HKSAR v. TONG CUN LIN AND OTHERS

1996 No. 303

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL JURISDICTION

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R U L I N G

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Introduction

1. On 6th November, following a trial which lasted over five months, the Defendants were acquitted on all counts. The charges they had faced included a charge of conspiracy to defraud the Securities and Futures Commission and various charges brought under the Prevention of Bribery Ordinance (Cap. 201). The Defendants now apply, pursuant to section 73A(1) of the Criminal Procedure Ordinance (Cap. 221), for the payment out of the public revenue of the costs of their defence. The application is made pursuant to the Criminal Procedure Ordinance rather than the Costs in Criminal Cases Ordinance (Cap. 492), because the offences which the Defendants faced were alleged to have been committed before the latter Ordinance came into operation.

2. In Ng Yui Kin [1983] HKLR 356, it was held that applications for costs by successful defendants should be decided in accordance with the prevailing practice directions in England. The practice direction in England in 1990 when the offences which the Defendants faced had allegedly been committed provided that orders for costs in favour of acquitted defendants

"should normally be made unless there are positive reasons for not doing so. Examples of such reasons are: (a) the defendant's own conduct has brought suspicion on himself and has misled the prosecution into thinking that the case against him is stronger than it is...": Practice Note (Criminal Law: Costs) [1989] 2 All E.R. 604.

In Kwok Moon Yan [1989] 2 HKLR 396, the Court of Appeal construed the word "and" disjunctively. In delivering the judgment of the court, Silke V.-P. said at p.401B-C:

"We do not view this as meaning that there must be both a bringing of suspicion and a misleading before a successful [defendant] will be deprived of his costs. If it is the view of the Court that a man has brought suspicion on himself, or having done that, he has also misled the prosecution, either by the very bringing of that suspicion, or some other matter, into thinking the case against him is stronger than it is, then these, either separately or combined, are factors which lie for the consideration of the Court in the exercise of its discretion."

3. The prosecution do not contend that the 2nd Defendant, Hsu Jye, should be deprived of her costs. However, they seek an assurance that she has in fact incurred the costs which she claims she has incurred, and at the conclusion of this judgment, I shall be told whether such assurances as Hsu Jye and her solicitors are prepared to give are satisfactory to the prosecution. I therefore turn to the other Defendants, all of whom the prosecution say should be deprived of their costs because by their conduct they brought suspicion of guilt upon themselves.

The 1st Defendant

4. The conduct on the part of David Tong which is principally relied upon by the prosecution is the agreement which he reached with members of the Chiu Ming Hung syndicate, either to buy back the Bond shares which they were buying in the placement exercise, or to indemnify them in the event that they could not subsequently sell those shares at a profit. When he was interviewed in the course of the Inspector's investigation, Mr. Tong all but admitted that he had been a party to buy-back and indemnity arrangements relating to the shares. As for a buy-back arrangement, he admitted that he had been behind the purchase of the 30m. shares which had nominally been bought by Michael Hsu. He never actually admitted that he had bought the shares back because of a buy-back arrangement, but the prosecution had ample grounds for suspecting that he had done so: why else would he have bought the shares back at more than twice their market value? As for an indemnity arrangement, he admitted that he had paid Koo Tai Ne a sum to compensate him for the losses he had incurred in connection with the purchase of Bond shares in the name of Chiu Ming Hung. Again, Mr. Tong never actually admitted that he had done that because of an indemnity arrangement, but the prosecution had ample grounds for suspecting that he had done so: why would Mr. Tong have compensated Koo Tai Ne for his losses, had Mr. Tong not been a party to an indemnity arrangement with Koo Tai Ne in the first place?

5. I accept that Mr. Tong's conduct in entering into buy-back and indemnity arrangements with members of the Chiu Ming Hung syndicate would not have amounted to conduct giving rise to suspicion unless he had also done something to lead the prosecution to suspect that he knew that

(a) such arrangements would very likely be seen by the SFC as amounting to a concert party between him and members of the Chiu Ming Hung syndicate, and

(b) Tomson Pacific would be likely to be required to make a general offer if the SFC was informed of these arrangements.

