarding the consequential orders that could be made, under section 23 of SIDO. This Report ran to 205 pages with annexures and contained the findings made in the Interim Report.
18. The orders made against Koon and Sonny Chan were as follows : -
Koon
(1) Under section 23(1)(a) of SIDO, Koon was disqualified as a director and from taking part in the management of any listed or limited company or from being involved as a liquidator or receiver or manager of the property of such company for a period of 5 years.
(2) Under section 23(1)(b), the profit attributable to the 3.2 million shares in Easy Concepts (and which he was ordered to pay) was assessed at $31,367,553.
(3) Under section 23(1)(c), the penalty imposed on him was $15,000,000.
(4) He was also ordered to pay costs of $1,895,044.
Sonny Chan
(5) Under section 23(1)(a) of SIDO, Sonny Chan was disqualified as a director and from taking part in the management of any listed company for 2 years.
(6) Under section 23(1)(b), the profit attributable to the purchase of the 568,000 in Easy Concepts and 100,000 in Easyknit (and which he was ordered to pay) was assessed at $5,090,219.
(7) Under section 23(1)(c), the penalty imposed on him was $1,500,000.
(8) He was ordered to pay costs of $758,017.
The reasons for each of these orders were contained in the Final Report.
The procedural history
19. Koon and Sonny Chan sought to appeal from the findings made by the Tribunal. Notices of Appeal dated 3 November 2005 (CACV 358/2005 – Koon) and 4 November 2005 (CACV 360/2005 – Sonny Chan) were served.
20. Section 31 of SIDO provides as follows : -
“31. Appeal to Court of Appeal
(1) Any person identified in a determination under section 16(3) or (4), as the case may be, or in a written report prepared under section 22(1) who is dissatisfied with any finding or determination of the Tribunal may appeal against such finding or determination -
(a) on a point of law; or
(b) with the leave of the Court of Appeal, on a question of fact,
to the Court of Appeal.
(2) Any person against whom an order under section 23, 24 or 27 has been made may appeal against such order to the Court of Appeal.”
21. As some of the findings of the Tribunal involved questions of fact, leave was required from the Court of Appeal. In a judgment dated 19 January 2006, Rogers VP, after hearing the parties in court : -
(1) Granted leave to Koon in CACV 358/2005 to appeal certain factual aspects (I will in due course identify them as they fall to be dealt with in his appeal), but refused leave on others.
(2) Refused leave to appeal on the factual matters sought to be raised by Sonny Chan in his Notice of Appeal. As the Notice of Appeal (at that time) contained only factual questions, the Notice of Appeal was ordered to be struck out.
22. By Notices of Motion dated 27 January 2006, both Koon and Sonny Chan sought the reversal of the orders made by Rogers VP. These matters were eventually heard by this court (Ma CJHC, Tang VP and Stock JA) on 28 November 2006. In a judgment handed down on 7 December 2006, it was decided that as there was no jurisdiction to strike out the Notice of Appeal in CACV 260/2005 (a single judge of the Court of Appeal does not possess this jurisdiction : see section 35(1) of the High Court Ordinance, Cap.4), this part of the order was set aside. The other questions raised in the Notices of Motion were left to be dealt with at the same time as the other issues raised in the substantive appeals. This included the issue of whether an appeal to the full Court of Appeal from the said order of Rogers VP (refusing leave to appeal on certain factual aspects) was competent, given the decision of the Appeal Committee of the Court of Final Appeal in HLF v MTC (2004) 7 HKCFAR 167. As will presently be seen, this issue was no longer pursued before us.
23. The hearing of the appeals (and of the two Notices of Motion) was fixed for hearing on 7 May 2007. On that day, this court (Ma CJHC, Tang VP and Stone J) decided that a preliminary ground of appeal should be determined before a consideration of the other issues. That ground concerned the important question as to whether proceedings before the IDT under SIDO were criminal in character and if so, the extent to which Articles 10 and 11 of the Bill of Rights (contained in the Hong Kong Bill of Rights Ordinance, Cap. 383) were engaged. In a judgment handed down on 30 May 2007, this court held in favour of the Appellants : in summary, it was determined that the proceedings were criminal in nature and accordingly, the Appellants were entitled to the protections offered by Articles 10 and 11. The appeals were allowed in full (it being unnecessary in the light of the conclusion reached to deal with any other issue) and, accordingly, the adverse findings against Koon and Sonny Chan made by the IDT were set aside. The various orders made by the Tribunal under sections 23(1)(a), (b) and (c) were also set aside.
24. The 2nd Respondent appealed to the Court of Final Appeal. In a judgment handed down on 18 March 2008, the appeal was allowed in part. Essentially, the Court of Final Appeal was of the view that, but for the existence of the penalty provision in section 23(1)(c) of SIDO, the proceedings in the IDT could be classified as being civil in nature. The court was of the view that that subsection could be struck down. This decision of the Court of Final Appeal is reported : Koon Wing Yee v Insider Dealing Tribunal [2008] 3 HKLRD 372. As a consequence, the following orders were made : -
(1) Section 23(1)(c) of SIDO was declared constitutionally invalid.
(2) The adverse findings made by the Tribunal against Koon and Sonny Chan were restored.
(3) The orders made by the Tribunal under sections 23(1)(a) and (b) were likewise restored (the fines imposed under section 23(1)(c) remained set aside).
25. The consequences of the orders made by the Court of Final Appeal was that the hitherto undetermined questions and issues in CACV 358 and 260 of 2005 fell to be determined by this court. The hearing (or rather, the resumed hearing of these appeals) took place before us on 11 May 2009.
26. I now identify the issues that remain to be determined in these appeals.
The issues for determination
27. There are essentially six issues that fall to be determined : -
(1) Were the proceedings before the Tribunal inherently unfair in that the IDT was not an independent or impartial tribunal for the purposes of Article 10 of the Bill of Rights? This was effectively a constitutional challenge on the legality of the Tribunal itself. What was said in this context is that the procedures and practices of the IDT as set out in SIDO were such that, any hearing before it inherently could not be a fair one in that the Tribunal was neither independent nor impartial. In other words, this was an argument based on the concept of ‘institutional bias’. Separately, it was also argued by Koon on the facts that the Tribunal actually acted in an unfair way against him. This is really a matter under Issue 3.
(Issue 1 : The Article 10 point)
(2) It was argued on behalf of the Appellants that an appeal to the Court of Appeal under section 31 of SIDO ought to be an unrestricted one, and therefore that the requirement of leave to appeal on questions of fact contained in section 31(1)(b) was unconstitutional. The effect of this argument, if successful, would mean that the Appellants were free to raise on appeal any questions of fact.
(Issue 2 : Is section 31(1)(b) unconstitutional?)
(3) Certain adverse findings against Koon were wrongly made. These related to the purchase of the 3.2 million shares in Easy Concepts by Lam Ping Wan and in particular to the conclusion that Lam was the agent of Koon.
