HKSAR v. LUK KIN PETER JOSEPH AND ANOTHER

DCCC 851/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 851 OF 2013

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REASONS FOR SENTENCE

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The Charges

1.  The first charge, against both D1 and D2,  alleged  that they conspired as agents to use a document, with intent to deceive their principal, contrary to sections 9(3) and 12(1) of the Prevention of Bribery Ordinance, Cap 201 and sections 159A and 159C of the Crimes Ordinance, Cap 200.  The document concerned is a minutes of meeting of the board of directors of Biogrowth Assets Limited (BAL), which was a wholly owned subsidiary of China Mining Resources Group Limited (CMRG), a company listed on the Hong Kong Stock Exchange. The company was previously known as Innomaxx Biotechnology Group Limited ( Innomaxx)

2.  The meeting, held on 21 November 2008, related to the disposal by CMRG of a wholly owned subsidiary company, Cell Therapy Technologies Centre Limited (CTTC) which was held by BAL, another wholly owned subsidiary company.  At the time of the disposal, D1 and D2 were the directors of  both BAL and CTTC.

3.  In December 2008 CTTC was sold to a company called United Easy Investments Limited (UEIL), a company registered in the name of D1’s wife’s aunt, Ho Pui Fan, Fanny ( HO). Documents relating to this sale were prepared and signed on the basis that UEIL was an independent third party. On 21 November 2008 the BAL minutes concerning the sale were signed by both D1 and D2 and stated, inter alia, that none of the directors were interested in the disposal. I was sure that UEIL was controlled and financed  by D1 and that D2 was aware of this and they had conspired to use the minutes to mislead BAL and/ or CMRG.

4.  The second and the third charges are concerned with an agent offering and accepting an advantage, contrary to sections 9(2)(a) and 9(1)(a) of the Prevention of Bribery Ordinance, Cap. 201 respectively. The first defendant faced the second charge while the second defendant faced the third. The subject matter of the charge is 1.5 million shares of CMRG  offered by D1 to D2 on or about 3 November 2008  as an inducement to or reward for processing the sale of CTTC by BAL.

Background

5.  China Mining Resources Group Limited has been listed on the Hong Kong Stock Exchange (“SEHK”) since March 1997.  Mr LUK Kin Peter Joseph (“D1”) was its Executive Director between 2 August 2005 and 6 July 2007.  Apart from mining business, CMRG also engaged in the business of cord blood storage by its wholly owned subsidiary Cell Therapy Technologies Centre Limited. CMRG held the interest in CTTC through its corporate arms Biogrowth Assets Limited (“BAL”) and New Legend International Group Limited, as a nominee of BAL, respectively at 19,999,999 and 1 share.

6.  Between June and July 2007, D1 and Ms YU Oi-kee (“D2”), the Financial Controller-cum-Company Secretary of CMRG at the time, stepped down from the management of the listed company but they continued to be directors of CTTC and BAL, looking after the cord blood storage business.  At around that time, it was discussed that CTTC would be to be disposed to D1.  A financial adviser informed them that D1’s role in the disposal would constitute a connected transaction under the Listing Rules, and independent approval and advice from independent financial adviser on the disposal were required.  For various reasons, the disposal plan did not materialize at that time.

7.  Later in October 2008, the intended disposal of CTTC was revived (“the Disposal”).  On 7 November 2008, CMRG was informed by one of its Executive Directors that CTTC would be acquired by United Easy Investments Limited (“UEIL”), a purported independent third party, at HK$15 million. D2 was involved in the preparation process of the Disposal and she received 1.5 million shares of CMRG, with a market value of HK$0.33 million, from D1 on or about 3 November 2008 as a bribe.

8.  Investigation revealed that UEIL was set up and held by HO. D2 had assisted in arranging for the company to be registered in the name of Ho.  Ho was an Administration Assistant employed by the company owned by D1 and his wife and most of the HK$15million consideration for acquiring CTTC was arranged by D1.

9.  A Board of Directors (“BoD”) meeting of CMRG was held on 21 November 2008 to approve the Disposal to UEIL at HK$15M.  D1’s connection was not reported to the BoD.  On the same day, D1 and D2 passed a resolution of BAL for the Disposal and they falsely declared that they had no interest in that transaction. Later the same day, CMRG published an announcement regarding the Disposal and stated that UEIL was an independent party.  Because of the unsubstantial and the purported unconnected nature, the Disposal and the announcement were not queried by the SEHK.  After the Disposal, D1 and D2 left BAL but continued to be directors of CTTC.

