CHAN CHIN YUEN v. SECURITIES AND FUTURES COMMISSION

HCAL 95/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 95 OF 2008

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D E C I S I O N

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I.  INTRODUCTION

1.  This is an outrageous application.  It is brought in the face of 4 previous contrary decisions: one by the Court of Appeal; two by the judge in charge of the Constitutional and Administrative Law List; and one by a 2-man division of this Court.  In my view, the application is unarguable and has no prospect of success.

II.  BACKGROUND

2.  Mr. Chan applies to quash a Notice sent to him by the SFC.  That Notice requires Mr. Chan to attend an interview with an investigator appointed by the SFC.  The investigator was appointed to inquire into the possibility of false trading, price rigging and market manipulation of CITIC 21 CN Company Limited shares between 26 August and 5 November 2004.

3.  Mr. Chan seeks to quash the Notice on the basis of the following argument:-

(1)  The Notice violates the right of equality before courts and tribunals (including the right against self-incriminating) provided by Art.10 of the Hong Kong Bill of Rights (BOR).

(2)  This is because, under Securities and Futures Ordinance (Cap.571) (SFO) ss.183 and 184, in any interview Mr. Chan is compelled to answer the investigator’s questions and produce documents at the investigator’s request. 

(3)  Any evidence which Mr. Chan provides (even if self-incrimination) would be admissible in proceedings before the Market Misconduct Tribunal (MMT).

III.   DISCUSSION

4.  I start by chronologically running through recent cases bearing on this matter.  I will then consider the extent to which the cases apply to the facts here.

A Law

5.  The starting point is Koon Wing Yee v. Insider Dealing Tribunal [2008] 3 HKLRD 372 (CFA).  That involved the Securities and Futures Commission Ordinance (Cap.24) (SFCO) and the Securities (Insider Dealing) Ordinance (Cap.395) (SIDO).  The SFCO and SIDO are now repealed.

6.  By SFCO s.33 Koon had been required to answer questions put to him by an investigator appointed by the SFC.  On the basis of Koon’s answers, the Financial Secretary established a tribunal under SIDO to look into possible insider dealing by Koon. 

7.  Koon appeared before the tribunal and answered its questions as SIDO required him to do.  The tribunal then admitted Koon’s answers into evidence and by its Report found Koon to have engaged in insider dealing.

8.  Koon challenged the finding, arguing that the tribunal had been wrong to admit Koon’s answers (given under compulsion) as evidence.  Such conduct by the tribunal (Koon contended) violated the right against self-incrimination.

9.  The CFA held that the existence of a power in the tribunal to impose a penalty (namely, an amount not exceeding three times any profit gained or loss avoided by insider dealing) meant that the tribunal was engaged in criminal (not civil) proceedings.

10.  The CFA further held that the use of compulsorily obtained evidence violated the right to equality before courts and tribunals given by Art.10.  It was true that the protection under Art.10 was not absolute.  But a derogation from Art.10 had to be justified.  It must be shown, for instance, that the use of compulsorily obtained self-incriminating material was a proportionate response to a serious social problem and did not undermine a person’s right to a fair trial viewed in the round.

11.  Under SFCO s.33 a person’s answers could not be used in evidence against him in criminal proceedings generally, but were admissible for the purposes of SIDO (including for the purposes of proceedings before the tribunal).  The CFA found no justification for this.  There was nothing to show that the admissibility of self-incriminating evidence before the tribunal was a rational and proportionate response to the legislator’s aim of eliminating insider dealing. 

12.  Accordingly, the CFA concluded that Koon’s rights under Art.10 had been violated.  The tribunal’s finding on insider dealing was quashed.

13.  In Koon Wing Yee v. SFC (No.1) CACV 369 of 2007 (3 September 2008) Koon refused to answer questions put to him by an SFC investigator appointed under SFO s.183(1).  He sought judicial review to quash the Notice to attend an interview.

