Securities and Futures Commission v. Wong Yuen Yee and Others

HCMP 241/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 241 OF 2015

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D E C I S I O N

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I. Introduction

1.This application for discovery raises the question of the scope of the obligation to disclose documents on the part of the Securities and Futures Commission as petitioner in proceedings brought under s 214 of the Securities and Futures Ordinance (Cap 571) (“Ordinance”) for disqualification orders.  In broad terms, the documents in issue are the requests issued to third parties by the Commission under s 179 or s 183 of the Ordinance as part of its investigation and the responses and materials provided by those third parties to the Commission, other than those already disclosed to the respondents.

2.The petition was presented by the Commission to seek relief under s 214 of the Ordinance in relation to the affairs of a company whose shares are listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited, namely, Inno‑Tech Holdings Limited (“the Company”), and of its subsidiaries (together “the Group”). 

3.The 1^st to 4^th respondents to the petition are 4 individuals who were all directors of the Company, which is the 5^th respondent, from before its listing until either 2010 or 2011.  The 1^st respondent was the founder of the Company. 

4.The Company had principally been engaged in the development of home intelligent automated systems, but in around 2006 and 2007 it decided to expand into the business of providing hotel management services and of owning and managing hotel properties in Mainland China.  It was thought that the Company’s technological assets and expertise had synergy with the new line of business.

5.The petition complains about the conduct of the 1^st to 4^th respondents in connection with the Group’s acquisition of interests in 3 hotels and in a gold mine during the years 2007 to 2010.  It is alleged that each of them was negligent and acted in breach of his or her duty as director to exercise reasonable care, skill and diligence in relation to the Company and in supervising the affairs of its subsidiaries, and that their conduct as such involved misfeasance or other misconduct or was unfairly prejudicial to the members within the meaning of s 214. 

6.By the petition the Commission seeks orders under s 214(2)(d) for disqualification of the 1^st to 4^th respondents from acting as directors or in the management of companies in Hong Kong.  The petition also includes a claim for an order under s 214(2)(b) for an action to be brought in the name of the Company against the 1^st to 4^th respondents for damages for loss suffered, or an order under s 214(2)(e) that each of them pay compensation or damages to the Company for loss caused by their breach of duty.  I was informed by counsel, however, that these two alternative claims would be removed since separate proceedings had been commenced by the Company itself against the 1^st to 4^th respondents. The petition herein will therefore presently consist solely of claims for disqualification orders against the 1^st to 4^th respondents. I shall refer to the 1^st to 4^th respondents collectively below simply as “the respondents”.

II.  The Commission’s allegations

7.To put the arguments in context it is necessary to summarise in broad terms the parties’ respective cases on the petition.

The acquisition of 3 hotels

8.On 5 November 2007, a subsidiary of the Company, called Inno Hotel, entered into two agreements to acquire from a third party two companies (called Sunny Team and China Earn), which held Xingdu Hotel and Changlin Hotel, for a consideration of RMB13.5 million and RMB14 million respectively.  On 4 February 2008, Inno Hotel entered into a third agreement with another third party to acquire a company (called Homesmart), which held Kaiping Hotel, for a consideration of RMB20 million.  All 3 hotels were located in cities in the Mainland.

9.The acquisition of Changlin Hotel was not completed and was cancelled by a termination agreement dated 29 May 2009. The deposit of RMB3.3 million paid by Inno Hotel was forfeited.  The acquisitions of Xingdu Hotel and Kaiping Hotel were completed, but within less than two years, in June 2009, Inno Hotel agreed to dispose of them for RMB2 million each to third parties.

10.The Commission alleges that the respondents, who were also directors of Inno Hotel at the time, breached their duties to the Company in that:

(1)  They failed to carry out adequate investigation into or due diligence in respect of the 3 hotels before the acquisitions.

(2)  The so‑called “Hotel Management Team” allegedly set up within the Company, which the respondents suggested was responsible for selecting and assessing the 3 hotels for acquisition, did not in fact exist. The respondents failed to set up any system or take steps to ensure that proper due diligence was carried out.

(3)  If the Hotel Management Team existed and was delegated the decision to acquire the hotels, then the respondents failed adequately or properly to supervise them or the staff team in the Mainland.

(4)  They failed adequately to consider the value of the buildings which formed the hotels and the land on which the hotels were built.  They failed to consider at all any liabilities and debts that might be associated with the hotels or the companies holding them, and the profitability and prospects of business at the hotels.

(5)  They failed to negotiate the consideration for acquiring any of the 3 companies holding the hotels.

11.As a result, it is said that the acquisitions were made in a wrongful and negligent manner and that the respondents “culpably neglected” their duties, which was made all the more reprehensible because they knew the acquisitions were subject to due diligence.

The acquisition of interests in the gold mine

12.On 6 May 2009, another wholly‑owned subsidiary of the Company, called Inno Gold, entered into an agreement with two individuals (Christopher Wong and Ou Yang Ying) to acquire a company, called Dragon Emperor, which held a 13.6% interest in another company called Gaofeng Holding Co. Limited (“HK Gaofeng”) which indirectly held an 81.5% interest in a gold mine in Jiangxi Province, at a consideration of HK$21,636,364.  On the same date, Inno Gold acquired from Christopher Wong an additional 1.8% shareholding in HK Gaofeng for the consideration of HK$2,863,636.

13.On 9 June 2009, Inno Gold, via Dragon Emperor, agreed to acquire from Christopher Wong another 47.2% shareholding in HK Gaofeng at the price of HK$75 million.  At a meeting on that date, the board took the view the consideration was determined after arm’s length negotiation with reference to a valuation report dated 5 May 2009 prepared by a valuers firm called Greater China Appraisal.  It was also noted that completion of the agreement was subject to due diligence though the condition could be waived by the Group.  The total interest acquired by the Group in HK Gaofeng was therefore 62.6% (13.6% + 1.8% + 47.2%) and the total consideration paid was HK$99.5 million.

14.On 11 September 2009 the Company issued a circular about the acquisition of the 47.2% interest in HK Gaofeng.  The circular annexed and relied on another valuation report dated 11 September 2009 also prepared by Greater China Appraisal.

15.Like the digression to hotel management business, the venture into gold mining also proved to be a failure.  After about 16 months, in October 2010, the Company entered into an agreement, supplemented by various agreements in the following months, to dispose of Inno Gold to a third party at a consideration of HK$15 million.

16.The Commission alleges that the respondents, who were also directors of Inno Gold at the material times (the 3^rd and 4^th respondents having ceased to be directors of Inno Gold on 23 March 2010 and 1 June 2010 respectively), breached their duties to the Company in that:

(1)  Despite their knowledge that the acquisition was subject to due diligence, they failed to carry out adequate investigation into or due diligence in respect of the gold mine before the acquisition.  This was all the more reprehensible given they knew that the acquisition was subject to due diligence.