10.  On 24 and 28 November 2008, CTTC transferred a total of HK$17.2 million to UEIL as shareholder’s loan, and the sum was disbursed to various parties, including D1’s parents and HO, as instructed by D1.

11.  The management of CMRG confirmed that they were not aware of D1’s interest in the Disposal and would have sought advice from SEHK had they known the actual situation.  They also confirmed that D2 was not allowed to accept advantage namely the 1.5M shares of CMRG offered by D1, in the circumstances.

12.  SEHK confirmed that the Disposal constituted a ‘connected transaction’, which required certain vetting procedure and requirement be fulfilled.  However, SEHK was not told of the true nature of the Disposal, and that spared the transaction from the relevant procedure and requirement at that time.

Mitigation

D1

Personal Circumstances

13.  Both defendants had clear records.

14.  D1 is aged 43. He is married with an 8 year old daughter. His elderly mother lives at his home in Hong Kong. His father is a businessman on the mainland.

15.  D1 has a bachelor degree  in mechanical engineering and two master’s degrees relating to business and finance. He has been a Chartered Financial Analyst since 2001. Between 1999 and 2005 he worked in the banking industry. In 2005 he started his own business which provided advisory services to state-owned entrerprises and private companies on the mainland. He became an executive director of  Innomaxx in August 2005. Since 2009 has been an executive director of a listed company, Brockman Mining Limited

The offences

16.  Counsel for D1 said that the result of the deception in this case was that the sale of CTTC was effected without being subject to a general meeting of the listed company’s shareholders. There was no evidence to suggest that had D1’s ownership of the purchasing company been revealed, that the sale to UEIL would not have been approved.

17.  The evidence made it clear that at the material time, the business of CTTC was  not one of the core businessess being conducted by CMRG which for some time had been mainly operating as a mining company. The management of CTTC had planned for some time to dispose of CTTC. Counsel said that D1 did CMRG a favour by taking CTTC off the hands of the listed company as they had failed to find any third parties willing to take on the business.

18.  Counsel said that there was no suggestion that D1 had acquired the business at anything other than the true market value. This was confirmed by the evidence of PW3, an independent non-executive director of CMRG.

Delay

19.  The offences occurred in November 2008. The defendants were arrested in October 2011 and charged in September 2013. Counsel did not seek to say that this delay was occasioned by any negligence on the part of the prosecuting authorities.

20.  Counsel said that D1 has been under enormous stress since his arrest in 2011.

Character of D1

21.  Counsel said that D1 had held down a number of very senior and responsible posts in large companies for many years and that this was an isolated blemish and should not be regarded as a reflection of his true character.

22.  Counsel submitted to the court a number of reference letters from reputable persons who have known D1 for a considerable period of time. D1 is held in the highest regards by his fellow professionals and persons with whom he has worked. He is regarded as meticulous and very supportive of those working under him.  He is well known for his generosity and  support of philanthropic causes.

Exceptional Circumstances

23.  It was urged upon the court that there were exceptional circumstances in this case.  There was no loss occasioned by CMRG and no gain to D1. In fact, by taking on CTTC, D1 was doing CMRG a favour.

24.  D1 has spent three weeks in custody.

25.  D1 has had this case hanging over his head for a number of years.

26.  It was submitted that having considered all the mitigating features of this case, there were grounds for dealing with D1 by way of a community service order or suspended prison sentence.

D2

27.  D2 is 41 years of age. She is the second of three daughters. Her sisters are married. Her parents are retired. She lives with her parents and her younger sister’s family.

28.  D2 completed her secondary education in Hong Kong and received a bachelor degree in accounting in 1994. She qualified as an accountant. She had worked for an international accounting firm. She was made financial controller of  Innomaxx on 1 May 2006. She  was also the company secretary.

Reference Letters

29.  A large number of glowing testimonials were put before the court. They came from family members, fellow professionals. persons with whom she has worked and from charitable organisations. She is an extremely supportive and valued member of her family most of whom were in court to show their support. She is known for her generosity and has raised substantial funds for a number of charitable organisations.