(Issue 3 : The factual findings made against Koon)
(4) Certain adverse findings against Sonny Chan were wrongly made. The target here was the conclusion that Koon had ‘tipped’ Sonny Chan.
(Issue 4 : The factual findings made against Sonny Chan)
(5) The orders for disqualification made by the Tribunal under section 23(1)(a) of SIDO were liable to be set aside by their failure to specify the relevant companies, the subject matter of the disqualification.
(Issue 5 : The orders made under section 23(1)(a) of SIDO)
(6) The orders for disgorgement made against both Appellants under section 23(1)(b) were erroneously made.
(Issue 6 : The orders under section 23(1)(b) of SIDO)
28. Issue 3 (and this will include the aspect of actual unfairness alleged by Koon : see paragraph 27(1) above) and Issue 4 identified above will be dealt with in the judgment of Tang VP. I have read in draft the Vice President’s judgment on these issues, and agree with his conclusions as well as the reasoning.
29. Before dealing with the remaining issues, there are two preliminary matters to which I should advert.
30. First, at one stage at least, the Appellants had sought to appeal from the order of Rogers VP refusing leave to appeal on certain factual aspects raised in their Notices of Appeal (see paragraph 21 above). The decision of the Appeal Committee of the Court of Final Appeal in HLF v MTC (see paragraph 22 above) is, however, authority for the proposition that this argument was not an available option, given the wording of RHC O.59 r.14(2A). This particular provision has now been repealed and replaced by the procedure for leave as set out in the new O.59 r.2A, which came into effect on 2 April 2009.
31. In these appeals, it was accepted by the Appellants that the position was governed by HLF v MTC and accordingly, nothing more need be said in relation to this aspect.
32. Secondly, on the first day of the hearing of the present appeals, the Appellants sought to raise yet another constitutional challenge on the legality of the Tribunal itself. The argument essentially was that since the IDT functioned as a court and since it clearly was not (and further, that two of the members of the Tribunal were not judges), it was therefore not an institution that was permitted under the Basic Law. Reference was made to Articles 19, 80, 83, 88 and 92 of the Basic Law.
33. As was acknowledged by the Appellants’ counsel at the time the application was made, in effect this was a challenge to the entire system of administrative and other related tribunals.
34. This court refused leave to amend the Notices of Appeal to allow the point to be argued. At the conclusion of argument on the other aspects of these appeals, counsel again renewed the application to raise this point. Once more, the court did not accede to the application.
35. In my view, it is clear why the applications had to be refused : -
(1) First, the application was made so late that, inevitably, the hearing of the appeals would have had to be adjourned or, at least, part-heard. Counsel for the 2nd Respondent was only informed on the Saturday before the appeals commenced (on the following Monday) of this point. This court was not informed until immediately before the hearing began. For a constitutional point said by counsel for the Appellants to be of “crucial importance” to be permitted to be argued without either the 2nd Respondent or the court being properly prepared, is highly undesirable to say the least. These appeals have been extant since 2005. They required to be disposed of now, instead of being delayed yet again.
(2) Secondly (and surprisingly), not even the Appellants themselves were properly prepared to argue this point. The skeleton submissions that accompanied the applications were so lacking in any meaningful form of research that it would simply have been impracticable to proceed. This court thus would not have been able to deal with the argument responsibly. For example, an authority that was in the 2nd Respondent’s list of authorities (in relation to a separate point) was Luk Ka Cheung v Market Misconduct Tribunal [2009] 1 HKLRD 114, a decision of the Court of First Instance (Hartmann JA and A Cheung J) that directly dealt with the point raised by the Appellants here (albeit in the context of the Market Misconduct Tribunal). No reference whatever was made to this case, nor even to the important decision of the Court of Final Appeal in Stock Exchange of Hong Kong Ltd v New World Development Co Ltd & Others (2006) 9 HKCFAR 234. Even on a superficial review of the law, numerous other cases that bear directly on this issue do not feature in the Appellants’ written submissions.
(3) Thirdly, even though it is not strictly necessary for me to state any views on the merits of the point, this argument does not strike me as an attractive one at all. Apart from anything else, the analysis of A Cheung J in Luk Ka Cheung (with whose judgment Hartmann JA was in agreement) is in my view, compelling.
36. I now turn to deal with Issues 1, 2, 5 and 6; as earlier observed, my Lord Tang VP will focus on Issues 3 and 4.
Issue 1 : The Article 10 point
37. Article 10 of the Bill of Rights states in part : -
“Article 10
Equality before courts and right
to fair and public hearing
All persons shall be equal before the courts and tribunals. In the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.”
38. The Appellants’ argument was essentially this : -
(1) The whole set up of the IDT under SIDO was such that there was inherent or institutional unfairness (and therefore a lack of independence and impartiality); this argument did not depend on the particular facts of any case.
(2) In addition, there was actual unfairness in the case of Koon. It was said that the findings of the Tribunal in respect of Lam Ping Wan, being Koon’s agent, were vulnerable to criticism in that this facet was not fairly put to Koon at the hearing to enable him properly to deal with it.
(3) There were certain other aspects of unfairness referred to in counsel’s skeleton submissions, which I shall presently identify.
39. Given that the argument based on actual unfairness will be dealt with in the judgment of Tang VP (in the context of Issue 3), for my part I concentrate on the aspects identified in paragraphs 38(1) and (3) above.
40. In relation to the argument contained in paragraph 38(1), really the principal submission made by the Appellants under Issue 1, I am prepared to assume for the purpose of the present appeals that Article 10 is actually engaged. Mr Peter Duncan, SC (for the 2nd Respondent) had contended that it was not (it was said that the IDT did not determine any “rights or obligations in a suit of law”). However, it is unnecessary to decide this issue. Mr Duncan accepted that even if Article 10 was, strictly speaking, not engaged, questions of fairness, independence and impartiality would in any event be relevant to be considered by this court. In other words, if unfairness or lack of independence or impartiality could be demonstrated, this would undermine the entire basis of the Tribunal’s findings. This is of course precisely the point of the Appellants’ submissions on this issue.
41. It is convenient first to state the court’s approach to questions under Article 10 when considering questions of fairness, independence and impartiality. As Sir John Swaine, SC rightly contends, these guarantees in the Bill of Rights are unqualified and absolute. However, though a fair hearing by an independent and impartial tribunal is an absolute right, there may be certain facets of this right which may, in the circumstances of any given case, permit of some qualification : cf Secretary for Justice v Latker [2009] 2 HKC 100, at 116I-117I (paragraphs 33-35). For example, the right to silence can be qualified in certain circumstances (see Latker), as can the right to self-incrimination (see HKSAR v Lee Ming Tee (2001) 4 HKCFAR 133). Where such questions arise, the court will usually apply the proportionality test.
