RIADY, TJONDRO STEPHEN v. INSIDER DEALING TRIBUNAL

CACV 310/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 310 OF 2002

(ON APPEAL FROM HCAL 89 OF 2002)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a judgment of Hartmann and Chung JJ handed down on 31 May 2002. The judgment was in respect of an application for judicial review of a decision of the Insider Dealing Tribunal contained in the Chairman's Determination on a Question of Law dated 13 December 2001 ("the Determination"). At the conclusion of the hearing of this appeal this court dismissed the appeal with costs and said that it would give its reasons in writing which we now do.

Background

2. By notice dated 2 November 2000 the Financial Secretary instituted an inquiry ("the Inquiry") under the provisions of section 16(2) of the Securities (Insider Dealing) Ordinance, Cap. 395 ("the Ordinance"). It is convenient here to set out the terms of section 16 of the Ordinance:

" (1) If it appears to the Financial Secretary, whether following representations by the Commission or otherwise, that insider dealing in relation to a listed corporation has taken place or may have taken place, he may in accordance with this section require the Tribunal to inquire into the matter.

(2) An inquiry shall be instituted by the Financial Secretary by notice in writing to the chairman of the Tribunal containing such particulars as are sufficient to define the terms of reference of the inquiry.

(3) The object of an inquiry shall be to determine at the conclusion of the inquiry or as soon as is reasonably practicable thereafter, within the terms of reference of the inquiry as defined under subsection (2)-

(a) whether insider dealing in relation to a listed corporation has taken place;

(b) the identity of every insider dealer; and

(c) the amount of any profit gained or loss avoided as a result of the insider dealing.

(4) Where the Tribunal identifies a corporation as an insider dealer under subsection (3)(b) the Tribunal may also identify any officer of that corporation to whose breach of the duty imposed on him by section 13 the insider dealing in question is directly or indirectly attributable.

(5) The Tribunal shall not identify any person as an insider dealer or as a person to whose breach of the duty imposed on him by section 13 the insider dealing by a corporation may be directly or indirectly attributable without first giving such person an opportunity of being heard.

(6) Where the Tribunal identifies a corporation as an insider dealer under subsection (3)(b), if the insider dealing took place with the knowledge, consent or connivance of any officer of the corporation then such officer as well as the corporation shall be regarded as having been so identified."

3. It will be observed that the Financial Secretary is given power to require the Tribunal to conduct an inquiry when it appears to him that there has been insider dealing. The notice which institutes that inquiry is required to contain particulars which are sufficient to define the terms of reference of the inquiry. Further than that, the Ordinance is silent as to the form of the terms of reference. It is made clear in section 16(3) that the determination which is the object of the inquiry must lie within the terms of reference contained in the notice. However, the Tribunal is required to determine three matters. First, whether there has been insider dealing; secondly, the identity of every insider dealer; and thirdly, the amount of any profit gain or loss avoided as a result of the insider dealing. In relation to the second of those matters, the Tribunal is not permitted to identify any person as an insider dealer unless that person has first been given an opportunity of being heard.

4. It may also be noted that insider dealing in relation to a listed corporation is defined under section 9 of the Ordinance. It is unnecessary for the purposes of this case to set out the full terms of section 9, but for the purposes of this case it is convenient to set out the terms of section 9(2):

"An insider dealing in relation to a listed corporation also takes place when a person who is knowingly in possession of relevant information in relation to that corporation in any of the circumstances described in subsection (1)-

(a) counsels or procures any other person to deal in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) in the knowledge or with reasonable cause to believe that that person would deal in those listed securities or their derivatives outside Hong Kong on any stock exchange other than the Unified Exchange; or

(b) discloses that relevant information to any other person in the knowledge or with reasonable cause to believe that that or some other person will make use of that information for the purpose of dealing, or of counselling or procuring any other person to deal, in the listed securities of that corporation or their derivatives (or in the listed securities of a related corporation or their derivatives) outside Hong Kong on any stock exchange other than the Unified Exchange."

5. For completeness it may also be observed that dealing in securities or their derivatives is defined under section 6 of the Ordinance. Nothing specifically arises on that in this case save that it might be observed that, as would be expected, buying and selling shares is included within the meaning of dealing.

