Ipsofactoj.com: International Cases [2004] Part 3 Case 6 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

Hong Kong, SAR

- vs -

Lee

CHIEF JUSTICE LI

MR JUSTICE BOKHARY PJ

MR JUSTICE CHAN PJ

MR JUSTICE CLOUGH NPJ

SIR ANTHONY MASON NPJ

22 AUGUST 2003


Judgment

Chief Justice Li

  1. I agree with the judgment of Sir Anthony Mason NPJ.

    The Court unanimously allows the appeal, sets aside the Judge's order for a permanent stay and remits the matter to the Court of First Instance for the respondent to be tried. As to costs, the parties are directed to lodge written submissions within 30 days.

    Mr. Justice Bokhary PJ

  2. I agree with the judgment of Sir Anthony Mason NPJ.

    Mr. Justice Chan PJ

  3. I agree with the judgment of Sir Anthony Mason NPJ.

    Mr. Justice Clough NPJ

  4. I agree with the judgment of Sir Anthony Mason NPJ.

    Sir Anthony Mason NPJ

    INTRODUCTION

  5. This is an appeal by the Secretary for Justice from an order dated 13 December 2002 by Seagroatt J, a Judge of the Court of First Instance, to stay permanently criminal proceedings against the respondent on the ground of abuse of the court's process.

  6. On 11 February 2003, the Appeal Committee granted leave to appeal on the grounds that points of law of great and general importance were involved in the decision (eight questions were certified) and that it was reasonably arguable that substantial and grave injustice had been done. At the same time the Appeal Committee granted the Securities and Futures Commission ("the SFC") leave to intervene in the appeal.

    THE HISTORY OF THE CRIMINAL PROCEEDINGS

    The investigation of the affairs of the Allied Group

  7. In 1990 and 1991, on four separate occasions, Allied Group Ltd ("AGL"), a publicly listed company, Allied Tung Wing Ltd ("ATW"), an associated company and a subsidiary, Allied Properties (HK) Ltd ("APL"), announced that substantial numbers of shares had been issued and placed, in exchange for either cash payable by independent investors, or by bankers' draft upon the exercise of share warrants.

  8. On 11 June 1992, having conducted an investigation earlier that year in response to complaints received, the Chairman of the SFC recommended to the Financial Secretary the appointment of an inspector under the Companies Ordinance, Cap. 32, to undertake a wider investigation into the affairs of the Allied Group. An inspector was appointed whose work was to be monitored by a steering group to be chaired by the Deputy Secretary for Monetary Affairs, on behalf of the Financial Secretary, and comprising representatives from the Attorney-General's Chambers ("AGC") and the SFC.

  9. On 13 September 1993, Mr. Meocre Li, an experienced and qualified forensic accountant (who later gave expert evidence at the trial) was appointed by the AGC to review the share transactions and to report. On 15 September 1993, the Hong Kong police commenced a series of raids on the offices of Allied Group companies. It thereafter established an extensive task force to investigate the case against the respondent, the Chairman and substantial shareholder of the Group, and against Ronald Tse, the financial controller of the Group.

  10. On 18 September 1993 the inspector's report was published in an abridged form and sent to the police and to the SFC.

  11. Ronald Tse, who had earlier been arrested in Australia and had agreed to return to Hong Kong, was arrested and charged in Hong Kong on 26 August 1998. On 25 August 1998, the respondent was arrested and charged in Hong Kong. On 16 June 1999, they were committed for trial in the Court of First Instance.

  12. The Director of Public Prosecutions ("DPP") was at all material times the sole prosecuting authority. Legal Officers of the Commercial Crime Unit ("CCU") of the Prosecutions Division of the Department of Justice ("DOJ") were responsible on the DPP's behalf for the preparation and the presentation of the case against the accused, and for briefing counsel. They acted as "the prosecutor" throughout.

  13. The Commercial Crime Bureau of the Hong Kong Police Force was responsible for much work of investigation and procurement of evidence, reporting to the CCU and acting on its advice and under its supervision. They acted as "the investigator" throughout. To what extent, if at all, the SFC was associated with the investigation and the prosecution is an issue in this appeal.

  14. Meocre Li, the appointed forensic accountant, duly completed his work, and reported in writing to the prosecutor in May 1997. His written report was given to the defence before the accused were committed for trial in June 1999. It was the basis of the evidence that he later gave at the trial.

  15. From May 1999 onwards, the prosecutor produced voluminous bundles of documents to the accused's solicitors and provided them with unrestricted access to particular files.

    The first application to stay these proceedings

  16. Basing their application largely upon the documents disclosed to it by the prosecutor, the two accused first applied to the Court of First Instance (Pang J) for a stay of the criminal proceedings. On 21 July 2000, Pang J ordered a permanent stay on the ground of abuse of the process and prejudicial pre-trial publicity. On 22 March 2001, this Court allowed an appeal by the Secretary for Justice from that decision. It set aside the stay and remitted the matter to the Court of First Instance for trial: HKSAR v Lee Ming Tee (2001) 4 HKCFAR 133.

  17. On 3 May 2001, when ordering that the costs of the appeal be paid by the respondents to that appeal, this Court observed that the case for a stay had been generally rejected on appeal, that significant points that had been advanced before the Judge and which formed important elements of his decision had not been pursued on appeal, and that by seeking a permanent stay, the respondents had taken the proceedings on a "long and costly detour". The trial commenced six months later.

    The prosecution case against the respondent and Ronald Tse

  18. The respondent and Ronald Tse are charged on two counts of conspiracy to defraud, and four counts of publishing a false statement of account, contrary to s.21(1) of the Theft Ordinance, Cap. 210.

  19. The case rests on four transactions entered into by companies which the prosecution say the respondent controlled:

    1. The issue of 320 million new AGL shares of HK$0.20 each at a price of HK$0.94 per share purportedly payable in cash by independent investors pursuant to a press notice published on 23 July 1990 (the "AGL Placement").

    2. The issue of 128 million new ATW shares of HK$1.00 each at a price of HK$1.10 per share purportedly payable in cash by independent investors pursuant to a press notice published on 23 July 1990 (the "ATWL Placement").

    3. The issue of 33.7 million new APL shares in exchange for share warrants providing for payment by bankers' draft exercised by AGL subsidiaries Capscore Ltd and Citiwealth Investment Ltd on 31 December 1990 (the "APL Warrant Conversion").

    4. The issue of 140 million new shares of HK$1.00 each in APL to AGL and Cayley Ltd payable in cash upon the sale of the same number of existing shares in APL in the manner detailed in an announcement dated 6 March 1991 (the "APL Top-Up").

  20. The prosecution case was that the "independent investors" were in fact nominee companies controlled by the respondent, that cash (or any commercially recognised method of transferring funds the result of which is to give the transferee the unconditional right to the immediate use of the funds transferred) was not received where stated, and that these facts were hidden by complex accounting entries between companies controlled by the respondent, including First South China Bank ("FSCB") and an unconsolidated Cook Islands subsidiary named Prudential. FSCB purported to be a Cook Islands bank. According to the prosecution, it was a sham and FSCB was used to hide the fact that no cash was received in respect of the four transactions, and to represent falsely that the Allied Group had assets in the form of substantial short-term bank deposits.

  21. The prosecution alleged that the respondent, as Chairman and a substantial shareholder of AGL, and Ronald Tse, as director and financial controller of AGL, well knew the true facts and that the public was deceived by the published information.

    The trial of the respondent and Ronald Tse

  22. The trial of the two accused commenced on 5 November 2001 before Seagroatt J ("the Judge"). By 8 November 2001 a jury was empanelled. The prosecution case depended upon the oral evidence of approximately 15 accountants, 14 placees or investors, 16 financial advisers and stockbrokers, 4 bankers, 14 witnesses involved in the provision of nominee or offshore services, clerks and other employees, one witness from the SFC and two from the Stock Exchange of Hong Kong Ltd ("SEHK"), newspaper librarians and Meocre Li, the expert accountant, the banking records which he analysed and which were admitted under s.20 of the Evidence Ordinance, Cap. 8, and also the Allied Group and FSCB accounting documents.

  23. On 5 February 2002, (Day 53 of the trial) Meocre Li began giving evidence. The Judge overruled objections to his evidence. There was no objection to his qualifications to give evidence of opinion as an expert on accountancy matters.

  24. The prosecution sought to prove the four impugned transactions and the accounting concealment by reference to documents exhibited to and analysed in Meocre Li's report and in his evidence. His evidence (which in chief occupied nearly three days) was largely an analysis of the ledgers of the companies involved, the supporting payment, receipt and journal vouchers and attached source documents, the relevant bankers' records, and stockbrokers' records. He gave evidence of the relationship between the various companies in the Allied Group. He produced his own "re-stated" financial statements to show what in his opinion was the true position of AGL, ATW and APL for the years 1990 and 1991. He set out how the transactions should be conducted in accordance with the requirements of the SFC and the SEHK.

  25. On 8 February 2002 Meocre Li was cross-examined by counsel for the respondent on six topics:

    1. the number of years and man-hours it had taken to prepare his report;

    2. the fact that he had not restated the figure for net current assets in Particular 3 of Count 4;

    3. the fact that he had not restated the figure for net current assets in Particular 3 of Count 6;

    4. the number of shares issued upon the conversion of the warrants the subject of Count 4;

    5. the materiality of the share capital misstatement in Particular 2 of Count 4; and

    6. whether there was any requirement in a top-up that the proceeds of sale of the existing shares be used to pay for the new shares.

    He was further cross-examined by counsel for Ronald Tse, and briefly re-examined by the prosecution. The cross-examination and re-examination took some 85 minutes.

  26. No evidence was led to contradict Meocre Li's opinions.

  27. The prosecution closed its case on 26 February 2002. Neither the respondent nor Ronald Tse gave evidence. Closing addresses to the jury began on 6 March 2002 (Day 64) and concluded early on 14 March 2002 (Day 70).

  28. The substance of the respondent's defence was that, apart from the evidence of an accomplice (Gill) who was said to be lying to protect himself, there was no direct evidence implicating the respondent, that another director of the Group who had fled had been responsible for share trading, and that the circumstantial evidence was insufficient to show that the respondent knew what had taken place. The defence did not deny that the transactions or the accounting concealment had taken place, but raised issues as to whether and to what extent the respondent had known and approved of the unlawful features of those transactions.

  29. In his summing-up to the jury, the Judge said that Meocre Li's evidence "is not challenged fundamentally". Later he said: "It has not been challenged. That means there is no contrary evidence." He pointed out that it was a matter for the jury whether to accept or reject Meocre Li's evidence.

  30. Shortly before the conclusion of the summing-up, on 19 March 2002, counsel for the respondent informed the Judge that on the previous day an announcement (dated 13 March 2002) had come to their attention. It was by a company listed on the Hong Kong and Shenzhen stock exchanges named Guangdong Kelon Electrical Holdings Co. Ltd ("Guangdong Kelon") and

    reflects the fact that there have been a series of undisclosed connected transactions within that company, a listed company in Hong Kong, leading to a loss of a sum in excess of about a billion dollars.

    Counsel informed the Court that the board at the time resigned in December 2001 and that one of the directors who resigned was Meocre Li.

  31. Later that day, the respondent (citing s.32 of Cap. 221) applied for and obtained an order that the SEHK do allow inspection of all files pertaining to the suspension of Guangdong Kelon, including but not limited to all correspondence and records relating to the reasons for suspension of the trading of the shares of Guangdong Kelon. It was in effect an order for discovery against the SEHK in favour of the respondent. The appellant contends that such an order could not be properly made. It is unnecessary for the disposal of this appeal to decide the correctness of this contention but I should not be taken as rejecting it.

  32. On 20 March 2002 (Day 74), the Judge ruled that he would withdraw counts 3 and 5 from the jury. He modified his order directed to the SEHK to make it clear that he required immediate compliance, and he adjourned to allow the respondent time to obtain and consider the documents from the SEHK.

  33. On 21 March 2002 (Day 75), counsel for the respondent informed the Judge that they were considering making two applications: 

    1. for Meocre Li to be recalled and

    2. before making that application, an application in respect of Guangdong Kelon.

    He submitted that they found themselves in that position because a prosecution expert witness had not complied with his duty to act with the uberrima fides (utmost good faith) due to the court. The Judge agreed and said

    It was the first thing that came to the very forefront of my mind, a purported expert who has failed to reveal what he clearly ought to have revealed.

  34. Shortly afterwards, the Judge stated his views to counsel upon the significance of what had come to light. He said

    .... Everybody knows .... that an expert is expected, by virtue of the status that he either attains or seeks to attain, to disclose anything at the earliest possible opportunity which may affect two things; one, his status as an expert and, two, the basis of his evidence .... one is concerned that experts should demonstrate and adhere to the principles behind the privileged status from which they give their evidence in vital matters.

    He invited counsel to consider

    1. what would have been the position of the prosecution had this matter been disclosed (to his mind there was no difficulty in answering that question);

    2. the fact that in his summing-up he had referred to "expert evidence which has gone unchallenged";

    3. that evidence which had been withheld from the jury which was material to the status of the expert and the level of his expertise and perhaps to his probity would call for most careful consideration; and

    4. whether the jury was to be expected to deal with a "patchwork quilt".

  35. That afternoon, counsel for the respondent said that he had listened with great care to the Judge's comments made that morning and now submitted that the trial was fatally flawed. The practical problems of recalling Meocre Li were, he said, insuperable. He applied for the discharge of the jury. He referred to "devastating criticisms of the company and the Board collectively". He handed up copies of documents that had been obtained from the SEHK pursuant to the Court's order.