42. However, for the purpose of these appeals, it is not necessary to go into niceties regarding proportionality. The present case does not really involve identifying any particular facets or aspects of the rights contained in Article 10. Rather, the Appellants’ contention was ultimately a simple one : no fair hearing was possible before the IDT in that it was neither independent nor impartial because the investigative, prosecuting and adjudicative functions were all carried out by the same body. Put simply, therefore : the IDT was the investigator, prosecutor and judge.
43. Reliance was placed on the speech of Lord Hope of Craighead in Porter v Magill [2002] 2 AC 357 where at 489H-490B (paragraph 90), he observed that the three roles of investigator, prosecutor and judge in that case made for “an almost impossible burden”, and that this would very likely violate the requirements of independence and impartiality guaranteed under Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms, scheduled to the Human Rights Act 1998 (this being the European Convention equivalent of Article 10 of the Bill of Rights). In that case, an auditor appointed under the Local Government Finance Act 1982 to inquire into misconduct involving the sale of local council properties, did in fact act in all three capacities himself.
44. Thus, it was to the following features of SIDO that the Appellants relied in support of their argument : -
(1) It is the IDT that is appointed to inquire into any questions of insider dealing : section 16.
(2) The powers of investigation are carried out by the IDT by authorizing the SFC : section 18. Where the IDT requires any person to attend to give evidence or produce evidence, it can do so by notice : section 17(b).
(3) The ‘prosecuting’ function is conducted by counsel for the Tribunal.
(4) The adjudication of insider dealing is by the IDT. It is this Tribunal that reports and makes all consequential orders : sections 22-28.
45. In my judgment, the Appellants have gone nowhere far enough to establish a case of inherent or institutional unfairness, or of lack of independence or impartiality : -
(1) It does not follow (nor was it even suggested by the Appellants’ counsel) that inquisitorial processes would automatically breach the provisions of Article 10. Nor could this be realistically pursued as an argument.
(2) It becomes then necessary to examine carefully the framework and proceedings governing the body in question. This was the approach adopted in Porter v Magill (see page 490C at paragraph 91). Here, one usually begins by analyzing the statutory framework.
(3) In the present instance, the relevant provisions are those contained in SIDO.
(4) It is first important to bear firmly in mind that the function of the IDT is not to prosecute anyone as such. Rather, its function is to inquire into any questions of insider dealing : section 16. In addition, as the decision of the Court of Final Appeal in the present case has held, the proceedings of the IDT are civil in nature. However, it should be pointed out that although the IDT’s responsibility is to inquire, adverse orders affecting implicated persons can be made : section 23. This would explain the requirement of issuing Salmon letters to such person.
(5) The investigative process is not carried out by the members of the Tribunal themselves. Although under section 18 of SIDO, the exercise of the power contained therein is authorized by the Tribunal, it is the market regulator, the SFC which has the primary responsibility to investigate.
(6) At the inquiry itself, it is counsel for the Tribunal (and not the members themselves) who makes the necessary submissions, and examines or cross-examines witnesses. The role of counsel to the Tribunal (who is appointed under paragraph 18 of the Schedule to SIDO), and his or her relationship with the Tribunal, have been clearly articulated in the judgments of Sears J and the Court of Appeal in Dato Tan Leong Min v The Insider Dealing Tribunal [1998] 1 HKLRD 630; [1999] 2 HKC 83. It is to be noted that counsel’s role, particularly once the hearing of an inquiry has commenced, is not to be involved with any part of the decision-making process, and to assist in ensuring that the proceedings are conducted openly and fairly. Further, once the hearing of an inquiry commences, counsel should rarely liaise with the Tribunal at all.
(7) The adjudicative function is the responsibility of a tribunal made up of a judge and two lay members (who are not public officers) : section 15. Some of its procedures are set out in the Schedule to the Ordinance. In my view, the presence of a judge is an important feature of the IDT in ensuring fairness, both substantive and procedural.
(8) Taking an overall view, I am inevitably driven to the conclusion that there can be no question of any inherent or institutional unfairness, or lack of independence or impartiality. Moreover, the Appellants can point to no authority which even suggests this result. The closest is the case of Porter v Magill, wherein the facts were entirely different : as stated above, the three roles of investigator, prosecutor and judge were entrusted to the very same person (and, moreover, to a person who was not even legally qualified, much less a judge).
(9) Even if there could be said to be any unfairness, lack of independence or impartiality in the case of the IDT, there is in any event the existence of the appeal process set out in section 31 allowing for appeals to the Court of Appeal. It is difficult to see how, in the overall context of the IDT, this feature does not provide additional protection to ensure compliance with Article 10 : cf Porter v Magill at 490E-491D (paragraphs 92-93). In this context the Appellants point to the fact that the appeal process contained in section 31 does not allow a complete rehearing involving, if necessary, the hearing of live evidence. In my view, there is nothing in this point. It simply has not been demonstrated that the process before the IDT is so deficient in fairness that a complete rehearing by way of appeal becomes essential.
46. I now deal with some miscellaneous arguments raised by the Appellants regarding unfairness (see paragraph 38(3) above). There were essentially two (neither of which in truth was raised with any degree of enthusiasm by counsel) : -
(1) The Appellants, as implicated persons, were compelled to give evidence at the inquiry : section 17(b) of SIDO.
(2) The answers provided under compulsion by the Appellants at the interview stage were admissible at the inquiry against them : sections 18(2)(c) and 19 of SIDO.
47. In my view neither of these points had any merit : -
(1) The compulsion to give evidence at an inquiry into insider dealing, in the context of proceedings which are civil in nature, cannot be said to be unfair. No authority was provided to support the Appellants’ contentions; indeed there is authority to the contrary : see Chau Chin Hung v Market Misconduct Tribunal, unreported, HCAL 123 and 124 of 2007 and 22 of 2008, 22 September 2008, Court of First Instance (Hartmann and Lam JJ) at paragraph 103. Further, as Tang VP pointed out during this hearing, in civil proceedings any party may be compelled to give evidence (by subpoena) even by the other party or parties.
(2) Similarly, the fact that answers given under compulsion may be used in an inquiry by the IDT provides no basis to say that the proceedings are unfair. Again, no authority was provided in support, and this contention does not stand up to analysis.
Issue 2 : Is section 31(1)(b) of SIDO unconstitutional?
48. Section 31 of SIDO provides for appeals from the IDT to the Court of Appeal, where a party is dissatisfied with any finding or determination. Section 31(1)(b) mandates that leave has to be obtained from the Court of Appeal on any questions of fact. It is this requirement that the Appellants assert to be unconstitutional.
49. The Appellants’ argument here is convoluted and ultimately an ambitious one : it is said that section 31(1)(b) provides an unconstitutional impediment in that free access to the Court of Appeal is denied, and this in turn constitutes a denial of access to the Court of Final Appeal itself. Accordingly, this resulted in a breach of Article 82 of the Basic Law which provides for final adjudication of disputes by the Court of Final Appeal. Reliance here was placed on the decision of the Court of Final Appeal in Solicitor v Law Society of Hong Kong & Secretary for Justice (2003) 6 HKCFAR 570.
