CHAU CHIN HUNG AND ANOTHER v. MARKET MISCONDUCT TRIBUNAL AND ANOTHER

HCAL 123/2007,
124/2007 and 22/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 123 OF 2007

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AND

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 124 OF 2007

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BETWEEN

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AND

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 22 OF 2008

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BETWEEN

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Dates of Hearing : 17 and 18 June 2008

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J U D G M E N T

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Introduction

1. The Market Misconduct Tribunal is a body established under the Securities and Futures Ordinance, Cap. 571 (‘the Ordinance’).  Its statutory purpose is to ‘hear and determine’ whether, in respect of proceedings instituted by the Financial Secretary, any form of market misconduct has taken place and, if so, the identity of the perpetrators and the amount of money gained or loss avoided by reason of the misconduct.

2. As to the commencement of proceedings before the Tribunal, s.252 of the Ordinance directs that :

“   (1)   If it appears to the Financial Secretary …that market misconduct has or may have taken place, he may institute proceedings before the Tribunal concerning the matter.

    (2)   The Financial Secretary shall institute proceedings before the Tribunal by giving the Tribunal a notice in writing which shall contain a statement specifying such matters as are prescribed in Schedule 9.”

3. On 6 June 2007, the Financial Secretary issued a notice pursuant to s.252 of the Ordinance informing the Tribunal that it appeared to him that market misconduct may have taken place in respect of certain dealings in the securities of a publicly listed company, QPL International Holdings Limited.  The Financial Secretary specified three forms of market misconduct which he believed may have occurred : false trading, price rigging and stock market manipulation.

4. Schedule 9 of the Ordinance directs that a notice issued under s.252 shall specify the identity of the person or persons believed to have committed the market misconduct.  To this end, the notice issued by the Financial Secretary identified the following ‘specified persons’ : Mr Chau Chin Hung, Ms Cheung Sau Lin, Cheeroll Limited and Sun Hung Kai Investment Services Limited.

5. When the matter came before the Tribunal for hearing and determination, a number of fundamental challenges to its powers were raised by counsel representing the specified persons.  In two written rulings, Mr Justice Lunn, Chairman of the Tribunal, dismissed all of the challenges.  It is in respect of those dismissals that the specified persons (the applicants) have now sought judicial review.

6. The most fundamental challenge made by counsel on behalf of all four specified persons went to the true nature of the proceedings before the Tribunal; that is, whether they were civil or criminal in nature.  On behalf of the applicants, it was argued that the proceedings are criminal in nature and that matters going to the standard of proof, the compellability of testimony and such must be determined in accordance with that fact.  The Tribunal, however, concluded that the proceedings were civil. 

7. The second challenge, again made by counsel on behalf of all four specified persons, went to whether the notice dated 6 June 2007 issued by the Financial Secretary had complied with the requirements of the Ordinance.  It was contended that the notice had not complied strictly with the requirements of the Ordinance and that accordingly the notice was invalid.  That being the case, the Tribunal itself had no authority to hear and determine matters pursuant to the notice.  The Tribunal, however, rejected any submission that the requirements of the Ordinance resulted in the notice being the equivalent of an indictment in criminal proceedings or pleadings in civil litigation.  It found that —

“… the information supplied in the Notice provides both the tribunal and the specified persons with the material which the Financial Secretary is required to provide by section 13 and which he has chosen to provide pursuant to section 14 of Schedule 9.  In consequence, the notice is valid and this Tribunal has jurisdiction to proceed as directed by the Financial Secretary.”

8. The third challenge was made by Mr Kevin Patterson, counsel representing Ms Cheung Sau Lin.  Mr Patterson’s arguments were supported by John Brewer, counsel for Cheeroll Limited and Sun Hung Kai Investment Services Limited.  In was Mr Patterson’s contention that the Tribunal did not, in law, have the power to compel Ms Cheung, a specified person, to give testimony.  Nor did the Tribunal, in law, have the power to admit into evidence her record of interview obtained under compulsion by investigating officers on 3 October 2003.  Mr Patterson submitted that this was so because any purported exercise of the two powers would deny Ms Cheung her constitutionally protected right to a ‘fair hearing’ under arts.10 and 11 of the Hong Kong Bill of Rights.  The Tribunal, however, found that a fair balance had been struck between the general interest of the community in realising the legitimate aims of the Ordinance and protecting the fundamental rights of the individual and that, accordingly, there was no undermining of Ms Cheung’s constitutionally protected right to a fair hearing.

The remedies sought

9. Before us, the applicants have sought orders of certiorari to bring up and quash the rulings of the Tribunal together with declarations that are in accordance with their original challenges.

Are proceedings before the Tribunal criminal or civil in nature?

10. Art.39 of the Basic Law directs that the International Covenant on Civil and Political Rights (‘the ICCPR’) is to be implemented into Hong Kong law.  The implementation finds its expression in the Hong Kong Bill of Rights Ordinance, Cap. 383.  Through art.39, the Bill of Rights is itself given constitutional force.

11. Art.10 of the Bill of Rights, in so far as it is relevant, provides that :

“In the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.”

12. Art.11, which concerns the determination of criminal proceedings, again in so far as relevant, provides that :

“(1)     Everyone charged with a criminal offence shall have the right to be presumed innocent until proved guilty according to law.

