In re Commission Ordinance

1992, No. MP3039

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H E A D N O T E

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The powers of investigation of the Securities and Futures Commission into a possible offence of fraud in dealing in securities under s.33 of the Securities and Futures Commission Ordinance, Cap.24 were challenged in proceedings for judicial review on the grounds that they were inconsistent with the provisions of the Hong Kong Bill of Rights Ordinance.

The applicant raised arguments in respect of Article 5 - Liberty and Security of Person, Article 11(2)(g) - Right against Self-Incrimination, Article 14 - Right to Privacy, Article 15 - Right to Freedom of Conscience and Article 16 - Right to Freedom of Opinion and Expression.

It was held that none of the powers set out in s.33 infringed the Bill of Rights Ordinance so that the notion was dismissed.

1992,No. MP3039

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

Commission Ordinance

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J U D G M E N T

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INTRODUCTION

1. The Securities and Futures Commission (the Commission) was established on the 1st May 1989 by the Securities and Futures Commission Ordinance, Cap.24 (the SFC Ordinance). The Commission was set up in the wake of the stock market crisis that occurred in October 987. Amongst its functions is the power to carry out investigations into possible offences of fraud in the dealing of securities.

2. On the 8th October 1992, Mr Lee Kwok-hung (the applicant) was granted leave by Godfrey J. to apply for judicial review to make a constitutional challenge to some of the investigatory powers conferred upon the Commission by the SFC Ordinance on the grounds that those powers are inconsistent with certain articles of the Hong Kong Bill of Rights Ordinance (BOR Ordinance). Accordingly, it is asserted that the provisions challenged were deemed to have been repealed on the 8th June 1991 when the Ordinance came into operation under s.3(2) which reads :-

"3.Effect on pre-existing Legislation

(2) All pre-existing legislation that does not admit of a construction consistent with this Ordinance is, to the extent of the inconsistency, repealed."

3. The grounds advanced on behalf of the applicant were substantially the same as those that were argued before me and rejected in Re Tse Chu Fai Ronald, MP3646/1992 where certain powers of an inspector appointed under the Companies Ordinance, Cap.32 were contended to be inconsistent with the BOR Ordinance.

FACTS

4. The applicant is a production executive with Truly International Holdings Limited (Truly), a public listed company engaged in the manufacture of electronic calculators and components. The company has a paid-up capital of $29.6 million and has its registered office in the Cayman Islands. In 1991 the turnover of the company was $324 million with profits in the region of $41 million. The company was floated in July 1991 when it raised approximately $75.5 million from the market.

5. On the 6th August 1992 pursuant to s.33 of the SFC Ordinance, the applicant was served with a notice (the 1st notice) which reads :-

" SECURITIES AND FUTURES COMMISSION ORDINANCE

(Cap 24)

NOTICE BY A PERSON UNDERTAKING

AN INVESTIGATION UNDER SECTION 33

OF THE SECURITIES AND FUTURES COMMISSION ORDINANCE

(CAP 24)

-----------------------------------------------------------------------------------------

To : Mr Lee Kwok Hung

Flat D, 30 Floor Block 3

Fu Ning Garden

Junk Bay

Kowloon

In relation to an investigation into

(a) offences contrary to Section 135 of the Securities Ordinance may have been committed in respect of dealings in the shares of Truly International Holdings Limited; and/or

(b) the manner in which persons have engaged in dealing in the shares of Truly International Holdings Limited may not be in the interest of the investing public, or the public interest;

during the period 29 July 1991 to 30 October 1991 and 20 January 1992 to 23 March 1992.

A copy of the Direction/Appointment by the Securities, and Futures Commission under sub-section 33(1) is attached hereto.

TAKE NOTICE that under sub-section 33(4) of the Securities and Futures Commission Ordinance you are hereby required :-

(a) to attend before the undersigned at 14.30 hours on 14 August 1992 at the offices of Securities and Futures Commission, 32/F, Alexandra House, Central, Hong Kong, and answer truthfully and to the best of your ability such questions put to you in relation to the abovementioned investigation;

(b) to give to the undersigned all assistance in connection with the abovementioned investigation which you are reasonably able to give."

Dated this 4th day of August 1992.

 

Signature of Person

Carrying out investigation ...(Sd)......

(Dennis Ho)"

Accompanying the notice were two separate directions signed by Mr P.R. Bailey the Assistant Director of the Enforcement Division of the Commission issued under s.33(1) of the SFC Ordinance covering the two periods in question which also set out the Commission's belief that offences may have been committed contrary to s.135 of the Securities Ordinance in respect of dealings in the shares of Truly and that it may not have been in the interest of the investing public or the public interest. The directions also set out the names of six employees of the Commission who had been instructed to carry out the investigation.

6. The applicant obtained a postponement of the interview on the 14th August 1992 until the 19th August 1992 when he attended with counsel and a solicitor before Mr Dennis Ho one of the investigators, but the interview did not proceed beyond the applicant being informed of the concerns of the investigator.

7. On the 25th August 1992 the applicant's solicitors wrote to the Commission requesting that they be supplied with further information or evidence to support the Commission's belief that an offence had been committed. The Commission replied on the 7th September 1992 declining the request stating that they had already supplied sufficient information in the notice and directions. The Commission also informed the applicant's solicitors that it was not prepared to provide any further evidence on the grounds that it would prejudice the investigation and that in any event there was no statutory requirement to do so. The applicant's solicitors were informed of the penalties that could be imposed for non-compliance under s.33(12) of the SFC Ordinance, or in the alternative, that an issue could be certified for consideration by the High Court under s.33(13) for which penalties could also be imposed. Enclosed with the Commission's letter was a fresh notice (the 2nd notice) of the same date superseding the 1st notice which enlarged the investigation to include the names of four companies incorporated in the British Virgin Islands which had been identified as traders in Truly shares for the same periods referred to in the 1st notice. The 2nd notice was also accompanied by directions that were identical to the directions that accompanied the 1st notice. The applicant was asked to attend the Commission's office for interview on the 1st October 1992. However, the appointment was not kept as the applicant took steps to apply for judicial review. The present motion was filed on the 8th December 1992.

BACKGROUND TO THE S.F.C. ORDINANCE

8. Following the stock market collapse on the 19th October 1987 the Securities Review Committee (the Committee) was appointed by the Governor to review the constitution, management and operation of the two exchanges and their regulatory bodies. The Committee in its report, known as the Hay Davison Report, after the name of its chairman, referred to the necessity to improve regulation in paragraph 1.8 which reads :-

Hong Kong should aim to be the primary capital market for the South East Asian Region and to that end should encourage the development of new markets and the international element of existing ones by strengthening its systems and regulatory arrangements. We reject fundamental changes in favour of building on existing systems, as the success of Hong Kong's financial services market depends largely on the healthy working of the free enterprise system which has demonstrated a dynamic capacity for promoting innovation and growth. We have therefore decided that practitioner regulation should continue but that safeguards will have to be introduced at every level.

9. The recommendations of the Committee included the replacement of the Securities Commission, the Commodities Trading Commission and the Office of the Commission for Securities and Commodities Trading with a single independent statutory body outside the civil service with the task of ensuring the integrity of markets and the protection of investors.

