SECURITIES AND FUTURES COMMISSION v. YU KA TAK

[English Translation - 英譯本]

HCMA 62/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO. 62 OF 2007

 (ON APPEAL FROM ESS NOS. 9859 - 9861 OF 2006)

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J U D G M E N T

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Background

1. The Securities and Futures Commission (hereinafter “the Appellant”) has laid against Mr. Yu Ka Tak (hereinafter “the Respondent”) three charges of performing certain regulated functions in relation to a regulated activity carried on as a business (i.e. leveraged foreign exchange trading) when he was not licensed to do so, contrary to section 114(3)(b) of the Securities and Futures Ordinance, Cap. 571 of the Laws of Hong Kong.  On 4 and 6 September 2006, the case was heard in the Eastern Magistracy, where the magistrate ruled that the three charges be dismissed.

2. The Appellant, which felt aggrieved by the ruling which it considered wrong in law, applied in writing to the magistrate pursuant to section 105 of the Magistrates Ordinance, Cap. 227, requesting him to state and sign the case setting forth the facts and the grounds on which the ruling was made.  The Appellant now appeals to the Court of First Instance, seeking the opinion of a judge.

The magistrate’s ruling

3. At the hearing of the three informations, the magistrate ruled that:

(i)      Section 114(3) of the Securities and Futures Ordinance, Cap. 571 was not an offence per se.         The offence was set out in section 114(9) of the same Ordinance.

(ii)     “Without reasonable excuse” was an element of the offence under section 114(9) of the Securities and Futures Ordinance, Cap. 571.  The particulars of charge did not specify “without reasonable excuse” and hence failed to support the charge.

(iii)    The three informations were defective but not a nullity.

(iv)    Under section 27 of the Magistrates Ordinance, Cap. 227, the magistrate had the power to amend the informations.

(v)     The exercise of judicial power had to be correct in substance, and in exercising such power, it had to be considered whether an informed third party might find it unfair.  This also had to be taken into account when the question of whether it was fair to amend the informations came to be looked at.

(vi)    The offences were discovered in March 2004, and the Appellant interviewed the Respondent in March 2005.  By the time of trial, one and a half year had elapsed.

(vii)   The Respondent was unrepresented and the magistrate could not act as his lawyer.  The Respondent could neither understand difficult questions of law nor make effective submissions.  An adjournment would not assist him because the magistrate could not order him to seek legal advice.

(viii)   The magistrate took the view that an informed third party might consider that the Respondent’s right of making submissions on the questions of law was not protected or adequately protected and injustice was thereby caused.

(ix)    The magistrate had also taken into account the financial losses that the three victims in the three summonses had suffered, and had also considered the fact that the Respondent had not done anything causing the Securities and Futures Commission to omit the aforesaid element of the offence in laying the charges.

(x)     The magistrate had also taken into account that the fine upon conviction of this type of offence ranged from $1,500 to $6,600, and that the Respondent had been adversely affected by this incident for one and a half year.

(xi)    The magistrate ruled that the sense of injustice that an informed third party had by reason of the lack of or inadequacy of protection for the Respondent’s right of making submissions, could not be cured by a costs order, an adjournment or leave to call witnesses.

(xii)   The magistrate refused the prosecution’s application to amend the informations.

(xiii)   The prosecution decided to proceed to call witnesses and intended to submit authorities to the magistrate at the hearing for his consideration.  The case was only part heard and was adjourned.

(xiv)  On 6 September 2006, the hearing resumed and the prosecution continued to call witnesses but made it clear that no authority would be provided.

(xv)   The magistrate ruled that even if the particulars of the three informations could be proved by the prosecution beyond all reasonable doubts, this would not support a verdict of convicting the Respondent.  Thus, before PW1 had finished giving her evidence, the magistrate relied on section 27(1)(a)(ii) of the Magistrates Ordinance, Cap. 227 and dismissed the three informations.

4. The questions of law on which the magistrate sought opinions from this Court are as follows:

(i)        Was I correct in ruling that ‘without reasonable excuse’ was one of the elements of the offence under section 114(9) of the Securities and Futures Ordinance, Cap. 571?

(ii)       In considering the application of section 27(2)(b) of the Magistrates Ordinance, Cap. 227, I held that a costs order, an adjournment and leave to call witnesses could not cure the impression of an informed third party that the Respondent’s right of making submissions on the questions of law was not protected or adequately protected. Was this holding correct at law?

(iii)       In the absence of the Defendant’s argument or allegation that the prosecution’s application to amend the summonses would cause any injustice, was I correct at law in dismissing the application?