Background facts

6. The notice under section 16(2) contained the following terms of reference:

"	Notice under section 16(2) of the
	Securities (Insider Dealing) Ordinance, Cap. 395

Whereas it appears to me [i.e. the Financial Secretary] that insider dealing (as that term is defined in the Ordinance) in relation to the listed securities of the corporations, namely the HKCB Bank Holding Company Limited and the HongKong China Limited (now renamed as Lippo China Resources Limited) ("the corporations") has taken place or may have taken place, the Insider Dealing Tribunal is hereby required to inquire into and determine:-

(a) whether there has been insider dealing in relation to the corporations arising out of the dealings in the listed securities of the corporations by Messrs. Carlton Poon Kam Tao and Edmund Kung Chiu Nam and Ms. Jenny Kong Yuen Kwan during the period from 1 May 1997 and 23 May 1997 (inclusive);

(b) in the event of there having been insider dealing as described in paragraph (a) above, the identity of each and every insider dealer; and

(c) the amount of any profit gained or loss avoided as a result of such insider dealing".

7. The Inquiry commenced on 16 July 2001. As a result of representations which were made to the Tribunal during the initial days of the hearing the Tribunal framed a question as to its jurisdiction namely "What is the ambit of the inquiry?". The matter arose because there was what was termed a "provisional expert witness's report" prepared on behalf of one of the persons named in the section 16(2) notice, which suggested that the applicant was a potential insider dealer in that he had counselled or procured the person on whose behalf the report had been prepared to engage in insider dealing in the relevant listed securities. The substance of the question was whether the terms of reference of the Tribunal contained in the said notice were wide enough to cover an inquiry into potential insider dealing on the part of the applicant and a finding to this effect.

8. The matter, being a question of law, was determined by the Chairman of the Tribunal under paragraph 13 of the Schedule to the Ordinance and there was a lengthy hearing during which the matter appears to have been fully ventilated. The chairman concluded the Determination in the following terms:

"61. I am satisfied that the terms of the reference are sufficiently wide to cover our making a finding of insider dealing by way of counselling or procuring against Mr. Riady in relation to the dealings of listed securities in the Lippo Group by the Named Individuals. This construction is supported by the wording of the terms of reference and the scheme and purpose of the Ordinance, and is in line with the requirements of fairness.

62. I accept that it is open to the Members and I, to refer new material back to the Financial Secretary and ask him either to extend the terms of reference, or institute a separate inquiry. But I do not agree that these are the only two options open to us. Provided that the terms of reference are wide enough to cover the new material - which they are - and provided that no unfairness arises - which I am satisfied it does not - we can inquire into such material and make the appropriate determination in accordance with the evidence."

9. It is in respect of the decision contained in the Determination that an application for an order of certiorari and/or prohibition was sought with alternative relief of a declaration that the Tribunal had no jurisdiction to investigate the applicant.

10. As already indicated the application for judicial review was refused by the court below. In the judgment the court came to the clear conclusion that, on a true construction of the terms of reference, the Tribunal was entitled to decide in the way it had done. The consequence would be that the draft Salmon letter dated 18 July 2001 addressed to the applicant would be issued. That letter indicated that, as a result of the report referred to above, the Tribunal had determined that the applicant's conduct was to be the subject of the Inquiry and that the applicant was a person concerned in the subject matter of the Inquiry.

11. Before this court Mr McCoy SC put his case squarely on the basis that if a person is to be the subject of an inquiry and liable to be identified as an insider dealer under section 16(3) and therefore subject to orders under section 23 of the Ordinance, he must be named in the terms of reference, either specifically by name or within an identified class of persons. In those circumstances it was the appellant's case that the only persons who were presently able to have such a finding and orders made against them were the three persons named in paragraph (a) of the notice under section 16(2).

12. In my view, this argument is clearly wrong. The provisions of section 16 of the Ordinance, which have been set out above, contain no such restriction as to who may be found to be an insider dealer. Nor do I consider that the Schedule to the Ordinance assists the applicant's argument. Under section 15(5), the Schedule governs procedural matters. Paragraph 16 of the Schedule provides that a person whose conduct is the subject of an inquiry or who is implicated, or concerned in the subject matter of an inquiry shall be entitled to be present in person at any sitting of the Tribunal relating to that inquiry and to be represented by a barrister or solicitor.

13. Whatever the subtleties of the distinction between a person who is implicated, on the one hand, or concerned in the subject matter of an inquiry, on the other, it is a clear indication that any person who is liable to be affected and, specifically if he is liable to be held to be an insider dealer, is entitled to be present at all the sittings of the Tribunal. Furthermore, the fact that the Ordinance does not require that a person must be named in the terms of reference before he can be ultimately held to be an insider dealer is perhaps confirmed by paragraph 17 of the Schedule which provides that:

"For the purposes of paragraph 16 the Tribunal shall determine whether the conduct of any person is the subject of the inquiry or whether a person is in any way implicated or concerned in the subject of the inquiry."