(2)  They failed to assess or obtain any independent assessment from qualified persons of whether an investment in the gold mine was a commercially suitable or appropriate one for the Company.  They failed to obtain advice from persons with due qualifications.

(3)  They failed to negotiate the consideration for the acquisition, even though in a number of minutes and announcements it was stated that the consideration for the acquisitions was determined after arm’s length negotiation.

(4)  They failed properly, adequately or competently to assess the purchase price of the interest in the gold mine.  They uncritically relied on two valuation reports prepared by Greater China Appraisal (mentioned in §§13 and 14 above), and failed to give any independent consideration as to whether the consideration was fair and in the interests of shareholders as a whole.

(5)  They failed to appreciate or take into account the question of capital expenditure, which was mentioned in an email from Andrew Wong of Greater China Appraisal and in the valuation report of 11 September 2009, and which was needed in order to achieve the estimated production capacity and the estimated EBITDA.

(6)  Without any proper basis, they adopted the production capacity figure of 1,200 ton/day mentioned in one feasibility study report issued by Ha Er Bin Gold Design Institute dated February 2009 rather than the figure of 150 ton/day mentioned in another feasibility study prepared by the same Institute.  They failed to obtain an explanation of the different figures or any verification of those figures.

(7)  They failed adequately to consider whom to appoint as directors of Inno Gold or to put in charge of gold mining matters.

(8)  They failed properly to supervise the running of the gold mine.  They retained Christopher Wong as the Chief Operating Officer of the gold mine without considering any other candidate.  They left him to run it without supervising him properly or at all.  They relied upon his advice to carry out a drilling programme instead of pursuing an expansion plan and failed to conduct any further evaluation or obtain independent advice. 

The respondents’ defence

17.The respondents filed an affirmation made by the 2^nd respondent in opposition to the petition on 30 July 2015.  They stated that prior to the acquisition of the 3 hotels in question, the Group had secured a number of joint venture agreements with various parties including the China Railway Group.  The Company had conducted extensive due diligence with professionals including business consultants Cushman & Wakefield Capital Asia Ltd and obtained proper valuations.

18.As summarised in broad terms in the affirmation, in relation to the Company’s acquisition and disposal of the 3 hotels, the principal points made in defence are that:

“(1) The Directors had reasonably and honestly entrusted third parties to which specific independent and professional advice was sought and had reasonably relied on the advice;

(2) Each and every of the acquisitions and disposals [was] executed in good faith and in the interests of the Company;

(3) The acquisitions were executed after extensive due diligence work carried out by the Directors, including but not limiting to conducting site visits and legal due diligence;

(4) The Directors reasonably relied on the independent and objective valuation reports compiled by reputable international surveying and consulting firms from which the consideration of the acquisitions were derived; and

(5)     The managerial decisions to acquire and dispose of the Hotels had been approved by all Directors upon their full and prior understanding of the potential risks and benefits of the transactions.”

19.In relation to the Company’s acquisition and disposal of HK Gaofeng, the respondents explained that after the global financial crisis in 2008, resource companies and stocks gained popularity. Having regard to the increasing demand for gold in Mainland China, the Group planned to expand into the gold mining industry in 2008.  The respondents decided to make the investment after careful consideration and analysis and extensive due diligence.  They engaged Ascent Partners Transaction Service Ltd to undertake feasibility studies and Greater China Appraisal to conduct the necessary valuation.  In summary, the affirmation stated:

“(1) The acquisition and disposal were executed in good faith and in the interests of the Company;

(2) The acquisition was executed after extensive due diligence work carried out by the Directors upon the Board instructions, including but not limiting to conducting site visits and seeking independent PRC legal opinions on the issues of due diligence;

(3) The Directors reasonably and honestly entrusted Christopher Wong by appointing him as the Chief Operating Officer … of the Gold Mine to assist the Company in managing the Gold Mine and had continuously supervised his manner in running the Gold Mine;

(4) The Directors reasonably appointed Mr Sean Webster and Dr Yang Kaihui as the directors of Inno Gold to assist the Company in managing the Gold Mine;

(5) The Directors reasonably relied on the independent and objective valuation reports compiled by reputable international surveying and consulting firms from which the consideration of the acquisition [was] derived; and

(6)     The managerial decisions to acquire and dispose of HK Gaofeng had been approved by all Directors upon their full and prior understanding of the potential risks and benefits of the transactions.”

III.  The position on disclosure of documents

20.On 30 January 2015, at the same time as the filing of the petition, the Commission filed the 1^st affidavit of Margaret Tse in support, exhibiting various documents referred to in the petition.  These exhibits, which comprise 12 lever arch files of 87 documents running to 5,103 pages, were provided to the respondents on 12 March 2015.

21.On 3 March 2015 the respondents by letter asked the Commission for copies of all records of interviews conducted and all documents supplied to the Commission under s 183 of the Ordinance during the investigation of the matter.  On 20 April 2015 they also sought specifically the records of interview and documents in connection with Ascent Partners Transaction Service Ltd, Greater China Appraisal and Roma Oil and Mining Associates Limited.  The requests relating to these 3 specific firms were acceded to by the Commission (without admitting relevance) who stated it wished to adopt a constructive rather than argumentative approach.  The documents provided under cover of letters of 25 June and 2 July 2015 included 4 lever arch files of documents and 5 compact discs.

22.On 9 July 2015, the respondents asked the Commission to provide, without conceding relevance, a list of the materials it had obtained pursuant to the authority and direction issued under ss 179 and 182 of the Ordinance.  This was refused by the Commission.

23.On 30 July 2015 the respondents filed an affirmation made by the 2^nd respondent containing their evidence in opposition to the petition.  On 17 September 2015, the Commission filed the 2^nd affidavit of Tse in reply on the petition.  This affidavit referred to documents not disclosed to the respondents before, namely, exhibit “TKY‑10”, being selected emails between the Company and Greater China Appraisal.

24.On 20 October 2015, the respondents issued the present summons for discovery, supported by an affirmation of the 1^st respondent, seeking discovery of all authorisations issued under s 179, all directions issued under s 182, all search warrants obtained and two further categories of documents described below.  The Commission has confirmed that there was only one authorisation issued under s 179 and one direction under s 182 (described below) and no search warrant obtained.  The two categories of documents that remain in issue between the parties are set out in paragraphs (c) and (d) of the schedule to the summons, which are broadly:

(1)  all directions issued under the s 179 authority together with the records and documents and explanations or statements produced pursuant thereto;

(2)  all notices issued pursuant to s 183 under the s 182 direction together with the records and documents produced pursuant thereto, and explanations or particulars given in respect thereof, and answers in writing and records of interviews conducted including documents produced during such interviews.

25.On 11 December 2015, the Commission filed Ms Tse’s 3^rd affidavit, setting out its grounds of opposition to the application and asserting that all documents and materials relevant to the pleaded issues in the petition or to the points raised in the respondents’ affirmation had already been disclosed. 