  36. Later, he submitted that another relevant matter for cross-examination was that Meocre Li, as a director

    appears to have been unaware as a director that these connected transactions were occurring over this period of time to very large amounts and that funds, according to the CSRC investigation, had been usurped .... a fundamental plank of our case. Simply because you are a director does not mean that you are all knowing and all seeing, and yet Meocre Li, the expert, as a director failed to appreciate apparently what was going on in Guangdong Kelon .... that is a highly material issue.

  37. The Judge later said to prosecuting counsel

    .... it is an unarguable proposition that an expert, if he is aware of anything which could remotely affect or lead anyone to challenge either his expertise or his reputation, it is incumbent upon him to disclose that and the document itself.

  38. Prosecuting counsel sought to point out that on the information before the Court, Meocre Li had only been a non-executive director of Guangdong Kelon, and that there was reason to think that it was the company itself that had discovered and reported the irregularities to the authorities. Moreover, Meocre Li had not yet been heard on the complaint of wrongful non-disclosure.

  39. Prosecuting counsel informed the Judge that Meocre Li was within the court precincts and available to be recalled. He suggested that the Judge hold a voir dire to give Meocre Li an opportunity to meet the serious suggestions that had been levelled at his conduct; alternatively that he be recalled for further cross-examination. Counsel for the respondent and Ronald Tse opposed this course and the Judge refused to follow it. No concession was made by the prosecution as to the materiality of the Guangdong Kelon matter, although counsel said that he would have disclosed it, if he had known of it. The Judge reserved his decision until the next morning.

  40. On 22 March 2002 the Judge, in the absence of the jury, gave a reasoned ruling in favour of the defence application that the jury be discharged. He held that Meocre Li had breached his duty of disclosure to the Court by not mentioning that he was a director of Guangdong Kelon who had "resigned no doubt as a result of the matters which had come to light". It was too late, he said, to investigate or to recall him, or to modify the summing-up. Though it was not the fault of any of the parties, the recent developments could not, he said, be accommodated in this trial. He then told the jury what had happened and formally discharged them.

    Events following the aborted trial

  41. The Judge required a statement from Meocre Li stating why he did not disclose the information to any member of the DOJ or any person with whom he had contact since 23 December 2001. He listed the case before him for 7 May 2002.

  42. By letter to the Judge dated 17 April 2002, Meocre Li explained the scope of his work as a non-executive director of Guangdong Kelon, the fact that he and his fellow independent directors had discovered connected transactions and required them to be disclosed to the SEHK and to shareholders, that the board's resignation was in consequence not of the disclosure of the connected transactions but of the acquisition of Guangdong Kelon by another company, and that the undisclosed advances from Guangdong Kelon to its parent (the subject of the 13 March 2002 announcement) had not been authorised by the board and came to light after the acquisition had been announced and resignation letters signed, although he still had required their disclosure to the SEHK. He expressed a deep sense of grievance at the allegations that had been made against him, together with confidence that if he had had an opportunity to meet them, the slurs on his character would not have been made, and he requested that they be withdrawn in open court.

  43. On 7 May 2002, the Judge made no comment upon Meocre Li's response. He directed a further pre-trial review on 31 May 2002 to deal with a new matter (which proved to relate to Kin Don Holdings Ltd ("Kin Don") raised by the defence in a letter dated 3 May 2002) and other issues, and extended bail.

    Events leading to the second application for a permanent stay

  44. On 7 May 2002, the respondent's solicitors notified the prosecutor that they had heard of an SFC investigation in 1999 into a placement of shares in Kin Don Holdings Ltd ("Kin Don"), a listed public company, and into the conduct of the placing agent ICEA Capital Ltd ("ICEA"), of which Meocre Li was the chief executive officer. The prosecutor thereupon inspected the SFC's files. In fact the SFC had investigated the conduct of Meocre Li as well as ICEA in relation to the placement of Kin Don shares.

  45. When the Court sat next on 31 May 2002, the Judge was informed that the prosecution had decided, given that six months would elapse before the trial resumed, to engage a new expert accountant. A fresh report would be served by 1 September 2002. The Judge fixed 27 September 2002 for mention of the case, and 4 November 2002 as the provisional date for the resumed trial.

  46. On 22 October 2002, the Judge adjourned the resumption of the trial to 18 November 2002 and ordered that it proceed against the respondent only as Ronald Tse could not be tried before Easter 2003 as it had been necessary for him to travel to Australia for eye surgery.

  47. On 6 November 2002, the respondent's solicitors notified the Court by letter of their intention to apply for a permanent stay of the proceedings. The letter enclosed a copy of advice received from Mr. Jonathan Caplan QC raising questions as to the conduct of the SFC in an investigation into a private placing of 78.5 million shares by Kin Don in June 1999. The grounds put forward for a stay were

    1. that the 'prosecution' had manipulated or misused the process of the court so as to deprive the respondent of a protection provided by the common law duty of disclosure and/or

    2. that although a fair trial was still possible, as a matter of judicial discretion, it would be contrary to the public interest and the integrity of the criminal justice system for the trial to take place.

    A written outline of the arguments for the application was served on 15 November 2002.

  48. On 8 November 2002, the Judge requested the prosecutor to notify the SFC that he required it to be represented on 18 November 2002. This was confirmed by the Judge's clerk on 14 November 2002 in a letter in which the SFC was requested to file skeleton submissions in advance of the hearing.

  49. On 18 November 2002, the Judge declined a request by the SFC to dismiss the application on the papers. Counsel for the SFC stated that he would adduce evidence. The next day, affirmations were made on behalf of the SFC by three witnesses; Mr. Geoffrey Harris, Mr. Kim Roden (in England), and Mr. Alex Pang Cheung-hing (in Beijing).

  50. At a hearing held between 27 and 29 November 2002, which developed into a review of the SFC inquiry into the Kin Don placement, the Judge received by consent a bundle of documents copied from the SFC, a bundle of additional documents from unused material and other material. He also received the affirmations of the three SFC witnesses, and an affidavit of Mr. John Reading SC sworn (in response to the Judge's request) to explain Meocre Li's replacement by Mr. John Lees as the accounting expert witness. Counsel for the SFC called the three witnesses. They were cross-examined upon their affirmations and the documents before the Court. Thereafter the Judge heard submissions on the respondent's application for a stay by counsel for the respondent, the SFC and the prosecution.

    The Judge orders a permanent stay

  51. In a reserved decision delivered on 13 December 2002, the Judge stayed these criminal proceedings against the respondent permanently on the ground of an intolerable abuse of the process of the court.

  52. The Judge's reasons for concluding that a permanent stay should be ordered on the ground of abuse of process centred on two matters.

    • The first was the failure of Meocre Li to disclose to the DOJ and to the Court his connection with the Guangdong Kelon and Kin Don matters and the SFC's failure to disclose to the DOJ Meocre Li's connection with the Kin Don matter (Judgment, paras 125-127).

    • The second matter was the termination by the SFC of the inquiry under s.56(1) of the Securities Ordinance, Cap. 333, into Meocre Li's conduct in relation to the Kin Don matter in order to protect his status and standing as an expert witness for the prosecution in the pending trial.

    The Judge found that the SFC improperly closed the inquiry in order to avoid disclosure before the forthcoming trial of possible misconduct on the part of Meocre Li (Judgment, paras 99-101).

  53. The Judge acknowledged that, despite the breach of duty by Meocre Li and the SFC, the defendants had not been deprived of a fair trial. Indeed, that a fair trial could still be had was the basis of the earlier discharge of the jury and the order for re-trial. So the order for the stay was based not on the inability to secure a fair trial but on the ground that the breaches of duty amounted to such a serious abuse of power that it offended the court's sense of justice, fairness and propriety that the respondent should be put on trial again. The Judge acknowledged that the approach of the courts had been that the power to stop a prosecution should be used only "in the most exceptional circumstances" (DPP v Humphrys [1977] AC 1 at 26E, per Viscount Dilhorne).

  54. The Judge regarded the exercise of the discretion to grant or refuse a stay as involving a balancing exercise. In this exercise, there was, on one side, the strong public interest in prosecuting serious crime and, on the other, fairness to the defendant and the protection of the integrity of the criminal justice system. In concluding that the balance weighed in favour of the respondent, his Lordship took account of the fact that the defendants had undergone virtually a full trial (4˝ months) which had an unsatisfactory outcome due to what he saw as non-disclosure in relation to a crucial witness (Judgment, para. 144). His Lordship considered that the withholding of both matters involving Meocre Li was "a misuse or manipulation of the process of the court" (Judgment, para. 146) and that the SFC, in terminating its inquiry into Meocre Li's commercial integrity in order to avoid disclosure, constituted misconduct or malpractice. Surprisingly in the light of his view that that inquiry was terminated "in order to facilitate his commitment to give evidence as an expert", the Judge stated that it was not done deliberately to distort events and fell short of mala fides. But, he said, it "so skewed events as to produce a trial which was flawed" (Judgment, para. 147).

  55. If the Guangdong Kelon and Kin Don matters had been revealed, the defendants "would have advanced their defence in the context of that material", to quote his Lordship's finding on this point (Judgment, para. 146). Later he stated that the Guangdong Kelon material was "extremely relevant to the defence" (Judgment, para. 157). Earlier, his Lordship had expressed the view that the defence could have used the Kin Don material to explore certain avenues of commercial conduct with Meocre Li and the propriety of his conduct (Judgment, para. 131).

  56. The Judge was more explicit in relation to the use which the defence could have made of the Kin Don materials. He said (Judgment, para. 131), with reference to Meocre Li,

    Here was a businessman with considerable experience as a practising Chartered Accountant, giving evidence, as an expert witness, of certain share dealings (to use a general term) and the accountancy implications of those. The jury may well have been singularly unimpressed by such evidence and, seen in the overall picture of a large well-known firm of accountants whose own shortcomings in relation to the accounts which they audited, and of some of a number of businessmen involved in one or more aspects of share placings and subscriptions whose dealings were less than transparent, this may well have led them to acquit the Defendants. At least a substantial aspect of the commercial world of 1990-1993 if portrayed to them would not appear to have been a pretty picture.

  57. The Judge reiterated his view that the original trial was not a fair trial and that it would not be proper to allow the prosecution to present its case based substantially on expert evidence from another source. It would in effect allow the prosecution the opportunity to get it right at a second trial (Judgment, para. 148).

  58. The Judge rejected an argument that a costs order would adequately compensate the defendants for the aborted trial and stated that it was no answer to abuse of process (Judgment, para. 149).

    THE APPEAL TO THIS COURT

  59. The appellant appeals on various grounds. The first broad ground of appeal is that no obligation to disclose arose at the trial. This ground comprehends a number of particular submissions:

    1. that the Guangdong Kelon and Kin Don matters were not material to issues in the trial;

    2. that the obligation to disclose extends only to the convictions of, and adverse findings made against, a witness;

    3. that Meocre Li's credibility was not in issue;

    4. that the status of an expert witness is no different from that of any other witness; and

    5. that the materials could not be introduced into evidence and could not be used in cross-examination.

  60. The second broad ground of appeal is that there was no breach of duty by the prosecutor. Here the appellant submits that

    1. that there is no general duty on the part of the prosecutor to go beyond the fruits of the investigation presented to him and to make inquiries of third parties and to procure materials in the possession of third parties;

    2. that, if the prosecutor has a duty to make further inquiries, it can only be a duty to make reasonable inquiries;

    3. that the Judge was wrong in stating that the prosecutor has a duty to make inquiries for "information which might affect a witness' credibility" (Judgment, para. 106) because it is manifestly impractical; and

    4. that, if there was a breach of duty, it was not of such a character to warrant the grant of a permanent stay.

  61. The third broad ground of appeal is that neither Meocre Li nor the SFC were under a duty to disclose to the DOJ, the defence or the Court. The fourth and fifth grounds of appeal are that the trial was not unfair and that there was no prosecutorial abuse of process.

  62. The sixth ground relates to the conduct of the SFC. The appellant submits

    1. that the Judge's findings were unjustified; and

    2. that, in any event, the conduct of the SFC could not amount to an abuse of prosecutorial discretion.

  63. The final ground of appeal relates to the entirety of the appeal. Here the appellant submits

    1. that the Judge's discretion was vitiated by errors of fact and law and that this Court must re-exercise the discretion in the light of the correct legal principles and the Court's view of the facts;

    2. that the circumstances do not warrant the grant of a permanent stay; and

    3. that the appeal should be allowed and the stay quashed.

  64. The SFC, as intervener, seeks to reverse the adverse findings which the Judge made against it. The SFC complains that substantial and grave injustice was done to it and its witnesses by the Judge's mistaken factual findings and conclusions. The SFC's submissions are similar to those made by the appellant in so far as they relate to findings and conclusions affecting the conduct of the SFC. The SFC submits in addition that it was irrelevant whether the SFC conducted the Kin Don investigation efficiently and properly or not and whether the decision to terminate the investigation was correct or not. According to the SFC the evidence relating to Meocre Li's role in the Kin Don placement was conflicting and at best equivocal. In any event, these issues were collateral and irrelevant.

  65. The SFC submits that the Judge misapprehended the evidence in relation to important issues of fact and drew inferences adverse to the SFC when the inferences were not supported by, or were not open on the facts. In the result the Judge arrived at his adverse findings without taking account of the appropriate standard of proof, being that equivalent to the standard of proof in a civil matter involving allegations of serious misconduct.

  66. The SFC's submissions on the duty of disclosure and on the scope of disclosure are similar to those of the appellant and they are reinforced by an analysis of the SFC's statutory functions and duties.