14. Whilst it was conceded by Mr McCoy that there was no specific requirement in the Ordinance that the terms of reference should name a person who may ultimately be held to be an insider dealer, his argument that it was implicit stemmed from arguments relating to procedural fairness. The matter of procedural fairness is a practical matter and a matter which is primarily in the control of the Tribunal on a case by case basis. Obviously, in view of the seriousness of insider dealing proceedings and the potential outcome thereof, any person who is liable to be held to be an insider dealer must be given a full opportunity of presenting his case. To this end, however, I see no purpose in the Financial Secretary having to amend the terms of reference of the section 16(2) notice or in having to institute a further inquiry if, on a proper reading of the terms of reference in the original notice, those terms encompass the dealings which are the subject of the potential findings against a party who has not been specifically named in the terms of reference.

15. The matter therefore turns quite simply on the proper construction of the terms of reference in the notice of 2 November 2000. The material words are "whether there has been insider dealing ... in relation to ... (the securities of the 2 corporations named) ... arising out of the dealings ... by (the 3 named persons) ... during the period 1 May 1997 and 23 May 1997 (inclusive)". The terms of reference clearly included whether the dealing in that period by those persons had been accomplished with the knowing and active assistance of others, who would thus, also, be insider dealers in relation to the same dealing. Furthermore, under section 9(2) of the Ordinance, insider dealing includes within its compass counselling and procuring. Hence, whether there has been counselling or procuring by any other party in respect of the dealings by the specified persons in the specified securities over the specified period comes within the terms of reference. Whereas other wording might also have been used to accomplish the same end, the wording in fact used is on its face sufficient.

16. Some attempt was made by Mr McCoy to suggest that because of the words "from 1 May 1997", the specific acts had to have taken place after that day. That, again, is a matter of construction. Counsel's suggestion in this regard puts a strain and inaccurate meaning upon the words. What the Tribunal is required to do is to inquire into whether there has been any insider dealing in relation to the dealings which have taken place in the listed securities of the specified companies by the specified persons over the period commencing 1 May 1997 and concluding on 27 May at the same year. Furthermore as a matter of construction, the said time period relates only to the dealings in the securities. The tribunal can therefore inquire into any insider dealing, even outside this period, as long as it relates to such dealings.

17. The court below correctly dismissed the application for judicial review.

Hon Le Pichon JA:

18. I have had the advantage of reading in draft the judgments of Rogers VP and Ma JA and agree with both judgments.

Hon Ma JA:

19. I have had the advantage of reading in draft the judgment of Rogers VP. I agree with it and would only add the following observations.

20. The only issue in the present application for judicial review is that of jurisdiction and here, as Rogers VP has identified, the ultimate question is that of the true construction of the terms of reference contained in the notice dated 2 November 2002 ("the Terms of Reference"). If the Terms of Reference are wide enough to cover an inquiry into any alleged insider dealing on the part of the applicant, then the application for judicial review, and the present appeal, must be dismissed. However, for completeness' sake, it is right to point out that apart from the true construction of the Terms of Reference, the applicant also argued that as a matter of law or procedural fairness, terms of reference for Insider Dealing Tribunals had to identify all potential insider dealers.

21. In construing the Terms of Reference, it is important, as Rogers VP has done, to bear in mind the provisions of the Securities (Insider Dealing) Ordinance Cap. 395 ("the Ordinance"). However, just as important, the court must construe the words actually used in the Terms of Reference as well.

22. Before I deal further with the question of the true construction of the Terms of Reference, I should first deal with the applicant's contention that whether as a matter of law or procedural fairness (or natural justice), all potential insider dealers must be named in terms of reference for Insider Dealing Tribunals. It was submitted by Mr Gerard McCoy SC (for the applicant) that a finding of insider dealing was an extremely serious charge, akin to criminal proceedings. It was therefore of crucial importance that all persons who may be liable to such a finding should know at an early stage that they were potential targets.

23. As Rogers VP has concluded, there is no need for all (or indeed, any) potential insider dealers to be identified in terms of reference. This is for the following reasons:

(1) Terms of reference for Insider Dealing Tribunals are not charge sheets or indictments or even, in civil terms, pleadings. They are, as the phrase suggests, the terms of reference of the inquiry to be conducted by an Insider Dealing Tribunal.

(2) An Insider Dealing Tribunal does not have parties before it in the sense of a prosecution and accused or a plaintiff and defendant. Its function is not to adjudicate between rival claims or positions but to inquire into the question of insider dealing. The proceedings are not accusatorial but inquisitorial. There is no lis as such.

