WONG YUK KWAN v. SECRETARY FOR JUSTICE

HCAL71/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 71 OF 2015

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J U D G M E N T

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Introduction

1. In the indictment of HCCC 561/2013, the applicant was charged with two counts of ‘conspiracy to defraud’ contrary to common law.  The alleged conspiracies occurred during the acquisition of the share capital of Festive Oasis Limited (“FOL”) by Pearl Oil Innovation Limited (“POIL”).  The events leading up to the acquisition took place from December 2009 to May 2010.  There were other co-defendants in these counts, namely, Mr Lew Mong Hung (D2), Ms Yick Siu Hung (D3) and Ms Yip Sui Kuen, Kitty (D4).  

2. There were other counts in the same indictment[1] against the applicant.  They were not relevant to this leave application.  

3. In the two conspiracy counts, there were four overt acts set out in the particulars of offence.  Three of them (a) to (c) were common in both counts.  This leave application concerned item (b) only.  It alleged that the applicant and the other defendants,

“(b) falsely representing that MSL, being one of the vendors in POIL’s acquisition of the entire issued share capital of Festive Oasis Limited (“FOL”) (“the Acquisition”), and its beneficial owners were third parties independent of POIL, and its connected persons. ”

4. The applicant was at all material time the Chief Executive and substantial shareholder of POIL.  It was a listed company in Hong Kong.  

5. ‘MSL’ was Marvel Sunlight Limited.  D3 was at all material time the sole shareholder and director of MSL.  

Background leading up to the Acquisition

6. The following is the events according to the prosecution.  They are essential background for this leave application:

a  The applicant first learned about the oil fields in Utah around June 2009.  The oil fields were owned by Thornton Energy (“TELLC”).  He planned to acquire the oil fields and re-sell to POIL.  

b  In October 2009, the applicant purchased an offshore company—Shiny One Limited (“SOL”).  He and D3 became the directors of SOL.  D3 was made the sole shareholder.

c  In November 2009, SOL entered into an agreement with TELLC in which SOL would acquire the oil fields at US$60 million.  The applicant signed this memorandum of understanding on behalf of SOL.  

d  In December 2009, the applicant incorporated Shiny One USA LLC (“SOU”) for acquiring the oil fields in accordance with the law of the United States.  SOL was the sole shareholder of SOU.  The applicant was the sole director.  

e  Later in December 2009, the applicant signed on behalf of SOU the ‘Sale, Purchase and Development agreement’ with TELLC at a price of US$60 million.

f  After that, D3 transferred 35% of her shares in SOL to the applicant at a consideration of US$70 million to be paid in two years.  This consideration was never paid.  

g  On 6 January 2010, the applicant purchased two offshore companies, MSL and FOL.  

h  On 7 January 2010, D3 was appointed the sole director and shareholder of MSL.  The applicant and D3 were appointed directors of FOL.  

i   FOL then alloted 65% of its share capital to MSL and 35% to Charcon Assets Limited (“CAL”).  The applicant was the sole shareholder of CAL.

j   On 7 January 2010, the applicant and D3 transferred all their shares in SOL to FOL.  At this stage, FOL was the sole shareholder of SOL which was the sole beneficial owner of SOU.

k  On 9 January 2010, POIL agreed to purchase the oil fields from MSL and CAL at a price of US$200 million.[2]  The consideration was cash US$50 million and the remainder by consideration shares issued by POIL.[3]

l   It transpired that the US$50 million was paid to D3 by cheques in March 2010.  D3 then transferred about half of the sum to the applicant and CAL in March and May 2010.  The applicant used part of this sum to finance the purchase of the oil fields by SOU from TELLC.  

m  On 17 May 2010, MSL was allotted consideration shares from POIL[4]. MSL transferred these shares to CAL on the same day.  

