CHAN LAI YIN, TOMMY AND OTHERS v. SECURITIES AND FUTURES COMMISSION AND ANOTHER

CACV 104/2017
CACV 108/2017
(Heard Together)

[2020] HKCA 425

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 104 OF 2017

(ON APPEAL PURSUANT TO S.307U OF THE SECURITIES AND FUTURES ORDINANCE, CAP.571
FROM DETERMINATIONS OF THE MARKET MISCONDUCT TRIBUNAL)

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 108 OF 2017

(ON APPEAL FROM DETERMINATIONS OF THE MARKET MISCONDUCT TRIBUNAL)

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________________________

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(Heard Together)

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J U D G M E N T

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Hon Lam VP:

1.  I agree with the judgment and proposed orders of Yuen JA.

Hon Kwan VP:

2.  I agree with the judgment and proposed orders of Yuen JA.

Hon Yuen JA:

Introduction

3.  These appeals arise out of two Reports of the Market Misconduct Tribunal (“the Tribunal”) in respect of Mayer Holdings Ltd, Stock Code 1116 (“the Company”) and persons connected to it.

4.1.  By a Notice from the Securities and Futures Commission (“SFC”) dated 4 March 2016, the Tribunal[1] was asked to determine:

(a)  whether a breach of a disclosure requirement (within the meaning of s.307B[2] and s.309G[3] of Part XIVA of the Securities and Futures Ordinance, Cap.571 “SFO”) had taken place; and

(b)  the identity of any person in breach of such requirement.

4.2.  The SFC’s case was that the Company and 10 Specified Persons connected to it had breached the disclosure requirement in Part XIVA, which came into effect on 1 January 2013.  One of the persons was believed to have died by the time of the hearing before the Tribunal, and proceedings in respect of him were stayed pending confirmation of his death[4].  Five other persons (referred to below as SP3, SP5, SP6, SP8 and SP10) did not appear, whether personally or by legal representatives, at the hearing before the Tribunal[5].

5.1.  In a Report dated 7 February 2017 (“the Report on Liability”), the Tribunal determined that:

(1)  a breach of the disclosure requirement had taken place; and

(2)  the following persons had breached the requirement:

1.  The Company (SP1/A1 in CACV108);

2.  Tommy Chan Lai Yin, the financial controller and company secretary (SP2/A1 in CACV104);

3.  Hsiao Ming-chih, chairman of the board of directors and executive director (SP3/A2 in CACV104);

4.  Lai Yueh-hsing, executive director (SP4/A3 in CACV104);

5.  Huang Jui-hsiang, an independent non-executive director and chairman of the audit committee (SP5/A4 in CACV104);

6.  Chiang Jen-chin, executive director (SP6/A5 in CACV104);

7.  Xue Wenge, executive director (SP8);

8.  Li Deqiang, a non-executive director (SP9/A2 in CACV108);

9.  Lin Sheng-bin, an independent non-executive director and member of the audit committee (SP10/A6 in CACV104);

10.  Alvin Chiu, an independent non-executive director and member of the audit committee (SP11/A7 in CACV104). 

5.2.  In a Report dated 5 April 2017 (“the Report on Sanctions”), the Tribunal made various orders against the Company and each of the individuals above.

6.  Leave to appeal was granted by this court[6] on 14 June 2017.

The appeals

7.1.  In CACV104/2017, the appellants are SP2, SP3, SP4, SP5, SP6, SP10 and SP11[7]. They have appealed the Tribunal’s determination in respect of both liability and sanctions.  

7.2.  In CACV108/2017, the appellants are SP1 (the Company) and SP9[8] (a non-executive director who said he was excluded from the board at the material time).  They have also appealed the Tribunal’s determination in respect of both liability and sanctions.  The grounds of appeal in relation to liability are similar to the grounds in CACV104, but the grounds of appeal in relation to sanctions are different.

7.3.  I should mention here that on Day 2 of the hearing before the Tribunal, counsel for the Company indicated that it was not contesting liability[9]. However, on appeal, leading counsel for the SFC[10] did not take the point that that precluded the Company from appealing the finding of liability (presumably on the basis that the concession could be and has been withdrawn, and the Tribunal had found the Company was liable independently of the admission[11]).   