10. The recommendations were accepted by the Government with the result that the SFC Ordinance was passed and the Commission established as I have said on the 1st May 1989.

S.F.C. ORDINANCE

11. In respect of the present proceedings, the following provisions of the SFC Ordinance are relevant :

"4. Functions of Commission

(1) The Commission shall have the following functions-

(a) to advise the Financial Secretary on all matters relating to securities, futures contracts and property investment arrangements;

(b) without prejudice to any duties imposed or powers conferred on any other person in regard to the enforcement of the law relating to securities, futures contracts and property investment arrangements, to be responsible for ensuring that the provisions of the relevant Ordinances, and the provisions of any other Ordinance so far as they relate to securities, futures contracts and property investment arrangements, are complied with;

(c) to report to the Financial Secretary the occurrence of any dealing in relation to securities which it reasonably believes or suspects to be an insider dealing within the meaning of section 9 of the Securities (Insider Dealing) Ordinance (Cap.395); (d) to be responsible for supervising and monitoring the activities of the Exchange Companies and clearing houses;

(e) to take all reasonable steps to safeguard the interests of persons dealing in securities or trading in futures contracts or entering into property investment arrangements;

(f) to promote and encourage proper conduct amongst members of the Exchange Companies and clearing houses, and other registered persons;

(g) to suppress illegal, dishonourable and improper practices in dealing in securities, trading in futures contracts, entering into property investment arrangements, and the provision of investment advice or other services relating to securities, futures contracts and property investment arrangements;

(h) to promote and maintain the integrity of registered persons and encourage the promulgation by registered persons of balanced and informed advice to their clients and to the public generally;

(i) to consider and suggest reforms of the law relating to securities, futures contracts and property investment arrangements;

(j) to encourage the development of securities and futures markets in Hong Kong and the increased use of such markets by investors in Hong Kong and elsewhere;

(k) to promote and develop self-regulation by market bodies in the securities and futures industries;

(ka) subject to the provisions of this Ordinance, to co-operate with and assist authorities or regulatory organizations, in Hong Kong or elsewhere, that are concerned with securities and futures, or with banking, insurance or other financial services or with the affairs of corporations;

(1) to perform any other functions conferred by or under any other Ordinance.

(2) .....

(3) .....

(4) .....".

12. The Commission is empowered to carry out investigations by s.33 of the SFC Ordinance which provides where relevant as follows :-

"33 Investigations

(1) Where the Commission has reason to believe that-

(a) an offence under any of the relevant Ordinances may have been committed; or

(b) a person may have committed a defalcation or other breach of trust, fraud or misfeasance-

(I) in dealing in securities or trading in futures contracts;

(ii) in the management of investment in securities or in futures contracts;

(iii) in making property investment arrangements; or

(iv) in giving advice as regards the acquisition, disposal, purchase or sale, or otherwise investing in, any security or futures contract or as regards any property investment arrangements; or

(c) insider dealing for the purposes of the Securities (Insider Dealing) Ordinance (Cap.395) may have taken place; or

(d) the manner in which a person has engaged or is engaging in any of the following activities referred to in paragraph (b) namely, the dealing or trading mentioned in subparagraph (i) thereof, the management mentioned in subparagraph (ii) thereof, the making of property investment arrangements or the giving of advice described in subparagraph (iv) thereof is not in the interest of the investing public or the public interest,

the Commission may in writing direct one or more of its employees or, with the consent of the Financial Secretary, appoint one or more other persons to be an investigator ('the investigator') to investigate any matter referred to in paragraphs (a) to (d) and report to the Commission thereon.

(2) Where any matter is investigated under subsection (1) in relation to any person, that person is, for the purposes of this section, referred to as 'the person under investigation'.

(3) .....

(4) The person under investigation or any person who is reasonably believed or suspected by the investigator to have in his possession or under his control any record or other document which contains, or which is likely to contain, information relevant to an investigation under this section, or who is so believed or suspected of otherwise having such information in his possession or under his control, shall-

(a) produce to the investigator, within such time and at such place as he may reasonably require, any record or other document specified by the investigator which is, or may be, relevant to the investigation, and which is in his possession or under his control;

(b) if so required by the investigator, give to him such explanation or further particulars in respect of a record or other document produced in compliance with a requirement under paragraph (a) as the investigator shall specify;

(c) attend before the investigator at such time and place as he may require in writing, and answer truthfully and to the best of his ability such questions relating to the matters under investigation as the investigator may put to him; and

(d) give to the investigator all assistance in connection with the investigation which he is reasonably able to give.

(5) A barrister or solicitor acting for the person under investigation may-

(a) attend an examination of that person; and

(b) to the extent that the investigator shall reasonably permit -

(i) examine that person; and

(ii) address the investigator,

in relation to matters in respect of which the investigator has questioned that person.

(6) A person shall be obliged to answer questions put to him under this section by the investigator, but if the answers might tend to incriminate him, and he so claims before answering the question, neither the question nor the answer shall be admissible in evidence against him in criminal proceedings other than proceedings for an offence under subsection (12) or section 36 of the Crimes Ordinance (Cap.200) or for perjury, in respect of the answer but shall be admissible for all the purposes of the Securities (Insider Dealing) Ordinance (Cap.395); the investigator shall, before asking any question under this section, inform the person concerned of the limitation imposed by this subsection in respect of the admissibility in evidence of the question and any answer given.

(7) The investigator shall be furnished by the Commission with a copy of the direction or appointment under subsection (1) and shall, before exercising any power under this section, produce the copy to the person concerned for his inspection.

(8) Where any explanation, particulars, answer or statement is or are made or given under subsection (4) to the investigator, he may further require, in writing, the person making or giving the same-

(a) to verify the explanation, particulars, answer or statement by statutory declaration (which may be taken and received by the investigator); or

(b) in case such explanation, particulars, answer or statement is or are not made or given in accordance with a requirement under subsection (4) to verify by a statutory declaration (which may be so taken and received) that he was unable to comply or, as the case may be, fully to comply, with that requirement because the matter which he failed to furnish was not within his knowledge or was neither in his possession nor under his control,

and where a requirement under this subsection is made, the person to whom it is made shall comply with the requirement within such reasonable period as is specified in the requirement.

(9) The investigator may, and if so directed by the Commission shall, make interim reports to the Commission, and on the conclusion of his investigation shall make a final report to the Commission.

(10) .....

(11) .....

(12) Any person who -

(a) without reasonable excuse fails to produce; any record or other document which he is required to produce under subsection (4)(a);

(b) without reasonable excuse fails to comply with any requirement under subsection (4)(b);

(c) without reasonable excuse fails to comply with a requirement under subsection (4)(c) to attend before the investigator;

(d) without reasonable excuse fails to answer any question put to him by the investigator under subsection (4)(c), or in answering such a question says anything which he knows to be false or misleading in a material particular or who in so answering recklessly makes a false statement;

(e) without reasonable excuse fails to comply with subsection (4)(d);

(f) without reasonable excuse fails to comply with a requirement under subsection (8), or fails to do so within the period specified therein,

commits an offence.

