Securities and Futures Commission v. C.L. Management Services Ltd and Another
Read the full judgment text of ESS 30671/2013 on BabelCite. This ESS judgment was delivered on 29 April 2014.
1. In the present case, a total of 8 summonses have been laid against C.L. Management Services Limited (“D1”), a company registered in Hong Kong and Madam AU Suet-ming, Clarea (“D2”), being the sole shareholder and director of D1. The summonses are summarised as follows:
Cited by 2 cases · Cites 9 cases
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ESS 30671-30676/2013 IN THE EASTERN MAGISTRATES COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CASE NO. ESS 30671-30676 OF 2013 AND ESS 39231-39232 OF 2013 ----------------------
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-------------------------------------------- STATEMENT OF FINDINGS -------------------------------------------- Introduction The Summonses 1.In the present case, a total of 8 summonses have been laid against C.L. Management Services Limited (“D1”), a company registered in Hong Kong and Madam AU Suet-ming, Clarea (“D2”), being the sole shareholder and director of D1. The summonses are summarised as follows:
2. I convicted, after trial, D1 of three summonses, i.e. ESS 39231/2013, 30673/2013 and 30675/2013 concerning the “holding- out” offences under section 114(1)(b) of the Ordinance and D2 of the three corresponding attributable offences under section 390 (summonses ESS 39232/2013, 30674/2013 and 30676/2013). Upon conviction, I imposed fines in a total sum of $900,000[7] and $600,000[8] on D1 and D2 respectively. I also sentenced D2 to a total term of imprisonment for 6 months suspended for 18 months[9]. D1 and D2 now appeal against both their convictions and sentences. The Issues 3.The main issues on the law raised at trial are:
4.While the issues on the evidence are:
Background The Prosecution case 5.The facts of the case are largely undisputed. The prosecution case mainly relied on the evidence given by four prosecution witnesses. They were either the chairmen/senior officers of the 3 respective client companies. Mr Clement CHEUK, PW1, (“Cheuk”) wasthe Chairman, and Ms Phoebe Lee, PW2, (“Lee”) was the Chief Financial Officer of 3 Wells. They were called to give evidence relating to 3 Wells. While Mr Pat WONG, PW3 (“P Wong”), the Chairman of UK Fur and Mr WONG Kam-fai, PW4 (“KF Wong”), the chairman of New Bonus gave evidence relating to UK Fur and New Bonus respectively. The Prosecution originally intended to call a Michael ANG (“Michael”), who was engaged by D2 as her agent at the material times responsible for dealing with the three respective client companies. However, after Michael was called and taking oath, he suddenly, on his own initiative, raised with court that he was unwilling to give evidence as he worried that what he said might incriminate himself. The Prosecution finally informed the court that they decided not to call Michael and would not rely on his evidence at all. [10] 3 Wells 6.Regarding 3 Wells, it is alleged by the Prosecution that, during the period between July 2011 and January 2012, D1 has carried on a business in advising on corporate finance for 3 Wells with a view to assisting the latter to be listed on the Growth Enterprise Market (“GEM”) Board of the Stock Exchange of Hong Kong Limited (“SEHK”). By signing a detailed and unequivocal “Professional Financial Consultation Services Agreement” (“3 Wells Agreement”), Exhibit P12, with 3 Wells around July/August 2011, which was procured by D2, D1 did assign and authorise a team of her staff headed by Michael ANG (“Michael”) to have meetings, both in Hong Kong office as well as factory located in Mainland, with senior officers of 3 Wells with a view to assessing their capability of being listed on the GEM Board. D2 and Michael, representing D1, also assisted 3 Wells to line up a professional team consisting of the right professionals, including lawyers, accountants and sponsors to substantially handle the listing matters. 7.Pursuant to the aforesaid 3 Wells Agreement, 3 Wells made two payments in the sum of HK$ 150,000 each to D1 on 31 August 2011[11] and 14 May 2012[12] respectively. 8.Around September/October 2012, upon request by Michael, representing D1, allegedly due to problems of “internal audit”, 3 Wells agreed to terminate the 3 Wells Agreement with D1. This was done by way of a letter drafted by Michael and finalised by Cheuk and Lee.[13] Cheuk said that the agreement was terminated upon D1’s promise that a full refund of HK$300,000 would be made by D1 to 3 Wells. However, no refund was ever made by D1. 9.It is the prosecution case that what D1 has done amounted to carrying on a business in “advising on corporate finance”, or alternatively holding itself out to 3 Wells as doing so.[14] Moreover, D2, in her capacity as an officer of D1, did aid, abet, counsel, procure or induce the commission of the offence under section 114 by D1 or the offence was committed by D1 with her consent or connivance or was attributable to her recklessness.[15] UK Fur and New Bonus 10.The evidence given by P Wong and KF Wong was relatively brief. The prosecution said that the mere fact that a similar written Professional Financial Consultation Services Agreement had been signed between D1 and UK Fur (“UK Fur Agreement”) as well as between D1 and New Bonus (“New Bonus Agreement”) respectively was sufficient to prove that D1 had held itself out to the above two companies as carrying on a business in advising on corporate finance. 11.As a matter of fact, by completing the UK Fur Agreement, UK Fur has paid a total sum of HKD $600,000 to D1 in four instalments during the period between 20 October 2010 and 30 June 2011. Additionally, pursuant to the UK Fur Agreement, upon submission of UK Fur’s listing application to SEHK, D1 was granted 14,400,000 option shares at the exercise price of HKD $ 0.26 per share on 1 August 2012 which was accepted by D2 on 2 August 2012.[16] With respect to New Bonus, in pursuant to the New Bonus Agreement, a sum of HKD $ 170,000 was paid to D1 by New Bonus on 3 January 2011. 12.The prosecution said that all the summonses against D1 laid under section 114 of the Ordinance require prosecution to prove “without reasonable excuse” as an element of the offence and that the prosecution has succeeded in proving beyond reasonable doubt that D1 had at the material times, without reasonable excuse, held itself out to the UK Fur and New Bonus as carrying on a business in advising on corporate finance and D2, being an “officer” of D1, was liable attributably in all the commission of the offences. Defence case 13.D2 elected to give evidence herself but called no defence witness. She basically said that although she had signed all the relevant written agreements with the respective clients, she was not aware of the actual content stated therein and had no intention at all to carry on or hold herself out to the respective clients as carrying on a business in advising on corporate finance. What she actually had done was offering to the client companies that she, with the assistance of Michael, could line up a team of suitable professionals and participate in the liaison work for the listing matters only. After signing the contracts and attended the first introductory meeting with the professionals for the respective clients, she basically did nothing and was not sure what Michael and his team was doing to the respective clients. The three written agreements in question[17] were all prepared by Michael upon her instruction but she has not read through them before signing. 14.Defence contended that first of all, what D1 and D2 have done in respect of 3 Wells did not amount to carrying on a business in advising on corporate finance. Additionally, neither was there any sufficient evidence to prove D1 had held itself out to the respective companies as carrying on a business in such an activity. D2 had no intention whatsoever in carrying on or holding herself out as carrying on a business in advising on corporate finance. The defence submitted that the prosecution was required to prove mens rea for all the summonses against D1 and that the prosecution has failed to do so. Further, what D2 said in her evidence could amount to a reasonable excuse and the statuary defence had been made out factually. It was submitted by the defence that as the commission of offences by D1 could not be proved, D2 should not be liable for all the “attributable” offences under section 390 of the Ordinance. Analysis Discussion on the Law 15.There are quite a number of legal issues raised during the trial by both parties that I need to resolve before analysing the evidence. Issue I: Whether the summonses against D1 are strict liability offences? The Five Alternatives 16.The question of whether the summonses against D1, in contravention of section 114 (1) and (8) of the Ordinance, created strict liabilities or offences with full intent is never an easy one. The principles and application of the same have been thoroughly discussed in Hin Lin Yee v HKSAR (2010) 13 HKCFAR 142 and subsequently Kulemesin Yuriy & Tang Dock Wah v HKSAR, FACC 6 and 7 of 2012, now the landmark cases in this area of law decided by the Court of Final Appeal. 17. Hin Lin Yee has helpfully set out, at paragraph 96, five possible alternatives which were subsequently reformulated, by addressing the possible alternative mental requirements relating to the consequences and not just the circumstances of the defendant’s conduct, in another decision of the Court of Final Appeal, Kulemesin Yuriy & Tang Dock Wah v HKSAR, FACC 6 and 7 of 2012, unreported , at paragraph 83:
