RE JOHN KELSEY-FRY QC

HCMP 99/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 99 of 2009

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J U D G M E N T

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1.  The Applicant seeks admission under section 27(4) of the Legal Practitioners Ordinance, Cap. 159 to represent a defendant in criminal proceedings (I shall refer to him herein as the Defendant) brought under section 291 of the Securities and Futures Ordinance, Cap. 571 (“the Ordinance”).  The Applicant, a Queen’s Counsel from the United Kingdom, seeks to be admitted for the purposes of advising the Defendant and appearing on his behalf in a trial due to commence on 4 May 2009 (with 25 days reserved).  This is DCCC 787 of 2008.

2.  The Defendant faces ten charges : nine relate to charges under sections 291(1)(a) and (8) of the Ordinance; the other is brought under sections 291(1)(b) and (8).  These sections provide as follows : -

“291.  Offence of insider dealing

(1)   A person connected with a listed corporation and having information which he knows is relevant information in relation to the corporation shall not -

(a)    deal in the listed securities of the corporation or their derivatives, or in the listed securities of a related corporation of the corporation or their derivatives; or

(b)   counsel or procure another person to deal in such listed securities or derivatives, knowing or having reasonable cause to believe that the other person will deal in them.

…..

(8)  Subject to sections 292, 293 and 294, a person who contravenes subsection (1), (2), (3), (4), (5), (6) or (7) commits an offence.”

3.  The prosecution’s case against the Defendant is essentially as follows (this summary is derived from the Statement of Facts in the criminal proceedings (the copy I have is said to be for listing purposes only)) : -

(1)        The relevant company (the shares of which are the subject matter of the charges) is CITIC Resources Holdings Limited (“CITIC Resources”), a company which is publicly listed on the Hong Kong Stock Exchange.

(2)        At all material times, the Defendant was the Managing Director of the fixed income department of Morgan Stanley Asia Limited (“MSAL”).

(3)        At the beginning of 2006, the Defendant became a leading and active member of a team within MSAL that was attempting to procure investment banking work from CITIC Resources and other members of the CITIC group of companies.  Over the course of 2006 and 2007, numerous meetings took place between the Defendant and senior staff of CITIC Resources (and of companies in the CITIC group) in relation to projects involving the financing of acquisitions by CITIC Resources of oil assets in the Mainland from other members of the group.

(4)        Following a meeting on 8 February 2007, the Defendant (as well as other members of his team) received an e-mail reminding them that, specifically in relation to CITIC Resources, they were not to trade in shares without specific permission.

(5)        The ten charges relate to the proposed acquisition by CITIC Resources of some oilfield assets in the Mainland.  The “relevant information” (for the purposes of section 291) is identified in the Statement of Facts as follows : -

“6.      On 15 February 2007, the Defendant received the non-public price sensitive information about CITIC RESOURCES’s proposed acquisition of the oilfield asset in the Mainland by e-mail from Zhang Shane Xin, a Managing Director of Morgan Stanley who had been informed about it earlier that morning by Peter Kwok, the then chairman of CITIC RESOURCES.  The e-mail, among other things, stated that ‘Confidentially, CITIC RESOURCES will issue equity again, likely in March, in exchange for – 100mm barrels of oil in China.  Obviously this will have impact on the rating.  They are working hard to do dd [due diligence] on these assets now’.  This information constitutes the ‘relevant information’ on which it is alleged the Defendant dealt for his own account in CITIC RESOURCES shares and on which he procured another person to deal in CITIC RESOURCES shares.”

(6)        One hour after receipt of the above information, the Defendant bought 5 million shares in CITIC Resources.  From that date through to 30 April 2007, the Defendant purchased in all 26,700,000 shares in the company at a cost of about $87 million.  These purchases constitute the substance of the first nine charges faced by the Defendant.

(7)        The tenth charge relates to a transaction on 27 February 2007 when the Defendant counselled or procured his wife to purchase 10,000 shares in CITIC Resources.

(8)        Price sensitive information about CITIC Resources was disclosed to the public on 9 May 2007.  This included the announcement that it would acquire 90% of a company that had the right to develop an oilfield in the Mainland.  The prosecution’s case involves evidence to the effect that it was this information that contributed to the surge in the share price of CITIC Resources : - as at 30 April 2007 (before the public disclosure) the share price of the company stood at $3.68, subsequent to the disclosure, on 9 May 2007, the share price closed at $4.19.

(9)        On 24 and 25 July 2007, the Defendant sold 13 million shares in CITIC Resources, making a profit of $33.43 million.

4.  The application for admission is based on the following factors : -

(1)        The trial of the Defendant involves points of unusual difficulty and complexity.