26.However, less than a week before the hearing, on 17 June 2016, the Commission submitted Ms Tse’s 4^th affidavit which explained that, in the course of preparing for the hearing of the summons, the Commission’s solicitors had conducted a further review of the documents obtained by the Commission during the investigation and had identified a number of documents not previously supplied to the respondents which the Commission has been advised by its solicitors to disclose.  Copies of these materials had not yet been provided to the respondents as at the time of the hearing.

27.The net position is that, of the materials gathered by the Commission during its investigation, about 50 lever arch files[1] of materials have not been disclosed by the Commission to the respondents.  It is these materials which may be affected by the outcome of this application.

IV.  The summons for discovery and the parties’ contentions

28.These proceedings for disqualification orders are brought in the Court of First Instance by petition.  The provision in Order 24 rule 2 for automatic discovery does not apply.  The summons is issued under Order 24 rules 7 and 11,[2] which empower the court to order any party “to a cause or matter” to make an affidavit of discovery and to order the production of the documents in question.  There is no dispute that a cause or matter includes any cause or matter before the court whether begun by writ, originating summons, or petition as in the present case.  As an alternative basis the respondents rely on Order 29 rules 1 and 2.  Rule 1 concerns interlocutory injunction and rule 2 orders for preservation and inspection of property which is the subject-matter of the cause of matter.  Neither rule in Order 29 seems to me to be apposite here.

29.On behalf of the respondents Mr Bernard Mak and Mr Issac Chan submitted that in the present case and, more generally, in all disqualification proceedings brought under s 214 of the Ordinance, the Commission’s discovery obligations extend to all relevant unused materials obtained by it during the investigation, and that the documents sought here are such relevant materials and should be disclosed, in the same way as they would be disclosed by the prosecution if these were criminal proceedings.  For this submission they relied on the requirement of equality of arms, the law and practice in relation to disciplinary proceedings and disqualification proceedings, s 6 of the Ordinance, as well as the Commission’s duty to act fairly.

30.For their part, Mr Victor Joffe and Ms Queenie Lau, who appeared for the Commission, submitted that disqualification proceedings are civil proceedings, the purpose being primarily protective rather than punitive.  The test for discovery, if required, is therefore not to be found in the practice applicable in criminal cases, but is based on relevance in the Peruvian Guano sense[3]. The Commission, they submitted, had disclosed all documents relevant under that test.  There is no wider principle applicable here that the Commission must disclose all unused materials.

V.  Discussion

31.I shall discuss the Commission’s obligation to give discovery under the following headings: (1) the nature of disqualification proceedings; (2) the investigative powers of the Commission; (3) the right to fair trial and the principle of equality of arms in non‑criminal cases; (4) jurisprudence of other jurisdictions on disclosure in disciplinary proceedings; (5) the duty of disclosure in criminal cases; and (6) the applicable approach.

(1)  Nature of disqualification proceedings

31.    As Counsel for the respondents acknowledge, these proceedings seeking disqualification orders under s 214 of the Ordinance do not give rise to a criminal charge within the meaning of Art 11 of the Hong Kong Bill of Rights: Koon Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170 at §§72–73; Securities and Futures Commission v Wang Jian Hua (HCMP 745/2013; 29 October 2015), §48. 

32.Disqualification proceedings such as this petition, while classified as civil rather than criminal for certain purposes including the standard of proof, are nevertheless different from ordinary civil litigation in that they are brought by organs of the state for the benefit of the public against private individuals for orders restraining them from involvement in the management of companies.

33.The special character of such proceedings has been recognised in the authorities to give rise to a duty to act fairly on the part of the “prosecuting” authority.  In Secretary of State for Trade and Industry v Hickling [1996] BCC 678, where an application was made by the (UK) Secretary of State for Trade and Industry for a disqualification order under s 6 of the Company Directors Disqualification Act 1986[4], Judge Weeks QC said:

“It is accepted that these are not ordinary adversarial proceedings but have an element of public interest and may entail penal consequences. It follows that there is a duty on the applicant to present the case against each respondent fairly. …

In my judgment [the applicant’s] affidavit should not omit significant available evidence in favour of any respondent.  It should attempt to deal with any explanation already proffered by any of the respondents.  It should endeavour to apportion responsibility as between the respondents and it should avoid sweeping statements for which there is no evidence.”

34.The reference to “penal” consequences in the above passage must in Hong Kong be read subject to Koon Wing Yee, where the Court of Final Appeal said disqualification orders should be characterised as regulatory and protective rather than punitive. Subject to this, I accept, as did Mr Joffe on behalf of the Commission, that it has a duty to act fairly. 

35.It is also to be borne in mind that, despite not being a penalty as such, a disqualification order involves “a substantial interference with the freedom of the individual” so that in the conduct of such proceedings, “the rights of the individual must be fully protected”: In re Lo‑Line Electric Motors Ltd [1988] Ch 477, 486, per Browne‑Wilkinson VC; see also Re Rex Williams Leisure plc [1994] Ch 1, 14H, per Nicholls VC; accepted by the Hong Kong Court of Appeal in Official Receiver v Chan Hing To [2008] 5 HKLRD 279 at §18.

36.In Re Barings plc [1998] BCC 888, 904, Sir Richard Scott VC also alluded to the fact that disqualification proceedings do not involve litigation about private rights and “have, in many respects, much more in common with criminal proceedings than with civil litigation about private rights”.

37.In Re Finelist Ltd [2004] BCC 877 at §11, after emphasising that a disqualification order “can have grave consequences and is a serious interference with the freedom of the individual”, Laddie J said:

“It is the seriousness of these consequences and the fact that such orders are sought by the SoS on behalf of the public which should inform the way in which the proceedings are commenced and how the SoS carries out her functions.”

38.In ascertaining the disclosure obligation of the Commission, it is in my view necessary not simply to stop at the binary classification of such proceedings as civil as opposed to criminal, but to bear in mind the special character of disqualification proceedings.  As accepted by the English Court of Appeal in Official Receiver v Stern [2000] 1 WLR 2230, 2254E and 2255A, in assessing the requirements of a fair trial, there is a “hierarchy” of types of proceedings, with civil cases between private parties at one end and prosecution of criminal offence by the state at the other end.  Between these fringes, there seems to me to be scope for recognising in these disqualification proceedings, despite their civil form, a heightened need for disclosure having regard to their special character.

(2)  Investigative powers of the Commission

39.The Commission has under Part VIII of the Ordinance a range of coercive powers for investigation, including the power to compel wide categories of persons to produce records and documents and provide explanation and information, and to attend before an investigator to answer questions.  Failure to comply with the Commission’s requirement without reasonable excuse is an offence.[5] The privilege against self‑incrimination is abrogated.[6]  The Commission may also apply to a magistrate for a warrant to enter into premises and search and seize records and documents.[7]

40.The documents discovery of which is sought in the present case are materials gathered by the Commission through the exercise of these coercive powers.[8] Three points flow from this.  First, these powers are not generally a facility enjoyed by a respondent to disqualification proceedings.  To suggest that a respondent could find and approach the same interviewees long after the relevant events and obtain from them the same “assistance” given to the Commission will in my view often be unrealistic.  Nor would the respondent have enjoyed the lead that the Commission had derived from the materials in pursuing its investigation.  In this case the respondents were under a particular handicap in that the matters complained of in the petition occurred between 2007 and 2009.  The respondents resigned from their positions in the Group between 2010 and 2011.  They were interviewed by the Commission in 2012 and the petition was issued in January 2015.  In other words, long before the petition was issued, and even before the Commission interviewed them, the respondents had left the Group and lost any access to its documents in their capacity as directors.