Should “mens rea” be displaced? 18.I have born in mind the principle stated by Ribeiro PJ in Hin Lin Yee, at paragraph 41,that “where the offence-creating provisions are silent or ambiguous as to the mental requirements, it is generally accepted that the starting-point is that the statute must be construed adopting the presumption that it is incumbent on the prosecution to prove mens rea in relation to each element of the offence”. As Lord Scarman emphasised that the presumption of mens rea “can be displaced only if this is clearly or by necessary implication the effect of the statute”.[18] 19.To summarise what Ribeiro PJ said in Hin Lin Yee[19], the considerations that are relevant to the proper statutory construction in respect of the issue of displacement of presumption of mens rea include:
The statutory language 20.Section 114(1) and (8) provides that:
21.Reading through section 114(1), I cannot see there are words or text stated therein which can be construed as carrying a connotation of knowledge or intention. For example, the common words of criminal intention like “knowingly”, intentionally” or “recklessly” are absent from the provision. However, the word “shall” is used is used in the provision. 22.In LI Yiu-kee v Chinese University of Hong Kong, unreported, CACV No.93 of 2009, when the Court of Appeal considered the meaning of “shall” appearing in the provision concerned, the entry below stated in the Hong Kong English-Chinese Legal Dictionary, Butterworth, 2005 was quoted with assistance:
The nature and subject matter of the offence 23.While exceptions exist, the more serious the offence in terms of penalty and social obloquy, the less likely it is that the presumption will be held to have been supplanted.[20] On the other hand, as Ribeiro PJ said at paragraph 142 of his judgment in Hin Lin Yee, there is generally less need to feel inhibited about overriding the presumption in relation to what may compendiously be call “regulatory offence”. Lord Reid in R v Warner [1969] 2 AC 256, at paragraph 271, gave some examples of such offences which in the English context, were held to impose absolute liability. They were offences under public health, licensing and industrial legislation. 24.It is of note that the long title of the Ordinance provides that:
25.The subject matter and nature of offences governed under section 114 are obviously “regulatory” in nature concerning “licensing” matters and the Ordinance aims at protecting the investors. I have not lost sight that the maximum penalty upon conviction on indictment is 7 years’ imprisonment, and on summary conviction is 2 years’ imprisonment. However, despite the relatively heavy penalty, and possibly the serious professional ramification imposed on the offenders upon conviction of the offence, carried by the provision, I consider that this is an offence attaches comparatively less “social obloquy” or “stigma” to the offender, especially when this kind of offence would most commonly be committed by a corporate body. 26.It is worth noting that when reading section 114(1) and section 390 together, it is clear that when an officer is involved or contributed to the commission of the offences of s.114, the provision of s.390 then deliberately require proof of mens rea, namely “recklessness”, “with consent” “induced” or “procured” etc. It is not difficult to infer that it must be due to the presumption of mens rea and the fact that stigmatising effect on a natural person is much more than on a corporate body. The legislative intent 27.Ribeiro PJ continued, at paragraph 143, in his judgment of Hin Lin Yee: “the legislative purpose is obviously important. If, in the light of the nature and subject matter of the offence, construing the provision to require full mens rea would make successful prosecution so unlikely that the statutory objectives would be frustrated, this must be given weight. Where this is a legitimate consideration, the response should often be to consider whether the adoption of an intermediate basis of liability accords with the true legislative intention.” 28.Having considered the subject matter and nature of the offences in question, I consider that the statutory objective of section 114(1) of the Ordinance will be frustrated if proof of full mens rea is required. It is very difficult for the prosecution to prove a company or the directing mind of it is intentionally or knowingly carrying on or holding itself out as carrying on the business in advising on corporate finance. It is common sense that companies of securities and futures industry normally involve sophisticated division of labour due to its complex nature of work. The actual works and daily operations usually are not carried out by the directing mind of the company but its professional staff. It will defeat the whole purpose of the Ordinance to protect the investors many of which may not have much knowledge of the industry and rely heavily on the conducts and integrity of their financial adviser. The onerous duty to prove full mens rea would render the regulatory function of the governing body and enforcement of the provision ineffective. 29.Furthermore, sections 114(1) and 390 of the Ordinance cannot be read in isolation. It is very clear that the legislation deliberately requires proof of mens rea in respect of section 390 when “officer” is targeted. I am of the view that it does shed light on the legislative intent. If mens rea is required for section 114(1), the legislator could have easily spelt it out like what it is done in section 390 of the Ordinance. 30.Taking into account all the relevant principles of statutory construction set out in Hin Lin Yee, I consider that the presumption of mens rea should be displaced in respect of the offences created in section 114(1). Are the offences under section 114(1) absolute liabilities? 31.Regulatory offences do not as a rule involve conduct falling within the fifth of the aforementioned categories where absolute liability may be justified. Many regulatory offences may fall within other categories of the five alternatives. The legislative policy underlying the regulatory offence may justifiably be to require diligent proactive management or supervision on the part of the person subjected to the duty. 32.In the case Kulemesin Yuriy, Ribeiro PJ “noted that when dealing with a serious as opposed to regulatory offence, a court considering whether the presumption of mens rea should be displaced – and if so, replaced by what – is likely to find it more appropriate to infer that the second (rather than the third) alternative best reflects the presumed intention of the legislature since that alternative lies closer to the full mens rea end of the spectrum and does no violence to the presumption of innocence, as befits a serious offence. On the other hand, the third alternative is likely to be more compelling in relation to a regulatory offence.”[21] That is also in line with the observation made by him in Hin Lin Yee at, paragraph 161, that “the policies underlying regulatory offences are likely to be best reflected by construing the offences as falling within the third alternative, founding liability on the absence of due diligence or the absence of honest and reasonable belief”. 33.Since section 114(1) carries heavy penalty with maximum term of 7 years’ imprisonment upon indictment, I consider the fifth alternative of absolute liability should be put out of the picture in the present case. In other words, I consider the first (full meas rea required) and fifth alternative (absolute liability) of liability as set out in Hin Lin Yee are not applicable in the present case. Issue II: “Without reasonable excuse” ---an element of the offence or a defence only? 34.There remain three alternatives: the second, the third and the fourth, which are regarded as intermediate basis of liability[22]. It is of note that the phrase “without reasonable excuse” appears in the offence-creating provision, namely section 114(8). Before deciding which alternative (2nd, 3rd or 4th) the offences under section 114(1) should fall in, I shall deal with another separate but related legal issue that has been raised in the trial: whether “without reasonable excuse” should be regarded as an element of the offence or just a defence under section 114(1)? 35.In fact, the issue has previously been discussed in the Court of First Instance by Barnes J in Securities and Futures Commission v Yu Ka Tak [2007] HKCLRT 728. It was held by Barnes J, at paragraph 20, that “without reasonable excuse” is an element of the offence under section 114(1): “20. In the present case, the contents of s.114, particularly ss.114(3) and 114(9), show that the legislation has included “without reasonable excuse” as an element of the offence. Of course, this case also involved the prosecution’s allegation that the respondent was “without licence”, and under s.94A of the Criminal Procedure Ordinance, it was not necessary for the prosecution to prove that the respondent was “without licence”. If the respondent wished to prove that he had a licence, the burden of proof would be on him on a balance of probabilities. However, this does not mean that it was unnecessary for the prosecution to prove that the respondent had contravened s.114(3) without reasonable excuse. The present case is not significantly different from HKSAR v Lam Yuk Fai, and the principles stated therein are also applicable to this case.” 36.Barnes J further observed that:
