The Securities and Futures Commission v. Tsoi Bun

HCMA451/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 451 OF 2010

(ON APPEAL FROM ESS 46433 – 46437 OF 2008)

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Before : Hon Lunn J in Court

Date of Hearing : 5 October 2010

Date of Judgment : 5 October 2010

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J U D G M E N T

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1.There is before the Court an appeal by way of case stated, by the Securities and Futures Commission (“SFC”) following upon the acquittal by deputy magistrate Mr Thomas Chan on 20 January 2010 of the respondent Mr Tsoi Bun, after a trial of five summonses brought against the respondent. Each of those amended summonses alleged that, contrary to section 296(1)(b) and (4) of the Securities and Futures Ordinance, in the period in and between 14 February and 25 September 2007, that he :

“... did enter into or carry out, directly or indirectly an artificial transaction or device ie) placing or causing to be placed on the futures market operated by the Hong Kong Futures Exchange Company Ltd”

orders concerning Hang Seng Index Futures contracts or Hang Seng China Enterprises Index futures contracts concerning stipulated months during the morning premarket opening period :

“… in a specific pattern, with the intention that, or being reckless as to whether the transaction or device had the effect of ”

increasing/reducing the “calculated opening price” for dealings in those futures contracts. 

THE CASE STATED

2.In the case stated, the magistrate stated that he had found proved “facts and matters stated in paragraphs 5 and 6 above.”  That was a reference to material adduced into evidence pursuant to sections 65B (paragraph 5) and 65C (paragraph 6) of the Criminal Procedure Ordinance, Cap. 221. Paragraphs 5 and 6 between them set out 11 pages of primary facts. 

The prosecution case

3.The magistrate noted that the prosecution case was that the respondent had intentionally or recklessly rigged the calculated opening price in order to profit in his trading and that they had called Mr Eric Chen who had given expert evidence in support of that case.  

The respondent’s case

4.Having noted that the respondent had not availed himself of the right to give evidence, the magistrate noted that Mr David Whyte had been called to give expert evidence on his behalf.  The magistrate said that it was the respondent’s case that :

“… he had legitimate trading reasons for adjusting his trading position in the way he did at the very end of the Pre-Open Allocation Session. His trading strategies adapted to the design of the Pre-Market Opening period and all of his orders did not amount to artificial transaction.”

5.Of what he described as his “short Reasons for Verdict”, the magistrate said that :

“(i) The basic facts in the present case were not in dispute …

(ii) The Prosecution had to prove an essential element of the five summonses against the defendant … That is, the Defendant… had entered into artificial transactions or devices by his trading activities in respect of the five summonses.

(iii) …

(iv) The central issue in this case is the contest of different expert opinions between [PW1] CHENG and [DW1] WHITE to decide the question if the defendant had entered into artificial transaction or device by his trading activities.

(v) …

(vi)    While I must say the defendant’s trading activities in respect of the five summonses did give rise to great suspicion, I am not satisfied beyond all reasonable doubt that the defendant had entered into artificial transactions or device.  Hence I acquit the Defendant of the five summonses on the benefit of doubt.”

THE QUESTIONS OF LAW

6.The questions of law posed for the opinion of the court are :

“(i) was I correct to hold, on the evidence adduced before me, that there was a reasonable doubt as to whether the transactions entered into by the Defendant were artificial;

(ii) if there was on the evidence no reasonable doubt that the transactions were artificial, whether it follows that the Defendant was guilty of the five summonses, or any of them; and

(iii)    whether any reasonable magistrate properly directing himself as to the evidence could have acquitted the defendant of the five summonses or any of them?”

THE APPELLANT’S WRITTEN SUBMISSIONS

7.In the appellant’s written submissions, Mr Bell SC, notes that :

“2. No attempt was made by the Deputy magistrate either to consider the nature and circumstances of the transactions, or to explain why he had doubts that the defendant’s admitted transactions were artificial, or to consider the defendant’s intention, which was crucial to the issue of whether the transactions were genuine or artificial.”