(iv)      In considering the application of section 27(2)(b) of the Magistrates Ordinance, Cap. 227, was I correct at law in taking into account (a) the facts alleged by the prosecution; (b) the fact that the time lapse between the Securities and Futures Commission’s interview with the Respondent and the trial was one and a half year; (c) the fact that the fine was usually between $1,500 and $6,600; (d) the losses suffered by the victims; and (e) the fact that the Respondent had not done anything causing the prosecution to err in laying the information?

(v)       If one or more of the answers to questions (i) to (iv) above is/are ‘no’, was I correct at law in refusing the prosecution’s application to amend the particulars of the informations?

(vi)      If the answer to question (iv) above is ‘no’, was I correct at law in dismissing the summonses in this case before PW1 had finished giving her evidence?

The legislation

5. The relevant parts of section 114 of the Securities and Futures Ordinance, Cap. 571 provide as follows:

(1)        Subject to subsections (2), (5) and (6), no person shall-

(a)       carry on a business in a regulated activity; or

(b)       hold himself out as carrying on a business in a regulated activity.

                        …

(3)        Without prejudice to subsection (1) but subject to subsection (4), no person shall-

(a)       perform any regulated function in relation to a regulated activity carried on as a business; or

(b)       hold himself out as performing such function.

                        …       

(9)        A person who, without reasonable excuse, contravenes subsection (3) commits an offence and is liable-

(a)       on conviction on indictment to a fine of $1,000,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $20,000 for every day during which the offence continues; or

(b)       on summary conviction to a fine at level 6 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $2,000 for every day during which the offence continues.

Points and issues of law

6. The point of law which is not in dispute is that the offence itself is set out under section 114(9) and not section 114(3).  The summonses, which fail to refer to section 114(9), are defective.   

7. Section 27 of the Magistrates Ordinance, Cap. 227 sets out what an adjudicating magistrate shall do where it appears to him that there is a defect in the substance or form of a summons.  In Tse So So[1], the Hong Kong Court of Final Appeal ruled on how a magistrate should apply the Ordinance.  It held that the Ordinance operated to impose on a magistrate a duty to favour amendment over dismissal of a complaint, information or summons.  It stipulated that the amendment route must be followed provided that (with the procedural safeguards) no injustice was caused.[2]

8. If the defect merely involved the omission to mention section 114(9), I cannot see how an amendment would cause injustice to the Respondent.

9. The issue in this case is whether “without reasonable excuse” is an element of the offence or a defence.  I mention in particular that the Appellant and the Respondent had agreed that if “without reasonable excuse” was one of the elements, the summonses were only “defective” but not “null”.  In Yau Yuk Lung[3], the Court of Final Appeal held that under the general scheme of amendment stipulated in section 27, it would serve no purpose by injecting the notion of “nullity” into that section.[4] 

Is “without reasonable excuse” one of the elements?

Appellant’s arguments

10. Mr. Richard Wong, Counsel for the Appellant, submitted that “without reasonable excuse” was not an element of the offence under the Ordinance but only a defence open to the Respondent.  He argued that section 94A of the Criminal Procedure Ordinance, Cap. 221 could be applied to the present case, the scenario of which was different from that in Lam Yuk Fai.[5]

11. Mr. Wong submitted that the facts of Lam Yuk Fai were special: the transfer of a travel document was not a particularly bad thing per se, and in view of the relevant penalty, the prosecution was required to prove “without reasonable excuse”.  However, the present case was different.  The Ordinance basically regulated leveraged foreign exchange trading “without a licence”, the nature of which was more or less the same as the statutory provisions dealing with “driving without licence”[6] and “possession of an offensive weapon in a public place”[7].  Therefore, “without reasonable excuse” was a defence open to a defendant.

Respondent’s arguments

12. Mr. Peter Ip, Counsel for the Respondent, submitted that as the offence itself was set out under section 114(9), “without reasonable excuse” was one of the legal elements that constituted the offence.

13. In light of the provision of section 94A(2)(a) of the Criminal Procedure Ordinance, the Respondent agreed that it was not necessary in an information for the prosecution to negative that the defendant performed the regulated activity with a licence, and “without licence” was not an element of the offence; a defendant bore the burden of establishing the defence that he performed the regulated activity with a licence.  “Without reasonable excuse” was, on the other hand, one of the elements of the offence.  If a person had contravened section 114(3) but not “without reasonable excuse”, he did not commit any offence even though he might be subject to “disciplinary action”.