  67. The respondent supports the Judge's judgment and contests the cases presented by the appellant and the SFC. The respondent places particular emphasis on the common law right to a fair trial and the jurisprudence which has developed around the right to a fair trial mandated by art. 14(3)(b) of the International Covenant on Civil and Political Rights ("ICCPR") and art. 6.1 of the European Convention on Human Rights and Fundamental Freedoms, which enunciates the principle of "equality of arms". The respondent relies also on the expanded scope of the duty to disclose which has been recognised in the Canadian authorities to be discussed later. The respondent argues that the duty to disclose extends to "all relevant evidence" and is not confined, as the appellant and the SFC would have it, in the case of a witness, to previous convictions and adverse findings.

    THE NATURE OF THE APPEAL

  68. The order for the grant of a permanent stay proceeded from the exercise of a judicial discretion by the Judge. An appeal from the exercise of such a discretion is governed by well-settled principles. It must appear that the exercise of discretion was based upon a misunderstanding of the law or of the evidence or upon evidentially unsupported inferences that particular facts existed or did not exist. Alternatively, it must appear that the exercise of discretion miscarried because it was based upon an irrelevant consideration or it failed to take into account a relevant consideration or it was plainly wrong in the sense that it was so unreasonable that it must have proceeded from some undisclosed error of principle or erroneous application of the principle. See The Abidin Daver [1984] AC 398 at 420A-C where Lord Brandon's statement is confined to a situation where there is no challenge to the facts on which the exercise of the discretion is based.

  69. The appellant accepts this burden and submits

    1. that the Judge erred in law in his conclusions relating to the nature and scope of the duty to disclose and as to the breach of that duty;

    2. that he misapprehended the evidence as to the Guangdong Kelon and Kin Don matters;

    3. that he drew inferences in relation to those matters which were not supported by the evidence;

    4. that the Guangdong Kelon and Kin Don materials were not material to the trial; and

    5. that there was no case for the grant of the stay.

    The challenge to the Judge's findings of fact

  70. It is convenient to begin with the challenge to the Judge's findings of fact in the Kin Don matter. The Judge did not indicate the standard of proof he was applying or the degree of satisfaction which was required. It is not in dispute that the civil standard was applicable and that the civil standard of proof on the balance of probabilities calls for a degree of satisfaction which varies according to the gravity of the fact to be established. The principle is that in a civil case, even a civil case involving allegations of the commission of a criminal offence, the tribunal of fact must be reasonably satisfied of the fact sought to be established, having regard to the gravity of what is sought to be established, though not with the degree of certainty which is indispensable in criminal proceedings (Briginshaw v Briginshaw (1938) 60 CLR 336 at 360-368, per Dixon J; Helton v Allen (1940) 63 CLR 691 at 712-713, per Dixon, Evatt and McTiernan JJ; Rejfek v McElroy (1965) 112 CLR 517 at 520-522).

  71. Statements may be found in Privy Council and English decisions which equate the burden of proof in civil cases of acts which are tantamount to a criminal offence to the criminal standard of proof. (See, for example, Lanford v GMC [1990] 1 AC 13 at 19-20, per Lord Lowry; In re A Solicitor [1992] 2 WLR 552 at 562, per Lord Lane CJ.) It is now accepted, however, that the correct approach was that stated by Morris LJ in Hornal v Neuberger Products Ltd [1957] 1 QB 247 at 266. This approach was approved in In re H (Minors) [1996] AC 563 where Lord Nicholls of Birkenhead (with whom Lord Goff of Chieveley and Lord Mustill concurred) said (at 586E)

    When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability.

    Lord Nicholls's remarks accord with the law as it has been stated and applied in Hong Kong (see Attorney-General v Tsui Kwok-leung [1991] 1 HKLR 40).

  72. In the present case, where the allegation is that senior officers of the SFC deliberately and improperly terminated an investigation into Meocre Li's conduct in the Kin Don placement, in order to avoid the need to make a disclosure which might compromise Meocre Li's standing as an expert witness in the trial, that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts. It is not possible to state in definitive terms the nature of the evidence which the court will require in order to be satisfied, in a civil proceeding, that a serious allegation of this kind, is made out. It would not be right to say that the requisite standard prescribes that the inference of wrongdoing is the only inference that can be drawn (cf. Sweeney v Coote [1907] AC 221 at 222, per Lord Loreburn) for that is the standard which applies according to the criminal standard of proof. In the particular circumstances, it was for the respondent to establish as a compelling inference that very senior officers of the SFC had deliberately and improperly terminated the investigation into Meocre Li's conduct for the ulterior purpose alleged, sufficient to overcome the inherent improbability that they would have done so (see ADS v Brothers (2000) 3 HKCFAR 70 at 91H, 96G-I, per Lord Hoffmann). Unfortunately the Judge made no mention of the relevant standard of proof and there are indications that he failed to apply it, notably in drawing too readily inferences adverse to the SFC.

  73. Nor did the Judge address the anterior question whether it was appropriate to reject the uncontradicted oral evidence of the three SFC officers who gave evidence, unless that evidence was either improbable or was inconsistent with facts established by the evidence. The Judge appears to have rejected their evidence because he thought that it was inconsistent with the facts as he saw them. But the absence of any reference to the credibility of the witnesses does not mean that demeanour or credibility played no part in the findings of fact which the Judge made (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at 349C-D, per Bokhary PJ; Abalos v Australian Postal Commission (1990) 171 CLR 167 at 179, per McHugh J).

  74. The task of the Judge was, first, to find the primary facts and then to decide what inferences were properly to be drawn from those primary facts (The Mouna [1991] 2 Lloyd's Rep 221). Deciding what inferences were to be drawn was not an exercise of judicial discretion. It involved the judicial interpretation of documents and the evaluation of competing inferences. In The Mouna, Glidewell LJ said (at 227 col. 1)

    If the correspondence cannot reasonably bear the interpretation that the Judge put upon it, we are in as good a position as was he to decide what is the proper interpretation and we are entitled so to decide.

    In Benmax v Austin Motor Co. Ltd [1955] AC 370, Lord Reid said (at 376):

    .... where the point in dispute is the proper inference to be drawn from proved facts, an appeal court is generally in as good a position to evaluate the evidence as the trial judge, and ought not to shrink from that task, though it ought, of course, to give weight to his opinion.

    See also at 374, per Viscount Simonds (cited in Ting Kwok Keung v Tam Dick Yuen at 347G-I, per Bokhary PJ); and Warren v Coombes (1979) 142 CLR 531. It was, of course, necessary for the Judge to keep steadily in mind that he was not engaged in determining whether the SFC's decisions were right or wrong or whether they were decisions which he would have come to had he stood in the position of the SFC. It was for him to decide whether the SFC's decisions and actions were such as to yield, according to the requisite standard of proof, the ultimate inference which the Judge drew. There are indications that the Judge failed to keep this important distinction in mind.

    The SFC inquiry into the Kin Don placement

  75. In order to examine the challenge to the findings of fact relating to the Kin Don placement, it is necessary to recapitulate in detail the evidence and then to evaluate the way in which the Judge arrived at his conclusion that the SFC and its officers had improperly terminated the inquiry into Meocre Li's conduct in the Kin Don placement.

  76. On 23 June 1999 there was a placement of shares in Kin Don to the value of $78.5 million at a price of $1.38 per share, representing a discount on the current market price of $1.65. The market price of the shares had risen sharply. On the following day, after trading in Kin Don shares was suspended, the Board of Kin Don made an announcement disclaiming any knowledge or responsibility for the recent increase in the price and the volume of trading in its shares, and the placement of any shares as reported in the morning newspapers. The price of the shares fell rapidly after the announcement.

  77. On 8 September 1999, the SFC instituted an investigation under s.33(1) of the Securities and Futures Commission Ordinance, Cap. 24 ("the Ordinance") into matters connected with dealing in Kin Don shares. By this time it had become apparent that investors who had taken up shares in the placement had suffered substantial losses to the order of $40 million. The focus of the inquiry was on ICEA as the placing agent and on Ms Clarea Au, a registered agent of Emperor Securities Ltd, who had brought the placement to ICEA and made arrangements for the placing of the shares. Clarea Au was not a registered agent of ICEA.

  78. The SFC also instituted an inquiry under s.56(1) of the Securities Ordinance into ICEA, its associated companies and their staff.

  79. Clarea Au was the driving force in the Kin Don placement. Her point of contact with ICEA in connection with the placement was with Mr. Michael Ng and Mr. Gary Fong who were ICEA dealers. Ng brought Au's proposal to the attention of Meocre Li as Chief Executive of ICEA. The substantial role played by Au in the placement was reflected by the sharing of the total commission payable to ICEA which was $2,008,748.70. $1,466,643.30 was remitted by ICEA to a company nominated by Au, while 25% approximately was retained by ICEA, though it was the placing agent.

  80. The SFC investigators required production of documents and information from ICEA concerning the arrangements between Au and ICEA for the placement. The investigators then interviewed Gary Fong and Ng on 29 and 30 December. Ng had left his employment with ICEA in November 1999.

  81. On 14 January 2000 the SFC sent a notice to Meocre Li requiring him to attend for interview on 26 January. Meocre Li responded by a letter dated 20 January in which he said:

    .... I have neither met nor discussed with representatives of the subject company [Kin Don] or any of the placees in connection with the Placement. The Placement was brought to my attention by our staff Michael Ng. My only involvement was in agreeing for ICEA .... to take on and execute the Placement. The execution was carried out by Michael Ng and Gary Fong .... There is nothing more that I can personally add to the matter.

    The letter concluded with a request that the interview be waived. Meocre Li made no reference to Au in the letter yet the Judge erroneously stated that he "disclaimed all knowledge of Clarea Au" (Judgment para. 43). He did disclaim all knowledge of Au but that was at an interview in May 2001. The SFC declined to waive the interview, though it did not take the matter up again until much later.

  82. The SFC held second interviews with Ng and Fong on 29 May 2000 and 1 June 2000 respectively. On 8 June 2000 SFC wrote to Meocre Li requesting answers to 5 questions. Questions (2), (3), (4) and (5) were as follows:

    (2)

    When (date and time) did Michael Ng bring to your attention that there was a placement in shares of Kin Don Holdings Ltd on 23 June 1999 ("the Kin Don Placement"), and what other information did he provide you for your consideration in approving ICEA as the placing agent?

    (3)

    When did you [become] aware .... Au, a staff of Emperor .... was delegated by ICEA with the duty to find and liaise with placees in the Kin Don Placement? And who approved such delegation?

    (4)

    Why did ICEA allow .... Au to be delegated with the duty listed in (3) above?

    (5)

    According to information previously provided by ICEA, it earned $2,008,748.70 as commission upon completion of the Kin Don Placement. This amount of money was shared between ICEA and .... Au in the proportion of $542,105.40 and $1,466,643.30 respectively. As such,

    (i)

    please state who approve such sharing method;

    (ii)

    detail the reasons why Au shared a greater portion than ICEA.

  83. Meocre Li responded to the first question by saying that he was the immediate supervisor of Ng ("MN") and Fong ("GF"). He answered questions (2) to (5) as follows:

    (2)

    MN informed me of this potential placement of Kin Don shares ("Placement") around late morning of 23 June 1999. MN informed me that it was a block sale of old shares by existing shareholders and that placees had already been lined up without any net exposure to ICEA. I gave my verbal consent to ICEA entering into the Placement on this basis.

    (3)

    From my recollection, when this placement was first discussed, MN referred to the deal being introduced through a contact of his. However, I have no recollection of the name Clarea Au ("CA") having been mentioned .... ICEA and I have never delegated CA with any duty or authority. My understanding is that when CA first contacted MN, the placee list and allocation arrangement were already in place and MN simply accepted such on behalf of ICEA after consultation with me.

    (4)

    Please refer to (3) above.

    (5)

    My understanding is that CA proposed the sharing method and took it to MN. MN thought it was reasonable from a commercial angle and proposed such for my approval. We agreed to give out a greater portion of the underwriting commission in exchange for an elimination of the underwriting risk.

  84. The answer in (5) is of particular importance. Does the expression "my understanding" mean then or now? The Judge read it as "My understanding then". The appellant and the SFC say he was wrong in so reading it. They are correct. "My present understanding" is the natural reading of the answer and it was not reasonably capable of any other interpretation. The correct interpretation of the first sentence does not necessarily resolve the meaning of the last sentence in answer (5). The question is whether Meocre Li is still speaking of his present understanding of what ICEA agreed to, or whether he is speaking to what he and Ng agreed in the late morning of 23 June. The sentence is capable of being read and should be read, as the SFC read it, as referring to what ICEA agreed on 23 June 1999 in the discussion mentioned in answer (2). We are primarily concerned with whether the interpretation placed upon it by the SFC was a reasonable interpretation. It was. It follows that the SFC cannot be criticised for adopting that interpretation.

  85. The final point to note about the answer to question (5) is that it speaks in general terms and does not tie itself to the amounts specified in question (5). For the significance of this point, see para. 121 below.

  86. The comments made in paras 83 and 84 have consequences for the Judge's view of Meocre Li which in turn led to the Judge taking an adverse view of the way in which the SFC dealt with Meocre Li.

  87. In August and September 2000 SFC officers assessed the conduct of participants in the placement. They considered that Au had disseminated wrong information to sub-underwriters about the placement. She evidently told them that the placement was a top-up and that Kin Don had obtained Montague trading rights in the Mainland. The SFC considered that she secured ICEA as placing agent on the basis of this misinformation. She corrected the misinformation but only if a broker sought clarification. The SFC investigators concluded that Au had told Michael Ng that it was a top-up placement and that Kin Don had obtained the Montague trading rights in the Mainland for 5 years. Ng claimed that this misinformation had only been corrected by Mr. T C Yam (representing one of the placers) and Au in his first meeting with them in the afternoon of 23 June 1999, the day of the placement.