(3) Section 16 of the Ordinance (as set out above) contains the relevant provisions regarding the setting up of an Insider Dealing Tribunal and states the three objects of an inquiry (see section 16(3)). True it is that the Financial Secretary effectively initiates the inquiry but he is certainly not the prosecutor or plaintiff.

(4) What the Financial Secretary is required to do, however, is to provide to the Chairman of the Insider Dealing Tribunal a written notice "containing such particulars as are sufficient to define the terms of reference of the inquiry":- see section 16(2).

(5) What will be sufficient will vary from inquiry to inquiry, but the particulars must relate to "the matter" which, by section 16(1), means insider dealing which appears to the Financial Secretary to have taken place or may have taken place in relation to a corporation.

24. Nothing therefore in section 16 (or the rest of the Ordinance), expressly or impliedly, requires the naming of any persons who may be suspected of insider dealing in terms of reference. Indeed, it would be surprising if this were the result given the deliberately broad (if not vague) expressions used in section 16(2). This is to be contrasted with legislation in which relevant persons might or should be named in terms of reference. One example of this is to be found in one of the cases cited to us by Mr McCoy SC, namely Hillingdon London Borough Council v Commission for Racial Equality [1982] AC 779 (see section 49 of the Race Relations Act 1976 at page 784).

25. There is, moreover, no unfairness, actual or potential, in the conclusions I have reached. While I fully accept the seriousness of a finding of insider dealing against any person, the safeguards lie not in the naming of potential insider dealers in the terms of reference, but in ensuring that all such persons are given a fair hearing. For example, it is expressly required by section 16(5) of the Ordinance that any person who may be identified as an insider dealer must be given an opportunity to be heard. There are other safeguards that an Insider Dealing Tribunal will have to put in place to ensure a fair hearing. Another example of this is the use of "Salmon letters" to inform all suspected persons of their potential liability as insider dealers. To conclude on this aspect, fairness is important but fairness does not require potential insider dealers to be named in the terms of reference of the Tribunal.

26. There being no requirement that all suspected insider dealers should be named in the terms of reference, it then becomes purely a matter of construction of the relevant terms of reference to see whether or not in any given case, they are sufficiently wide to cover an inquiry into alleged insider dealing by any particular person.

27. In the present case, are the Terms of Reference contained in the notice dated 2 November 2000 wide enough to cover an inquiry into alleged insider dealing on the part of the applicant in relation to dealings in the listed securities of HKCB Bank Holding Company Limited and Hongkong China Limited?

28. In my view, the answer is clearly Yes. The form of the Terms of Reference follows what is referred to in section 16(1)-(3) of the Ordinance. On a true construction of the Terms of Reference:-

(1) they cover an inquiry into whether there has been any insider dealing in relation to the said corporations arising out of dealings in their listed securities;

(2) they identify the relevant dealings in the securities by reference to (a) the persons who dealt with them (Mr Carlton Poon Kam Tao, Mr Edmund Kung Chiu Nam and Ms. Jenny Kong Yuen Kwan); and (b) the time when such dealings took place (1 May 1997 to 23 May 1997 inclusive);

(3) together, these three aspects (the named corporations, the persons who dealt in the listed securities of these corporations and the time period) define the factual perimeter of the Inquiry. This is effectively what Lugar-Mawson J had held in the Determination.

29. As Rogers VP has pointed out, the term "insider dealing" is defined in section 9 of the Ordinance and includes the type of counselling and procuring on the part of the applicant that is sought to be investigated in the present inquiry. The term "dealings in securities" is defined in section 6.

30. There were two further aspects of the applicant's submissions that Rogers VP has dealt with in relation to the true construction of the Terms of Reference, both relating to time:-

(1) The words "from 1 May 1997 and 23 May 1997 (inclusive)", though ungrammatical, clearly cover the period with both dates included. This is not only the natural reading of it in context but the word "inclusive" puts this beyond doubt.

(2) This time period relates to the dealings in the listed securities of the two corporations by the three named individuals. Whether there has been insider dealing regarding these dealings (including counselling or procuring) outside this period, is a matter that is within the Terms of Reference as long as they relate to dealings within that period.

31. Lastly, I would just comment on Mr McCoy's submission to the effect that the approaches of various Chairmen of Insider Dealing Tribunals over the years have not been entirely consistent and if anything, they supported his contention that all potential insider dealers should be named in the terms of reference. For my part, I am not convinced either that there has been any inconsistency or that the approach in the past has been in line with the applicant's position. In any event, this does not ultimately assist in the question of law that is before the court.

Remarks: