INNOVISIONS LTD v. CHARLES CHAN SING CHUK AND OTHERS

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JUDGMENT

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Nazareth, J.A.:

1. The three defendants in this matter appeal against the decision of Kaplan J. refusing them leave to amend their Defence. As will be seen the issues are largely matters of law, involving primarily the interpretation of certain provisions of the Securities Ordinance (Cap. 333), and whether their effect is to render the plaintiff's claim unenforceable on grounds of illegality.

2. The facts, helpfully set out fully in the trial Judge's judgment, are as follows. The plaintiff is a Hong Kong company whose leading light is Mr. Dickson Poon ("Mr. Poon").

3. The 1st defendant ("Mr. Chan') is a director and chairman of Continental Holdings Ltd. ("Continental"), the holding company of a group of companies involved in the jewellery business in Hong Kong. The 2nd and 3rd defendants were at the material time the respective registered' shareholders of 200,000,125 and 129,999,875 shares in the capital of Continental. As at 30th June 1989, Mr. Chan was the beneficial owner of 11,907,025 shares in the capital of Continental'. Mr. Chan and his wife were also the beneficiaries of several discretionary trusts which through the 2nd and 3rd defendants made them beneficial owners of approximately 325m. shares in the capital of Continental.

4. Mr. Poon and Mr. Chan met at a social occasion in April 1989. This led to discussions about commercial collaboration between the two. The plaintiff in its Statement of Claim pleads that:

"8.	On or about 9th May 1989 in a meeting between the First Defendant and Mr. Dickson Poon the First Defendant stated and represented as follows:
	(i)	Continental would positively and certainly achieve the profit for the year ended 30th June 1989 of not less than HK$88,000,000 recorded in a prospectus issued by Continental as part of an issue of 125,000,000 dated 17th October 1988 (hereinafter referred to as "the Prospectus") .
	(ii)	For the financial year 1st July 1989 to 30th June 1990 Continental would achieve a profit of not less than HK$100,000,000.
9.	Further, on or about 7th July 1989 in a meeting between the First Defendant and Mr. Dickson Poon, the First Defendant stated and represented as follows:
	(i)	The orders in hand for Continental in the coming year were so much that Continental could not cope with them all.
	(ii)	On the basis of orders already received Continental would achieve a profit of not less than HK$100,000,000 for the year 1st July 1989 to 30th June 1990."

5. At the meeting on 7th July 1989 Mr. Poon agreed on behalf of the plaintiff with Mr. Chan for himself and the other defendants that Mr. Chan would sell 70m. shares to the plaintiff provided that the plaintiff purchased a further 30m. shares on the open market. It was also agreed that the plaintiff could nominate a director to sit on the Continental board so that the plaintiff could have access to necessary financial information.

6. On 8th August a price of $1.14 was agreed for each of the 70m. shares; the other 30m. shares were purchased on the open market. Subsequently, presumably having obtained access to Continental's financial information, the plaintiff took the view and has pleaded that the representations, which it says it relied upon, were untrue and made fraudulently in that Mr. Chan knew they were false, or made them recklessly or negligently. It claims recission of the agreement, return of certain moneys and damages.

7. The defendants filed a Defence denying liability, and more importantly in the context of this appeal, in effect denying that the representations alleged in paragraphs 8 and 9 of the Statement of Claim were made by Mr. Chan. Later they made the application, which came before Kaplan J., for leave to add the following three paragraphs to their Defence:

"21A .	Further or in the alternative if which is denied the 1st Defendant made the representations as alleged by paragraphs 8 and 9 of the Statement of Claim, such representations were or comprised relevant information regarding Continental within the meaning of Section 141D(1) of the Securities Ordinance.
21B.	If which is not admitted the Plaintiff was induced by the said alleged representations or either of them to enter into the agreement complained of in Paragraph 13 of the Statement of Claim, by reason of the matters referred to in the preceding paragraph hereof the said agreement constituted insider dealing within the meaning of Section 141B(1) of the Securities Ordinance and was and is thereby rendered unlawful.
21C.	In the premises the Plaintiff cannot maintain this action and/or recover the damages claimed herein in that the same would be contrary to public policy alternatively by virtue of the principle embodied in the maxim ex turpi causa non oritur actio."