  88. Mr. Harris, Senior Director of the Investigation Department of the SFC, considered that Au had breached the conditions of her licence. He went on to say, in his minute of 25 September 2000

    ICEA and Meocre Li, however, could not have failed to appreciate the role of .... Au and in this regard the testimony of Michael Ng is particularly damaging for Meocre Li .... Furthermore, by abdicating their responsibility for close supervision of the marketing of the placement (allowing .... Au to do it) both ICEA and Meocre Li must bear ultimate responsibility for the dissemination of false information.

  89. On that day the matter was passed on to the Disciplinary Department of the SFC to decide whether disciplinary action should be taken against both ICEA and Meocre Li. On 22 December 2000 it was proposed that Letters of Mindedness (LOMs) be sent to Au, ICEA and Michael Ng. The issue of an LOM is a step taken by the SFC in an inquiry under s.56(1) of the Securities Ordinance. An LOM sets out the SFC's case that specific disciplinary action is called for and gives the recipient an opportunity to make representations before a final decision is made. Under s.56(2) of that Ordinance where the SFC finds a registered person guilty of misconduct it may impose a penalty, including a reprimand. Nothing further was done until 4 April 2001, when LOMs were sent to the Directors of ICEA collectively, Meocre Li and Michael Ng, proposing a public reprimand against each of them.

  90. The LOM to Meocre Li noted that the SFC was inquiring under s.56(1) into whether he was a fit and proper person to be registered as a securities dealer. The LOM recited the history of the placement, that Michael Ng had sought and obtained Meocre Li's approval before proceeding with the deal and that Ng said that he had mentioned to Meocre Li that Au, a staff member of Emperor, would be acting in her personal capacity to proceed with the placement and line up placees. The LOM went on to refer to the dissemination of false information by Au, her receipt of sub-agents' orders, her determination of the fees to be paid and her allocation of shares to be allotted. After referring to Meocre Li's answers to the questions put to him by the SFC, the LOM stated

    However, Mr. Ng told the Commission staff that he was responsible for monitoring the whole placement process and reporting to you.

    The prima facie conclusions reached were:

    1. that Meocre Li bore responsibility for the placement, the abrogation of the placing agent's responsibility to Au and the apparent failure to monitor her activities so that false information was disseminated to the market;

    2. that Meocre Li had aided and abetted Au in carrying on business as a dealer contrary to s.48 of the Securities Ordinance; and alternatively

    3. that he had allowed her to act as ICEA's dealing representative although she was only registered as Emperor's representative.

    The LOM concluded by stating that the SFC was minded publicly to reprimand Meocre Li under s.56(2) of the Securities Ordinance in terms of an attached draft. The LOM concluded by inviting him to make representations why he should not be so reprimanded. The LOM issued to ICEA followed a similar pattern.

  91. The LOM referred to Meocre Li's denial that he ever delegated any authority to Au and his statement that the placee list and allocation arrangement were already in place when Au contacted Ng who accepted them on behalf of ICEA after seeking Meocre Li's approval. As noted earlier, the LOM went on to say

    However, Mr. Ng told the Commission staff that he was responsible for monitoring the whole placement process and reporting to you.

    To the extent to which the LOM alleged or was based on the view that ICEA or Meocre Li had delegated to, or allowed, Au to act as dealer's representative of ICEA, it was in error, as the SFC later recognised. Au was acting on her own not as a representative of ICEA.

  92. Meocre Li's solicitors, Clifford Chance, sought and were given copies of statements on which the SFC relied (those of Au, Ng and Fong) and Meocre Li sought an interview with Mr. Pang, senior Director of Surveillance with responsibility for the Disciplinary Department of the SFC. The SFC decided the interview should take place after Meocre Li and his solicitors had the opportunity of considering the evidence. The Judge seems to have taken an adverse view of this, contrasting it with the interviews which had already been held with Ng and Fong. As an LOM had been issued to Meocre Li, it might be thought that it was necessary and only fair that he should have access to the evidence relied upon by the SFC to support its views and that he should have an opportunity to consider the evidence before the interview.

  93. There was uncontradicted evidence that it was the practice of the SFC to hold such interviews. Section 56(1) of the Securities Ordinance authorises the SFC to make inquiry and the SFC enjoys all such powers as are reasonably necessary to enable the SFC to conduct its inquiry (Interpretation and General Clauses Ordinance, Cap. 1, s.40(1)). An interview is an obvious means of performing the statutory function of making inquiry and, in the circumstances of this case, of affording Meocre Li an opportunity of answering the LOM. And s.56(3) of the Securities Ordinance provides that no penalty shall be imposed upon a registered person unless that person is given the opportunity of being heard.

  94. Mr. Gerard McCoy SC for the respondent submits that the SFC was prohibited by s.59(1) of the Ordinance from making available to Clifford Chance and Meocre Li material which was obtained in the course of the investigations it was conducting. The answer to this submission is to be found in s.59(2)(b) which enables the SFC to make disclosure where it is

    with a view to the institution of, or otherwise for the purposes of, any criminal proceedings or any investigation, whether under the relevant Ordinances or otherwise, in Hong Kong.

    This provision should not be read down by reference to other provisions in s.59(2), in particular ss 59(2)(k) and (m). In argument it was suggested that s.59(2) overrides legal professional privilege. I do not see how the provision could have this effect or that Rockefeller & Co. Inc v Secretary for Justice [2000] 3 HKLRD 351 provides any support for the suggestion. Article 35 of the Basic Law protects legal professional privilege.

  95. On 7 May 2001 Clifford Chance wrote to the SFC requesting its consent to Meocre Li informing the DOJ of the inquiry and its possible outcome (a possible public reprimand) as Meocre Li was an expert witness in the trial. The SFC did not reply to the letter. The Judge considered that the arrival of this letter resulted in the SFC inquiry changing direction.

  96. The interview requested by Meocre Li took place on 8 May 2001. The Judge seems to have thought that the meeting should not have taken place before Clifford Chance sent its written submissions to the SFC. It was a "without prejudice" meeting and there is no legitimate ground for criticism of the SFC that can be based on its decision to hold the interview when it did. Meocre Li brought an agenda for the meeting and it largely followed that agenda. The Judge considered that this was significant because he thought that the SFC officers should have subjected Meocre Li's statements to searching scrutiny.

  97. At the meeting Meocre Li put forward his version of the placement and the extent of his knowledge of ICEA's involvement. He relied on Ng to oversee placement activities as he was an Associate Director of ICEA and was very experienced in this area. Meocre Li said Ng had sought to shift the blame on to him (Meocre Li). Ng sought his (Li's) approval of the placement in the morning of 23 June, not in the afternoon as Ng claimed, because he (Meocre Li) was not in the office in the afternoon. He attached a copy of his diary which supported this claim. Meocre Li's statement that this discussion was in the morning, if accepted, meant that Ng could not have told him the placement was not a top-up as Ng claimed to have learned that fact from TC Yam and Au only in the afternoon. The minutes of the meeting record Meocre Li as saying

    He did not know the involvement of Au as he even did not know who Au was.

    The minutes record him as going on to say that, when Ng sought his approval,

    * Ng said the placement was introduced by an unnamed contact of his and neither Emperor nor Au was mentioned;

    * Ng said the sub-placing agents had already been lined up and ICEA would receive a net arrangement fee of 0.5% and on this basis Meocre Li concluded that it was a risk-free deal;

    * there was no mention of the sale of old shares;

    * there was no mention of a total fee of 4%.

    The statement that there was no mention of the sale of old shares is to be contrasted with Meocre Li's earlier answer to question (2) in which he said that Ng informed him that "it was a block sale of old shares by existing shareholders". The difference seems not to have been picked up by the SFC or the Judge, perhaps because a top-up placement is not necessarily inconsistent with a block sale of old shares by existing shareholders if the sale is linked to a top-up placement.

  98. Meocre Li said that he had sought an explanation from Ng on 24 June and he said that all written communications with sub-placing agents did not mention it was a top-up placement and all of them had settled their transactions with ICEA. Meocre Li stated that ICEA could strengthen its controls and Mr. Pang agreed. Mr. Pang concluded the meeting by referring to Clifford Chance's letter of 7 May 2001 and saying that there would be no need to inform the DOJ as the decision on the LOM would be made soon.

  99. In its letter to the SFC dated 16 May 2001 Clifford Chance contested a number of statements in the LOM and set out answers to the complaints made against Meocre Li and ICEA. Clifford Chance complained that the SFC appeared to have accepted Ng's evidence. They asserted that it was incorrect in significant respects, particularly in asserting that Ng's meeting with Meocre Li was in the afternoon, whereas it was in the morning of 23 June when Ng had not been told by Yam and Au that it was not a top-up placement. Nor had Ng mentioned that his contact was a dealer's representative of another registered dealer. So Meocre Li thought that the contact was a representative of Kin Don and/or the controlling shareholder in Kin Don. There was nothing said which caused Meocre Li to suspect that Ng had made special arrangements with an agent or that ICEA was paying commission to the contact. The letter repeated in substance the version of the transaction given by Meocre Li at the interview. It also accused Ng of incorrectly asserting that he told Meocre Li that his contact would be responsible for finding sub-placing agents. Had Ng done so, Meocre Li would not have concluded it was a risk-free deal and would not have approved a fee of 0.5%. The market rate was 2-2.5% of which in a risk-free deal, 1.5-2% would be paid to sub-placing agents who were taking the risks. Payment of 4% was not mentioned.

  100. Clifford Chance contended that, based on the information actually provided to Meocre Li by Ng, Meocre Li

    did not authorise, and could not have authorised, expressly or impliedly, .... Ng to abrogate the responsibilities of ICEA as the placing agent to Ms Au.

    There was therefore no question of Meocre Li and ICEA failing to monitor Au's activities and Meocre Li could not have aided and abetted Au to carry on the business of a dealer contrary to s.48 of the Securities Ordinance. The letter pointed out that ICEA was a small firm in which Meocre Li relied on senior staff to draw his attention to essential or unusual features of a transaction. The letter concluded by emphasising Meocre Li's high reputation, integrity, vast experience and his unblemished disciplinary record in the regulatory area. Emphasis was given to the fact that he took regulatory matters seriously.

  101. The SFC then considered the case against Meocre Li and ICEA in the light of the Clifford Chance submissions. The consideration took the form of a long minute dated 1 June 2001 by Ms Anna Woo addressed to "Mr. Alex Pang, SD(E) via Mr. Kim Roden, D(E)". The minute analysed the case presented in the LOM against Meocre Li in the light of information acquired by the SFC, particularly the evidence from Ng, and the submissions made on behalf of Meocre Li. The analysis of the issues, the relevant material and the arguments set out in the minute were followed by Anna Woo's conclusions. They were:

    1. that there was a conflict in the accounts given by Meocre Li and Ng as to the discussion which took place between them;

    2. that Ng's credibility was more in doubt than that of Meocre Li because the discussion appeared to have taken place in the morning not the afternoon of 23 June 1999 (there being a reference to Meocre Li's diary);

    3. that circumstantial evidence tended to support the view that the discussion took place in the morning and that Ng "did not provide full details" to Meocre Li;

    4. that it seemed reasonable for Meocre Li to rely on Ng to oversee placement activities and that "Meocre Li had discharged his supervisory duties";

    5. that in relation to "who authorised and signed the cheque to Au, we have no other source of evidence"; a footnote acknowledged that Clifford Chance stated that Mr. Richard Tang of ICEA authorised the payment but he had not been interviewed by the SFC; and

    6. that the benefit of the doubt should be given to Meocre Li.

  102. The minute stated that neither Meocre Li's conduct nor ICEA warranted a public reprimand. The minute recommended either that they be warned to pay more attention to placement activities or that no further action be taken. Anna Woo stated that she had taken into account mitigating factors, in particular the steps taken by ICEA to improve its internal control procedures. The minute concluded with the statement that there would be no need to inform the DOJ "about the proposed disciplinary action".

  103. Anna Woo's minute went to Roden who, in a minute dated 4 June 2001 recommended closing the case against Meocre Li and ICEA because further investigation was unlikely to take the matter further. A warning letter would then be unnecessary as would the giving of consent to Meocre Li informing the DOJ of the inquiry. Roden's view reflected Anna Woo's views on various aspects of the case, namely the conflict between Meocre Li and Ng, doubts about Ng's credibility, Meocre Li's lack of full information on the placement, the difficulty of sustaining a case that Meocre Li knew about Au's involvement and that he was entitled to rely on Ng. Roden thought that the SFC could not prove the allegations in the LOM to the required standard and that the choice was between withdrawing the LOM pending further investigation and closing the case. He recommended closing the case against Meocre Li and added

    Should you decide to close the case against Mr. Li then the case against ICEA must also be closed as we have relied on the "directing mind" principle in our letter to it.

    Like Anna Woo, Roden concluded by saying the giving of consent to Meocre Li's informing the Department of Justice would not be necessary.

  104. Anna Woo's and Roden's minutes were sent on to Pang who, in a minute dated 5 June 2001, to his superior Mr. Paul Bailey, recommended that no further action be taken against Meocre Li and ICEA. Bailey, who evidently had the two earlier minutes as well as Pang's minute before him on 5 June, wrote on Pang's minute

    I think the representations do raise doubts as to Ng's credibility.

    He went on to say that, in the circumstances, further inquiry was not justified and ended "Proceed as you recommend ....".

  105. On the same day, the SFC wrote to Clifford Chance. The letter stated

    Following a full and careful consideration of all material now before it and in particular the submissions raised in your letter of 16 May 2001, the Commission wishes to advise that it is not satisfied the adverse findings in the Letter (the LOM) can be made out to the required standard of proof. In these circumstances, the Commission will not, unless new information is brought to its attention, be proceeding further with its inquiries into your client's conduct.

    [emphasis supplied]

    The clause underlined in the last paragraph of the letter, which was not reflected in any of the minutes, was regarded as important by the Judge, as will shortly appear.