50. In my judgment this argument is untenable. Quite simply, access to the Court of Final Appeal is not denied : -
(1) One begins with the proposition, not really challenged by the Appellants, that a leave requirement in appeals is not in itself unconstitutional. Even less so when the leave that is required is intended only to filter out inappropriate appeals based purely on fact. Numerous cases support this proposition : see, for example, Helmers v Sweden, Case No.22/1990/213/275, 26 September 1991 (European Court of Human Rights). Decisions such as Chow Shun Yung v Wei Pih & Another (2003) 6 HKCFAR 299 (Appeal Committee of the Court of Final Appeal) and Runa Begum v Tower Hamlets London Borough Council [2003] 2 AC 430 (House of Lords) reinforce the point that proportionate limitations to the right of access to a higher court will satisfy any constitutional requirements.
(2) By ‘inappropriate appeals’ on facts, I mean of course those appeals where it is sought to challenge findings made the tribunal below which has properly evaluated the evidence and has applied the correct legal principles. Obviously, where it can be shown that the tribunal has not applied the correct legal principles, this is of course a question of law. Even where challenges to findings of fact are made, if it can be demonstrated that the view taken by the tribunal is not one that reasonably can be made, this may also involve questions of law : see Edwards v Bairstow [1956] AC 14. Where neither of these situations are applicable, there is and can be no injustice in any mechanism that filters out such appeals on fact.
(3) The case of Solicitor v Law Society of Hong Kong & Secretary for Justice is distinguishable. There, the provision that was struck down by the Court of Final Appeal as being in breach of Article 82 of the Basic Law was the former section 13 of the Legal Practitioners Ordinance, Cap. 159. That section had provided that an appeal from the Solicitors Disciplinary Tribunal to the Court of Appeal was final, without any possibility of further appeal to the Court of Final Appeal. The Court of Final Appeal was of the view that such a provision, which prohibited any appeal to the Court of Final Appeal even when the stringent requirements of section 22 of the Court of Final Appeal Ordinance, Cap. 484 were satisfied, was unduly restrictive and did not satisfy the proportionality test.
(4) The situation in the present appeals is very different. There is no doubt that the proportionality test (the limitation imposed must pursue a legitimate purpose and there must be reasonable proportionality between the limitation and the purpose sought to be achieved : see Solicitor v Law Society of Hong Kong & Secretary for Justice at 585A-B (paragraph 31) is satisfied : -
(a) For reasons earlier outlined, it cannot be said that the proceedings below (the IDT proceedings) were unfair such as to compel the availability of an unrestricted hearing on appeal.
(b) The proceedings before the IDT are fair, with ample opportunity for the parties to advance their respective cases. Any decision of the IDT is supported by (usually comprehensive) reasons being provided, as in the present case.
(c) Access to the Court of Appeal on factual matters is not in fact denied : if a suitable case is made out, leave will be given. As earlier stated, the leave requirement is there to filter out clearly inappropriate appeals on fact.
Issue 5 : The orders made under section 23(1)(a)
51. In the case of both Appellants, the Tribunal disqualified them from being directors and made other disqualification orders (see paragraphs 18(1) and (5) above).
52. Section 23(1)(a) of SIDO states, as one of the possible orders the IDT may make : -
“23. Orders etc. of Tribunal
(1) …
(a) an order that that person shall not, without the leave of the Court of First Instance, be a director or a liquidator or a receiver or manager of the property of a listed company or any other specified company or in any way, whether directly or indirectly, be concerned or take part in the management of a listed company or any other specified company for such period (not exceeding 5 years) as may be specified in the order;
…..”
53. The Appellants’ point was based entirely on the construction of this provision : by the use of the word “specified”, it is said that it was incumbent therefore on the IDT actually to name all the relevant companies which are the subject of any disqualification order. A failure to do so meant that the order was invalid.
54. This contention may be disposed of shortly. The section does not provide that each company must be named, only that it be “specified”. The requirement here is obviously to facilitate proper identification of the relevant company or companies. In my view, reference merely to all “listed” or “limited” companies is sufficient for this purpose. In the course of his submissions, Mr Swaine agreed with my Lord Tang VP that it would have been sufficient if all listed or limited companies in Hong Kong were actually named. With this concession, the point becomes instantly unarguable. No difference could be identified between naming every listed or limited company in Hong Kong on the one hand, and simply referring to ‘all listed and limited companies’ on the other.
55. I would add that there is good reason why the form of the order should be in the way it was made in the present case. The disqualification or bar that was intended to operate for a period of 5 years (in the case of Koon) and 2 years (in the case of Sonny Chan) are applicable to all listed or limited companies, whether or not such companies were in existence at the time of the order. If only listed or limited companies as at the date of the order were named, by definition this would not cover any such companies coming into existence thereafter.
Issue 6 : The orders made under section 23(1)(b)
56. This issue related to the disgorgement orders made : see paragraphs 18(2) and (6) above.
57. The complaint here was that the notional profit rule established by the Court of Final Appeal in Insider Dealing Tribunal v Shek Mei Ling (1999) 2 HKCFAR 205 was wrong. The only distinguishing feature proffered was that the attitude of the courts towards the IDT has somehow hardened considerably since that case (reliance here was placed on the decision of the Court of Final Appeal in the present case). This, according to the Appellants, entitled the Court of Appeal to disregard the authority.
58. This was a hopeless argument to advance before us. Both Sir John Swaine, SC and Mr Swaine wished, however, to reserve the point in the event the present cases were to be entertained by the Court of Final Appeal.
Conclusion
59. For these reasons, and for those in relation to Issues 3 and 4 as contained in the judgment of Tang VP, I would dismiss both appeals. I would also make a costs order nisi that the Appellants pay the costs of the 2nd Respondent in these appeals, such costs to be taxed if not agreed.
Postscript
60. I cannot leave these appeals without referring to an unsatisfactory practice among practitioners that regrettably is becoming all too common in the courts. This is the use of print-outs of reported decisions from legal websites, rather than providing the court with extracts from the published law reports themselves. Experience has shown that on several occasions, the computer print-outs have contained inaccuracies.
61. For my part, I wish it be known that, unless a decision is unreported in any recognized law report, only copies or extracts from such reports should be provided to the court. Further, as far as recognized law reports are concerned, there is a well-known order of preference. Thus, reports from official law reports should be used in preference to others (for example, the official Law Reports in England should be preferred to, say, the All England Law Reports).
Hon Tang VP:
62. I confine my judgment to whether the adverse factual findings of insider dealing against Koon and Sonny Chan should be set aside; in other words, to Issues 3 and 4, as identified in the judgment of Ma CJHC.
Issue 3: Koon’s appeal
63. Koon has filed four notices of appeal. Only the Notice of Appeal dated 3 November 2005 (“the Notice of Appeal”) is relevant to the factual findings made against him.