As it was, Mr. Tong had done something to lead the prosecution to suspect that he had known both these things. When he was interviewed, he had given answers amounting to an admission that

(a) by the following December he was alive at least to the possibility that a buy-back arrangement amounted to an agreement or understanding of a kind which could trigger the obligation to make a general offer, and

(b) he had deliberately taken steps to conceal the fact that he was buying back the shares himself.

He never actually admitted that he had known at the time of the buy-back arrangement itself about its effect, but the prosecution had ample grounds for suspecting that he had known that. It is not suggested by Mr. Robinson that the prosecution had become aware of anything happening between the end of the placement exercise and December 1990 which could have added to Mr. Tong's knowledge of the requirements of the Code. Since he had admitted having had his suspicions about buy-back arrangements in December, the prosecution had ample grounds for suspecting that he had had his suspicions about both buy-back and indemnity arrangements at the time the buy-back and indemnity arrangements were entered into.

6. Accordingly, the question is: by leading the prosecution to suspect

(a) that he had entered into buy-back and indemnity arrangements knowing that Tomson Pacific would therefore be likely to be required to make a general offer if the SFC was informed about them, but

(b) that he had deliberately kept them secret,

had Mr. Tong brought suspicion on himself that he was a party to a conspiracy to defraud of the kind alleged in count 1? In my view, he had. For the reasons I have given, he had brought suspicion on himself that he was a party to an attempt to deceive the SFC. Since there was ample evidence available to the prosecution of Jackson Chang's involvement at every stage in the Bond deal, Mr. Tong had brought suspicion on himself that he and Jackson Chang at least were parties to a conspiracy to defraud the SFC.

7. I should add that the prosecution relied on Mr. Tong's signing of the forms of acknowledgement as additional conduct on his part which brought suspicion on himself. In view of the conclusion I have reached on the conduct primarily relied upon, I have not found it necessary to address this issue.

8. Mr. Robinson contended that even if Mr. Tong had brought suspicion on himself, I should not exercise my discretion in such a way as to deprive him of his costs. In that connection, Mr. Robinson relied on Mr. Tong's willingness to answer the Inspector's questions, on his compliance with the terms of his bail, and on his exemplary behaviour during the trial. I do not regard any of these factors, whether taken individually or cumulatively, as significant on the issue which I have to decide. But Mr. Robinson also pointed to the stress and anxiety which Mr. Tong had undergone, the effect which the case had had on his health, and the adverse publicity to which he had been subjected. To refuse this application for costs, said Mr. Robinson, would be to subject Mr. Tong to further punishment which he simply does not deserve. I have taken those matters into account, but they do not sit well with my finding that he had brought suspicion upon himself. Having brought suspicion upon himself, and having to that extent contributed to the decision that he should be prosecuted, it is not all that attractive for him to be relying on the impact which that prosecution has had on his personal and professional life.

9. Finally, Mr. Robinson pointed out that there was no conduct on Mr. Tong's part which the prosecution had contended had brought suspicion on himself that he was guilty of corruptly offering the $26.4m. to Arthur Lai as alleged in count 4. Accordingly, even if Mr. Tong was to be denied an order that he be paid the costs of his defence to count 1, there was no basis for denying him an order that he be paid the costs of his defence to count 4. I have not been persuaded by that argument. Even if he had not been charged in relation to the $26.4m., the prosecution was still relying on the circumstances surrounding the payment of the $26.4m. as evidence of a conspiracy to defraud the SFC and as evidence of Mr. Tong's participation in that conspiracy. Much, if not most, of the evidence relating to the $26.4m. would, therefore, have had to be called, and to have been the subject of dissection and analysis by counsel. It would not therefore be appropriate to hive off Mr. Tong's costs of his defence to count 4. Those costs would, for the most part, still have been incurred in his defence to count 1.

10. For these reasons, and having considered the matter with the care which the quality of the submissions on the topic deserves, I have concluded that Mr. Tong's application for the payment out of the public revenue of the costs of his defence should be refused.

