LELALERTSUPHAKUN DUSANEE v. INSIDER DEALING TRIBUNAL

HCAL 9/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 9 OF 2005

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Before: Hon. Hartmann and Reyes JJ in Court

Date of Hearing: 2 September 2005

Date of Judgment: 2 September 2005

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J U D G M E N T

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Hon Reyes J :

I.  Introduction

1.  The Applicant (also known as Ms. Lee) seeks judicial review of a decision by the Insider Dealing Tribunal.  The Financial Secretary, who has an interest in the outcome of this matter, has been joined as a party. 

2.  In March 2004, after a long inquiry, the Tribunal found Ms. Lee not guilty of insider dealing.  But the Tribunal held that, by selling a large block of 80 million shares in Siu Fung Ceramics Holdings Ltd. (Holdings) in July 1996, Ms. Lee brought the inquiry upon herself.  Accordingly, the Tribunal concluded that, under Securities (Insider Dealing) Ordinance (Cap.395) s. 26A (SIDO), Ms. Lee was not entitled to claim her costs of the inquiry.

3.  Ms. Lee says that there was no evidence to support the Tribunal’s finding that she had brought the inquiry upon herself. She contends that the Tribunal’s conclusion on her costs was unreasonable and wrong.  The issue is whether Ms. Lee is right.

II.  Background

4.  SIDO s. 26A concerns the costs of an insider dealing inquiry.  The section provides:

“(1)   Subject to subsection (5), at the conclusion of an inquiry or as soon as reasonably practicable thereafter, the Tribunal may award to:-

(a) …

(b) any person whose conduct is, in whole or in part, the subject of the inquiry,

such sum as it thinks fit in respect of the costs reasonably incurred by him in relation to the inquiry.

(2) Any costs awarded by the Tribunal under subsection (1) shall be charged on the general revenue.

(3) The Tribunal may order that nay costs awarded under subsection (1) may be taxed on the basis of any one of the scales of costs set out in the Schedules to Order 62 of the Rules of the High Court (Cap. 4 sub. leg.).

(4) …

(5) This section shall not apply to any person referred to in subsection (1) who is:-

(a) a person who has been identified as an insider dealer in a determination under section 16(3);

(b) …

(c) …

(d) any other person who and in respect of whom it appears to the Tribunal has by his own acts or omissions caused or brought about (whether wholly or in part) the institution of the inquiry under section 16.”

5. At the time of the transaction which prompted the inquiry, Ms. Lee was the wife of Mr. Siegfried Lee. 

6. Holdings is in the ceramics business.  Mr. Lee founded Holdings in 1983.  Holdings became a listed company in 1993.

7. Prior to Holdings’ flotation, 20% of the company’s shares were registered in Ms. Lee’s name.  After Holdings’ listing, Ms. Lee held 10% of the company’s shares in her name.

8. 80 million shares in Ms. Lee’s name were sold in 2 tranches of 40 million each on 2 and 8 July 1996.  Mr. Lee arranged for the shares to be sold by a broker on behalf of his wife. 

9. The shares were sold at $1.30 per share, when the market price for Holdings’ shares was $1.43.  At the time of the sale, Holdings was facing serious financial difficulty.

10. On 9 July 1996, in accordance with disclosure requirements, Holdings issued an announcement that Ms. Lee had sold her 80 million shares.

11. Ms. Lee transferred the proceeds from the sale of her shares to Mr. Lee.

12. As far as Ms. Lee was concerned, the Tribunal in March 2004 concluded:

“We have to say that we were not impressed with Mrs. Lee’s evidence.  We find it strange, given that she had held her 80 million Holdings shares since the autumn of 1993, that her wish to see the Deep Water Bay Road house free of mortgage came at the very time her husband and his companies were under severe financial pressure.  We are also aware that there appears to be an inconsistency in her claims.  On the one hand she spoke of wanting to gain the proceeds of sale for herself, yet on the other hand expressed concern to see that the mortgage was redeemed.  This would not have brought her any immediate financial gain, only the rather bourgeois satisfaction of seeing the family unencumbered by debt.

The circumstantial evidence against Mrs. Lee is certainly very strong, but we do not believe that the only reasonable inference which can be drawn from it is that she was aware of the listing’s failure and the funding problems that it caused, both of which pieces of information were relevant information, when she sold her 80 million Holdings shares in two lots of 40 million on 2 & 8 July 1996.  Accordingly we have decided that it would be inappropriate and unjustified to make a finding of insider dealing against her.”

13. The Tribunal found Mr. Lee guilty of insider dealing in connection with (among other transactions) the sale of Ms. Lee’s 80 million shares.  The Tribunal stated:

“We are satisfied that Siegfried Lee engaged in insider dealing when he, a person connected with Holdings and in knowing possession of relevant information in relation to Holdings, counselled or procured Mrs. Lee to sell the 80 million Holdings shares registered in her name on 2 and 8 July 1996, knowing or having reasonable grounds to believe she would sell them.”