  106. On or about 19 July 2001 the SFC publicly reprimanded Au for her part in the Kin Don placement. The SFC found that she had failed to take all reasonable steps to verify the accuracy or otherwise of the information she gave to prospective sub-placing agents and that, as a result, false information was disseminated to the market. Au had agreed to surrender her registrations for eight months.

  107. The SFC interviewed Ng again on 11 July. Pang, Roden, Woo and Ng's solicitor were present. Pang was not as deferential to Ng as he had been to Meocre Li and questioned Ng closely. In response to questions, Ng said that he had given Meocre Li full information about the placement, mentioning Au and the arrangement relating to the sharing of fees between Au and ICEA. Moreover, Ng said the discussion with Meocre Li took place in the morning after he had discussed the placement with Au. Previously he had said in his statement to the SFC on 30 December 1999 that his discussion with Meocre Li was in the afternoon. Ng said ICEA had previous dealings with Au. Ng also said he would gather further evidence of Meocre Li's knowledge of Au's role. Pang said if Ng would accept a public reprimand, the SFC would retain the first allegation in the LOM but drop the second. The first was the abrogation of responsibilities of a placing agent to Au and failure to monitor her activities. The second was aiding and abetting Au to carry on a business as a dealer contrary to s.48 or allowing her to act as a dealer's representative of ICEA. Pang said

    the alternative is Michael Ng could provide further information to the Commission and the Commission might consider the issuance of a second LOM to him, setting out the new allegations and new penalty.

    Ng was given a week to choose.

  108. Neither the minute nor the evidence of Roden and Pang reveal what the "new allegations" were or might be. But a subsequent letter dated 14 July 2001 from the SFC to Simmons and Simmons, Ng's solicitors, indicates what Pang had in mind. The letter says

    .... the evidence reveals that Ms Au was acting in her personal capacity. It appears your client knew that this was the case .... The material indicates that ICEA's role was simply to do the paperwork.

    The letter went on to say

    In these circumstances the Commission is concerned that your client on behalf of the named placing agent and the person in charge of the matter made no or no proper inquiry of Ms Au or the sub placing agents to ensure no false information is disseminated no false market developed .... The circumstances called for proper and close monitoring of Ms Au ....

    It is fairly obvious that the SFC had become convinced, perhaps by the Clifford Chance submissions, that its earlier case (the first ground in the LOM based on delegation or abrogation of placing responsibilities) could not hold water once it appeared that Au was acting personally and not on behalf of ICEA in circumstances where she had already placed the shares when she approached ICEA. It was necessary for the SFC to assert a new ground if it was to proceed against Ng. No doubt Pang realised this at the interview on 11 July. In that context, he was saying "If you don't accept a reprimand on the first ground in the existing LOM and seek to take the matter further by providing further information we will have to issue an LOM on a new ground". This was a negotiating tactic as Roden and Pang described it in oral evidence. Whether it bore the more sinister character of a threat to induce Ng not to compromise Meocre Li is a question best left for later consideration.

  109. Following further correspondence, in a letter dated 4 September 2001 Simmons and Simmons advised the SFC that

    based on Meocre Li's previous course of dealings with Ms Au, Mr. Li fully understood the extent of her involvement and the role she would be undertaking in relation to the Kin Don placement .... on 12 May 1999 and 16 June 1999, ICEA was engaged as placing agent for Singapore Hong Kong Properties Investment Ltd. Those opportunities were introduced by Ms Au, who was originally introduced to Mr. Li by Stephanie Chan, the then sales director of ICEA.

    The letter went on to say that the arrangements in relation to that deal, including as to the placings, settlement and the fee splitting were similar to the Kin Don placement arrangements. Meocre Li, it was said, was fully aware of the Singapore Hong Kong Properties placement arrangements and the fees paid to Au were approved by him. As with that deal, Ng's involvement in the Kin Don placing was "simply to execute the transaction". Ng therefore fully discharged his obligations as dealer's representative so that a public reprimand was not warranted.

  110. The letter concluded with the statement that Ng greatly regretted his involvement in the Kin Don placement and offered, on a voluntary basis,

    to refrain from conducting any investment advisory activities for a period of 30 days and to accept a letter of warning from the Commission.

  111. It would have been a relatively simply exercise to verify Ng's allegations concerning Meocre Li's earlier involvement with Au by requesting and examining documents, by asking ICEA's sales director Ms Stephanie Chan and Au and then asking Meocre Li. The SFC did not follow this course. Instead, there is a minute dated 13 September 2001 from Roden to Bailey in which Roden says that on the basis of the material provided by Ng

    the next step would be to further investigate the matter by interviewing Meocre Li and putting the matters to him. Meocre Li is in my view likely to deny the matters raised by Michael Ng and we are left with the classie (Sic) difficulty of who to believe. The resolution of this question will take some considerable time and given the age of the matter, nearly 2 1/2 years, and as the major player Au has been disciplined, I consider that we should write to Michael Ng informing him that we will not be proceeding further ....

    The minute made no reference at all to the offer of settlement made in the Simmons and Simmons letter. On the minute Bailey wrote "Given the circumstances I agree". And with this enigmatic comment the inquiry into ICEA, Meocre Li and Ng came to a tame end.

  112. The minute bears no trace of a consideration of the possibility of following up Ng's new information with Stephanie Chan and Au, and obtaining the documentation of the earlier deal in June 1999. This would not have involved a lengthy investigation and may well have shown that it was not a simple case of Meocre Li's word against Ng's word. And the minute makes no reference to the SFC's earlier indication that the closure of the inquiry into Meocre Li was subject to new information coming to light.

  113. Then there is the evidence given by Harris, Roden and Pang. They denied that they were influenced by any motive to avoid compromising Meocre Li's standing as a witness in the forthcoming trial. They deposed to the SFC's heavy volume of disciplinary work, the few members of staff available and the relative unimportance of determining whether Meocre Li or Ng was telling the truth viewed in the light of the SFC's major responsibilities and the action taken against Au, the principal miscreant.

  114. Harris conceded in cross-examination that there was a strong case against Meocre Li, that either he knew and was a party to what was going on or he abdicated his responsibilities and was reckless and that it was a serious matter. But Harris appears not to have realised the true nature of the relationship between ICEA and Au, that she was acting personally and not on behalf of ICEA and that she had already lined up the sub-placing agents. This was because his opinion was based only on information available before the file was passed to the Disciplinary Department. Accordingly, he did not appreciate the problems affecting the allegations in the LOMs against Meocre Li, ICEA and Ng.

  115. Roden also conceded that there was a strong case against Meocre Li and that there was a change of direction in the approach to Meocre Li's conduct when the allegations in the LOM are compared with Anna Woo's minute of 1 June 2001. His explanation for the change of direction was the representations made by Meocre Li and his solicitors. This answer is persuasive because the representations put the relationship between ICEA and Au on a correct basis, thereby indicating that the LOMs had proceeded at least in part on a false basis. As to Pang's threat to issue a second LOM against Ng with a penalty if he provided further information, Roden considered it an aspect of an attempt to reach a negotiated settlement. His explanation for not accepting the offer of settlement made by Simmons and Simmons, the issue of a letter of warning, was simply that it would require further investigation.

  116. Pang was an unsatisfactory witness. He added little to what Roden had said. The explanation he offered for not responding to the request in May 2001 for consent to tell the DOJ about the inquiry was that his rationale was

    it would be finished pretty soon and thus there is no need.

    This answer was capable of supporting the view that in May he had already decided that the inquiry would be concluded promptly after receipt of representations from Meocre Li.

  117. The respondent relies heavily on Pang's attempted explanation of the pressure he put upon Ng to accept a public reprimand on one of the two grounds alleged in the LOM issued to him. Pang said he was to leave the SFC a month after the interview and he wanted to finish off the case. If Ng provided further evidence, it would re-start the investigatory process. He then blamed Ng for delaying the inquiry and obtaining extension after extension, an allegation which had no foundation whatsoever.

  118. Neither Anna Woo nor Bailey, who were two of the SFC officers concerned with making the decision to close the inquiry into Meocre Li, were called as witnesses.

    The basis of the Judge's adverse inference that the SFC improperly terminated its inquiry into Meocre Li

  119. The Judge's adverse inference that the inquiry into Meocre Li's conduct was terminated intentionally in order to avoid disclosure of the inquiry and to preserve his standing as a witness at the trial appears to have been based on a number of particular inferences or conclusions from the facts. They were:

    1. the failure to insist on an interview with Meocre Li at the investigation stage and permitting him to evade interview;

    2. the alleged admissions made by Meocre Li in his answers to the SFC's questions of 8 June 2000;

    3. the failure to answer the Clifford Chance letter of 7 May 2001;

    4. Meocre Li having brought an agenda to the interview of 8 May 2000;

    5. the holding of the interview with Meocre Li before receipt of the Clifford Chance submissions and providing them with the evidence of Au and Ng;

    6. the SFC's acceptance of the submissions made by Clifford Chance on behalf of Meocre Li (which the Judge regarded as unconvincing);

    7. the conclusion that the SFC's view that Ng's credibility was more in doubt than that of Meocre Li was irrational;

    8. the favourable treatment generally accorded to Meocre Li by the Disciplinary Department compared with the more hostile treatment accorded to Ng, especially by Pang;

    9. the change in direction taken by the SFC in its treatment of Meocre Li after the receipt of the Clifford Chance letter of 7 May 2001;

    10. the threat made by Pang to Ng at the interview of 11 July 2001 to issue a new LOM with new allegations and a penalty if Ng did not accept a reprimand on the basis of the first charge in the existing LOM and insisted on providing new information implicating Meocre Li with knowledge of Au;

    11. the closing of the inquiry into Meocre Li without inquiring into the new information provided by Simmons and Simmons of the earlier transactions involving Au and Singapore Hong Kong Properties;

    12. the closing of the inquiry into Ng without reference to the offer of settlement contained in the Simmons and Simmons letter of 4 September 2001; and

    13. the failure of the SFC to seek legal advice on questions which arose, most notably the Clifford Chance letter of 7 May 2001.

    The Judge's erroneous view of the evidence

  120. The Judge's view of the evidence was mistaken in several respects. First, he stated

    It is an odd feature that [Meocre Li] was able over a period of about 16 months to evade the SFC's requirement to interview him.

    Meocre Li requested, as he was entitled to do, that the interview be waived. It was waived. And the SFC in responding on 24 January 2000, indicated that, although there was no urgency, an interview would be required at a later date. The Judge's comment was incorrect and of no significance as it was to be expected that the SFC might pursue other parties first. On the other hand, Meocre Li was not forthcoming in presenting his version of the transaction to the SFC. It was his omission to do so earlier that resulted in the issue of the LOMs to him and to ICEA. His omission in this respect was acknowledged by Clifford Chance in the letter of 16 May 2001. The important point, however, is that the failure to insist on an interview was not indicative of any intention to protect Meocre Li. In the absence of an interview, the LOM was issued against him.

  121. As I have already pointed out, the Judge's view of Meocre Li's answer to question (5) in the letter of 8 June 2000 was erroneous and it constituted a serious error because it infected his Lordship's view of Meocre Li and of the SFC. For reasons already given, the expression "My understanding" in Meocre Li's answer to question (5) was not reasonably capable of the interpretation put upon it by the Judge. Nor was the last sentence of the answer reasonably capable of the interpretation which the Judge placed upon it, namely that Meocre Li admitted that he approved the splitting of the fees on the morning of 23 June 1999 in the actual amounts specified in the questions (see para. 85 above).

  122. The Judge's emphasis on the SFC's failure to reply in writing to Clifford Chance's letter of 7 May 2001 was misplaced. In the interview with Meocre Li on the following day, Pang said there was no need to reply to the letter because the LOM would be determined "soon".

  123. For reasons already stated, the Judge was mistaken as to the character and purpose of the interview on 8 May and the reason for providing Clifford Chance with the evidence of Au and Ng. An LOM had issued against Meocre Li. He sought an interview to answer the charges in the LOM so the interview was not to be compared, as the Judge sought to do, with the two SFC interviews with Ng before an LOM issued against him. Provision of the evidence was standard SFC practice and enabled Meocre Li to answer the charges. In the context it is not surprising that Meocre Li brought an agenda. Nor is it at all surprising that he wanted a discussion before sending written submissions.

  124. The Judge was mistaken in criticising the SFC for "swallowing" the Clifford Chance submissions. His basis for his criticism was grounded in his mistaken reading of Meocre Li's answers to the SFC's questions of 8 June 2000. Contrary to the Judge's view, the submissions were consistent with the earlier answers except in one respect and no-one, including the Judge, attached any importance to that one exception. The SFC did not act unreasonably in regarding them as persuasive. Indeed, in making the point that Au was acting on her own, that she had already placed the shares with brokers when she approached Ng and Fong and that there was no delegation by ICEA of authority to her, Clifford Chance mounted an arguable defence to the charges in the LOMs against Meocre Li and ICEA. The Judge failed to appreciate this point. Although Harris and Roden spoke of the SFC having a "strong" case against Meocre Li, their attention was not directed to this aspect of the case.

  125. The Judge's statement that the SFC's view that the credibility of Ng was more in doubt than that of Meocre Li was irrational constituted another serious error. Here again the source of the error lay in his Lordship's erroneous view of Meocre Li's answers to the SFC's questions of 8 June 2000. Ng's credibility was in doubt because he claimed that he had told Meocre Li of the placement in the afternoon, whereas the likelihood, according to circumstantial evidence and Meocre Li's diary entries, was that it was the morning. There was nothing unreasonable in the SFC concluding that Ng's version of events should not be accepted in preference to that of Meocre Li or in taking the view, which it did, that there was a conflict between the two which could not be resolved without further investigation.