The 3rd Defendant

11. The conduct on the part of Arthur Lai which is principally relied upon by the prosecution is

(a) his failure to ensure that the SFC was informed that Mandarin was a placee for 8m. odd of the placement shares, and

(b) since the SFC had made it clear that it wanted to be provided with information about the beneficial ownership of the placees, his failure to ensure that the SFC was informed that he had a beneficial interest in Mandarin.

I am prepared to assume in Arthur Lai's favour, but without deciding, that any failure on his part to ensure that the SFC was informed of these facts would not have amounted to conduct giving rise to suspicion unless he had also done something to lead the prosecution to suspect that he had deliberately kept these facts secret. In my view, he had done just that by giving inconsistent accounts of whether he had had a beneficial interest in Mandarin at the time of the placement. In May 1993, in the course of the civil proceedings, he had claimed that he had ceased to have a beneficial interest in Mandarin by the time of the placement. However, in July 1993, in the course of the Inspector's investigation, he accepted that he had had a beneficial interest in Mandarin at that time. The fact that he had at one stage attempted to distance himself from Mandarin at the relevant time gave rise to the suspicion that his failure to ensure that the SFC had the full facts was indeed deliberate.

12. Accordingly, the question is: by leading the prosecution to suspect that he had deliberately failed to ensure that the SFC was informed that a company in which he had a beneficial interest was a placee for a not insignificant block of Bond shares, had Arthur Lai brought suspicion on himself that he was a party to a conspiracy to defraud of the kind alleged in count 1? In my view, he had. If the facts had been disclosed, the SFC would have inquired whether Mandarin had been acting in concert with Tomson Pacific. Tomson Pacific had recently agreed to pay Mandarin $26.4m. If in the course of that inquiry the SFC had discovered that payment, the SFC may have concluded that the shares had been placed to Mandarin in circumstances requiring a general offer to be made.

13. For these reasons, Arthur Lai had brought suspicion on himself that he was a party to an attempt to deceive the SFC. The payment which Tomson Pacific had agreed to make to Mandarin, and the fact that the accuracy of the list of placees had been vouchsafed by Raymond Lai, meant that Arthur Lai had brought suspicion on himself that he, Raymond Lai and Jackson Chang (who signed the letter from Tomson Pacific offering Mandarin the $26.4m.) were parties to a conspiracy to defraud the SFC.

14. I have not overlooked Mr. Harris's argument that it is easy to be wise after the event, and that Arthur Lai had left to others the task of providing the SFC with the information it required. There had been therefore no need, so it is said, for him to ensure that accurate information had been provided to the SFC because he was entitled to assume that it had been. That might have been a formidable argument relating to other placees, but not to a placee in which Arthur Lai had a beneficial interest himself. Nor have I overlooked Mr. Harris's point that in the course of his evidence in the trial, Arthur Lai explained why he had been confused at the time of the civil proceedings, and why he had then thought that he had disposed of his beneficial interest in Mandarin by the time of the placement. But when the prosecution was deciding whether to prosecute Arthur Lai, it did not then know what he would be saying at his trial. And as for the point that in the course of the Inspector's investigation, Arthur Lai corrected the error he had made in the civil proceedings, the damage to his credibility in the eyes of the prosecution had already been done. Indeed, his correction reinforced the suspicion that he had deliberately attempted to distance himself from Mandarin in the first place.

15. In summary, none of these arguments have caused me to alter my view that by leading the prosecution to suspect that he had deliberately failed to ensure that the SFC was informed that a company in which he had a beneficial interest was a placee for a not insignificant block of Bond shares, Arthur Lai had brought suspicion on himself that he was a party to a conspiracy to defraud of the kind alleged in count 1.

16. In Arthur Lai's case as well, the prosecution relied on other conduct on Arthur Lai's part as having brought suspicion on himself. In view of the conclusion I have reached on the conduct principally relied upon, I have not found it necessary to address his other conduct. Some of the conduct related to the payments of the A$2m. and the $26.4m., but even if I had concluded that that conduct had not brought suspicion on himself that he was guilty of corruptly accepting those payments as alleged in counts 2 and 5, I would not have ordered that he be paid the costs of his defence to those counts. My reasons would have been the same as those in the case of Mr. Tong.