 (2)     In the determination of any criminal charge against him, everyone shall be entitled to the following minimum guarantees, in full equality-

      …

      (g)    not to be compelled to testify against himself or to confess guilt.”

13. Since the judgment of the Court of Final Appeal in Koon Wing Yee v. Insider Dealing Tribunal (unreported, 18 March 2008, FACV 19 and 20 of 2007), it is now settled that, in determining whether, for the purposes of arts.10 and 11 of the Bill of Rights, a matter is civil or criminal in nature, three criteria must be considered :

(i)  the classification of the offence under the domestic law of Hong Kong;

(ii)  the nature of the offence;

(iii)       the nature and severity of the potential sanction.

14. These three criteria are not to be treated as analytically distinct.  They are to be weighed together.  However, it is now settled that criteria (ii) and (iii) are to be considered more significant.

15. As to the concept of a ‘criminal charge’ contained within art.10 of the Bill of Rights, in giving the judgment of the court in Koon Wing Yee Sir Anthony Mason NPJ said that perhaps the best explanation of the concept was to be found in the words of Lord Hope in R (Mc Cann) v. Manchester Crown Court [2003] 1 AC at 819 :

“The words ‘criminal charge’ themselves suggest that the proceedings which they have in mind are not just proceedings where a ‘charge’ is made.  The question is whether they are proceedings which may result in the imposition of a penalty.  This point emerges clearly from the French text of article 6(1), as Lord President Rodger pointed out in S v Miller 2001 SC 977, 988, para 21.  It states that the matter which is to be determined must be either a dispute ‘sur ses droits et obligations de caractère civil’ or an “accusation en matière pénale’.  The words ‘en matière pénale’ indicate it is envisaged that there will be a penal element.  The court seems to have had this point in mind when, in Engel v The Netherlands (No 1), at p 678, para 82, it asked itself when it was setting out the first criterion ‘whether the provision(s) defining the offence charged belong, according to the legal system of the respondent state, to criminal law, disciplinary law or both concurrently.’  In other words, proceedings involving a charge which is merely disciplinary in character will not fall within the ambit of article 6.”

16. As Sir Anthony Mason observed, it follows that —

“… proceedings which may result in the imposition of a penalty for wrongful conduct will involve the determination of a criminal charge unless they have a character which is neither criminal nor penal.  Disciplinary proceedings, which do not concern the public at large, usually have such a non-criminal, non-penal character.  Proceedings under regulatory legislation whose purpose is essentially protective rather than punitive and deterrent may also have such a character …  So also with proceedings that have a preventative rather than a punitive or deterrent purpose.  Likewise, proceedings for a penalty which is compensatory in nature have a non-criminal and non-penal character.”

17. Sir Anthony Mason further observed that a monetary penalty which is punitive and deterrent rather than compensatory may suggest that the matter is ‘criminal’ in nature if the penalty is sufficiently substantial.  Generally speaking, therefore, proceedings which are not expressed to be criminal proceedings will not be classified as criminal for the purposes of the Bill of Rights unless the penalty for wrongful conduct, which may be imposed, is substantial. 

18. Against this background, we turn now to consider the three criteria.

(i)      Classification of the offences

19. In his notice, the Financial Secretary specified three forms of market misconduct which he believed may have occurred : false trading, contrary to s.274 of the Ordinance; price rigging, contrary to s.275 and stock market manipulation, contrary to s.228.  Each alleged offence of market misconduct is serious.

20. But, that being said, in s.252 of the Ordinance – the same section which specifies the procedure to be adopted by the Financial Secretary in instituting proceedings before the Tribunal – the legislature has seen fit to lay down the standard of proof required to determine all issues before the Tribunal.  In this regard, s.252(7) states that :

“… the standard of proof required to determine any question or issue before the Tribunal shall be the standard of proof applicable to civil proceedings in a court of law.”

21. That being the case, the classification of proceedings before the Tribunal under the Ordinance, and therefore according to domestic law, is civil.  A civil standard is set for one purpose; that is, to determine civil proceedings.

22. We accept, of course, that the Ordinance provides for a dual regime of both civil and criminal proceedings to determine allegations of market misconduct.  But the Ordinance in this regard is not unique and nothing was placed before us during the course of the hearing to cause us any concern that this dual character, of itself, infringes the Bill of Rights.  In this regard, we note the observation of Sir Anthony Mason, albeit obiter, in Koon Wing Yee,para 67 :

“… it is desirable to refer to a suggestion made in the course of argument that legislation, which provides for a dual regime of civil and criminal sanctions to deal with insider dealing, may infringe the Bill of Rights.  As at present advised, I would not regard that suggestion as soundly based.”

(ii)     The nature of the offences

23. As we have said, the three offences of market misconduct alleged against the applicants are serious.  The Tribunal also accepted this.  The offences, even at the lowest level of culpability, incorporate a course of conduct intended to undermine the orderly workings of our financial markets; in short, to a greater or lesser degree, to distort those markets.  A finding of false trading, price rigging or stock market manipulation brings with it a professional stigma.  As such the offences cannot be equated, for example, with a failure to follow arcane procedural regulations, offences essentially of oversight or neglect. 

24. The Ordinance incorporates a dual regime, one which seeks to proceed by way of civil enquiry, if necessary imposing civil sanctions, and one which proceeds by way of criminal prosecution.

