NG CHIU MUI AND ANOTHER v. SHUM LIK KEUNG

HCA 768/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 768 OF 2010

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BETWEEN

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AND

HCA 769/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 769 OF 2010

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BETWEEN

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REASONS FOR JUDGMENT

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1.  In Action No. 768 of 2010 (“HCA 768”) the defendant Shum Lik Keung (“Shum”) applied by summons dated 28 December 2010 to strike out the statement of claim and for an order that the action be stayed or dismissed with costs to Shum.

2.  In Action No. 769 of 2010 (“HCA 769”) the defendant Lo Cho Yan (“Lo”) applied by summons dated 28 December 2010 to strike out the statement of claim and for an order that the action be stayed or dismissed with costs to Lo.

3.  The plaintiffs in both actions are the same, the 1^st plaintiff being Ng Chiu Mui (“Ng”) and the 2^nd plaintiff being Law Kai Yee (“Law”).

4.  By a consent order made by Master Hui on 4 January 2011 in each action it was ordered that the summons be heard by a judge.  It was also ordered, inter alia, that both summonses be heard together.

5.  On 12 August 2011 I made an order in HCA 768 that the statement of claim be struck out and that the action against Shum be dismissed.  I also ordered that the costs of the action including the costs of the application be costs to Shum with certificate for one counsel.

6.  I also made an order in HCA 769 that the statement of claim be struck out and that the action against Lo be dismissed.  I also ordered that the costs of the action including the costs of the application be costs to Lo with certificate for one counsel.

7.  I indicated at the time that reasons in writing would be given later.  This I now do.

8.  Ng and Law claim damages for malicious falsehood and costs in both actions.

9.  In their written skeleton submissions, Mr Yip, with Mr Chan, submitted that there was also another cause of action for inducing a breach of contract.  However, Mr Yip made it plain at the hearing that Ng and Law were abandoning all allegations of inducing a breach of contract and that the only cause of action relied on by Ng and Law against Shum and Lo was malicious falsehood.

10.  The relevant background facts have been helpfully set out in Le Pichon JA’s Reasons for Judgment dated 26 May 2010 in the Court of Appeal in CACV 141 of 2009 which was dealing with an appeal by Ng and Law brought against the Securities and Futures Commission (“the SFC”).  Ng and Law had unsuccessfully applied to the Securities and Futures Appeal Tribunal (“the Tribunal”) for a review of the final decision made by the SFC against both of them.  The appeal by Ng and Law to the Court of Appeal was dismissed with costs.  Ma CJHC (as he then was) and Kwan JA both agreed with the Reasons for Judgment given by Le Pichon JA.

11.  I set out hereunder the relevant background facts as stated by Le Pichon JA in her Reasons for Judgment:

“3. [Ng], the first appellant, and [Law], the second appellant, (collectively “the appellants”) were responsible officers of a company known as Hantec International Ltd (“HIL”). HIL was licensed to carry out Type 3 (leveraged foreign-exchange trading) regulated activity. HIL is part of the Hantec group. Its holding company, Hantec Holdings Ltd, is listed on the main board of the Stock Exchange of Hong Kong.

4. HIL is a wholly owned subsidiary of Hantec Holdings Ltd which, through another wholly-owned subsidiary, Hantec Bullion Investments Ltd, holds a 30% interest in Cosmos Hantec International (“CHI”), a New Zealand company which carries on the business of offshore leveraged foreign-exchange trading. CHI was and is not registered with the SFC.

5. Until May 2005, CHI maintained a ‘liaison office’ at Room 4408A, Cosco Tower, 183 Queen’s Road Central. HIL’s offices were located on the 43rd and 45th floors of Cosco Tower and when CHI vacated its office, that space was taken over by HIL.

6. [Ng] was a director of CHI until 2005. At all material times, she was a director of Hantec Holdings which, through its Overseas Investment Management Department (“OIM”), had provided ‘back-office’ services to CHI in Hong Kong. [Law] has been a director of CHI since 2006.

Background facts

7. Following the receipt of complaints against a number of licensed representatives of HIL who allegedly had induced individuals to open accounts with CHI in order to trade leveraged foreign-exchange contracts, the SFC conducted an investigation under 182 of the Securities and Futures Ordinance Cap. 571.

8. The SFC conducted a raid on CHI’s premises on 2 March 2005 and seized a number of documents, including copies of CHI’s account opening documents relating to Hong Kong clients which showed licensed representatives accredited to HIL as their responsible account executives, internal documents of CHI showing Hong Kong as one of its target markets, and correspondence and other documents purporting to show the involvement of Hantec group’s OIM in the affairs of CHI.