The offences

30.  Counsel for D2 pointed out that the decision to dispose of CTTC was made long before the events giving rise to the charges. D2 followed the instructions given to her by D1. It was never contemplated that the disposal to UEIL would cause any prejudice to CMRG. The price paid was fair.

31.  Counsel submitted that this all happened a long time ago and whatever sentence the court imposed the professional consequences of conviction  will be very serious for D2. She accepts that will no longer be allowed to practice as an accountant.

32.  He further submitted that in conducting her defence no spurious lines of  defence were put forward and  the prosecution was simply put to strict proof.

Sentencing Considerations

33.  The maximum sentence for each of the offences is 7 years imprisonment and  a fine of HKD500,000

34.  The courts have made it clear that anyone convicted of an offence of corruption faces an immediate custodial sentence and only in the most exceptional case would it  be appropriate to impose a community service order or  suspend such a sentence. A deterrent sentence is required.

35.  I accept that the sale was at market value and the UEIL were taking on a company CMRG were eager to sell. I accept that in each case, the results of  these convictions will have very serious professional and personal consequences for each defendant over and above any loss of liberty the court might impose.  Each of the defendants has suffered a significant fall from grace.

36.  In this case each of the defendants had previously held senior positions in the listed company, CMRG. D1 had been a chief executive of the company.  D2 had been its financial controller and company secretary. At the time of the offences they were directors of  the  subsidiary company being sold.  Both defendants are well experienced in matters of  corporate management and governance.  D1 has postgraduate financial qualifications and has been involved in corporate management of  large corporations. D2 is a professional accountant. Both were well aware of the Stock Exchange Listing rules.

37.  In relation to this disposal, they deliberately chose to conceal the true position as regards D1’s relationship with UEIL. They lied to the solicitors dealing with the preparation of the documentation for the disposal. They approved the preparation and content of false documents.  They signed false minutes. They knew that CMRG would issue an inaccurate public announcement in relation to this disposal. The Stock Exchange and the public were misled. I was satisfied that D1 offered and D2 accepted an advantage to facilitate the disposal. The 1.5 million  CMRG shares given by D1 to D2 in early November 2008 were sold by D2 in January 2009 for HKD317,316.18,  several times her monthly salary.

38.  The laws and regulations controlling securities in Hong Kong are there to ensure public confidence in the integrity of  the system. The management of  publicly  listed companies is required to be accountable and act in an honest and transparent manner. In this case, both defendants chose to act in a manner which led to the management issuing a public announcement which was false. This situation was aggravated by D1 offering and D2 accepting a bribe to secure D2’s participation in the process.

39.  Both counsel have raised the issue of delay. Neither counsel have blamed either the prosecution or the ICAC.  They rightly make the point that these matters have been hanging over their clients’ heads for a number of  years.  Cases of this kind inevitably involve in-depth, time consuming and expensive investigation. Given the complexity of this case, the number of documents and the issues involved, in my view there had been no undue delay. Defendants involved in cases of this complexity must expect that once an investigation is commenced there will be a significant period of time before the cases will be resolved.

40.  In my view the culpability of D1 is greater than that of  D2. D2 had worked under D1 for a number of  years and acted in accordance with his instructions.

D1

41.  In respect of each of the charges I impose concurrent sentences of 2 years. I also make a disqualification order under the provisions of s.168E of the Companies Ordinance Cap 32 for a period of seven years starting with the date of this order, D1 may not, without leave of the court –

a) be a director of a company;

b) be a liquidator of a company;

c) be a receiver or manager of a company’s property; or

d) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company. If any person acts in contravention of this order, he is guilty of an offence and liable to imprisonment and a fine.

D2

42.  In respect of each offence I impose concurrent sentences of 15 months imprisonment. I also make a disqualification order under the provisions of s.168E of the Companies Ordinance Cap 32 for a period of five years starting with the date of this order, D2 may not, without leave of the court –

a) be a director of a company;

b) be a liquidator of a company;

c) be a receiver or manager of a company’s property; or

d) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company. If any person acts in contravention of this order, he is guilty of an offence and liable to imprisonment and a fine.

43.  I order that the prosecution exhibits be disposed of in accordance with the application made by the prosecutor and that the defence exhibits be retained on the court file.