The leave application

7. Mr Robert Lee, SC, counsel for the applicant, argued that item (b) in the particulars of the two conspiracy counts were unconstitutional and unlawful.  Secondly, the decision to rely on the opinion of Mr Chau Ying Kit was also unconstitutional and unlawful.  He sought declarations to that effect.  I set out his argument as follows:

a  Item (b) of the particulars of offence alleged that the applicant falsely represented that D3 was not connected with POIL.  

b  To establish the falsity, the Secretary for Justice (“SJ”) relied on the opinion of Mr Chau Ying Kit, Assistant Vice President of the Listing Division of the Hong Kong Exchanges and Clearing Limited. (“HKEx”) 

c  Mr Chau’s opinion was formed about three years after the alleged commission of the offence.  He relied on the “hypothetical facts” asserted to be true by the Independent Commission Against Corruption. (“ICAC”)[5] 

d  Mr Chau exercised the power pursuant to rule 14A.11(4)(a) of the Listing Rules 2010.  He deemed D3 an ‘associate’ of the applicant and therefore connected with POIL.  This deeming power was arbitrary and irrational.  

e  This process was tantamount to establishing a criminal act retrospectively and therefore unconstitutional.  It infringed Article 12(1) of the Hong Kong Bill of Rights.[6]  

f  Before the trial of HCCC 561/2013 scheduled to commence in March 2015, the prosecution indicated to all defendants that Mr Chau would not be called upon to express any view on whether the conduct of any defendants amounted to a criminal offence.[7]  

g  During the severed trial of the other defendants[8], the prosecution invited the jury to draw inferences as to whether D3/MSL was connected with POIL.  The jury was asked to decide whether item (b) was false.  

h  This approach was objectionable as the term ‘connected person’ was defined in the Listing Rules.  Only the Stock Exchange of Hong Kong (“the Exchange”) could apply those rules.  Once the opinion of Mr Chau was retracted, it was wrong to invite the jury to decide.  

8. Counsel for the putative respondent, Mr Jonathan Kwan, opposed the application for leave on the following grounds:

a  The leave application was seriously out of time.  There was no good reason to extend time.  

b  The decisions under challenge were preparatory decisions.  It was prosecutorial discretion which was not amenable to judicial review by virtue of Article 63 of the Basic Law.  

c  The issues raised by the applicant ought to be determined by the trial judge of HCCC 561/2013 or the Court of Appeal.  Leave should be refused as there were alternative remedies.  

d  It was not realistically arguable that the decisions were wrong in law or unconstitutional.  

9. Mr Kwan pointed out that the original indictment had since been amended because the applicant was severed from the trial of the other co-defendants.  Given that there was no challenge of the amended indictment, the challenge in relation to the original indictment was academic and served no purpose.  

10. In my view, the amended indictment is a continuation of the original indictment.  The decisions under challenge were made on 27 December 2013 when the original indictment was signed.  The amended indictment differs in form only.  There is no fresh decision.  I do not accept this technical point.

Delay and extension of time

11. The applicant accepted that the leave application should be made promptly and in any event within 3 months from the date when the grounds for the application first arose [9]. 

12. The applicant also accepted that the decisions under challenge were formally made on 27 December 2013—the date of the indictment.  The leave application was filed on 15 May 2015.  There was a delay for more than 16 months.  

13. Mr Lee however argued that where an arguable constitutional issue was involved, the three month limitation should not pose a hurdle.  He relied on Leung v SJ.[10] 

14. In gist, Mr Lee pointed out that when the constitutionality or legality of a statute was involved, provided the point was an arguable one and the applicant had a sufficient interest, the time factor should be a less compelling factor.  The reason being that there was breach of human right.  Public interest was engaged.  In this situation, an application for extension of time was not required or regarded as “implicitly made”.  

15. Mr Kwan, for the SJ, argued that the applicant had not challenged the constitutionality of any legislation or the Listing Rules.  The mere fact that there was allegation of infringement of constitutional rights in respect of an administrative decision would not lessen the requirement of the three-month-rule.  He urged this court to adopt the approach in Re Thomas Lai[11]. In assessing whether there was any good reason to extend time, the relevant factors included the length of the delay; the explanation of the delay; the merits of the substantive application; prejudice to parties and any issues of public importance.  