25. As we perceive it, the civil regime seeks to deal with those persons who, in respect of market conduct regulated under the Ordinance, are believed to have acted inappropriately but nevertheless outside the ambit of the criminal law.

26. Nevertheless, the Ordinance, in the working of its dual regimes, does make the same offences subject to both civil and criminal proceedings.  To that extent, even when civil misfeasance only is under consideration, it must be recognised that the conduct is therefore, even if only generically, to be considered serious or at least potentially so.

(iii)    The nature and severity of the potential sanctions

27. The Court of Appeal, in its judgment in Koon Wing Yee (unreported, 30 May 2007) was of the view that this third criteria was the most important.  Certainly, during the course of submissions before us, counsel for the applicants placed the greatest emphasis on it.

28. S.257 of the Ordinance gives to the Tribunal the power to visit a number of sanctions on a person who has been identified as having engaged in market misconduct.

29. S.257(1)(a) provides for orders of disqualification; namely, orders that disqualify an identified person from being concerned in the management of listed or other specified companies.  The sub-section reads :

“… that the person shall not, without the leave of the Court of First Instance, be or continue to be a director, liquidator, or receiver or manager of the property or business, of a listed corporation or any other specified corporation or in any way, whether directly or indirectly, be concerned or take part in the management of a listed corporation or any other specified corporation for the period (not exceeding 5 years) specified in the order.”

30. We have no difficulty with the nature of this order.  It is not penal.  It is designed to protect the investing public.

31. In Koon Wing Yee, Sir Anthony Mason was satisfied that an order of disqualification under s.23(1)(a) of the old Securities (Insider Dealing) Ordinance, Cap.395, was protective rather than punitive in character, the primary purpose of the power being to protect investors and the public.  While obviously the power to make such an order has a deterrent effect, Sir Anthony Mason commented that the —

“… effect is incidental and subservient to the purpose of protecting shareholders, investors and the public from corporate officers who are unfit to hold office.”

32. In our judgment, the disqualification order in s.257(1)(a) of the Ordinance serves the same purpose and has the same character as the order in the old statute.

33. S.257(1)(b) of the Ordinance makes provision for what are commonly called ‘cold shoulder’ orders; that is, orders that – without the leave of the Court of First Instance – deny an identified person access to the financial markets.  The sub-section reads :

“… that the person shall not, without the leave of the Court of First Instance, in Hong Kong, directly or indirectly, in any way acquire, dispose of or otherwise deal in any securities, futures contract or leveraged foreign exchange contract, or an interest in any securities, futures contract, leveraged foreign exchange contract or collective investment scheme for the period (not exceeding 5 years) specified in the order.”

34. In our judgment, a ‘cold shoulder’ order serves the same essential purpose as a disqualification order.  It is not penal in character.  It is protective.  The integrity of the financial markets must be safeguarded and, if it has been demonstrated that a person cannot be trusted to operate in the markets in accordance with the requirements of the Ordinance, then he can be prevented from doing so for such period of time as the Tribunal considers appropriate.  A cold shoulder order serves to protect financial institutions as well as the investing public.

35. Yes, of course, the consequence of a cold shoulder order may be damaging to the identified person but that does not detract from the primary purpose and essential character of the order.  In this regard, it is important to note that the Court of First Instance is given the power to alleviate any burden created by a cold shoulder order which, while detrimental to the interests of the identified person, may not serve to advance the protective purpose of the order.  By way of example, the Court of First Instance may permit investment, certainly through a reputable broker or agent, that enables an identified person to save for retirement.

36. S.257(1)(c) of the Ordinance gives the Tribunal the power to issue what are often described as ‘cease and desist’ orders.  These are orders in terms of which a person who has been identified as a perpetrator of some form, or forms, of market misconduct is made the subject of a warning —

“… that the person shall not again perpetrate any conduct which constitutes such market misconduct as is specified in the order (whether the same as the market misconduct in question or not).”

37. In plain language, as we see it, the Tribunal is given the power to demand that an identified person shall in future act professionally, avoiding what has been identified by the Tribunal – even if the person should contest it – to be a form, or forms, of market misconduct.

38. In our view, such demands, or warnings, are intended to do no more than look to the future protection of the financial markets.  To that extent, such orders are preventative and not penal.

39. S.257(1)(d) of the Ordinance gives the power to the Tribunal to order disgorgement of any profits made by an identified person.  The sub-section provides for an order —

“… that the person pay to the Government an amount not exceeding the amount of any profit gained or loss avoided by the person as a result of the market misconduct in question.”

40. This power is to be contrasted with the power given to the Insider Dealing Tribunal in the old statute to make an order imposing on an identified person a penalty “of an amount not exceeding three times the amount of any profit gained or loss avoided by any person as a result of the insider dealing.”  In his judgment in Koon Wing Yee, Sir Anthony Mason found that the penalty of up to three times the profit or loss avoided in the old statute was comparable to a fine, its purpose being punitive and deterrent.  As he said :

“The penalty provision seeks to deter insider dealing by leaving a person who engages in such dealing substantially out of pocket.

… That the amount of the penalty is limited by reference to the amount of profit gained does not, in my view, detract from its punitive and deterrent character and endow it with a compensatory character.  The imposition of the penalty amounts to punishment for very serious misconduct.”