8. Having heard leading counsel's submissions, Kaplan J. held on 7th June 1991 that the plaintiff had satisfied him that the amendments give rise to a claim which is totally unarguable and therefore refused leave. With reference to the defendant's application also made at the same time, that the issue raised by the amendments be tried as a preliminary issue, the learned Judge indicated that if he were wrong in his view that the averments in the amendments were bound to fail and were therefore hopeless, he would nonetheless not have acceded to that application for reasons that he gave. However, that application is no longer of any concern as Mr. John Griffiths Q.C. for the defendants confirms that they do not pursue it.

9. To determine whether the amendments for which leave is sought are useless i.e. unarguable, it is necessary to examine the effect of the relevant provisions of the Securities Ordinance. Proceeding to those, it is not in dispute that under section 141A(1) of Part XIIA of the Securities Ordinance (which relates to Insider Dealing) applies to shares in Continental. The following are the more relevant provisions:

"141A	(2)             No transaction shall be void or voidable by reason only that it is an insider dealing within the meaning of this Part.
141B	When insider dealing takes place
	(1)             Insider dealing in relating to the securities of a corporation takes place and pursuant to section 141C, may be culpable for the purposes of this Part-
	(a)	when a dealing in the securities is made, procured or occasioned by a person connected with that corporation who is in possession of relevant information concerning the securities;
	(b)	when relevant information concerning the securities is disclosed by a person connected with that corporation, directly or indirectly,  to another person and the first-mentioned person knows or has reasonable grounds for believing that the other person will make use of the information for the purpose of dealing or procuring another to deal, in those securities.
	(2)             A dealing in the securities of a corporation is occasioned by a person connected with that corporation 'for the purposes of subsection (1) (a) when a person who has obtained relevant information in the circumstances described in subsection (1) (b) actually makes use of that information for the purpose of dealing, or procuring another to deal, in those securities."

10. Section 141C specifies in relation to a person who enters into a transaction which is insider dealing under section 141B(1)(a), when that person is not or may not be culpable. It is necessary only to set out section 141C(5) and (6):

"(5)             In arriving at its determination under section 141H(3) as to the culpability of a person in relation to an insider dealing within section 141B, the Tribunal shall have regard, as the case may be -
(a)	to the fact that such person of his own initiative disclosed the dealing to the Commission and, where the disclosure was made after the dealing took place, to the promptness with which the disclosure was made; or
(b)	to the fact that such person did not of his own initiative disclose the dealing to the Commission and to the reasonableness of any explanation offered by such person for the fact that the dealing was not so disclosed.
(6)             Subject to this section, the culpability of any person in relation to an insider dealing within section 141B is a matter for the Tribunal to determine under section 141H(3)."

Section 141E defines persons connected with a corporation. Section 141G establishes the Insider Dealing Tribunal. Section 141H empowers the Financial Secretary to require the Tribunal to hold an inquiry. Subsections (3) and (4) provide as follows:

"(3)             The object of an inquiry shall be to determine, within the Tribunal's terms of reference -
(a)	whether culpable insider dealing in relation to the securities of a corporation has taken place; and
(b)	the identity of the persons involved therein and the extent of their culpability.
(4)             In making a determination under subsection (3) (b), the Tribunal shall not be limited to the identity and culpability of an immediate party to an insider dealing but may, subject to section 141C -
(a)	include any other person connected with the  dealing;
(b)	in the case of a body corporate, include the individuals who exercised control in the management thereof."

11. Under section 141I(5) the Tribunal can publish its report, but protection is given to persons found not to be culpable in that they are entitled to object to publication.

12. Mr. Griffiths for the three defendants does not dispute that Kaplan J. correctly identified the test to be applied to whether the amendments should be struck out, i.e. that they were unarguable (see Nagle v. Fielden [1966] 2 QB 633 at 651). He submits that the test as to what is useless is analogous to that for striking out pleadings and that accordingly an amendment should only be refused in a "plain and obvious case" (Wenlock v. Moloney [1965] 1 WLR 1238) Furthermore, he points out that it is necessary to take particular care before striking out proposed pleadings at the interlocutory stage because the decision then must be made without any background evidence, and that the courts have often warned of the danger of making decisions as to law in vacuo without the benefit of evidence (Tilling v. Whiteman [1980] AC 1 at 17F-18A and 25B-C).

