HKSAR v. CHAN WAI YIP AND OTHERS

HCMA 449/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MAGISTRACY APPEAL NO. 449 OF 2008

(ON APPEAL FROM FLCC NO. 886 OF 2007)

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DECISION

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Hon Tang VP:

1.  The applicant applies to us to certify certain points of law under section 32(2) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484.

2.  The points of law, said to be of great and general importance, are:

“(1)      Whether the judgment of Norris v. Government of the USA [2008] 1 AC 920 has created a new category of conspiracy to defraud at common law applicable to agreements in restraint of trade/price fixing agreements which bore aggravating features such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract, and whether the formulation in Mo Yuk Ping v. HKSAR (2007) 10 HKCFAR 386 on conspiracy to defraud is applicable, and ought to be applied, to such agreements.

(2)        Whether the holding of an auction in a commercial context would by its nature necessarily imply that only competitive and genuine bids are acceptable, such as to prohibit any price fixing conduct in respect of it, and to render such conduct dishonest and prima facie indictable.

(3)        Whether the incorporation of an express condition in the auction rules to the effect that only competitive and genuine bids are acceptable would prohibit any price fixing conduct in respect of it, and render such conduct dishonest and prima facie indictable.”

3.  The respondents were the tenants or assistants to the tenants of cooked food stalls at the former Tai Po Temporary Market (“the Old Market”).  In 2004, when the newly built Tai Po Hui Market (“the New Market”) was ready for occupation, the respondents and other tenants were required to move from the Old Market.  However, they were given an opportunity to obtain a stall in the New Market by means of auction which was open only to the existing tenants of the Old Market (“the restricted auction”).  The upset prices for these stalls were fixed at 75% of the market rent as assessed by the Rating and Valuation Department.  These upset prices were made known by letters sent by the Food and Environmental Hygiene Department (“FEHD”) to the potential bidders including the respondents in early June 2004. 

4.  The applicant’s case was that before attending the restricted auction, the respondents had attended a pre-allotment exercise held among themselves and other tenants of the Old Market.  The purpose of the pre-allotment exercise was that they should agree amongst themselves that, each would only bid for the stall which had been allotted to him/her in this manner.  The exercise was conducted by way of the drawing of lots.  The numbers drawn in the first round would determine the sequence of the draw in the second round.  A number drawn in the second round would be the number of the stall in the New Market allotted to the drawer of that number. 

5.  The restricted auction was held on the 21 July 2004 and was attended by 36 eligible bidders, including the respondents.  40 cooked food stalls were put up for auction.  There was no competitive bidding during the auction and the stalls were knocked down to all the 36 bidders at the upset prices. 

6.  Further background can be gathered from our reasons for judgment which was handed down on 1 April 2010. 

7.  We allowed the appeals and principally gave two reasons for doing so.  First, that a survey of English authorities shows that such conduct on the part of the respondents had never been regarded at common law as criminal.  The survey of authorities covered a period of over 100 years ending with two decisions of the House of Lords namely Norris v Government of the United States of America [2008] 1 AC 920 and R v Goldshield Group plc and Ors [2009] 1 WLR 458, the judgments of which were handed on 12 March 2008.  In the composite judgment in Norris, their lordships said:

“46.      The Divisional Court’s conclusion, that this legislative and other material does not assist the contention that price fixing was not a criminal offence at common law, does not, with respect, bear analysis …”

8.  Their lordships were dealing with an alleged price fixing cartel and not specifically with an agreement not to compete at an auction, but the survey of cases conducted by them, show clearly that the same conclusion applies to agreements not to compete at auctions and tenders.  These cases include:

(1)              Jones v North [1875] LR 19 Eq 426, where there was an arrangement to submit tenders to a public authority to compel it:

“… under the fiction of a public competition, to accept tenders not representing the real market price of the commodity, …” Norris at 931D,

(2)     Rawlings v General Trading Co [1921] 1 KB 635, where there was an:

“… agreement made between prospective bidders at an auction of military surplus stores … in order to avoid competition only one of them should bid.” Norris at 933C.