Summary of the issue

8.1.  After a consistently falling trend in 2011, trading in the Company’s shares on the Hong Kong Stock Exchange was suspended from 22 November 2011 to 5 January 2012, and resumed for only one day (6 January 2012), after which trading was again suspended at the Company’s request.  

8.2.  The last traded price (on 6 January 2012) was $0.123 (“the pre-suspension price”). 

9.  Since then, a number of events (“post-suspension events”) occurred which would have driven the price of the shares even lower than the pre-suspension price[12].  The suspension continued until after the Tribunal hearing and beyond. 

10.1.  It was during the period of suspension that on 1 January 2013, Part XIVA came into effect.  It is common ground that it applied to companies whose shares were suspended from trading on the stock exchange.  Section 307A(3) provides:

“For the purposes of this Part, securities listed on a recognized stock market are to continue to be regarded as listed during any period of suspension of dealings in those securities on that market”. (Emphasis added).

10.2.  Part XIVA aims to promote market transparency by punishing failures to disclose inside information.  “Inside information” is defined in s.307A(1) as (among other things) information which

“(b) is not generally known to persons who are accustomed or would be likely to deal in the listed securities of the corporation but would if generally known to them be likely to materially affect the price of the listed securities”. (Emphasis added).

Thus, inside information is sometimes referred to as “price-sensitive information”[13]. 

11.  Before the Tribunal, Mr Chan[14] submitted that when considering whether the subject information would be likely to “materially” affect the price of the share, the Tribunal should not only consider the pre-suspension price.  To confine oneself to the pre - suspension price would be to ignore the length of suspension and the effect of post-suspension events which, in this case, would have driven the price even further below the pre-suspension price.  In that event, the information might not have been of “material” effect to the price. 

12.  The Tribunal however, in reliance on its interpretation of s.307A(3)[15], only considered the impact of the information on the pre-suspension price.

13.  Stated briefly, the grounds of appeal relating to liability are as follows:

(1)  s.307A(3) is concerned only with the listing status of securities; consequently the Tribunal was wrong to interpret it to mean that securities which had been suspended from trading should be regarded as if they had nevertheless been continuously trading;

(2)  the Tribunal was wrong in relying on the expert evidence of Mr Karl Lung Hak-kau, the SFC’s market expert, whose assessment was fundamentally flawed because his analysis had been conducted on the false premise that the securities had not been suspended from trading. 

14.  Although the issue is one of construction of the statute, it is necessary to consider the factual context in which the submissions are made. 

Background facts

15.  The Company was incorporated in the Cayman Islands.  In 2004, its shares were listed on the main board of the Hong Kong Stock Exchange.  Originally the principal business of the Company was in manufacturing and trading steel products. However, it later diversified into other areas.   

16.1.  On 13 April 2011, the share price closed at $0.48[16].  In the following 7 months until 21 November 2011 (when trading was suspended), there was a “roughly consistent fall” in the share price of around 75-80% [17]. Mr Lung, the SFC’s market expert, agreed that this fall “reflected a perception on the part of the investing public that the prospects of [the Company] during this period of time was very poor”[18].

16.2.  Trading was suspended for about 6 weeks until 5 January 2012.  

Disposal of principal business

17.1.  On 5 January 2012 the Company announced the disposal of a subsidiary Advance Century Development Ltd (“ACD”), which had been undertaking the principal business of manufacturing and trading steel products[19]. The disposal was at an expected loss of RMB6.4 million[20].

17.2.  Mr Lung agreed that the disposal was of “almost all” of the business that the Company had relied on to generate its revenue for the first half of 2011, according to the 2011 Interim Report[21]. (The Company did not issue any financial statements after this report)[22].

17.3.  After that disposal, Mr Lung agreed, investors would have concluded that the Company’s “next major business” would be in relation to a port and property development project in Vietnam (“the Vietnam project”)[23].    

17.4.  As noted above, on 6 January 2012, trading resumed for one day only, closing at $0.123[24].  Thereafter, trading was again suspended at the Company’s request[25].

Post-suspension events

-  Litigation in Vietnam project

18.  On 16 January 2012, the Company announced that it had commenced litigation against its counter-parties in the Vietnam project.  The public would have understood from the announcement that the Company was seeking to rescind the entire project on the ground that it had been deceived into acquiring it on the basis of an inflated valuation from false documentation[26]. Mr Lung agreed that this litigation regarding the Vietnam project was “bad news” for the Company[27].  By January 2013, a year later, this litigation was “still very much in the air”[28]. 

