HKSAR v. LUK KIN PETER JOSEPH

Press Summary (English)

Press Summary (Chinese)

FACC Nos 6, 7 and 8 of 2016

FACC No 6 of 2016

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO 6 OF 2016 (CRIMINAL)

(ON APPEAL FROM CACC NO 283 OF 2014)

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FACC No 7 of 2016

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO 7 OF 2016 (CRIMINAL)

(ON APPEAL FROM CACC NO 283 OF 2014)

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BETWEEN

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FACC No 8 of 2016

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO 8 OF 2016 (CRIMINAL)

(ON APPEAL FROM CACC NO 283 OF 2014)

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BETWEEN

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JUDGMENT

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Chief Justice Ma:

1.  I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Ribeiro PJ:

2.  I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Tang PJ:

3.  I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Fok PJ:

4.  I agree with the judgment of Lord Hoffmann NPJ.

Lord Hoffmann NPJ:

Introduction

5.  In 2005 Innomaxx Biotechnology Group Limited (“Innomaxx”) was a Bermuda company listed on the Hong Kong Stock Exchange which carried on, through a subsidiary, the business of blood cord banking.  It stored blood from the umbilical cords of newly born infants as a source of stem cells for potential future therapeutic use.  Its Chief Executive and one of its directors and principal shareholders was the first defendant Luk Kin Peter Joseph (“Mr Luk”).

6.  In 2006, after a reverse takeover organized by the South African finance company Investec Plc, Innomaxx morphed into a mining company.  It acquired a titanium mine in Shanxi Province and Investec became its principal shareholder.  It changed its name to China Mining Resources Group Limited (“China Mining”).  On 7 July 2007, Mr Luk resigned from the board and as Chief Executive.  His functions were taken by over by Richard Leung (“Mr Leung”), the Chief Financial Officer and a nominee of Investec.  But Mr Luk continued to be a director of the subsidiary carrying on the blood cord business.

7.  After the takeover, China Mining bought another mine in north-east China. Investec and Mr Leung decided that its future lay in mining rather than biotechnology.  They were also concerned about the potential liabilities of the blood cord banking business.  It had taken payments in advance in return for undertaking to store the customer’s blood for many years against possible future need.  If it became unable to provide the necessary facilities, the customer might ask for his money back. China Mining therefore wanted to sell the business.

8.  In July 2007, after Mr Luk’s resignation from the board of China Mining, Mr Leung proposed to him that he should buy the blood cord banking business.  However, as China Mining was a listed company, it had to comply with the Stock Exchange Listing Rules.  Mr Luk was a person “connected” with China Mining for the purposes of the Rules and it would be therefore necessary for China Mining to disclose this fact to the Stock Exchange, secure the advice of independent financial advisers and obtain the approval of the independent shareholders in general meeting.

9.  Perhaps for this reason, the sale to Mr Luk did not proceed.  In the following year, the proposal to sell the blood cord banking business was revived.  This time, Mr Leung suggested that Mr Luk find a third party buyer.  He said he would look out for someone.  In late October 2008, he informed Mr Leung that a company controlled by his wife’s aunt, Ho Pui Fan (“Miss Ho”) was interested.  A price of HK$15 million was agreed.

10.  There was then a discussion of how the sale would be structured.  The subsidiary carrying on the blood cord banking business was Cell Therapy Technologies Centre Limited (“Cell Therapy”).  It was not however an immediate subsidiary of China Mining.  There was an intermediate holding company called Biogrowth Assets Limited (“Biogrowth”).  Biogrowth had no function except to hold the shares in Cell Therapy and at first it was proposed that China Mining would sell the shares in Biogrowth. But then it was decided that Biogrowth would remain in the China Mining group and sell Miss Ho’s company the shares in Cell Therapy.  From a practical point of view, it made no difference. What was being sold was the blood cord banking business.

11.  The board of Biogrowth, as seller, therefore had to authorize the sale of its shares in Cell Therapy to Miss Ho’s company, United Easy Investments Limited (“United Easy”). Furthermore it was necessary that the resolution declare any interest of its directors in the transaction.  If there was none, China Mining would be able to notify the Stock Exchange that United Easy and its ultimate beneficial owners were independent of both the company and its connected persons.

12.  The directors of Biogrowth were Mr Luk and the second defendant Yu Oi Kee (“Miss Yu”), an accountant who had been Financial Controller and Company Secretary of Innomaxx before the mining takeover.  The group’s solicitors drafted the documents necessary for the sale and sent Mr Luk and Miss Yu a draft board minute authorizing the sale and, under the heading “Declaration of Interests”, stating “It was NOTED that none of the Directors was interested in the transactions herein contemplated”.  The draft had a note saying “Please confirm”.  Miss Yu duly confirmed.  Before completion, Mr Luk and Miss Yu signed the Biogrowth board minutes (“Board Minutes”).

The Charges

13.  After an investigation by the Independent Commission Against Corruption, it was alleged against Mr Luk and Miss Yu that the declaration in the Board Minutes was to their knowledge false.  Miss Ho was a nominee for Mr Luk, who was the true beneficial owner of United Easy. Further, it was alleged that Mr Luk had bribed Miss Yu to co-operate in publishing the false statement by offering her 1.5 million of his shares in China Mining.  Three charges were laid against them. The first, against both, was that they conspired to commit an offence under section 9(3) of the Prevention of Bribery Ordinance Cap 201 (“the Ordinance”):

“Any agent who, with intent to deceive his principal, uses any receipt, account or other document –

(a) in respect of which the principal is interested; and

(b) which contains any statement which is false or erroneous or defective in any material particular; and

(c) which to his knowledge is intended to mislead the principal,

shall be guilty of an offence.”

14.  The document alleged to have been used was the Biogrowth Board Minutes.

15.  The second charge was against Mr Luk in relation to the alleged bribe, under section 9(2)(a) of the Ordinance:

“Any person who, without lawful authority or reasonable cause, offers any advantage to any agent as an inducement to or reward for or otherwise on account of the agent’s –

(a) doing or forbearing to do, or having done or forborne to do, any act in relation to his principal’s affairs or business…

shall be guilty of an offence.”

16.  The third charge was against Miss Yu for accepting the bribe, contrary to section 9(1)(a) of the Ordinance:

“Any agent who, without lawful authority or reasonable excuse, solicits or accepts any advantage as an inducement to or reward for or otherwise on account of his –

(a) doing or forbearing to do, or having done or forborne to do, any act in relation to his principal’s affairs or business…

shall be guilty of an offence.”

17.  Section 2(1) of the Ordinance defines “agent” to include “any person …acting for another”.

The Trial

18.  At the trial in the District Court before His Honour Judge Browne, the issues on the first charge appear to have been (a) whether Mr Luk was in fact the beneficial owner of United Easy and whether Miss Yu knew this to be the case; (b) whether they used the Board Minutes to deceive and (c) whether the Board Minutes was an “other document” within the meaning of section 9(3) of the Ordinance.  The judge answered all these questions in the affirmative and convicted.

19.  On the bribery charges there was no dispute that on 3 November 2008, Mr Luk had given Miss Yu a certificate for 1.5 million shares in China Mining.  The issue was whether it was given as a reward for past lawful services or as an inducement to secure her participation in the conspiracy alleged in the first charge.  The judge found that the latter was the case and convicted both defendants.

20.  The particulars of the first charge stated that the defendants were agents of Biogrowth, a wholly owned subsidiary of China Mining and that they acted with intent to deceive “Biogrowth and/or [China Mining]”. No one seems to have thought that the distinction between the two companies made any difference and of course from a practical point of view that was right, because Biogrowth, although in law a separate legal person, was in practice merely a vehicle through which China Mining held the blood cord banking business.  The judge recorded in his reasons for judgment that the question of agency was not in dispute.  He said that they were agents “of Biogrowth and [China Mining]”.