9.  Further, after the survey of authorities, their lordship said:

“17. The effect of these authorities may be succinctly summarised. The common law recognised that an agreement in restraint of trade might be unreasonable in the public interest, and in such cases the agreement would be held to be void and unenforceable. But unless there were aggravating features such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract, such agreements were not actionable or indictable. …”

10.  The first question posed the question whether Norris has created a new category of conspiracy to defraud at common law applicable to agreements in restraint of trades/price-fixing agreements which bore aggravating features such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract; and whether the formulation in Mo Yuk Ping on conspiracy to defraud is applicable, and ought to be applied, to such an agreements? 

11.  The first point to note is that we are not concerned with restraints of trade or price fixing agreements in general.  It is important that questions to be certified should be no wider than required by the circumstances of the particular case.  Nor has Norris created a new category of conspiracy as stated or at all.  In para. 21 in the judgment of the House of Lords, when their lordships summarised the reasons why the divisional court’s decision could not be supported, they said:

“21. …

(2) … that agreements to fix prices, whether disclosed or not, have not been treated as in themselves dishonest. That contention is supported by Jones v North and (Mogul Steamship Co Ltd v McGregor Gow & Co [1892] AC 25)or the decisions in those cases would necessarily have been different.”

12.  In other words, the conducts of the appellants complained of here have never been treated as in themselves dishonest.  Their lordship explained why in para. 17 of their judgment.

13.  It is clear from the judgment in Mo Yuk Ping that there is no relevant difference between the law in Hong Kong and the law in England regarding the constituents of the crime of conspiracy. 

14.  Sir Anthony Mason NPJ after discussing the modern English authorities on conspiracy to defraud (paras. 28-39) said:

“40.      What emerges from this discussion of the cases?  First, that there is no formulation which amounts to a comprehensive definition of the common law offence.  Secondly, that the offence is constituted by becoming a party to an agreement with another or others to use dishonest means (a) with the purpose of causing economic loss to, or putting at risk the economic interests of, another; or (b) with the realization that the use of those means may cause such loss or put such interests at risk. …”

15.  When dealing with “What is meant by the requirement of ‘dishonesty’?” in the context of whether the law of conspiracy to defraud was sufficiently certain, his lordship said that the two-stage test in R v. Ghosh [1982] 1 QB 1053 represents the law in Hong Kong (para. 51).  It is noted that the first stage test is that:

“47. …  the dishonesty of the means agreed upon is, in the first instance, a question of fact for the jury. …”

It is suggested by the applicant that it follows that whether an agreement not to compete at an auction is dishonest is a question of fact for the jury.  With respect, I cannot agree.  If that were the case, the answer to the question may vary according to the sensibility of a jury.  That cannot be right.  Either the law regards such conduct as dishonest or it does not, Norris has provided a clear answer.  Such conduct has never been considered as dishonest at common law.  The second stage test is also problematic.  If a defendant had been advised their conduct is not regarded as dishonest at common law, could the second stage test ever be satisfied?  How is the court to direct a jury on whether or not the advice is correct in law?  Surely, a jury cannot be directed that if they took the view that the conduct complained of is dishonest at the first stage, then the defendants cannot believe that their conduct was honest.  (I would not go on to deal with (a) and (b) in the constituents, but I say only that they would give rise to great difficulties too.)

16.  This leads to the second and independent reason: legal certainty.  As Norris explained it was for parliament and not for the judiciary to decide what conduct was to be treated as so unacceptable as to attract criminal sanctions.  Any development of the law on price-fixing necessary as a result of a change in public perception had to be done by parliament and not by judges.  See the head notes at 921.  Their lordships’ observation applies with equal force to agreements not to compete at auctions.  I can see no inconsistency between Mo Yuk Ping and Norris and Goldshield.  The effect of Norris and Goldshield is that the conduct of these defendants are not per se to be regarded as dishonest.  If, as a result of changing social values, such conduct should be regarded as dishonest, it would be for the legislature and not for the court to say so.  In this respect, one should note the following passage in Norris:

  “57.   … In any event, criminalising price-fixing because of a change in public perception would be hard to reconcile with the Strasbourg Court’s rejection of the notion that the courts could characterise an action as criminal simply because it was ‘wrong rather than right in the judgment of the majority of contemporary fellow citizens’ - see Hashman and Harrup v United Kingdom (1999) 30 EHRR 241, para 38.”

