HKSAR v. CHEN KEEN (alias JACK CHEN) AND OTHERS

HCCC 309/2019

[2023] HKCFI 1683

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL CASE NO 309 OF 2019

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REASONS FOR RULING

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1.  The following matters were jointly raised by the defence: [1]

(1) The requirement for legal certainty.

(2) 21 propositions advanced by the defence on the relevant rights and obligations of the parties under the various contractual documents and instruments.

2.  On 13 June 2023 I gave my ruling on item (1), and informed parties that the matter raised in item (2) is to be determined after hearing of the evidence.  I will now give my reasons.

Legal certainty

Defence submission

3.  Mr Owen KC submitted that the Court of Final Appeal’s judgment in the case of Mo Yuk Ping v HKSAR ^[2] establishes that in order to ensure compatibility with the principle of legal certainty, an indictment alleging conspiracy to defraud must be sufficiently precise for them to be lawful.  The outcome of the Court of Final Appeal’s decision in the present case[3] held that the dishonest means pleaded in particulars (a) to (e) of Counts 1 and 2 in the original trial (“the 2016 trial”) were the dishonest means forming part of the respective conspiratorial agreements agreed upon by the accused. 

4.  It follows that for Counts 1 and 3, the Prosecution must prove that the accused agreed dishonestly (emphasis added):

(a) to falsely represent that that UBNZ Trustee Limited (“UBTL” also known as “UTCL”), UBNZ Funds Management Limited and their respective ultimate beneficial owners were independent third parties to China Jin Hui Mining Corporation Limited (“462”) and its connected persons, and/or,

(b) to falsely represent that there was no existing or prior relationship or understanding between the said D1 and the said D2 with respect to the acquisition…, and/or,

(c) to conceal or fail to declare that the said D1 and the said D2 were parties to the Commission Sharing Agreement (“the CSA”) for the purpose of causing the Stock Exchange of Hong Kong Limited (“SEHK”) and/or the 462 and its existing shareholders to allow the publication of the announcement and/or the circular and/or to approve the acquisition.

5.  The defence contended that the pleaded particulars can only exist as dishonest means within the legal context of the Listing Rules, in particular, chapters 14 and 14A.  It is therefore necessary to examine whether in the context of the Listing Rules’ legal framework, misrepresentations were made as a result of the actions of the accused in the announcement and the circulars.  Mr Owen said it is not necessary to plead the Listing Rules specifically pleaded in the particulars because the language was derived from the Listing Rules, and the duty of the SEHK only exists in the context of the Listing Rules.

6.  It was submitted that the misrepresentations in particulars (a) and (b) were derived from the Listing Rules, and that the prosecution have to prove that the acquisition was a “connected transaction” between “connected persons” within the meaning of the Listing Rules.  In respect of particular (c), the defence submitted that there was no legal framework which requires such a duty of disclosure.

7.  In her summing up to the jury at the 2016 trial, Pang J directed the jury as follows:

“… you may think for particulars (a) to (c), the core issue at the end of the day is whether [D1] and [D2] were or were not as alleged by the prosecution indeed working together to defraud 462 and the Stock Exchange by making those false representations and/or the deliberate concealments, rather than about any in depth interpretation of the Listing Rules, which Rules you may think are only part of the background of the events surrounding the acquisition.

… you have to bear in mind that this case is not about a breach of the disclosure requirement.  For the conspiracy counts the breach of the Listing Rules is not the key. Even if you were to find that [D1] had breached the rule by not disclosing the agreement that breach alone is not sufficient to found any of the conspiracy counts.”

8.  A similar argument had been raised before the Court of Appeal when the accused appealed against their convictions at the 2016 trial.  The argument was rejected by the Court of Appeal.[4]  Leave was granted by the Court of Final Appeal on this issue but no reasoned judgment was given because the convictions were quashed solely on the ground of duplicity.  The defence submitted that the Court of Appeal’s approach to the pleaded particulars was fundamentally wrong.