9. Subsequent to the raid and seizure of documents, the SFC conducted interviews of material witnesses. It then formed the view that CHI in fact had been carrying on the business of leveraged foreign-exchange trading within Hong Kong although it was not licensed to do. It further formed the opinion that each of the appellants was guilty of misconduct and was not fit and proper to be licensed.

10. The SFC sent each of the appellants a Notice of Proposed Disciplinary Action (“NPDA”) dated 5 July 2007. In the case of [Ng], the NPDA stated that the Commission was of the opinion that [Ng] had aided and abetted the unlicensed activities of CHI in breach of General Principle 7 and § 12.1 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. The notice then proceeded to set out the Commission’s case in detail.

11. In outline, it set out ‘Grounds for Concern’ stemming from complaints received against HIL’s licensed representatives. The names of the Hong Kong clients together with a table of their trading losses and the names of account executives as provided by CHI were attached to the letter which also recorded that CHI had admitted that it had paid commissions to 4 HIL executives in respect of trades conducted by their clients. It outlined evidence to the effect that [Ng] who was in charge of OIM had instructed its employees to assist CHI in its unlicensed activities, including receiving completed account opening documentation and other correspondence in Hong Kong, forwarding the same to New Zealand, keeping bank account opening documents and introductory brochures in Hong Kong for collection by customers and further outlined [Ng’s] involvement in approving and checking fund transfers, including the payment of commissions on behalf of CHI to account executives on a daily basis.

12. The NPDA recorded allegations that, inter alia, [Ng] had told staff of HIL on various occasions, and more specifically, at a meeting held in May 2005 immediately after a cocktail party in Macau to celebrate the opening of CHI’s Macau office, that CHI was set up as an additional line of business for HIL’s account executives in that they could introduce business to CHI which is an overseas company not regulated by the Commission, highlighting the fact that CHI’s minimum margin requirement would be lower than that of HIL and that commissions to account executives would be higher. [Ng] and other senior officials of HIL including [Law] took turns to elaborate on that message and said that, given the licensing status of HIL account executives, it might not be desirable for HIL’s employees to refer clients to CHI and suggested that HIL’s employees should find persons to act as nominees (“人頭”) to receive commissions from CHI on their behalf.

13. The Commission was of the view that [Ng’s] acts amounted to aiding and abetting unlicensed activities. It set out the proposed disciplinary action and the reasons therefor. The Commission then invited [Ng] to make written submissions, stating that the decision to take disciplinary action was not a final decision.

14. [Law’s] NPDA outlined his involvement which was limited to attending the meeting in CHI’s Macau office after the cocktail party and elaborating on [Ng’s] message that HIL’s licensed representatives could solicit business for CHI from Hong Kong clients and explaining how that could be done despite their licensing status by using a nominee to receive commissions on their behalf.

15. The Commission took the view that by encouraging licensed representatives of HIL to participate in the unlicensed activities of CHI, [Law] was guilty of misconduct and was not fit and proper to be licensed. The Commission set out the proposed disciplinary action and the reasons therefor and invited [Law] to submit written submissions if he objected to the proposed action.

16. Despite invitations to both appellants to make submissions to answer the Commission’s case against them, neither did. This was notwithstanding requests made (and granted) for extensions of time to enable them to do so. Accordingly, by letters dated 7 September 2007, the appellants were each given a Notice of Final Decision, in which the Commission reached the same conclusions as in the NPDAs. The Notices also contained the decision on the disciplinary action against both appellants:-

“[Ng]

I enclose our Notice of Final Decision, and the reasons for it, to revoke your licence and the approval of your status of a responsible officer, and prohibit you for life from:

(a) applying to be licensed or registered;

(b) applying to be approved as a responsible officer of a licensed corporation;

(c) applying to be given consent to act or continue to act as an executive officer of a registered institution under section 71C of the Banking Ordinance; and

(d)  seeking through a registered institution to have your name entered in the register maintained by the Monetary Authority under section 20 of the Banking Ordinance as that of a person engaged by the registered institution in respect of a regulated activity.”

“[Law]

I enclose our Notice of Final Decision, and the reasons for it, to suspend your licence for three [3] years.”

17.  The Notices reminded the appellants of their right to a review by the Tribunal under s.217 of the SFO.  Both appellants sought reviews, as did another applicant (who had, like the appellants, also received a NPDA followed by a Notice of Final Decision).