8.Mr Bell went on to contend that the magistrate had erred in his approach to what he had described as the “crucial” issue, contending :

“3. The Deputy magistrate also erred in stating that the ‘contest of different expert opinions’ would ‘decide the question’. The crucial issue was one of fact : namely whether the transactions were genuine or artificial. It was for the magistrate, not the experts, to decide this question, such decision being based on what inferences could properly be drawn from the undisputed primary facts.” [Emphasis added]

9.Mr Bell submitted that :

“8. In the circumstances the task of the magistrate was to analyse the undisputed evidence of primary fact and consider whether the only reasonable inference to be drawn therefrom was that the defendant’s transactions were artificial…

9.       Although the magistrate stated in his brief reasons that he had considered the evidence of PW1 and DW1 (the experts) he did not say that he had considered any of the undisputed factual evidence.  Nor did he state or, apparently, even consider what inferences could or could not properly be drawn from undisputed primary facts.”

THE MAGISTRATE’S FINDINGS OF FACT

10.Of the complaint that he made of the failure of the magistrate to analyse the primary facts and to determine what inferences could be drawn therefrom in his written submissions Mr Bell informed the court that application was made to the magistrate for “full reasons” but that the application was “refused”.  In the oral hearing today, at the request of the court that correspondence has been made available. 

11.In a letter dated 1 February 2010, the SFC applied to the magistrate to state and sign a case, pursuant to section 105 of the Magistrates’ Ordinance, inviting him to provide a copy of the “Statement of Findings/Reasons for Verdict”.  By a letter of 4 February 2010, the First Clerk at Eastern Magistrates’ Court indicated that the magistrate had directed that there was no such “Statement of Finding/Reasons for Verdict” would be provided.  Enclosed with the letter dated 22 March 2010, the SFC provided the magistrate with a draft case stated, drawing attention to the fact that space had been left blank “for the learned deputy magistrate to place his reasoning”.  In a letter of the same day, 22 March 2010, the respondent’s instructing solicitors wrote to the SFC, copied to the First Clerk of Eastern Magistrates’ Court, challenging the validity of the proposed proceedings but asking that, if the case stated proceeded, this court be provided with a full transcript of the proceedings in the lower court and all exhibits.  That has been done. 

12.In response to a letter from the First Clerk of Eastern Magistrates’ Court dated 7 April 2010 to the SFC stating that the magistrate directed the parties to agree a draft case stated, by a letter of 24 May 2010 the SFC wrote to the magistrate asserting that it was essential that the case stated contain, inter-alia, “the express reasoning of each relevant ruling and the verdict”.  By a letter of 27 May 2010, the case stated signed by the magistrate was provided to the SFC. 

13.Guidance as to the form of a case stated was given by Huggins J (as he then was) in the judgment of the Full Court in the Attorney General and Leung Chi Kin [1974] HKLR 269 at 272-273.  Of the various essential components of the case stated, Huggins J noted the requirement that it contain :

“… the material findings of fact or, where appropriate, a statement that no finding was made on an issue which is alleged to be material … the facts should include ‘the primary facts based upon [the magistrate’s] estimation of the truthfulness or otherwise of the witnesses who appeared before him and any facts deduced by him from the primary facts as so found : Attorney General v Munro-Smith (1961) HKLR 209 at 211.’”

14.There is no doubt that there is force in Mr Bell’s submissions that in neither the oral reasoning accompanying his delivery of verdict nor in the case stated has the magistrate engaged in an analysis and articulation of any consideration whatsoever of what inferences might or might not be properly drawn from the undisputed primary facts.  Counsel for the respondent and the appellant had provided the magistrate with lengthy closing submissions which are available to this court.  It is clear that in those written submissions, no doubt amplified in oral submissions, the respective parties set out the inferences that they suggested could be drawn from the primary facts.  