14. Mr. Ip also submitted that section 114(3) and (9) created a serious offence, with a person convicted thereof on indictment being liable to imprisonment for 2 years.  Therefore, the shifting of the burden of proof in respect of “no reasonable excuse” to the Respondent was neither fair nor consistent with the principle of presumption of innocence as stated in Article 39 of the Basic Law.  Mr. Ip also compared the provisions relevant to the present case with section 14 of the Prevention of Bribery Ordinance, Cap. 210, and cited Ng Po On[8] in support of his arguments.

Discussion

15. In Lam Yuk Fai, the Court of Final Appeal dealt with section 42(2)(a)(ii) of the Immigration Ordinance, Cap. 115, which provides as follows:

(1)       …

(2)        Any person who –

(a)(i)    …

    (ii)    transfers to another without reasonable excuse, any travel document, …

(b)       …

(c)       …

shall be guilty of an offence.

(3)       …

(4)        Any person who is guilty of an offence under this section shall be liable –

on conviction on indictment, to a fine of $150000 and to imprisonment for 14 years; and (Amended 66 of 1981 s. 3; Amended L.N. 25 of 1996)

on summary conviction, to a fine at level 6 and to imprisonment for 2 years (Amended L.N. 25 of 1996)

(5)        …

16. On the interpretation of the provision, the Court of Final Appeal held that “without reasonable excuse” must be established together with “transfer” of a travel document in order to convict a defendant of the offence.

17. The Court of Final Appeal also took into consideration the provision of “negative averments” under section 94A of the Criminal Procedure Ordinance, Cap. 221.  Lord Woolf ruled that the “reasonable excuse” in section 94A(4) was only applicable to the scenario mentioned in section 94A(1):

(1) It shall not be necessary in an indictment, charge, complaint or information alleging an offence to negative any exception or exemption from or qualification to the operation of the law creating the offence.[9]

18. Lord Woolf compared the offence under section 42(2)(a)(ii) with “carrying a bladed article in a public place” without good reason or reasonable excuse, saying that the policy of legislation was to make “the carrying of the bladed article” an offence.  As far as section 42(2)(a)(ii) was concerned, the burden of proof in respect of “without reasonable excuse” was on the prosecution.[10]

19. I have considered carefully the submissions made by Mr. Wong and Mr. Ip and do not intend to list out all the Ordinances referred to by them.

20. In the present case, the contents of section 114, particularly sections 114(3) and 114(9), show that the legislation has included “without reasonable excuse” as an element of the offence.  Of course, this case also involved the prosecution’s allegation that the Respondent was “without licence”, and under section 94A of the Criminal Procedure Ordinance, it was not necessary for the prosecution to prove that the Respondent was “without licence”.  If the Respondent wished to prove that he had a licence, the burden of proof would be on him on a balance of probabilities.  However, this does not mean that it was unnecessary for the prosecution to prove that the Respondent had contravened section 114(3) without reasonable excuse.  The present case is not significantly different from Lam Yuk Fai, and the principles stated therein are also applicable to this case.

21. Although, generally speaking, whether a person has a “reasonable excuse” is probably something that only that person himself will know, this does not mean that there is anything improper in requiring the prosecution to prove the element of “without reasonable excuse” (as held by the Court of Final Appeal in Lam Yuk Fai and the Court of First Instance in Ng Po On).

22. Apart from the fact that the provision reflects that “without reasonable excuse” is one of the elements, I have also taken the legislative spirit into consideration.  Had the legislative intent been that any person who contravened section 114(3) committed an offence subject to the defence of “without reasonable excuse”, the provision could have expressly said so, as in section 118(5) of the Copyright Ordinance and section 9(4) of the Trade Descriptions Ordinance.

23. The contravention involved in this case is quite different from the offence of “possessing an offensive weapon in a public place” contrary to section 33 of the Public Order Ordinance.  It would be rather difficult for the prosecution to prove that a defendant was in possession of an offensive weapon in a public place “without reasonable excuse”.  Given that the legislation is intended to protect the well being of a person, it is neither improper nor unfair for “without reasonable excuse” to be made not an element of the offence which the prosecution has to prove but a defence.  Furthermore, the fact that prosecutions have to be sanctioned by the Secretary for Justice serves to provide considerable protection to a person.  Lord Woolf also mentioned similar offences in Lam Yuk Fai (see paragraph 18 above).

24. The scenario in this case is different.  The prosecution’s case was that the Respondent carried on a regulated activity (leveraged foreign exchange trading) as business, and the case involved three persons going to the company for which the Respondent worked to open accounts and carry out foreign exchange transactions.  The Respondent also told them that his company would charge 18% of the profit as commission etc.