  126. The importance which the Judge attached to the more favourable treatment accorded by the SFC to Meocre Li than Ng is partly, but perhaps not wholly, answered by the fact that the SFC did not take as strong a view against Meocre Li's credibility and conduct as did the Judge. The SFC thought Meocre Li's version of events was to be preferred to Ng's. The Judge's criticism of the SFC in this respect derived largely from his mistaken view of Meocre Li's answers to questions (1) to (5) put to him by the SFC. Further, the SFC was entitled to take the view that Ng was an experienced officer of ICEA who had immediate responsibility for the placement and took no steps to ensure that false information was not disseminated or to ascertain whether such information had been disseminated.

  127. There was a definite change in the direction of the SFC inquiry and in its treatment of Meocre Li after receipt of the Clifford Chance letter of 7 May. The question was whether it was to be explained by the persuasive force of the subsequent submissions advanced on behalf of Meocre Li. The Judge rejected that hypothesis but, as explained already, he did not appreciate the significance of the defence which was raised by Clifford Chance and he was mistaken in the significance which he attributed to the answer to question (5).

  128. There can be little doubt that, if the Judge was right in concluding that Pang made a threat to Ng at the interview on 11 July 2001 to issue a new LOM with new allegations and a penalty if Ng refused to accept a public reprimand on the first charge in the existing LOM and provided further information to implicate Meocre Li, that would be a matter of very considerable significance. But it does appear that Pang was seeking to negotiate a compromise, whatever the reason for it may have been. Pang would have been conscious that the true facts of the relationship between Au and ICEA did not accord with the view of the facts on which the existing LOM was based and that, if the matter was to continue, a new LOM would have to issue with an amended charge. Indeed, that is what the SFC indicated in its subsequent letter. The question, in these circumstances, is what was the reason for Pang's statement.

  129. The closing of the inquiry into Meocre Li without inquiring into the further information provided by Simmons and Simmons about the earlier transactions involving Au and Singapore Hong Kong Properties was reasonably capable of being explained on the footing put forward by the SFC namely that it would be a waste of scarce resources to pursue an issue which depended on Meocre Li's word as against that of Ng. In the SFC's scheme of things that view might reasonably be taken when the principal miscreant (Au) had already accepted responsibility and was about to be dealt with, even if verification of the new information might only involve examination of documentation and interrogation of Stephanie Chan and Au.

  130. The subsequent closing of the inquiry into Ng was the inevitable consequence of deciding not to pursue the further information. It does not follow that the Pang "threat" was simply a bluff which he never intended to pursue, as the Judge suggested. There was a rational basis for issuing an amended LOM should the occasion arise.

  131. The failure of the SFC to seek legal advice, particularly in relation to the Clifford Chance letter of 7 May 2001 was, however, a relevant fact.

    Conclusion as to the Judge's findings of fact

  132. The foregoing review demonstrates that the findings of fact made by the Judge, especially particular inferences which he drew, cannot be sustained. The Judge proceeded, in material instances, on a misapprehension of the effect of the evidence. Just as an appellate court is entitled "to interfere with the judge's findings of primary fact [where] the judge had misdirected himself as to the effect of certain evidence which he understood to support his conclusion" (Universal Dockyard v Trinity General Insurance [1989] 2 HKLR 160 at 167, per Lord Goff of Chieveley), it is entitled in the same circumstances to set aside inferences of fact. The Judge also failed to appreciate the force of the Clifford Chance submissions and the defence which they raised. Likewise, he failed to give any weight to the reasons why the SFC did not pursue its inquiries further.

  133. Indeed, the Judge's approach to the matter indicates that he was more concerned to criticise the inadequacy of the SFC's inquiry into Meocre Li than to ask the correct question, namely whether the SFC's decisions and actions were so devoid of reasonable explanation that an inference of misconduct was compelling. Only then could a court arrive at an adverse conclusion according to the requisite standard of proof. The Judge's failure to approach the matter in this way indicates that he did not apply the requisite standard of proof and that his adverse conclusion was flawed on this account as well as on the ground that material findings of fact which he made cannot be supported.

  134. Accordingly, his conclusion adverse to the SFC cannot stand and it is for this Court to determine for itself whether the inference adverse to the SFC should be drawn on the materials before the Court.

  135. The matters relevant to the drawing of such an inference are

    1. the SFC had a real interest in the successful prosecution of Meocre Li, the details of which I shall mention later;

    2. the need to respond to the Clifford Chance letter of 7 May 2001 was present to the minds of Anna Woo, Roden, Pang and, it is to be inferred from the minutes, Bailey, when they made their decision to close the inquiry into Meocre Li;

    3. the contrast between the professional and considered approach by SFC staff before receipt of Clifford Chance's letter of 7 May 2001 and the hurried and differently directed examination of the matter thereafter;

    4. the rejection of the denials by Roden and Pang of improper intention to terminate the inquiry (see Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 694, per Gibbs J);

    5. the failure of the SFC to seek legal advice with respect to the question raised by the Clifford Chance letter of 7 May;

    6. the change in direction of the inquiry into Meocre Li after receipt of that letter;

    7. the SFC decision not to deal with the question raised by that letter because the inquiry would be determined soon;

    8. the difference in the SFC's treatment of Meocre Li and Ng;

    9. the closing of the inquiry into Meocre Li;

    10. Pang's proposal to issue a new LOM against Ng; and

    11. the closing of the inquiry into Ng without pursuing the new information against Meocre Li and without dealing with Ng's offer to accept a warning letter.

  136. These matters on their own raise a case of suspicion against the SFC and are capable of generating an adverse inference of ulterior intention or purpose on the part of the SFC in terminating the Meocre Li inquiry. But when due weight is given to the seriousness of the conduct alleged against the SFC, the explanations offered on behalf of the SFC and the strong possibility that any errors of judgment on the part of the SFC were innocent, one cannot be satisfied that the ulterior intention or purpose is made out or that the inference sought to be drawn by the respondent is compelling. Although the SFC's failure to call Anna Woo and Bailey as witnesses was a factor, it does not bridge the gulf.

  137. Accordingly, the Judge's finding that the SFC terminated its inquiry into Meocre Li in order to protect his status and standing as a witness cannot be sustained and cannot support the grant of a permanent stay.

    THE DUTY OF DISCLOSURE

  138. Apart from the SFC's termination of the inquiry into Meocre Li, the Judge based the grant of the permanent stay on breaches of a duty to disclose by the prosecution and Meocre Li in relation to the Kin Don and Guangdong Kelon matters and by the SFC in relation to the Kin Don matter. So it is necessary to examine the duty of disclosure.

  139. That the prosecution is under a common law duty to disclose to the defence material or information in its possession in the interests of a fair trial is not in dispute. What is in dispute is the nature and scope of the duty. The questions which arise for consideration are:

    1. What is meant by the expression "the prosecution" in the formulation of the duty?

    2. Is the duty confined to the prosecutor or does it extend also to witnesses and to bodies such as the SFC in the present case?

    3. To what material and information does the duty relate?

    THE DUTY OF DISCLOSURE IN ENGLAND

  140. In order to examine these questions, it is necessary to trace the development - and it has been a recent development - of the common law duty in England. As the Judge acknowledged, the law relating to the prosecution's duty of disclosure has developed in Hong Kong, England and other jurisdictions in the context of unsafe and unsatisfactory convictions, material irregularities and miscarriages of justice (see Criminal Procedure Ordinance, Cap. 221, s.83(1)). Indeed, it is the quashing of a conviction because it is unsafe or because there has been a material irregularity that is the ultimate sanction for performance of the duty.

  141. The existence of the duty was sufficiently recognised in England in 1981 as to result in the publication of the Attorney-General's guidelines (Practice Note (Criminal Evidence: Unused Material) [1982] 1 All ER 734) and thereafter a series of decisions in the English Court of Appeal, followed by decisions of the House of Lords, established the framework in which the relevant principles have been elucidated. It is to these decisions and that framework that I now turn.

  142. Although breach of the prosecutor's duty of disclosure may result in the setting aside of a conviction, the law relating to the duty of disclosure was not developed in tandem with the principles governing the grounds on which a conviction will be set aside. The two areas of law intersect, however, when non-disclosure by the prosecutor results in an unsafe or unsatisfactory conviction, a material irregularity or miscarriage of justice. Non-disclosure to the defence of relevant material, even if not attributable to any breach by the prosecutor of his duty to disclose, can result in material irregularity and an unsafe conviction, as it did in R v Maguire [1992] QB 936 and R v Ward [1993] 1 WLR 619, where forensic scientists called by the prosecution failed to disclose to the prosecution information which tended to weaken their expert evidence. An understanding that these two areas of law do not necessarily co-extend and correspond is essential to an appreciation of the cases.

  143. The prosecution's duty of disclosure has its foundation in the right of the defendant to a fair trial. The right to a fair trial entails adequate knowledge of the case to be made by the prosecution (Reg v Brown (Winston) [1998] AC 367 at 374G, per Lord Hope of Craighead). What is fair must be determined in the light of the general principle of open justice (Reg v Keane [1994] 1 WLR 746 at 750G, per Lord Taylor of Gosforth CJ), a principle which was described by Lord Hope of Craighead in Brown (at 374G) as "the great principle of open justice". It would be contrary to that great principle if the prosecution were to withhold from the defence material which might undermine the case against the defendant or which might assist the defence case (Brown at 374G). It is therefore the duty of the prosecution to disclose to the defence "all relevant material which may assist the defence subject to the exception .... of public interest immunity" (Reg v Mills [1998] AC 382 at 402H, per Lord Hutton).

  144. It has been recognised for a long time that prosecutors, in conducting a criminal trial, should "regard themselves" rather "as ministers of justice" assisting in its administration than as advocates (see R v Banks [1916] 2 KB 621 at 623, per Avory J). But the modern emphasis on the defendant's right to a fair trial and on the principle of openness has resulted in an expanded duty of disclosure. This expansion has occurred despite some differences of judicial emphasis, if not judicial opinion, about the responsibilities of prosecuting counsel. One example of these differences is to be found in Dallison v Caffery [1965] 1 QB 348. There Lord Denning MR described (at 369B) the prosecutor's duty in these terms:

    if he knows of a credible witness who can speak to material facts which tend to show the prisoner to be innocent, he must either call that witness himself or make his statement available to the defence.

    On the other hand, Diplock LJ, in the same case, asserted (at 375G) that the proposition that it is the duty of the prosecution to place before the court all the evidence known to him, whether or not it is probative of the guilt of the accused, was erroneous.

  145. Since then the modern authorities have explained the scope of the prosecutor's duty of disclosure. In Reg v Keane, Lord Taylor of Gosforth CJ adopted (at 752A-C) a test which had been suggested earlier by Jowitt J in Reg v Melvin (Graham), unreported, 20 December 1993. Jowitt J said

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

  146. The Court of Appeal confirmed this test in Brown [1994] 1 WLR 1599 and gave further consideration to the expression "an issue in the case" and the disclosure of oral information. As to the first, Steyn LJ pointed out (at 1606H) that the expression must be given a broad interpretation rather than "the fairly narrow" way in which it is used in a civil case. This leads to a difference as between discovery in a civil case, where a party is not entitled to discovery in respect of the credit of a party or witness, and disclosure in a criminal case. However, in a criminal case, according to Steyn LJ (at 1607A)

    the Crown is under a duty to give disclosure of significant material which may affect the credibility of a prosecution witness.

    [my emphasis]

    In other words, the credibility of a prosecution witness is relevant for the purpose of the Melvin categories. His Lordship referred to these examples established by authority:

    1. the obligation to disclose previous statements of prosecution witnesses;

    2. the obligation to disclose a request for reward by a prosecution witness; and

    3. the obligation to disclose previous convictions of a prosecution witness.

  147. With reference to the third example, his Lordship referred to the observation of Cooke P in Wilson v Police [1992] 2 NZLR 533 at 537

    As to the kind of conviction within the scope of the duty, the test must be whether a reasonable jury or other tribunal of fact could regard it as tending to shake confidence in the reliability of the witness.

    His Lordship regarded (at 1607C) this test as one which

    may be capable of being applied to other collateral material which could affect the credibility of a prosecution witness.

    By "collateral material" his Lordship meant other material not directly related to the specific issues inherent in the offence of which the defendant was charged. Such "collateral material" would include adverse findings by a tribunal and other material reflecting adversely on the credibility of the prosecuting witness.

  148. On appeal, Lord Hope of Craighead (with whom the other Law Lords concurred) affirmed (at 377C-D) that the expression "an issue in the case" must be given a broad interpretation as must also the phrase "all relevant evidence of help to the accused" in Lawton LJ's judgment in Reg v Hennessey (1979) 68 Cr App R 419 at 426, which was adopted in Reg v Ward at 645. His Lordship went on to make the significant observation (at 377D).

    the common law rules are concerned essentially with the disclosure of material which has been gathered by the police and the prosecution in the course of the investigation process for use in the case to be made for the Crown.

    The comment indicates that the duty of disclosure relates to materials gathered by the police and the prosecution.

  149. Lord Hope concluded his discussion on this aspect of the matter by saying (at 377F)

    .... fairness requires that material in "[the prosecution's]" possession which may cast doubt on the credibility or reliability of those witnesses whom it chooses to lead must be disclosed.

    And he added

    The question whether one or more of the Crown witnesses is credible or reliable is frequently one of the most important "issues" in the case, although the material which bears upon it may be .... collateral.

  150. Lord Hope evidently approved Jowitt J's statement in Melvin. But his Lordship's statements of principle did not discuss Jowitt J's third category.