64. The standard of proof adopted by the Tribunal was the civil standard and one which was proportionate to serious nature of the subject matter of the inquiry.
65. Regarding the drawing of inferences, the Tribunal:
“… approached the question of inferences carefully and directed (ourselves) that an inference adverse to any individual could only be drawn where it was compelling and the only reasonable inference to draw from other proven facts.”
66. Counsel for the appellants did not dispute the test adopted by the Tribunal. However, they submitted that the inferences drawn by the Tribunal fell short of the applicable standard. This is a point of law, and no leave is required.
67. Indeed, in relation to grounds 1 to 5, and 18 to 20 of the Notice of Appeal, Sir John in his skeleton submission dated 3 April 2007 submitted that:
“23. Grounds 1-5 are undoubtedly questions of law. (Grounds 18 – 20 as well. They are challenged) on the basis that the proven facts have not been proved to the requisite standard, that the omission to probe, and the absence of notice to (Koon) in certain key areas, render those findings unsafe and unsatisfactory; and that the inferences based thereon cannot be sustained, as they are not the only reasonable inferences to be drawn therefrom, and not the only reasonable inferences that could have been drawn if the irregularities complained of had not occurred. They are likewise questions of law.
68. In the skeleton submission of 24 April 2009, Sir John returned to the findings of fact, basically repeating the point that the inference drawn was not the only reasonable inference.
69. Counsel also complained that the Tribunal’s conclusions were wrong in fact. However, no serious effort was made to show that the Tribunal’s findings of fact were wrongly made. Nor can I see any merit in such complaint.
Relevant Information
70. The first factual issue which the Tribunal had to deal with was whether Koon, who was undoubtedly connected with Easy Concepts, was at the relevant time, in possession of information,
“… which he knows is relevant information in relation to (Easy Concepts)”.
71. On Friday, 28 January 2000, the shares in Easy Concepts closed at $0.34 with a turnover of 50,000 shares. On Monday, 31 January 2000, by the time trading was suspended at 10:47 am, it closed at $2.10. The turnover was 4,228,000 shares.
72. There was a meeting between personnel of the Pollon Group and the Easyknit Group including Koon on 28 January 2000. The Tribunal was:
“… satisfied that by the end of the meeting of 28th January the parties had reached a stage where there was a mutual and serious contemplation by them of what amounted to a proposal for the acquisition by Pollon Group (through 21 CN) of a controlling interest in Easy Concepts by way of a subscription of new shares, and that the information as to that proposal as set out in the letter of Yuanta to the SFC and the parties' serious contemplation of it was more than specific information for the purposes of section 8 of the Ordinance.”
73. On 18 February 2000, an announcement was made that the Pollon Group had taken a 75% interest in Easy Concepts. When trading resumed on 18 February 2000, the shares traded between $12.40 and $8 and closed at $10.05. The turnover was 14,378,000 shares.
74. The Tribunal’s finding that relevant information had been brought into existence at the 28 January 2000 meeting and that Koon possessed the information after attending the 28 January 2000 meeting is unassailable. It does not matter whether this argument is put on the basis that there was no evidence to support the finding or that the finding was wrongly made. The evidence is too plain to found any other conclusion.
Lam’s purchase of 3.2 million shares
75. On 31 January 2000, prior to the suspension of trading, Lam purchased 3.2 million Easy Concepts shares from Fair Eagle Securities Company Limited (“Fair Eagle”) at the price of $1.23.
76. Lam’s evidence was that in or about 1997 he had purchased more than 30 million shares in Shui Hing (which operated the well known Shui Hing Department Store) because he thought it was “a very good target” for a back door listing. In or about November 1997 Koon through Easyknit acquired a controlling interest in Shui Hing, which was then renamed Easy Concepts. In December 1998 Lam sold 30 million shares to one Ip Lam On (“Ip”) on the introduction of Koon at $1 per share payable 6 months after the transfer of the shares to Ip. The shares were transferred to Ip on or about 15 December 1998. However, Ip failed to pay. Moreover, on or about 2 August 1999, Ip sold 3,200,000 shares to Fair Eagle, a stock broker, at $1.23 per share. In August 1999 Lam sued Ip for the return of the 26,800,000 shares as well as the proceeds of sale of the 3,200,000 shares. The proceeds of sale as well as the 26,800,000 shares were frozen as a result of applications by Lam to the court. So on Lam’s case he was aware that Fair Eagle had acquired 3,200,000 shares in August 1999.
77. He said that he decided to buy the 3,200,000 shares from Fair Eagle, because “listed companies were finding their way to diversify into I.T. industries”, so:
“… in or about early to mid January 2000, I determined that I had to first of all buy back the 3,200,000 shares from Fair Eagle”.
78. According to Lam, in or about early to mid January 2000, he had decided to buy the 3.2 million shares from Fair Eagle and thought he would need HK$4,000,000. He said in his witness statement.
“28. … At that time, Chinese New Year (i.e. 5 February 2000) was approaching, and so my financial resources were indeed very tight. I could mobilize no more than several hundred thousand dollars. Therefore, I call up C.Y. Chan to see if he could arrange to lend HK$4,000,000 to me. He said he could make arrangement but the fund would not be available until about 1 February 2000. Since I did not have sufficient fund, I have no choice but to wait for a while. At that moment, if I had sufficient fund, I would simply immediately buy back the shares from Fair Eagle. I simply had no choice but to wait.”
He then said that:
“30. On or about 29 January 2000, which was a Saturday, C.Y. Chan called me back to inform me that the fund would be available on 1 February 2000. Therefore, I decided to go to the office of Fair Eagle at Entertainment Building to buy back the 3,200,000 shares of and in the Company in the morning on Monday, 31 January 2000.”
79. Lam went on to say in his witness statement of 12 June 2005:
“33. On 31 Jan 2000, I arrived at Fair Eagle at or about 10:30. As planned, I went on to check out the prevailing price of the shares of the Company. Surprisingly, the price of the shares had already risen to over HK$1.00 per share. Since I was desirous to get back my shares before the ‘I.T. trend’ should become even hotter, and that it could be very difficult to buy back a whole lot of 3.2 million shares of the Company at once, which shares were only very thinly traded shortly before, and I had already been ‘fully prepared’ to buy back the same in the sense that I had already obtained a HK$4 million loan from C.Y. Chan to cater for the situation where I would need to buy back the shares at the price of HK$1.23 per shares, I then decided not to undergo any price negotiation, I would buy all 3,200,000 shares right away.”
80. Since he knew that he had to pay Fair Eagle on or before the close of business on 2 February 2000, he:
“38. … informed C.Y. Chan to deposit HK$4,000,000 into my HSBC account before the close of business on 2 February 2000. He did so and I made use of the same to settle with Fair Eagle.”
81. Mr C Y Chan was unavailable as a witness. The Tribunal found that:
“… C.Y. Chan deliberately avoided these proceedings. Nothing has been heard from him or on his behalf since the proceedings began.”