25. The prosecution alleged that the Respondent did not have a licence.  If the Respondent claimed the contrary, he had to prove it on a balance of probabilities.  If he exercised his right not to give evidence, the defence would not have any evidence to show that he had a reasonable excuse.  Under such circumstances, the court could, on the evidence adduced by the prosecution, determine whether the only reasonable inference to be drawn was that the Respondent was “without reasonable excuse” and had contravened section 114(3) accordingly.

Judgment

26. I agree with the submissions made by Mr. Ip.  The title of section 114 is “Restriction on carrying on business in regulated activities”.  The legislation prohibits any person from carrying on or performing as business certain regulated function without licence or registration.  Section 114(3) by itself is not the provision which creates the offence.  A person does not commit any offence if he has only contravened section 114(3).  It is an offence only when he has contravened section 114(3) “without reasonable excuse”.  I hold that “without reasonable excuse” is one of the elements of the offence.

Should the magistrate have made the amendment?

27. Section 27 of the Magistrates Ordinance, Cap. 227 clearly and expressly empowers a magistrate to amend a charge:

(1) Where it appears to the adjudicating magistrate that there is-

(a) a defect in the substance or form of any complaint, information or summons; or

(b)  a variance between the complaint, information or summons and the evidence adduced in support of it,

he shall, subject to subsection (2)-

(i)   amend the complaint, information or summons if he is satisfied that no injustice would be caused by that amendment; or

(ii)   dismiss the complaint, information or summons.

(2) The adjudicating magistrate shall amend the complaint, information or summons where-

(a)   the defect or variance mentioned in subsection (1) is not material; or

(b)  any injustice which might otherwise be caused by an amendment would be cured by an order as to costs, an adjournment or leave to recall and further examine witnesses or call other witnesses.

(3)        …

(4)        …    

Appellant’s submissions

28. Mr. Wong submitted that even if “without reasonable excuse” was an element of the offence under section 114(9), it should have been clearly stated in the particulars of charge.  As the magistrate had said, the charge was defective but not null.  Therefore, pursuant to section 27 of the Magistrates Ordinance, the magistrate had the power to make amendment.

29. Mr. Wong submitted that under section 27(2)(b) of Cap. 227, any injustice which might otherwise be caused by an amendment would be cured by a costs order, an adjournment or leave to recall and further examine witnesses or call other witnesses, and therefore the magistrate should have amended the informations.

30. In the present case, when the prosecution applied for amendment of the charge, the trial had just commenced and no witnesses had yet been called by the prosecution.  If the magistrate allowed the application to amend the charge, such amendment would not alter the nature of the charge and the prosecution’s allegation, and the number of witnesses intended to be called by the prosecution would also remain the same.

31. Mr. Wong stressed that the Respondent had not complained that the amendment would cause him any injustice or that any injustice could not be cured even by an adjournment, a costs order, leave to recall witnesses and so on.  Mr. Wong submitted that in the present case, even if the amendment would cause injustice to the Respondent, this could be cured by a costs order, an adjournment and leave to call witnesses.

32. Mr. Wong also submitted that in considering section 27(2)(b), the magistrate erred in taking the following two factors into account: (1) one and a half year elapsed from the time when the Securities and Future Commission interviewed the Respondent to the date of trial, and (2) the usual penalty would be a fine in the sum of $1,500 to $6,600.  Mr. Wong argued that that the magistrate should only have considered the three aspects specified by the Ordinance: an adjournment, granting of costs and calling witnesses.

Respondent’s submissions

33. Mr. Ip stated in his written submissions that the magistrate did not err in refusing the Appellant’s application to amend the summonses.  In his oral submissions, however, Mr Ip failed to provide any convincing explanation for the fact that the Respondent had never told the magistrate what injustice was caused and that both the prosecution and defence had never sought an adjournment and so on.

Judgment

34. I have ruled that “without reasonable excuse” was one of the elements of the offence.  Apart from stating in the summonses that an offence had been committed contrary to section 114(9), the prosecution must also state “without reasonable excuse” in the particulars of offence.  The summonses were defective.

35. Having considered the relevant circumstances, I fail to see how the amendment would have caused injustice to the Respondent.  The prosecution had given explanations for the time lapse of more than one year from the time of the offence to the trial.  The Respondent did not apply to the magistrate to strike out the summonses on the ground of delay (I of course understand that the Respondent was unrepresented then).  On that day the prosecution was ready for trial and the witnesses were ready to testify in court.  When the magistrate noticed a defect in the summonses, he informed Counsel for the prosecution, who did not accept his view right away, and the prosecution sought an amendment only after a few adjournments.  The magistrate considered whether an informed third party would take the view that such amendment would not protect the Respondent’s right of making submissions on the questions of law and that the magistrate was “blaming the prosecution on the face but biased towards the prosecution in substance” “in order to secure the Respondent’s conviction”.  In my view, the magistrate had worried too much.