-  Resignation of Crowe Horwath

19.1.  On 16 February 2012, the Company’s then auditors Crowe Horwath (HK) CPA Ltd resigned.  The Company disclosed this resignation to the Stock Exchange on 21 February 2012.  Mr Lung agreed that this was a “negative piece of news”[29].  

19.2.  On 29 February 2012, Grant Thornton Hong Kong Ltd (“GT”) were appointed the Company’s auditors.

-  Failure to publish audited results for y.e. 31.12.2011

20.  In March 2012, the Company should have released its audited results for the year ended 31 December 2011 as required under the Listing Rules.  However, that was not done.  This failure persisted throughout the rest of 2012 (and into 2013). Mr Lung agreed that this lengthy delay “would itself suggest that there must have been issues about the audit work”[30].

-  Litigation against the Company by lenders

21.  On 23 April 2012, the Company announced that it was being sued by two lenders for repayment of loans of more than $15 million[31].

-  Litigation against Company officers by lenders

22.  Also in April 2012, it was reported in the media that SP2 (the financial controller) and SP4 (an executive director) have been sued for repayment of loans of more than $61 million.  Mr Lung agreed that “that should be viewed as a negative development for the Company”[32].

-  Litigation against the Company and board by SP9

23.  In May 2012, SP9 (a non-executive director) sued the Company and other members of the board in the High Court for access to company documents, alleging that he had been excluded from the business of the board.  Mr Lung agreed that from the public perspective, “discord within the board ... would be bad news”[33].

-  Resignation of non-executive director

24.  In June 2012, the Company announced the resignation of another non-executive director. The basis of the resignation was that he had a “strong disagreement with the board”, which Mr Lung agreed was “another piece of bad news”[34] in the eyes of the public.

-  Unresolved accounting issues

25.1.  Meanwhile in mid-April 2012, GT had identified some issues which had to be resolved for the purpose of preparing audited results for the year ended 31 December 2011, concerning[35]:

(a)  the disposal of ACD for $15.5 million;

(b)  the Company’s control over, and the valuation of, the Vietnam project which it had acquired for $620 million;

(c)  the recoverability of unsecured prepayments of USD10 million and USD4 million respectively made by two subsidiaries Elternal Galaxy Ltd (“EGL”) and Sinowise Development Ltd (“SDL”) to certain suppliers, who had failed to perform in accordance with the prepayment schedule.

25.2.  By August 2012, these issues remained unresolved[36].  The Company remained non-compliant with the Listing Rules for the publication of audited results, no results having been published since the Interim Results for 2011. 

-  Resignation of Grant Thornton

26.1.  The Unresolved Accounting Issues led to the resignation of GT as the Company’s auditors on 27 December 2012 with immediate effect.  A copy of GT’s letter of resignation, addressed to the Company’s audit committee and the board of directors, was sent to SP2 that day.

26.2.  The next day, 28 December 2012, SP2 informed SP4 of GT’s resignation.  However, the other members of the board were not informed until 18 January 2013[37]. Meanwhile, Part XIVA had come into effect on 1 January 2013.

Announcement

27.1.  On 23 January 2013, a board meeting took place, and on the same day, the Company made an announcement to the public (“the Announcement”)[38]. At this time, dealing in the Company’s shares on the stock exchange had been suspended for more than a year.

27.2.  The Announcement of GT’s resignation included a passage setting out reasons for the resignation which had been extracted verbatim from GT’s letter of resignation. This included references to “the substance of disposal of an available-for-sale financial asset[39], ownership and control of the Vietnam project, and the existence and commercial substance of prepayment to suppliers by the Company’s jointly controlled entities”[40].

Disclosure requirement under statute

28.1.  Meanwhile as noted earlier, on 1 January 2013, Part XIVA of the SFO came into effect.  Section 307A(1) where material provides:

“inside information, in relation to a listed corporation, means specific information that -

(a) is about -

(i) the corporation;

(ii) a shareholder or officer of the corporation; or

(iii) the listed securities of the corporation or their derivatives; and

(b) is not generally known to the persons who are accustomed or would be likely to deal in the listed securities of the corporation but would if generally known to them be likely to materially affect the price of the listed securities”. (Emphasis added).

