Securities and Futures Commission v. Liu Su Ke
Read the full judgment text of HCMA 518/2009 on BabelCite. This High Court CFI judgment was delivered on 25 November 2009.
1. The appellant appealed against his conviction on 2 June 2009 by Mr Douglas T.H. Yau at Eastern Magistrates’ Court of two summonses, in respect of his failure to make the requisite disclosure, to the Stock Exchange of Hong Kong Limited and Warderly International Holdings Limited (“Warderly”) respectively, within three days of becoming aware on 31 August 2007 of his interest in of 231.8 million Warderly shares on 28 December 2006, contrary to sections 310(1)(a), 313(1)(a), 324, 325(1)(b) and 32
Cited by 3 cases · Cites 8 cases
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HCMA518/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE APPELLATE JURISDICTION MAGISTRACY APPEAL NO. 518 OF 2009 (ON APPEAL FROM ESS 45475 AND 45476 OF 2008) --------------------- BETWEEN
---------------------- Before : Hon Lunn J in Court Date of Hearing : 17 November 2009 Date of Judgment : 25 November 2009 -------------------------- J U D G M E N T -------------------------- 1.The appellant appealed against his conviction on 2 June 2009 by Mr Douglas T.H. Yau at Eastern Magistrates’ Court of two summonses, in respect of his failure to make the requisite disclosure, to the Stock Exchange of Hong Kong Limited and Warderly International Holdings Limited (“Warderly”) respectively, within three days of becoming aware on 31 August 2007 of his interest in of 231.8 million Warderly shares on 28 December 2006, contrary to sections 310(1)(a), 313(1)(a), 324, 325(1)(b) and 328(a)(ii) of the Securities and Futures Ordinance, Cap. 571 9 (the “Ordinance”). There is no appeal against the fines of $5,000 imposed by the magistrate on each summons. SUMMONSES 2.The two summonses, amended in the course of the trial, were similar in nature and alleged that without reasonable excuse the appellant had failed as required to notify firstly, Warderly and secondly, the Stock Exchange of Hong Kong Limited:
THE PROSECUTION CASE 3.The prosecution case at trial was that on 28 December 2006 a company controlled by the appellant, Vision Eagle Limited (“Vision Eagle”), had entered into a ‘Term Loan Facility’ agreement with Housely Industries Limited (“Housely”) a subsidiary of Warderly to lend a maximum of $6 million. At that time Mr Yeung Kui Wong was the Chairman and an executive director of Warderly, of whose issued shares he held 54.99%. By a document of the same date, headed ‘Authorisation Letter under Seal’, Mr Yeung and two companies that he controlled, Imperial Profit Enterprises Limited (“Imperial”) and Primer Capital Investments Limited (“Primer”), undertook to deposit with the appellant 231,800,000 Warderly shares. By reference to the Term Loan Facility, the Authorisation Letter stated that Mr Yeung and the two companies:
A “Notice of Drawing”, dated 28 December 2006, signed by Mr Yeung on behalf of Housley gave notice that the borrower wished to draw the entire sum of $6 million. It was an admitted fact that the loan was made. 4.The prosecution called two partners and a former assistant solicitor of Messrs Stevenson Wong, who described their role in the drafting and execution of the Term Loan Agreement, the Authorisation Letter and the related documentation. Furthermore, they described the circumstances in which Stevenson Wong had come to be in possession of those Warderly share certificates prior to the execution of the Letter of Authorization. It was an admitted fact that, on behalf of Imperial and Primer, Mr Yeung had deposited those share certificates: on 17 November 2006, 144,800,000 and 30 million Warderly shares on behalf of Imperial and Primer respectively; and on22 December 2008, 30 million shares on behalf of Imperial. 5.The share certificates were delivered by Mr Yeung to Ms Cordelia Chu, a partner of Stevenson Wong, accompanied by related “Standard Form of Transfer” and “Bought and Sold” notes, signed by Mr Yeung on behalf of the respective transferors, but blank as to the transferee. 6.Mr Lo Hang Fong, a partner of Stevenson Wong and the company secretary of Warderly at the material time, testified that he was aware Housley had defaulted on repayment of the term loan, the date for repayment being one month after the grant of the loan. Ms Cordelia Chu signed as a witness on the Standard Transfer Form in which 30 million Wardley shares, out of the 231,800,000 shares, were transferred to the appellant on 20 April 2007. She did so on instructions either of Mr Yeung or Mr Johnny Tang. 7.It was an admitted fact that by a letter dated 31 August 2007, from Stevenson Wong to the appellant, copies of the Term Loan Facility agreement, the Authorisation Letter and the Notice of Drawing, all dated 28 December 2006, together with undated Standard Forms of Transfer and Bought and Sold notes signed by Mr Yeung in the names of Imperial and Primer respectively were delivered to the appellant, receipt of which was acknowledged by the appellant. DEFENCE CASE 8.The appellant did not give or call evidence at trial. On his behalf various issues of law were canvassed, it being submitted that:
9.Of evidential matters, it was submitted that there was no evidence that the appellant knew of the existence of the Authorisation Letter until receipt of a copy of that document by the letter of Stevenson Wong to him dated 31 August 2007. Further, that in any event the Authorisation Letter only authorised the sale of shares to the extent of a failure to repay monies due under the Term Loan Facility. It followed that the number of shares that the appellant was authorised to sell was not determined until that event occurred. The transfer of 30 million shares to the appellant on 20 April 2007, apparently related to the failure to make repayment of loans and interest due, had been accompanied by appropriate disclosure to both Warderly and the Stock Exchange of Hong Kong on 24 April 2007. REASONS FOR VERDICT The intention of the parties 10.The magistrate determined that there was no pledge of the shares to the appellant. In support of that determination, he cited statements in the judgment of Ma J (as he was then) in the Bank of China (Hong Kong) Ltd and Kanishi (Far East) Ltd & Another [2002] 2 HKLRD 52. In the context of the grant of a charging order absolute the judge considered the validity of a loan agreement under which shares were described as “pledged” as security for the loan. Under the agreement the borrower had delivered to the lender share certificates and signed blank instruments of transfer. On failure to repay the loan, the claimant enforced the security of the shares by completing the blanks on the Instrument of Transfer, previously signed by the Judgment Debtor, signing it as transferee. The magistrate relied upon the statement of Ma J that (page 25A–D, paragraph 25) that:
11.However, having considered the circumstances of the deposit of the share certificates with Stevenson and Wong by Mr Yeung and having addressed the issue of the intention of the parties as related to the making of the Authorisation Letter, the magistrate determined (paragraph 19):
He went on to note(paragraph 21)::
12.Of the nature of that agreement, the magistrate found (paragraph 20):
13.In the result, the magistrate concluded (paragraph 21):
‘Without reasonable excuse’: the burden of proof 14.Of the issue of upon whom lay the burden of proving or disproving that the failure to disclose was “without reasonable excuse”, the magistrate rejected the submission of the prosecution that the burden lay on the appellant on the balance of probabilities. The magistrate determined that (paragraph 25):
15.In so finding, the magistrate stated that he relied upon the judgment of the Court of Appeal in Lam Yuk Fai v HKSAR [2006] 9 HKCFAR 281 and the judgment of McMahon J in the Court of First Instance in HKSAR v Ng Po On [2007] 2 HKLRD 255. It appears that the magistrate was not informed that the Court of Final Appeal had delivered judgment in the latter case more than 12 months prior to the hearing before him and reported in [2008] 11 HKCFAR 91. 16.Of the resolution of the factual issue, of whether or not the appellant had conducted himself as he did “without reasonable excuse” the magistrate stated:
‘Ignorance of the law’ 17.The magistrate stated that it was trite law that “ignorance of the law is no defence”. He pointed out that there was no evidence at all that the defendant had made a mistake of law or that he was ignorant of the law. GROUNDS OF APPEAL AGAINST CONVICTION GROUND 1 18.By Ground 1, Mr Cheng Huan SC submitted that the magistrate had erred law in determining that the letter of authorisation created an equitable mortgage in favour of the appellant in respect of the 231.8 million Warderly shares. 19.It was contended that the magistrate had failed “to make a proper finding” in respect of the issue of whether or not, following the deposit of the Warderly shares with them, Stevenson Wong held them on behalf of the appellant. The court was reminded of Mr Lo Hang Fong’s evidence that initially the shares had been deposited with Stevenson Wong, apparently to allay concerns of a re-structuring management committee within Warderly that Mr Yeung would dispose of his shares. Further, that the share certificates had never been deposited with the appellant and that Stevenson Wong for their part merely “sat on the documents”. 20.The court was asked to note the evidence of Mr Lo Hang Fong and Ms Cordelia Chu in respect of the transfer, on 21 March 2007, of 30 million of the 231.8 million Warderly shares held by Stevenson Wong, 10 million shares to Grand Access Finance Limited and 20 million shares to Liu Ping. In particular, the court’s attention was drawn to the evidence of Ms Cordelia Chu that those transfers, which she witnessed on the Standard Form of Transfer, occurred on the instructions of either Mr Yeung or Mr Johnny Tang (the latter being a consultant of one of the potential investors), not on the instructions of the appellant. Similarly, she said that she had acted on instructions of either Mr Yeung or Mr Johnny Tang and witnessed similar documentation concerned in the transfer to the appellant of 30 million shares on 20 April 2004. 21.Further, it was contended that the evidence of Mr Lo Hang Fong that following his advice at the initial stage to the representative of both parties that, if a mortgage of shares was put in place as security for the loan, duties of disclosure by both lender and borrower might arise, together with his testimony that the representatives of Warderly did not wish disclosure of the fact of a mortgage of Mr Yeung’s Warderly shares to be made, suggested that:
22.Finally, it was submitted that the magistrate erred in finding that although physical possession of the 231.8 million shares of Warderly remained throughout with Stevenson Wong, nevertheless the appellant was in “constructive possession” of those shares. In particular, it was submitted that the magistrate had erred in reaching that finding in relying upon the evidence in re-examination of Mr Lo Hang Fong that, in light of the terms of the Authorisation Letter, the appellant was entitled to call for the shares and that, if called upon to do so, he would have delivered them to the appellant. GROUND 2 23.By Ground 2 it was submitted that the magistrate erred in convicting the appellant of the offences alleged in the two summonses given that at the time averred, namely within three business days after 31 August 2007, the appellant’s interest in the 231.8 million Warderly shares had been extinguished, following the transfer of 30 million shares to him on 20 April 2007 in settlement of the monies due under the term loan facility. In support of Ground 2, the rhetorical question was posed:
GROUND 3: without reasonable excuse 24.By Ground 3 it was submitted that the magistrate erred in the determining that the provision in section 328 operated to impose an “evidential burden” on the appellant, namely that:
25.It was contended that the prosecution had to prove not only that the appellant had failed to perform the duty imposed upon him but also that the appellant had done so “without reasonable excuse”, which matter was an ingredient of the offence. 26.Mr Cheng submitted that the magistrate made contradictory determinations when he stated (paragraph 25):
27.Mr Cheng suggested that if what the magistrate meant in saying, “the element of without reasonable excuse is part of the law creating the offence” was that was an element or ingredient of the offence, then it followed that it was for the prosecution to disprove that issue and to do so beyond reasonable doubt. No question of an evidential burden on the appellant arose. 28.Finally, Mr Cheng drew the attention of the court to the judgment of Barnes J in Securities and Futures Commission v Yu Ka Tak (HCMA 62/2007, 9 November 2007—unreported), in which she addressed the ingredients of the offence provided for in section 114(3)(b) and (9) of the Securities and Futures Ordinance. Those provisions make it an offence for a person without reasonable excuse to hold himself out as performing any regulated function in relation to a regulated activity carried on as a business. Barnes J held that proof that the conduct was without reasonable excuse was an ingredient of the offence. GROUND 4 29.By Ground 4 it was submitted that the magistrate had erred in concluding, “… that because the Appellant elected not to give evidence, there was no evidential basis for a claim of reasonable excuse for non-disclosure.” THE SUBMISSIONS OF THE RESPONDENT GROUND 1 30.Mr Bell submitted that the magistrate was entitled to pay particular attention to the documentation created between borrower and lender in determining that it established an equitable mortgage of the Warderly shares deposited by Mr Yeung with Stevenson Wong. In particular, he pointed out that the Term Loan Facility letter provided by clause 3(c) that it was a condition precedent, of an obligation in the Lender to advance monies under the loan agreement, that it had received first of all an irrevocable Authorisation Letter addressed to the appellant and executed by Mr Yeung, Imperial and Primer. The Authorisation letter, also executed on 28 December 2006, undertook to deposit Warderly share certificates to a total of 231.8 million shares with the appellant together with signed share transfer forms. Signed, but the otherwise blank, share transfer forms together with signed, but otherwise blank, ‘Bought and Sold’ notes were deposited with Stevenson Wong. Finally, a notice dated 28 December 2006 was given of the ‘drawdown’ of whole facility of $6 million. 31.Of the contention made on behalf of the appellant, that nevertheless the evidence as a whole did not establish that it was the intention of the appellant to become the beneficiary of an equitable mortgage of the Warderly shares, Mr Bell invited the court to note that neither Mr Yeung nor the appellant gave evidence and therefore did not address their respective intentions in reaching and carrying out the agreement. He accepted that it was clear that Mr Yeung did not wish to make a disclosure of the fact of a change in his interest in his holding of Warderly shares. On the other hand, he submitted that it was clear that the appellant wished to have security for the loan advanced and that there was put in place an irrevocable right in the appellant to sell the Warderly shares in the event of a default in repayment, which event occurred and which resulted in the transfer of 30 million Warderly shares into the name of the appellant on 20 April 2007. 