17.  Further, as we have noted in our judgment, the legislature had seen fit to legislate in a very limited way.  See, for example, sections 6 and 7 of the Prevention of Bribery Ordinance, Cap. 201 (“PBO”) covering tenders and auctions by a public body respectively.  The prosecution does not contend that the defendants’ conduct fell within section 7.  If it is thought that section 7 does not go far enough, it is for the legislature to expand it and not for the court to do so.  It appears that a Competition Bill will be gazetted in the near future following a public consultation following the publication of “Detailed Proposals for a Competition Law—A Public Consultation Paper”.  It appears that no criminal sanction carrying a custodial sentence will be proposed.  It is not clear whether the respondents’ conduct will fall within any of the provisions of the Competition Bill.  If it is intended to criminalize the relevant conduct, amendment of section 7 or the new competition law may be the answer.

18.  Furthermore, if the prosecution is correct, and the Mo Yuk Ping’s test is one solely of dishonesty, then it may follow that anti-competitive conduct by say two chains of supermarkets may amount to a criminal conspiracy provided that a jury can be persuaded that such conduct amounts to dishonest means.  Such possible ramification is a further support for the view that any change in the law should come from legislation.

19.  As for the second question, we are not concerned with a purely commercial auction.  We are concerned with an auction by a public body.  Such auctions come within section 7 of PBO which makes “bribery” in relation to such auctions a criminal offence.  An agreement to do so would be a criminal conspiracy.  But the legislature has not seen fit to do more.  I cannot believe that section 7 was passed without regard to the common law position. 

20.  Furthermore, a person who had sought legal advice and been given correct advice would have been told that there was no such implication.  Nor is it easy to see how such a term could be regarded as necessary such that it would be implied.  Moreover, similar arguments had been rejected by Goldshield.  See paras. 14 and 15.  This goes against all the authorities which has been examined in our judgment.  Also as drafted, it is a hypothetical question.

21.  As for the third question, incorporation of such an express condition may well render such conduct dishonest and prima facie indictable.  But there was no such express condition, so the question does not arise. 

22.  The respondents refers to a list of rules, namely:

“Rule 4‘競投的基本原則是價高者的，即每一檔位由落槌時出價最高者投得。’.

Rule 8‘參與競投的人士不可以任何方式影響他人出價競投檔位，否則可能會被邀請離開競投會場，而該競投人士會被視作放棄競投權。’.

Rule 20‘任何人士如透過不誠實手段在競投過程中詐騙食物環境衞生署（例如串謀不作競價，促使每人得以底價投得檔位），亦將被刑事檢控。’”

23.  The only rule relied on before us was rule 20 which we have dealt with in our judgment. 

24.  Rule 20 provided, where relevant,

“Furthermore, anyone who defrauds the Food and Environmental Hygiene Department at an auction by dishonest means (e.g. conspiring to refrain from competitive bidding causing everyone to win the bids for their stalls at the upset prices) is also liable to criminal prosecution.” (FEHD’s translation)

25.  Rule 20 does not help.  Whether such a person could be successfully prosecuted is a matter of law.  A threat to prosecute does not make the conduct a crime.  Nor can that make it a condition of any contract.  Nor is it fair to do so.  There is no evidence that any of the defendants had read and understood the Rules.  Rule 20 cannot be regarded as a warranty by the defendants that they had not entered into any agreement not to compete.  If a warranty or condition was intended it should be explicitly required.

26.  Nor does Rule 4 or 8 help.  Rule 4 simply states that the highest bidder shall be the winner.  Rule 8 reserves the right to ask a person to leave the auction room if he should in any way influence another person in his bidding.  It is clear that Rule 8 is concerned with conduct inside the auction room.

27.  In para. 78 of our reasons for judgment, we said:

“78. … if FEHD had wanted to protect itself, it could have required suitable written warranties from a potential bidder. …”

The remedy is in the hand of FEHD.  That being the case, the question is unlikely to be one of great general or public importance.  In any event, this is a hypothetical question and the court will not answer hypothetical questions.

28.  It is also said that the 1^st defendant who had pleaded guilty has been given leave by the learned magistrate to appeal.  But this is not a good reason to certify any of these questions.  We will deal with that defendant when the time comes.

29.  For the above reason, I would dismiss the application.

Hon Yeung JA:

30.  I agree with the decision of the Vice-President and also dismiss the application.

Hon D Pang J:

31.  I agree that the application is dismissed.

Hon Tang VP:

32.  The application is dismissed with costs.