Court of Appeal

21.  In the Court of Appeal however, the separate legal personalities of China Mining and Biogrowth took centre stage.  The defendants submitted that they could not be agents of China Mining because they were not its directors or employees.  They owed it no legal or fiduciary duties.  They were directors of Biogrowth and owed it fiduciary duties, but they could not have intended to deceive Biogrowth because they were themselves the only persons through whom Biogrowth could be deceived.  As they could not deceive themselves, the charge had to fail.  Likewise on the bribery charges, section 9(4) of the Ordinance provides a defence that the advantage in question was accepted or offered “with the permission of [the recipient’s] principal” and the defendants, as directors of Biogrowth, must be taken to have given themselves permission. As they were not directors of China Mining, it was not their principal and they did not need its permission.

22.  The Court of Appeal (Lunn VP, Macrae and McWalters JJA) accepted the submission that the defendants, as the only directors of Biogrowth, could not have intended to deceive it: paragraph 115. But they held that the defendants were also, and more relevantly, agents of China Mining. The definition section of the Ordinance provided that the term “agent” included “any person…acting for another”.  In finding a purchaser for Cell Therapy, they were acting for China Mining.  As Lunn VP put it (at paragraph 99 of the Court of Appeal judgment):

“Obviously, in providing Richard Yeung with [United Easy] as the prospective purchaser of [Cell Therapy], in response to his request for a purchaser to be identified, [Mr Luk] took the first step, of a number of steps that he and then [Miss Yu] took, that evidence the fact that they were acting for [China Mining]. No doubt, there was an element of overlap in the capacity in which they did so. Clearly the fact that the appellants were directors of [Biogrowth] did not prevent them acting for [China Mining] in processing the sale of [Cell Therapy].”

23.  Likewise, in relation to the bribery charges, the Court of Appeal held that Miss Yu was given the shares for participating in a conspiracy against China Mining as her principal and therefore any deemed permission she may have from Biogrowth was of no avail.  The Court did not decide whether such permission should be deemed to have been given.

24.  Finally, there was the question of whether the Board Minutes was a “document” for the purposes of section 9(3).  The judge had held that it was. In the Court of Appeal, the appellants contended that “other document” should be confined to documents eiusdem generis as receipts and accounts, the genus being “financial documents”.  Lunn VP, after referring to some authorities, held that the genus was wider.  It included “business records within the relationship of principal and agent”.  The minute, he said, fell within this category. Macrae JA agreed. McWalters JA thought there was no restriction to a genus and that “any…other document” meant any other document.

The Certified Questions

25.  The Court of Final Appeal gave leave to appeal on the following questions of great and general importance:

(1) What is the meaning of “agent” for the purposes of s.9 of the Prevention of Bribery Ordinance, Cap 201 (“the POBO”) and specifically whether a person who is under no legal, contractual or fiduciary obligation to act in relation to the affairs or business of another is that person’s “agent” for the purposes of s.9?

(2) Whether the words “or other document” in s.9(3) of the POBO are to be construed ejusdem generis with the words which precede them and specifically whether board minutes are documents which come under this definition?

(3) Whether or not the common law principles as espoused in R v McDonnell [1966] 1 QB 233 and Attorney-General’s Reference (No. 2 of 1982) [1984] QB 624, in the context of conspiracy to defraud or theft, namely, the principle that the mind and will of the sole director(s) are treated in law as the mind and will of the limited company, applies in the context of the statutory anti-corruption regime under the POBO and, in particular, to the offence of conspiracy for agents to use a document with intent to deceive their principal, contrary to sections 9(3) and 12(1) of the POBO and sections 159A and 159C of the Crimes Ordinance, Cap. 200.

Charge 1:  Conspiracy

26.  I shall first deal with the conspiracy charge. For the purpose of the conspiracy charge, the first question is whether the judge and the Court of Appeal were right to hold that the appellants were agents of China Mining, or at any rate that Mr Luk was and that Miss Yu knowingly participated with him in using a document to deceive it.  This turns upon the definition of “agent”, which includes “any person…acting for another”. 

27.  Counsel for Mr Luk submitted in his printed case that these last words could not be given their conventional meaning.  A person cannot, he said, be an agent for the purposes of the Ordinance unless there is a pre-existing contractual or fiduciary relationship which obliges him to act.  “[M]erely because a person acts in accordance with another’s request does not render him an agent of that other unless he is bound to act upon [it]”.