28.2.  Section 307A(3),set out in §10.1 above, provides that for the purposes of that Part, securities listed on a recognized stock market “are to continue to be regarded as listed during any period of suspension of dealings in those securities on that market”.  (Emphasis added). 

28.3.  Section 307B sets out the requirements for listed corporations to disclose such inside information.

28.4.  Section 307C sets out the manner of disclosure.  It provides that a disclosure must be made in a manner that can provide for equal, timely and effective access by the public to the inside information disclosed.  

28.5.  Section 307G sets out the duty of officers of a listed corporation regarding its disclosure requirements.  It provides, where material:

“(1)  Every officer of a listed corporation must take all reasonable measures from time to time to ensure that proper safeguards exist to prevent a breach of a disclosure requirement in relation to the corporation.

(2)  if a listed corporation is in breach of a disclosure requirement, an officer of the corporation -

...

(b)  who has not taken all reasonable measures from time to time to ensure that proper safeguards exist to prevent the breach,

is also in breach of the disclosure requirement”.

SFC’s notice

29.1.  In its notice to the Tribunal dated 4 March 2016, the SFC alleged that the specified persons had failed to disclose three categories of information:

(a)  GT’s resignation on 27 December 2012 which was only disclosed on 23 January 2013;

(b)  the unresolved accounting issues (“Unresolved Accounting Issues”[41]) leading to GT’s indication that they would issue a qualified audit report (this category has also been referred to as “Potential Qualified Audit Report”);

(c)  circumstances surrounding EGL’s prepayment.

29.2.  There appears to be an overlapping of categories (b) and (c), because EGL’s prepayment was one of the Unresolved Accounting Issues, but nothing turns on this.  

SFC’s instructions to market expert

30.1.  The SFC’s instructions to Mr Lung were as follows:

“(a)  Whether the Resignation of Grant Thornton on 27 December 2012 or the Unresolved Accounting Issues, individually or collectively, was specific[42] information about

a.  the company;

b.  any shareholder or officer of the company;

c.  the listed securities of the company or their derivatives?

If so, what was the specific information?

(b)  During the period between mid-April 2012[43] and 23 January 2013 (“the Relevant Period”), who were accustomed, or would be likely, to deal in shares of Mayer (if trading in Mayer shares have not been suspended)? (Emphasis added).

(c)  During the Relevant Period, was the specific information specified in (a) generally known to those persons identified in (b) above?

(d)  Had the specified information identified in (a) been generally known to those persons identified in (b) above at any time during the Relevant Period, would it have affected the price of the shares of Mayer?

(e) If the answer to (d) above is ‘yes’, how/to what extent would it have affected the price of the shares of Mayer?

(f) Please specify at what point in timedid the Unresolved Accounting Issues, individually or collectively, amount to inside information?

(g) The absence of details of the Unresolved Accounting Issues, individually or collectively, in the Announcement, would it have affected the price of shares of Mayer (if trading in Mayer shares have not been suspended)? (Emphasis added).

(h)  If the answer to (g) above is ‘yes’, how/to what extent would it have affected the price of the shares of Mayer?”

30.2.  It was expressly stated in the instructions to the expert that trading in the Company’s shares on the stock exchange had been suspended since 9 January 2012.  However, the italicized words above are notable.

Market expert’s opinions

31.1.  I shall summarize Mr Lung’s opinions below, but it is significant that he accepted at the start of cross-examination that the opinions he provided in his statement were “all on the basis of this scenario ... That is, trading in Mayer shares have not been suspended”[44].  (Emphasis added).  He also accepted that the Company would have needed an exemption from the Stock Exchange if it were to resume trading when no financial results had been published[45].  

31.2.  In summary, Mr Lung gave the following opinions in his statement.

(a)  GT’s resignation and each of the Unresolved Accounting Issues were individually specific information about the Company [§27] and its securities: [§29].

(b)  It was unlikely the Company could attract institutional investors, and people who were accustomed or would be likely to deal in the Company’s shares would likely be “mainly individual retail investors and speculators” (“investors”) [§31].