(13) If any person, without reasonable excuse, fails to do anything which he is required to do under subsection (4), the investigator may certify the failure to the High Court and the High Court may thereupon inquire into the case and-

(a) order such person to comply with the requirement within such period as may he fixed by the High Court; or

(b) if the High Court is satisfied that such person has failed without reasonable excuse to comply with such requirement, punish him in the same manner as if he had been guilty of contempt of court.

(14) A person shall not be punished under subsections (12) and (13) in respect of the same failure.

(15) ....."

13. By s.36, a magistrate may issue a warrant upon the application of the Commission for a police officer or an authorised person to enter premises to search for and seize any records or documents required in connection with the investigation.

14. Section 61 provides that if any person commits an offence under s.33(6) of the SFC Ordinance, he will be liable on conviction upon indictment to a fine of $1,000,000 and to imprisonment for 2 years and upon summary conviction to a fine of $100,000 and imprisonment for 6 months.

15. Section 62 deals with the prosecution of certain offences by the Commission and provides where relevant as follows :-

"62. Prosecution of certain offences by Commission

(1) Any offence under any of the relevant Ordinances may be prosecuted by the Commission in its own name but, where under this subsection the Commission prosecutes an offence, the offence shall be tried before a magistrate as an offence which is triable summarily.

(2) .....

(3) Nothing in this section shall derogate from the powers of the Attorney General in respect of the prosecution of criminal offences"

ROLE OF THE COMMISSION

16. The Commission is concerned with a number of regulatory activities including the supervision of the Stock Exchange and the Futures Exchange. As the regulatory body of the securities industry, the Commission seeks to ensure that the financial community operates with integrity in order to protect the interests of investors. In order that it may carry out its duties the Commission has been vested with certain investigatory powers under s.33 of the SFC Ordinance for the purposes of adequate enforcement.

17. If the investigator makes a report under s.33(9), the Commission may refer the matter to the Financial Secretary under s.4 for further action. This includes reports where insider dealing is suspected. In these cases the Financial Secretary may refer the matter for inquiry to the Insider Dealing Tribunal (the Tribunal) under the Securities (Insider Dealing) Ordinance, Cap.395. The Commission also has power to refer matters to the Attorney General to consider whether criminal proceedings should be instituted.

18. A primary objective of the Commission is to promote Hong Kong's position in the world as a major financial centre for the benefit of the economy.

GROUNDS

19. Upon the application for leave for judicial review, Godfrey J. made an order granting the application on the grounds that the investigation under s.33(4) is inconsistent with the right of privacy under article 14, the right of freedom of thought under article 15, and the right of freedom of opinion and expression under article 16. However, on the first day of the hearing of the motion for judicial review, I granted leave to the applicant to argue two further grounds namely that the provisions are also inconsistent with the right of liberty and security of person under article 5 and the right to protection from self-incrimination under article 11(2)(g). In the alternative, the applicant seeks to contend that if s.33(4) is consistent with the BOR Ordinance and has not been repealed, s.33(8) of the SFC Ordinance, which empowers an investigator to require information to be verified by statutory declaration, is a violation of articles 15 and 16 and is therefore repealed.

RELIEF SOUGHT

20. By way of relief the applicant seeks an order of certiorari to quash the directions given to the applicant under s.33(4) of the SFC Ordinance requiring the applicant's attendance for interview, or alternatively, an order of prohibition and a declaration that the provisions of s.33(4), (6), (8), (12) and (13) of the SFC Ordinance were repealed on the 8th June 1991 by the provisions of s.3(2) of the BOR Ordinance.

THE APPLICANT'S CHALLENGE

21. Mr Fung, counsel for the applicant submitted that the application is made by reason of the applicant's apprehension that his rights under the BOR Ordinance in respect of any answers and documents produced may be used in subsequent criminal proceedings under the exceptions set out in ss.33(6) and 33(12) of the SFC Ordinance, s.36 of the Crimes Ordinance that relates to a false statement on oath, perjury and under the Securities (Insider Dealing) Ordinance, so that the degree of penalty warrants protection under article 11.

22. The applicant's challenge is restricted to the investigatory powers conferred upon the Commission under s.33(4) and the directions issued thereunder and the consequential subsections (6), (8), (12) and (13). No challenge is made to the validity of the investigation under s.33(1) nor to the exercise of the powers of investigation. It is not contended that the Commission should not have investigatory powers, but that sufficient safeguards have not been provided by s.33(4) so that the legislation should go back to the drawing board for further consideration.

APPROACH TO THE BOR ORDINANCE

23. As the BOR Ordinance is a constitutional instrument, the Court of Appeal in R. v. Sin Yau Ming (1992) 1 HKCLR 127 held that it should be given a generous and purposive interpretation following the dictum of Lord Diplock in A.G. of the Gambia v. Jobe (1984) AC 689 where he said at 700 :-

"A constitution, and in particular that part of it which protects and entrenches fundamental rights and freedoms to which all persons in the state are to be entitled, is to be given a generous and purposive construction."

However, R. v. Sin Yau Ming went on to hold that if legislation is inconsistent with the BOR Ordinance, it will be necessary for the Crown to justify the inconsistency which involves balancing the interests of the individual against the interests of the state and society with a bias towards the interests of the individual. This has been described as the "bifocal test" that was referred to in the Canadian case R. v. Oakes (1986) 26 DLR (4th) 200 or the proportionality test. In this respect, it is necessary to take into account the social and economic conditions of Hong Kong and to the fact that Hong Kong is an international financial centre with a regulatory system for the supervision of its financial markets.

RE TSE CHU FAI RONALD

24. On the 20th November 1992, I delivered judgment in the Tse case on a motion for judicial review in which it was contended that some of the powers of an inspector appointed by the Financial Secretary under the Companies Ordinance to investigate the affairs of a company where fraud was suspected, contravened the same articles that have been invoked in the present proceedings except article 5. There was no challenge in that case to the appointment of the inspector by the Financial Secretary nor to his terms of reference. The challenge was directed to the powers set out in s.145 of the Companies Ordinance which where relevant reads :-

"145. (1) It shall be the duty of all officers and agents of the company and of all officers and agents of any other body corporate whose affairs are investigated by virtue of section 144 to produce to the inspector all books and documents of or relating to the company or, as the case may be, the other body corporate that are in their custody or power, to attend before the inspector when required so to do and otherwise to give to the inspector all assistance in connection with the investigation that they are reasonably able to give.

(1A) .....

(2) An inspector may examine on oath the officers and agents of the company or other body corporate, ........, in relation to the affairs of the company or other body, and may administer an oath accordingly.

(3) If any officer or agent of the company ...., refuses to produce to the inspector any book or document which it is his duty under this section so to produce, refuses to attend before the inspector when required so to do, or refuses to answer any question that is put to him by the inspector with respect to the affairs of the company or other body corporate, as the case may be, the inspector may certify the fact under his hand to the court, and the court may thereupon inquire into the case, and, after hearing any witnesses who may be produced against or on behalf of the alleged offender and after hearing any statement that may be offered in defence, punish the offender in like manner as if he had been guilty of contempt of the court.

(3A) A person is not excused from answering a question put to him under this section by an inspector on the ground that the answer might tend to incriminate him but, where such person claims, before answering the question, that the answer might tend to incriminate him, neither the question nor the answer shall be admissible in evidence against him in criminal proceedings other than proceedings in relation to a charge of perjury in respect of the answer."

25. The inspector is required to make a report to the Financial Secretary at the conclusion of his investigation under s.146(1) which can be used in evidence under s.149. Section 149A provides that an answer given to the inspector in response to a question put when exercising his power under s.145 may be used in evidence.

26. I held that none of the powers of the inspector set out in s.145 of the Companies Ordinance were inconsistent with any of the four articles relied upon in the BOR Ordinance. A notice of appeal was filed and at the hearing, the Court of Appeal refused an application by the applicant to amend the grounds of appeal by adding Article 5 as an additional ground. The appeal was then withdrawn.

27. I now turn to the grounds advanced on behalf of the applicant under the five articles of the BOR Ordinance which are said to have been contravened. In some respects the argument overlapped more than one article. I will deal first with article 11(2)(g).

ARTICLE 11 - RIGHTS OF PERSONS CHARGED WITH OR CONVICTED OF CRIMINAL OFFENCE

28. Article 11(2)(g) provides:

"11.(2) In the determination of any criminal charge against him, everyone shall be entitled to the following minimum guarantees, in full equality-

.....

(g) not to be compelled to testify against himself or to confess guilt."

29. Mr Fung repeated his argument in Tse that the right not to answer incriminating questions guaranteed by article 11(2)(g) of the BOR Ordinance includes the right not to answer questions of an incriminating nature put extrajudicially so that it does not merely arise during the course of criminal proceedings. He cited a passage from the speech of Lord Mustill in R. v. Director of Serious Fraud Office, Ex p. Smith [1992] 3 WLR 66 at p.74 with regard to the right of silence, where he said :-

" I turn from the statutes to 'the right of silence.' This expression arouses strong but unfocused feelings. In truth it does not denote any single right, but rather refers to a disparate group of immunities, which differ in nature, origin, incidence and importance, and also as to the extent to which they have already been encroached upon by statute. Amongst these may be identified:

(1) ....

(2) A general immunity, possessed by all persons and bodies, from being compelled on pain of punishment to answer questions the answers to which may incriminate them.

(3) A specific immunity, possessed by all persons under suspicion of criminal responsibility whilst being interviewed by police officers or others in similar positions of authority, from being compelled on pain of punishment to answer questions of any kind.

(4) ....

(5) ....

(6) ...."

It was submitted by Mr Fung that either of the two categories which have been quoted above could apply to the applicant.

30. Mr Fung also cited Istel v. Tully [1992] 3 WLR 344 which held that the right includes the right not to produce material of an incriminating nature.

31. Mr Li submitted that the cases cited relate to the common law privilege which is wider in scope than the provisions in article 11 and may extend to a period before any criminal charge is laid so that they are different concepts which co-exist. He went on to say that the common law privilege is not an entrenched right, unlike the entrenched right in article 11(2)(g) which is restricted to criminal proceedings and it can therefore be modified or abrogated by the legislature in the public interest. Accordingly, any modification of the common law privilege by s.33(4) and (6) is in any event valid.

32. Although I held in Tse that the words in article 11(2)(g) are unequivocal and are restricted to the rights of a person charged or convicted of a criminal charge, Mr Fung contended that there are material differences between the powers of a company inspector and an investigator appointed by the Commission. He submitted in particular the three following matters :-

(1) Companies inspectors are appointed by the Financial Secretary who has neither power nor duty to investigate a company and whose office is not ipso facto concerned with the investigation of corporate affairs. SFC investigators are, on the other hand, appointed by the SFC being a body specifically enjoined by statute to effect "enforcement of the law relating to securities, futures contracts and property investment arrangements" under s.4(1)(b) of the SFC Ordinance.

(2) Companies inspectors are concerned primarily with the affairs of companies and not individuals. The SFC investigators on the other hand discharge a policing function. They are concerned with the commission of fraud and other offences of dishonesty as well as other offences under the relevant ordinances committed by any person.

(3) A company inspector cannot initiate a prosecution against a company or an individual. He merely reports to the Financial Secretary. On the other hand the SFC, similar to the ICAC and the Customs & Excise Department has a prosecutorial function under s.62(1) of the SFC Ordinance.

33. Mr Fung conceded that s.33(6) protects the right against self-incrimination by providing that answers to questions put by the investigator cannot be used in evidence in criminal proceedings, but criminal offences remain if there is a failure to comply with the investigator under s.33(12), for making a false statement on oath under s.36 of the Crimes Ordinance and for perjury. He submitted that the statutory scheme under s.33(6) differs materially from and is qualitatively more draconian than that provided under s.145 of the Companies Ordinance, for unlike the Companies Ordinance, a failure to comply under s.33(12) amounts ipso facto to a criminal offence whilst all questions and answers arising on an examination are admissible for all the purposes of the Securities (Insider Dealing) Ordinance, Cap.395. I shall return to the Securities (Insider Dealing) Ordinance later in this judgment.

34. Mr Li, counsel for the Commission relies upon the decision in Tse, but also contends that the powers of an investigator under s.33 of the SFC Ordinance are no different from those of a company inspector and that the instant case is a fortiori. I shall return to this submission later.

35. He also submitted that the Financial Secretary has a duty and power to investigate companies by appointing inspectors and is also closely involved in the work of the Commission. The Financial Secretary inter alia receives advice from the Commission under: s.4(1)(a) of the SFC Ordinance and reports under s.4(1)(c) with regard to occurrences of insider dealing.

CONCLUSIONS

36. I am satisfied that there are no material differences between the powers of an inspector and an investigator. Both are appointed in order to carry out investigations to ascertain whether fraud has been committed. It is clear that the Financial Secretary is closely connected with the investigation of fraud under the Companies Ordinance through an inspector and through the Commission under the SFC Ordinance.

37. Although a company inspector carries out investigations into a company, in fact he will be concerned during his investigations with the acts of individual persons.

38. The assertion that an investigator has a right to initiate a prosecution under s.62(1) of the SFC Ordinance relates to the three offences which underpin the Ordinance. They are not offences under the SFC Ordinance and have nothing to do with the powers of an investigator. The offences except that relating to insider dealing are in fact the same as those which underpin the Companies Ordinance. Indeed, an essential ingredient of the offence for failure to comply under s.33(12) is that the failure is without reasonable excuse. The same position applies under s.33(13) for the investigator may only certify a failure to comply to the High Court when the failure was without reasonable excuse, whilst the High Court may only punish for contempt if it finds that the failure was without reasonable excuse. It is therefore clear that Mr Fung's submission that a failure to comply amounts ipso facto to a criminal offence is erroneous. Further, pursuant to s.33(14) a person cannot be punished under subsections (12) and (13) for the same failure.

39. I accept Mr Li's submission that neither R. v. Director of Serious Fraud Office ex parte Smith and Istel v. Tully are relevant for they relate to the common law privilege which is distinct from the entrenched right provided by article 11(2)(g).

40. I now turn to the argument relating to questions and answers being admissible for the purposes of the Securities (Insider Dealing) Ordinance.