37.Nevertheless, subsequently in Securities and Futures Commission and Liu Su Ke [2010] 2 HKLRD 673, Lunn J considered the same issue but came to a different conclusion. He ruled that “without reasonable excuse” was not an ingredient of the offence, and in pursuance to s. 94 A of the Criminal Procedure Ordinance (Cap 221), a defendant bore the persuasive burden of proving reasonable excuse. However, there were no compelling reasons to justify the abrogation of the presumption of innocence in this way and applying the proportionality test, s. 94A would be read down, so that an evidential burden was imposed on a defendant to point to evidence that raised the issue of reasonable excuse. [23] 38.Although in Liu Su Ke, the court was concerned with a different provision namely, section 328 (a) of the same Ordinance,the wordings and drafting of both provisions of 328 and 114 are actually very similar. As a matter of fact, the case of Yu Ka Tak was submitted to Lunn J for his consideration by Senior Counsel for the Respondent in favour of his contention that “without reasonable excuse” should be an element of the offence[24], however Yu Ka Tak was not discussed in the judgment by Lunn J. 39.Lunn J made it plain, at paragraph 74 to 76, that
40.I am of the view that the above principle stated in Liu Su Ke also applies in the present scenario. Although Liu case concerned a difference provision relating to criminal act of “non-disclosure”, advising on corporatefinance without licence in the present situation is also, in my view, inherently culpable. And we are here concerned of the same Ordinance with the same objective of protecting investors and regulating the securities and futures industry. 41.In the present case, Senior Counsel for the Defence, Mr Duncan, in court, as opposed in the defence written closing submission,[25] did fairly agree that the terms “without reasonable excuse” should be considered as a defence instead of an ingredient of the offence while Miss PO Wing Kay for the Prosecution maintained her view that “without reasonable excuse” should be considered as an element of the offence relying on the judgment by Barnes J. Be that as it may, Miss PO frankly admitted in the court that she was not aware of the subsequent judgment of Lunn J on the same issue. 42.Having carefully considered both aforesaid authorities from the Court of First Instance, I ruled that the term “without reasonable excuse” should be regarded as a defence to be raised by defendants on evidential burden. I note that Liu Su Ke case was delivered after Yu Ka Tak case and that the Court of Final Appeal Judgment of HKSAR v Ng Po On [2008] 4HKLRD 176 had not been delivered when Yu case was decided. What defence is available and the standard of proof? 43.By now, I have decided that a statutory defence, namely “without reasonable excuse” is available for offences under ss. 114 (1) and (8). The effect of any statutory defences applicable to the offence charged is obviously important where the presumption of mens rea relating to the offence-creating provision is displaced. The key question is whether the statutory defence, if properly construed, is inconsistent with the availability of the second or third alternative. If so, only the statutory defence could be relied on.[26] That was regarded as the fourth alternative liability as defined in Hin Lin Yee. 44.Further, Ribeiro PJ subsequently observed in Kulemesin Yuriy, at paragraphs 85- 89, that:
45.Given the serious criminal liability and severe penalty carried by the s.114 offences and the fact that the standard of proof of the statutory defence held in Liu Su Ke to require evidential burden only is consistent with that of the second alternative set out in Hin Lin Yee, I, having considered all the above steps of statutory construction, find that the present offences under sections 114(1) and (8) are offences to which the second alternative of intermediate basis of liability applies. In other words, they are offences where:
Issue III: Could D1 be liable for acts of Michael? 46.Concerning the criminality of a corporate body, there is no dispute by both parties that the current law is that the company will have imputed to it the acts and state of mind of those of its director and managers who represent its “directing mind and will”. And it is also common ground that D2 in the present case was the directing mind of D1, being the sole shareholder and director of D1. The issue is whether the acts of Michael, having been engaged by D2 to deal with the respective clients in question, could be attributed to D1? 47.The key question was identified by Lord Reid in Tesco Supermarkets Ltd v Nattrass [1972] AC 153 , in two passages at pp. 170 and 171 respectively:
48.Also, a contrast can be drawn between the offences of strict liability and those require proof of mens rea. Lord Templeman said at p.465 in re Supply of ready mixed concrete, HL, (No.2) [1995] AC 456 that:
49.It is recently held by the Court of Appeal of England in R v St Regis Paper Co. Ltd [2011] EWCA Crim 2527 that the above principles however have no application to the regulation in question in that case which required proof of full intent. It again distinguished between offences of strict liability and offences which required proof of mens rea. 50.On the other hand, in HKSAR v Timful Garment Ltd, HCMA 770 of 2001, Deputy Judge Toh, as she then was, quoted what Litton JA said in the R v Wong Tak Choy [1994] 3 HKC 353:
51.Deputy Judge Toh, as she then was, further observed that:
52.As I have ruled the offences under section 114(1) are strict liability to which the second alternative applies and that D1 is a corporate body instead of a natural person, I consider that, by applying the principles stated in the authorities above, what Michael (being an agent of D2)’s acts done could be attributable to not only D2 but also D1, subject to the finding of facts as to whether Michael was acting within the actual and specific authority of D2. Directions and reminders 53.In reaching the verdict, I have reminded myself that the prosecution is required to prove the guilt of the defendants beyond reasonable doubt. The defendants have nothing to prove except D1 to raise the defence with evidential burden in respect of s.114 offences. If I were to disbelieve D2’s evidence in court that does not mean she or D1 is guilty of the offence. Were I to disbelieve what she said in court I am also required to consider the evidence I do accept and decide if that satisfies me of the guilt of the defendant to the required standard. 54.In assessing the credibility of witnesses, I reminded myself that each case has its own particular features and sweeping generalization should not be made. I bore in mind that I had to consider the inherent probabilities of the evidence and that the demeanour of the witnesses could be relied on only as a last resort. 55.D2 has a clear record and I have followed the guideline laid down in the case of Berrada and regarded her as having a lower propensity to crime and a higher degree of credibility. 56.I also reminded myself that where the prosecution relies on circumstantial evidence, the court can only draw an inference from facts proved beyond reasonable doubt and such an inference must be the only reasonable inference that can be drawn from such facts. It must also be an irresistible inference. 57.This case involved similar summonses laid against D1 and D2 under sections 114 and 390 respectively of the Ordinance, I have reminded myself that I have to deal with evidence for each summons separately. Discussion on the Evidence 58.The credibility of all the prosecution witnesses are generally not in issue, except the defence challenged Cheuk had actually not read the content of the written agreements before his signature, which Cheuk firmly disagreed. In the following paragraphs, I will firstly deal with the evidence concerning summonses laid under s.114(1) against D1, i.e. C.L. Management Services Ltd, in relation to its dealing with the 3 respective client companies: 3 Wells, UK Fur and New Bonus. The “carrying-out” offence under section 114(1)(a) only concerned 3 Wells while the “holding-out” offences under section 114(1)(b) concerned all three companies in question. Summonses against D1 The “carrying-out” offence in respect of 3 Wells (ESS 30671 of 2013) Background of D1, D2 and Michael 59.D1, C.L. Management Services Ltd, was and is a registered company in Hong Kong and D2 was the sole director and shareholder of the company at all material times. D1 shared the same office at the address stated in the agreements in question with Cheong Lee Securities Limited (“Cheong Lee”) which was and is a securities company owned by D2. It is admitted by both parties that neither D1 nor D2 were licensed with SFC in any capacity or in relation to any regulated activities under the Ordinance. [28] Neither was it disputed that D2 knew that she was not licensed to do so at the material times. 