SECURITIES AND FUTURES COMMIS v. CHENG CHAK NGOK AND ANOTHER

CACV 95/2017

[2018] HKCA 923

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 95 OF 2017

(ON APPEAL FROM THE DETERMINATIONS OF THE MARKET
MISCONDUCT TRIBUNAL MADE ON 23 MARCH 2017)

____________________

____________________

____________________

____________________

D E C I S I O N

____________________

Hon Cheung JA (giving the Decision of the Court) :

1.  This is Mr Cheng’s (the 1^st respondent) application for leave to appeal to the Court of Final Appeal against our judgment of 10 September 2018.  We will deal with the application on paper.

1)   Great general or public importance ground

2.  Mr Cheng contends that issues of great general or public importance are engaged by the following questions :

‘ Whether the concept or principle of burden of proof applies in any way to an inquiry conducted by the Market Misconduct Tribunal (the “Tribunal”) pursuant to the section 252 and Schedule 9 of the Securities and Futures Ordinance (Cap. 571) (the “Ordinance”)? And if the answer is in the affirmative:

(a) what is the nature and effect of such burden?

(b) to what extent the Securities and Futures Commission bears such burden?

(c) to what extent an identified person within the meaning set out in Schedule 9 of the Ordinance bears such burden?’

3.  We are of the view that these questions are not reasonably arguable, they are academic, and do not meet the great general or public importance threshold.

4.  First, Mr Cheng accepted before us that the concept of legal burden of proof does not apply to an inquisitorial inquiry, instead he relied on the so‑called ‘forensic burden’ or ‘onus or persuasive burden’ which upon analysis comes nowhere near to imposing a burden on the Securities and Futures Commission to prove the misconduct of Mr Cheng. Second, the resolution of these questions is academic because it will not affect the outcome of Mr Cheng’s intended appeal because we reversed the Market Misconduct Tribunal’s finding on the facts of the case.  That decision does not engage the great general or public importance requirement.  Hence Mr Cheng has to resort to rely on the ‘or otherwise’ limb to deal with that aspect of that case which we will now address.

2)   ‘Or otherwise’ ground

5.  Mr Cheng contends :

‘ (1)   The Court of Appeal has erroneously construed the “Report of the Tribunal into dealings in the shares of China Gas Holdings Limited on and between 15 November and 6 December 2011” dated 23^rd March 2017 (the “Report”) and thereby concluded that the Tribunal ‘actually applied the criminal standard’ (Judgment §9.6) whereas, properly construed, the Tribunal had properly reminded and directed itself, and then applied the civil standard of proof, see Report at §§53‑56, 84‑85, 95‑96, 109, 113, 117, 119, 121.  In the circumstances, there was no or insufficient basis to interfere with the factual findings of the Tribunal on the ground that they were plainly wrong.

(2)    (a)   The Court of Appeal evaluated and commented extensively on the evidence (Judgment §§9.11-9.32), and had expressed strong and definitive views thereon which support that the 1^st Respondent had dealt with the shares in issue and was thereby engaged in market misconduct.  See for example:

(i)    Judgment §9.12 ‘... The four items of evidence point strongly to Mr Cheng as the person who dealt with the China Gas share ... There was no evidence pointing to anyone else who could have been able to do so.  The probability that Mr Cheng was the person acquiring the shares in question far outweighed (as opposed to ruled out) any other possibilities’;

(ii)   Judgment §9.14 ‘With this in mind it is striking that the bid orders were placed in close proximity to Mr Cheng receiving the price sensitive information’;

(iii)  Judgment §9.17 ‘... They are by themselves strong circumstantial evidence pointing to Mr Cheng being connected to such orders particularly when viewed with Item 1 of the evidence that the bid orders were placed as Mr Cheng gained more and more information on the takeover.  The picture that it was Mr Cheng who controlled Ms Li’s account clearly emerged ...’;

(iv)   Judgment §9.19 ‘... This, taken with other three item of evidence further pointed towards Mr Cheng having dealt with the shares’;

(v)  Judgment §9.26 ‘It is apparent that Mr Cheng’s case on the flow of funds used in the purchase of the shares was convoluted and on any view can be described as inherently improbable’;

(vi)  Judgment §9.27 ‘... One may indeed ask what more is required in the light of the compelling evidence that I have summarised ...’;

(vii)  Judgment §9.31 ‘... the evidence is plainly laid out before the Tribunal for it to come to a proper evaluation of Mr Cheng’s involvement ...’; and

(viii)  Judgment §9.32 ‘In my view SFC had adduced sufficient evidence for the Tribunal to decide whether Mr Cheng had dealt with shares ...’.

(b)   From the standpoint of a reasonable and objective bystander, these views (which the Chairman and the lay members of the Tribunal re-hearing the case will be aware of) create a real and substantial risk that a fair re-hearing by an open-minded Tribunal on the issue whether the 1^st Respondent in fact dealt with the shares of China Gas (the “Dealing Issue”) has been rendered difficult and impracticable, if not impossible, in practice.

(c)    In the circumstances, it is unfair and inappropriate to order a re-hearing of the Dealing Issue under section 267 of the Ordinance in any event.’

6.  This Court will usually defer to the Court of Final Appeal to consider the ‘or otherwise’ ground.  But in this case, we will say that this ground is again not reasonably arguable.  This ground covers three matters.  First, it is said that we were wrong to find the Tribunal had applied the criminal standard.  Second, we were also wrong to interfere with the findings below.  Third, our finding will prejudice the Tribunal tasked with the rehearing. 

7.  In respect of the first and second matters, it is plain and obvious on the facts of this case that the Tribunal had actually applied the criminal standard and based on this erroneous standard wrongly found the charge has not been proved.  In respect of the third matter, it is important to bear in mind, as the Securities and Futures Commission submitted, that our system of law proceeds on the basis that the Tribunal will act conscientiously to fulfill its duty.  Otherwise all rehearings will be subject to the same criticism that the tribunal tasked with the rehearing will inevitably be affected by the views of an appellate court which had reversed the original decision.

8.  Accordingly the application is refused with costs to the Securities and Futures Commission.  We will make a summary assessment of the costs at $200,000.