(c)  As to what was generally known before the Announcement,

-  GT’s resignation was not generally known [§32(a)];

-  the ACD disposal: investors would have been aware of claims made in April 2012 by two lenders against the Company, but not that this might involve the ACD disposal and the proceeds [§32(b)];

-  the Vietnam project - dealers were aware of serious problems with the Vietnam project but not the details [§32(c)];

-  the EGL prepayment - this was not generally known [§32(d)].

(d)  Had the information been known during the Relevant Period[46],

-  GT’s resignation would have affected the price negatively [§39];

-  the ACD disposal would not have affected the price for a number of reasons [§43];

-  the problem with the Vietnam project was unlikely to have material impact on the price for a number of reasons [§47] and [§51];

-  the EGL prepayment would have affected the price in a negative way [§56].

(e)  As to how/to what extent the information would have affected the price of shares,

on an individual basis,

-  GT’s resignation “should have had a significant negative impact” [§58]; 

-  the EGL prepayment “would likely be relatively mild” [§59]; 

on a collective basis,

“the impact on Mayer’s share price would be negative as the other events were also having negative impact on the company. With multiple occurrence of negative events and several of them point towards poor management or even fraud, the impact on the share price should be significant” [§60].

(f)  As to the point in time at which the Unresolved Accounting Issues individually or collectively amounted to inside information,

-  the Unresolved Accounting Issues on a collective basis had amounted to inside information as of August 23, 2012[47], for by then GT had been appointed for 6 months, and for issues to remain suggested real problems might exist in the Company’s accounts [§§63 - 64]; 

-  on an individual basis, as only the issue involving EGL would be price sensitive, only this event would have individually amounted to inside information as of August 23, 2012 [§65].

(g)  The absence of details of the Unresolved Accounting Issues in the Announcement would leave investors “unable to have information needed to evaluate the potential impact on Mayer.  Without being properly informed, they might incorrectly evaluated and estimated the impact and their trading might also be affected by rumors.  The share price of Mayer might not properly reflected the real situation” [§66].

(h)  However even though the absence of details of the Unresolved Accounting Issues in the Announcement was “undesirable”, Mr Lung considered “it was difficult to estimate the impact”.  He was unable to assess how investors would “have evaluated and estimated the impact in the absence of details, and also the kind of rumors that might exist at that time.  The impact could thus be just mild or material, and on either direction” [§67].

32.1.  As noted above, Mr Lung was cross-examined with particular emphasis on the fact that he had been asked to give all his opinions on the premise that trading in the Company’s shares had not been suspended. 

32.2.  When Mr Chan asked him for an assessment of the price of the shares by January 2013 (after “a lot of negative news about the Company in 2012")[48], Mr Lung said:

“Well, that is really hypothetical. It — it is most likely it will come down by a material or even a significant percentage. Given that there is so many events happened ... it is very difficult to quantify it, but general terms, that’s my opinion”.[49] (Emphasis added).

32.3.  Then, when Mr Chan suggested that Mr Lung could not reliably give an opinion on the impact of the subject information on a price which he had said was “difficult to quantify”, Mr Lung said:

“... If it is negative and if it is significant negative news then it would still have an impact on the share price. I don’t need to know what it was before, but if there is a new negative development, that is significant enough, it should still have an impact on the share price, unless the share price is already zero”. (Emphasis added).

It would appear that Mr Lung was conflating the importance of the news with the materiality of the effect on price.

32.4.  In re-examination, he said[50]:

“Other piece of corporate information might affect how it is being affected. For example, if Mayer has been doing very well, everything report very smoothly and suddenly come up with this Grant Thornton resignation with accounting issues involved, that would be very, very negative, because that is a blow to investor confidence.

Here the investors has been always – seems that they are very aware of that Mayer has not taken very good investment, some disagreement with the board. So I have to say that with this background, the impact may be less significant as it would be as in the previous case that I described. But the key is that this is still a new piece of information that people accustomed to, or would be likely to deal with the shares of Mayer, were not aware of previously. So the impact will still be there”. (Emphasis added).

He confirmed the view set out in §39 of his report, viz

“It is therefore my opinion that if the information about the resignation of Grant Thornton [had] been generally known to those persons identified in (b) above during the Relevant Period, it would have affected the price of Mayer shares negatively”.