15.For his part, on behalf of the appellant Mr Bell submitted that there was a pattern to the respondent’s trading from which it could be inferred that he intended to rig the calculated opening price by orders that he made prior to the market opening. To summarise, some of the factors that he listed to the magistrate include :

(1)     that the respondent was dominant in trading in that period;

(2)     that he placed “squeezing orders” in the last few seconds before 9:43 a.m.;

(3)     that a combination of a small “squeezing order” and a larger outstanding order in the opposite direction ensured that the final calculated opening price was moved in a direction that was beneficial to the respondent;

(4)     that buying and selling contracts in the opposite direction at the same time made no economic sense because of the cost involved;

(5)     that if the respondent changed his view of the market direction it did not make sense to “reduce” his net position, rather it made more sense to “reverse it” entirely;

(6)     that the respondent unwound his position after the market opened to take advantage of the calculated opening price that had benefited from his “squeezing orders”.

16.Conversely, it was contended on behalf of the respondent that :

“… the defendant had legitimate trading reasons for adjusting his position in the way that it did at the very end of the POA session. The defendants trading strategies adapted to the design of the PMOP and all the order is imported by him were genuine orders.”

THE APPELLANT’S APPLICATION

17.The court having raised with the parties at an early stage of the hearing this morning the appropriateness of using the powers, pursuant to section 109 of the Magistrates’ Ordinance, to order the magistrate to amend the case stated, Mr Bell made such an application. 

THE SUBMISSIONS OF THE RESPONDENT

18.For his part, whilst I understand him to concede that there was a paucity of reasons given by the deputy magistrate for his determination, Mr Plowman contended that he had identified the central and crucial issue, namely whether or not the respondent had entered into “artificial transactions or devices by his trading activities”.  He resolved that issue in favour of the respondent, stating :

“I am not satisfied beyond all reasonable doubt that the defendant had entered into artificial transactions or device.”

19.Mr Plowman submitted that it would be unfair to the respondent and to the magistrate to order that the magistrate provide an amended case stated nine months after the delivery of verdict.  He said that the case was “highly technical” and involved “complex findings”, which matters were relevant to the ability of the magistrate to provide an amended case statement in light of the effluxion of time since the conclusion of the case.  Furthermore, he suggested that a consideration of demeanour might well be relevant to determination of the credibility of Mr Chen, the expert called on behalf of the SFC, given the challenge to his status as an expert witness.  Such a determination would be more difficult after such a lapse of time. 

20.Next, Mr Plowman pointed to the undisputed fact that, in light of a statement made on behalf of the magistrate as early as 4 February 2010 that he declined to provide a “Statement of Findings/Reasons for Verdict” other than the transcript of oral reasons, the appellant had failed to apply for judicial review to this court to compel the magistrate to provide such material.  Further, that even after the provision by the magistrate of the final version of the case stated on 27 May 2010 the appellant had failed to take such steps. 

21.Finally, Mr Plowman pointed out that the magistrate had been sitting as a deputy magistrate, he being a member of the Bar, and it was not known whether or not the Chief Justice would be willing to re-appoint him and, if so, if he was willing to take up a re-appointment. 

A CONSIDERATION OF THE ISSUES

The adequacy of the case stated in respect of the material findings of fact

22.Section 105 of the Magistrates’ Ordinance makes provision for a magistrate to state a case on a point of law arising, inter-alia, from a determination of the magistrate.  It provides for :

“... the magistrate to state and sign a case setting forth the facts and the grounds on which … the determination was granted.”

23.The judgment of the Full Court in Leung Chi Kin is to be viewed as set in that statutory context.  In the instant case, the primary facts were not in dispute.  They were established pursuant to sections 65B and 65C of the Criminal Procedure Ordinance.  At issue, was the drawing or not of permissible inferences.  In his judgment in the Court of Final Appeal in HKSAR v Kevin Egan FACC Nos. 3, 4 and 5 of 2009 (unreported) Litton NPJ referred to the judgment of Blair-Kerr SPJ in Kowloon Motor Bus Company (1933) Ltd v Kong Tung [1973] HKLR 198 in which he addressed the fact-finding role of a trial judge (paragraph 303) :

“I cannot leave this case without repeating what I have said on numerous occasions during the last 10 years viz. That it is of the first importance that every judge of fact should indicate clearly in his judgment not only his findings of fact-primary and inferential-but, as regards as findings of primary fact, to what extent these are based on the view which is formed of the witnesses demeanour and what he regards as inherent probabilities and improbabilities of the conflicting stories.”