  151. Lord Hope said (at 379E) that fairness does not require that the defendant

    be provided with assistance from the Crown in the investigation of the defence case

    and stated (at 379F-G) that the duty of the prosecutor is to prosecute, not to defend, nor to conduct the case for the defence. But these comments were made in the course of considering the question whether the prosecutor was under a duty to disclose material relevant only to a defence witness's credibility. His Lordship answered this question in the negative. I agree with his Lordship's answer but, in the present case, this question does not arise and my remarks should not be read as having any application to it.

  152. While the principles just discussed are expressed in terms of the prosecutor's duty to the defence, when a dispute as to disclosable materials arises, it is for the court, not prosecuting counsel, to decide such questions and to rule on any asserted legal ground relied upon to justify the withholding of disclosure of relevant material. So much was decided in Reg v Ward and Reg v Davis [1993] 1 WLR 613. See also Reg v Preston [1994] 2 AC 130 at 153B, per Lord Mustill.

    THE DUTY OF DISCLOSURE IN CANADA

  153. The duty of disclosure has proceeded along somewhat similar lines in Canada, though it appears to be more extensive in scope than in England. The general rule is that all relevant information must be disclosed, subject to the Crown's discretion to withhold information which may be subject to privilege and to delay disclosure so as not to impede an investigation. In Stinchcombe v The Queen (1991) 68 CCC (3d) 1, where the general rule was formulated, Sopinka J (with whom the other Justices agreed) noted (at 9e) that the accused's common law right to make full answer and defence had acquired new vigour by virtue of its inclusion in s.7 of the Canadian Charter of Rights and Freedoms as one of the principles of fundamental justice. Subsequently, in R v O'Connor (1996) 130 DLR (4th) 235 at 283g-h, it was held that

    the Crown is under a general duty to disclose all information, whether inculpatory or exculpatory, except evidence that is beyond the control of the prosecution, clearly irrelevant, privileged or subject to a right of privacy.

  154. Consistently with the view taken in England, the discretion of prosecuting counsel is reviewable by the trial judge. Once a review is initiated by defence counsel, prosecuting counsel must justify the Crown's decision. Such a review may require not only submissions but also the inspection of statements and other documents and, in some cases, oral evidence. A voir dire will frequently be the appropriate procedure (see Stinchcombe at 12, per Sopinka J).

    EFFECT OF THE AUTHORITIES

  155. The principles relating to disclosure articulated by the English courts are based on the defendant's common law right to a fair trial and on the principle of openness. It is therefore appropriate that this Court should have regard to them in ascertaining the common law of Hong Kong. The principles recognise that the prosecution is under a duty of disclosure to the defence which extends to material in the possession or control of the prosecution which may undermine its case or advance the defence case. What "the prosecution" means, whether the obligation extends to material not in the possession of the prosecution but in the possession of the investigating officers and what constitutes "material" for this purpose will be considered later.

  156. An additional foundation for the application of these principles in Hong Kong is provided by arts 39 and 87 of the Basic Law and by art. 11(2) of the Hong Kong Bill of Rights (which forms Part II of the Hong Kong Bill of Rights Ordinance, Cap. 383). Article 39 provides that the ICCPR shall remain in force and shall be implemented through the laws of the HKSAR, as indeed it has been by the Bill of Rights. Article 87 preserves the principles previously applied in criminal proceedings and the rights previously enjoyed by parties to proceedings in Hong Kong. Article 87 also guarantees the right to a fair trial.

  157. Article 11(2) of the Bill of Rights, which implements art. 14(3) of the ICCPR, provides that

    [i]n the determination of any criminal charge ...., everyone shall be entitled to the following minimum guarantees, in full equality -

    ....

    (b)

    to have adequate time and facilities for the preparation of his defence ....

    This article entitles the defendant, where practicable, to the provision of copies of statements of witnesses on which the prosecution intends to rely (see Vincent v The Queen [1993] 1 WLR 862 at 867, per Lord Woolf; R v Deputy District Judge Lee, Ex parte Chow Po-bor (1993) 3 HKPLR 101. It is, however, acknowledged by Mr. McCoy SC that the Basic Law and the Bill of Rights do not take the duty of disclosure further than it is taken by the common law.

    "THE PROSECUTION": WHAT IT MEANS

  158. A distinction is often drawn between the prosecution (which consists of those persons who present and prepare the case for the prosecution) and the investigation (which consists of those persons who investigate the commission of the alleged offence). In some cases this distinction may not be easy to draw (see the remarks of Farquharson LJ and Alliott J in R v Birmingham Crown Court, Ex parte Ricketts [1991] 1 RTR 105 at 108). This is often the case in summary proceedings. In judicial review of convictions entered in summary proceedings, persons standing outside the prosecution, as I have just described it, have been identified with the prosecution (see, for example, R v Liverpool Crown Court, Ex parte Roberts [1986] Crim LR 622 (a police officer held to have been part of "the total apparatus of the prosecution")). However, in the context of trials on indictment the distinction between the prosecuting authority and the investigating authority has generally been observed (but cf. R v Maguire at 958D-E (where the position of a forensic scientist advising the prosecution was discussed)). In this case the distinction is between on the one hand the DPP, the legal officers of the CCU of the Prosecutions Division who prepared and presented the case and briefed counsel and counsel (see para. 12 above) and on the other hand the Commercial Crime Bureau of the Hong Kong Police Force.

  159. The duty rests with the prosecution or prosecuting counsel. The duty should be considered as one imposed upon the prosecution generally (so in this case it was the DOJ), though it is generally performed by counsel who is briefed and conducts the prosecution. It would be unduly restrictive to say that the duty is confined to prosecuting counsel. See Reg v Preston at 152G-H, per Lord Mustill.

    IS THE DUTY IMPOSED UPON A WITNESS?

  160. There is no suggestion in the English authorities that, in the case of trials on indictment, the duty of disclosure to the defence is imposed on anyone other than the prosecution. There are powerful reasons for confining to the prosecution the duty of disclosure. 

    • First, it is for prosecuting counsel in the first instance to make a careful assessment of the materials in the possession of the prosecution, in the light of the issues and the circumstances of the case, with a view to ascertaining whether there is relevant material which may assist the defence in advancing its case or undermining the prosecution case. Should a dispute arise for the trial Judge to determine, the trial Judge in effect reviews the prosecutor's assessment.

    • Secondly, it is unrealistic to impose a duty of disclosure on anyone other than the prosecution. The witness ordinarily lacks the professional skill and experience and the knowledge of the issues and circumstances of the case which are essential to the making of a judgment of whether it is necessary or not to make a disclosure.

    • Thirdly, it would only add to the complexity of conducting a trial if witnesses and other strangers to the proceedings were expected of their own motion to volunteer to the court information which they conceive to be material to the proceedings. The orderly conduct of the trial would be set at risk if the duty to disclose were not confined to the prosecution.

    THE DUTY EXTENDS TO DISCLOSURE OF MATERIAL & INFORMATION IN THE POSSESSION OR CONTROL OF THE PROSECUTION & THE INVESTIGATING AGENCY

  161. The prosecution's duty is to disclose to the defence material (including information) in its possession or control. That will ordinarily include materials that have been gathered by the investigating agency (the police) and it is the responsibility of the prosecution to make the investigating agency aware of the need to make available all relevant materials. In this sense, the prosecutor's duty is to disclose to the defence all relevant material in its possession or control and in the possession or control of the investigating agency.

  162. In order to ensure that all disclosable material is provided to the defence, prosecuting counsel should instruct investigating officers and, where appropriate, witnesses to bring to counsel's attention any material that may be disclosable. In other words, disclosable material known to a witness, including an expert witness, should be channelled through prosecuting counsel who should take appropriate steps to facilitate that happening.

  163. Mr. Michael Thomas SC for the appellant argues for a more limited duty of disclosure, one which is confined to material in the possession or control of the prosecution. If the investigating agency withholds material information from the prosecution, the prosecution can be under no duty to disclose what it does not know and is known only to the agency. This proposition has support in the English cases (see, for example, Reg v Maguire at 957G). To confine the duty in this way would be to reduce substantially the important part which the prosecutor's duty of disclosure plays in securing a fair trial and to compromise the principle of openness. Mr. Thomas seeks to overcome this objection by submitting that an appellate court would set aside a conviction where material evidence was not led at the trial, although the absence of knowledge of its existence was not due to any breach of duty or fault on the part of the prosecution. Even if this be so, it is not a convincing reason for limiting the duty in the manner suggested.

  164. Fairness to the defendant requires wide disclosure. Striking the appropriate balance between fairness to the defendant and protecting the public interest in the detection and punishment of crime is to be achieved not by reducing the scope of the disclosure rules but by restricting the collateral use of disclosed material (Taylor v Serious Fraud Office [1999] 2 AC 177 at 218C-D, per Lord Hope of Craighead).

  165. A strong obligation of disclosure will preserve the criminal trial as the appropriate forum for determining the truth or falsity of criminal allegations. The Supreme Court of the United States has recognised the general goal of establishing "procedures under which all criminal defendants are acquitted or convicted on the basis of all the evidence which exposes the truth" (United States v Leon 468 US 897 (1984) at 900-901, quoting Alderman v United States 394 US 165 (1969) at 175).

  166. Mr. McCoy SC for the respondent argues for the broadest obligation of disclosure by submitting that the State is bound to disclose all relevant material in the possession or control of its organs and agencies. He calls in aid Jespers v Belgium (1981) 27 DR 61, a decision of the European Commission of Human Rights on art. 6(3)(b) of the European Convention on Human Rights and Fundamental Freedoms which, like art. 11(2)(b) of the Bill of Rights, states that everyone charged with a criminal offence has the right to have adequate time and facilities for the preparation of his defence. The Commission held that art. 6(3)(b) recognises the right of the accused to have at his disposal "all relevant elements that have been or could be collected by the competent authorities" (para. 58). The decision seems to turn on the Commission's view that national legislation in most countries, presumably European, entrusts the preliminary investigation of crime to a member of the judiciary or, if it entrusts the investigation to the Public Prosecutor's Department

    instructs the latter to gather evidence in favour of the accused as well as evidence against him.

    The purpose of such legislation, it is said, is to establish "the equality of arms" principle. Hong Kong has no such legislation. And under the common law, the duty of the prosecutor is to prosecute not defend. The prosecutor has no responsibility to assist in the investigation and preparation of the defence case: Reg v Brown at 379E-F, per Lord Hope of Craighead.

  167. Mr. McCoy SC also relies on R v Blackledge [1996] 1 Cr App R 326 where it was held that there was a material irregularity occasioned by the prosecution's failure to disclose to the defence documents held by the Ministry of Defence, Foreign and Commonwealth Office and Security Services. Lord Taylor CJ said (at 337):

    .... we consider that the documents in the possession of one or other Government Department involved in the inter-Departmental consideration of licences are to be regarded for the purposes of this case as in the possession of the Crown as an indivisible entity. Mr. Lawson QC, on behalf of the Crown, did not argue to the contrary.

    This qualified statement does not reach as far as the proposition put forward by Mr. McCoy SC.

  168. It is conceivable that Mr. McCoy SC's proposition reflects the way in which the law may develop. But in the context of the present case there is no occasion for us to consider the point. It is enough to say that the prosecution has a duty to ascertain and disclose to the defence relevant material (including information) in its possession or control and in the possession or control of the investigating agency (including the police), subject to relevance, privilege and public interest immunity. In Kyles v Whitley 514 US 419 (1995), Souter J, delivering the opinion of the Court, in the context of the constitutional requirement of due process, said (at 437):

    This in turn means that the individual prosecutor has a duty to learn of any favorable evidence known to the others acting on the government's behalf in the case, including the police. But whether the prosecutor succeeds or fails in meeting this obligation (whether, that is, a failure to disclose is in good faith or bad faith ....), the prosecution's responsibility for failing to disclose known, favorable evidence rising to a material level of importance is inescapable.

    The prosecution's duty will extend to material in the possession or control of any other government department or agency if there are particular circumstances suggesting that it may have such material.

  169. As the duty rests with the prosecution, it follows that neither Meocre Li nor the SFC were under a direct duty of disclosure to the Court, as the Judge seemed to suggest.

    THE SCOPE OF THE PROSECUTION'S DUTY OF DISCLOSURE

  170. The prosecution's duty is to disclose to the defence relevant material (including information) which may undermine its case or advance the defence case. The duty is not limited to the disclosure of admissible evidence. Information not itself admissible may lead by a train of inquiry to evidence which is admissible: Reg v Preston at 163-164, per Lord Mustill. And material which is not admissible may be relevant and useful for cross-examination of a prosecution witness on credit.

  171. The Melvin categories may be accepted as a broad statement of what, on a sensible appraisal by the prosecutor, is subject to disclosure. The Melvin formulation and the recognition that the credibility of a prosecution witness is relevant for the purpose of the Melvin categories have the consequence that disclosable material relevant to the cross-examination of a prosecution witness cannot be restricted to the three instances of disclosable material relevant to the credibility of a prosecution witness sanctioned by authority and referred to by Steyn LJ in Brown [1994] 1 WLR at 1607A-C. It extends to other significant material which a reasonable jury could regard as tending to shake confidence in the credibility of the witness.

  172. Would the prosecution have had a duty to disclose to the defence the existence of the SFC inquiry into Meocre Li, had he or the SFC informed the prosecution of the inquiry? On the submissions put forward by Mr. Thomas SC, the answer is "No". Mr. Thomas submits that, although a conviction and a finding by a disciplinary tribunal are disclosable, an inquiry, like an arrest and a charge of a criminal offence, is not disclosable. In support of this proposition he cites Maxwell v Director of Public Prosecutions [1935] AC 309 and Stirland v Director of Public Prosecutions [1944] AC 315. They are authority for the proposition that mere suspicion that a person has committed an offence arising, for example, from the fact that the witness has been arrested and charged with an offence cannot be a legitimate subject of cross-examination as to credit.