14. In October 2004, upon Ms. Lee’s application (through her counsel Mr. Mak) for her costs of the inquiry, the Tribunal held:

“It was the sale of her 80 million Holdings shares on 2 & 8 July [1996] that brought upon [Mrs. Lee] and Holdings the attention of the HKSE [Hong Kong Stock Exchange] and ultimately the attention of the SFC [Securities and Futures Commission].  We agree with Mr. Davies that in effect her sales started the whole of this Inquiry.  She was also Siegfried Lee’s wife with whom he was living in June and July 1996, and he was very much involved in insider dealing.

Mr. Mak argued that Mrs. Lee stuck by her account of the reasons for her sale throughout the SFC investigation and the Inquiry and that we ultimately decided that it would be inappropriate and unjustified to make a finding of insider dealing against her.  It is however the case that we were not impressed by Mrs. Lee’s evidence ...  We reached the decision we did because there was no direct evidence that she sold her shares because she was in possession of relevant information concerning Holdings and although the circumstantial evidence against her on that issue was very strong, we did not believe that it was the only reasonable inference which could be drawn.

Given her relationship to Siegfried Lee, whose wife she was, and with whom she was living in the spring and summer of 1996, she should have been aware that the sale of 80 million Holdings shares registered in her name could incur suspicion and cause an inquiry into the circumstances of that sale to be instituted.  It was in fact the sale of those shares that first aroused the interest of the [HKSE’s] Listing Division.  Although she may not have done any other provable positive act to mislead the investigating authorities into thinking the case against her was stronger than it was she was in our view caught by the provisions of [SIDO] subsection 26A(5)(d) and is not entitled to her costs.”

III.  Discussion

15. Mr. Dykes SC (appearing for Ms. Lee) criticises the Tribunal’s finding that Ms. Lee knew or ought to have known that the sale of her shares would prompt an inquiry.  How (Mr. Dykes asks rhetorically) could Ms. Lee have so known, if she had no inside information (as the Tribunal concluded) about Holdings’ financial difficulties? 

16. There is nothing odd (Mr. Dykes says) about liquidating one’s shares.  It is only with hindsight (Mr. Dykes contends) that Ms. Lee’s sale came to be regarded as suspicious. This suspicion arose because of the later collapse of Holdings’ share price.

17. But at the time of the sale (Mr. Dykes points out), Ms. Lee could not have foretold that Holdings’ sale price would drop. There was simply no direct evidence that Ms. Lee was privy to information that (if made public) would have the effect of depressing Holdings’ price.  There would then have been nothing (Mr. Dykes reasons) to alert Ms. Lee to the possibility that her sale of shares might trigger an inquiry.

18. It follows (Mr. Dykes concludes) that the Tribunal’s reasoning is flawed and based on a failure properly to assess the available evidence.

19. I disagree with Mr. Dykes.

20. The sudden disposal of a large block of a listed company’s shares within a week by a person closely related to the company’s chairman, is by itself bound to raise eyebrows, whenever such event takes place. 

21. The Tribunal was entitled to regard the magnitude of shares sold by Ms. Lee over a brief interval as something which called for explanation and which, especially where explanation was weak or unconvincing, could trigger an inquiry into possible insider dealing.  Note that here the Tribunal found the explanation proffered by Ms. Lee to have been contradictory: on the one hand Ms. Lee says she wanted cash, on the other hand she says that she needed the sale proceeds to redeem a mortgage.

22. Ms. Lee may not have known much about her husband’s business.  She claims to have been minimally involved in Holdings’ affairs.  But on her own evidence she had herself engaged in some property speculation for fun and so cannot have been regarded as wholly naive in financial matters.

23. She must at least have realised that the sale of 80 million shares out of the blue in the course of a single week could prompt speculation as to her motives, whatever might happen to Holdings’ share price subsequently.

24. The Tribunal therefore reasonably concluded on the evidence that Ms. Lee knew or ought to have known that her status as wife, coupled with the sale of her 80 million shares, would likely prompt an inquiry.  I am unable to fault the Tribunal’s rejection of Ms. Lee’s claim for costs by reason of SIDO ss. 26A(1) and (5)(d).

IV.  Conclusion

25. In my view, Ms. Lee’s application for judicial review fails.  I would dismiss her application.

Hon Hartmann J:

26. I agree.

Mr. Philip Dykes SC, leading Mr. Bernard Mak, instructed by Messrs. Anthony Siu & Co., for the Applicant.

The Respondent, absent.

Mr. Nicholas Cooney, for Secretary for Justice, for the Interested Party.