60.D2 is educated and received part of her education in Australia. She was divorced having 4 children. She has been actively participating in the charitable work held by Yan Oi Tong where she met Cheuk’s wife who was the chairlady of Yan Oi Tong. D2 was also elected as a vice-president of Yan Oi Tong before. She was a stockbroker and a licensee as a securities’ dealer between 1991 and 2003. D2 acquired Cheong Lee in 2007 which was and is a company engaged in the business of dealing in securities and futures. In March 2011, the holding company of Cheong Lee, CL Group (Holdings) Limited (“CL Group”) was listed on the GEM board of SEHK and D2 was and is the major shareholder. D2 knew the listing procedures from the past listing experience of her own company, CL Group and as a result of which, she knew a number of professional parties, including lawyers, accountants and sponsors for listing matters. 61.As testified by D2, Michael was a certified public accountant and also a chief financial officer of a listed company. D2 knew him since 2004 and CL Group had employed Michael as a company secretary in 2005 for 6 months. Between 2004 and 2007, D2 hired Michael to handle accounting matters for her personal companies. As far as D2 knew, Michael was conversant with the listing procedures. D2 regarded Michael as a person of experience and one could handle matters very well, as she had worked with him for a long time. In the present case, D2 alleged that he had engaged Michael to prepare the agreements in question and liaise with the respective three client companies for her. She also asked Michael to look into the internal audit of 3 Wells for allegedly “her own assessment” only as to whether 3 Wells were capable of being listed before she introduced the professional parties handling the listing procedures of 3 Wells. D2 maintained that Michael was not an employee of D1 at the material times. Before 3 Wells Agreement was signed 62.According to the evidence, what D2 and Michael have done to 3 Wells before the 3 Wells Agreement had been signed were as follows:
Relevant clauses in the 3 Wells Agreement 63.The written agreement[29] signed between D1 and 3 Wells is not at all a complicated one. The terms stated in are in fact clear and easy to understand. I quote below the relevant ones:
5. Payment of Costs Party A agrees and undertakes to pay a cost of HK$600,000 annually to Party B as compensation for acting as its financial adviser. Upon successful listing of Party A on the Stock Exchange of Hong Kong, Party A shall grant an additional number of share options, being equivalent to 1.5% of the issued shares, to Party B. The payment should be made within 7 days when this agreement effective. The payment terms is as follows
64.I find the above 3 Wells Agreement a very clear and comprehensible agreement representing that D1 would during the period covered by the agreement act as an “exclusive financial advisor” providing a comprehensive scope of advisory services for 3 Wells concerning the compliance with and in respect of the listing rules. The reasons are:
After 3 Wells Agreement was signed 65.On the evidence, after the agreement was signed, D2 and Michael did provide part of the services as stated in Clause 2 of the agreement:
Was Michael acting on behalf of D2 within her actual and specific authority? 66.It is contended by the Defence the acts by Michael and his team to 3 Wells were not done within D2’s actual and specific authority. 67.On the evidence, D2 was the sole shareholder and director of D1. The scale of D1, as testified by D2, was not a huge one. She said in evidence that it was her another company Cheong Lee assigning a room at the address in question for her to work for D1. Cheuk said that Michael was the first staff D2 had introduced to 3 Wells responsible for the listing project. Michael was working in the same office as that of D2 in respect of the dealing with 3 Wells as testified by Cheuk. It is reasonable to infer that D2 and Michael did work together closely during the material times. According to Cheuk and Lee, if there was anything they wanted to inform D2, they would do it through Michael, e.g. D2 signing the 3 Wells agreement or Lee sending the termination letter to D2. 3 Wells’ party always understood Michael being the agent/staff of D2. At no stage did D2 inform 3 Wells that such her relationship with Michael had been changed. 68.Further, I found Michael was actually working as a delegate/agent of D2, being responsible for the services provided to 3 Wells about the listing matters. On the evidence, it is clear that after D2 getting the business from 3 Wells by using her connection and reputation acquired both from her charity and professional works, she then left the actual operation to her able assistant, Michael. As admitted by D2, Michael was conversant with listing procedures as he was a certified public accountant and a chief financial officer of a listed company before. Michael has also been employed by D2 as company secretary for CL Group in the past. It was mainly Michael and his team to follow up the listing matters of 3 Wells. As a matter of fact, what Michael and his team did was generally consistent with the agreement terms, although it turned out to fall short of performance as expected by Cheuk. No doubts Cheuk and his team understood that Michael was all along acting on behalf of D2. 69.Even during the termination of the contract, the letter was sent to D2’ attention. D2 admitted that she had received the termination letter which showed that she remained in control and was the person in charge of the whole process on behalf of D1. Before the 3 Wells Agreement was terminated, a total of HKD$300,000 was paid to D1 by 3 Wells on schedule which has never been refunded as promised by Michael over the phone. Out of HKD$300,000, Michael was rewarded with half of the remuneration, i.e. HKD $ 150,000, as admitted by D2. All of these are consistent with Michael’s role as an agent for D2. It makes no sense that Michael, without any reasons, would be or intended to be in any way acting outside D2’s authority. Having reviewed all the evidence, I found that Michael was all along acting on behalf of D2. D2 had delegated her duties for 3 Wells to Michael and that Michael had acted within D2’s actual and specific authority and within the scope of her delegation. 70.As I have ruled above that offences under section 114 created strict liability of 2nd alternative and the fact that D1 was a corporate body in the summons concerned, together with my finding that D2 had delegated her duty in respect of 3 Wells to Michael who had acted within D2’s delegation and authority, I consider that what Michael had done on 3 Wells was attributable to D1. In other words, D1 was liable for not only D2’s, but also Michael’s acts. What amounted to “advising on corporate finance”? 71.It is common ground that the meaning of “advising on corporate finance” is defined in Part 2 of Schedule 5 of the Ordinance and the relevant part concerned in the present case in my view is confined only to the first part of subsection (a):
72.On reading the above extract of the definition, it seems that the provision aims at covering a wide range of areas of any advice given concerning compliance with or in respect of rules governing the listing of securities. 73.As analysed in paragraphs 61-64 above, I am of the view that what D2 and Michael did to 3 Wells before, during and after the 3 Wells Agreement was signed obviously amounted to advising on matters concerning compliance with or in respect of the rules governing the listing of securities. Although what D1 did fell short of what it had promised in the written agreement and what was expected from Cheuk. On the evidence, D2, Michael and his team were but trying to give assistance and advisory services on the listing matters for 3 Wells on behalf of D1. The services provided were generally in line with what D2 had promised to 3 Wells both in the oral and written agreements. 74.Defence said that D2 was just using her experience and connections to line up a professional team for 3 Wells’ listing and that was it, which fell short of amounting to advising on corporate finance. I disagree with it. That in fact was just part of D2’s work. As said above, D2, after signing the 3 Wells Agreement, also sent her team headed by Michael, as testified by Cheuk and Lee, to have meetings with Cheuk, Lee and their department heads, both in Hong Kong and Mainland. They also helped to review a list of internal documents to access whether 3 Wells had the capability to be listed. Such advices were indeed given to them before D2 lined up the professionals for the listing of 3 Wells. After that, D2 (even for the first introductory meeting only as said by her) and Michael had also met up with Cheuk’s party and other professional intermediaries concerning 3 Wells’ listing. 75.I do not accept Defence contention that D2 was not aware of Michael and his team’s doing all along. D2 was a professional in the securities industry and she was involved from the beginning until the end, although she was not the person who actually did most of the liaison or advisory work. This part will be considered in more details later in my verdict. Did D1 “carry on” a business in advising on corporate finance? 76.As to the meaning of “carrying on” a business, it was held in Lee Yee Shing v Commissioner of Inland Revenue (2008) 11 HKCFAR 6 at paragraph 38, that “whether something amounts to the carrying on a trade or business was a question of fact and degree to be answered by the fact finding body upon the consideration of circumstances.” 77.Further, it was held in HKSAR v Fung Yee Man [2001-2003] HKCLRT 464 by Deputy Judge Pang, as he then was, that:
78.I have found above that what D2 and Michael had done amounted to giving advice on corporate finance, I still have to consider whether on the evidence D1 was “carrying on” a business in advising on corporate finance. Applying the principle set out in the abovecases, I do have reservation in concluding beyond all reasonable doubt that what D1 had factually done to 3 Wells could satisfactorily be regarded as “carrying on” a business in advising on corporate finance, although the evidence showed that it did at some stage, through Michael and D2, give 3 Wells “some bits and pieces” advisory service on its listing during the material times[45]. Cheuk testified that several months after the agreement had been signed, he realised that D1 actually did not do much in the listing process, as opposed to what he had expected. On the evidence, the advisory service provided by D1 to 3 Wells was abruptly terminated upon D1’s request around September or October 2012 before the agreement was completed. At that moment, 3 Wells was not able to be listed as originally scheduled. Analysed as the above, I acquit D1 of ESS 30671/2013 on the “carrying-out” offence[46]. As there is no commission of the relevant offence in section 114(1)(a), D2 must also be acquitted of the “attributable offence” of ESS 30672/2013 laid under section 390 of the Ordinance. The “holding-out” offences (ESS 39231, 30673 & 30675 of 2013) 79.As stated above, the “holding-out” offence against D1 [47]concerned all three client companies. Meaning of “Holding- out” 80.From the Hong Kong Bilingual Legal Dictionary, it is said that the term “hold out” means:
Evidence relating to 3 Wells 81.On the evidence set out above in paragraph 62, Cheuk said that before signing the 3 Wells agreement, D2 had asked him twice whether he would like to promote 3 Wells to a higher level, which he understood was to have 3 Wells being listed. D2 asked if Cheuk was interested to be instructed by her for such purpose which Cheuk understood D2 would act like a martial art instructor in the whole listing process of 3 Wells. Cheuk had actually considered this issue for about half a year, during which he had gathered information about other companies providing similar consultancy services concerning listing procedures and visited D2’s office to learn about the scale of her business. 82.Before the written agreement was signed, the payment terms and paying schedule were largely agreed. As to the scope of services to be provided by D1, D2 and Cheuk did not discuss it in details before signing the agreement. What Cheuk understood was that, apart from introducing the right professional parties to handle the listing process for 3 Wells, D2 and his team would also supervise or work together with other professional parties to ensure the listing process would be smooth. 83.The Defence disputed that Cheuk had actually not read every term of the agreement before he signed it which was firmly disagreed by him. Cheuk explained that what he told SFC that he did not care about the contract meant that he did not care about the company’s name, the scope of services in details and the date of the agreement. Neither did he care to check whether each term of the contract was duly carried out by D2 in the course of the process after signing the agreement. It was because he trusted D2 very much. But he did read and understand every term of the contract before he signed. After considering the content of his evidence as a whole and observing the way in which Cheuk was giving evidence, I accept all what Cheuk said in court and I found him a very honest and reliable witness. 84.In any event, what the court mostly concerned is not what Cheuk had understood, but what D2 had held herself out before, during and after she had signed the agreement. The terms stated therein the 3 Wells Agreement are clear and simple. D2 is educated and has been working in the profession of securities and futures for a long time. The agreement was prepared upon her instruction. The evidence also showed that there was abundant time for her to read and understand the contract before signing the agreement. 85.Apart from the conduct of D2 before and when she signed the agreement with 3 Wells, what she and Michael performed to 3 Wells after signing the agreement as stated above in paragraph 65 also supported the conclusion that, at the time when D2, on behalf of D1, signed the agreement, D1 did held itself out to 3 Wells as carrying on a business in advising on corporate finance. It was also in line with 3 Wells’ understanding all along until the termination of the contract. 86.The fact that D1, urgently and strangely, requested 3 Wells to terminate the agreement also strengthened the inference that D1 did at the outset held out to 3 Wells as carrying on a business in advising on corporate finance which was later discovered to be unlawful and needed to be terminated. 87.In light of the foregoing, I have no hesitation to conclude that D1 did, at the time when the 3 Wells Agreement was signed, hold itself out to 3 Wells as carrying on a business in advising on corporate finance. What if Michael’s acts do not count? 88.Even if I were wrong in concluding D1 should be liable for Michael’s acts, I still found that D2 being the “directing mind and will” of D1, had held herself out to 3 Wells as carrying on such a business. 89.Taking into account the above facts concerning the acts of D2 alone performed to 3 Wells before, during and after the agreement was signed together with other circumstantial evidence, in particular her background and the clear content of the 3 Wells Agreement as set out above at paragraphs 59-65 and analysed at paragraphs 81-86, I am sure that D1 did, at the time when the 3 Wells Agreement was signed, hold itself out to 3 Wells as carrying on a business in advising on corporate finance. Evidence relating to UK Fur 90.The Prosecution only called PW3, P WONG, the Chairman and executive director of UK Fur, which was in the business of fur trading. P WONG knew D2 for over 20 years. P Wong’s evidence was relatively brief. What D2 had done to UK fur included:
91.Given the unequivocal terms stated in the contract signed between D2 and P Wong, I consider that there is sufficient evidence to show that D2 did hold itself out to UK Fur as carrying on such business in advising on corporate finance. I note that P Wong said that he did not understand the terms of the contract and expected D2 did nothing more than the introductory service. However, what the court concerned the most was what D1 had held itself out to be. I must say that I did have reservation on some part of the evidence of given by P Wong, who was a good friend of D2 for more than 20 years, concerning what he understood about the scope of services provided by D2 before the agreement was signed. The court is entitled to accept part of the evidence given by a witness. In any event, the clear representation stated on the written agreement[58] should be considered as the most forceful and reliable evidence of what parties were agreeing and representing. 92.Defence said that P Wong’s understanding of what D2 said orally was in contrast with what was stated in UK Fur Agreement. Normally, the written contract should be considered as overriding if there is any discrepancy between the oral and written agreement. For example, in D2’s evidence, she orally agreed with the respective clients that she would charge around HKD$50,000 each month for her services. But in all the agreements concerned, the payment terms stated therein were quite different from what she told the clients before. This also showed that D2 intended to finalise all the terms of her service with her clients in the written but not the oral agreement. 93.Strangely enough, the term about “Scope of Services” (Clause 2) has been substantially amended and the role of D1 being a “financial advisor” was changed to “financial consultant” by way of a Confirmation Letter[59] dated 18 November 2011 after almost 13 months when the UK Fur Agreement was firstly signed. A compelling inference could be drawn that either the advisory services stated in Clause 2 of the original agreement had not actually been carried out or should not have been carried by D1, which was somehow discovered and needed to be rectified by UK Fur during the listing process. In either situation, it further supported the irresistible inference that D1 did, at the time when signing the contract, hold itself out to UK Fur as carrying on a business in advising on corporate finance. On the other hand, the fact that, D1 did, at some stage after signing the agreement and performing part of the unregulated activity, try to rectify its legal status with UK Fur only showed that it might not be aware what it/D2 was doing was not permitted by the law. However, ignorance of law is no defence. 94.Clearly, section 114 does not only target those who actually carried on a business in the regulated activity but also those who held itself out to others as carrying on such business. In light of the unequivocal terms set out in the UK Fur Agreement and the other circumstantial evidence as set out above, I am sure that D1, at the time when the UK Fur Agreement was signed, actually held itself out as carrying on the business in advising on corporate finance. Evidence in relation to New Bonus 95.The Prosecution only called PW4, KF WONG, another friend of D2 and also the director of New Bonus, which was in the business of selling luxury yachts. His evidence was quite similar to what was given by P Wong of UK Fur. On the evidence, what D2 had done to New Bonus included:
96.I have to consider whether D2, on behalf of D1, by signing of an unequivocal written agreement as well as providing the introductory services to New Bonus could amount to “holding-out” in carrying on a business in advising on corporate finance. Clearly, D2, on behalf of D1, did represent in the New Bonus Agreement that services of advising on corporate finance would be provided to New Bonus. In fact, the first instalment of $170,000 was paid to D1 by New Bonus shortly after the agreement was signed. The listing application of New Bonus was somehow not proceeded with, but part of the services, namely the introductory service as specified in Clause 2 had been provided by D2 as admitted by her. In light of all the evidence concerning what D2, on behalf of D1, had done to New Bonus before, during and after the signing of the New Bonus Agreement, I have no hesitation to conclude that D1, at the time when the contract was signed, did hold itself out to New Bonus as carrying on the business in advising on corporate finance. 97.Defence said that KF Wong himself did not expect D2 would provide services other than the introductory services. As what I have said earlier, the court is mostly concerned of what D2 was doing on behalf of D1. Although KF Wong testified that during prior discussion what he understood from D2 was that she would be introducing some professional parties for the New Bonus’s listing, but that would not negate the clear fact that D2, on behalf of D1, had later on by way of an unequivocal written agreement[64] held herself out as carrying on the business in advising on corporate finance. I therefore consider that D1 had at the material time held itself out to New Bonus as carrying on the business in advising on corporate finance. Can the defence be made out by D1 factually? 98.I pray in aid of the holding in HKAR v Adams Secuforce (International) Limited [2008] 1 HKLRD 207[65] relating to the steps in considering the defence of “reasonable excuse”:
99.In a recent case HKSAR v Li Fung Ching Catherine [2012] 3 HKLRD 377, the Court of First Instance also held that[66]:
100.In reaching my conclusion as to whether the defence could be made out factually, I bear in mind the principles above and the objective of the Ordinance in question which is to protect the investors and regulate the industry of securities and futures. The defence contended that D2 firstly, was not aware of the content of all the agreements she had signed with the respective clients and secondly, did not know what Michael had done to 3 Wells. I have to consider whether the defence has successfully proved the above two assertions, if unrebutted, could amount to a “reasonable excuse” (i.e. the statutory defence) or an honest belief on reasonable grounds that what she did was not holding herself out as carrying on a business in advising on corporate finance (i.e. the common law defence). 101.D2 elected to give evidence and I accept that the evidential burden for both statutory and common law defence has been satisfied by the defence. What I have to do next is to consider whether the prosecution could successfully rebut, beyond all reasonable doubt, that what was said by D2 in her evidence could never be a “reasonable excuse” (statutory defence) nor in any way an “honest belief on reasonable grounds” (common law defence). Did D2 know the content of the agreements? 102.As narrated earlier, D2 is an educated lady and understands English. She has been dealing in the securities industry for years and her own company has gone through the process of listing in 2009-2011. She testified that the three agreements in question[67] were prepared by Michael on her request but she did not have chance of reading through them in details before signing. She said she had told Michael to look for similar agreement which provided only introductory services for listing. On the evidence, the draft of UK Fur Agreement was sent to D2 by Michael for her perusal. [68] The draft was subsequently approved by her as showed from the e-mail he replied to Michael. 103.D2 however told the court that the first time when she had a chance to read the terms in details of the three respective agreements was when she was asked to do so during her evidence-in-chief in court. She said what she concerned the most was to get money from the clients on time and she was not concerned with other terms of the agreement because the three clients were all her friends. She even told the court that the agreements were not important. She also excused that she was just too busy, both in family and work, to read the content of the agreements. 104.I must say that D2’s above assertions in court were in my view no more than a pack of lies. Being such a professional in the industry, how can one believe that she would not read carefully the terms before signing the contracts? D2 said what she concerned the most was the receipt of payment which could most effectively be showed and enforced in the agreements. Payment could only be collected when the duties of D1 was duly performed as specified in the agreement. Therefore, both the terms of payment and scope of services were equally important. D2’s saying that she only had a glance on the payment clause but not other terms was totally unreasonable. The most utterly unbelievable part was that she only read it for the very first time when she was giving evidence in court. How could one believe such a dishonest and ridiculous piece of evidence? 102. At least, D2 would read the agreements when she was informed, on two occasions, that the same had problems. Regarding UK Fur’s case, a Supplemental Agreement[69] dated 26 October 2011 and Letter of Confirmation[70] dated 18 November 2011 were signed by both parties, specifying the substantial changes of scope of services and the role of D1. Similarly, in the case of 3 Wells, a letter back-dated to 31 May 2012[71] to terminate the original 3 Wells Agreement was received by her in late 2012. D2 although admitted that she had received all the abovesaid documents denied that she had paid much attention to the same. That again in my view defies all common sense. The above documents were unusual in nature and hardly can one be convinced that D2, being the directing mind of the party concerned of the agreements, would not have paid any attention to them. It is wholly unconvincing that D2 have not read again what she had signed when the terms of the agreements had been substantially changed. It is also absurd that D2 would not have read the contracts again when she was being investigated by SFC which was well before giving evidence in court. 105.In any event, I do not believe that D2 have not read through the respective agreements before she signed each of them. There is no evidence suggesting she was in a rush at all. As a matter of fact, the first draft of UK Fur Agreement was sent to her email account by Michael for her perusal and was approved three days later.[72] In 3 Wells’ case, Cheuk said that after he signed the 3 Wells Agreement, the same was sent to D2’s office for her signature. In both cases, D2 had plenty of time to read and understand the agreements before signing. 106.Although Michael did not give evidence, D2’s evidence did not suggest any ground that Michael, being her reliable agent all along, would depart from her instructions on preparing the appropriate agreements without any reasons. On the other hand, D2 said that she had known Michael for a long time and that she regarded Michael as a very competent assistant of her who could handle things very well. These must be the reasons why D2 would employ him as the company secretary before and in the present case the person responsible for most of the dealings with the clients concerned. D2 said Michael was very familiar with the listing procedures and she herself also had the experience and knowledge of the same as CL Group had gone through the listing process before. I have no doubt that the agreements must have been prepared according to D2’s instructions. 