17. Like Mr. Robinson, Mr. Harris urged me to exercise my discretion in Arthur Lai's favour even if it could be said that he had brought suspicion on himself. In that connection, Mr. Harris relied on the fact that in the course of the Inspector's investigation, Arthur Lai has set the record straight about his beneficial interest in Mandarin at the time of the placement. I have already dealt with that argument in the context of whether it had the effect of removing any suspicion which his earlier conduct might have given rise to. Mr. Harris also contended that Arthur Lai had suffered enough. This was not the only traumatic trial which he had had to undergo. He had had the worry of the civil proceedings as well. He had lost that case and had been ordered to pay A$2m. and $26.4m. to Standard Chartered Securities plus their taxed costs of the action. Part of that judgment remains unsatisfied to this day. For my part, I can understand how Arthur Lai feels, but as I said in connection with Mr. Tong's application, considerations of this kind do not lie easily with my conclusion that Arthur Lai was to some extent the author of his own misfortune. Having brought suspicion upon himself, and having to that extent contributed to the decision that he should be prosecuted, I am not persuaded that the impact of the various sets of proceedings on him should nevertheless justify an award of costs in his favour.

18. For these reasons, and having considered the matter with the care which Mr. Harris's well-argued submissions deserve, I have concluded that Arthur Lai's application for the payment out of the public revenue of the costs of his defence should be refused.

The 4th Defendant

19. On 23rd July 1990, Raymond Lai wrote to the SFC on behalf of ChinTung. In that letter he confirmed the successful placement of the placement shares, he confirmed that the placees were (to the best of ChinTung's knowledge and belief) independent of Tomson Pacific, and he enclosed the list of placees which had first been sent to the SFC three days earlier. The conduct on Raymond Lai's part which is principally relied on by the prosecution as having brought suspicion upon himself was

(a) his failure to inform the SFC that the placement exercise had not been completed (because there were still the 8m. odd shares which Hauxton was not going to take up which had not yet been placed);

(b) his failure to inform the SFC subsequently that the 8m. odd shares had been placed to Mandarin;

(c) alternatively to (a) and (b), if the 8m. odd shares had already been placed to Mandarin, his failure to inform the SFC that Mandarin was a placee and that Arthur Lai had a beneficial interest in it, and

(d) in any event, his failure to inform the SFC that Hauxton had only taken 60m. of the placement shares and not the 68m. odd shares referred to in the list of placees.

20. It was not suggested to me that Raymond Lai had done anything himself to lead the prosecution to believe that he had deliberately kept these facts secret. But the evidence which the prosecution had shows that Raymond Lai had been in charge of the placement exercise. He could therefore have been expected to know at least whether the placement had actually been completed and who the placees were. In my view, by giving the SFC information which was either seriously inaccurate or seriously incomplete, in circumstances in which he could have been expected to know the true position, Raymond Lai led the prosecution to believe that he had deliberately failed to inform the SFC of the true facts. Had he, in those circumstances, brought suspicion on himself that he was a party to a conspiracy to defraud of the kind alleged in count 1? In my view, he had. He had brought suspicion on himself that he was a party to an attempt to deceive the SFC, and since the SFC had reason to suspect, for the reasons I have given, that Arthur Lai had attempted to do the same thing, Raymond Lai had brought suspicion on himself that he and Arthur Lai at least were parties to a conspiracy to defraud the SFC.

21. In Raymond Lai's case as well, the prosecution relied on other conduct on Raymond Lai's part as having brought suspicion on himself. In view of the conclusion I have reached on the conduct principally relied upon, I have not found it necessary to address this other conduct. That conduct related to the payment of the A$2m. But even if I had concluded that that conduct had not brought suspicion on himself that he was guilty of aiding and abetting Arthur Lai's acceptance of that sum as alleged in count 3, I would not have ordered that he be paid the costs of his defence to count 3 (or to count 6 for that matter). My reasons would have been the same as those in the case of Mr. Tong.