13. It is not disputed that the central issue in this appeal is whether it is unarguable that the ex turpi causa defence plea sought to be raised by the three new paragraphs, must fail. The starting point in that defence is section 141D(1), which defines "relevant information" in the following way:

"'relevant information' in relation to securities means information which is not generally available but, if it were, would be likely to bring about material change in the price of those securities."

Some further light is thrown on the nature of relevant information by the following references to such information in section 141B, "a person who is in possession of relevant information concerning the securities", "relevant information concerning the securities is disclosed" and "where a person who has obtained relevant information in the circumstances described in ... ". The plaintiff's pleaded case is that the representations were untrue and were made fraudulently or recklessly or negligently. The defendants' response in their Defence is to deny those averments. The defendants now wish to plead that if the representations were made (which is denied) they were relevant information, and if the plaintiff was induced to enter into the agreement alleged, the agreement constituted insider dealing within the meaning of section 141B(1), and the claim cannot be enforced by virtue of the maxim ex turpi causa non oritur actio.

14. What immediately springs to mind is that insofar as the representations are true, their truth is a complete defence to the action. That truth must be in issue given the defendants' denial in their defence of paragraph 16 of the plaintiff's Statement of Claim which avers that the representations in paragraphs 8 and 9 of the Statement of Claim were untrue. The new defence of ex turpi causa sought to be raised by the proposed amendments, one would expect to be predicated upon the truth of the representations. But if true it would be unnecessary and a waste of time for the court to go beyond satisfying itself of such truth. Viewed in that light the amendments may be said to be useless. Sections 138 and 139 in Part XII (Prevention of Improper Trading Practices) which make it an offence to knowingly make a statement which is false or misleading with respect to securities for the purpose of inducing their sale, are also of assistance in their possible implication that false and misleading statements are not "relevant information" within the meaning of Part XIIA, which does not provide penalties for insider dealing under section 141B or culpable insider dealing under section 141C. As submitted by Mr. Tang, this might be a powerful indication that "relevant information" does not include false information.

15. Mr. Griffiths for his part submits that the proposed defence arises also if the representations are untrue. If they are untrue, then prima facie it would seen  they would not constitute information in fact, nor, a fortiori, "relevant information", given the character of the latter implicit in the references quoted from section 141B(1). In that regard Mr. Griffiths submits that the content of the representations, even if false, was not generally available and just as likely to bring about a change in the price of Continental shares as if it were  true. But if it were not information, more particularly, not "relevant information", plainly such unavailability and price sensitivity would not assist. Moreover Mr. Griffiths is unable to point to any clear example of such information. On the other hand it is conceivable that if the defendant as director and chairman of Continental, was misled by his staff or himself negligently compiled information that was untrue, in his hands that information (like other untrue information unwittingly being relied upon by a company) could well be relevant information. Defendants in such a situation may find it difficult to foresee to what extent such information may turn out to be true and consequently to plead to it. These seem to me to be matters that would be better decided in a factual rather than a hypothetical basis notwithstanding that the distinction here is not as stark as it was in Tilling v. Whiteman, and that there is no suggestion in the pleadings or the proposed amendments of the representations being untrue information unwittingly relied upon. Given these conflicting considerations, in my view, the question of whether untrue information can be "relevant information" is not unarguable. I should mention also that the Judge dealt with one aspect of the point at p. 18 of his judgment in the following way:

"Mr. Tang also submitted that it was somewhat unreasonable to rely on this insider dealing as the essence of the claim made by the plaintiff was that what the defendant had said was untrue. If what the defendant said was true then insider dealing or not the plaintiff's claim would fail. The plaintiff would only succeed if what the defendant said was untrue and therefore the whole question of insider dealing is totally irrelevant. I think there is a lot of force in this submission, but in view of my primary finding, it is not really necessary for me to go into that aspect of the case. I think it might be helpful if I say that, were this the only point in the case, I would have allowed the amendment so that Mr. Griffiths' submission to the contrary could be examined in some detail."