107.If D2’s evidence were true, all the agreements prepared by Michael turned out to be substantially departing from her instructions. If the services D2 intended to provide were just so simple as alleged by her, why Michael would not have just drafted an agreement with very simple terms but acted against D2’s instructions and prepared a much more detailed one instead? On the evidence, all the money was firstly paid to D1 and the substantive work was mostly done by Michael. What was the point for Michael to perform so much more arduous duties for the clients if the same amount of money would be received by D2 and him by just doing the introductory services? This is again illogical. 108.D2 also testified that as she trusted Michael very much and she was very busy both at work and family, she simply did not care to read through them but just signed them right away. Such excuses are unacceptable to me. It is entirely improbable that D2 would not have read such clear and comprehensible terms even once. Each agreement contained only several pages and the terms were all very similar, clear and easy to understand. D2’s such excuse/belief was neither reasonable nor honest at all in my view. I am sure that D2 must have full knowledge of the content of all the agreements in question. 109.Also, after signing the contract, D2 was still involved in the process, at least by introducing the professional parties for and attending the first meeting with the respective clients as she testified. The receipt of payment on schedule did further infer that what she signed was what she meant. Further, the considerable monetary remuneration, let alone saying the granting of share options, received by D1 from the clients was incompatible to D2’s allegation that she intended to provide and had provided introductory services only. From Cheuk’s evidence, he did conduct some research on the fees charged for similar advisory services for listing provided by other companies which ranged from $300,000 to $500,000. Defence submitted that the prosecution should have called independent evidence to prove the normal charges for such advisory service for listing before one could comment on the reasonableness of the costs charged by D1 for the introductory service, I consider common sense, Cheuk’s evidence and other circumstantial evidence suffice to rebut D2’s assertion that the cost D1 had received from the clients only intended to cover introductory and liaison services. 110.With the above reasons, I am of the view that the prosecution has successfully rebutted beyond all reasonable doubt that D2’s assertion that she was not aware of the content of the agreement concerned when she signed each of them. The allegation of such “belief” or “excuse” was neither honest/genuine nor reasonable. Did D2 know what Michael was doing on her behalf 111.Regarding D2’s contention that she was not aware of Michael’s acts on 3 Wells, it is also improbable and illogical to me. Michael was her able assistant, receiving a handsome amount of monetary remuneration i.e. almost half of what D1 had received[73]. Michael and D2 were working in the same office at least for the project of 3 Wells, as Cheuk testified that he did see Michael whenever he visited D2. And it was always Michael receiving and discussing the matters with him. Cheuk said clearly that the first staff D2 had introduced to him was Michael. All along, Cheuk understood Michael was acting on D2’s behalf. No one has ever informed 3 Wells that the relationship between D2 and Michael had changed in any way. 112.It was D2’s admission that she had entrusted Michael to look into the internal information of 3 Wells to assess its capacity to be listed for her own benefit but not for 3 Wells. It was said by defence that as Cheuk had testified that 3 Wells already “knew” that they were capable of being listed and therefore there was simply no need for 3 Wells to be advised by D1 on the listing matter. This submission, with respect, was convoluted and misleading in my view. I find that D2 was simply trying to explain away the fact that Michael had on the undisputed evidence looked into 3 Wells’ internal audit and gave advice as to its ability for listing. Although Cheuk was confident about his own company, it did not mean that he did not need D1’s advice on its capacity and procedures to be listed. In fact, that was the whole purpose for Cheuk to engage D1 as he was not familiar with the listing procedures and manpower and he did believe D2, like a martial art instructor as said more than once by Cheuk, had the ability to advise 3 Wells on the listing process as a whole. The assertion of D2 that the assessment of listing capacity of 3 Wells by Michael was only for her but not 3 Wells was without force. 113.Further, when Michael telephoned Lee to discuss the urgent request for termination of 3 Wells Agreement, the finalised letter was sent to and received by D2. All these could provide the court with sufficient evidence to draw an irresistible inference that D2 was well aware of Michael’s acts to 3 Wells all along and that Michael was acting with D2’s actual and specific authority at all material times. I am satisfied that the prosecution has disproved beyond reasonable doubt that the allegation of honest and reasonable belief/excuse that D2 was not aware of Michael’s doing and therefore thought that she was not holding out as carrying on the business in advising on corporate finance does not exist. Neither is such excuse/belief, if ever existed, relied on reasonable. 114.As such I consider the prosecution has proved beyond reasonable doubts all the elements of all “holding-out” offences against D1 and rebutted beyond reasonable doubt all the possible defences. I therefore convict D1 of summonses ESS 30673, 30675 and 39231 of 2013. Fallback position--- Did D1 have mens rea in the “holding-out” offences? 115.If I were wrong in ruling the “holding-out” offence against D1 under section 114 as creating strict liability falling within the category of second alternative, meaning the offences in fact require proof of full mens rea on the part of D1, I still find D1 guilty of the offences. 116.On the evidence, as I have analysed as above which I do not intend to repeat, it showed clearly that D2, being the directing mind of D1, knew full well the content of all the Professional Financial Consultancy Agreement signed with the three respective clients. She was clearly in control of D1 and she was the one who received the payments and then shared almost half of it with Michael in each and every case. Cheuk and Lee of 3 Wells said that they understood Michael was all along working on behalf of D1/D2. I am sure that what Michael did to the clients was all within D2’s authority and delegation. Further, she was also responsible for using her own connection and knowledge to introduce the professional teams for her clients’ listing applications. D2 must have knowledge that D1 did represent itself as carrying on a business in advising on corporate finance. When signing the respective agreements, D1, with D2’s directing mind, did intend to hold itself out to all respective clients as carrying on a business in advising on corporate finance which were clearly shown in the agreements and supported by all the circumstantial evidence. Summonses against D2 117.As I have found D1 guilty of summonses ESS 30673, 30675 and 39231of 2013 laid under section 114(1) and (8) of the Ordinance, I now move on to consider whether D2 should be liable for the respective “attributable” offences on the same facts laid against her under section 390. 118.It is stipulated in section 390 of the Ordinance that:
119.In Schedule I of the Ordinance, “officer” in relation to a corporation is defined as:
120.The meaning of “connivance” has been considered, at paragraphs 60-65, in HKSAR v Li Fung Ching Catherine [2012] 3 HKLRD 377:
121.It is not in dispute that D2 was an officer of D1 at the material times. As I have ruled above that D2 did have knowledge of what D1, with the assistance by Michael, was doing all along and the content of the respective agreements, I have no difficulty at that to conclude that all the “holding-out” offences under section 114 could not have been committed by D1 without the assistance or consent or connivance of D2. The whole thing was procured and induced by D2 as elicited in the trial. At the very least, the commission of the offences must be attributable to the recklessness on the part of D2. As such I find that the commission of the offences by D1 were all aided, abetted, counselled, procured or induced by, or committed with the consent or connivance of, or attributable to any recklessness on the part of D2. Without any doubt, I find D2 guilty of all the summonses laid against her under 390 offences in respect of each of convicted offences stated above. In other words, I convicted D2 of summonses nos. ESS 30674, 30676 and 39232 of 2013 accordingly. Conclusion 122.To conclude, I am satisfied that the prosecution has proved beyond all reasonable doubt that D1 is guilty of summonses nos. ESS 30673, 30675 and 39231 of 2013 and D2 is guilty of summonses nos. ESS 30674, 30676 and 39232 of 2013 accordingly.