41. However, in looking to the Ordinance (the statute which is the subject of this judgment), Sir Anthony Mason noted that the Tribunal has been given the power to impose “civil sanctions”, including surrender of any profit made or increased by market misconduct, but “without power to impose a fine or penalty.”  As Sir Anthony Mason noted, the decision to leave the Tribunal —

“… without power to impose a fine was influenced by legal advice received by the Government to the effect that the existence of such a power might lead to a breach of the Bill of Rights.”

42. In our judgment, the intention of the legislature in providing for disgorgement orders is clear.  It is to the effect that any person identified as being the perpetrator of any form of civil infraction of the market conduct provisions contained in the Ordinance should not be permitted – in the discretion of the Tribunal – to retain the fruits of their infraction.  That, we believe, is not a punishment.  It is no more than an application of the ancient principle – based on natural justice – that a wrongdoer should not be permitted to retain the proceeds of his wrongdoing.  Effectively, in so far as it is possible, it seeks to restore the status quo ante.

43. It is true that the proceeds of a disgorgement order are made payable to the Government.  But, in this regard, while market misconduct in its various forms – especially insider dealing – may no longer be considered a victimless crime, the legislature, we believe, was entitled to take into account that the location of ‘victims’ in respect of each and every identified act of market misconduct may not be possible.  Hence, based, at least in part, on a practical imperative, comes the provision that the fruits of a civil wrong of market misconduct should be forfeit to the state.

44. On behalf of the applicants, however, it is emphasised that, if any person is able to show that he has sustained a loss as a result of market misconduct, he may seek compensation from an identified person even if that identified person has been ordered to make disgorgement to the state.  In this regard, s.281(1) of the Ordinance provides that :

“… a person who has committed a relevant act in relation to market misconduct shall, whether or not he also incurs any other liability … be liable to pay compensation by way of damages to any other person for any pecuniary loss sustained by the other person as a result of the market misconduct, whether or not the loss arises from the other person having entered into a transaction or dealing at a price affected by the market misconduct.”

45. S.281(1) is, however, to be read with s.281(2) :

“No person shall be liable to pay compensation under subsection (1) unless it is fair, just and reasonable in the circumstances of the case that he should be so liable.”

46. The argument is therefore made on behalf of the applicants that, if an identified person is made liable to pay compensation to one or more identified ‘victims’ under s.281 and, in addition is ordered to make disgorgement under s.257(1)(d), he will not merely be liable to make restitution of any wrongful gain that he has made but will have to pay compensation too, perhaps several times.  In such circumstances, it is argued, the disgorgement order becomes a penalty.  As Mr Bell puts it : “This demonstrates very clearly that although disgorgement is limited to an amount not exceeding the profit gained or loss avoided it is not compensatory in nature: it may result in an additional penalty over and above compensation paid to a ‘victim’.  In such circumstances it merely substitutes a ‘two-times penalty’ for the ‘three-times penalty’ that existed under [the old statute].  The fact that it is payable to the Government and not to the ‘victim’ reinforces its penal characteristics.”

47. In our view, this is not a correct analysis of the statutory provisions.  We agree with the submissions advanced by Mr Peter Duncan SC, leading counsel for the respondents, that the two sets of proceedings are distinct.  A disgorgement order seeks to ensure that an identified person does not benefit financially from his market misconduct.  He is thereby placed in the financial position in which he would have been if not for his misconduct.  By contrast, civil proceedings under s.281 seek to ensure that a person who can demonstrate that he has himself suffered loss as a result of the market misconduct is able to obtain compensation for that loss.  The actual loss sustained by that person, of course, may bear no relationship whatsoever to the amount which the identified person has had to disgorge as a result of his market misfeasance.  As it is put by Mr Duncan, whether a profit is made or a loss avoided by an identified person does not affect the existence of a liability to one or more third parties under s.281.

48. We are satisfied that it is incorrect to seek to join the two proceedings – disgorgement under s.257(1)(d) and a claim for compensation under s.281 – as if they are integral to each other.  They are not.  Civil law recognises that there may be more than one consequence to an act which constitutes an infraction of law.  This is such a case.

49. The Tribunal is given a further power under s.257(1)(g) to refer an identified person to his own professional body for possible disciplinary proceedings.  The provision states that the Tribunal may make an order —

“… that any body which may take disciplinary action against the person as one of its member be recommended to take disciplinary action against him.”

50. Of course, the true effect of this order, if it is made, is one of recommendation only.  Whether disciplinary proceedings are undertaken by a professional body remains a matter entirely for the exercise of its own discretion.

51. A manifest object of the Ordinance is the protection of Hong Kong’s equity and financial markets.  The power given to the Tribunal to refer an identified person to his professional body is, in our view, integral to the protective purpose of the Ordinance.  As such, we do not see the power as being penal in nature.

52. S.257(1) further gives to the Tribunal the power to make costs awards, including setting interest rates.  This power – which is vested in our civil courts – is compensatory.