16. This approach, Mr Kwan pointed out, was endorsed by Au J in Pagtama Victoria Alegre v Director of Immigration and the Court of Appeal in AW v Director of Immigration[12].  

Principles on extension of time

17. Under O 53 r 4(1), application for leave for judicial review must be made promptly and in any event within 3 months from the date when the ground for the application first arose.  Extension of time would only be granted if there are good reasons.

18. Where there is undue delay, a court may refuse leave where it would be likely to cause substantial hardship or substantially prejudice the rights of any person, or detrimental to good administration under s 21K(6) of the High Court Ordinance, Cap 4.

19. In Law Chun Loy v Secretary for Justice, Hartmann J (as Hartmann NPJ then was) stressed the importance of promptness in leave applications:

“9. What must also be emphasised is that O.53, r.4(1) does not permit an applicant simply to sit back and wait until the three month period stated in the order is drawing to a close before instituting action. The primary requirement of O.53, r.4(1) is promptness. The fact that an application has been made within three months does not necessarily mean that it has been made promptly. There may be occasions when an applicant who has filed his application for leave within the three months time period will still be judged to be guilty of undue delay.

10. This requirement for promptness has a sound basis in public policy. Judicial review provides a relatively quick and straightforward procedure for identifying and redressing public law wrongs. But it must be recognised that the procedure, dealing, as it does, with decisions made by public bodies in the complex business of managing a modern society, not only has the potential to disrupt the orderly administration of public services but also has the potential to cause hardship to, or in some way to prejudice, third parties who, for example, may already have acted upon the decision under challenge. It is for that reason that there is a necessity for the earliest reasonable notification that a public law decision is being challenged and for an early resolution of that challenge. ”[13]

20. Mr Lee however argued that the present case was exceptional relying heavily on the reasoning in the Leung case.  In that case, the applicant who was homosexual argued that, since the age of 16 when he started to have sexual urge, he was unable to have lasting homosexual relationship with his partners for fear of prosecution.  He was unable to disclose his sexual orientation to his parents.  He suffered from loneliness and distress.  

21. He challenged the constitutionality of s 118C of the Crimes Ordinance, Cap 200.  That section created an offence of consensual homosexual buggery with or by a person under the age of 21.  In effect, the section prohibited consensual homosexual buggery until a man reached the age of 21.  Whereas for heterosexual or lesbian relationship, the age of consent was 16.  The applicant argued that his rights under Articles 1, 14, 22 of the Hong Kong Bill of rights (“BORO”) were infringed. [14]

22. Hartmann J declared that s 118C, so far as it applied to a man over 16 and under 21 years of age, was unconstitutional[15].  It was inconsistent with Articles 1, 14 and 22 of BORO.  

23. The SJ appealed on the ground that there was no judgment, order or proceedings affecting the applicant.  He had no sufficient interest as he was not prosecuted under s 118C.  In dismissing the appeal Ma CJHC[16] held that:

a  Section 21K and O 53 allowed a flexible approach.  It was permissible to target legislation rather than a judgment, order, decision or other proceedings which had directly affected the would be applicant.  

b  In exceptional cases, a court might deal with future, academic or hypothetical matters when the rights of an applicant were seriously affected.  It was not really a matter of jurisdiction but discretion.  One important area would be the constitutional challenges of legislation.  

c  The case must be exceptional as it was dangerous to decide important principles without the full facts.  Further, administration of justice should be more concerned with real cases rather than hypothetical ones.  

d  An applicant should not be required to break the law before he could challenge the constitutionality of legislation or could have access to justice.  

e  An applicant must have sufficient interest in the case.  Section 118C affected the dignity of a section of the society significantly. The applicant had sufficient interest.[17] 

24. Having set out the principles above, Ma CJHC stressed the importance of the 3-month-limitation under O 53r 4(1) even for challenges on the constitutionality of legislation.  His Lordship, however, pointed out the peculiar circumstances of the Leung case and concluded that the time factor was less compelling and the application for extension of time was regarded as implicitly made.[18] 

25. It is important to note that the Leung case targeted the constitutionality of s 118C which infringed various articles in the BORO.  The applicant in that case was not charged with any offence.  It was a case concerning future matters.  