ARE PROCEEDINGS UNDER THE SECURITIES (INSIDER DEALING) ORDINANCE CRIMINAL

41. Mr Li drew my attention to the history of insider dealing legislation in Hong Kong.

42. When the original ordinance in respect of insider dealing, the Securities Ordinance 1974, was passed, it was provided by s.140 that insider dealing would be a criminal offence with a maximum penalty of 2 years imprisonment and a fine of $50,000. However, this section was never brought into operation and was repealed by the Securities (Amendment) Ordinance 1978. This ordinance established the Insider Dealing Tribunal.

43. Although insider dealing has been made a criminal offence in other jurisdictions including the United Kingdom, Hong Kong decided not to adopt this course, but recommendations were made to improve the definition of insider dealing and the sanctions available. This led to the present Securities (Insider Dealing) Ordinance being passed in 1990. By s.16 of this ordinance if the Financial Secretary following representations from the Commission or another source is satisfied that insider dealing in relation to the listed securities of a corporation has or may have taken place, he may refer the matter to the Tribunal for inquiry. The Tribunal is required to determine whether insider dealing has taken place, and if so, the identity of those involved and the extent of their culpability.

44. By s.19, a person shall be obliged to answer questions put to him at the inquiry, but if the answers might tend to incriminate him and he so claims before answering the question, neither the question nor the answer shall be admissible in evidence against him in criminal proceedings other than proceedings for an offence under s.20 of the SFC Ordinance or s.36 of the Crimes Ordinance or for perjury. Section 20 sets out a number of offences that can be committed under the Securities (Insider Dealing) Ordinance and reads as follows :-

"20. Offences

(1) Any person who, without reasonable excuse-

(a) refuses or fails-

(I) to attend and give evidence at an inquiry when required to do so by the Tribunal under this Ordinance;

(ii) to take an oath or make an affirmation at an inquiry on being required to do so by the Tribunal;

(iii) to answer truthfully and fully questions put to him at an inquiry by, or with the consent of, a member of the Tribunal;

(iv) to produce any article or book or other document in his possession or under his control, which he is required y the Tribunal to produce at an inquiry;

(v) to comply with any lawful order of the Tribunal;

(b) wilfully disrupts the proceedings at an inquiry or otherwise misbehaves during any sitting of the Tribunal;

(c) having been required to attend before the Tribunal at an inquiry, leaves the place where the inquiry is being held without the permission of the Tribunal,

commits an offence and is liable to a fine of $100,000 and to imprisonment for 6 months.

(2) Any person who-

(a) wilfully hinders or deters any person from attending, giving evidence or producing any article or book or other document;

(b) threatens, insults or causes any loss to be suffered by any person who has attended before the Tribunal, on account of such attendance;

(c) threatens, insults or causes a loss to be suffered by any member of the Tribunal at any time on account of the performance of his duties as a member;

(d) publishes or otherwise discloses any material which the Tribunal had prohibited him from publishing or disclosing;

(e) publishes or otherwise discloses any material received by the Tribunal at any sitting or par thereof held in private, in contravention of an order made under section 17(f),

commits an offence and is liable on conviction upon indictment to a fine of $200,000 and to imprisonment for 1 year.

(3) It shall be a defence to a charge under subsection (2)(e) for the person charged to prove that he did not know and had no reason for knowing that the Tribunal had made an order prohibiting the publication or disclosure of such material."

45. Orders may be made by the tribunal under s.23(1)

which reads where relevant as follows :-

" (1) At the conclusion of an inquiry, where a person has been identified in a written report prepared under section 22(1) as an insider dealer, the Tribunal may in respect of such person make any or all of the following orders-

(a) an order that that person shall not, without the leave of the High Court, be a director or a liquidator or a receiver or manager of the property of a listed company or any other specified company or in any way, whether directly or indirectly, be concerned or take part in the management of a listed company or any other specified company for such period (not exceeding 5 years) as may be specified in the order;

(b) an order that that person pay to the Government an amount not exceeding the amount of any profit gained or loss avoided by that person as a result of the insider dealing;

(c) an order imposing on that person a penalty of an amount not exceeding three times the amount of any profit gained or loss avoided by any person as a result of the insider dealing."

(2) .....

(3) .....

(4) .....

(5) ....."

46. By s.30, an offence is committed if anyone contravenes an order made by the Tribunal under s.23(1)(a) and is liable on conviction on indictment to a fine of $1,000,000 and to imprisonment for 2 years and on summary conviction to a fine of $1000,000 and to imprisonment for 6 months.

47. My attention was also drawn to offences by a corporation under s.34 which provides :-

"34. Offences by corporation, etc.

(1) Where an offence under this Ordinance committed by a corporation is proved to have been committed with the consent or connivance of, or to he attributable to any neglect on the part of, any officer of the corporation, or any person who was purporting to act as an officer of the corporation, he, as well as the corporation, shall be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) Where an offence committed by a partner in a partnership is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any other partner of the partnership, that other partner shall be guilty of the offence and liable to be proceeded against and punished accordingly."

48. Mr Fung submitted that having regard to the three offence creating provisions under s.19 and the offence under s.30 for contravention of an order made under s.23(1)(a), the proceedings conducted by the Tribunal are criminal. He emphasised that classification by the domestic law that an offence is not criminal is not conclusive but that it is necessary to look at the nature of the offence and the severity of the penalty. In support of his argument, he cited Engel and Others v. The Netherlands (No.1) [1976] 1 EHRR 647. In that case the court considered whether the classification of proceedings by the domestic law as disciplinary precluded the operation of article 6 of the European Convention of Human Rights that relates to the hearing of a criminal charge. The court held at p.649 as follows :-

" 5.Application of Article 6 .... Whether State classification of proceedings as 'disciplinary' precluded operation of Article 6.

(a) ....

(b) The Court had jurisdiction, under Article 6, to satisfy itself that the disciplinary did not improperly encroach upon the criminal [81].

(c) In ascertaining whether a given 'charge' vested by the State with a disciplinary character nonetheless counted as 'criminal' within the meaning of Article 6, the Court was to have reference to (i) the sphere of law to which the offence belonged (i.e. criminal, disciplinary or both), (ii) the very nature of the offence, and (iii) the degree of security of the penalty that the person concerned risked incurring [82].

(d) ...."

In the judgment, the Court had this to say at pp.678 and 679 :-

" The very nature of the offence is a factor of greater import. When a serviceman finds himself accused of an act or omission allegedly contravening a legal rule governing the operation of the armed forces, the State may in principle employ against him disciplinary law rather than criminal law. In this respect, the court expresses its agreement with the Government.

However, supervision by the court does not stop there. Such supervision would generally prove to be illusory if it did not also take into consideration the degree of severity of the penalty that the person concerned risks incurring. In a society subscribing to the rule of law, there belong to the 'criminal' sphere deprivations of liberty liable to be imposed s a punishment, except those which by their nature, duration or manner of execution cannot be appreciably detrimental. The seriousness of what is at stake, the traditions of the Contracting States and the importance attached by the Convention to respect for the physical liberty of the person all require that this should be so.