18.  The Tribunal (which, by consent, had been presided over by the Chairman Mr Justice Stone sitting alone) remarked that the review of the Final Decision was ‘notable’ in that none of the applicants for review (including the appellants) made any representations to the SFC upon receiving the NPDA; and, further, that none of the applicants (including the appellants) gave evidence to the Tribunal in support of the review application, “thereby declining to expose themselves to cross-examination”.  Accordingly, in a Determination dated 15 May 2009, the Tribunal dismissed the applications for review.  As stated earlier, the appellants appealed to this court.”

12.  Ng and Law’s claims against Shum and Lo in Actions 768 and 769 are on the basis that they made false and malicious statements to the SFC when interviewed which led to the final decision of the SFC against them.

13.  Shum was served with a notice for an interview dated 14 July 2005 pursuant to section 183(1) of the Securities and Futures Ordinance, Cap. 571 (“the Ordinance”).  He attended the interview on 18 July 2005.  The record of the interview has been exhibited as exhibit “SLK-6” to the 1^st Affirmation of Shum.

14.  Lo was served with a notice for an interview dated 7 October 2005 pursuant to section 183(1) of the Ordinance.  He attended the interview on 10 October 2005.  The record of the interview has been exhibited as exhibit “LCY-5” to the 1^st Affirmation of Lo.

15.  The alleged malice of Shum and the alleged falsity of facts are pleaded and particularized at paragraph 8 of the statement of claim in Action No. 768.  The alleged malice of Lo and the alleged falsity of facts are pleaded and particularized at paragraphs 7 and 8 of the statement of claim in Action No. 769.

16.  Ng and Law’s case, as confirmed by Mr Yip at the hearing, is that the records of interviews of Shum and Lo contained all the false allegations relied on by Ng and Law as pleaded and particularized in the statements of claim. 

17.  It is well-settled that it is only in plain and obvious cases that the Court should strike out a statement of claim.  The claim must be obviously unsustainable, the pleading unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the Court will strike it out (note 18/19/4 Hong Kong Civil Procedure 2011).

18.  The only cause of action in both actions is malicious falsehood based on the records of interview which are alleged to contain false allegations.

19.  Counsel for Shum and Lo relied on absolute privilege.  It was submitted that the interviews by the SFC of Shum and Lo and the records of the interviews were subject to absolute privilege.  That being so, it was submitted that no action can be brought in relation to the contents of the records of the interviews.

20.  It was also submitted that the bringing of HCA 768 and 769 was barred by the doctrine of res judicata.

21.  The applicable legal principles governing the doctrine of absolute privilege are well-settled.

22.  A statement of claim which alleges publication on any occasion of absolute privilege will be struck out as disclosing no cause of action.  On an occasion of absolute privilege no action will lie even though the defendant published the words with full knowledge of their falsity and even with the express intention of injuring the claimant (para 13.1 Gatley on Libel and Slander 11^th edn.)

23.  In Beresford v White (1914) 30 TLR 591 it was held that a preliminary examination of a witness by a solicitor is within the same privilege as that which the witness would have had if he had said the same thing in his sworn testimony in court.

24.  In dealing with the immunity from suit of witnesses in respect of evidence they have given before courts of justice and tribunals acting in a manner similar to courts of justice, Lord Diplock succintly said in Trapp v Mackie [1979] 1 WLR 377 at pages 378 and 379

“… That absolute privilege attaches to words spoken or written in the course of giving evidence in proceedings in a court of justice is a rule of law, based on public policy, that has been established since earliest times. That the like privilege extends to evidence given before tribunals which, although not courts of justice, nevertheless act in a manner similar to that in which courts of justice act, was established more than a hundred years ago by the decision of this House in Dawkins v Lord Rokeby (1875) L.R. 7 H.L. 744, where the unanimous answer of the judges to the question asked them by the House was adopted and the ratio decidendi of the judgment of the Court of Exchequer Chamber (1873) L.R. 8 Q.B. 255 was approved.

The kind of tribunal in which the evidence of witnesses is entitled to to absolute privilege was described by Lord Atkin in O’Connor v Waldron [1935] A.C. 76, 81, as a tribunal which ‘has similar attributes to a court of justice or acts in a manner similar to that in which such courts act.’  That the ‘or’ in his phrase is not intended to be disjunctive is apparent from the fact that Lord Atkin was confirming the accuracy of the law as it had been stated by Lord Esher M.R. in Royal Aquarium and Summer and Winter Garden Society Ltd. v. Parkinson [1892] 1 Q.B. 431, 442.  Lord Esher, having spoken of ‘an authorized inquiry which, though not before a court of justice, is before a tribunal which has similar attributes’, went on to explain that what he meant by similar attributes was ‘acting … in a manner as nearly as possible similar to that in which a court of justice acts in respect of an inquiry before it.’”