41.Secondly, the investigative powers are invested in the Commission not for private ends but for a public purpose.  After court proceedings are begun this purpose extends to the attainment of a just result which includes not only disqualifying those guilty of misfeasance but also dismissing the case against those who are not. 

42.Thirdly, that the Commission was an ex post facto investigator and not a party to any contemporaneous transaction with the respondents means that it does not have the same circumstantial knowledge related to the transactions impugned.  Conversely, inasmuch as the details of the Commission’s investigation are not disclosed to the respondents, they have no means of knowing or inferring what persons had been interviewed and what documents and materials are in the possession of the Commission.

(3)  Right to fair trial and equality of arms

43.In the context of criminal proceedings, Art 11(2)(b) of the Hong Kong Bill of Rights[9], provides for the right “in full equality … to have adequate … facilities for the preparation of his defence …”.  This principle of “equality of arms” provides a foundation, in parallel with the common law, for the entitlement of the accused to disclosure of relevant material: HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336, §156.  In Jespers v Belgium (1983) 5 EHRR CD 305 at §58, the Committee of Ministers agreed with the opinion of the European Commission of Human Rights that the equivalent provision (Art 6(3)(b)) in the European Convention on Human Rights recognises

“the right of the accused to have at his disposal, for the purposes of exonerating himself or of obtaining a reduction in his sentence, all relevant elements that have been or could be collected by the competent authorities”.

44.While it has been developed in the criminal field, the respondents are correct in submitting that the principle of equality of arms has applicability also in civil proceedings: see Dombo v The Netherlands (1993) 18 EHRR 213; Yves Morael v France (Communication No 207/1986, Human Rights Committee of the United Nations). 

45.In particular, in Albert and Le Compte v Belgium (1983) 5 EHRR 533 at §39, the European Court of Human Rights stated that the principles set out in Art 6(3)(b), among others, are applicable, mutatis mutandis, to disciplinary proceedings subject to Art 6(1)[10] in the same way as in the case of a person charged with a criminal offence.  In a broad sense, it may be said that the Court considered that the principle of having in equal measure adequate facilities for preparing a defence applies also via Art 6(1) to disciplinary proceedings, though it did not decide that the right conferred by Art 6(1) as regards access to documents is exactly the same as in a criminal case.[11]

46.The principle has also been accepted as applicable to directors disqualification proceedings: Official Receiver v Stern [2000] 1 WLR 2230, 2251G.  This is hardly surprising given that a disqualification order directly restricts the defendant’s right to work as a company director and, as stated in Lam Siu Po v Commissioner of Police (2009) 12 HKCFAR 237 at §94, a person’s rights and obligations in a suit at law within the meaning of Art 10 of the Bill of Rights include the right to practise one’s profession. 

47.The disclosure obligation of the Commission in a case such as the present is therefore not just governed by common law but is also a function of the requirements of the Bill of Rights.  As stated in Dombo at §32, however, the requirements inherent in the concept of “fair hearing” are not necessarily the same in civil and criminal cases.  The question remains what a “fair hearing” in Art 10 of the Hong Kong Bill of Rights requires, so far as disqualification proceedings under s 214 are concerned, in terms of access to documents in the possession of the Commission.

48.In Secretary of State for Business, Innovation and Skills v Doffman [2011] BusLR 457, the Secretary of State had brought proceedings under s 6 of the Company Directors Disqualification Act 1986 seeking disqualification orders against the defendants on the basis of unfit conduct.  The defendants applied to strike out the proceedings on the ground that the Secretary of State had breached their Convention rights and his duty to act fairly by failing to ensure that a thorough and unbiased investigation was carried out and that there was full disclosure of documents associated with the investigation.  Newey J held that neither the European Convention on Human Rights nor the Secretary of State’s duty to act fairly would normally extend to requiring the Secretary of State to obtain evidence not already available. 

49.This immediate result is not relevant for present purposes.  It is however notable that in the course of his judgment, having referred to the “hierarchy of civil proceedings (in terms of the penal element or stigma that may be involved)” and that disqualification proceedings “often involve serious allegations and almost always carry a degree of stigma for anyone who is disqualified”, Newey J said (at §9) that Art 6(3) of the European Convention is “not necessarily irrelevant in a disqualification context”.  He said further (at §11) that there was “scope for argument as to the extent of the Secretary of State’s obligations to disclose documents in his possession” though he found it unnecessary to resolve the question in that case.  It is also notable that the Secretary of State had in fact offered to allow the defendants to inspect the documents he held (apart from those that were privileged) (see p 463G).

(4)  Disclosure in disciplinary proceedings

50.It is in this context instructive to see how the courts in different jurisdictions have approached the question of disclosure of material to the defence in proceedings of a non-criminal, disciplinary nature.

(a)  United Kingdom

51.In Rajan v General Medical Council [2000] UKPC 1; [2000] Lloyd’s Rep Med 153, there was a complaint that a doctor had inappropriately examined a female patient on a specific date.  A copy of the diary of the patient for that date, showing an entry of consultation with the doctor at 3:40pm, was only disclosed to the doctor on the day of the hearing.  The doctor was found by the Professional Conduct Committee of the General Medical Council to have been guilty of serious professional misconduct.  On appeal to the Privy Council, the doctor produced evidence that his surgery did not open until 4:30 pm and argued that had the diary been disclosed to him earlier, he would have run the case that the alleged consultation had never taken place and that the acts complained of were a fantasy.

52.Allowing the appeal, the Privy Council stated at §17:

“Their Lordships consider that, for the reasons already referred to, the entry in Ms B’s diary was clearly relevant and material and that under the principle established in cases such as Reg v Maguire 94 Cr App R 133 and Reg v Ward 96 Cr App R 1 it should have been disclosed to the appellant’s legal advisers on a date well before the date of the hearing, and that the failure to disclose in proper time rendered the finding of the Professional Conduct Committee in respect of Ms B’s complaint unsafe …”

53.The reference to R v Maguire (1992) 94 Cr App R 133 and R v Ward (1992) 96 Cr App R 1 is significant, for they are leading cases in the UK on the prosecution’s duty of disclosure in criminal cases.  The passage suggests that in the UK, in disciplinary proceedings of the kind in question, there is a duty on the part of the “prosecuting” authority to disclose materials in accordance with the principle established in those cases.

54.Mr Joffe submitted that the case was not helpful because it is not known why the Privy Council considered there was such a duty.  But as stated by Lord Hobhouse in Subramanian v General Medical Council [2002] UKPC 64 at §23, the duty arose from the common law right to a fair trial. The Privy Council there accepted that that right placed on the General Medical Council, as the prosecuting authority, the duty of timely disclosure of relevant and material evidence.

55.In Kirk v Royal College of Veterinary Surgeons [2003] UKPC 3, the Privy Council affirmed the entitlement of a veterinary surgeon, against whom disciplinary proceedings were brought, to the disclosure of any document which was relevant, though the Privy Council did not elaborate upon the basis other than saying he had the entitlement “under general principles” (see §3).  In a subsequent application in the same case [2003] UKPC 47, Lord Hoffmann stated (at §3):

“He was entitled in the ordinary way to any documents which might support his case or tend to undermine the case of the College. Under that heading there have been disclosed to him certain unused materials from witnesses who were not called at the disciplinary hearing.”

It is to be noted that the description of the scope of disclosure (“any documents which might support his case or tend to undermine the case of the College”) is redolent of the duty of disclosure in criminal cases; see R v Brown (Winston);[12] Lee Ming Tee.[13]  That formulation has also been adopted in certain rules for disciplinary proceedings in the UK.[14]  Likewise the phrase “unused material” is typically used in the context of disclosure in criminal proceedings.[15]

56.In R (on the application of Johnson and Maggs) v Professional Conduct Committee of the Nursing and Midwifery Council [2008] EWHC 885 (Admin), the disciplinary charges brought against two employees of a nursing home were challenged on, inter alia, the ground that those in the professional body responsible for bringing the complaints were under a duty to gather evidence in favour of the two workers. It was held that there was no free‑standing right under Art 6(3)(b) of the European Convention on Human Rights for a defendant to have a prosecutor gather evidence for him.  Nevertheless, at §§62–63, Beatson J held that the right to having the facilities for preparing a defence applies to a person facing disciplinary proceedings, that whether a person has “adequate facilities” and whether there is equality of arms are fact‑specific questions, and that the overall basic approach to the concept of equality of arms does not differ as between civil and criminal proceedings.

57.In McCarthy v Visitors to the Inns of Court [2013] EWHC 3253 (Admin), the Bar Standards Board, which played the role of prosecutor of certain disciplinary charges against a barrister, failed to disclose an earlier draft statement of a witness which was somewhat different from the statement eventually signed.  The barrister was found guilty of the professional charges and the decision was upheld by a majority of the Visitors to the Inns of Court.  On an application for judicial review on the ground that the draft statement should have been disclosed, the Bar Standards Board argued that it was under no greater duty than any other civil litigant to serve a draft statement of a witness (§15).  Rejecting this argument, Moses LJ held:

“17. In any event, it seems to me beyond question that in disciplinary proceedings with the potential for such grave consequences, draft statements capable of being used to discredit a witness should be disclosed. After all, the Visitors themselves had recognised that Rule 7(1)(a)[16] is ‘consistent with the criminal process’. The criminal process, as the Visitors described it, had for nearly 80 years recognised the obligation to disclose statements which were potentially of use for the purpose of cross‑examining witnesses. … It is now, and has been for many years, well understood that, in criminal courts, draft statements of witnesses which might reasonably be considered capable of undermining the case for the prosecution or of assisting the case for the accused, are disclosable …

18. … I can see no basis why the position should be any different in relation to disciplinary proceedings brought on behalf of the Bar Standards Board and I find it hard to understand why there was any difficulty in recognising this obligation … The demands of elementary fairness impose such an obligation.”[17]

(b)  New Zealand

58.In New Zealand, as in Hong Kong, professional disciplinary proceedings are generally regarded as civil proceedings rather than criminal proceedings.  Nevertheless, following the decision of the Full Court of the High Court in Gurusinghe v Medical Council of New Zealand [1989] 1 NZLR 139, the criminal practice of disclosure has been applicable by analogy in disciplinary proceedings.  Davidson CJ said there (at pp 155–156):

“It would seem that, whilst medical profession disciplinary proceedings are strictly civil rather than criminal, … they are sufficiently analogous in some respects to criminal proceedings for assistance to be derived from the criminal rules of procedure. As Cooke P said in Duncan,[18] delivering the majority judgment of the Court of Appeal, at p 548:

‘These observations [on the need for separate findings for separate charges and for comprehensive charges, and the need for reasons] are meant to indicate principles rather than hard‑and‑fast rules. It is a field in which the spirit of justice is more important than the letter.’

In addition to deriving assistance from the common law requirements for disclosure by the prosecution in criminal cases, it could be said that those same requirements are imported into the procedure of the Council by virtue of the obligation to observe the rules of natural justice.”

59.There, the Full Court considered the duty of disclosure to cover in particular two categories of records: statements made by persons whom the prosecutor does not intend to call, and previous inconsistent statements of persons called as prosecution witnesses.[19]

60.Applying Gurusinghe, in Health and Disability Commissioner v Medical Practitioners Disciplinary Tribunal [1999] 2 NZLR 616, 622, Ellis J said that the principle does not require the prosecutor necessarily to disclose all documents in her file or available to her, but rather make a selection.  She is, however, urged in the interests of justice to disclose unless there is good reason not to.  The learned judge said (at 627–628):

“It is now beyond argument that, in general, proceedings should be conducted openly and that in criminal prosecutions all information both favourable and unfavourable should be disclosed to a defendant. Added to that, he or she is entitled to obtain personal information held by the prosecutor. The Courts recognise some limitations to complete disclosure. By analogy, the same approach is taken to disciplinary proceedings such as those in the present case. While Gurusinghe deals precisely with statements made by persons whom the prosecution does not intend to call, and previous inconsistent statements of persons to be called, the general emphasis on disclosure unless there is good reason for refusal, is an important principle recognised in all types of litigation. Obviously fishing expeditions and pointless requests should be discouraged, but the best way of doing this is frank and full disclosure.”

(c)  Canada

61.The Supreme Court of Canada had held in R v Stinchcombe [1991] 3 SCR 326 that the prosecution in a criminal case is under a general duty to disclose “all information, whether inculpatory or exculpatory, except evidence that is beyond the control of the prosecution, clearly irrelevant, privileged or subject to a right of privacy”.[20]  The Supreme Court subsequently held in May v Ferndate Institution [2005] 3 SCR 809 that the Stinchcombe principles do not apply in administrative proceedings.

62.Nevertheless, the courts in Canada have increasingly required the criminal standard of disclosure to be adhered to in disciplinary proceedings.  In Hammami v. College of Physicians and Surgeons of British Columbia (1997) 36 BCLR (3d) 17, Williams CJSC summarised the principles he derived from the authorities and stated (at §75), inter alia, that:

“in cases arising from the administrative law context where the decision of an administrative tribunal might terminate or restrict the ‘accused’s’ right to practice or pursue that career or seriously impact on a professional reputation then the principles in Stinchcombe, in respect of disclosure may well apply.