32.Of the evidence that, on 21 March 2007, 30 million of the 231.8 million shares deposited with Stevenson Wong had been transferred into the names of other parties on the instructions of either Mr Yeung or Mr Tang, Mr Bell submitted that the evidence of the circumstances of transfer was unclear but, if the transfer had been done without the appellant’s consent, clearly that was in breach of the arrangements between the parties of 28 December 2006. 33.Finally, Mr Bell submitted that although the documentation described an “undertaking” to deposit the 231.8 million Warderly shares, in fact that had been done in advance of that date by deposit with Stevenson Wong, who then held them on behalf of the appellant. As a result, he submitted the magistrate was correct to determine that an equitable mortgage of the 231.8 million shares in favour of the appellant had been created on 28 December 2006. GROUND 2 34.Mr Bell invited the court to reject the submission that because, by the time that the appellant came to know that he had a notifiable interest in Warderly shares, namely 31 August 2007, his interest had been extinguished with the result that he was under no duty to make any disclosure. He pointed out that:
35.Of the effect of those provisions, Mr Bell submitted that there was nothing in the Ordinance that dispensed with the requirement of disclosure in the appellant if his interest in the Warderly shares was subsequently extinguished. Of the appellant’s duty, he contended:
GROUND 3: without reasonable excuse 36.Mr Bell opposed the submission made on behalf of the appellant that the provisions of sections 328, relating to the issue of conduct “without reasonable excuse”, were ingredients of the offence for the prosecution to prove. He drew the attention of the court to a passage in the judgment of Lord Steyn in R v Lambert and others [2002] 2 AC 545 at 571, cited with approval in the judgment of Ribeiro PJ in Ng Po On (page 107, paragraph 41):
37.Mr Bell submitted that approach to the construction of a statutory provision was to be found in the judgment of Chan PJ in Tong Yiu Wah, in which he described the task as being (page 569J, paragraph 10):
Having adverted to the need to construe the statute in its context, Chan PJ went on to say (page 570 C, paragraph 11):
38.Of the relevance of the underlying policy, that lay behind the objects and purposes of a statute or an Ordinance, Mr Bell referred to the judgment of Lord Woolf NPJ in Lam Yuk Fai, in which he had contrasted the context of the legislation there being considered, namely provisions in the Immigration Ordinance relating to the transfer of travel documents, with the statutory provision in the United Kingdom relating to the carrying of a bladed instrument in a public place without good reason or lawful authority, considered in R v Mathews [2003] EWCA Crim 813 (page 294F, paragraph 35):
The purpose and objects of the legislation 39.Mr Bell submitted that it was clear from the Long Title of the Ordinance, together with the fact that the whole of Part XV of the Ordinance was given over to the issue of disclosure of interests, that a significant purpose was the “protection of investors” through transparency by making available to the market as a whole information about the acquisition and cessation of interests in listed shares at certain levels of holdings. A CONSIDERATION OF THE SUBMISSIONS The nature of these proceedings 40.As was pointed out in the judgment of Bokhary PJ in the Court of Final Appeal in Chou Shih Bin v HKSAR (2005) 8 HKCFAR 70 at 78 (paragraph 19):
The judge went on to note:
The material available to the court 41.There is available to the court not only all the documentary evidence placed before the magistrate but also a transcript of all the oral evidence at trial. The statutory scheme (i) Acquisition of an interest in shares: the duty of disclosure 42.Section 310 of the Securities and Futures Ordinance, Cap. 571 provides that:
Section 313(1) provides that:
(ii) A notifiable interest 43.Section 322(1), inter-alia, determines the circumstances in which a person has or ceases to have an interest in shares. Section 322(2) provides that:
By operation of sections 308(1) and 311(3) of the Ordinance, a person has a notifiable interest:
Section 315(1)(a) provides that the “notifiable percentage level” in Part XV of the Ordinance is 5%. (iii) Requirements for giving notification 44.Section 324 requires that a person under a duty of disclosure under section 310:
45.Section 325 makes provision for the time at which notification is to be given, where the duty arises under section 310(1) or (4):
(iv) The offence: the requisite circumstances 46.Section 328 provides that:
“relevant event” Section 308 provides that: “relevant event”
The nature of the appellant’s interests in the parcel of 231.8 million Warderly shares 47.In his analysis of the nature of the appellant’s interest in the 231.8 million Warderly shares deposited with Stevenson and Wong by Mr Yeung, the magistrate examined both the relevant law and the evidence adduced at trial. Of the evidence, the magistrate addressed specifically: (i) the relevant documentation, in particular the Term Loan Facility letter and the Authorisation Letter and the circumstances in which they had come into being; and (ii) the circumstances of the deposit and subsequent dealings in the share certificates at Stevenson Wong. 48.Clearly, the intention of the parties is of importance in determining the nature of the arrangement reached between the parties. In determining the intention of the parties, it is important to bear in mind the purpose of the arrangement. THE LAW A. Pledge 49.In my opinion, with respect, the magistrate was correct to rely upon the judgment of Ma J in Bank of China v Kanishi and others in determining that the arrangement between the parties was not a pledge of the 231.8 million Warderly shares, in particular that:
50.The authors of Crossley Vaines ‘Personal Property’ (5th Edition–1973) make the same point (page 459):
B. An equitable mortgage 51.There is no dispute that in quoting from passages in Fisher and Lightwood’s ‘Law of Mortgages’ (12th edition–2006) the magistrate reminded himself correctly of the kind of documentation that passes between the parties that is the indicia that the parties intend an equitable mortgage of shares offered as security for a loan:
52.Of the memorandum of deposit, the authors note that it usually contains:
Of other documentation, the authors note:
(i) Deposit of the 231.8 million Warderly shares with Stevenson Wong 53.The magistrate noted that the appellant had never had personal physical possession of the share certificates, rather throughout the share certificates were in the possession of Stevenson Wong. Nevertheless, in finding that the appellant had “constructive possession” of the share certificates, he noted the evidence of Mr Lo to the effect that if the appellant had called for physical possession of the share certificates to be given to him he would have complied with that request. 54.Criticism is made on behalf of the appellant of the magistrate’s acceptance of that evidence. However, the evidence was entirely understandable and consistent with the documentation that Stevenson Wong had drafted for the parties to sign to bring into effect the loan of $6 million. As the magistrate noted elsewhere in his Reasons for Verdict, it was a ‘Condition Precedent’ of the making of an advance under the Term Loan Facility agreement, dated 28 December 2006, that the lender:
55.The ‘Authorisation Letter Under Seal’, dated 28 December 2006, signed by Mr Yeung personally and in his capacity as a director of Imperial and Primer respectively, was addressed to the appellant and provided an undertaking:
It went on to refer to the Term Loan Facility Letter, which it stated was annexed thereto, and provided:
56.Of the fact that Stevenson Wong did not transfer physical possession of the share certificates to the appellant, Mr Lo Hang Fong explained in his evidence that came about because, “… neither of the parties… ask us to do anything, we just sat on the documents.” It is to be remembered in that context, that the Warderly share certificates were deposited with Stevenson Wong on two separate occasions, receipt being acknowledged on 17 November and 22 December 2006. Originally, the purpose was to assuage concerns of the management committee and potential investors that Mr Yeung might sell his shares. The Term Loan Facility agreement, Authorisation Letter and advance of $6 million on 28 December 2006 overtook the original purpose of the deposit of the shares with Stevenson Wong. In cross-examination, Mr Lo Hang Fong was unable to proffer any explanation for the fact that the value of the 231.8 million Warderly shares deposited with Stevenson Wong was entirely out of proportion to the $6 million loan. On 20 April 2007, the day on which 30 million of the Warderly shares deposited with Stevenson Wong were transferred to the appellant, the low price of Warderly shares quoted at the Hong Kong stock exchange was $0.52. There was no evidence of the value of Warderly shares on other dates. 57.Of the fact that Stevenson Wong acted on Mr Yeung’s instructions in dealing with parcels of the 231.8 million Warderly shares deposited with them, on 21 March and 20 April 2007, the magistrate determined that:
For his part, Mr Lo Hang Fong could not remember if he advised Mr Yeung that in light of the letter of authorisation he should not transfer Warderly shares from the parcel deposited with Stevenson Wong to other parties. He thought that either he or one of his colleagues had informed the management committee of the fact of the transfer in March 2007. (ii) The effect of the Term Loan Facility agreement and the Authorisation Letter 58.The magistrate stated that, having had regard to all the evidence:
Of that finding, it is to be noted that the word “security”, in respect of the 231.8 million Warderly shares, is conspicuous by its absence in either the ‘Conditions Precedent’ clause of the Term Loan Facility agreement or the Authorization Letter. Significantly, in his evidence Mr Lo Hang Fong pointed out the absence of that description in the Authorisation Letter but, said that it was “accepted” that effecting security for the loan was the purpose of the arrangement. Clearly, in my judgment that was the nature and purpose of the deposit of the shares and, the magistrate was entitled to find, as he did, that was intended by the parties. Similarly, in my judgment he was correct in determining that:
GROUND 2 59.By Ground 2 it is contended that by 31 August 2007, the time stipulated as the time at which the appellant came to know that he had an interest in 231.8 Warderly shares, he no longer had any such interest. There is no dispute that such an interest had been extinguished upon transfer of 30 million shares Warderly shares to him on 20 April 2007, the shares being worth far in excess of the $6 million capital loan and any interest or other payments due in consequence. In essence, it is contended that at the time the appellant came to know of the fact of his earlier interest in the Warderly shares such an interest did not exist any more, with the result that he had no duty to make disclosure. 60.There is no merit in that submission. Section 325 makes that clear, providing as it does that:
Section 308 provides that: “relevant event”
61.It follows, that although the “relevant event”, namely an acquisition of a notifiable interest in Warderly shares by the creation of the equitable mortgage over the 231.8 million Warderly shares, occurred on 28 December 2006, pursuant to section 325(b) the appellant remained under a duty to make disclosure within three business days of that relevant event coming to his knowledge. The magistrate determined that to be:
The fact that at and after 31 August 2007 the appellant no longer enjoyed an interest in any Warderly shares is irrelevant to the duty imposed upon him by that sub-section. GROUND 3—“without reasonable excuse” 62.By Ground 3 it was contended that the magistrate erred in determining that the offence creating provision in section 328 of the Ordinance imposed an evidential burden upon the appellant in respect of the caveat applied to the impugned conduct, namely that it be “without reasonable excuse”. On the contrary, it was submitted that was an ingredient of the offence which the prosecution had to prove beyond a reasonable doubt. 63.By contrast, it was the primary contention of the respondent that the burden of proving the existence of reasonable excuse was on the appellant on the balance of probabilities. In the alternative, it was submitted that the magistrate was correct to construe the legislation as imposing an evidential burden upon the appellant to raise the issue of reasonable excuse, and in finding that the burden was not discharged. 64.In my judgment there is force Mr Cheng’s submission that in his analysis of the effect of the provision relating to “without reasonable excuse”, the magistrate made contradictory determinations. Having said that the decisions of McMahon J in Ng Po On and the Court of Final Appeal in Lam Yuk Fai were applicable to the circumstances obtaining in this case, the magistrate determined:
65.The magistrate had adverted to the phrase “part of the law creating the offence” in the immediately preceding paragraph, in which he had said:
66.At paragraph 24 of his judgment, McMahon J had determined that “a failure to comply be (sic) ‘without reasonable excuse’ is a separate element of the offence”. In paragraphs 25 and 26, he considered the consequences of that finding:
67.It was in the context of his construction of section 24 of the Prevention of Bribery Ordinance, that McMahon J determined that merely an evidential burden, not the legal burden, was imposed upon the appellant. That provision states:
McMahon J determined that (paragraph page 260, paragraph 42):
In his judgment in the Court of Final Appeal, Ribeiro PJ agreed in terms with that approach (see page 115, paragraph 77). 68.By contrast, the relevant provisions of the Securities and Futures Ordinance do not provide for an express allocation of the burden of proof, as provided by section 24 of the Prevention of Bribery Ordinance. In my judgment, the magistrate conflated the two separate issues addressed by McMahon J in ruling as he did at paragraph 25 of his Reasons for Verdict. If the issue of whether or not the impugned conduct occurred “without reasonable excuse “is part of the “law creating the offence”, then proof lies on the prosecution to the standard of “beyond reasonable doubt”. That was the decision reached by the Court of Final Appeal in Lam Yuk Fai. Accordingly, with respect, the magistrate’s analysis in paragraph 25 of his Reasons for Verdict was flawed and incorrect. 69.In his judgment in the Court of Final Appeal, with which the other judges agreed, in Tong Yiu wah v HKSAR [2007] 3 HKLRD 565 Chan PJ addressed the construction of section 20(1) of the Airport Authority Bylaw made under the Airport Authority Ordinance, Cap. 483, which provides:
70.Noting that the provision was to be construed in context, Chan PJ identified the objects and purposes of the Ordinance as being (page 570C–D, paragraph 11):
He went on to identify the purpose of designating the “Bylaw Area” as including the:
Furthermore, he found that the purpose of designating the Bylaw Area, was for use by members of the public for (page 571A–C, paragraph 14):
71.Of that analysis, he said (page 571E, paragraph 15):
In the result he concluded (page 572C–D, paragraph 18):