53. Although we have examined each sanction separately, we have, of course, taken into account their combined measure in determining their true character.  We are satisfied, however, that the statutory sanctions given to the Tribunal are intended to be civil in nature and, having regard to the relevant criteria and the manner in which their significance should be assessed, are correctly to be judged as being civil.  In this regard, we can do no better than repeat the words of the Chairman of the Tribunal given at the conclusion of his ruling :

“In my judgment it is clear that the powers given to the Tribunal to make orders pursuant to section 257(1) of the Ordinance are to protect the public and to deprive a person culpable of market misconduct of the benefits of that conduct.  They are not to punish …”

54. By way of a postscript, we record that, both before the Tribunal and before us, argument was advanced on behalf of the applicants that the true nature of the proceedings before the Tribunal were adversarial; proceedings commenced of course by a public party not a private litigant and, by that fact, should be considered criminal.

55. In our judgment, while we see the relevance of the arguments advanced, we do not think that, in this case, they really take matters much further.  As we see it, the proceedings are sui generis, their nature being dictated by the provisions of the Ordinance, those provisions themselves being created to meet a particular set of challenges thrown up in the modern market place.  To this end, we believe that the Chairman was correct to describe the proceedings as —

“… proceedings conducted by a Tribunal directed to apply the civil standard of proof to determine the matters set out in section 252(3) of the Ordinance and stipulated in the Financial Secretary’s notice, in a regime in which material may be received and considered that may be inadmissible, even in civil proceedings, and where the procedure to be followed may be determined by the Tribunal itself.”

56. However, in so far as it may be necessary to go further, we are satisfied that the true nature of the proceedings are not adversarial.  They are, on an analysis of the relevant provisions of the Ordinance, more essentially inquisitorial.

The validity of the notice issued by the Financial Secretary

57. As we have said earlier, it was on 6 June 2007 that the Financial Secretary issued his notice pursuant to s.252(2) and Schedule 9 of the Ordinance.  Counsel for the applicants contend that it is invalid.  This is because the notice does not strictly satisfy the requirements of the Ordinance.  In particular, Mr Bell submitted that in the notice, the Financial Secretary failed to specify the following matters with sufficient particularity :

(i)   The particular provision or provisions that each applicant is alleged to have breached; and

(ii)   How each applicant’s conduct allegedly breached the provision or provisions relied on.

58. The notice itself is in the following form :

“NOTICE TO THE MARKET MISCONDUCT TRIBUNAL

PURSUANT TO SECTION 252(2) AND SCHEDULE 9 OF

THE SECURITIES AND FUTURES ORDINANCE, CAP 571

(‘THE ORDINANCE’)

WHEREAS it appears to me that market misconduct, within the meaning section 274 (‘False Trading’) and/or section 275 (‘Price Rigging’) and/or section 278 (‘Stock Market Manipulation’) of Part XIII of the Ordinance, has or may have taken place arising out of dealings in the securities of QPL International Holdings Limited (Stock Code 243) (‘the Company’), the Market Misconduct Tribunal is hereby required to conduct proceedings and determine —

(a)      whether any market misconduct has taken place;

(b)      the identity of every person who has engaged in market misconduct; and

(c)      the amount of any profit gained or loss avoided, if any, as a result of the market misconduct.

Persons and/or Corporate Bodies Specified

Mr. CHAU Chin Hung, Ms. Connie CHEUNG Sau Lin, Cheeroll Limited and Sun Hung Kai Investment Services Limited

Statement for institution of proceedings

1.    During the period between 6 May 2003 and 10 June 2003 (both days inclusive), CHAU Chin Hung (acting as a director and responsible officer of Sun Hung Kai Investment Services Limited) placed a significant number of bid orders with the authority and on behalf of Cheeroll Limited (an associated company of Sun Hung Kai Investment Services Limited) for the purchase of shares of the Company.  The said orders were generally immediately cancelled, reduced in size, cancelled later on the same day or cancelled and re-issued at the same price shortly thereafter.  Not one of Cheeroll Limited’s bid orders was executed during the said period.  The placing of the orders followed by the revisions mentioned above created a false appearance of strong market demand for the Company’s shares resulting in artificial support for and/or an increase in the price of the Company’s shares in order to facilitate the share sales mentioned in paragraph 2(post).

2.    During the same period, Connie CHEUNG Sau Lin (acting as an employee or agent of Sun Hung Kai Investment Services Limited) sold through Sun Hung Kai Investment Services Limited substantial quantities of the Company’s shares on behalf of Chinacal Limited and Honest Opportunity Limited respectively, the said sales were facilitated, as Connie CHEUNG Sau Lin was aware, by the false appearance of strong market demand for the Company’s shares resulting from the artificial support and/or increase in the price of the Company’s shares created pursuant to the conduct of CHAU Chin Hung, Cheeroll Limited and Sun Hung Kai Investment Services Limited mentioned in paragraph 1 (ante).

3.    Accordingly, CHAU Chin Hung, Cheeroll Limited, Sun Hung Kai Investment Services Limited and Connie CHEUNG Sau Lin engaged or may have engaged jointly or severally in market misconduct contrary to Sections 274, 275 and 278 of the Ordinance.”

59. On behalf of the applicants, it is argued that the defects in the notice are not curable by amendment or by the supply of further and better particulars.  The defects therefore destroy the validity of the notice and without a valid notice the Tribunal has no power to act.

60. The Chairman of the Tribunal rejected this submission.  He said that the effect of the relevant provisions of the Ordinance was not —

“… to import into the Market Misconduct Tribunal the rigours of indictments in criminal proceedings or pleadings in civil proceedings.”