26. In the present case, the applicant had already been charged with various offences in 2013.  His challenge was not that the common law offence of conspiracy to defraud was unconstitutional, nor was the challenge concerned the constitutionality of the Listing Rules.  He only challenged the decision of the SJ for including item (b) in the particulars of the two conspiracy counts.  It is fundamentally different from the situation of the Leung case in which the applicant was not prosecuted and it was about some future matters.  The reasoning in relation to the issue of delay in the Leung case is therefore not applicable.  I agree with the argument of Mr Kwan in this respect.  

27. The Court of Appeal re-visited the issue of delay in the leave application in AW v Director of Immigration.[19]  The Court rejected the argument that in cases involving claims for humanitarian protection, the scales were heavily tipped in favour of the applicant by the possibly grave consequences of an unlawful decision to refuse protection.  Kwan JA endorsed the approach in Re Thomas Lai,[20]  

“35.     In my view, the principles and approach stated in Re Thomas Lai, which relate to applications for extension of time for judicial review in general, are no less applicable to cases involving claims for humanitarian protection.  There is no need to create a special category for these cases with principles that are to apply peculiarly to them.  The principles governing the exercise of discretion to extend time for judicial review are well established, and they are meant to be applied flexibly, always with regard to the particular circumstances of each case.  As stated in Re Thomas Lai, this is a multi-faceted exercise.  No comprehensive definition of “good reason” for the purpose of extending time can be given, and the weight to be given to any factor usually to be considered would vary depending on the particular circumstances.  It would not be right to lay down a rigid approach that in cases involving fundamental human rights, the scales must necessarily be tipped in favour of extending time, regardless of the weight to be attached to any relevant factor as may be appropriate in a particular situation.  

36.     …In an application of this kind, the court is engaged in the exercise of discretion whether to grant indulgence in the form of an extension of time to the applicant.  And it is entirely appropriate that the court may need to delve deeper into the merits of the substantive challenge to consider what weight should be given to this factor when weighed against other factors in a given situation. ” [21] (emphasis added) 

28. In my judgment, the principles in Thomas Lai are applicable in the present case.  In assessing whether there is any good reason for time extension, a court may take into account factors including the length of the delay, the explanation of the delay, the merits of the substantive application, any prejudice and any question of public importance.  

29. It is beyond dispute that there is undue delay in the present case.  The leave application was made on 15 May 2015, more than 16 months after the date of the indictment—27 December 2013.  

30. In the Form 86, the applicant did not seek to explain the delay.  He argued that the case was a constitutional challenge.  The 3-month-limitation should not be a hurdle.  In addition, the argument was of great constitutional importance and the application for extension of time was implicit.  

31. As discussed above, the reasoning in the Leung case is not applicable.  The issue of time extension in the present case should be assessed according to the approach in Re Thomas Lai.  

32. In my view, this case can be disposed of without going into detailed analysis of the merits of the substantive application.  Section 21K(6) empowers a court to refuse leave if to do so would be detrimental to good administration.  

Detrimental to good administration

33. In AW, the Court of Appeal agreed that to extend the time for the leave application of the torture claim of the applicant would be detrimental to good administration[22].  Kwan JA pointed out in AW that:

“As there is “undue delay” in this instance, detriment to good administration is a factor that may be taken into consideration under section 21K(6) in deciding whether to refuse to grant leave for applying for judicial review or to refuse relief in the substantive application. As stated by Lord Goff in R v Dairy Tribunal, ex p Caswell at 749G, this statutory provision recognises there is an interest in good administration independently of hardship, or prejudice to the rights of third parties, and that the harm suffered by the applicant by reason of the decision which has been impugned is a matter which can be taken into account. ”[23]

34. In the same paragraph, Lord Goff also indicated that it was difficult to formulate any precise definition or description of what constituted detriment to good administration because applications for judicial review might occur in many different situations.  The need for finality might be greater in one context than in another.  

