COURT OF FINAL APPEAL, HKSAR
JUSTICE KEMAL BOHKARY PJ
JUSTICE PATRICK CHAN PJ
JUSTICE R.A.V. RIBEIRO PJ
JUSTICE LITTON NPJ
LORD SCOTT OF FOSCOTE NPJ
1 DECEMBER 2011
Justice Bokhary PJ
These two appellants complain of grievous injustice occasioned by errors of law. They say that the Insider Dealing Tribunal (chaired by McMahon J) made those errors of law when finding that they had engaged in insider dealing. And they say that the Court of Appeal (Rogers VP, Yeung JA and Lunn J) failed to correct those errors of law when refusing to overturn the Tribunal’s findings of insider dealing on their part.
It is fitting that the appellants pitch their complaint at the level of grievous injustice occasioned by errors of law. The Insider Dealing Tribunal is a specialist tribunal. It is entitled to receive and consider material notwithstanding that such material would not be admissible in evidence in civil and criminal proceedings in a court of law. Appeals from it to the Court of Appeal lie only on points of law unless leave is given to do so on questions of fact. And in the present appeal the findings of fact involved are concurrent, the Court of Appeal having affirmed the Tribunal’s findings of insider dealing on the appellants’ part. So it has to be borne in mind that, in conformity with what we said in Sky Heart Ltd v. Lee Hysan Co Ltd (1997-98) 1 HKCFAR 318 and have acted on ever since, this Court will not review concurrent findings of fact save in special circumstances as explained in that case and illustrated by subsequent cases.
To some extent, the errors of law which the appellants complain of overlap. Looked at separately, they may be said to fall into two categories. One consists of the sort of error of law that occurs when a finding of fact is made in the absence of evidence or is a finding of fact which, as Lord Radcliffe put it in Edwards (Inspector of Taxes) v. Bairstow  AC 14 at p.36, “the true and only reasonable conclusion contradicts”. That category involves, as we said in Kwong Mile Services Ltd v. Commissioner of Inland Revenue (2004) 7 HKCFAR 275 at para. 31, an appellate court “detecting and correcting errors of law buried beneath conclusions ostensibly of fact”. As for the other category of error of law complained of by the appellants, it is the one which consists of a violation of legal principle. The principle said to have been violated is that of a fair hearing, which is a principle of the common law and, moreover, is guaranteed by art.10 of the Bill of Rights as entrenched by art.39 of the Basic Law.
Avoiding marginal matters if at all possible shortens proceedings. It tends to render their results less open to question. Focus is the thing to go for. All of that is illustrated by the present case, an unusual and unfortunate feature of which was this. In an inquiry into dealings in the shares in one listed company, the Insider Dealing Tribunal admitted evidence which had been gathered for a then pending inquiry into dealings in the shares of another listed company. The inquiry was into dealings in shares in Vanda Systems and Communications Holdings Ltd. And the then pending inquiry was into dealings in shares in Harbour Ring International Holdings Ltd.
Mr Simon Chiu, counsel for the appellants throughout, had asked the Tribunal not to go into the Harbour Ring dealings at all but to go into them fully if the Tribunal went into them at all. He said to the Tribunal that it would be very costly and time-consuming to go into the Harbour Ring dealings fully but that doing so would, if it were done, vindicate his clients. The Tribunal adopted a course in between the two courses proposed by Mr Chiu in the alternative. That middle course, the appellants say, resulted in an unfair hearing. The Financial Secretary disputes that. Before addressing that issue or any of the other issues, it is necessary to tell the story of the case. Doing that will not take very long.
Story of the case
Trading on the stock exchange in Vanda shares was suspended on 18 February 2000 at the company’s request because of the imminence of an announcement that was expected to result in a sharp rise in the price of Vanda shares. The announcement was eventually made on the 22nd of that month. It had the expected result. Shortly before trading in Vanda shares was suspended on the 18th, the appellants, who are brother and sister, each made substantial purchases of Vanda shares. During the three-day period from and including 15 to 17 February 2000 the brother purchased a total of 650,000 Vanda shares for $3.08 million while the sister purchased a total of 1.1 million Vanda shares for $4.8 million. So between them the appellants purchased 1.75 million Vanda shares during those three days. Eventually they each sold their Vanda shares. By the calculations accepted by the Tribunal, the brother’s profit came to $1.69 million while the sister’s profit came to $3.6 million.
Until it was put in the public domain by the announcement made on 22 February 2000, the commercial arrangements announced thereby – which involved Hutchison Whampoa Ltd acquiring a substantial interest in Vanda and embarking upon a joint venture with it – was inside information. And the allegation which the Tribunal found proved against the appellants is that their purchases of Vanda shares were made on the strength of that inside information (to which I will refer as “the relevant information”).
In finding that allegation of insider dealing proved against the appellants, the Tribunal reasoned essentially as follows. They never offered any coherent explanation of why they would have dealt in Vanda shares on the scale and with the urgency that they did unless they were acting on inside information. And there was evidence of a source from which they could have got the relevant information. The brother knew a Mr Sammy Tse who was the Chief Executive Officer of a Hutchison subsidiary and had the relevant information. There was evidence that the brother and Mr Tse had spoken on the telephone on a number of occasions at what the Tribunal considered to be a material time. And it was to be inferred that Mr Tse had passed the relevant information on to the brother and that the brother had shared it with the sister. That, in short, is what the Tribunal thought and found.
Problems with the findings of insider dealing
Without conceding that the Tribunal had erred in having regard to what it considered to be the urgency with which the appellants dealt in Vanda shares, Mr Peter Duncan SC for the Financial Secretary does not seek to rely on any such urgency in defending the findings of insider dealing made against the appellants by the Tribunal. Thus begin the problems with those findings. For if urgency is a doubtful factor, the Tribunal’s reliance on it might be thought to put its findings of insider dealings on the appellants’ part in doubt. That said, I would not be disposed to overturn those findings on the basis of this particular problem on its own.
There are, however, other and more serious problems. The next problem is that upon an examination of their share dealing records, the explanations give by the appellants, especially the one which the sister gave, do not seem to be nearly as unworthy of credence as the Tribunal appears to have thought. She had advice from a source which she might have respected. And she may well have been in the habit of buying and selling shares for reasons which other people might well consider good, bad or indifferent. The evidence of her trading patterns tends to show that the volume of Vanda trades executed was by no means exceptional.
Yet another problem is that the Tribunal did not proceed on the basis that it was to be inferred from the fact of the appellants’ purchases of Vanda shares that the brother must have received the relevant information from Mr Tse in some unidentifiable way before any of the purchases were made. Instead the Tribunal identified a number of telephone calls as the way in which the brother received the relevant information from Mr Tse. But the only identified telephone call made before the first 50,000 (out of 1.75 million) Vanda shares purchased by the appellants were purchased lasted only three seconds. It is possible, Mr Duncan says, that there had been an earlier communication of the relevant information by Mr Tse to the brother. As to that, two matters of fact are to be noted. The first is that the evidence showed that Mr Tse had not acquired the relevant information until 14 February 2000, after the appellants had left Hong Kong on the 11th of that month for a holiday in Japan. And the second is that each appellant had purchased some Vanda shares prior to returning to Hong Kong, purchasing them via land line calls from Japan to their brokers in Hong Kong. In any event, no such earlier communication as suggested by Mr Duncan was found by the Tribunal. Nor was any such communication specifically put to the brother so as to afford him an opportunity to deal with it.
By far the biggest problem arises out of the Tribunal having admitted certain evidence which had been gathered for the then pending Harbour Ring inquiry which was to be into suspected insider dealing in Harbour Ring shares by a number of persons including the appellants and Mr Tse.
Three items of Harbour Ring evidence was admitted. They were, as described by the Tribunal, the following items of evidence:
Evidence that [Mr Tse] attended meetings concerning a proposal to have investment funds injected into Harbour Ring.
Evidence of the purchase of Harbour Ring shares by or on behalf of [, among others, the brother and sister].
Evidence of any telephone communications between [the six implicated parties including Mr Tse, the brother and the sister] at or about the time of the Harbour Ring meetings attended by [Mr Tse] and the purchase of shares.
The Tribunal ruled that such evidence was admissible to negative coincidence. At the same time, the Tribunal ruled that there would be no exploration of issues that would be explored at the Harbour Ring inquiry.
What coincidence was there to be negatived? And how could it be negatived by pointing to the Harbour Ring dealings unless and until one determined that those dealings involved insider dealing by the appellants in reliance on inside information provided by Mr Tse?
Just about every time insider dealing is alleged against an outsider it could be said that his or her denial of having acted on inside information raises a question of coincidence. But that is no reason to treat coincidence as a separate hare to be chased. It is simply a matter of looking at the whole of the evidence, weighing it and coming to a conclusion as to whether or not insider dealing has been duly identified and proved.
As for using the Harbour Ring evidence in the circumscribed way laid down by the Tribunal, it gave rise to one of the problems with going into marginal matters. Such matters hardly warrant going into in depth. But going into a matter without getting to the bottom of it is an inherently risky exercise.