14.  The judicial review was dismissed by Saunders J.  The Court of Appeal upheld that decision.

15.  The Court of Appeal noted that no MMT proceedings were then afoot and “there might never be any”.  An SFC investigation into possible market misconduct might have many outcomes, including a decision not to bring any proceedings against a person.

16.  There was nothing (the Court of Appeal pointed out) in the BOR which gave a person protection from legislation requiring him, on pain of penalty, to answer questions asked by an investigator.  The BOR only gave a person protection from answers being used in criminal proceedings against him or from being compelled to give evidence against himself in criminal proceedings.  But Koon was not subject to criminal charges or MMT proceedings at the time of the Notice.

17.  It followed that the application for judicial review was premature and hypothetical.  The Court stated (at §13):-

“The SFC was using its statutory powers to conduct an investigation and that it was perfectly entitled to do.  If and when any attempts were made to use material in a manner which the applicant considered would be in breach of the Bill of Rights, then that would be the time when some objection could be taken.  Likewise, if it were considered that any future proceedings before the Market Misconduct Tribunal were criminal in nature by reason of orders that could be made and that the proper safeguards for those subject to such proceedings were not in place, then, again, appropriate proceedings might be taken.  But that is not the case here.  It is no exaggeration to say that if the SFC were to be prevented from asking questions of the applicants, its role in an investigation would be stultified.”

18.  Chau Chin Hung and another v. Market Misconduct Tribunal and another HCAL Nos. 123 and 124 of 2007 and 22 of 2008 (22 September 2008) concerned the SFO and MMT (established by the SFO).  The MMT now deals with all forms of market misconduct (including insider dealing).

19.  A principal question in Chau was whether proceedings before the MMT were civil or criminal in nature.  In addition, some parties argued the MMT did not in law have power to compel a person to answer questions.  That (it was alleged) violated BOR Arts.10 and 11 (the right of a person charged with a criminal offence to be presumed innocent until proven guilty).

20.  The Divisional Court (Hartmann and Lam JJ) held that the sanctions available to the MMT were civil (as opposed to penal) in nature.  This conclusion was reached after considering those sanctions individually and as a whole.

21.  The Court also pointed out that by the SFO, even if evidence was compellable, it was only admissible against the person giving it in proceedings before the MMT.  Such evidence was not admissible in any other proceedings (whether civil or criminal) in any court of law.

22.  The Court continued:-

“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 Rouquier 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 [SFO] 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 [MMT] 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 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 ... 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.”

23.  In Koon Wing Yee (No.2) HCAL No.134 of 2008 (31 October 2008) Andrew Cheung J dismissed a similar application by Koon.  The latter sought leave to quash a Notice dated 17 October 2008 to attend an interview with an SFC investigator appointed under SFO s.182(1).

24.  It was alleged that Koon’s rights under Art.10 would be violated by an interview.  But Cheung J followed the Court of Appeal’s reasoning in Koon (No.1) and ruled that Koon’s application was premature.

25.  In Koon Wing Yee (No.3) HCAL No. 145 of 2008 (3 December 2008) Andrew Cheung J dismissed yet another application by Koon to quash a Notice from an SFC investigator. 

26.  This time Koon argued that his right against self-incrimination in Art.8 of the Basic Law was infringed.  He suggested that the prohibition against direct use of evidence (obtained from an interview) in criminal proceedings was “unjustifiably narrow and ineffectual”.  It was suggested that the prohibition did not prevent “derivative use” of potentially incriminating answers in future criminal proceedings.

27.  Cheung J held that the application was premature.  He went further:-

“25.   .... Such a right [the right against self-incrimination] is not absolute and any restriction is subject to the proportionality test.  See Lee Ming Tee ... at pp. 172-179.

26.  In other words, an interviewee who has given potentially incriminating answers against his wishes in an interview may challenge the use of the questions and answers when [he] is charged in criminal proceedings subsequently.  So far as direct use is concerned, the matter is covered entirely by s.187(2) of the [SFO] which prohibits such use.