61. We agree with that conclusion. 

62. The Tribunal is established under s.251 of the Ordinance.  It is a standing institution as opposed to an ad hoc tribunal.  More importantly, for present purposes, the Tribunal is not set up by a notice issued by the Financial Secretary under s.252(2).  There cannot therefore be any suggestion that a particular panel of the Tribunal is not validly constituted due to a defect in such notice.

63. A notice issued under s.252(2) is a document by which the Financial Secretary institutes proceedings in the Tribunal.  But, in our view, the notice is not equivalent to an indictment or a charge in criminal proceedings, requiring such persons to enter a plea of guilty or not guilty.  Nor is it in the nature of originating pleadings requiring the persons alleged to have committed market misconducts to plead in response.  

64. Further, the Financial Secretary is not a party to the proceedings in the Tribunal.  The proceedings are conducted by a Presenting Officer appointed by the Secretary for Justice under s.251(4).  Accordingly, while a copy of the report of the Tribunal will be given to the Financial Secretary under s.262(2)(a), he does not have any right of appeal under s.266 of the Ordinance.

65. The involvement of the Financial Secretary was explained at paras.107 and 108 of the report of the Legislative Council Bills Committee dated 5 March 2002.  At para.108, it was said :

“In brief, SFC will conduct an independent investigation and refer cases to the Financial Secretary if it is satisfied that there is ‘reasonable suspicion’.  The Secretary for Justice will tender independent legal advice to the Financial Secretary on ‘chance to win’.  The Financial Secretary will institute the Tribunal proceedings having regard to the legal advice and broader considerations in relation to the regulation of financial market in Hong Kong.”

66. Upon receipt of a notice, the Tribunal is tasked to determine the three matters set out in s.252(3) :

(i)  whether any market misconduct has taken place;

(ii)  the identity of any person who has engaged in the market misconduct; and

(iii)       the amount of any profit gained or loss avoided as a result of the market misconduct.

67. It is noteworthy, in our view, that s.252(3)(a) does not confine the market misconduct to the market misconduct set out in the Financial Secretary’s notice.  Further, the Tribunal is given power to hear and determine any question or issue arising out or in connection with the proceedings so long as it is done in accordance with Part XIII and Schedule 9 of the Ordinance : see s.251(1).

68. There are, of course, limits to the Tribunal’s jurisdiction.  For example, it is clearly spelt out that the Tribunal cannot identify any person as engaging in market misconduct or make any order against him unless he has been specified in the Financial Secretary’s notice : see s.17 of Schedule 9.  It is also specifically provided that the Tribunal cannot exercise its power of amendment to amend the identity of the person specified in such notice : see s.15(9) of Schedule 9.  Nor can the Tribunal amend a s.252(2) notice to turn the focus of the proceedings to another financial product : see s.15(b) of Schedule 9.

69. Subject to these limitations, however, the Tribunal is given wide powers to amend: ‘in such manner as it considers appropriate’.  The power can be exercised ‘at any time during the course of any proceedings’ : see s.15 of Schedule 9.  We are prepared to accept that the power must be exercised in a manner fair to the parties to the proceedings.  However, we see no justification for limiting the power of amendment to, say, confining the amended statement to market misconducts already identified in the existing notice or provisions of Part XIII already specified.

70. S.16 of Schedule 9 provides that, after an amendment to the notice, the Tribunal shall have jurisdiction exercisable by reference to the statement as amended.

71. In the result, even though it is right to say that the Tribunal proceedings are instituted by the Financial Secretary under a s.252(2) notice, in the sense that the notice is the first step in the proceedings and it defines the scope of those proceedings in terms of the identity of the persons alleged to have committed market misconduct and the financial product in question, the contents of the notice do not by any means serve as the last word on the precise parameters of the proceedings.

72. The Tribunal has the power to order amendments to the Financial Secretary’s notice in order to refer to a market misconduct not set out in the original notice.  This is, of course, provided that the person identified and the financial product remains the same.  Whether the power would be exercised is, as usual, subject to the overriding requirement of fairness to the parties.  We see this as an inquisitorial power.

73. The substantive requirements for a notice are set out in s.13 of Schedule 9.  Though s.252(2) provides the manner in which proceedings are to be instituted by the Financial Secretary, it really adds nothing to those requirements.

74. S.13 of Schedule 9 requires the following to be specified in the notice :

(a)      The provision or provisions of Part XIII by reference to which any person appears to have perpetrated any conduct which constitutes market misconduct; and

(b)   The identity of the person, and such brief particulars as are sufficient to disclose reasonable information concerning the nature and essential elements of the market misconduct.

75. The notice under consideration in this judgment does set out the provisions of Part XIII by reference to which the applicants are said to have perpetrated market misconduct : it refers to ss.274, 275 and 278.  

76. The real complaint of the applicants, however, is that under those sections there can be many ways in which market misconduct may be committed and each section contains many permutations and combinations of possible misconduct.  This, it seems to us, is analogous to a complaint that a criminal indictment is bad for duplicity.

77. But, as we have indicated earlier, we are satisfied that a notice issued by the Financial Secretary pursuant to s.252(2) is not a criminal indictment nor a document which the Ordinance intends to be read as such and thereby subject to the same limitations.  As we have said, we can find no basis for imposing on the notice the requirements of a criminal indictment or of civil pleadings.

78. We are of the view that s.13 falls to be interpreted in the context of the statutory scheme as a whole and in this regard we note that :

(i)  Tribunal proceedings are not criminal proceedings.  Rather the primary purpose of such proceedings is regulatory in order to maintain the integrity of the financial market in Hong Kong.

(ii)  In Tribunal proceedings, the Tribunal can exercise its power on its own motion in some circumstances, see ss.253(1), 254(1), 262(2)(v) and Schedule 9 ss.15, 18, 26(a).  The legislature clearly envisages that the Tribunal may consider forms of market misconduct beyond those specifically put forward by the Presenting Officer.  If fairness demands, the Tribunal may also order the notice to be amended;

(iii)       Given that a person specified in s.252(2) notice is not required to plead to it and there is ample opportunity to clarify the precise nature of the allegations raised against him at a preliminary conference under s.30 before he deals with the matter substantively, the employment of general wording in such a notice would not, and does not, cause any unfairness or prejudice the person in defending himself.

79. We would add that, even in criminal proceedings, a defect arising from duplicity can be cured by amendment : see Archbold Hong Kong 2007 para.1-138.

80. In our view, the crux of the matter is whether the notice contains such brief particulars as are sufficient to disclose reasonable information concerning the nature and essential elements of the market misconduct.  We fail to see how the information set out in the notice is inadequate.  It is not suggested by counsel that there is any ambiguity in the factual allegations.  We consider the allegations to be reasonably clear, as least sufficient as brief particulars of the nature and essential elements of the alleged market misconducts.

81. What counsel complains of is that there is no correlation of each factual allegation to each element of each alleged market misconduct in the notice.  But there is no specific requirement to that effect in s.13 of Schedule 9.  Nor do we regard that as necessary in order to provide reasonable information concerning the nature and essential elements of the alleged market misconduct.

82. In any event, even assuming there are defects in the notice, it does not necessarily follow that the proceedings have not been validly commenced.  A defective notice may still be valid even though it may have to be amended.  As Neuberger J said in Bell v. Touhy [2002] 3 All ER 975 at para.23 :

“The question of whether the issue of a document in a manner or at a time which fails to comply with the requirement of a statute, a statutory instrument, or rules of court, renders the document void (in which case it is wholly ineffective) or irregular (in which case it can, but not necessarily will, none the less be valid) inevitably depends upon the language used and the purpose of the document and the requirement, and the provisions of which the relevant provisions form part.”

83. In our view, therefore, even assuming, for the purposes of argument only, that counsel for the applicants were correct in criticising the notice as not complying with s.13 of Schedule 9, we do not think that such a defect would render the proceedings commenced by the notice null and void.  At worst it is an irregularity that can be cured by amendment.

The issue of compellability

84. As we have found, the primary purpose of the statutory powers of sanction given to the Tribunal are not penal but protective.  Nevertheless, it must be recognised that the exercise of one or more of the sanctions may have a severe effect on an identified person.  Aside from any monetary loss, it may well restrict his freedom of access to the markets.  In short, it may deprive him of his livelihood.  As such, although proceedings before the Tribunal are civil, it does not follow that they are to be equated in all respects with private civil law proceedings.  They have their own special character, regulatory in nature, where specified persons stand in jeopardy perhaps of their careers.

85. By way of analogy, it is now well settled, we understand, that disciplinary proceedings against a professional person, although not classified as criminal in nature, may still incorporate certain requirements of a fair trial that are more normally identified as being integral to criminal proceedings : the presumption of innocence would be one example.

86. On behalf of the applicants, Mr Patterson submits that, having regard to the special nature of proceedings before the Tribunal, especially regarding the potential severity of the sanctions that may be imposed, a person accused of market misconduct would be denied a fair hearing (pursuant to his rights under art.10 of the Bill of Rights) if :

(i)  he was compelled to give evidence when that evidence may incriminate him, or

(ii)  a statement which he had been forced to give under statutory compulsion was admissible into evidence against him.

87. As it is, the Ordinance does compel all persons, including persons specified by the Financial Secretary, to give evidence if the Tribunal so requires.  In this regard, s.253(1)(b) provides that the Tribunal may :

“… require a person to attend before it at any sitting and to give evidence and produce any article, record or document in his possession relating to the subject matter of the proceedings.”

88. In addition, there is the requirement that evidence must be truthful.  S.253(1)(d) gives the power to the Tribunal to :

“examine or cause to be examined on oath or otherwise a person attending before it and require the person to answer truthfully any question which the Tribunal considers appropriate for the purposes of the proceedings.”

89. The possibility, of self-incrimination provides no grounds for refusing to testify.  S.253(4) provides that :

“A person is not excused from complying with an order, notice, prohibition or requirement of the Tribunal made or given under or pursuant to subsection (1) only on the ground that to do so might tend to incriminate that person.”

90. S.253(2)(a) makes it a criminal offence if a person, without reasonable excuse —

“fails to comply with an order, notice, prohibition or requirement of the Tribunal made or given under or pursuant to subsection (1).”

91. What must be underscored, however, is that, although evidence is compellable, even by a person believed by the Financial Secretary to have committed acts of market misconduct, such evidence is, with very limited exceptions, only admissible in those proceedings before the Tribunal.  Such evidence is not admissible against the person who has given it in any other proceedings – civil or criminal – in any court of law.  In this regard, s.255(1) of the Ordinance directs that :

“Notwithstanding any other provisions of this Ordinance, evidence given by any person at or for the purposes of any proceedings instituted under section 252 (including any material, record or document received by the Tribunal from the person or produced to the Tribunal by the person under section 253, and any record or document or information given, provided, produced or disclosed to the Tribunal by the person under section 254) shall be admissible in evidence for all the purposes of this Part (including any proceedings (civil or criminal) instituted under or pursuant to this Part) but, subject to subsection (2), shall not be admissible in evidence against that person for any other purposes in any proceedings (civil or criminal) in a court of law brought by or against him.”  [our emphasis]

92. The circumstances contemplated by sub-section (2) in which the evidence may be admissible in other proceedings are very limited and, in our view, do not undermine the purpose of s.255(1) itself.

93. As to the admission into evidence of any record of interview made by a specified person, s.253(1)(a) of the Ordinance provides that the Tribunal has the power to receive and consider —

“… written statements or documents, even if the material would not be admissible in evidence in civil or criminal proceedings in a court of law;”

94. Under s.183(1) of the Ordinance, when a person is under investigation for possible market misconduct, he may be compelled to :

“(a)   produce to the investigator, within the time and at the place the investigator reasonably requires in writing, any record or document specified by the investigator which is, or may be, relevant to the investigation and which is in his possession;

(b)    if required by the investigator, give the investigator an explanation or further particulars in respect of any record or document produced under paragraph (a);

(c)    attend before the investigator at the time and place the investigator reasonably requires in writing, and answer any question relating to the matters under investigation that the investigator may raise with him; and

(d)    give the investigator all assistance in connection with the investigation which he is reasonably able to give, including responding to any written question raised by the investigator.”

95. S.183(1), however, is to be read in conjunction with s.187(2) which provides that, if a person under investigation claims that an answer to any question “might tend to incriminate” him, then his answer shall not be admissible in evidence against him in any criminal proceedings.

96. It is therefore clear that, subject to certain important protections, a specified person may be compelled to give evidence before the Tribunal even though such evidence may tend to incriminate him.  It is equally clear, again subject to important protections, that, if a specified person has made a statement pursuant to s.183 of the Ordinance, that statement may be admissible.

97. The issue is whether those provisions of the Ordinance, if exercised, deny a specified person a fair hearing.

98. In determining the issue, what must first be borne in mind is that, in our judgment, proceedings before the Tribunal are civil in nature and that, as a basic principle, there is no right to silence in civil actions.  As Chu J put it in Ming Hsing Development Ltd v. Ming Shiu Tong (unreported, HCA 671/1995), citing Rouqier J in Halford v. Brookes [1992] PIQR 175 :

“… there is no right to silence in civil actions, so that the court is entitled to have regard to a defendant’s failure to give evidence, not by any means as being conclusive but as having a degree of probative value.”

99. That being said, we accept that it goes too far to deny that the principles which, as ‘common law rights’, weigh against self-incrimination and compellability in criminal proceedings may not have their place in certain civil proceedings too.

100. In our judgment, the Chairman of the Tribunal correctly identified the essential route to a determination of the issue when he concluded, citing Ribeiro PJ in HKSAR v. Lee Ming Tee (2001) 4 HKCFAR 133, at 176, that what has to be decided is whether —

“… a fair balance has been struck between the general interest of the community in realizing the legislative aim and the protection of the fundamental rights of the individual.”

101. The right to a fair hearing is a constitutionally protected right.  But, as we have observed, the inroads in the Ordinance into the rights against self-incrimination and compellability are ringed with measures which ensure that such inroads are, for all material purposes, restricted to proceedings before the Tribunal.

102. In addition, what must be noted, as the Chairman noted in his ruling, is that the sanctions which the Tribunal may apply are protective in nature.  Their purpose is not to punish.  What then are they protective of?  They are protective of the financial services industry in Hong Kong, an industry of inestimable importance to the Territory.  In this regard, we can do no better than repeat the words of the Chairman :

“The financial services industry in Hong Kong is of very considerable importance to the community.  Accordingly, there is a directly proportionate interest in the community to ensure that the market in securities is not only well regulated but also that the public at large are protected from the misconduct of those that seek to obtain impermissible personal advantage to the disadvantage of the market generally.  The widespread recognition in other jurisdictions, as well as the Hong Kong, of the difficulty of achieving this objective, given the complexity of the operations of the market, is a factor to be borne in mind in weighing the proportionality of the measures adopted in Hong Kong.”

103. In our judgment, taking all matters into account, we are in agreement with the Chairman that a fair balance has been struck.  Accordingly, if a specified person is compelled to give evidence before the Tribunal which may tend to incriminate him, or if a statement taken from him pursuant to s.183 of the Ordinance is admitted into evidence, he is not thereby, on either count, denied a fair hearing.

Conclusion

104. For the reasons given, we are satisfied that these applications for judicial review must be dismissed.

105. We see no reason why costs should not be awarded to the second respondent and a final order is made.  We understand that the first respondent, the Tribunal itself, has not been represented.  However, if we are wrong in that regard, we are prepared to hear submissions as to costs.