83. It is on the basis of these criteria that the court will ascertain whether some or all of the applicants were the subject of a 'criminal charge' within the meaning of Article 6(1)."

This case was referred to in Kaplan v. United Kingdom D & R 21 (1981) (Eur HR Comm) 5 where at p.35 the court accepted that one of the factors to be taken into account in determining whether a matter is criminal was the degree of severity of the penalty that the person concerned risks incurring.

CONCLUSIONS

49. In the present proceedings, no issue of insider dealing has in fact been raised. However, if during the Commission's investigations evidence of insider dealing is obtained, that evidence can be used by the Tribunal if the case is referred by the Financial Secretary. No charge, however, is preferred against anyone who appears before the Tribunal. The Tribunal, if it decides that insider dealing has taken place, may make one of the orders referred to under s.23(1). However, these penalties are quite clearly disciplinary in nature and do not reflect criminal sanctions and relate exclusively to the pecuniary benefit derived or losses avoided by the insider dealing together with a disqualification for loss of office. The orders made by the Tribunal are not convictions so do not constitute a criminal record. Further, the offences under s.20 have been conferred upon the Tribunal to underpin the Tribunal when carrying out its duties for the purpose of compliance. None of these offences are concerned with insider dealing.

50. Whilst I accept the validity of the decisions in Engel and Kaplan, they relate to cases heard in other jurisdictions and that it is necessary to examine the present case in a Hong Kong context. Although the classification of the Tribunal is not conclusive, the history of the legislation in Hong Kong clearly indicates that it was not intended that insider dealing be treated as a criminal offence. This is reinforced by the decision to repeal the criminal sanction contained in s.140 of the original ordinance in 1978.

51. I am therefore quite satisfied that the proceedings before the Tribunal are not criminal or quasi criminal, but are disciplinary in nature and form part of the regulatory system of the financial markets.

IS ARTICLE 11 RESTRICTED TO CRIMINAL PROCEEDINGS

52. Although I held in Tse that article 11 only applies to criminal proceedings, I had previously given judgment to the same effect in Duty Free Shoppers Hong Kong Limited v. Wong Kwok Pong and Others, A6091/1991. 17th October 1991. Meanwhile Sears J. in Ng Hung Yiu v. Government of the United States of America, MP2007/1992, 30th July 1992 and Penlington J.A. in Re Suthipong Smittachartch, MP1119/1992, 12th October 1992 have expressed the same opinion.

53. Indeed, in my judgment, it is clear beyond peradventure that article 11 is restricted to criminal proceedings for the other subparagraphs of article 11(2) can only admit of that interpretation. The other subparagraphs read as follows :-

" (2) In the determination of any criminal charge against him, everyone shall be entitled to the following minimum guarantees, in full equality-

(a) to be informed promptly and in detail in a language which he understands of the nature and cause of the charge against him;

(b) to have adequate time and facilities for the preparation of his defence and to communicate with counsel of his own choosing;

(c) to be tried without undue delay;

(d) to be tried in his presence, and to defend himself in person or through legal assistance of his own choosing; to be informed, if he does not have legal assistance, of this right; and to have legal assistance assigned to him in any case where the interests of justice so require, and without payment by him in any such case if he does not have sufficient means to pay for it;

(e) to examine, or have examined, the witnesses against him and to obtain the attendance and examination of witnesses on his behalf under the same conditions as witnesses against him;

(f) to have the free assistance of an interpreter if he cannot understand or speak the language used in court;"

54. Reference was made by Mr Fung in connection with the protection afforded to extrajudicial statements to a comment of the UNHRC in CCPR/C/21/REV on the content of article 14 ICCPR, but this citation is not relevant for it relates to an accused person.

55. The argument advanced under article 11(2)(g) is therefore rejected.

56. I now turn to article 14 on the issue of privacy,

ARTICLE 14 - PROTECTION OF PRIVACY, FAMILY, HOME, CORRESPONDENCE, HONOUR AND REPUTATION

57. Article 14 provides :-

" (1) No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation.

(2) Everyone has the right to the protection of the law against such interference or attacks."

Mr Fung submitted that the extent to which the investigator can compel the applicant to answer questions put to him under s.33 is a power which interferes with privacy rights, the basis for the interference for which must not be arbitrary. The production of documents under compulsion may violate the right to privacy on the basis that there has been a seizure of material in which an individual may have a privacy interest, see McKinlay Transport Limited v. R. [1990] 76 CR (3d) 283. Accordingly, he submitted that there should be a system of prior authorisation by an impartial and neutral arbiter such as a magistrate who will act judicially. He illustrated his argument by referring to s.36 of the SFC Ordinance that provides for a magistrate to issue warrants for the seizure and removal of documents. Mr Fung also relied on the dissenting speech of Lord Salmon in R. v. IRC Ex p. Rossminster [1980] AC 952 that concerned the search and seizure powers exercised by the Inland Revenue under a warrant issued upon the authority of a judge when he held that a citizen's basic human right of privacy extends to both his home and business premises.

CONCLUSIONS

58. Article 14 makes no reference to a person's business premises so that it is restricted, as I said in Tse to the applicant's privacy in his personal and private affairs and does not extend to the realm of business transactions. However, even if privacy does extend to an individual's business affairs, that expectation of privacy is minimal. However, in my judgment, the holding of shares in the circumstances where regulatory controls apply does not come within the ambit of article 14 when a criminal offence is suspected to have been committed.

59. The suggestion on behalf of the applicant that the investigator can summon a person before him upon a whim as he is not accountable to any independent body for the exercise of the power is unreal for before an investigation can be launched, the Commission must have a reasonable belief or suspicion that an offence has been committed. Further, an investigator cannot act unlawfully as the investigation must be carried out in accordance with the provisions, set out in the SFC Ordinance. If the Commission exceeds its jurisdiction, proceedings can be taken for judicial review.

60. The argument advanced under this article is therefore rejected.

61. I now turn to article 5 which was not raised in the Tse case.

ARTICLE 5 - LIBERTY AND SECURITY OF PERSON

"Article 5 - Liberty and security of person

(1) Everyone has the right to liberty and security of person. No one shall be subjected to arbitrary arrest or detention. No one shall be deprived of his liberty except on such grounds and in accordance with such procedure as are established by law.

(2) Anyone who is arrested shall be informed, at the time of arrest, of the reasons for his arrest and shall be promptly informed of any charges against him.

(3) Anyone arrested or detained on a criminal charge shall be brought promptly before a judge or other officer authorized by law to exercise judicial power and shall be entitled to trial within a reasonable time or to release. It shall not be the general rule that persons awaiting trial shall be detained in custody, but release may be subject to guarantees to appear for trial, at any other stage of the judicial proceedings, and, should occasion arise, for execution of the judgment.

(4) Anyone who is deprived of his liberty by arrest or detention shall be entitled to take proceedings before a court, in order that that court may decide without delay on the lawfulness of his detention and order his release if the detention is not lawful.

(5) Anyone who has been the victim of unlawful arrest or detention shall have an enforceable right to compensation."