28.  There is however a consistent line of authority in Hong Kong which makes it clear that no pre-existing duty is required.  Acceptance of a request to act may itself create a duty to do so honestly and in good faith. 

29.  In R v Chong Chui Ha [1997] 4 HKC 518 a firm of estate agents received an offer of the asking price for a flat which they were marketing.  Later someone else made them a higher offer.  An employee of the estate agents told the representative of the first buyer that if he paid her $200,000, she would not pass on the higher offer to the owner.  Charged with soliciting a bribe contrary to section 9(1), the defendant submitted, as in this case, that she was not an agent for the purposes of the Ordinance: “it is not sufficient for a person merely to act for another person”.  It is true that she had no power to contract on the owner’s behalf. Nor was she obliged to do anything. If she had not lifted a finger to find a buyer, she would not have been in breach of contract.  Nor was the owner going to pay for her services.  She was hoping to share the commission of the buyer’s agent.  But Keith J held, rightly if I may respectfully say so, that by accepting instructions she came under a duty, so far as she acted for the owner at all, to do so honestly and in his interest.  That made her his agent for the purposes of the Ordinance.

30.  It is not even necessary that there should have been a request to act. A person who is in a position to act on behalf of another and voluntarily does so may also thereby assume fiduciary duties. In Hung John Terence v HKSAR (unreported, FAMC 85/2010) a voting member of the Jockey Club solicited and obtained a bribe for proposing someone for full membership.  He was convicted under section 9(1)(a) of the Ordinance and his appeal was dismissed by the Court of Appeal.  He petitioned for leave to appeal to the Court of Final Appeal on the ground that he had not acted as agent of the Jockey Club or anyone else.  Bokhary PJ said (at paragraph 11):

“In our view, it is plain beyond reasonable argument to the contrary that a voting member is acting for the Club when he proposes someone as a suitable candidate for full membership. It follows…that the voting member is an agent, that the Club is his principal and that he was doing something in relation to its affairs.”

31.  Mr Hung was not under any contractual or fiduciary duty to propose members of the Club.  He had not even been asked to do so.  But, having chosen to recruit a member on behalf of the Club, he came under a duty to do so in good faith and not to exploit his position to obtain a bribe.

32.  Mr McCoy SC, on behalf of Miss Yu, commended to the Court the observations of Finn J in his work on Fiduciary Obligations (1977) and his judgment in Grimaldi v Chameleon Mining NL and another (No 2) (2012) 287 ALR 22.  The learned judge points out in his book that a fiduciary is a person who has assumed a relationship with another which attracts a rule requiring him to act in accordance with what are usually described as fiduciary duties: not to take bribes or secret commissions, not to give false information and so on. In the Grimaldi case he said (at paragraph 177):

“[A] person will be in a fiduciary relationship with another when and in so far as that person has undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other’s interest to the exclusion of his or her own or a third party’s interest...”

33.  I have no difficulty in accepting that this describes at least one of the ways in which a person may become an agent for the purposes of section 9.  And I think it clearly applied in this case. Having agreed with Mr Leung, acting for China Mining, that he would find a buyer for its unwanted blood cord banking business, Mr Luk created a reasonable expectation that he would act in the interest of China Mining and to the exclusion of his own interest.  More specifically, he assumed a duty to act in good faith and not deceive China Mining into making a false statement to the Stock Exchange.  Miss Yu was aware that this was the basis upon which he was putting forward United Easy as a buyer and participated in his deception. That is sufficient for liability under Charge 1.

34.  This shows some ambiguity in the first certified question.  If it asks whether someone who acts on behalf of another must have had some pre-existing legal, contractual or fiduciary obligation to act, the answer is no.  But if one asks whether such an obligation must exist, perhaps merely as a result of having acted, at the time when he uses the document in question, the answer is yes.

35.  This conclusion makes it strictly unnecessary to decide whether the defendants could also have deceived Biogrowth.  The Court of Appeal said they could not because the concept of deception necessarily refers to a state of mind.  It must have the effect of making someone think that something is the case when in fact it is not.  It would therefore be necessary to find someone whose deceived state of mind counted as the mind of Biogrowth. Since, in the view of the Court of Appeal, the only candidates for having their states of mind attributed to Biogrowth were the two defendants, who knew the true state of affairs, there was no way in which the company could be said to be deceived.