And so it proved in the present case. The inside information on Harbour Ring at the time was of a proposal for the injection by Hutchison of investment funds into Harbour Ring. But it was not found by the Tribunal that Mr Tse even had that inside information let alone that he had communicated it to anybody. And yet the Tribunal said that the Harbour Ring evidence “negates, in [their] view, any possibility that the purchase of Vanda shares by the Chongs while Charles CHONG was in contact with Sammy TSE was mere coincidence.” The Tribunal, Mr Duncan accepts, proceeded on the basis that the Harbour Ring evidence showed that those purchases were connected with the brother’s contact with Mr Tse at the material time.
Quite simply, the Harbour Ring evidence did not negative coincidence or show connection. So the Tribunal’s finding that coincidence had been negatived and connection shown was erroneous in law as having been made in the absence of evidence. It was an error of law of a crucial nature, for the finding that coincidence had been negatived and connection shown was tantamount in the circumstances to findings of insider dealing in Vanda shares on the part of the appellants.
The other and no less serious problem about what the Tribunal did in regard to the Harbour Ring dealings is this. When Mr Chiu asked the Tribunal to go into the Harbour Ring dealings fully if it went into them at all, he was asking for no more than a fair hearing for his clients. By going into the Harbour Ring dealings in the circumscribed manner which it laid down and then treating the Harbour Ring evidence as evidence which negatived coincidence and showed connection, the Tribunal had, unwittingly of course, denied the appellants a fair hearing.
Mr Duncan said that if we were to find that what the Tribunal had done in regard to the Harbour Ring dealings was erroneous in law, we ought to consider whether or not the findings of insider dealing in Vanda shares on the part of the appellants ought nevertheless to be affirmed as inevitable on the evidence apart from the Harbour Ring evidence. Far from regarding such findings inevitable on the evidence apart from the Harbour Ring evidence, I am not convinced that they are sustainable even leaving aside the Harbour Ring errors of law.
Following our decision in Koon Wing Yee v. Insider Dealing Tribunal (2008)11 HKCFAR 170, the Court of Appeal has already and rightly set aside the penalty orders made against the appellants by the Tribunal.
I would now, for the reasons given above, quash the findings of insider dealing made against the appellants by the Tribunal and set aside as well all the other orders made against them by the Tribunal.
The powers of the Court of Appeal on an appeal from the Tribunal, which powers we can exercise, are set out in s.32(1) of the Securities (Insider Dealing) Ordinance, Cap.395. They are to allow the appeal, dismiss it or order a remitter to the Tribunal. Mr Duncan said that if we were to quash the Tribunal’s findings of insider dealing and its remaining orders, the Financial Secretary would wish to have an opportunity to study our reasons and consider asking us to order a remitter. As to that, Mr Chiu did not oppose our affording the Financial Secretary such an opportunity provided that a time-limit for seeking a remitter was set. It emerged that a time-limit of within 21 days of the handing down of our judgment is acceptable to both sides.
I would direct that the appeals stand allowed if the Financial Secretary does not notify the Registrar in writing within 21 days of the handing down of our judgment that a remitter is sought. If such notification is given within that period, the question of a remitter will be dealt with by us on written submissions as to which the parties should seek procedural directions from the Registrar.
As for costs, I would also direct that they be dealt with by us on written submissions as to which the parties should also seek procedural directions from the Registrar. The procedural directions in regard to costs should be sought either after the question of a remitter has been dealt with by us or upon the appeals standing allowed because no notification that a remitter is sought has been received by the Registrar within the specified period.
Finally, I would thank counsel on both sides for their assistance and state in fairness to Mr Duncan that he did not appear in the proceedings before the Tribunal. And it should in fairness to McMahon J be said that apart from the errors of law referred to above, much of what is contained in the interim and final reports produced by the Tribunal which he chaired appear to reflect his customary ability.
Justice Chan PJ
I agree that this appeal should be allowed for the reasons given in the judgment of Mr Justice Bokhary PJ and the judgment of Mr Justice Litton NPJ. I concur in the orders proposed in paragraphs 22, 24 and 25 of Mr Justice Bokhary PJ’s judgment.
Justice Ribeiro PJ
I agree with the judgment of Mr Justice Bokhary PJ and he judgment of Mr Justice Litton NPJ. I concur in the orders proposed in paragraphs 22, 24 and 25 of Mr Justice Bokhary PJ’s judgment.