62. Mr Fung linked article 5 with the rights under articles 11(2)(g) and 14. He submitted that to take away the right of silence of a suspect or a witness is the deprivation of a guaranteed right under the BOR Ordinance whether the right is the right not to be compelled to testify or confess guilt under article 11(2)(g), the right to privacy under article 14 or the right to liberty and security of person under article 5.

63. Mr Fung drew my attention to a decision of the Supreme Court of Canada, Thomson Newspapers Ltd. v. Canada [1990] 67 DLR (4th ed) 161. In that case the appellants were served with orders to appear before the Restrictive Trade Practices Committee to be examined on oath and to produce documents in connection with an inquiry being conducted by the Director of Investigation and Research under s.17 of the Combines Investigation Act to determine whether evidence existed that the corporate appellant had committed the indictable offence of predatory pricing. Issues were raised as to whether s.17 contravened ss.7 and 8 of the Canadian Charter of Rights and Freedoms. These sections provide as follows :-

" 7.Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

8.Everyone has the right to be secure against unreasonable search and seizure."

In the Supreme Court, two judges, La Forest and L'Herureux-Dube J.J. held that s.17 did not violate either section whilst Wilson J. held that the section violated both sections. Sopinka J. agreed with Wilson J. that the section violated s.7, but not s.8 whilst Lamer J. agreed with Wilson J. with regard to s.8, but did not express an opinion on s.7 because he said that the appellant had challenged the wrong section. There was therefore no majority on s.7 but there was on s.8 for different reasons.

64. La Forest and L'Herureux-Dube J.J. held that the legislation was regulatory in order to maintain a particular economic system and that the use of criminal sanctions was necessary to induce compliance. They held that s.17 does not unreasonably infringe the limited expectation of privacy of those subject to the Act. With regard to the power to compel oral testimony, they said that it constitutes a deprivation of liberty within s.7 but was not contrary to the principles of fundamental justice to testify under s.17. Both Wilson and Lamer J.J. held that s.17 violated s.8 as it amounted to a seizure and it was regarded as unreasonable because the proceedings were criminal or quasi criminal although they held that it may be reasonable in a regulatory or civil context.

65. Essentially, Wilson J. said that although the s.17 procedure is in itself investigatory as opposed to prosecutorial, it is irrelevant when criminal prosecution is a potential consequence of the investigation. She considered that the compulsion would undoubtedly result in the answers and material produced being used for the purpose of criminal or quasi criminal proceedings. However, it is significant that in Thomson's case in contrast to the instant case, the director was not required to have a reasonable and probable cause for believing that an offence had been committed when he applied for the orders.

66. Although copious passages were cited from the judgments in Thomson, I do not derive much assistance from them for the purposes of the present case for the wording of article 5 differs materially from s.7 of the Charter. Article 5 without doubt is concerned with the physical arrest and detention of a person in connection with criminal proceedings. Section 7 of the Charter on the other hand makes no reference to physical arrest and detention. Section 8 of the Charter has been compared with article 14 concerning the issue of privacy upon which I have already ruled.

67. In Hong Kong there is no provision for derivative use immunity either at common law or by statute and the introduction of the BOR Ordinance has made no change.

68. The reliance placed upon article 5 is misconceived and is rejected.

69. I now turn to article 15.

ARTICLE 15 - FREEDOM OF THOUGHT, CONSCIENCE AND RELIGION

70. Article 15 provides where relevant :-

" (1) Everyone shall have the right to freedom of thought, conscience and religion. This right shall include freedom to have or to adopt a religion or belief of his choice, and freedom, either individually or in community with others and in public or private, to manifest his religion or belief in worship, observance, practice and teaching.

(2) No one shall be subject to coercion which would impair his freedom to have or to adopt a religion or belief of his choice.

(3) Freedom to manifest one's religion or beliefs may be subject only to such limitations as are prescribed by law and are necessary to protect public safety, order, health, or morals or the fundamental rights and freedoms of others.

(4) The liberty of parents and, when applicable, legal guardians to ensure the religious and moral education of their children in conformity with their own convictions shall be respected."

71. Mr Fung submitted that s.33(8) is inconsistent with the right to freedom of thought guaranteed under article 15 of the BOR Ordinance for it provides the Commission with the power to require a person under investigation to make a statutory declaration under threat of a penalty. He contended that no one should be compelled to affirm to the truth of facts unless there is an independent determination of the relevance of the issue in respect of which such affirmation is sought. This argument is identical to that advanced in the Tse case when I found that s.145 of the Companies Ordinance was in no way inconsistent with article 15. I am satisfied that the appointment by the Commission of an investigator, like the inspector in Tse, is not concerned with the applicant's thought processes but with obtaining factual evidence.

72. The argument presented in respect of article 15 was devoid of merit with the result that this ground fails.

73. I now come to the final article that was invoked which is article 16.

ARTICLE 16 - FREEDOM OF OPINION AND EXPRESSION

74. Article 16 provides :-

" (1) Everyone shall have the right to hold opinions without interference.

(2) Everyone shall have the right to freedom of expression; this right shall include freedom to seek, receive and impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media of his choice.

(3) The exercise of the rights provided for in paragraph (2) of this article carries with it special duties and responsibilities. It may therefore be subject to certain restrictions, but these shall only be such as are provided by law and are necessary-

(a) for respect of the rights or reputations of others; or

(b) for the protection of national security or of public order (order public), or of public health or morals."

75. In respect of this ground, it was contended that s.33(8) is inconsistent with the right to freedom of opinion and expression guaranteed under article 16 as the powers of the Commission to compel a person under investigation to make a statutory declaration under threat of a penalty amounts to an interference with the right of that person to hold opinions as guaranteed under article 16(1) or alternatively the right not to impart information which is implicit in the right to freedom of expression guaranteed under article 16(2).

76. This was the same argument that was raised in Tse which I rejected on the grounds that article 16 is concerned with the entrenched right of freedom of opinion and expression, not with providing an immunity from disclosing information. This ground also fails.

FINAL DETERMINATION

77. Mr Fung submitted that the present case raised the question as to whether the Commission has justified arrogating to themselves powers which the legislature has sought not to confer on police officers charged with investigating offences far more serious than those to be investigated by the Commission. He said that the only reason advanced by the Commission was that the powers are needed to make it more effective.

78. Mr Fung went on to say that the difficulties concerning the ascertainment of the ultimate issue of ownership of shares are not insuperable and are no different in many respects from the problems encountered by police officers in nearly all criminal investigation work, including commercial fraud. Although Mr Fung did not elaborate as to how these difficulties could be overcome without the powers that have been conferred upon the Commission, they have been encapsulated by Mr G.J. McMahon, the Director of the Enforcement Division of the Commission, in paragraph 21 of his affidavit of the 24th November 1992 which reads :-

"21. The power to order investigations is critical to the role of regulating the securities industry and it is no coincidence that countries with developed securities markets have found it necessary to vest investigative powers such as those contained in section 33 of the SFC Ordinance in the relevant regulatory authority. These investigative powers are essential to adequate enforcement without which regulation would neither be effective nor taken seriously. Detection of malpractice's can be extremely difficult especially when it is so easy in practice to deploy devices such as nominees, foreign intermediaries, fictitious names and off-shore companies. Such off-shore companies are often incorporated in such jurisdictions as Panama, Liberia and the British Virgin Islands ('BVI'), where no pertinent public information is available. These off-shore companies often only have bearer shares so the identity of the ultimate owner is difficult, if not impossible, to establish."