36.  I do not think this is right.  The offence under section 9(3) is not deceiving but using a document with intent to deceive the principal, i.e. Biogrowth.  There is no reason why the deceiver needs to have in mind the particular person whose state of mind will count as that of Biogrowth.  In the present case, the Board Minutes which contained the false statement about Mr Luk having no interest in the transaction also authorized Mr Chen Shou Wu, an officer of China Mining, to execute the sale agreement on behalf of Biogrowth.  That was an act of Biogrowth and in agreeing on its behalf to sell to United Easy, Mr Chen was deceived into thinking it was an independent third party.  Why should his deceived state of mind not be attributed to Biogrowth?  If the sole director of a subsidiary company forges an invoice to secure payment from the cashier, why should the deception of the cashier who pays on behalf of the company not count as deception of the company?  Furthermore, it is unclear from the timetable of events on the day the transaction took place whether Mr Luk and Miss Yu (whose resignations are recorded in the minutes of a meeting recorded as having taken place at 5 p.m.) were still directors when the Board Minutes of the earlier meeting was sent on behalf of Biogrowth to the Stock Exchange.  Nor should it matter.

37.  Finally, in relation to the conspiracy charge, there is the question of whether the Board Minutes was a “document” for the purpose of section 9(3).   Like McWalters JA, I do not see why “any…other document” should not mean any other document.  There is no need to create a genus on the basis of the references to receipts and accounts.  The genus is created in paragraphs (a), (b) and (c) of section 9(3).  It cannot be any document but must be a document in respect of which the principal is interested and which contains a false or erroneous statement intended to mislead.  My answer to the second certified question would therefore be that no eiusdem generis construction is required and that “document” includes a board minutes.

Charges 2 and 3

38.  On the bribery charges, Mr McCoy SC submitted that the prosecution could not make up its mind who the principal was alleged to be.  Sometimes it appeared to be China Mining, sometimes Biogrowth, sometimes both, sometimes one and/or the other.  At the trial, as I have said, neither side regarded this as being a matter of any significance.  On the facts of this case, I do not think it was.  The only difference was that if the defendants were agents of China Mining, they plainly had no defence of permission under section 9(4).  Only in relation to Biogrowth could they argue that they must be deemed to have given themselves permission.

39.  Like the Court of Appeal, and for the reasons already given, I think that Mr Luk was as agent of China Mining.  However, even if the agency was confined to Biogrowth, I do not think that his and Miss Yu’s knowledge of the bribe can be attributed to the company, let alone treated as a grant of permission to give and receive it.

40.  The third certified question asks whether “the common law principles” as expressed in two old cases about conspiracy to defraud and theft were applicable to statutory offences under the Ordinance.  That suggests that there are uniform common law principles by which one will attribute acts, knowledge, states of mind etc to a company.

41.  In my opinion it cannot be too strongly emphasized that there are no such “common law principles”.  The authorities since Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 and in particular the more recent cases of  Moulin Global Eyecare Trading Ltd v Commissioner of Inland Revenue (2014) 17 HKCFAR 218 and Bilta (UK) Ltd (in liquidation) and others v Nazir and Ors (No 2) [2016] AC 1 make it clear that in every case the criteria for attribution must be such as will give effect to the purpose and policy of the relevant substantive rule, whether that rule is contained in a statute or the common law.  The fact that the knowledge or state of mind of, say, a director, must be attributed to a company for the purpose of one rule (for example, imposing liability on the company to a third party) does not mean that his knowledge or state of mind must be attributed to the company for the purpose of a different rule (for example, imposing liability on the director for defrauding the company). In the case of section 9(1) and (2) of the Ordinance, it would be absurd to hold that the knowledge by the directors of their own breach of duty to the company by giving and taking a bribe was to be attributed to the company.  That would defeat the purpose and policy of the rule.

42.  Accordingly I do not think that the defendants were prejudiced by the indeterminacy about which of the two companies was their principal for the purposes of charges 2 and 3.  I would dismiss the appeals.

Chief Justice Ma:

43.  For the above reasons, the appeals are dismissed.