The Queen v. Lam Nai Sum, Robin and Another
Read the full judgment text of HCMA 817/1991 on BabelCite. This High Court CFI judgment was delivered on 27 November 1991.
1. This is an appeal against conviction, the appellants having been convicted by Miss Mary Yuen Magistrate, at Western Magistracy, of offences against section 80(1) of the Securities Ordinance, Cap 333 They were in fact accused of short selling a number of shares of International Tak Cheung Holdings Limited (ITC).
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HCMA000817/1991 Magistracy Appeal No. 817 of 1991 ----------------- HEADNOTE ------------------ SECTION 80 (1) (a) OF THE SECURITIES ORDINANCE CAP. 333 DOES NOT DESCRIBE AN OFFENCE OF STRICT LIABILITY. IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) MAGISTRACY APPEAL NO. 817 OF 1991 ----------------
---------------- Coram: Hon. Duffy J. in Court Date of hearing: 13 November 1991 Date of delivery of judgment: 27 November 1991 ------------------ JUDGMENT ------------------ 1. This is an appeal against conviction, the appellants having been convicted by Miss Mary Yuen Magistrate, at Western Magistracy, of offences against section 80(1) of the Securities Ordinance, Cap 333 They were in fact accused of short selling a number of shares of International Tak Cheung Holdings Limited (ITC). 2. The 1st appellant and the 2nd appellant are son and father. The 1st appellant is a sales manager of Mansion House Securities (F. E.) Limited which is an authorised dealer at the Unified Stock Exchange. The 2nd appellant, the father of the 1st appellant, trades in securities only through Mansion House Securities (F. E.)Limited. It is his son, the 1st appellant, who looks after his dealings in securities. 3. It is not in dispute that the 1st appellant, as agent for the 2nd appellant, sold 150,000 of the 1992 Warrants of ITC in three batches, one of 70,000, one of 30,000, and one of 50,000 on 26th September 1990. Interviews conducted with the appellants pursuant to s.33(6) of the Securities and Futures Commission Ordinance, Cap 24, the admissibility of which interviews was not in dispute, were to the effect that both appellants had made a mistake in believing that the 2nd appellant still had ITC shares when 150,000 shares in the three batches as alleged were sold on his behalf by the first appellant. The 2nd appellant said he thought he still had the shares when he asked his son to sell 150,000 ITC Warrants, and the, 1st appellant said he forgot that he had sold all of his father's ITC Warrants before receiving instructions to sell those which are the subject matter of the charges. 4. At the conclusion of the Crown case, it was submitted that there was no case for either appellant to answer on the basis that s.80 (1) of the Securities Ordinance, Cap 333 requires proof of mens rea, so that the Crown must establish not only that the securities were not within the disposable rights of the appellants, but that the appellants had no reasonable or honest belief that they were. The learned magistrate ruled that there was a case to answer against both appellants. She determined that s.80(1) creates an offence of strict liability and therefore that it was unnecessary for the Crown to establish mens rea in the appellants. She then said this .-
This was in answer to a Crown submission that s.80(1) was either an offence of strict liability or that it created a negative averment situation. It is not now seriously contended that this is a negative averment situation though it was advanced by the Crown as an alternative argument at trial.
5. For her decision she relied on the dictum of Lord Scarman in the case of Gammon (Hong Kong) Ltd. v. A.G. [1984] 2 All ER 503 at 508 where he said:-
6. In that case, the appellants had been charged with offences against s.40 (2A) and (2B) of the Buildings Ordinance. Their Lordships concluded that these two sections created offences of strict liability, but they said this :-
7. In her findings, and after reference to Lord Scarman's propositions in Gammon, the learned magistrate said this :-
a presently exercisable and unconditional right to vest the securities in the purchaser of them." Section 80(4) is to the following effect:- "(4) Subsection (1) does not apply to or in relation to-
Subsections (4)(c) and (4) (d) are not relevant to the issues in this appeal. 8. It seems to me that before there is any consideration of Lord Scarman's propositions it is essential to look to the wording of the provision for any indication of the nature of the offence, or to see if the legislature intended that the presumption `of mens rea be displaced. 9. Reading s.80 (1) and s.80(4) (a) and (b) together, I think it is clear that the legislation prohibits short' selling of securities, but that it specifically does not apply to those persons who, acting in good faith in the reasonable and honest belief that they have a right, title, or interest to the securities sell them when in fact they do not. Only those, therefore, who sell shares short and who do not have an honest or reasonable belief that they have the right to dispose of the shares can be guilty of the offence described by s .80 (1). The magistrate has to be satisfied of those matters beyond a reasonable doubt before a conviction can be entered. There is nothing, it seems to me, in the wording of s.80 (1) (b)and 80 (4) or in the concept they propound, which suggests that the onus of establishing honest and reasonable belief should shift to the defence. 