24.Litton NPJ went on to note (paragraph 304) “fact-finding by tribunal is a forward moving process.  At the starters line are the primary facts relevant to the indictment.”  Of the necessity for the trial judge to evaluate disputed evidence, he went on to say :

“‘Evaluate’ means just that: to measure, to weigh.”

25.In similar vein, Bokhary PJ noted that a trial court (paragraph 2) :

“… evaluates the whole of the evidence; makes his findings of fact; and then states them.”

26.In my judgment the magistrate has failed to comply with the guidance set out in Leung Chi Kin as described earlier at page 273 subparagraph (a) in respect of his determination of material facts or, where appropriate, no finding of fact and a description of any facts “deduced by him from the primary facts as so found”.  For the reasons set out below, I am satisfied that it is appropriate that this court accede to the application made by Mr Bell for an order pursuant to section 109 of the Magistrates’ Ordinance that the magistrate amend the case stated to address the guidance set out in Leung Chi Kin. 

Difficulties in amending the case stated

27.Whilst I accept Mr Plowman’s point that the task of the magistrate in articulating his reasoning many months after the case finished is made more difficult now than had it been done earlier, I accept the force of Mr Bell’s point that the magistrate has available to him not only all the exhibits, in particular the reports of the two experts, but also the transcript of the evidence of those witnesses can be made available to him to assist in the discharge of his duties.  Whilst the demeanour of a witness may sometimes be of use to a tribunal determining fact it seems to me that is less likely to be of significance in the case of an expert witness, in respect of whom a transcript of his evidence is available as well.  In any event, if it was a factor of weight there is no reason to believe that the magistrate would not be able to take into account that factor when his memory was refreshed by reading the transcript.  Of course, also there is available to him the audio recording of proceedings. 

Delay

28.Of the issue of delay in making the application to challenge the case stated as signed, it is to be noted that from the outset the SFC had drawn the attention of the magistrate to the relevance of the judgment in Leung Chi Kin to the form in which a case stated was to be presented.  Reference was made to that case in the SFC’s letter of 1 February 2010.  It is clear from the correspondence that the SFC kept pressing the magistrate to address the guidance contained in that judgment.  It is to be noted that in the course of the judgment in Leung Chi Kin Huggins J observed that “the magistrate’s judgment should not normally be exhibited”.  It was only on presentation of the signed case that the failure of the magistrate to comply with the guidance in Leung Chi Kin was manifest.  The delivery of the case stated to the parties occurred only a little over four months ago.  It is unlikely in the extreme that judicial review proceedings could have been mounted, argued and concluded prior to the commencement of this hearing.  In context, that delay is to be measured against the fact that the summonses themselves relate to events that occurred between 3 and 3½ years ago.

Re-appointment of the magistrate

29.There is no reason to think that the deputy magistrate, a practising barrister, would not be invited to be re-appointed to continue the case nor that he would not accept such an invitation. 

CONCLUSION

30.Accordingly, pursuant to section 109 of the Magistrates’ Ordinance, I order that the magistrate amend the case stated to address the matters canvassed in this judgment, in particular at paragraph 26.  Having heard counsel on the matter, I order that, in the event that the deputy magistrate is reappointed, he provide the amended case stated within 60 days of the date of that reappointment. 

Mr Adrian Bell, SC of Securities and Futures Commission, for the Appellant

Mr Gary Plowman and Mr Derek Chan, instructed by Messrs Richards Butler, for the Respondent