In appropriate cases the court’s approach should be as outlined by the Court of Appeal in JPG. et al v Superintendent of Family and Child Services (BC) and that is where the disclosure ‘might have been useful’ then disclosure should be made by the Crown (or tribunal) unless there is ‘any special reason why such material should not be disclosed’ and in those circumstances the special reason should be brought to the attention of the judge or tribunal.”

63.In Milner v Registered Nurses Association of British Columbia (1999) 71 BCLR (3d) 372, Boyd J noted (at §11) a passage in Casey, The Regulation of Professions in Canada at §8–23:

“A finding of professional misconduct can have grave and permanent consequences for a professional. In some cases, the consequences are more severe than a criminal conviction. Therefore, the policy reasons for full disclosure of all … material should apply equally to professional discipline hearings.”

Her Honour went on to state (at §13):

“The Courts have repeatedly and properly acknowledged that in disciplinary proceedings, the individual professional’s ability to pursue her livelihood, as well as her professional and personal reputation are often at stake. In these circumstances, a high standard of proof must apply to the charges alleged, with a concomitant standard of disclosure.”

64.In Deloitte & Touche LLP v Ontario Securities Commission [2003] 2 SCR 713, the Ontario Securities Commission had compulsorily collected information and documents from Deloitte & Touche LLPas auditors of a company.  In the proceedings brought by the commission for sanctions against the company itself, the commission described the scope of its disclosure obligation in terms of the concept of relevance as developed in R v Stinchcombe and proposed to disclose the material obtained from the auditors to the company. On a challenge by auditors, the Supreme Court of Canada held the commission’s decision to adopt the approach in Stinchcombe to be reasonable and therefore could not be impugned applying the correct standard of review.

65.In Sheriff v Canada (Attorney General) [2007] 1 FCR 3, the question before the Federal Court of Appeal was the scope of the duty of a senior disciplinary analyst in the Office of the Superintendent of Bankruptcy to disclose all relevant evidence gathered during the disciplinary investigation to a trustee in bankruptcy facing disciplinary proceedings.  The Court held that the Stinchcombe principles apply in that case since a loss of livelihood and damage to professional reputation were at stake.  Malone JA stated the crux of the court’s reasons at §§32–33:

“32. The requirement for increased disclosure is justified by the significant consequences for the professional person’s career and status in the community. Some Courts have noted that a finding of professional misconduct may be more serious than a criminal conviction (see Howe v. Institute of Chartered Accountants of Ontario (1994), 19 OR (3d) 483 (CA), per Laskin JA in dissent, at pages 495–496; Re Emerson and Law Society of Upper Canada (1983), 44 OR (2d) 729 (HCJ), at page 744).

33.    The scope of disclosure in professional hearings continues to be expanded by provincial courts, which have applied the Stinchcombe principles in cases where the administrative body might terminate or restrict the right to practice or seriously impact on a professional reputation (see Hammami v College of Physicians and Surgeons of British Columbia, [1977] 9 WWR 301 (BCSC), at paragraph 75; Milner v Registered Nurses Assn of British Columbia (1999), 71 BCLR (3d) 372 (SC)).  In Stinchcombe, the Supreme Court of Canada held that there is a general duty on Crown prosecutors to disclose all evidence that may assist the accused, even if the prosecution did not plan to adduce it.  While these principles originally only applied in the criminal law context, the similarities between a criminal prosecution and a disciplinary hearing are such that the objectives are, in my analysis, the same, ie the search for truth and finding the correct result.”

(d)  General

66.It can be seen that at least where serious disciplinary charges are concerned, the courts in various jurisdictions, while accepting disciplinary proceedings are non‑criminal in nature, have been prepared to recognise a duty of disclosure on the prosecuting authority that approaches the duty on the prosecution in criminal proceedings.

67.Arguing against any analogy with criminal proceedings, Mr Joffe referred me to the case of Li Kwok Keung Asser v Securities and Futures Commission.  In that case, a registered dealer’s representative was interviewed by the Commission under s 183 of the Ordinance and later found to have given misleading information.  Disciplinary action was instituted against him under s 194 for misleading the Commission and for failing to honour an undertaking given to cooperate with the Commission in its prosecution of some other persons.  On appeal (Application No 2 of 2009; 19 March 2010), the Securities and Futures Appeal Tribunal reduced the sanction but in the course of its decision (at §25) it drew certain analogy with a person facing criminal investigation who wishes to give evidence and seek immunity in exchange.

68.On further appeal (CACV 85/2010; 26 November 2010), the Court of Appeal (at §§61–66) warned against importing criminal law principles by a side‑wind into the disciplinary functions of the Commission.  At §1, Kwan JA said that in the context of disciplinary proceedings under the Ordinance, “it is inappropriate to import by analogy criminal procedure and the giving of evidence under immunity in a criminal prosecution”.  At §§52–60, Stone J also said that such analogies are inappropriate.

69.The Court of Appeal’s decision, however, concerned neither disqualification proceedings nor discovery of documents.  The statements quoted above were directed at the argument concerning immunity.  I do not read them as laying down categorically that, in the context of any proceedings under the Ordinance, analogy with criminal proceedings can never be helpful.

70.Indeed, at §54 of the Tribunal’s decision, Saunders J, sitting as the Chairman, expressed a preliminary view that, having regard to the Court of Final Appeal’s decision in Lam Siu Po v Commissioner of Police (2009) 12 HKCFAR 237, the need for fairness under Art 10 of the Bill of Rights should lead to a requirement for the disclosure of unused material in disciplinary proceedings, equivalent to that in criminal proceedings.  The Court of Appeal simply disapproved of the expression of such preliminary view by the Chairman when he had heard no argument on the question which was not before the Tribunal, without expressing its own view on that question.  It follows, in my respectful opinion, that Li Kwok Keung Asser is not authority against adopting an approach to disclosure in disqualification proceedings resembling the practice in disciplinary proceedings in the UK, New Zealand or Canada as described above.

(5)  Duty of disclosure in criminal cases

71.What then is the scope of the prosecution’s duty of disclosure in criminal cases in Hong Kong?  The question has been authoritatively dealt with in HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336.  As explained by Sir Anthony Mason NPJ in that case, that duty has its foundation in a defendant’s common law right to a fair trial.  What is fair must be determined in the light of the general principle of open justice.[21]  The duty of the prosecution is to disclose to the defence relevant material which may undermine its case or advance the defence case.[22]  As Mr Joffe correctly pointed out, even in criminal cases the law does not require automatic disclosure of all unused materials, but only in accordance with the test for relevance.  In Lee Ming Tee, the Court accepted[23] the test suggested by Jowitt J in R v Melvin (unrep, 20 December 1993) as representing a broad statement of what is subject to disclosure, namely:

“I would judge to be material in the realm of disclosure that which can be seen on a sensible appraisal by the prosecution: (1) to be relevant or possibly relevant to an issue in the case; (2) to raise or possibly raise a new issue whose existence is not apparent from the evidence the prosecution proposes to use; (3) to hold out a real (as opposed to a fanciful) prospect of providing a lead on evidence which goes to (1) and (2).”

72.In applying this test, the notion of “an issue in the case” is not to be construed in the way in which it is used in a civil case but must be given a broader interpretation: R v Brown (Winston) [1994] 1 WLR 1599, 1606H, per Steyn LJ.  It should be noted that this was said at a time before the modern reform of civil procedure in England, which means that when referring to civil cases, Steyn LJ was alluding to the Peruvian Guano approach rather than the narrower approach under Part 31.6 of the Civil Procedure Rules.

73.As the English Court of Appeal said in R v Ward [1993] 2 All ER 577 at 601j, relevant evidence of help to an accused is:

“not limited to evidence which will obviously advance the accused’s case. It is of help to the accused to have the opportunity of considering all the material evidence which the prosecution have gathered, and from which the prosecution have made their own selection of evidence to be led”.

74.The Court of Final Appeal in Lee Ming Tee took the same approach, stating that the material subject to disclosure “will ordinarily include materials that have been gathered by the investigating agency”.[24]

(6)  The applicable approach

75.In the present type of case the rules of discovery have to be applied in a manner sensitive to the requirements of Art 10, including the principle of equality of arms inherent in the concept of a fair trial.  As discussed above, while these are not criminal proceedings as such, it does not follow that when it comes to the question of disclosure of material to the defence, the position has to be exactly the same as in ordinary civil litigation between private antagonists. 

76.It has to be borne in mind that these are proceedings in which the respondents are faced with an adversary in the form of a governmental regulator which controls the investigatory process.  With powers that rank high in the “hierarchy” of coercive powers for obtaining information and of investigating suspected wrongdoing (see Stern, supra, at p 2257D), the Commission occupies a position analogous to criminal law enforcement agencies, with the additional advantage that an interviewee’s privilege against self‑incrimination is abrogated. 

77.Given the status of the Commission as a statutory body established for public functions, it seems to me that the observations of Sopinka J in R v Stinchcombe, supra, at p 333h–i are apposite: “the fruits of the investigation” which are in the Commission’s possession are not its own property for use in securing a disqualification order but the property of the public to be used to ensure that justice is done.  The proper role of the Commission is not a prosecutor bent on securing the disqualification of a respondent, but a fair‑minded regulator willing if not anxious to make all materials available for potential use in the trial to ensure a just outcome.

78.The requirement in civil cases that discovery has to be necessary for “disposing fairly of the cause or matter”[25] directs attention to the question whether one party enjoys a “litigious advantage” or suffers a “litigious disadvantage” with reference to access to documents: Taylor v Anderton [1995] 1 WLR 447, 462C.  The notion of equal access to documents relevant for the preparation of one’s case is an important facet of fairness in this kind of case, where the Commission has taken on the role of an investigator.  The Commission is not in original possession of any relevant information or documents generated by any transaction to which it was party.  It has acquired the documents only as a result of its investigation.  The respondent is generally not in a position to specify what information and documents the Commission has, other than that which it has chosen to disclose.  It is to be questioned whether practical fairness can be achieved if a respondent is required in this context to pinpoint a concrete and specific document or class of documents (so narrowly defined as to contain no irrelevant documents[26]) before he can obtain discovery.

79.Granted a disqualification order is not a “penalty” as such but has as its primary purpose the protection of the public from persons whose conduct shows them to be unfit to be directors, such an order nevertheless has a severe effect on the individual subjected to it.  It is the equivalent in the field of corporate management of a lengthy suspension of professional licence with the immediate consequence of terminating a person’s right to pursue his career and serious further implications for reputation and livelihood. 

80.Overseas jurisprudence suggests that there can be no absolute theoretical objection to, or insurmountable practical difficulty in, demanding a higher standard of disclosure in cases of a disciplinary or regulatory nature that involve such grave consequences as disqualification proceedings.

81.In considering the present question it is notable that the Commission has not relied on any particular feature of the information obtained under ss 179 and 183 or any special need for confidentiality over such material, or claimed public interest immunity for the documents as a class or by content.  Given that the information and documents obtained by the Commission can be (and have been in this case) used and disclosed by the Commission in legal proceedings, there can be no express or implied assurance of confidentiality to the interviewees and no compelling reason of public policy to prevent their disclosure to the respondent to such proceedings.  In any event, as Sir Anthony Mason NPJ said in Lee Ming Tee at §164, once proceedings have been begun, any public interest in maintaining confidentiality over the relevant material is to be achieved not by reducing the scope of disclosure, but by restricting the collateral use of disclosed material.

82.In my opinion, the practice in the present kind of case should be developed in such a way as to minimise the risk of making a disqualification order against an innocent director while at the same time not impeding effective law enforcement: per Glidewell LJ in R v Ward, supra, at 628.  To that end the test of relevance should be applied as broadly as is consistent with the requirements of justice having regard to the features of these proceedings, leading to a standard of disclosure approaching that espoused in Lee Ming Tee.  Thus approached, the Commission’s disclosure should ordinarily include the information and documents it has obtained from the investigation of the transactions that are eventually relied upon and complained of in the disqualification proceedings, except those which are obviously irrelevant even on this generous test. 

83.In any event, on closer examination, the language expressing the R v Melvin test (see §71 above) is not radically different from the traditional test of relevance in civil cases as laid down in Peruvian Guano: that is to say, a document is relevant if (a) it is reasonable to suppose that it contains information which may, not must, either directly or indirectly enable the party requiring the same either to advance his own case or to damage the case of his adversary, or (b) it is a document which may fairly lead the party to a train of inquiry which may have either of those two consequences.  It is the manner in which the tests are conventionally applied that may lead to differences in the scope of disclosure.

84.The Commission should in my view take a generous view of relevance.  The Commission was not a party to the transactions complained of.  It did not have the contemporaneous background knowledge possessed by the respondents.  It is not privy to the potential arguments, strategies and tactics of the respondents other than those already stated in their affirmations, or to the material or knowledge in their possession, which could put a different light on the documents in the Commission’s hands or which when combined with the Commission’s documents may prompt them to pursue further, potentially fruitful lines of inquiries.

85.The emphasis is on the notion that a document may fairly lead the party to further inquiries. The document need not in and of itself be directly useful, let alone admissible in evidence.  It is enough if there is a reasonable possibility that the document may provide a lead to a line of inquiry which may eventually help the party advance his own case or damage his opponent’s.  Applying the observations in Ward and Lee Ming Tee referred to in §§73-74 above, it would in my view be likely to be of help to the respondents to have the opportunity of considering the materials which the Commission has gathered in the investigation of the matters now complained of, and from which the Commission has made its own selection of evidence as set out in its affidavits supporting the petition.