32.5.  It would appear from the whole of this evidence that Mr Lung was not concerned with the significance of the impact (ie whether the effect on the price would have been “material”).  Rather, the “key” lay in the “news” which was not available to the investors, in other words, as the information was important, it must have been price-sensitive[51].

33.  No expert was called for the Specified Persons.  Some of the SPs attended for cross-examination.

Tribunal’s approach and findings on liability

34.1.  In its Report on Liability, the Tribunal set out its approach to Mr Chan’s submission that by reason of the lengthy suspension and post-suspension events, the price of the subject shares would not have been materially affected by the subject information [§70]. 

34.2.  After setting out s.307A(3), which the Tribunal considered unique to Hong Kong [§57][52], which provided that the shares “are to continue to be regarded as listed during any period of suspension ...”, the Tribunal held [§74]:

“In other words, no regard shall be had to suspension of trading. This is imperative and applies across the board for the purposes of the whole of Part XIVA”.

At [§81], the Tribunal confirmed that its approach was driven entirely by this interpretation of sections 307A(1) and 307A(3).

34.3.  Adopting this approach, the Tribunal found that the Company was in breach of the disclosure requirement in respect of GT’s resignation and that it would be likely to materially affect the price of the Company’s shares [§69].  It held [§71]:

“The pre-suspension [ie pre-22 November 2011] price of Mayer shares had not dropped to zero. A low price could still be materially affected. In our opinion, the Resignation was sufficiently and materially negative and would still be likely to materially affect the price of the listed securities. We accept what Karl Lung said on this point under cross-examination. A share which had been dropping in price was not incapable of materially dropping in price”.

34.4.  The Tribunal also found the “Potential Qualified Audit Report” information would be likely to materially affect the price of the Company’s shares[53], as was the case with the EGL prepayment which was one of the items under “Potential Qualified Audit Report”[54].

34.5.  The Tribunal found that the Company was in breach of the disclosure requirement as the disclosure of GT’s resignation could have been easily made within 1-2 days after 1 January 2013 [§103], and the period from 1 January 2013 and 23 January 2013 exceeded what was reasonably practicable [§104].

34.6.  The Tribunal also found that SP2, SP3, SP4, SP5, SP6, SP8, SP9, SP10 and SP11 were in breach of s.307G(2).

Discussion on liability

35.1.  As noted earlier, the Tribunal rejected outright Mr Chan’s argument which relied on the suspension in trading as having an impact on the issue whether the price of the Company’s shares would be materially affected by the information [§73]. The Tribunal accepted the SFC’s case that s.307A(3) “required” the adoption of “the trading assumption”[55].  Mr Scott had argued that “s.307A ... excludes the effect of trade suspension from the price sensitivity analysis”[56]. This was despite the SFC’s acceptance that “in fact, the longer that trading in a share is suspended, the more likely that the actual price of the share would deviate from the listed price of the shares on the stock exchange”[57]. 

35.2.  The Tribunal’s approach was based on its view that s.307A(3) provided that “no regard shall be had to the suspension of trading” which was “imperative and applies across the board for the purposes of the whole of Part XIVA” [§74], even though the suspension was an undisputed fact.  Before this court, Mr Scott supported the Tribunal’s view, arguing that “the juxtaposition of the word ‘listed’ and ‘suspended’ in that subsection strongly suggests that ‘listed’ means ‘not suspended’ - that the securities are able to be traded - as opposed to ‘not delisted’”[58].  

36.  With respect, I take the view that s.307A(3) does not permit such an interpretation.  All that subsection says is that a listed company does not stop being a “listed” company (for Part XIVA to apply) simply because dealing on that market has been suspended.  In other words, the status of being a listed company is not affected and the Part applies, even though the activity of dealings in its shares on that stock market has been suspended. 

37.1.  It was submitted on behalf of the SFC that there was “no need for s.307A(3) to provide that suspended companies shall continue to have a ‘listed’ status.  The Appellants’ reading of s.307A(3) would render that provision otiose”. 

37.2.  However, what is important is the plain and ordinary meaning of the words which makes it clear beyond argument that the Part would apply to listed companies even though dealing in its shares has been suspended.  As Nourse LJ remarked in Omar Parks Ltd v Elkington[59], “an emphasis of the obvious, unnecessary to a judge who has had the benefit of argument, may yet be welcome to a busy practitioner[60] who has not”.  