16. Reverting to the main defence of ex turpi causa, Kerr L.J. stated the principles applicable in Euro-Diam Ltd. v. Bathurst [1990] 1 QB 1, at p. 35 in the following way:

"In my view the relevant principles can then be summarised as follows:

 

(1)        The ex turpi causa defence ultimately rests on a principle of public policy that the courts will not assist a plaintiff who has been guilty of illegal (or immoral) conduct of which the courts should take notice. It applies if in all the circumstances it would be an affront to the public conscience to grant the plaintiff the relief which he seeks because the court would thereby appear to assist or encourage the plaintiff in his illegal conduct or to encourage others in similar acts: see 2(iii) below.

 

The problem is not only to apply this principle, but also to respect its limits, in relation to the facts of particular cases in the light of the authorities.

 

(2)        The authorities show that in a number of situations the ex turpi causa defence will prima facie succeed. The main ones are:

 

(i)         Where the plaintiff seeks to, or is forced to, found his claim on an illegal contract or to plead its illegality in order' to support his claim: see e.g. Bowmakers Ltd. v. Barnet Instruments Ltd. [1945] KB 65,71. For that purpose it makes no difference whether the illegality is raised in the plaintiff's claim or by way of a reply to a ground of defence: Taylor v. Chester (1869) LR 4 QB 309, ...

 

(ii)         Where the grant of relief to the plaintiff would enable him to benefit from his criminal conduct: see e.g. Cleaver v. Mutual Reserve Fund Life Association [1892]1 QB 147, 156 per Fry L.J.,etc.

 

(iii)         Where, even though neither (i) nor (ii) is applicable to the plaintiff's claim, the situation is nevertheless residually covered by the general principle summarised in (i) above. (This should I think read "(1) above".) This is most recently illustrated by the judgment of Hutchison J. in Thackwell v. Barclays Bank Plc. [1986] 1 All ER676, in particular at pp. 687, 689, as approved by this court in Saunders v. Edwards [1987] 1 WLR 1116, 1127 and 1134, and in particular per Nicholls L.J., at p. 1132.

 

(3)         However, the ex turpi causa defence must be approached pragmatically and with caution, depending on the circumstances: see e.g. per Bingham L.J. in Saunders v. Edwards, at p. 1134. This applies in particular to cases which at first sight appear to fall within 2(i) or (ii) above. Thus: (a) situations covered by (2)(i) above must be distinguished from others where the plaintiff's claim is not founded on any illegal act, but where some reprehensible conduct on his part is disclosed in the course of the proceedings, whether by the plaintiff himself or otherwise see e.g. Pye Ltd. v. B.G. Transport Service Ltd. [1966] 2 Lloyd's Rep. 300 etc. In such cases the ex turpi causa  defence will not succeed."

17. Applying those principles, Kaplan J. asked himself first, if the conduct was illegal or immoral. For the reasons he gave, he found it "impossible to conclude that the matter sought to be raised by the amendments would' shock the ordinary citizen or the public conscience". He concluded therefore that the proposed amendments were bound to fail.

18. Clearly on the plain words of the relevant provisions of the Securities Ordinance, as the Judge found, insider dealing is not illegal; no point is taken on that. It has then to be asked to whether the conduct alleged is immoral. The Judge in addressing that question took the view, having regard to the scheme and structure of Part XIIA of the Securities Ordinance, that it was never intended that the investigation into insider dealing should be carried out by anyone other than the special tribunal appointed for that purpose; and moreover that section 141C(6) makes it clear that culpability is a matter only for the tribunal to determine and that in consequence the courts could not do so. In my view, however, it is at least arguable that it is only for the purposes of the Securities Ordinance that the question of the existence of insider dealing and whether it is culpable is reserved to a special tribunal appointed for the purpose under the Ordinance. That arguably would not preclude the courts from addressing the issue of whether  relevant conduct is immoral in the context of an ex turpi causa defence (which was not disputed by Mr. Tang) even if predicated wholly or partly upon insider dealing nor from' addressing that question and for that purpose from taking a view of whether it is arguable that there was insider dealing and whether it was culpable, in the same way that civil courts determine illegality, and notwithstanding the absence of a definition of culpability (which I accept does present an obstacle), If that were not so, the result would be that insider dealing and particularly culpable insider dealing could not found legal consequences unless the Financial Secretary after the event appointed a tribunal which then concluded that there had been culpable insider, dealing. I do not feel able to accept that such a result must unarguably have been the intention of the legislation without plain and unambiguous words to that effect.

19. The Judge held that the courts could not make a decision on culpability in relation to insider dealing in the same way that the civil courts determine illegality because the legislation had fallen well short of creating any criminal offence and had made it clear that there should be no civil consequences in a finding of culpable insider trading. He observed that:

"Section 141A(2) is the strongest possible indication that, to quote Kempster J.A. again, 'no ... penalty or other consequence, civil or criminal, results from such determination'".

He therefore found it impossible to conclude that the matters raised by the amendments would shock the ordinary citizen (adopting the words of Lloyd L.J. in Kirkham v. Chief. Constable of Manchester [1990] 2 QB 283 (CA) at 291H) or affront the public conscience, having regard to the pragmatic approach of the illegality defence. He concluded that the proposed amendments would be bound to fail.

20. Mr. Griffiths, renewing his arguments originally made in the court below, submitted that the Judge was wrong in the view he took of section 141A(2), but he did so before this Court with the authority of Chase Manhattan Equities Ltd. v. Goodman & Ors. [1991] BCC 308, which was decided shortly after the decision of Kaplan J. Chase Manhattan was concerned with the provisions of the Companies Securities (Insider Dealing) Act 1985, in which by section 8(1) contravention of sections 1, 2, 4 or 5 is a criminal offence, yet by section 8(3) "no transaction is void or voidable by reason only that it was entered into in contravention of sections 1, 2, 4 or 5."

21. Having referred to the dictum of Kerr L.J. that I have already quoted, Knox J. at p. 338H-339B said:

"Reliance was naturally placed by the defendants upon sec. 8(3) of the 1985 Act, which provides that no transaction is void or voidable by reason only that it was entered into in contravention of sec. 1 of the Act, as an indication that no civil consequences at all were intended by Parliament to follow from such a contravention. If the premise that Parliament by enacting sec. 8(3) provided that no civil consequences should flow from infringements of the 1985 Act then indeed that would be a strong indication that the court should not prevent the sale agreement from being completed. It does not however necessarily follow that because Parliament has said that no transaction is void or voidable by reason only of an infringement of sec. 1 therefore such a transaction is not to be regarded as illegal. The illegality is there by operation of law and the provisions of sec. 8(3) prevent what would otherwise be the consequences that the transactions on the Stock Exchange would need to be unwound. It is on that consideration that the argument on behalf of Chase Equities depends in that it is 'submitted that the purpose of sec. 8(3) is to protect the workings of the Stock Exchange and prevent completed transactions from being unwound."

22. Knox J. then addressed the submission on behalf of Chase Equity that where Parliament desires an enactment imposing criminal penalties not to have consequences in civil law it does so in terms, e.g. "shall not affect any civil liability"; and where Parliament desires to make a transaction unenforceable rather than void or voidable it likewise does so in terms, e.g. "no contract to which this section applies shall be void or unenforceable". He dealt with the submission in the following way:

"The problem has to be solved by an identification of the purpose of Parliament in choosing the words actually used in sec. 8(3) rather than providing for transactions not to be enforceable in the stated circumstances. Unenforceable and voidable contracts are different in many respects and Parliament must be taken to have appreciated this. A principal factor which Parliament must have had in view in enacting sec. 8(3), inter alia, was to prevent the disruption of completed Stock Exchange transactions. The argument in favour of the parliamentary intention having been wider resides principally in the fact that sec. 8(3), inter alia, prevents an agreement to sell securities from being voidable solely on the ground of infringements of the Act and that is not limited to completed transactions. Nevertheless I conclude that within the narrow field of refusing to lend the court's assistance at the suit of the person guilty of criminal conduct, there remains room for the application of the ex turpi causa doctrine. I take into account that the machinery of the Stock Exchange has not operated in relation to the sale agreement and that only the parties to the original dealing which is tainted by illegality are involved.