36. Section 27 starts by saying “Where it appears to the adjudicating magistrate that …”.   The provision is obviously referring to what has to be done when it appears to the adjudicating magistrate that there is a defect in a complaint or summons or there is a variance between them and the evidence.  In the present case, it was the magistrate himself who noticed a defect in the summonses.  Although the prosecution’s representative did not agree with his view right away, she accepted it eventually and applied for an amendment.  An “informed” third party (I emphasize the word informed) would not think that the amendment made by the magistrate would cause injustice to the Respondent.

37. Furthermore, in considering whether a trial is fair, the court has to take into account both the defence case and the prosecution case in order to assess whether the trial is fair to both sides (see Poon Chau Cheong[11], where the Court of Final Appeal adopted what May J said in the judgment[12] of John Bryce[13]).

38. In considering whether there is any injustice, the magistrate has to take into account the prosecution’s case and the question of whether the case has been unreasonably delayed, but should not consider what the penalty will be.

39. In the present case, the magistrate should have explained to the Respondent the reasons for and the contents of the amendments, telling him that he might consider requesting legal representation and asking him whether the amendment would cause any injustice to him.  If there was any injustice, the magistrate would then have to consider whether it could be cured by the three ways specified in the legislation, namely, an adjournment, a costs order or leave to call witnesses.

40. Although the Respondent had not said anything about injustice, the magistrate of his own accord formed the view that injustice could not be cured by a costs order, an adjournment or calling of witnesses.  This course of action of his is, with respect, perplexing.

41. Having found a defect in the summonses, if the magistrate decided not to allow an amendment, he should have dismissed the summonses under section 27 instead of allowing the prosecution to call witnesses for the defective summonses.  In fact, however, he did not dismiss the summonses right away but allowed the prosecution to call witnesses and dismissed the summonses before PW1 had finished her evidence.  This is improper.

42. My answers to the questions of law stated by the magistrate are as follows:

(i)      Correct.

(ii)     Incorrect.

(iii)    Incorrect.

(iv)    (a)     Correct.

(b)     Correct.

(c)     Incorrect.

(d)     Incorrect.

(v)     Incorrect.

(vi)    Incorrect.

Should the case be remitted to magistrate?

43. As the magistrate’s decision in refusing to amend the summonses is incorrect, the Respondent should be tried on the amended summonses.  Mr. Wong has asked me to make an order that the case be remitted to the magistrate for retrial.

44. Mr. Ip, on the other hand, submitted that the Respondent had been adversely affected by the incident for a long time.  The case took place between June and December 2004, which was three years ago, and the Respondent had not done anything to hinder a speedy trial of the case.  Mr. Ip contended that, in light of the relevant facts of the case and the possible penalty to be imposed on the Respondent upon conviction, the court was in a position to exercise its discretion not to remit the case for retrial.  He cited the case of Tse So So, in which the Court of Final Appeal, after considering the special circumstances of that case, decided not to restore the convictions of the defendant.

Judgment

45. I am aware of the time lapse of one and a half year from the time of the offence to the time when the Respondent appeared before the magistrate.  The prosecution had given an explanation for the time lapse.  Had the magistrate properly dealt with the application for amendment, the case could have commenced immediately as the prosecution was ready.  It was only because of the magistrate’s refusal to make the amendment that the Appellant lodged an appeal on the points of law.  The appeal was originally fixed to be heard on 1 June.  As the Respondent was unrepresented, I adjourned the case so that legal representation for him could be arranged by the Legal Aid Department.  For this reason, the appeal hearing did not formally commence until 16 October.

46. In considering the appeal, I have taken into account the facts of the case as stated in the “brief facts”[14], the penalty which might be imposed upon summary conviction, and the “history” of the present case.  The situation of the Respondent is different from the defendant in Tse So So, where there were special reasons justifying the conclusion of the Court of Final Appeal that the convictions should not be restored.  In my judgment, having regard to all the circumstances of the present case, I should, for the sake of fairness, remit the case to the magistrate to proceed with the trial.

Order

47. The three summonses are to be amended by adding “section 114(9)” and “without reasonable excuse”, and the magistrate shall proceed with trial on the amended summonses.