9.  Reference was made to a ruling given by Deputy High Court Judge Bruce SC on an application to exclude aspects of the proposed testimony of Mr William Wong and Ms Cindy Ngai (staff of the SEHK) in the retrial (“the 2021 trial”).[5] In that ruling DHCJ Bruce held that the duty of the SEHK is defined by a reference to the Listing Rules.

10.  Reference was also made to a witness statement taken from Mr William Wong (staff of the SEHK) on 30 July 2012 in which he sets out why the alleged conduct would, in his view, engage chapters 14 and 14A of the Listing Rules and, in particular, the connected transaction rule.  It was submitted that the statement supported the defence contention that the prosecution case was entirely Listing Rules based.

11.  As to the prosecution’s assertion that the prosecution case has always been consistent, Mr Owen KC asked the prosecution to disclose all relevant material which casts light on the basis for the charging decision and the wording in the particulars.  He relied on the following passage from the Court of Appeal’s judgment[6] to submit that leading counsel then acting for the prosecution has waived legal professional privilege on this matter:[7]

“337.   Nor in the particulars of either conspiracy offence in the present case is there any mention of the term “connected transaction”.  The averment in particular (a) refers to “China Jin Hui Mining Corporation Limited (“CJHM”) and its connected persons”.  It was always the case that the 1st appellant was a “connected person” under the Listing Rules by virtue of his directorship of 462: that was never in issue, nor could it be.  Ms Draycott’s position was that while “connected person” had the meaning ascribed to it under the Listing Rules, it did not mean that there had to be a “connected transaction”, nor was it the prosecution’s allegation that this was a “connected transaction” within Rule 14 of the Listing Rules.  That was never averred in the indictment and it was never the prosecution case.” (emphasis added)

12.  In answer to this Court’s query, Mr Owen clarified that he was not alleging that leading counsel for the prosecution deliberately lied to the Court of Appeal.  He simply relied on the above passage to suggest that she had waived privilege.

13.  On the other hand, Mr Owen said even if it was the case that the prosecution did not give any consideration to the Listing Rules at the time, it ultimately makes no difference because the only relevant legal context in which duties of disclosure capable of amounting to dishonest means could exist.

14.  As to the three central themes the prosecution proposed to advance in the present trial (see below), the defence submitted that the phrase “working together” is an un-indicted phrase that is being used to replace the indicted words.  It would be unlawful for the prosecution to present their case on the basis of an allegation that D1 and D2 concealing the fact that they were “working together”.  No such dishonest means are pleaded. The prosecution wrongly maintained that “it is not necessary for the prosecution to prove any of these failures to disclose, they are simply matters which the jury may consider when considering the counts on the indictment.”

15.  The Court was accordingly invited to rule that particulars (a) to (c) bear the following meanings:

(1) That D1 and D2 represented to 462 and the SEHK that they were independent of each other such that D2 was not a connected person as defined by the Listing Rules such that the provisions of chapter 14A of the Listing Rules were not engaged.

(2) That D1 and D2 represented to 462 and the SEHK that D2 was not a connected person by virtue of any existing or prior relationship or understanding between D1 and D2 with respect to the acquisition as defined by the Listing Rules such that D2 was not a connected person and the provisions of chapter 14A of the Listing Rules were not engaged.

(3) That D1 concealed or failed to disclose that he held an interest in the acquisition by virtue of the CSA, which agreement rendered D2 a connected person as defined by the Listing Rules.

16.  Further submissions were made by Mr Winter KC to the effect that the Listing Rules are the fundamental basis upon which particulars (a) to (c) could be sustained.  These representations were made by 462 and its lawyers in response to the enquiries specifically made about the terms of the Listing Rules.  Besides, the public duty of the SEHK is defined in the Listing Rules.  Hence the submission that the Listing Rules are irrelevant is unsustainable.  Mr Winter emphasised that this is a Listing Rules case, and the dishonest means must be resolved in accordance with the definitions in the Rules.

     Prosecution submission

17.  In his submission, Mr Mitchell emphasised that the prosecution have never said that the Listing Rules are irrelevant.  The prosecution’s stance is that they have significance in the sense that they do provide an explanation why certain things were done and why they were done in a certain manner, but they are not determinative of the pleaded particulars.

18.  It was submitted that the ordinary meaning of the phrases in the particulars are matters for the jury, and no judicial interpretation is needed.  The prosecution submitted that the rulings sought by the defence are not required, and in any event do not bear the meaning given to them by the defence.  The Listing Rules may explain why certain things were done and why they were done in a certain way. 

19.  In the present trial, the prosecution would ask the jury to consider whether the representations were false against three central themes which run through this case:

(1) D1 and D2 were working together (in the sense they were working on the same side) to push the acquisition.  The phrase “working together” means that they were working together on the same side, as opposed to being on opposite sides with D2 as the vendor and D1 as the director of 462.  As such “working together” needs no further explanation or direction from the court.;

(2) D1 and D2 had manouvered themselves to be on the opposite sides with D2 as the vendor and D1 as a director and joint chair of 462.  D1 being a director was in a position to influence 462 to proceed with the acquisition; and

(3) They had agreed to make dishonest gains from the VSA initially by agreeing to share the profit of the sale of the farms to 462.  Later as this became problematic due to the stance taken by OIO this morphed into maximising their gains by various means which in turn severely compromised the interests of 462, its shareholder and investors.

20.  It was also made clear by the prosecuting counsel that the basis of the prosecution case was very clear that D1 and D2 were “working together” dishonestly, effectively on the same side of the acquisition.  This has always been the prosecution case.

21.  Section 21 of the Securities and Futures Ordinance, Cap. 571 (“SFO”) imposes the duty to ensure an orderly informed and fair market.  It is not necessary to engage the Listing Rules to establish the public duty of the Stock Exchange.  There is also an onus on individual directors to provide the information to the SEHK.

22.  As to a director’s duty, clause 3.08 of chapter 3 of the Listing Rules provides, inter alia:

“… The Exchange expects the directors, both collectively and individually, to fulfil fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law. This means that every director must, in the performance of his duties as a director:

(a) Act honestly and in good faith in the interests of the company as a whole;

(b) Act for proper purpose;

(c) Be answerable to the listed issuer for the 2 application or misapplication of its assets;

(d) Avoid actual and potential conflicts of interest and duty;

(e) Disclose fully and fairly his interests in contracts with the listed issuer; and.

(f) Apply such degree of skill, care and diligence as may be reasonably expected of a person of his knowledge and experience and holding his office within the listed issuer.”

23.  The director also has a fiduciary duty to the company to disclose any financial interest or conflict of interest, and to disclose fully and fairly his interest in contracts.  One would reasonably expect directors of a company to apply such degree of skill, care and diligence as may be reasonably expected of him.

24.  Mr Mitchell submitted that D1 was a “connected person” by reason of him becoming a director of 462.  However the general definition of “connected person” is not exhaustive as the Listing Committee of the Stock Exchange has the power to exercise their own judgment to deem a person a connected person.  While the phrase “connected person” has the meaning ascribed to it under the Listing Rules, Mr Mitchell said it does not mean that there had to be a “connected transaction” in this case, nor was it the prosecution’s allegation that this was a “connected transaction” within chapter 14A.  That was never averred in the indictment and it was never the prosecution case.

25.  Mr Mitchell submitted that the phrase of “independent third parties” in particular (a) is not defined in the Companies Ordinance (Cap. 32), the announcement or the Listing Rules.  It is a phrase which is easily understood.  This phrase was made by D1 and D2 at several stages without reference to any connected persons and transactions.