 

            The sale agreement is therefore in 'my view unenforceable."

23. It is apparent that contravention being a criminal offence in that case, Knox J. was in a somewhat stronger position to found his conclusions. Nonetheless, given that the civil courts can determine the question of illegality for the purpose of refusing assistance, it must at least be arguable that the approach of Knox J. is no less valid in relation to immorality as a basis for refusal of the courts to assist enforcement.

24. Mr. Griffiths also submits that the averments that the representations were made fraudulently, recklessly, and negligently, depend on the first defendant's mental state when he made them, and that this cannot be effectively addressed by the court without factual evidence. It seems to me that there is much in that. The mental element, it is to be observed is in principle no different from that of the suicidal husband which received the close consideration of the court in Kirkham v. Chief Constable of Greater Manchester [1990] 2 QB 283. The difficult question of the first defendant's mental state is compounded by the weighing exercise that has to be performed in determining the defence of ex turpi causa (see Saunders v. Edwards [1987] 1 WLR 1116 (CA) at 1132H). Furthermore there are facts and views  deposed to in affidavits for the defendant that are disputed in affidavits for the defendant. Whatever conclusion may eventually be reached upon these matters and the defence of ex turpi causa, I do not think it can be said at this stage that they are unarguable.

25. Mr. Griffiths also submits that notwithstanding that the Judge correctly identified the test, i.e. that the defence was unarguable, he misapplied it by addressing the very averments in the pleadings rather than the question of whether they were arguable. In that regard the Judge towards the end of his judgment stated:

"I should make it clear that I accept entirely Mr. Griffiths' submission that unless the amendments which he seeks to make are totally unarguable, leave should be given. In my judgment, the plaintiff have satisfied me that these amendments give rise to a claim which is totally unarguable, and therefore leave to amend is not granted."

It seems to me therefore that what is involved is more likely a semantic slip by the Judge rather than a failure to apply the test he correctly identified. However, I am bound to say that not only were the questions posed in the way described but they were answered in the same way, leaving room for some unease as to which issue was addressed i.e. whether the conduct was illegal or immoral, or the matters sought to be raised by the amendments would shock the ordinary citizen, as opposed to whether those matters were arguable.

26. Needless to say, in addressing the foregoing matters, I have had regard to Mr. Tang's able submissions on behalf of the plaintiff. Of those, it remains to mention only the following. First, his contention that the defence of ex turpi causa has to be addressed within the confines of the draft pleading, i.e. in the context of Part XIIA of the Ordinance and therefore could not be addressed beyond that in terms of general immorality. That cannot be right. Where the defendant relies upon the defence of illegality (including immorality), although he should distinctly raise that defence by his pleading, even where the illegality is not pleaded, the court will not enforce a contract which is illegal or arises out of an illegal transaction if the illegality be disclosed on the plaintiff's own evidence and the plaintiff was implicated therein; in addition once an illegality is brought to the attention of the court it overrides all questions of pleadings. (see Bullen and Leake Precedents of Pleadings, 13th Ed. pp. 1199, 1200; the Supreme Court Practice 1991 p. 289 para. 18/8/9)It seems to me, therefore, that once the defendants raise the matter of illegality, it would not be restricted in the matter contended for.

27. Second, with reference to section 141C(5) of the Securities Ordinance, Mr. Tang submitted that the plaintiff had made full disclosure by an announcement in the South China Morning Post the day after the transaction had been completed. The Judge dealt with the submission by saying:

"There may or may not be force in this submission but again, if this were the only ground upon which the amendment were opposed, I would have allowed the amendment because this is a matter which cannot be dealt with on an application for leave to amend."

Clearly a special tribunal appointed under the Ordinance would be required to have regard to the disclosure, but what the outcome would be is arguable. To proceed with Mr. Tang's submission, he contends on the facts, and particularly because of the notice in the South China Morning Post, that no reasonable Tribunal would find the transaction culpable. As is apparent from what I have already said, I am not persuaded that such a view or contention is unarguable, or indeed, that it renders the proposed amendments unarguable or useless.

28. I would accordingly allow the appeal.

Fuad, V.-P. :

29. My Lord has helpfully set out all the facts, statutory provisions and the legal principles relevant to the determination of the issues which arise on this appeal, as well as the opposing arguments addressed to us. Therefore, although I am in respectful disagreement with his conclusions, my own judgment can be quite short.

30. I approach the matter which fell to be decided by Kaplan, J. in this way : if the proposed new paragraphs 21A, 21B and 21C had featured in the Defence when first filed by the defendants, would they have been liable to be struck out, under RSC o. 18, r. 19 and the inherent jurisdiction, as containing averments which are obviously unsustainable? If the defence raised by those paragraphs is just not arguable, the plaintiff should not be troubled by them if only because the proposed Defence would embarrass or delay the fair trial of the action.

31. In my judgment, an important issue which should first be addressed is whether information which is not authentic (whether the communication disclosing that information was made fraudulently, negligently or recklessly) can ever be "relevant information" within the meaning of that expression as defined in s. 141D(1) of the Securities Ordinance.

32. The point is a short one and is not capable of any  elaboration. My reading of Part XIIA of the Ordinance as a whole has convinced me that it is simply not concerned with the use or dissemination of information which is not genuine. My understanding is that as a matter of ordinary usage, if one speaks of the "possession of information" or of the "disclosure of information" (unless the context otherwise requires or the word "information" is qualified by an adjective such as "false", "misleading" or "untruthful") one does not, prima facie, envisage a situation where the holder or the disseminator of the information has been misinformed.

33. Had the legislature intended that the possession of false information, or the disclosure of false information, could satisfy, respectively, paragraph (a) or paragraph (b) of subsection (1) of s. 141B of the Ordinance, for the purposes of establishing that insider dealing had taken place, the word "information" where it occurs in the definition of "relevant information" in s. 141D(1) would have been followed by an expression such as "(whether true or false)". Part XII of the Ordinance shows how the legislature dealt with false or misleading statements about securities.

34. Of course the dissemination of false information whether innocent or deliberate might bring about a material change in the price of securities, but in my view this fact does not change the implicit scope of Part XIIA of the Ordinance.

35. If my interpretation of the relevant provisions of the Ordinance be right, it seems to me that, so far as the pleadings are concerned, certain consequences must follow. On the pleadings as they stand, if the court should find after the hearing that the alleged misrepresentations of which complaint is made were true in substance and in fact, that would be the end of the plaintiff's case. The proposed amendments would be of no practical use.

36. Technically, I suppose, as a matter of pleading, it would be possible for the defendants to plead, "in the further alternative", something on these lines : "If, which is not admitted, the alleged representations or any of them were made, they were true in substance and in fact, and were or comprised relevant information within the meaning of s. 141D(1) of the Securities Ordinance." It is not perhaps surprising that no pleading on these lines has seen the light of day.

37. In my judgment the proposed amendments were wholly misconceived and sought to raise a defence which, on any view of facts which 'might emerge when all the evidence is in, was bound to fail.

38. This, in my opinion, is sufficient to dispose of the appeal, but I will say a few words about the ex turpi causa defence the defendants wish to raise by the amendments. The law was not concerned with insider dealing at all until February 1978 when Part XIIA of the Ordinance was enacted. Contrasted with the criminal offences created by Part XII of the Ordinance, insider dealing is not made criminal, or tortious (cf s. 141). Clearly the legislature did not wish to stigmatise all insider dealing as blameworthy, for it only prescribed what conduct is hot culpable or might not be culpable, otherwise leaving the question of the culpability or non-culpability of an insider dealing to be determined only by the Insider Dealing Tribunal in any case the Financial Secretary, in his discretion, might refer to it. This seems to me a clear indication, so far as the task of statutory interpretation is concerned, that the legislature did hot intend, by inserting Part XIIA into the Ordinance, that any adverse consequence, other than a possible finding of culpability by the Tribunal, should follow any insider dealing. There is also the indication (I accept it is only an indication) given by s. 141A(2). It would take the clearest possible words to persuade me that the legislature intended the court, in an action such as the one before us, to go into and resolve the complicated issues which arise in the application of Part XIIA of the Ordinance. The Report of the Insider Dealing Tribunal (dated 27th March 1986) whose Chairman was Mr Justice Clough, J.A., demonstrates how complex and delicately balanced such issues are likely to be. Therefore, I do not think that the courts should take notice of any alleged breach of Part XIIA, and I cannot imagine that the public conscience would be affronted by possible conduct which is not criminal and which might not even be found to be culpable if the facts were before the Tribunal.