82. The total price payable to Fair Eagle in respect of the shares was $3,951,586.56. Lam was able to make the payment as a result of payments into his HSBC account by cash cheques totalling $3,799,980 by three companies. Those three companies in turn had had paid into their accounts on the same day the total sum of $3,800,000 by three cheques, all of which were signed by Koon.
83. Koon’s explanation was summarised in the report at page 87:
“He admitted that he had drawn three cheques on the 2nd February 2000 in favour of three garment factories: Wah Po Garment Factory (‘Wah Po’), Good Season Garment Factory (‘Good Season’) and Peaceful Garment Factory (‘Peaceful’). He said those cheques were in payment of commercial invoices sent by those firms in the course of business. He had no knowledge of the funds represented by those cheques being paid onwards into LAM Ping Wan's HSBC account on the same day so as to fund the T+2 settlement of LAM Ping Wan's purchase of 3.2 million Easy Concepts shares from Fair Eagle on the 31st January.”
84. As for repayment on 18 February 2000, Lam said he sold:
“… one million shares of the Company (which formed part of the balance of shares of Easy Concepts kept by me with Sun Growth, but not part of any of those 3,200,000 shares acquired on 31 January 2000) at a total consideration of about HK$7.9 million, and then make use of HK$7.6 million out of the same to repay C.Y. Chan.
41. Before borrowing HK$4 million from Mr. C.Y. Chan, I was already indebted to him, with the total indebtedness amounting to HK$7.6 million.
42. When I informed Mr. C.Y. Chan that I could repay him, he was delighted and told me to make payment directly to Wai Fai Garment Factory. I did so. After this repayment, the original ‘pieces of paper’ used to record my indebtedness were given back to me, and were destroyed by me.”
85. This is what the Tribunal said about the repayment:
“We took into account also that following his purchase of the 3.2 million Easy Concepts shares on the 31st January 2000, LAM Ping Wan sold 1 million of his Easy Concepts holding (these shares were not part of the 3.2 million purchased on the 31st January but were already held by LAM Ping Wan) on the 18th February 2000 when trading resumed following the publication of the joint announcement. The proceeds of that sale totalled $7,968,820 and were paid into LAM Ping Wan’s account at the HSBC Fortuna House branch on the 22nd February 2000 by cheque. The following day the sum of $7,688,820 (i.e. $280,000 less) was withdrawn by LAM Ping Wan from his account and transferred to the account of Wah Fai Garment Factory at the same branch. On the same day $6,400,000 of that same sum was withdrawn in physical cash by way of a cash cheque signed by C.Y. CHAN. Where that cash went to could not be established on the evidence available to us with absolute certainty, but from an examination of the bank accounts of Wah Fai, Wah Po and Easyknit the following is revealed:
(1) Wah Fai withdrew the $6,400,000 cash on 23rd February 2000 from its Fortuna House account;
(2) On the 25th February $5,038,000 was deposited in the form of cash into Wah Po's HSBC account at Fortuna House;
(3) On the same day Wah Po withdrew by cheque $5,037,500 from that account; and
(4) The cheque for $5,037,500 was deposited into the Easyknit Enterprise (a subsidiary of Easyknit) account at Fortuna House.”
86. Not surprisingly, and for entirely convincing reasons, both Lam and Koon were disbelieved by the Tribunal.
87. The Tribunal concluded that Koon funded the purchase of the 3,200,000 shares by Lam:
“… through a deliberately indirect route using dormant or defunct companies’ bank accounts controlled by his friends or associates” p118
88. The Tribunal was of the view that Lam was:
“… some form of employee or agent. … we are satisfied that he was a person who did Koon’s bidding …”
Accordingly they found Koon guilty of insider dealing under section 9(1)(a).
89. It was argued that the inference(s) drawn by the Tribunal were not the only reasonable ones. For example, Mr Swaine submitted that a possible inference was that although Koon provided the money for the purchase of the 3.2 million shares, it was provided by way of loan, presumably by Koon to Lam. But that was not the evidence. The evidence of Koon was that the monies were paid in payment of invoices issued by the three companies. That evidence was disbelieved by the Tribunal for totally convincing reasons which have not been seriously challenged on behalf of Koon. I add here that Mr Lam’s evidence which was also disbelieved by the Tribunal, also for totally convincing reasons, was that the monies were lent to him by Mr C Y Chan. I have no doubt that the Tribunal had drawn proper inferences, and there is nothing in counsel’s complaint.
90. Ground 8 of the Notice of Appeal raised the point that the Tribunal was in breach of natural justice and fairness as it had without notice:
“… to the implicated persons and therefore without ever inviting submissions from them and/or without questioning of the Appellant or Lam Ping Wan by either party or the Tribunal or his counsel, and without it ever being any part of the lines of inquiries indicated by the Tribunal or its counsel, concluded, by devising its own theory, that the Appellant through C Y Chan engaged Lam Ping Wan as his agent to acquire 3.2 million Easy Concepts shares on 31st January, 2000.”
91. That the question whether the 3.2 million shares were purchased by Lam on behalf of Koon was plainly in issue can be seen from the fact that in the witness statement of Lam dated 12 June 2005 he said:
“48. I am advised by my legal advisers that I could be facing with the following allegations in the present enquiry:-
……
48.2 I dealt with the 3,200,000 shares of (Easy Concepts) on 31 January 2000 for and on behalf of (Koon); …
……
53. It is plainly impossible that the 3,200,000 shares were purchased for and on behalf of Mr. Koon. …”
92. In the closing written submissions on behalf of Mr Koon, Mr Lawrence Lok, SC, then appearing for Mr Koon, submitted that:
“64. The nub of the submissions by Counsel to the Tribunal is that Koon might be the beneficial owner of Lam’s shares …”
93. In Sir John Swaine’s closing submission on behalf of Mr Lam on 17 August 2005, he said:
“… Now, there has been no clear indication as to how exactly the finger points. These are the two possibilities but I state them as possibilities because the Tribunal ought not to deem or find Mr Lam an insider dealer unless it is satisfied to the relevant standard that he either received relevant information from Mr Koon or that he acted as Mr Koon’s agent. Their just is not the proof. Their just is not the evidence that either state of affairs existed.”
94. Having regard to the foregoing, I cannot accept that Koon or those representing him were not aware that one possibility open to the Tribunal was that Lam was acting as a nominee for Koon.
95. During the period 28 to 31 January 2000, there were 6 mobile phone contacts between Koon and C Y Chan. Ground 9 made the point that:
“… It was therefore wrong of the Tribunal to find that these telephone calls reinforced their finding that the fund flow from companies controlled by (Koon) through companies controlled by his associates into Lam Ping Wan’s account was organised through C.Y. Chan”.