27.  So far as derivative use is concerned, he can, if and when faced with criminal proceedings subsequently, challenge such use on the basis of the right to a fair hearing guaranteed under art 10 of the Bill of Rights, in which case the proportionality test will have to be applied.  (I say nothing about the likely outcome of such a challenge.)

28.  In my view, this is very important to whatever balancing exercise or proportionality test that one may have to apply in relation to [Bill of Rights] art.14. [the right not to be subjected to arbitrary or unlawful interference with one’s privacy, family, home or correspondence and the right not to be subjected to unlawful attacks on one’s honour and reputation]. For it must be remembered that the way the applicant seeks to overcome the premature argument that defeated his previous attempts based on arts. 10 and 11(2)(g) of the Bill of Rights is that even though there are now no criminal proceedings on foot, his privacy is being interfered with here and now at the interview, and whether such interference is justified or not is a matter of conducting a balancing exercise or applying the proportionality test, which, counsel submits, requires a full investigation at the substantive hearing (and thus leave has to be granted).

29.  But taking a step back, this is a startling proposition.  The applicant, like any interviewee, may never be charged in any criminal proceedings at the end of the day.  If the applicant is right, and s.184(4) is struck down pursuant to art.14 because it might eventually lead to the derivative use of self-incriminating answers against an interviewee in subsequent criminal proceedings, it would mean that nobody, regardless of whether he is subsequently charged in criminal proceedings or not, can be asked questions that he claims might incriminate him in some future criminal proceedings (if any).

30.  This can hardly be justified as a general proposition, if the person is never charged in any subsequent criminal proceedings.

31.  But what about the person who is charged in subsequent criminal proceedings?  How is the proportionality test or balancing exercise to be conducted in relation to his interests, as against the interests of society?  Is there not an arguable case here?

32.  In my view, the answer is ‘no’.  This is because if such an interviewee is eventually charged in criminal proceedings, he can then object to the derivative use of his incriminating answers in such criminal proceedings by relying on art. 10 of the Bill of Rights, and the objection will have to be resolved by the application of the proportionality test.  (Indeed that was essentially why his previous two applications were held to be premature.)

33.  His interest will not be compromised at all by his only raising the objection to such use then or only by raising it in terms of art 10 rather than art 14, in such eventuality.

34.  Therefore in my view, the balancing exercise or proportionality test, when used in relation to art 14 at the time of the interview, is capable of yielding one answer only, namely, that any interference with the privacy of the interviewee is justified.  If the interviewee is never subsequently charged in any criminal proceedings, the interference with his privacy must be justified (Mr. Swaine [appearing for Koon] has not contended otherwise).  If, on the other hand, he is subsequently charged in criminal proceedings, he can raise his objection to the derivative use of the incriminating answers there and then under art 10.

35.  Whether an interviewee will eventually be charged in criminal proceedings is an unknown future event that cannot be predicted at the time of interview.  His ability to challenge any derivative use of incriminating answers in any future criminal proceedings against him is sufficiently protected under art 10 of the Bill of Rights.  That being the case, there can be no further concern about compelling an interviewee to answer potentially incriminating questions at the interview, and advancement of the interests of the society in investigating into suspected insider dealing activities therefore becomes the only relevant concern at the interview stage when conducting the balancing exercise or proportionality test. In those circumstances, there can be only one answer, namely, that requiring an interviewee to answer potentially incriminating questions should be allowed for the sake of thorough investigation.”

B Application

28.  Mr. Russell Coleman SC (appearing for Mr. Chan) first submits that Chau Chin Hung is not binding on the present Court.  He suggests that the case was wrongly decided because it did not properly apply the proportionality test.