86.There was indication[27] that the Commission had, at least at one stage, adopted the test of relevance in O Company v M Company [1996] 2 Lloyd’s Rep 347, where Colman J stated that to be discoverable, a document or class of documents must “offer a real probability of evidential materiality in the sense that it must be a document or class of documents which in the ordinary way can be expected to yield information of substantial evidential materiality to the pleaded claim and the defence to it in the broad sense which I have explained”.  Thus the documents relating to the professional firms of Ascent Partners, Greater China Appraisal and Roma Oil and Mining, which seem to me to be highly relevant, were considered by the Commission to be of “questionable” relevance[28] (albeit disclosed eventually without admission of relevance). 

87.While O Company v M Company sets out a useful approach for limiting discovery and production in appropriate cases, I doubt if it can be taken as laying down a generally applicable test of relevance insofar as it appears to depart from Peruvian Guano which is still the governing test in ordinary civil litigation in Hong Kong: see Melvin Waxman v Li Fei Yu (unrep, HCA 1973/2012, 30 January 2015), §§49–54 per Deputy Judge Marlene Ng; Hollander, Documentary Evidence in Hong Kong §7–021.

88.It is said that the documents sought must be relevant to the pleaded issues in the petition proceedings.  In my view this is too narrow a view to take, particularly in this kind of case. Relevance, especially in the sense of the potential to lead to further inquiries, is not confined to issues already pleaded; “the matters in question” cover wider ground: Thorpe v Chief Constable of Greater Manchester Police [1989] 2 All ER 828, 833.

VI.  The request for discovery in the present case

89.The first group of documents in question (category (c) of the schedule to the summons) is the records and documents obtained by the Commission pursuant to s 179.  The s 179 authority in this case was issued on the basis, as stated in the authority itself, that it appeared to the Commission there were circumstances suggesting that:

“(a) persons involved in the management of the affairs of [the Company] have engaged in defalcation, fraud, misfeasance or other misconduct towards it or its members or any part of its members; and/or

(b)     members of [the Company] or any part of its members have not been given all the information with respect to its affairs that they might reasonably expect.”

90.In the context it is probable that the suspected “defalcation, fraud, misfeasance or other misconduct” related at least in part to the two main groups of transactions that the Commission is now complaining of in the petition, ie the hotels and gold mine (albeit only misfeasance or other misconduct are now alleged, and not defalcation and fraud).  The notices received by the respondents themselves required them, under s 179(2), to provide explanations of the records and documents “in relation to acquisitions and disposals of issued share capitals of” Sunny Team[29], China Earn[30], Homesmart[31] and HK Gaofeng[32] by the Company, that is to say, the companies through which the Group acquired the 3 hotels and the interests in the gold mine.

91.Further, by virtue of s 179(5), that authority was not to be issued unless there was “reasonable cause to believe that the record or document relates to the affairs” of the Company or a related corporation. 

92.Similarly, the s 182 direction to investigate was issued on the basis, as stated there, that there was reasonable cause to believe that during the period from 9 June 2009 to 11 September 2009:

“(a) persons may have engaged in disclosure of false or misleading information inducing transactions in the shares of [the Company], contrary to section 277 of the Ordinance; and/or

(b) offences of disclosure of false or misleading information inducing transactions in the shares of [the Company] may have been committed, contrary to section 298 of the Ordinance; and/or

(c)     [the Company] and/or persons connected with it may have committed offences contrary to section 384[33] of the Ordinance.”

9 June 2009 was the date of the agreement for the acquisition of the additional 47.2% shareholding in HK Gaofeng (see §13 above).  11 September 2009 was the date of the Company’s circular about its acquisition of interests in HK Gaofeng.  It is fair to infer that among the target of investigation was whether the above offences were committed in relation to the gold mine transaction.

93.Each of the persons interviewed by the investigators under s 183 must, necessarily by virtue of s 183(1), be a person that the investigator “has reasonable cause to believe has in his possession any record or document which contains, or which is likely to contain, information relevant to [the] investigation”.

94.In these circumstances it is in my view not unreasonable to think that at least a good part of the materials gathered by the Commission will fall within the scope of disclosure suggested above.

95.Further, it is to be noted that at numerous points in the petition, the Commission asks the court to draw an inference of negligent failure on the part of the respondents because there is no document found or the respondents could not produce any supporting evidence or documents.  Thus, for example, it is alleged that (i) that it is to be inferred the respondents did not conduct any sufficient due diligence in relation to the gold mine, because they had not produced any documents or records (save a few documents) to the Commission to evidence the due diligence carried out;[34] (ii) that it is to be inferred the respondents did not make site visits or attend meetings and telephone conferences referred to in the circular of 11 September 2009, because there is no documentary evidence and the respondents could not identify any;[35] (iii) that it is to be inferred the respondents did not negotiate the consideration for the acquisition of the interests in the gold mine, because neither the Company nor the respondents had produced any evidence of negotiation; [36] (iv) that it is to be inferred the respondents did not take advice from persons with due qualifications as to who was suitable to be appointed as directors of Inno Gold, because they could not provide or identify any evidence of taking advice;[37] and (v) that it is to be inferred the respondents did not conduct any evaluation or obtain independent advice as to whether to adopt the drilling plan or the expansion plan first, because there is no record of them having so considered.[38]

96.It seems to me in order properly to consider whether these inferences should be drawn, it is pertinent to see at least in broad terms what the scope of the Commission’s investigation was and what information the Commission has actually been able to obtain.  For example, there is a material difference between a situation where an interviewee had little recollection about the relevant events generally and a situation where an interviewee remembered the events clearly but said he could not recall having had any negotiation with the respondents.  Likewise, it would be pertinent to see what persons were interviewed and what questions were put to them in order to evaluate the significance of the allegation that the Commission has not obtained any documentary evidence of telephone conferences or site visits about the gold mine.

97.The application as framed is one for specific discovery, but the reality is that the Commission has not been required to give general discovery in accordance with the principles and standards I have endeavoured to outline above.  There is reason to suppose that there are documents that fall within the scope of discovery as discussed which have as yet been undisclosed.  On the other hand the Commission must be given the opportunity to contest that even on the basis of this decision there are documents within the class that are not at all relevant, for example because they relate to investigation of some wholly different transactions.  In these circumstances I think the more appropriate course is for the court to require the Commission to file a list of documents in the light of this decision.  Any further dispute can be dealt with if and when it arises at a subsequent stage.

VII.  Disposition and orders

98.In the result I order that the Commission do within 28 days (or such further time as may be agreed with the respondents) make and serve on the respondents a list of the documents which are or have been in its possession, custody or power relating to any matter in question in these proceedings.  I give the parties liberty to apply.

99.There will be an order nisi that the Commission do pay the respondents the costs of the application with a certificate for two counsel.

Mr Victor Joffe and Ms Queenie Lau, instructed by Securities and Futures Commission, for the Petitioner

Mr Bernard Mak and Mr Issac Chan, instructed by Tso Au Yim & Yeung, for the 1^st to 4^th Respondents

Lam & Co. for the 5^th Respondent was excused from attendance