26.  As for the phrase of “working together”, it arose from a letter of complaint alleging that D1 and D2 worked together from the office at 175 Queen’s Street and the office is property owned by D2.  This is not a new phrase adopted by the prosecution in the 2016 trial.

27.  As for the phrase of “no existing or prior relationship” in particulars (b), these were made by D1 and D2 in the context of their responses to SEHK’s enquiries.

28.  There is no basis for reading in the Listing Rules into these particulars, Mr Mitchell submitted.  The particulars do not include the words Listing Rules and they do not cite “connected person” or “connected transactions” which chapter 14A is concerned with.  Nor do they originate from any Listing Rules relating to connected persons and transactions. Instead, the terms “independent third parties” and “no existing or prior relationship or understanding” bear their ordinary meaning.

29.  Mr Mitchell stressed that the prosecution do not have to prove what D1 and D2 were required to disclose in respect of particulars (a) and (b).  D1 was appointed as a director and joint chair of 462.  The appointment brought with it his duty to act in the interests of 462, its shareholders and investors.  He had a fiduciary duty to 462 to declare any financial interest he had in agreements to be entered into by 462.  It also engaged his duty to the SEHK to be honest and truthful as a director.

30.  Mr Mitchell submitted that in the present case, the particulars do not refer to the Listing Rules (unlike the case of HKSAR v Cheng Chee Tock Theodore (No. 2)[8]) and were not limited by them.  The representations were not confined to the specific context of a connected transaction under chapter 14A.  The pleaded particulars address D1 and D2’s failure to disclose their relationship with respect to the acquisition and the false representations they made about that relationship, irrespective of whether that relationship could have made the acquisition a connected transaction.  It is not necessary to show that the acquisition was in fact a connected transaction.

31.  Mr Mitchell disagreed that a claim for legal professional privilege was waived by the leading counsel for the prosecution at the Court of Appeal hearing, pointing out rightly that privilege rests with the ICAC and the Department of Justice.

Consideration

32.  I disagree that this is a Listing Rules case as submitted by the defence.  Unlike the case of Cheng Chee Tock Theodore which was expressly concerned with a “connected transaction” under the Listing Rules and the dishonest breach of associated disclosure duties under those Rules, the Listing Rules is never mentioned in any of the pleaded particulars on any of the four counts.  Nor is there any mention of “connected transaction”.  The only term referable to the Listing Rules is the reference to “[462] and its connected persons” in particular (a). It was always the case that D1 was a “connected person” under the Listing Rules upon his appointment as the director of 462.

33.  Likewise, the phrases of “independent third parties” and “no existing or prior relationship or understanding” are not defined in the Listing Rules.  They are just ordinary words that should be given their plain and ordinary meaning.

34.  As one may note from the opening of the prosecution in the 2016 trial, it was and it remains the prosecution case that D1 and D2 “worked together” to defraud SEHK and 462.  Again these are ordinary words which do not bear any special meaning.  The case correspondence shows that they were the words used by a complainant and SEHK simply adopted and repeated the same when they raised the enquiry with 462.  I consider that in the present trial, clarity and precision can be achieved by phrase of “working together on the same side” as proposed by Mr Mitchell.

35.  As Mr Mitchell rightly pointed out, it is not the prosecution case that the Listing Rules are irrelevant.  They are significant in the sense that they define the public duty of the SEHK and the director’s duty in a listed company, explain the SEHK enquiries, provide an explanation as to why certain things were done and why they were done in a certain manner.  Nevertheless, they are only part of the background of the events surrounding the acquisition.