(2)        The trial would also involve the determination of principles which might impact substantially on the development of Hong Kong law.  It is also said that the case would also impact on how Hong Kong is viewed as a leading international financial and commercial centre.

(3)        Though not mentioned in the skeleton submissions of Mr King SC (who appears for the Applicant today), it was said in the affidavit in support that in the event the Defendant was convicted, consideration would be given to appeal to the Court of Appeal and to the Court of Final Appeal.  In the Certificate of junior counsel, it is said : -

“It is submitted that the issues which will arise are questions of law of great and general importance, which resolution, if necessary, will require the attention of the Court of Final Appeal.  I accordingly consider that it is in the interest of justice and in the interest of the first instance Court to have the opportunities to hear the fullest arguments when determining these issues.”

5.  Just what then are the issues raised in the trial that support an argument based on the factors just mentioned?

6.  On the legal aspects, it is said that the present trial is only the second one brought under section 291.  Accordingly, the precise extent of the component elements of the offences in question is still to be determined.  While the elements of the offences have been made the subject matter of decisions of the Insider Dealing Tribunal and the courts, these have only been in a civil, as opposed to criminal, context.  In the affidavit in support, reference is also made to three aspects : the ambit of the statutory defences, a question as to whether the offences require proof of dishonesty and the status of previous decisions of the Insider Dealing Tribunal.

7.  On the facts, my attention was drawn to issues that would arise regarding the connection of the Defendant to CITIC Resources at the material time, his actual involvement in the corporate finance transactions, the actual proposed acquisition of oil assets in the Mainland and whether the Defendant actually received or read relevant messages sent to his Blackberry device.  I should also point out that the Defendant’s position appears to be that he was given express permission to deal in the relevant shares.  Expert evidence will also be called by the prosecution in relation to a number of aspects.

8.  In my judgment, the material provided to me felt short of establishing any of the factors identified above : -

(1)        It is insufficient merely to refer to legal questions which could arise without at the same time identifying fully and precisely how such questions would actually feature in the relevant proceedings.  For example, the mere reference to statutory defences or to the components of the relevant offences, without more, provides no real information to the court.  Nor does it carry much weight in the circumstances to say that the present trial is only the second one brought under section 291.  Admittedly, the issues regarding dishonesty as an element and the status of previous Insider Dealing Tribunal decisions are more precise, but again, in the absence of any details provided, it is difficult to see whether they will prove to be important issues at all.  The closest that one gets to identifying a distinct legal issue is the potential argument (which Mr King developed this morning) is the assertion that the Defendant had express permission from MSAL to deal in the shares : this may provide a qualification or defence to the section 291 charges.  However, it is difficult to see at this stage the full extent of the argument.  Accordingly, I do not find it possible at this stage to conclude either that the legal issues involved in the trial are of unusual difficulty or complexity, or that the trial would involve the determination of principles which may impact substantially on the development of Hong Kong law.  Much less is it possible to say at this stage that issues are involved which would require the attention of the Court of Appeal or the Court of Final Appeal.  Furthermore, the claim that the case will impact on how Hong Kong is to be regarded as a major international financial centre is, with respect, somewhat overstated.

(2)        As for the facts, while the documents involved may be voluminous and there will be expert evidence called on a number of matters, I remain unconvinced on the limited material provided to me that this is a case of unusual difficulty or complexity at all.  The supporting affidavit refers to a number of factual issues in relation to the operation of MSAL’s internal computer systems and to the operation of Blackberry devices.  These are hardly matters of such difficulty or complexity that would merit the admission of overseas counsel.  Nor is the submission that an in-depth knowledge of the oil and gas industry might be required (and the Applicant appearing to have some expertise in this field) a compelling reason in the present case, especially given the somewhat limited ambit of this aspect (I have already identified above the prosecution’s case on what constituted relevant information).

9.  However, even if it could be said that any or all of the said factors relied on were established, that would not be the end of the matter.  It would then be relevant to consider the size of the available pool of leading counsel in Hong Kong who might be suitable to conduct the trial on the Defendant’s behalf.  In my view, the pool is sufficiently large that, if it came to it, I would exercise my discretion against the admission of the Applicant.  The number of counsel previously instructed by the Defendant in other proceedings (related to the share purchases) demonstrates this.  There are even more in the available pool of leading counsel.  This is of course not to say that the Applicant is not suitable or to deny his impressive credentials, but the relevant case for which his admission is sought, does not call for his expertise.  To put it another way : I am not persuaded that the Applicant would be able to add a “significant dimension to a very complex or difficult case” (see Re McGregor QC [2003] 3 HKLRD 585, at 591H (paragraph 11(3)).

10.  For the above reasons, I dismiss the application.