Representation : Miss PO Wing-kay, instructed by the Securities and Futures Commission, for the Prosecution Mr Peter Duncan, SC and Mr Edwin Choy, instructed by Haldanes, for D1 and D2 [1] ESS 30671, 30673, 30675 of 2013 and 39231 of 2013 being an alternative to ESS 30671/2013 [2] In contravention of sections 114(1) (a) and 114(8) of the Securities and Futures Ordinance, Cap 571 (“the Ordinance”) [3] In contravention of section 114(1) (b) and (8) of the Ordinance [4] In contravention of section 114(1) (b) and (8) of the Ordinance [5] ESS 30672, 30674, 30676 of 2013 and 39232 of 2013 being a summons alternative to ESS 30671/2013 [6] In contravention of section 390 of the Ordinance [7] ESS 30673/13 concerning UK Fur: $400,000; ESS 30675/13 concerning New Bonus: $200,000; ESS 39231/13 concerning 3 Wells: $300,000 [8] ESS 30674/13 concerning UK Fur: $300,000; ESS 30676/13 concerning New Bonus: $100,000; ESS 39232/13 concerning 3 Wells: $200,000 [9] ESS 30674/13 concerning UK Fur: 3 months; ESS 30676/13 concerning New Bonus: 3 months; ESS 39232/13 concerning 3 Wells: 6 months, all imprisonment to be served wholly concurrently. [10] The issues of immunity and/or risk of Michael incriminating himself when giving evidence were actually raised by the court at the outset of the trial after Prosecution’s opening. SFC replied to the court, with no satisfactory reasons given, that such matter was still in the process of exploring and could not be decided until the last minute when Michael was called. Michael’s refusing to give evidence, on his own initiative, after taking oath due to obvious risk of incriminating himself was out of prosecution’s expectation. It was however obviously revealed in Prosecution’s opening (see para.35 and 36 of Prosecution’s Opening) that Michael’s involvement would incriminate himself without the protection of an immunity. Those matters should have been thoroughly considered and settled well before trial. The court has expressed its concern to SFC that such undesirable situation should not recur in future. [11] Exhibit P13 and P14 [12] Exhibit P21 and P22 [13] Exhibit P25, the letter was back-dated to 31 May 2012 upon request by Michael [14] Concerning summons ESS 30671/2013 and alternative summons ESS 39231/2013 [15] Concerning summons ESS 39672/2013 and alternative summons ESS 39232/2013 [16] Exhibit P11 [17] Exhibit P2, P12 and P26 [18] Hin Lin Yee at paragraph 139, quoting Gammon (Hong Kong) Ltd v Attorney General of Hong Kong [1985] 1 AC 1 at paragraph14 [19] Paragraphs 139-142 of Hin Lin Yee [20] Kulemesin Yuriy at paragraph 59 and Hin Lin Yee at paragraph 141, quoting He Kaw Teh v The Queen (1985) 157 CLR 523 at paragraph 535, [21]Kulemesin Yuriy at paragraph 107 29 Exhibits D3, D4 and D16 [22] Page 196 of Hin Lin Yee [23] Paragraph 91 of Securities and Futures Commission and Liu Su Ke [2010] 2 HKLRD 673 [24] Paragraph 28 of Securities and Futures Commission v Yu Ka Tak [2007] HKCLRT 728 [25] Paragraph 23 of Defence’s Closing Submission [26] Paragraph 164 of Hin Lin Yee [27] Applying paragraph 109 of Kulemesin Yuriy case [28] Admitted Facts, paragraph 2. [29] Exhibit P12 [30] The paragraph right after the name of Parties and Clause 1 “Engagement” [31] Sub-clause (6) of Clause 2 [32] Sub-clause (11) of Clause 2 [33] Exhibit P14 [34] Geoffrey Wong was also known as Wong Chi Fai in the email concerned [35] Exhibit 15, page 56 of Exhibit Bundle [36] The documents included MFGpro System work flow, Quality manual, dales cycle notes, purchase cycle notes, inventory cycle notes, shipment notes, the accounting entry flow and the payment and approval procedure and system notes for expenses, fixed asset cycle, treasury cycle and financial accounting cycle. Please see exhibit P15. [37] Exhibit P16 [38] The documents included 3 Well’s organisation chart, history and development, projected profit and loss for 2011 and list of directorship and ownership: please see Exhibit P18 [39] Exhibit P17 [40] Exhibit P19 [41] Exhibit P20 [42] Exhibit P21 [43] First draft: Exhibit P23; Amended version by Cheuk: Exhibit P24 and final version: Exhibit P25 [44] Exhibit P25 [45] Paragraph 61 referred [46] Contrary to section 114 (1)(a) of the Ordinance [47] Under section 114(1) (b) of the Ordinance [48] Exhibit P2 [49] The email attaching the draft agreement was sent by Michael to D2 on 8 October 2010 [50] Exhibit P1 [51] Sub-clause (6) of Clause 2 [52] Sub-clause (12) of Clause 2 [53] Respective cheques were paid on 20 October 2010 (P3), 17 January 2011(P5), 4 April 2011 (P7) and 30 June 2011 (P9) [54] About 1 year after signing the UK Fur Agreement (Exhibit P2) [55] Exhibit P2A [56] Exhibit P2B, signed about 13 months after the UK Fur Agreement (Exhibit P2) [57] Exhibit P11 [58] Exhibit P2 [59] Exhibit P2B [60] Exhibit P26 [61] Exhibit P12 [62] Exhibit P2 [63] Sub-clause (12) of Clause 2 [64] Exhibit P26 [65] The court relied on a New Zealand case of Oosterman v New Zealand Police [2007] NZAR 147 where Harrison J quoted the case of Mark & Others v Henshaw (1998) 85 FCR 555 (FCA). [66] HKSAR v Ching Yeung Development Co Ltd [2001-2003] HKCLRT 343 applied. [67] Exhibits P2, P12 and P26 [68] Exhibit P1 [69] Exhibit P2A [70] Exhibit P2B [71] Cheuk said the letter was sent to D1 (attention to D2) in around October 2012 [72] Exhibit P1 [73] D2 told the court that she gave Michael $300,000 out of $600,000 she had received from UK Fur, $150,000 out of $300,000 received from 3 Wells, and several ten thousand dollars out of $170,000 from New Bonus. |
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