72.In Ng Po On, the Court of Final Appeal addressed the issue of the ingredients constituting the offence under section 14(4) of the Prevention of Bribery Ordinance, Cap. 201: on receipt of a notice to furnish information, was it “failure to comply” or “failure to comply without reasonable excuse?” In determining that it was the latter, Ribeiro PJ, with whose judgment the other judges agreed, cited with approval examples given by McMahon J in his judgment in the Court of First Instance in the appeal in the instant case of many circumstances in which innocent non-compliance might occur: the loss or unavailability of documents, illness or an inability to comply with time limits. Ribeiro PJ said that he agreed with the judge’s conclusion that “the legislature no doubt wished the offence contained in s.14(4) to apply only to culpable non-compliance.” 73.In Lam Yuk Fai v HKSAR (2006) 9 HKCFAR 281, the Court of Final Appeal addressed the issue of the ingredients constituting the offence under section 42(2)(a)(ii) of the Immigration Ordinance, which provides: “Any person who… transfers to another without reasonable excuse, any travel document… shall be guilty of an offence.” In his judgment, with which all the other judges agreed, Lord Woolf NPJ addressed the issue of the ingredients of the offence (page 293D–E, paragraph 32):
74.In my opinion, Mr Bell has identified succinctly the correct approach to the construction of the relevant provisions of this Ordinance:
75.It is apparent from the Long Title of the Ordinance that one of the purposes and objectives in regulating activities in the securities market is, and is stated, to be the “protection of investors”. Clearly, the requirement of a disclosure of interests in shares, on acquisition or cessation of that interest, is the better to inform the market and is for the protection of investors. Importantly, the ingredients of the offence alleged against the appellant require proof by the prosecution of knowledge in the appellant of the occurrence of the relevant event. It is only with that knowledge, that culpability is imposed in consequence of a failure to make disclosure of a notifiable interest. The prosecution was required to prove beyond reasonable doubt that the appellant:
76.In my judgment, in the context of the objects and purposes of the Ordinance, in particular the regime of disclosure to better inform and protect investors that is an inherently culpable act and those are the ingredients of the offence. Strict Liability 77.In his written submissions, Mr Bell advanced a submission not made to the magistrate, namely that by application of the criteria identified by the Privy Council in Gammon (Hong Kong) Ltd v Attorney-General of Hong Kong [1985] 1 AC 1 the offences created by section 328(a),(c) and (d) are “evidently offences of strict liability.” In the judgment of the Privy Council delivered by Lord Scarman the propositions of law relevant to a determination of the issue were described as being (page 14B–D):
78.In my judgment, the issue can be disposed of simply by reference to the language of the Ordinance in creating the offence. The element of mens rea is provided for specifically by operation of section 325(1)(a) and (b) of the Ordinance, which requires that notification required by section 324, where the duty of disclosure arises under section 310(1), notification shall be given:
79.It follows, as noted earlier, that knowledge in the appellant of the occurrence of the relevant event, namely his acquisition of an interest in Warderly shares, is an ingredient of the offence stipulated by section 328 of the Ordinance. Accordingly, the offence is not one of strict liability. Section 94A the Criminal Procedure Ordinance 80.Section 94A of the Criminal Procedure Ordinance, Cap. 221 provides that:
81.In his judgment in Tong Yiu Wah, Chan PJ said of that provision (page 573E–H, paragraph 23):
82.In his judgment in Ng Po On, Ribeiro PJ considered the approach to be taken to the operation of section 94A (page 105D–E, paragraph 35):
The presumption of innocence 83.Of the engagement of the presumption of innocence, Ribeiro PJ went on to say: (pages 106I–107B, paragraph 39):
84.Clearly, the presumption of innocence is engaged in that if the appellant fails to prove the facts constituting reasonable excuse on the balance of probabilities, albeit that a reasonable doubt is raised as to whether the excuse is made out, the appellant is at risk of being convicted. Accordingly, the appellant is at risk of being convicted even though there is a reasonable doubt as to his guilt. Justification for abrogation of the presumption of innocence 85.Next, it falls to be considered whether the abrogation of the presumption of innocence is justified. The test to be applied is that described in the judgment of Sir Anthony Mason NPJ in the Court of Final Appeal, with which judgment all the other judges agreed, in HKSAR v Lam Kwong Wai & Another (2006) 9 HKCFAR 574 (see: page 592B–C, paragraph 17):