35. Bearing these principles in mind, I turn to consider the situation in the present case.  The applicant had left Hong Kong before the scheduled trial in March 2015.  He instructed counsel to apply for permanent stay of the criminal proceedings.  One of the grounds was substantially similar to the present challenge of item (b).  This ground was rejected by the trial judge[24] on 13 March 2015.  The original trial had to be severed and the trial against the applicant was deferred.  

36. The applicant filed an application for leave for judicial review on 15 May 2015 making similar challenge albeit dressed up as a constitutional challenge.  It transpired that the applicant did not return to face the trial but chose to seek judicial review.  Apart from his voluntary absence, the application for judicial review may cause further delay of the criminal proceedings and wastage of public fund.  In my view, this is detrimental to good administration.  

37. Even if time extension is refused, the applicant may challenge the constitutionality of item (b), and the evidential value of the opinion of Mr Chau Ying Kit, during the trial of the amended indictment.  In case he is convicted of the conspiracy offences, he can also renew the challenge in the Court of Appeal.  There would not be any hardship to the applicant on the refusal of leave.  

38. In the circumstances, this is sufficient to refuse leave for judicial review.  

Merits of the substantial application

39. For the sake of completeness, I would also consider the merits of the substantive application.  Given that the applicant offered no explanation of the delay, the only issue is whether item (b) is unconstitutional.  

Relationship between the applicant and D3

40. The allegation in item (b) was that the applicant and others falsely represented that ‘MSL and its beneficial owners were third parties independent of POIL and its connected persons.’ The italicized part of this sentence was used by the Board of POIL in the announcement dated 25 January 2010[25].  

41. As I understand, the prosecution alleged that it was false for the applicant to announce that D3, being the sole shareholder and a beneficial owner of MSL, was a third party independent of the applicant who was a connected person of POIL.  The falsity of this announcement can be proved by the background facts in the acquisition of the Utah oil fields and the personal relationship of the applicant and D3.  The jury is entitled to draw an irresistible inference based on the evidence they accepted in the trial.  

42. It is important to note that in item (b), the prosecution did not allege that D3 was a connected person of POIL.  The evidence of Mr Chau Ying Kit is strictly speaking not essential.  In his witness statement, Mr Chau deemed D3 an ‘associate’[26]of the applicant, and therefore a ‘connected person’, by virtue of rule 14A.11(4)(a) based on the background facts.  He concluded that the acquisition of the share capital of FOL was a connected transaction.  This rendered the part of the announcement discussed above inaccurate.[27]  Given the wording of item (b), the prosecution should not be criticised for not relying on the opinion of Mr Chau.[28] 

The deeming power created a criminal act retrospectively

43. Item (b) concerns the falsity of ‘third parties independent of POIL and its connected persons’.  It does not concern the meaning of ‘connected person’.  The following discussion on the deeming power is unnecessary as that power concerned the definition of ‘connected person’.  Nevertheless, I would comment on it for the sake of completeness.  

44. Mr Lee criticised that the opinion of Mr Chau was formed about three years after the acquisition of the share capital of FOL.  It was an ex post facto opinion to create ‘connectedness’ between the applicant and D3.  

45. The proper approach, Mr Lee argued, was for the HKEx to decide the standard of ‘connectedness’ beforehand.  The HKEx should then indicate which category of ‘connectedness’ was applicable in this case.  The jury would then be asked to apply such standard to the proven facts and consider whether the relevant announcement was false.  

Hypothetical facts

46. This argument became academic as the prosecution had indicated, before the trial, that they would not rely on the opinion of Mr Chau.  As a matter of fact, Mr Chau could only base on the facts discovered by the ICAC.  He had no way to conduct independent investigation.  