  173. These cases dealt with cross-examination of the accused person in a criminal trial not a prosecution witness. While the proposition on which they are based has an application to cross-examination of a prosecution witness, the application of the proposition to such a witness is subject to qualifications. One qualification is that the witness may be cross-examined to establish that he or she has been charged with an offence with a view to exploring whether the witness has a motive for favouring the prosecution: Titus v The Queen [1983] 2 CCC (3d) 321. Another qualification is that the witness may be cross-examined on the facts underlying the charge, subject of course to a claim of privilege against self-incrimination.

  174. In the usual run of things it would be correct to say that to establish that a witness is the subject of a disciplinary inquiry and no more would not reflect adversely on the credibility of the witness. But cross-examination on the facts underlying the inquiry could reflect adversely on the credibility of the witness, depending on what the circumstances and the answers might be. And if the witness is called as an expert witness and the inquiry is conducted by the relevant professional body in response to concerns about the professional competence of the witness, this will raise a doubt about the professional standing and competence of the witness: see Reg v Brooks [2002] EWCA Crim 2107. Also, in some circumstances, there will be the possibility that disclosure of the existence of the inquiry will enable the defence to pursue a train of inquiry which will lead to material which will be of advantage to the defence.

  175. These comments indicate that the proposition that the fact a prosecution witness is the subject of a disciplinary or other inquiry is not disclosable cannot be accepted as a universal and all-embracing proposition. Every case must be judged according to its own particular circumstances. What has to be kept steadily in mind is that, on credit, only significant material that a reasonable jury or tribunal of fact could regard as tending to shake confidence in the reliability of the witness is disclosable and that the answers of the witness in cross-examination on credibility alone generally cannot be rebutted by evidence: Hobbs v Tinling [1929] 2 KB 1 and HKSAR v Wong Sau Ming [2003] 2 HKLRD 90.

  176. In the context of the prosecution's duty of disclosure there are two aspects in relation to the existence of a pending inquiry into the conduct of a prosecution witness. The first is the possible use of the inquiry or the facts which underlie it as a basis for attacking the credibility of the witness, the aspect which I have just discussed. The second is the use of the inquiry to launch a train of inquiry which may assist the defendant in advancing his or her case by ultimately ascertaining admissible evidence or material which can be used to damage the credibility of the witness.

  177. With these comments in mind, I turn to disclosure of the SFC inquiry into Meocre Li. The SFC inquiry into Meocre Li ended favourably to Meocre Li and at all times he denied wrongdoing on his part. Any wrongdoing was on the part of a subordinate in whom he was entitled to repose trust and confidence. True it is that, on the case made by Ng to the SFC, there was wrongdoing by Meocre Li approving a transaction into which ICEA should not have entered. But Meocre Li did not accept Ng's version of events. The inquiry did not relate to Meocre Li's expertise as a forensic accountant. So it is possible that a jury would not regard the information in the possession of the SFC as tending to shake confidence in the reliability of Meocre Li in relation to his expert evidence. All that the information revealed was that there was a conflict between Meocre Li and Ng.

  178. But the existence of the inquiry and the information in the possession of the SFC could alert the defence to a train of inquiry through Au, Stephanie Chan and the documents which could arm the defence with material which, in cross-examination, could have shaken the jury's confidence in the reliability of Meocre Li as a witness.

  179. As the existence of the inquiry and the information in the possession of the SFC were disclosable by the prosecution to the defence, had it been aware of them, in the particular circumstances of this case, Meocre Li and the SFC should have made disclosure to the prosecution. Meocre Li, being an expert prosecution witness, should have brought to the prosecution's attention material which reflected or might reflect adversely on his integrity and standing as an expert witness. Material which suggested that he lied to the regulatory authority fell into that category. In fairness to Meocre Li, Clifford Chance in its letter dated 7 May 2001 to the SFC, requested on his behalf the SFC's consent to informing the DOJ of the inquiry and its possible outcome. There was no legal obstacle to the SFC giving its consent. Indeed, it seems that the only reason why the SFC did not give its consent was that it considered that the termination of the inquiry without penalty or adverse finding against Meocre Li put an end to the matter, a view which Meocre Li and his solicitors evidently shared. They were mistaken. The SFC, with knowledge of Meocre Li's position as an expert prosecution witness in the forthcoming trial, and Meocre Li himself should have realized that the information in the possession of the SFC was potentially damaging to Meocre Li's integrity and standing as an expert witness so that it should have been disclosed to the prosecution.

  180. The Guangdong Kelon matter stands on a different footing. In the light of what we now know about that matter, no discredit attached to Meocre Li. The Judge's initial view of the matter, reached without Meocre Li being afforded the opportunity of stating his side of the case, was mistaken. The Judge's more considered view of the matter was that Meocre Li could give evidence which would assist the defence case. The suggestion seems to be that Meocre Li's knowledge and experience of the Guangdong Kelon transactions would have enabled him to say that those transactions were similar to the transactions the subject of the charges and that, in both cases, the accounting firm had overlooked or ignored material matters. It is suggested also that he could give evidence as to the extent to which a chief executive could rely upon and delegate to others functions in relation to market exercises such as the placement of shares and the revenue to be realised as a consequence. Assuming this to be true, I do not see how that evidence affects his expertise, status, independence or authority as a witness. It is not a case in which Meocre Li, as an expert witness, is being required to disclose some matter reflecting adversely on his expertise, status, independence or authority as a witness. Accordingly, he came under no duty as a witness to make a disclosure. In conformity with my earlier comments, I do not see how, as a witness, he could be expected to make a judgment as to what evidence he could give for the defence.

    THE SPECIAL POSITION OF THE SFC

  181. In argument the respondent submitted that the SFC, having regard to its general statutory responsibilities and to its participation in the early stages of the inquiry into Allied, should be treated as part of the investigation into Allied. I doubt the correctness of this submission but there is no need to pursue this question further.

    THE GRANT OF A PERMANENT STAY

  182. In the light of the conclusions already reached, there is no basis for the grant of a permanent stay. It was not a case in which the respondent could not get a fair trial. Therefore if the case was to attract a stay, it had to come within the principle stated by Lord Steyn in Reg v Latif [1996] 1 WLR 104 at 112G-H:

    In this case the issue is whether, despite the fact that a fair trial was possible, the judge ought to have stayed the criminal proceedings on broader considerations of the integrity of the criminal justice system. The law is settled. Weighing countervailing considerations of policy and justice, it is for the judge in the exercise of his discretion to decide whether there has been an abuse of process, which amounts to an affront to the public conscience and requires the criminal proceedings to be stayed: Reg v Horseferry Road Magistrates' Court, Ex parte Bennett [1994] 1 AC 42.

    It is generally recognised that only in exceptional circumstances will a stay be granted when a fair trial is possible. An indication of what this means is conveyed by L'Heureux-Dubé J's observations in R v O'Connor at 277b-c:

    .... a stay of proceedings is only appropriate "in the clearest of cases", where the prejudice to the accused's right to make full answer and defence cannot be remedied or where irreparable prejudice would be caused to the integrity of the judicial system if the prosecution were continued.

    In the absence of a finding of "bad faith", this standard will rarely, if ever be satisfied in a case where a fair trial is still possible. Even if there be a finding of "bad faith", that finding would not necessarily conclude the matter.

  183. Mr. Thomas SC for the appellant submits that a stay will only be granted in this class of case where the defendant should never have been brought before the court at all. He says that the only cases in which it has been recognised that a stay of criminal proceedings will be granted, when a fair trial is still possible, are (1) where the defendant has been forcibly abducted and brought to face trial in defiance of the extradition laws (see, for example, Ex parte Bennett) and (2) where entrapment is established (Reg v Looseley [2001] 1 WLR 2060 at 2063H-2064A, per Lord Nicholls of Birkenhead. There is, however, no reason why the exercise of the jurisdiction should be limited to cases of this kind when a fair trial is still possible. As Lord Steyn remarked in Latif (at 113A):

    An infinite variety of cases could arise.

    There may be many instances of an abuse of process which amount to an affront to the public conscience with severe consequences for public confidence in the administration of justice.

  184. Although the question is debatable, the better view is that an abuse of process does not exist independently of, and antecedently to, the exercise of a judicial discretion. The judicial decision that there is an abuse of process which requires the grant of a stay is itself the result of the exercise of a judicial discretion. It is for the judge to weigh countervailing considerations of policy and justice and then, in the exercise of the discretion, decide whether there is an abuse of process which requires a stay.

  185. The Judge carried out this exercise. But he did so, having arrived at two important conclusions, which cannot be sustained. One was the finding that the SFC improperly terminated the inquiry into Meocre Li in order to avoid compromising his status and standing as a witness. The other was the finding that Meocre Li had a duty to disclose the Guangdong Kelon matter to the prosecution entailing a consequential duty on the prosecution to make disclosure to the defence.

  186. It follows, applying the principle in para. 68 above, that the Judge's exercise of discretion cannot stand, based as it was on conclusions which cannot be supported. It is therefore for this Court to exercise the discretion afresh.

  187. In doing so, the Court must take account of the important public interest in the detection and punishment of crime, more particularly serious crime, as a result of which the investing public has suffered loss. The Court must take account also of the public expectation that persons charged with serious criminal offences will be brought to trial unless there is some powerful reason for not doing so. On the other hand, the Court must have regard to preserving the integrity of the criminal justice system. The Court must also consider the serious burden imposed upon the defendant of facing yet a second lengthy trial.

  188. In weighing these considerations, I am mindful that the grant of a permanent stay, where a fair trial is still possible, is a very heavy price to pay for breach of a duty to disclose which is not shown to have occurred in bad faith. Moreover, the application of the law of disclosure as it applies to the prosecution in a criminal trial is a troublesome area of the law, giving rise to difficult problems. Weighing all the circumstances, I conclude that a re-trial would not occasion an affront to the public conscience. Indeed, it is more likely that public confidence in the administration of justice would be shaken if the respondent were not brought to a second trial simply because the SFC and Meocre Li failed to inform the prosecution of the inquiry, thereby putting the prosecution in breach of its duty of disclosure to the defence.

    CONCLUSION

  189. I would in the circumstances allow the appeal, set aside the Judge's order for a permanent stay and remit the matter to the Court of First Instance for the respondent to be tried. As to costs, I would direct that the parties lodge written submissions within 30 days.


Cases

DPP v Humphrys [1977] AC 1; The Abidin Daver [1984] AC 398; Briginshaw v Briginshaw (1938) 60 CLR 336; Lanford v GMC [1990] 1 AC 13; In re A Solicitor [1992] 2 WLR 552; Hornal v Neuberger Products Ltd [1957] 1 QB 247; In re H (Minors) [1996] AC 563; Attorney-General v Tsui Kwok-leung [1991] 1 HKLR 40; Sweeney v Coote [1907] AC 221; ADS v Brothers (2000) 3 HKCFAR 70; Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336; Abalos v Australian Postal Commission (1990) 171 CLR 167; Benmax v Austin Motor Co. Ltd [1955] AC 370; Warren v Coombes (1979) 142 CLR 531; Rockefeller & Co. Inc v Secretary for Justice [2000] 3 HKLRD 351; Universal Dockyard v Trinity General Insurance [1989] 2 HKLR 160; Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640; R v Maguire [1992] QB 936; R v Ward [1993] 1 WLR 619; Reg v Brown (Winston) [1998] AC 367; Reg v Keane [1994] 1 WLR 746; Reg v Mills [1998] AC 382; R v Banks [1916] 2 KB 621; Dallison v Caffery [1965] 1 QB 348; Reg v Melvin (Graham), unreported, 20 December 1993; Wilson v Police [1992] 2 NZLR 533; Reg v Hennessey (1979) 68 Cr App R 419; Stinchcombe v The Queen (1991) 68 CCC (3d) 1; R v O'Connor (1996) 130 DLR (4th); Vincent v The Queen [1993] 1 WLR 862; R v Deputy District Judge Lee, Ex parte Chow Po-bor (1993) 3 HKPLR 101; R v Birmingham Crown Court, Ex parte Ricketts [1991] 1 RTR 105; R v Liverpool Crown Court, Ex parte Roberts [1986] Crim LR 622; Taylor v Serious Fraud Office [1999] 2 AC 177; United States v Leon 468 US 897 (1984); Alderman v United States 394 US 165 (1969); Jespers v Belgium (1981) 27 DR 61; R v Blackledge [1996] 1 Cr App R 326; Kyles v Whitley 514 US 419 (1995); Maxwell v Director of Public Prosecutions [1935] AC 309; Stirland v Director of Public Prosecutions [1944] AC 315; Titus v The Queen [1983] 2 CCC (3d) 321; Reg v Brooks [2002] EWCA Crim 2107; Hobbs v Tinling [1929] 2 KB 1; HKSAR v Wong Sau Ming [2003] 2 HKLRD 90; Reg v Latif [1996] 1 WLR 104; Reg v Looseley [2001] 1 WLR 2060

Legislations

Basic Law: Art.39, Art.87

Hong Kong Bill of Rights: Art.11(2)

European Convention on Human Rights and Fundamental Freedoms: Art.6(3)

Canadian Charter of Rights and Freedoms: s.7

Authors and other references

Practice Note (Criminal Evidence: Unused Material) [1982] 1 All ER 734

Representations

Mr. Michael Thomas SC and Mr. Roger Beresford (instructed by the Department of Justice) and Mr. Graham D Goodman (of that Department) for the appellant

Mr. Gerard McCoy SC, Mr. Alexander Stuart King, Ms Winnie Lau and Mr. Edwin Choy (instructed by Messrs Haldanes) for the respondent

Mr. John Griffiths SC and Mr. Adrian Bell (instructed by the Securities and Futures Commission) for the intervener.


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