96. This is what the Tribunal said:
“We were careful not to place too great an emphasis on these telephone calls in considering the case against KOON, LAM Ping Wan and C.Y. CHAN. In our view their occurrence simply establishes the fact of communication between KOON and C.Y. CHAN and between C.Y. CHAN and LAM Ping Wan prior to and on the day of the purchase by LAM of the 3.2 million Easy Concepts shares. It establishes that there was an avenue allowing indirect communication between KOON and LAM Ping Wan, though by itself it cannot establish the contents of any such communication. Nevertheless it reinforces our finding that the fund flow from companies controlled by KOON through companies controlled by his associates into LAM Ping Wan's account was organised through C.Y CHAN.”
97. With respect, the Tribunal’s approach cannot be faulted.
98. Regarding Ground 15, the point was made that the Tribunal’s view of Lam and Koon:
“… was strongly influenced by the robbery incident of 1st June, 2001”.
99. The robbery took place on 1 June 2001, long after the alleged insider dealings. Koon and Lam’s evidence was that on 1 June 2001, Koon wanted to withdraw $6.5 million in cash from a bank, and he requested Lam to accompany a staff member to help guard the money. After the money was withdrawn, they were robbed of the money. Mr Swaine agreed in the course of the submission that this incident supported the view that Lam was a person who could be sent on an errand by Koon.
100. That was also the Tribunal’s view. It was:
“… satisfied that (Lam) was a person who did KOON’S bidding in performing tasks such as that.” Page 122
101. The Tribunal had explained earlier:
“KOON had a staff of over 100 people in his office. It was nonsensical that he would ask a visiting business acquaintance to do this task.” Page 100
102. The Tribunal was entitled to take this into consideration in deciding that Lam did Koon’s bidding in the purchase of the 3.2 millions shares.
103. In the skeleton submission of 3 April 2007 it was submitted that the matters set out in para. 13 of the grounds of appeal:
“37. … reveals a doubt as to whether Lam may or must have been acting as (Koon’s) agent, which doubt, it is submitted, should be resolved in (Koon’s) favour.”
104. This was not expanded upon in the oral submissions. I see nothing in this ground, and will not deal with it in any detail. Suffice to say that the Tribunal was demonstrably fair in its treatment of Koon and Lam. The acquittal of Lam of insider dealing on the basis that it was unnecessary for Koon to have told him the reason for the purchase and hence he might not have been told, amply demonstrated that the Tribunal was willing to give the benefit of the slimmest of doubt to each allegedly implicated person.
Koon’s role in Sonny Chan’s purchase of Easy Concepts shares
105. I turn now to the finding that Koon was in breach of both sections 9(1)(a) and 9(1)(c) regarding the purchases of Easy Concepts shares by Sonny Chan on 31 January 2000.
106. The Tribunal found that Sonny Chan was a very experienced share trader, he used his own funds to purchase the shares, and he kept his own profits.
“He was obviously not a mere nominee of KOON but was trading on his own behalf.”
107. The Tribunal was also satisfied that Koon had transferred the relevant information to Sonny Chan.
“However after considerable reflection we are not satisfied to the required standard that KOON would have either encouraged or advised Sonny CHAN to also purchase Easyknit shares, or when he disclosed the information to Sonny CHAN would have considered in any way that Sonny CHAN would have purchased Easyknit shares as well as Easy Concepts shares. In this regard different factors apply to KOON's position; KOON's interest was plainly focused on Easy Concepts shares at this time. He was not acting as a partner with Sonny CHAN in the same way, as will be seen, we found Alan TSANG, Helena SUM and Christina TSANG to have pooled their resources. He did not have to plan ahead and consider Sonny CHAN’s alternatives in the event Easy Concepts shares proved difficult to purchase and we allow him the ‘benefit of the doubt’ regarding his awareness of Sonny CHAN’s likelihood of purchasing Easyknit shares on the 31st January 2000.
For the above reasons we are satisfied that KOON, acting on the relevant information he possessed, took steps to have Sonny CHAN purchase Easy Concepts shares or counselled him to do so, and in doing so disclosed the relevant information to him so as to be in breach of the provisions of both sections 9(1)(a) and 9(1)(c) of the Ordinance. As we say we are also satisfied that in acting upon that information Sonny CHAN was in breach of the provisions of section 9(1)(e) of the Ordinance, regarding his purchases of both Easy Concepts and Easyknit shares.”
108. On the evidence before the Tribunal, which has been carefully detailed in its report and painstakingly analysed, I am satisfied that no legitimate complaint is possible. The Tribunal came to a conclusion which was plainly open to them on the correct standard which they had adopted. Indeed, on the material I would have come to the same conclusion regarding the Easy Concepts shares. Koon was not found to be an insider dealer regarding Sonny Chan’s purchase of Easyknit shares. The Tribunal said:
“KOON was focused on Easy Concepts. After considerable deliberation we are not satisfied to the same high degree of probability that KOON either encouraged Sonny CHAN to also purchase Easyknit shares or had known or had reasonable grounds to believe Sonny CHAN would also purchase Easyknit shares on the 31st January 2000.”
In my view this represents another example of the Tribunal’s exemplary fairness.
Issue 4: Sonny Chan’s appeal
109. Sonny Chan was found to be an insider dealer regarding his purchases of both Easy Concepts and Easyknit shares on 31 January 2000. The grounds of appeal against the findings of fact are to be found in his Notice of Appeal dated 4 November 2005.
110. These grounds included:
Ground 3 Insufficient evidence;
Ground 4 Fundamental misunderstanding of the evidence of Sonny Chan by the Tribunal;
Ground 5 Tribunal’s reasons in disbelieving Sonny Chan were illogical and unconvincing;
Ground 7 Adverse inference drawn when there were other probable and innocent, plausible explanations.
111. This is what the Tribunal said about Sonny Chan:
“Background
Sonny CHAN was the proprietor of an entertainment company, a wine supply company and a semi-professional securities investor in January 2000. He had two trading accounts relevant to this inquiry. One was with Luen Fat and the other with South China where his broker was Jason TANG.
On the 31st January 2000, Sonny CHAN purchased 568,000 Easy Concepts shares of which 470,000 were purchased on his Luen Fat account and 98,000 were purchased on his South China account. In respect of those purchased on his Luen Fat account he took up only 450,000 of those and 20,000 were booked to the account he had opened for his secretary TW 24 CHAN Sin Yau. In respect of the South China purchases Sonny CHAN ultimately took up only 18,000 shares, 10,000 being booked to the account of TW 23 Eddy LEE and 70,000 to the account of Silver City China Ltd., a company owned by TW 16 LAI Leong. He also purchased 100,000 Easyknit shares through his South China account.
Sonny CHAN was an acquaintance of KOON.
……
According to Sonny CHAN's SFC interviews, he gave 70,000 of the 98,000 Easy Concepts shares he purchased through South China to LAI Leong ‘as a favour’. He gave 10,000 to Jason TANG for another client of South China (i.e. Eddy LEE) at Jason TANG's request for no special reason and he gave 20,000 of the Easy Concepts shares he purchased through Luen Fat to his secretary CHAN Sin Yau to reward her for her hard work. He had never done this before according to his recollection, and he had not done so since.”