47. At most, Mr Chau’s analysis may be regarded as expert evidence.  His expert status and conclusion may be subject to challenge.  It would not be automatically binding on the jury.  

48. Even if the prosecution rely on the expert opinion of Mr Chau, I could see no prejudice to the applicant.  Firstly, Mr Chau’s analysis was inevitably ex post facto.  The background facts were not known to him or the HKEx at the time of the acquisition of the share capital of FOL.  Secondly, during the trial, the prosecution has a duty to satisfy the jury so that they are sure about the background facts before the latter would consider whether to accept the expert opinion of Mr Chau.  

49. For the same reason, the jury must be sure about the background facts before they can draw any irresistible inference, whether D3 was a third party independent of the applicant, as stipulated in item (b).  

The deeming power

50. It is unrealistic to have an exhaustive definition of ‘connected person’ given the complexity of the securities market.  The deeming power under rule 14A.11(4)(a) allows flexibility to include an ‘associate’ in diversified situations.  The deeming power must be exercised according to the factual basis set out in that rule[29].  In fact, at the time of the alleged offences, the deeming power existed under the Listing Rules 2010.  This power does not create any criminal act or criminal offence.  

51. Section 24(8) of the Securities and Futures Ordinance, Cap 571, stated that the Listing Rules are not subsidiary legislation.  So far as I understand, a breach of the Listing Rules may lead to disciplinary proceedings and sanction by the HKEx.  The Listing Rules do not create any criminal act or criminal offence.  

52. In his statement, Mr Chau explained that the Listing Rules were made by the HKEx to supervise and regulate the conduct of listed issuers.  The HKEx enforced these rules to ensure an orderly, informed and fair market for the trading of listed securities.[30]  

53. In my view, the background facts were only discovered after investigation by the ICAC.  There was no evidence that the HKEx was aware of these facts at the time of the announcement.  This is evident in the standard disclaimer in the opening paragraph of the announcement:

“ Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. ”

54. Mr Chau Ying Kit also stressed the same in paragraph 8 of his statement :

“…However, the Exchange is not in a position to conduct due diligence to verify or comment on the accuracy and completeness of such information stated in the issuers’ circulars and announcements. The Exchange relies on the information, explanations and assurances given by the directors of an issuer and/or the issuer’s professional advisers. ”

55. Mr Chau could only analyse and arrive at his opinion, on the relationship of the applicant and D3, after the ICAC supplied the background facts to him.  There was nothing objectionable for Mr Chau to apply the deeming power based on those facts.  In fact, Mr Chau rightly stressed in paragraph 37 of his statement:

“ Had the Exchange been informed and made aware of the information now asserted by the ICAC in paragraphs 33 and 34 above at the time of the acquisition, and on the assumption that the information is true, correct and accurate, we would have raised further queries with POIL, and would not have allowed the publication of the Announcement and the Circular (which might contain inaccurate, incomplete and misleading information as to the structure of the acquisition, the real nature and extent of interest of Wong (and his associates) and LEW in the acquisition). ”

56. In my view, the deeming power does not create a criminal act or a criminal offence.  I do not think Article 12(1) is engaged.  There is no important constitutional issue in this application.  

The overt acts in the conspiracy charges

57. Mr Lee also pointed out that the other overt acts in the particulars of the conspiracy counts were insufficient to prove the mental element.  

58. The overt acts in the conspiracy counts set out the scope of the prosecution case.  They are principal acts which the jury would be invited to infer a dishonest agreement.  Whether that inference can be drawn is a matter for the jury after considering all the evidence.  It is not the task of this court in an application for leave for judicial review.  

59. In deciding the extension of time, the strength of the prosecution evidence is not important.  

Conclusion

60. For the reasons above, I am not persuaded that there is any good reason to grant an extension of time.  In any event, I refuse leave on the ground that it is detrimental to good administration to do so.  The application for leave is accordingly dismissed.  

61. I make an order nisi that costs of this application be to the putative respondent.  This order shall become absolute 14 days from the date of this judgment unless there is application by summons for variation.