Justice Litton NPJ
In opening the respondent’s case on this appeal, counsel said that there were three compelling factors, found by the Tribunal and not now disputed, strongly indicating insider dealing on the part of the two appellants (for convenience referred to throughout as Charles Chong and Chong Bun Bun).
The factors were these :
They had never bought Vanda shares before 15 February 2000.
The magnitude of the purchases between 15 and 17 February 2000: Taken together, a total of $7.8 million worth: As at that time the largest single share purchase they had ever made (representing in Charles Chong’s case a considerable proportion of his net assets).
Despite the substantial profit made by them (Charles Chong made nearly $1.7 million and Chong Bun Bun made $3.6 million-odd), neither was able to explain the reason for the purchase of Vanda shares at that time, except to say that they were caught up in the ‘high-tech’ market frenzy in early 2000.
Coupled with the following facts
Sammy Tse’s involvement in price-sensitive negotiations,
Charles Chong’s telephone contact with him at the relevant time,
such telephone contact declining after the suspension of trading in Vanda shares on 18 February
the ‘urgency’ of the purchases on 15,16 and 17 February, and
the close contact between the appellants (being brother and sister), the inference, says counsel, that the purchase of Vanda shares by both appellants was the result of price sensitive information given by Sammy Tse was irresistible: It was so found by the Tribunal. And confirmed by the Court of Appeal.
At first blush, these submissions seem convincing, even overwhelming. Closer analysis of the evidence makes them less so. The question is whether the Tribunal had so erred on the facts that this Court can properly interfere in the result.
The three “compelling factors”: Magnitude of Purchases
Chong Bun Bun was an extremely wealthy woman. She had speculated heavily in the share market for some months prior to February 2000, always through a margin account with Pacific Challenge. Johnny Chui was the account executive handling her orders. He said that she generally bought ‘penny stocks’ (third and fourth line shares on the stock exchange); she followed rumours and newspaper articles, and asked his advice about shares. She often used her account to trade for family members.
The scale of her speculations is illustrated by the following: On 10 February 2000 she bought $781,000-odd and sold $1.09 million-odd worth of shares. On 11 February, the day she went on holiday to Japan with her brother Charles Chong and other members of her family, she bought $1.09 million and sold $103,000-odd worth of shares. There is no suggestion that she had studied the fundamentals concerning the companies before she bought their shares. She was a speculator, not an investor.
On 15 February, whilst still in Japan, she bought 150,000 Vanda shares, which constituted the first tranche of shares said to have been on insider information. But those were not the only shares she bought on that day. She also bought 1 million China Rich Holdings shares, 2 million Simsen International shares and 150,000 Culturecom Holding shares, worth a total of $1.56 million-odd : Three times more than the worth of her Vanda shares bought on that day.
On 17 February, when she bought 100,000 Vanda shares, found to have been on insider information, she also bought 200,000 Culturecom shares worth $562,000-odd.
The case against Chong Bun Bun was that she had embarked upon her insider dealing on 15 February when the order for 150,000 Vanda shares was placed from Japan. The suggested insider information, prompting that purchase, was knowledge of Sammy Tse’s engagement in price-sensitive negotiations on behalf of Hutchison at that time. And the only possible way such information could have been conveyed to Chong Bun Bun was through her brother, also present in Japan at that time.
The link of that purchase to insider information, relied upon by the Tribunal, was a three second phone contact with Charles Chong’s mobile phone message bank made by Sammy Tse. That three second phone contact was at about 11:24 am on 15 February. There was no evidence that Charles Chong had then accessed his message bank. There was no evidence of what Sammy Tse might have said; if he had said anything at all. The order for the 150,000 Vanda shares was executed late in the afternoon, at about 3 pm. In my judgment, no inference of insider dealing by Chong Bun Bun can properly be drawn from these two events.
If there was real doubt as to whether the first tranche of 150,000 Vanda shares, bought on 15 February, was as a result of insider information, as there must necessarily have been, then the same doubt must run through the rest of Chong Bun Bun’s purchases of those shares. She was buying into a rising market. The first tranche of Vanda shares was bought at $3.83. The last tranche at $6.08. Nothing indicates that she would not have continued buying if trading had not been suspended on 18 February.
The largest single order for Vanda shares placed by her was on 16 February: 400,000 shares. This was done in the usual way, by calling Johnny Chui at Pacific Challenge. The evidence before the Tribunal, unchallenged, was that this order was placed sometime before 10:04 that morning. And yet the Tribunal linked this to a phone call made by Sammy Tse to Charles Chong’s mobile phone at 9:59:36. There must necessarily have been considerable doubt as to whether the two events were linked, to make a finding of insider dealing possible.