The rationality test 86.The aim of the legislation is the protection of investors in the securities markets. The legitimate societal objective is obvious. The requirement of disclosure of changes in holdings of shares in publicly listed companies at a threshold level provides the whole market with relevant information and assists in transparency in the activities of the market. The creation of an offence for failing in a duty to make disclosure of a notifiable interest in circumstances where the person knows of the occurrence of the relevant event is a rational means of enforcing the protection of investors. The proportionality test 87.Is the imposition of a persuasive burden upon the appellant to prove reasonable excuse for non-compliance with his duty of disclosure of a notifiable interest no more than is necessary to enforce the protection of investors, or would the imposition of an evidential burden on the appellant to raise the issue of reasonable excuse be sufficient? 88.The burden of proving the justification of the imposition of a persuasive burden upon the appellant lies upon the respondent, as Ribeiro NPJ noted in his judgment in Ng Po On and requires (page 110E–F, paragraph 52):
89.In seeking to justify the imposition of a persuasive burden upon the appellant, Mr Bell prayed-in-aid some of the categories relevant to that consideration identified in the judgment in Ng Po On. Of the gravamen of the offence, he suggested that it lay in the failure to make disclosure of a notifiable interest in circumstances where the particular defendant knew of the occurrence of the event, namely his acquisition of an interest in the shares. He should bear the burden of excusing his failure. Of the maximum penalties for the commission of the offence, Mr Bell pointed out that on summary conviction it was imprisonment for six months and a fine, although he did accept that on conviction on indictment it was imprisonment for two years and a fine. Finally, he suggested that the existence of a reasonable excuse is something peculiarly within the knowledge of the particular defendant. 90.In my judgment, a maximum sentence on conviction on indictment of imprisonment of two years together with a fine of $100,000 is not to be regarded as a low penalty. Although it might often be the case that the reasonable excuse lay within the peculiar knowledge of a particular defendant, obviously it would lie within the powers of the prosecuting authorities to investigate that excuse. For example, if the reasonable excuse lay in contended reliance on others, such as solicitors or brokers, to make the requisite disclosure by making enquiries of them. Conclusion 91.In the result, in my judgment the imposition of the persuasive burden on the appellant is not proportionate, there being no compelling reasons to justify the abrogation of the presumption of innocence in that way. The obvious remedy, which I adopt, is that described in the judgment of Ribeiro PJ in Ng Po On, namely to read down section 94A of the Criminal Procedure Ordinance so that an evidential burden is imposed upon the appellant to point to evidence that raises the issue of reasonable excuse. The judge described the operation of an evidential burden earlier in his judgment (page 102E–G, paragraph 27):
GROUND 4 92.The contention made by Ground 4, that the magistrate had erred in concluding, “that because the appellant elected not to give evidence, there was no evidential basis for a claim of reasonable excuse for non-disclosure” is simply not borne out by what the magistrate stated in his reasons for verdict. As noted earlier, in addressing the evidential burden that he found to be placed on the appellant in respect of the issue of whether or not there was a reasonable excuse for the appellant’s non-compliance with his duty he said:
Clearly, all the magistrate was doing was stating the obvious. There is no merit whatsoever in this ground of appeal. CONCLUSION 93.I am satisfied that the magistrate was correct in determining that on 28 December 2006 the appellant acquired a notifiable equitable interest in the 231.8 million Warderly shares deposited with Stevenson Wong and that the latest date on which he became aware of his interest was on 31 August 2007, when he acknowledge receipt of the related documentation from Stevenson Wong. There is no dispute that the appellant did not make the requisite disclosure of the acquisition of that interest. There was an evidential burden imposed upon the appellant to point to evidence that raised the issue of a reasonable excuse for his failure to make the requisite disclosure. The magistrate was correct in determining that there was no evidence whatsoever as to why the appellant failed in that duty, that there was no reasonable excuse for him not making the requisite disclosure and finding him guilty of the two summonses. Accordingly, I dismiss the appeals against conviction. COSTS 94.I make an order nisi that the appellant pay the costs of the respondent, to be taxed if not agreed. Any submissions the parties wish to make in that respect to be made within 14 days, failing which the order is to be made absolute.
Mr Cheng Huan SC, Mr Paul Leung, Mr Anthony Wu and Mr David Lai, instructed by Messrs Sit, Fung, Kwong and Shum, for the Appellant Mr Adrian Bell, instructed by the Securities and Futures Commission, for the Respondent |
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