10. Offences are described in this Ordinance in a variety of ways : Sections 72, 73, 74, 75 and 79, it was submitted, create offences of strict liability; Sections 77 and 78, Were described as negative averment situations; and section 76 was sown to expressly create a defence to be proved by the accused on the balance of probabilities. Whether the sections to which I refer do create offences of strict liability or are negative averment situations does not fall to me to decide. Suffice it to say that while section 80(4)(a) and (b) are similar in style to Section 72 (5) (a), (b), (c) & (d), Section 73 (3) (a), (b) & (c) and Section 74 (2) (a) and (b) in that they are exemption provisions and no indication exists in the wording of the legislation as to where lies the onus of establishing them, only Section 80 deals with a defendant's state of mind which it is usually for the prosecution to establish. 11. Mr Whitehouse who appeared for the prosecution on the appeal quoted extensively from Chapter 6 of sixth edition of Smith v. Hogan's Criminal Law. That Chapter deals with "Crimes of Strict Liability". Relying on that text he submitted that in some instances there might be a half-way house between mens rea and strict liability and that this was such a case. That proposition has not found a place in established principle, and the English authorities fail far short of suggesting that it should. 12. However he also put before me the case of R. v. HUNT [1987] 1 AC 352. In that case the House of Lords dealt specifically with the burden of proof and possible exceptions to the rule that that burden always rests on the prosecution. The case dealt with the Misuse of Drugs Act 1971 and the Misuse of Drugs Regulations 1973. Their Lordships held that the burden of proving the accused’s guilt was on the prosecution, save in the case of the defence of insanity and subject to statutory . exceptions; they found that such exceptions might be express or implied and where a reading of the terms of the legislation did not indicate clearly where the burden lay the court could look to other considerations to determine the intention of the legislature.
13. It was submitted by Mr Whitehouse that it was placing too onerous a burden on the prosecution to expect them to prove that the defendants did not have a reasonable and honest belief. I do not agree. There is in my view little or no greater difficulty for the prosecution in proving belief than in proving intent; both are to be inferred generally from the facts and circumstances of the case, unless admissions have been made in relation to them, and the absence of an honest and reasonable belief that shares are available to be disposed of equates easily with mens rea. In effect, in relation to both the crown are asked to prove that the short selling was deliberately dishonest. 14. Mr Whitehouse further submitted that, the wording of s.80 did not clearly state where the burden of. proof lay, and that s.80 (1) (b) established a statutory defence, so that the burden lay on the appellants to establish that defence on the balance of probabilities. Once again he was relying on the sixth edition of Smith v. Hogan's Criminal Law at p.118 where it is said:
15. It seems to he that it has become a feature of such statutory defences such as-that provided for in Section 7(1) of the Fertiliser and Feeding Stuffs Act 1926 that the defendant is specifically required to prove the. defence. A local example of that is s.76 of the Securities Ordinance, Cap 333; another is s.171(1A) of the Immigration Ordinance, Cap 115 which allows a defendant to escape the consequences of employing an illegal immigrant if he can "prove" that he took all practicable steps to discover the immigrant's status. Section 80 of the Securities Ordinance is couched in different terms, with no requirement on the defendant to establish his bona fides, and I would suggest that courts should be very slow to shift the onus to a defendant where the wording of legislation does not specificially require it. I am satisfied that no recognisable principles of contruction or substantive law are offended by a finding that it is for the crown to establish beyond reasonable doubt that the short selling, made an offence by s.80 (1) (a), was done in the absence of an honest and reasonable belief that shares were available and disposable.I am satisfied that there are no "practical considerations" which contra-indicate such a finding. I am satisfied that a "linguistic construct 'on" of the provision is not inconsistent with such a finding. 16. Obviously if the only evidence before a magistrate is to the effect that short selling has taken place, and there is no evidence of honest and reasonable belief, then a conviction will inevitably follow. There is then, nothing in the evidence to lead the magistrate to have a reasonable doubt about the fact that the short selling was deliberately dishonest. But if, as in this case, evidence is before the magistrate of an honest and reasonable belief, and whether that evidence is part of the Crown case, or adduced in the course of the defence case,before, there can be a conviction, the magistrate must be satisfied beyond reasonable doubt that no such honest and reasonable belief exists. It goes without saying that the onus of so satisfying the magistrate is at all times upon the Crown. 17. It follows, therefore, that I find that the magistrate was wrong when she said; "the burden was therefore on the defendant to establish, on a balance of probability, that they either owned the security in question or that they entertained an honest and reasonable belief that they had the ITC Warrants at the time of the short selling." 18. Accordingly I allow the appeal, quash the convictions and set aside the.sentence.
Representation: Mr.Whitehouse, C.C., for Crown Mr. Hatton (Haldane Midgley & (Booth) for both Appellants | |||||||||||||||||||||||||||||||||||||