79. Those difficulties were also appreciated by La Forest J. in Thomson Newspapers Ltd. v. Canada supra where he had this to say at pp.234 and 235 :-

" In brief, because of the nature of the conduct regulated by the Act, there will in many cases be no way of determining whether proscribed conduct has been engaged in, short of studying the process by which a suspected corporation or business has made and implemented its decisions. In this respect, the situation is not unlike that under the Income Tax Act. I agree with Wilson J, that under the latter Act, it will often be 'impossible to determine from the face of the return whether any impropriety has occurred in its preparation': see R. v. McKinlay Transport Ltd., supra, at p.22. I would simply add that under the Combines Investigation Act it will likewise often be impossible for those responsible for its enforcement to determine whether it has, in fact, been violated. I see no reason why this factor should be relevant to the constitutionality of the power to order production found in the former Act but irrelevant to the constitutionality of a substantially similar power found in the latter Act. Investigatory mechanisms which force corporations and other businesses to divulge what they and only they can know about their internal affairs are part of the state's interest in the enforcement of combines legislation. The power to subpoena books, records and documents is obviously one such investigatory mechanism. To limit its use to situations in which the Director or a Commission member can show reasonable and probable grounds to believe that a specific offence has been committed would frustrate the process of investigation at its very inception.

These considerations have played an important role in shaping the American approach to combines legislation. Thus, in United States v. Morton Salt Co., supra, the Federal Trade Commission, in the course of an anti-trust investigation, by subpoena ordered production of certain documents to satisfy itself that previously issued cease-and-desist orders were being complied with. In upholding the subpoena, Jackson J., writing for the court, stated at pp.642-3:

The only power that is involved here is the power to get information from those who best can give it and who are most interested in not doing so. Because judicial power is reluctant if not unable to summon evidence until it is shown to be relevant to issues in litigation, it does not follow that an administrative agency charged with seeing that the laws are enforced may not have and exercise powers of original inquiry. It has a power of inquisition, if one chooses to call it that, which is not derived from the judicial function. It is more analogous to the Grand Jury, which does not depend on a case or controversy for power to get evidence but can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not. When investigative and accusatory duties are delegated by statute to an administrative body, it, too, may take steps to inform itself as to whether there is probable violation of the law.'

(Emphasis added.)

This passage was quoted with approval in Federal Trade Commission v. Texaco, Inc., 555 F.2d 862 (1977, D.C. Cir.). In that case, one of the grounds on which the subpoena was challenged was that the relevant legislation did not provide for sufficient judicial supervision of the process by which the subpoena was issued. In rejecting this argument, the Court of Appeal for the District of Columbia said, at pp.872-3, that

'...the scope of issues which may be litigated in an enforcement proceeding must be narrow, because of the important governmental interest in the expeditious investigation of possible unlawful activity. As the Ninth Circuit has noted, the 'very backbone of an administrative agency's effectiveness in carrying out the congressionally mandated duties of industry regulation is the rapid exercise of the power to investigate ...' FMC v. Port of Seattle, 521 F.2d 431, 433.'"

80. Apart from Thomson Newspapers v. Canada supra, three other Canadian decisions support the arguments of the Commission in the instant case. In the first case Ontario Securities Commission v. Biscotti 40 DLR 160 it was held that the examination of witnesses under s.11(4) of the Securities Act (Ontario) amounted to proceedings which were purely investigatory. The same result obtained in British Columbia Securities Commission v. Branch 68 DLR (4th ed) 347 where it was held that the powers under the Securities Act SBC 1985 were investigatory. It was further held in this case that there was no violation of liberty because the investigator did not have the power to determine guilt. In the third case McKinlay Transport Limited v. R. supra, it was held that the Income Tax Act was essentially regulatory.

81. The object of the legislation is to supervise trading in the market and to ensure that it is carried out honestly for the benefit of private investors and in the public interest. Effective regulation is essential to the continuance of Hong Kong's economic prosperity as a commercial and international financial centre. By the Joint Declaration and the Basic Law, Hong Kong's free trade policy and its position as a free port have been guaranteed to continue for 50 years after the territory reverts to Chinese sovereignty in 1997. It is therefore of vital importance that the regulatory authorities have sufficient powers to investigate suspected malpractice. As it is the persons who carry out the actual trading in the market who will have the information that is required it is essential that the Commission should be invested with the powers set out in s.33(4) of the SFC Ordinance to investigate suspected malpractice, Those powers are reasonable and necessary to enable the Commission to carry out its statutory duty of investigation.

82. The complaint that there are inadequate safeguards is without foundation. In the first instance there is the right to apply for judicial review. Further, the applicant is entitled to legal representation before the investigator under s.33(5) of the SFC Ordinance when his legal adviser may take part in the examination. The applicant is also protected against self-incrimination under s.33(6) of the SFC Ordinance if the answers might tend to incriminate him and he claims the protection before answering the question. Neither the question nor the answer will be admissible in evidence against him in criminal proceedings other than for making a false statutory declaration or for perjury, but will be admissible in proceedings under the Securities (Insider Dealing) Ordinance which are not criminal proceedings. The investigator is also obliged under s.33(6) of the SFC Ordinance to inform the applicant of the limitation in respect of the admissibility of the evidence. However, no reference to insider dealing has been made in this case. Indeed, if s.33(4) was repealed, it would result in the legislation being rendered unenforceable.

83. It is abundantly clear that the powers of the Commission are regulatory and administrative and not criminal or quasi criminal for the Commission has no power to determine guilt or innocence. The investigation is preliminary to any proceedings that can be instituted for any criminal offence that may be discovered.

84. The applicant is not a person who has been charged with a criminal offence nor is he a suspect for no allegations have been made against him that he has committed a criminal offence. He is therefore required to attend the interview as a witness.

85. Although the applicant complained that he did not have sufficient information or evidence when he was required to attend for interview, this is quite clearly wrong because he was aware that the suspected offence is contrary to s.135 of the Securities Ordinance into the dealings of shares in Truly in respect of two periods which have been specified. He has also been informed of the names of four major traders. It would therefore be inappropriate to provide further information which would be clearly prejudicial to the investigation.

86. The use of criminal sanctions in the SFC Ordinance is appropriate in order to enforce compliance with the law. Due to the complexity of transactions and the difficulties encountered when there are nominees and off-shore companies, it is imperative that these sanctions are available. These sanctions merely underpin the Ordinance in order to give it proper effect.

87. I find that s.33(4) is in no way inconsistent with any of the articles of the BOR Ordinance that were invoked, whilst I reject the alternative argument based upon s.33(8). As a result the second stage of the bifocal or proportionality test was not reached. However, if I had found that there had been any contravention of the BOR Ordinance, I would have held that the interests of the state and the community far outweighed those of the individual for it is a matter of public interest that suspected offences of fraud should be investigated.

88. The arguments advanced on behalf of the applicant were without merit and were doomed to failure. Accordingly the motion will be dismissed and there will be an order nisi for costs to the Commission.