As to Charles Chong’s purchase of Vanda shares, the evidence was that 450,000 of those shares were bought on his margin account with Pacific Challenge, through orders placed by Chong Bun Bun. She had a complete discretion in that regard. When she placed orders with Johnny Chui, she apparently allocated some of the orders to her brother’s account. This explained the bulk of the purchases on his two accounts, and reduces to a large extent the weight of the evidence against Charles Chong: That his purchase of Vanda shares was large as compared with his then “net worth” of about $15 – 20 million.
Viewed in isolation, the two appellants’ purchase of Vanda shares in February 2000, shortly before the suspension of trading, might have seemed incriminating. Against the wider backdrop of facts as set out in paras. 31-39 above, they appear far less so.
I have much sympathy for the Tribunal, faced as they were with analysing the activities of eleven implicated persons in this case. Their Report is a thorough and impressive piece of work. To reach their finding of culpability in regard to those eleven individuals, their Report came to more than 200 pages. We in this Court are concerned with the case of only two out of the eleven persons whose activities came under scrutiny at the hearing. It is not surprising therefore that many of the facts set out in paras. 31-39 above had escaped the attention of the Tribunal.
Section 9(1)(e), Securities & Futures
(Insider Dealing) Ordinance, Cap. 395
To be guilty of insider dealing, the evidence had to show, to a high degree of probability, that each of the appellants dealt in Vanda shares on the basis of information which each of them knew or had reasonable cause to believe had come directly or indirectly from Sammy Tse. In my judgment, the evidence fell far short of that. Upon the body of evidence as a whole the finding of insider dealing against the appellants was not justified.
The Tribunal’s finding was an error of law, not corrected by the Court of Appeal.
The Harbour Ring Evidence
I have had the advantage of reading in draft Mr Justice Bokhary PJ’s judgment on this aspect of the case and agree with it.
When counsel says that the evidence was put in to “negative coincidence”, he meant the coincidence of two events: (1) Sammy Tse being engaged in price-sensitive negotiations and (2) the appellants buying Vanda shares at that time. The introduction of that evidence is predicated upon a doubt: A doubt as to whether the purchase of Vanda shares was as a result of a tip-off by Sammy Tse. Or was it a mere coincidence.
But, without a finding that the appellants’ purchase of Harbour Ring shares was as a result of information leaked by Sammy Tse, how could the doubt relating to the purchase of Vanda shares be dispelled by the fact of purchase of Harbour Ring shares? But the Tribunal said this: The two appellants had bought a total of 14 million Harbour Ring shares, at a time when Sammy Tse was involved in the Harbour Ring negotiations: This, said the Tribunal, negated any possibility that the purchase of Vanda shares by the two appellants, while Charles Chong was in contact with Sammy Tse, was mere coincidence. It did nothing of the sort.
This, in my judgment, is a serious error of law, not corrected by the Court of Appeal.
I concur in the orders proposed by Mr Justice Bokhary PJ in paras. 22, 24 and 25 of his judgment.
Lord Scott of Foscote NPJ
Having had the advantage of reading in draft the judgment of Mr Justice Bokhary PJ and the judgment of Mr Justice Litton NPJ, I, too, would allow this appeal for the reasons they have given, with which I am in full agreement and would make the orders proposed by Mr Justice Bokhary PJ.
Justice Bokhary PJ
By the unanimous decision of the Court:
The findings of insider dealing made against the appellants by the Tribunal are quashed and the remaining orders made against them by the Tribunal are set aside.
It is directed that the appeals stand allowed if the Financial Secretary does not notify the Registrar in writing within 21 days of the handing down of our judgment that a remitter is sought. If such notification is given within that period, the question of a remitter will be dealt with by us on written submissions as to which the parties should seek procedural directions from the Registrar.
As for costs, it is directed that they be dealt with by us on written submissions as to which the parties should also seek procedural directions from the Registrar. The procedural directions in regard to costs should be sought either after the question of a remitter has been dealt with by us or upon the appeals standing allowed because no notification that a remitter is sought has been received by the Registrar within the specified period.
 Section 9(1)(e):
Insider dealing in relation to a listed corporation takes place when a person who has information which he knows is relevant information .... which he received (directly or indirectly) from a person
deals in the listed securities of that corporation ....
Simon Chiu (instructed by Messrs Sit, Fung, Kwong & Shum) for the appellants.
Peter Duncan SC and Jonathan Kwan (instructed by the Department of Justice) for the 2nd respondent.
The 1st respondent did not appear and was not represented.
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