36.  The defence had drawn my attention to what DHCJ Bruce said in a ruling given in April 2021 (see paragraph 9 above).  My observation is that those comments were made at a relatively early stage of the trial without the benefit of hearing all the prosecution evidence including the cross-examination of the witnesses.  To the contrary, he made the following observation with regard to this matter in giving his ruling on an application to stay of proceedings on 30 November 2021:[9]

“112. As to those arguments address to the Court of Appeal and rejected, a highly simplified version of the argument is as follows. The offence of conspiracy to defraud is while not of itself bad for legal certainty, it is capable in either the presentation of the prosecution case or in the manner of drafting the indictment or both to be bad for legal certainty. The contention of those representing the accused is that both the indictment and the presentation of that indictment in the present case is bad for legal certainty. The essence of the complaint is that in the context of the present circumstances, the only way that the prosecution case would not fail that test is if the terms of the Listing Rules qualified the nature of the false representations. I am not sure that I am in strict law bound by the views of the Court of Appeal but I am in respectful agreement with the analysis of the Court of Appeal on this topic. It seems to me that the arguments on this topic presented by those representing the defence introduce an air of unreality into what I consider to be a comparatively straightforward prosecution case. Those representing the accused have invoked Lord Steyn’s observation that in the law, context is everything. I agree. In the specific context of this case as it was presented the presentation and the indictment do not violate the strictures which require legal certainty.”

37.  As to the defence submission that the witness statement of Mr William Wong (see paragraph 10 above) indicated that the ICAC/prosecution may have the Listing Rules in mind when the charges were drafted, it is to be noted that D1 and D2 were arrested and charged with the offence of conspiracy to defraud (and money laundering) in December 2010, about 19 months before the said statement was taken from Mr Wong.  It is apparent that no reference was ever made to the Listing Rules in the particulars of the charges laid against the accused all along, before and after the taking of statement from Mr Wong.

38.  I do not accept Mr Owen’s submission that leading counsel then acting for the prosecution had given any waiver of privilege in the Court of Appeal hearing.

39.  For the aforesaid reasons, I consider it appropriate for the prosecution to base their case on the “working together on the same side” formula.  I rule that the phrases pleaded in particulars in (a) to (c) should be given their ordinary plain meaning.

Conclusion

40.  The particulars in the indictment are not limited to the context of the Listing Rules.  As such, the prosecution are not required to prove that the acquisition was a “connected transaction” under the Listing Rules.

Propositions on contract terms

41.  The defence put forward 21 legal propositions on the relevant rights and obligations on certain clauses in various contractual documents and instruments.

42.  The prosecution did not accept the legal construction of those clauses provides an answer to the counts on the indictment.  They also query the reason for having this exercise conducted in a vacuum before the Court hears any evidence.  The prosecution had grave reservation about the interpretation advanced by the defence, pointing out that some of the propositions appear to be taking the matter out of context.

43.  On the other hand, the defence submitted that those propositions are essential legal directions on the interpretation of the core documents.  They confirmed that the directions may be given at the time of the summing up.

44.  It appears somewhat surprising that should the interpretation be essential, how come none of them needed to be given in the 2016 trial?  They should have been given even if there was no dispute between parties as to their correct interpretation.  Furthermore, the defence told me that 9 out of those 21 propositions were intended to be raised during the no case to answer submissions in the 2021 trial.  When I queried why the remaining 12 propositions were not required then, I was told that they did not arise until the defence see what Mr Mitchell intended to say about the conversion and the conversion shares in his opening note.  However, those 12 propositions were not raised despite the fact that the same matter had also been mentioned by Ms Draycott in her opening speech.

45.  In the circumstances I take the view that it would be more appropriate to consider those propositions after hearing the prosecution evidence.  That would give me more insight into the nature of the documents and their interrelationship.

Conclusion

46.  Interpretation of the contractual clauses relating to the 21 propositions to be determined after hearing of the (prosecution) evidence.

Postscript

47.  These reasons are provided for the parties’ information only.  The only part of this judgment which may be reported publicly are the above Conclusions.  The remaining part of this judgment may not be reported until further order or until the conclusion of the trial.

[Subject to Reporting Restrictions as per Paragraph 47 of this judgment]