38.  The rationale for applying the Part to listed, albeit suspended, shares is obvious.  As demonstrated in Public Prosecutor v Allen Ng Poh Meng[61], the imminent lifting of suspension was itself the price-sensitive information. If, applying the Tribunal’s approach, suspension of dealing is to be ignored, the ironic result would be that the insider trader in that case would not be guilty as there would have been no suspension to lift.

39.  With respect to the Tribunal, what s.307A(3) does not say is that a listed company shall be regarded as continuously dealing at the pre-suspension price despite the fact of suspension of dealing.  It does not follow as a matter of logic, nor is there anything in the language of the statute to justify treating the status of “listed” and the activity of “dealing” as synonymous in all respects, so as to require the issue of materiality to be determined on an admittedly false factual premise.

40.1.  To determine liability or otherwise, it is relevant to decide whether the information, however important, would have a “material” effect on the price of the securities in question.  As it was put in the Report of the Insider Dealing Tribunal in Chinese Estates Holdings Ltd[62],

“Information, in order to amount to ‘relevant information’, must be of the kind likely to have a material impact on the price of a company’s listed securities. In this regard, the Tribunal has acknowledged the principle that no doubt all information that is sufficiently price sensitive will be important information concerning a company’s affairs but the converse is not necessarily true; namely that all important information must be price sensitive. Important information or information of great interest concerning a company may excite comment but may nevertheless be information of the kind that would not be likely to have a material impact on the price of that company’s securities”. (Emphasis added).

40.2.  Thus Part XIVA does not contain a list of information which shall be regarded as having a material impact on the shares of all companies generally.  Rather the language of s.307A(1) makes it clear that the information must be material to the price of the particular securities in question.  Therefore, one must consider the individual circumstances of each company at the time the information is made available to that company and its directors. 

40.3.  It is understandable that there is more difficulty in deciding this issue when one is faced with a company whose shares have not been traded for more than a year, in the course of which many negative events have occurred which (even on the SFC market expert’s evidence) would have led to the price falling significantly below its pre-suspension level[63].  However, to consider only the impact of the information on the pre-suspension price, and to reject outright that suspension could have had an effect on the pre-suspension price, is to turn a blind eye to these important events which admittedly would have affected the price at the time the information fell to be considered.

40.4.  Whether, in light of those events, the information would then still have a “material” effect on the price would involve an assessment of the particular facts of the company involved, including the impact of the post-suspension events on the share price.  If there is no data of off-market dealings[64], one would have to assess what the hypothetical price of the share would have been when the subject information became available.  There is no evidence in support of the SFC’s submission that where trading is suspended, the price sensitivity test would be “rendered unworkable”[65] or would itself pose an insurmountable problem.  As the Tribunal rightly noted at [§81], the statutory test for determining what constitutes “insider information” is itself a hypothetical one.  

40.5.  It may (or may not) be the case that the subject information in this case would still have had a material effect on the hypothetical share price in January 2013.  However, the instructions to the market expert were given expressly on the “trading assumption”.  In cross-examination he had agreed that the post-suspension events would have significantly reduced the price, but that he had not considered what it would have been.  I have discussed his re-examination in §32.4 above.  In any event, no alternative approach was adopted by the Tribunal, and there was no respondent’s notice from the SFC to seek to salvage the determination on this basis.

Order

41.1.  In the circumstances, for the reasons given above, the appeals are allowed and the determination of liability set aside.  Although Mr Dawes and Mr Li submitted that the appellants should not be further vexed, in light of the error of law and the inquisitorial nature of tribunal proceedings, I would order that the matter be remitted to the Tribunal to consider the issue whether the subject information would be likely to materially affect the price taking into account the post-suspension events, for which the parties have leave to adduce fresh expert evidence.  In the circumstances it is not necessary or appropriate for this court to deal with the appeals against sanctions.  

41.2.  I would also make an order nisi that the costs of the appeals be to the appellants with certificate for two counsel in each appeal.  As for the costs before the Tribunal, it is clear from the Report that a wide range of issues was canvassed before it, and as the appellants have not suggested any apportionment of costs on the basis of discrete issues, I do not think it is appropriate to interfere with the costs order before the Tribunal.