29.  Mr. Coleman is right that, as a first instance decision, Chau Chin Hung is not binding on me.  Nonetheless, as the unanimous decision of 2 judges of a Divisional Court, the authority is highly persuasive.  So much so that I see no flaw in its reasoning.

30.  Insofar as the proportionality test is concerned, Mr. Coleman says that the burden was on the Financial Secretary to justify using self-incriminating evidence in proceedings of the MMT.  He argues that the Court in Chau Chin Hung failed to explain how the abrogation of the right against self-incrimination was rationally connected with achieving the objectives of the MMT.  This (Mr. Coleman contends) meant that a burden of showing the disproportionate nature of the inroad into Art. 10 was wrongly imposed on the person being investigated.

31.  I do not think that Mr. Coleman’s submission is arguable.  The fact is that in Chau Chin Hung the Court carefully considered whether the inroad into the right against self-incrimination was proportionate.

32.  The Court in Chau Chin Hung essentially reasoned as follows:-

(1)  Proceedings before the MMT were more akin to civil (rather than criminal) proceedings.

(2)  In civil proceedings, there is no right to silence and the Court may draw adverse inferences from silence.

(3)  Nonetheless, in light of the severity of some civil sanctions available to the MMT, it was appropriate to evaluate whether any inroad into the right against self-incrimination was justified in the circumstances.

(4)  Given that:-

(a)    it was important to the Hong Kong community to maintain the integrity of its financial service industry by stamping out market misconduct; and,

(b)   it was normally difficult to investigate and prove market misconduct in light of the complexity of financial operations,

then resort to statutory provisions compelling persons to give evidence was justifiable as a proportionate, minimum incursion upon the right against self-incrimination.

(5)  In the round, a person would still obtain a fair trial before the MMT.

(6)  On the other hand, if self-incriminating evidence were ruled inadmissible, the operation of the MMT would be stultified.

33.  I do not see such analysis as imposing a burden on the person under investigation, as opposed to the Financial Secretary.  To my mind, the Court in Chau Chin Hung carried out the requisite balancing exercise impeccably.

34.  Consequently, even ignoring the question whether Mr. Chan’s application for judicial review is premature, there is no basis for holding that such evidence as Mr. Chan might give in an SFC interview is, by reason only of that evidence having been given under compulsion, inadmissible in proceedings before the MMT.

35.  I note in this connection that the conclusion on the nature of a “charge” of market misconduct in Chau Chin Hung is consistent with the approach sanctioned by the CFA in Koon v. Insider Dealing Tribunal.

36.  As I have just signalled, there remains the hurdle of Mr. Chan’s judicial review application being premature and hypothetical.

37.  On this second point, Mr. Coleman submits in his Skeleton that:-

(1)  “the Court of Appeal [in Koon (1)] was not referred to the MMT mechanism in order to appreciate that the only appropriate proceeding to safeguard the right against self-incrimination is to quash the notice before any MMT proceedings is commenced”; and,

(2)  the Notice here violates BOR Art.5(i) (the right to liberty and security of person and freedom from arbitrary arrest).

38.  I regret that, try as I might, I do not understand either limb of Mr. Coleman’s argument on this second point.

39.  There is simply no answer to the analyses in Koon (1), Koon (2) and Koon (3), from which I have already quoted extensively.  One cannot second guess the outcome of an interview.  An MMT may never be constituted in relation to the share dealings being investigated. 

40.  It is only if and when an MMT is constituted and it is proposed to use evidence obtained through compulsion in proceedings before such MMT, that Mr. Chan may conceivably have some foundation for a judicial review application.  I should note that even then, given Chau Chin Hung, I would be sceptical of the prospects of any such application.

41.  Nor do I see how a request that a person attend an SFC interview can be regarded as any deprivation of liberty (whether arbitrary or otherwise).  Art.5(i) is simply not engaged.  I note that Mr. Coleman abandoned the Art.5(i) argument in the hearing before me.

IV.  CONCLUSION

42.  Leave to apply for judicial review is refused.