22. I have considered the overall exercise of my discretion in the case of Raymond Lai, but for the reasons I have given, I have concluded that Raymond Lai's application for the payment out of the public revenue of the costs of his defence should be refused.

The 5th Defendant

23. Unlike Raymond Lai, Peter Mou had no dealings with the SFC, and therefore the conduct on his part relied on by the prosecution is different from that of Raymond Lai. Three features of his conduct were relied upon. First, along with Raymond Lai, Mr. Mou signed exhibit P76 confirming that ChinTung was aware of the A$2m. payable to Wealthcorp by Bond Holdings. Since the board of directors of ChinTung was not aware of this fee, it is said that Mr. Mou brought suspicion on himself. In my view, that criticism of Mr. Mou could only have been made out if he had done something to lead the prosecution to suspect that he had been aware that what he had signed was untrue. I have not been told of anything which Mr. Mou had done which either led or could have led the prosecution to suspect that.

24. Secondly, Mr. Mou countersigned exhibit P102 in which Tomson Pacific agreed to pay Mandarin $26.4m. Since this payment was also concealed, it is said that Peter Mou brought suspicion on himself. In my view, that criticism of Mr. Mou could only have been made out if he had done something to lead the prosecution to suspect that he had been aware that the payment was being concealed. I have not been told of anything which Mr. Mou had done which either led or could have led the prosecution to suspect that. In any event, the countersigning of exhibit P102 could have been completely innocent. The letter concluded:

"Kindly acknowledge acceptance by signing below."

It could be that Mr. Mou had simply countersigned P102 to acknowledge receipt of the letter by Mandarin.

25. Thirdly, Mr. Mou was responsible for the preparation of exhibit P685a and in addition he signed it. By doing so, I have no doubt that he brought suspicion on himself that he knew that

(a) Hauxton's purchase of its 60m. placement shares had been partly financed by various companies whose names did not appear in the memo., and

(b) Hauxton still owed about $11m. being the balance of the purchase price of the shares.

However, I do not think that means that he had himself done anything to bring suspicion on himself that he was a party to a conspiracy to defraud of the kind alleged in count 1. It has not been suggested to me that Mr. Mou had done anything to lead the prosecution to suspect that

(a) he knew that the various unnamed companies were connected with Tomson Pacific or Mr. Tong, or

(b) he knew that Hauxton's shortfall was met by a temporary loan to Hauxton by ChinTung, or

(c) he knew that either of these facts were to be concealed from the SFC.

The mere fact that he claimed in the course of the Inspector's investigation that he could not recall the details of the Hauxton placement is not sufficient.

26. For these reasons, the prosecution has not satisfied me that there are sufficient grounds for depriving Mr. Mou of his costs, and I therefore order the payment out of the public revenue of the costs of his defence. The amount of those costs will be ascertained by the Registrar.

The amount of the costs

27. I should add two matters relating to the amount of his costs - and those of Hsu Jye if an assurance in her case satisfactory to the prosecution is given. First, Mr. Tong and Hsu Jye were represented by the same solicitors, but they were represented by separate counsel at trial. The reasons for that were explained to me by Mr. Robinson and Mr. Plowman, and I am entirely satisfied that that was an appropriate course to take.

28. Secondly, in the course of the trial some time was spent by the prosecution calling evidence to prove a number of primary facts which were eventually admitted by the defence. I wanted to know whether any of the Defendants had unreasonably refused to admit certain facts, with the result that the trial had been unreasonably prolonged, because that could have had an impact on the amount of the costs to be awarded. Mr. Wilson expressly confirmed to me that none of the Defendants had been in any way responsible for prolonging the trial. The reason why evidence was called to prove facts which it was known were not in dispute was because the prosecution feared that the facts were too complicated for the jury to absorb or digest without at least some evidence relating to them. It is not for me to comment on whether that fear was justified as nothing in the event turns on it.