25.  Lord Diplock went on to say at page 379 that

“…the rule of law is one which involves the balancing of conflicting public policies, one general: that the law should provide a remedy to the citizen whose good name and reputation is traduced by malicious falsehoods uttered by another; the other particular: that witnesses before tribunals recognised by law should, in the words of the answer of the judges in Dawkins v. Lord Rokeby, L.R. 7 H.L. 744, 753 ‘give their testimony free from any fear of being harassed by an action on an allegation, whether true or false, that they acted from malice’”.

26.  It seems to me to be well-settled that the doctrine of absolute privilege applies not only to actions for libel and slander but also to actions for malicious falsehood.

27.  Lord Diplock went on to say that

“So, to decide whether a tribunal acts in a manner similar to courts of justice and thus is of such a kind as will attract absolute, as distinct from qualified, privilege for witnesses when they give testimony before it, one must consider first, under what authority the tribunal acts, secondly the nature of the question into which it is its duty to inquire; thirdly the procedure adopted by it in carrying out the inquiry; and fourthly the legal consequences of the conclusion reached by the tribunal as a result of the inquiry.”

28.  It is important to bear in mind that Shum and Lo were each served with a notice of interview pursuant to the provisions of section 183(1) of the Ordinance. This provides inter alia that they

“shall –

(a) …

(b) …

(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) ….”

29.  A person who , without reasonable excuse, fails to attend before the investigator and fails to answer a question raised by the investigator under section 183(c) commits an offence (section 184(1)(c) and (d) of the Ordinance).

30.  Shum and Lo were clearly compelled by law to attend the interview and to answer questions from the investigator. That is an important factor.

31.  Lord Pearson observed in Trapp at page 386 that compellability was the decisive factor in Dawkins v Lord Rokeby where it was held that absolute privilege applied to evidence given to a court of inquiry instituted by the commander-in chief of the army.

32.  The doctrine of absolute privilege has been held to apply to ,inter alia, a board of review established to hear appeals as to claims for workmen’s compensation (Stark v Auerbach and others [1979] 3 WWR 563), a local military tribunal (Co-partnership Farms v Harvey-Smith [1918] 2 KB 405), an inquiry before the Bench of an Inn of Court (Lincoln v Daniels [1962] 1 QB 237), and an inquiry before the Disciplinary Committee set up under the Solicitors Act 1957 (Addis v Crocker and others [1961] 1 QB 11.)

33.  It seems to me to be clear that the SFC was exercising a quasi-judicial function in arriving at their decisions against Ng and Law for the disciplinary offences.  Shum and Lo each attended the interview with the investigator and answered questions under compulsion of law.  They were compellable witnesses who were required by law to answer questions put to them by the investigator.

34.  Although not mentioned in his written skeleton submissions, Mr Yip in his oral submissions said that the SFC was not exercising a quasi-judicial function in disciplining Ng and Law.  I am unable to accept that the SFC was exercising an administrative function and not a quasi-judicial function.  I would observe that Senior Counsel then appearing for Ng and Law in the Court of Appeal accepted, properly in my view, that the SFC’s decision was a quasi-judicial decision (see paragraph 32 of the Reasons for Judgment).

35.  It seems to me to be clear that the SFC was acting under its statutory powers in conducting the investigation, interviewing Shum and Lo and in issuing the NPDA and the Notice of Final Decision to each of Ng and Law.  Although given every opportunity to make representations to the SFC and to give evidence before the Tribunal, Ng and Law failed to do so.

36.  It was also observed by the Court of Appeal as set out at paragraph 40 of Le Pichon JA’s Reasons for Judgment that:

“40. On any view, the misconduct involved was serious and detrimental to the integrity of the market: it included blatant attempts to conceal the unlawful activities which the appellants condoned, the effect of which was to deprive the appellants’ clients of their statutory protection under Hong Kong law and to expose them to unnecessary risks. …”

37.  Although the Tribunal dismissed the applications for review by Ng and Law it reduced the penalties imposed by the SFC as set out in the Notices of Final Decision.  The legal consequences of the decision of the SFC were nevertheless very serious for Ng and Law.

38.  In my judgment the interviews and the records of interview of Shum and Lo were subject to absolute privilege.

39.  In view of my decision on the question of absolute privilege it is not necessary to consider the other ground of res judicata relied on.

40.  I am satisfied that it is plain and obvious that the statement of claim should be struck out and that the actions against Shum and Lo should be dismissed.

41.  For those reasons I made the orders set out at paragraphs 5 and 6 above.  Although Shum and Lo applied for indemnity costs against Ng and Law I did not consider that it was appropriate to so order.