39. I would therefore dismiss this appeal.

Penlington, J.A.:

40. There is clear authority that leave should be given to amend pleadings at any stage of the proceedings unless the amendment will cause prejudice to the other party which cannot be compensated for in costs (which is not argued here) or the amendment would raise an issue which cannot possibly succeed, irrespective of what evidence may be called to support it; it is a useless amendment, will only increase costs and should not be allowed.

41. Here the amendments sought rest firmly on the allegation that the course of conduct alleged was "insider dealing" within the meaning of that phrase in Section 141B (1) of the Securities Ordinance. Such a defence could however only succeed if it was shown that not only did the conduct alleged constitute insider dealing but it was also "culpable" insider dealing. The Ordinance sets out in Section 141C various categories of insider dealing which are not culpable. Even if it is arguable that false information may be "relevant" in that it is not generally available and would be likely to bring about a material change in the price of the securities, an ex turpi causa defence, by its very nature, could only succeed if the giving and receipt of that information was not excused by the provisions of the Ordinance and was therefore culpable. There is no dispute that insider dealing, culpable or not, is not illegal. I cannot accept that it could be argued that insider dealing which is not culpable within the meaning of the Ordinance could nevertheless be considered by the public as so immoral as to afford an ex turpi causa defence.

42. If that is so I am also satisfied that the Ordinance clearly intended that the question of whether or not insider dealing was culpable in any particular instance should be determined by the Tribunal set up for that purpose by that same Ordinance. While the chairman of the Tribunal is to be a judge there is no qualification set down for the other members though I agree with Kaplan J. that one would expect them to be persons with experience in the world of securities. The legislation has thus provided the means by which insider dealing - if shown - may be to be culpable or not. The Tribunal is a body which will "reflect commercial as well as legal knowledge and understanding" (per Kempster J.A. in Chow Chin Wo and Others, Application for judicial review, [1987] HKLR 73 at 80B). I have no doubt that a civil court does not have jurisdiction to inquire into the question of whether any particular conduct constituted culpable insider dealing, contrary to the provisions of the Ordinance, such as to afford an ex turpi causa defence.Section 141C(6) states that the question of the culpability of any person in relation to an insider dealing "is a matter for the Tribunal to determine under Section 141H(3)".

43. This means, as Nazareth J.A. has said in his judgment, that an ex turpi causa defence based on insider dealing could never be raised unless the Financial Secretary appointed a tribunal which then found there had been culpable insider dealing. He finds that proposition difficult to accept. however until recently insider dealing was not only legitimate but was not even the subject of proceedings before a tribunal which might lead to public condemnation. Here the defendants seek to avail themselves of a specific provision in the Ordinance, not on any generally held view of what constitutes immoral conduct. I do not consider they can seek assistance in that way from the Ordinance but at the same time ignore the other provisions which set out very clearly that the decision of whether or not there has been culpable insider dealing is to be determined, not by a judge alone but by a specially constituted tribunal.

44. I also do not consider that the appellant can find support from Chase Manhattan Equities Ltd. v. Goodman. There Knox J. was considering the provisions of the Companies Securities (Insider Dealing) Act 1985 which makes certain conduct a criminal offence. There is no provision for a Tribunal and the whole scheme of the Act is quite different to what is in the Hong Kong Ordinance. Clearly in the United Kingdom the question of whether or not a person has been guilty of insider dealing is a matter for the Courts. That is not so here.

                For these reasons I am satisfied that Kaplan J. was correct in the view he took of this aspect of the matter and would dismiss the appeal. I do not need to also consider the question of whether or not "relevant information" can include false information, interesting though it is.

Fuad, V.-P.:

45. In handing down these judgments, dismissing the appeal by a majority, we make an order nisi that the appellant must pay the costs of the appeal.