112. The Tribunal did not regard Sonny Chan as a reliable witness. The Tribunal said at page 109:
“So far as Sonny CHAN’S purchases are concerned we think it highly probable that he purchased Easy Concepts … on that day only after, and as a result of, the telephone conversations he had with KOON.
It is particularly notable that on the 31st January there were three mobile phone calls between KOON and Sonny CHAN in the 10 minute period before the start of trading on that day.”
113. The Tribunal was of the view that:
“… On the basis of the trend of the daily volume of mobile phone calls between them from 1st January 2000 to 10th March 2000 (that being the scope of their phone records placed before the Tribunal) the 31st January volume of calls was by far the highest. … The fact there were so many mobile phone calls between them in the morning of 31st January was also unusual. Virtually all other mobile phone calls between them over the same period were in the afternoon or evening.” See page 110.
114. Also:
“Those phone calls between them on the morning of the 31st January started just prior to trading commencing. One was for six minutes. In our view it was simply too great a coincidence that this unusual volume of telephone calls from the chairman of Easy Concepts occurred just prior to Sonny CHAN's first attempts to acquire Easy Concepts shares. We are satisfied KOON transferred the relevant information to Sonny CHAN.
Firstly, Sonny CHAN, even as a high volume trader, had never purchased Easy Concepts shares before the 31st January. He opened his trading activities that morning by placing bids for 100,000 of the shares at increasing prices. He increased his bid price three times. From the first bid for 100,000 shares at $0.46 each at 10:09 a.m. he then bid $0.53, then $0.60 and went to $0.70 by 10:23 a.m. That shows considerable enthusiasm for an historically thinly traded share even though we accept he had seen that Easy Concepts was in the top ten of improving shares that morning. Nevertheless, his first bid was made when relatively few other bids had been made and where the previous bid was only 32% higher than Easy Concepts close on Friday 28th January. He eventually purchased 470,000 shares at $1.00 each at 10:31 a.m. Earlier at 10:24 a.m., he had successfully bid for 100,000 Easyknit shares. But he returned to bid for Easy Concepts successfully at 10:31 a.m. That shows a considerable focus on Easy Concepts as a target. We note there were necessarily other top 10 shares he showed no interest in.
Secondly, his enthusiasm in purchasing Easy Concepts and Easyknit shares on 31st January can be contrasted with his earlier disposal of all of his Easyknit shares during the earlier part of that month. By 26th January Sonny CHAN had reduced his Easyknit share holdings to zero. That suggests that he had obtained fresh information bearing upon that company on or prior to the 31st January when he showed an aggressive interest in again purchasing primarily Easy Concepts but also Easyknit.
Thirdly, his actions in ‘giving away’ a significant quantity of his Easy Concepts purchases in our view suggest he thought the future of the share held something special. Though his evidence in this regard was a bit vague we accept from all the evidence before us that he had done this on other occasions only rarely if ever.
By providing these ‘gifts’ to his secretary and to LAI Leong of Silver City as well as to Jason TANG's client Eddy LEE, Sonny CHAN was acting more like a man who knew he had come into a windfall which he expected to bear further fruit. His actions were unusual in this regard and not reflective of those of a semi-professional trader whose own analysis and work had produced results. We were careful not to read too much into this evidence, but in circumstances where Sonny CHAN was under some degree of financial pressure with a margin call to answer and an apparently reduced bank balance reflecting a debit balance in his trading account, his acts of generosity were notable. At the least it is a significant coincidence that the series of ‘gifts’ were made in the context of his Easy Concepts success. We are satisfied that for these reasons KOON divulged the information concerning Easy Concepts acquisition by Pollon Group in sufficient terms so as to qualify as relevant information and that Sonny CHAN acted upon it.
We might add that Sonny CHAN at that time was a very experienced share trader. Sonny CHAN used his own funds to purchase the shares and after disposing of some of the shares as he saw fit subsequently kept his own profits. He was obviously not a mere nominee of KOON but was trading on his own behalf.”
115. In relation to Sonny Chan, Rogers VP earlier had refused leave to Sonny Chan to appeal on findings of fact. That is the subject of an appeal to us. I entirely agree with Rogers VP, and would also refuse leave to appeal. I am firmly of the view that such an appeal is totally unmeritorious. There was ample evidence on the basis of which the Tribunal could have come to that conclusion. On the evidence I would unhesitatingly have come to the same conclusion.
116. Insofar as the appeal by Sonny Chan is cloaked as an appeal on law, I see no valid basis on which the Tribunal’s finding can be challenged. There was ample evidence, correctly understood by the Tribunal, which supported the Tribunal’s finding. The appeal is wholly unmeritorious.
Disposition
117. For the above reasons, as well as those given by the Chief Judge whose judgment I have read in draft and with which I agree, I would dismiss both appeals.
Hon Stone J :
118. I have had the signal advantage of reading in draft the respective judgments of Ma CJHC and of Tang VP.
119. I respectfully agree with both judgments, and also with the Order proposed by the Chief Judge (at paragraph 59), wherein these appeals are dismissed with an order nisi as to costs.
120. In light of the detailed analysis of the six identified issues contained within the judgments of the Chief Judge and of Tang VP, there is little further which usefully may be added in terms of the arguments adduced, although for my part I wish to reinforce the view which I believe to be held by this Court as to the obvious quality of the Interim and Final Reports as produced by the Tribunal, under the Chairmanship of McMahon J, into the allegations of insider dealing which were levelled against Mr Koon Wing Yee and Mr Sonny Chan Kin Shing.
121. If I may say so, in light of the assiduous review by the Tribunal of the evidence against these gentlemen, and the consequent rigorous evaluation thereof, resulting in the adverse conclusions challenged upon this appeal by Messrs Koon and Chan, the suggestion as now advanced before this Court that there was actual unfairness on the part of the Tribunal in the conduct of this inquiry is a suggestion which strikes me as risible.
122. The evidence against Messrs Koon and Chan appears compelling, it was scrutinized and evaluated with great care by McMahon J and his two colleagues on the Tribunal, and for my part I fail to see how there can be scope for any legitimate complaint as to the procedures, or conclusions, of this inquiry, which clearly was conducted in exemplary fashion.
| (Geoffrey Ma) | (Robert Tang) | (William Stone) |
| Chief Judge, High Court | Vice President | Judge of the Court of First Instance |
Sir John Swaine, SC & Mr John J E Swaine, instructed by Messrs William Sin & So for the Appellant in CACV358/2005
Mr John J E Swaine, instructed by Messrs Hon & Co for the Appellant in CACV 360/2005
Mr Peter Duncan, SC & Mr Dick Ho of Department of Justice for the 2nd Respondent