SECURITIES AND FUTURES COMMISSION v. CHAN SHUI SHEUNG IVY

HCMA 630/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO 630 OF 2014

(On appeal from ESS No 21819-21821 of 2012)

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J U D G M E N T
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Introduction

1. This is an application by the Securities and Futures Commission (“SFC”), the appellant, to amend the stated case made pursuant to section 105 of the Magistrates Ordinance, Cap 227, in relation to proceedings in the Magistrate’s Court where after trial, Chan Shui Sheung Ivy, the respondent, was acquitted of three offences of providing false or misleading information to the SFC, contrary to sections 384(1), 384(6) and 390 of the Securities and Futures Ordinance, Cap 571.

2. The SFC seeks the amendment under sections 109 and/or 112 of the Magistrates Ordinance so that additional questions of law that had not been approved by the Magistrate are incorporated into the stated case in order to put before the appellate court the issues raised by those questions as part of its determination of the stated case.

3. The SFC under cover of letter dated 17 October 2014 applied to the Registrar of the High Court to have the matter dealt with as a preliminary issue.  It was stated that the basis of the application was the refusal by the Magistrate on 26 August 2014 to incorporate in the case stated the questions proposed by the SFC.  It was submitted that the questions of law posed in the case stated as it stood, did not reflect all the questions which the SFC wished the appeal court to consider. 

Appeal by case stated

4. The power to state a case from a decision of a magistrate is provided under section 105 of the Magistrates Ordinance which reads:  

“Within 14 clear days after the hearing and determination by a magistrate of any complaint, information, charge or other proceeding which he has power to determine in a summary way, either party thereto or any person aggrieved thereby who desires to question by way of appeal any conviction, order, determination or other proceeding as aforesaid on the ground that it is erroneous in point of law, or that it is in excess of jurisdiction, may apply in writing to the magistrate to state and sign a case setting forth the facts and the grounds on which the conviction, order or determination was granted and the grounds on which the proceeding is questioned, for the opinion of a judge. In the case of any determination which a magistrate has power to determine in a summary way and which relates to or is connected with an offence the Secretary for Justice shall notwithstanding that he may not be deemed to be a party, have a similar right to apply for a case to be stated as that hereinbefore afforded to the parties and upon the exercise of such right by the Secretary for Justice the complainant or informant shall cease to be a party to any further proceedings.”

5. By virtue of section 105, any party to the proceedings or any aggrieved person in relation to a determination by a magistrate of any complaint, information, charge or other summary proceeding can within 14 days question by way of appeal any conviction, order, determination or other summary proceeding on the ground that it is erroneous in point of law, or that it is in excess of jurisdiction.  The procedure requires the appellant to apply in writing to the magistrate to state and sign a case setting forth the facts and the grounds on which the conviction, order or determination was granted and the grounds on which the proceeding is questioned, for the opinion of a judge.  Under the Magistrates (Forms) Rules, Form 97 sets out the form and contents of a case stated by a magistrate.  It seeks to particularise the question or questions of law which arose before the magistrate and which form the basis of the case stated.  The powers of the judge on appeal are set out under section 119, where subsection (1)(d) provides that the judge may by his order confirm, reverse or vary the magistrate’s decision or may direct that the case shall be heard de novo by a magistrate or may make such other order in the matter as he thinks just.

6. A magistrate may refuse to state a case under section 111 if he is of the opinion that the application is merely frivolous.  But once a magistrate has signed a case stated, he may on application by either party under section 107 amend the case stated and signed by him in any way he may think fit before the commencement of the appeal hearing by a judge. 

7. A judge may also send back to a magistrate a case stated for amendment under section 109. The section reads:

“The judge shall have power, if he thinks fit, to cause the case stated for his opinion to be sent back to the magistrate for amendment, and thereupon the same shall be amended accordingly, and judgment shall be delivered after the same has been amended.”

8. This provision seems to apply when a judge is seized of the case stated for his opinion.  The judge may, if he thinks fit, cause the case stated to be sent back to the magistrate for amendment, which he must amend, and after it has been amended, he shall deliver his judgment.  See HKSAR v Leung Kwok Wah & Ors [2012] 5 HKLRD 556 at paragraphs 3 and 4. 

9. A judge can also direct a magistrate to state a case or amend the case stated as the case may be.  This is provided under section 112 which reads:

“Where a magistrate refuses to state a case or amend the case stated, the judge may, on the application of the person who applied for a case to be stated or the case stated to be amended, make an order of mandamus requiring the magistrate to state a case or amend the case stated.”

10. This provision seems to apply before a judge is seized of the case stated and in circumstances where a magistrate refuses to state a case or amend the case stated.  The judge may on the application of the person who applied for a case to be stated or the case stated to be amended, make an order of mandamus requiring the magistrate to state a case or amend the case stated.  It is under this power that the present application can appropriately be made.

11. With this in mind, it is worth noting that the power to case state under section 105 provides a party in summary proceedings to question by way of appeal a decision of a magistrate on the ground that it is erroneous in point of law, or in excess of jurisdiction.  In the present case, the appeal is on the ground that certain decisions of the Magistrate were erroneous in point of law.  It is on that ground that the opinion of a judge is sought and accordingly it must therefore allege and particularise with sufficient precision why the decisions are wrong on a point of law. 

Background

12. Before I address the application, it is necessary that I provide a brief background description about the case.  The respondent was an executive director of PME Group Ltd (“PME”), a company listed on the Main Board of the Stock Exchange of Hong Kong Ltd (“SEHK”).  It was alleged against the respondent that she provided false or misleading information to the SFC by way of three public announcements of PME dated 15, 18 and 20 February 2008, knowing that the announcements were false in a material particular or being reckless as to whether they were or not.  The three announcements were made in purported compliance with section 7(1) of the Securities and Futures (Stock Market Listing) Rules, Cap 571V, pursuant to which a listed company is obliged to file with the SFC a copy of any announcement issued by it pursuant to the Rules Governing the Listing of Securities on the SEHK.

13. The SFC instituted prosecution action against PME and the respondent as a director of the company in relation to the three public announcements by way of three summonses which were in the same terms except for the date of the announcement.  It was alleged against the respondent in each summons that she aided and abetted or counselled and procured the commission of the offence by PME or that the commission of the offence was attributable to her recklessness.  The particulars of the offence as contained in the first summons read as follows:

“Information has been laid THAT [PME], on 15 February 2008 in Hong Kong did, in purported compliance with a requirement under section 7(1) and pursuant to section 7(3) of the Securities and Futures (Stock Market Listing) Rules, provide to [the SFC] via the Stock Exchange of Hong Kong Limited a copy of an announcement dated 15 February 2008 containing information which was false or misleading in a material particular in that PME stated that save as disclosed in PME’s announcement dated 15 January 2008 [(exhibit P4)], there were no other negotiations or agreements relating to the intended acquisitions or realizations which were discloseable under rule 13.23 of the Listing Rules, neither was it aware of any matter discloseable under the general obligation imposed by rule 13.09 of the Listing Rules, and PME knew or was reckless as to whether the information was false or misleading in a material particular, and THAT YOU, [the Respondent], being a director of PME did aid, abet, counsel, procure, induce by, consent to or connive at the commission of such offence by PME or that the commission of such offence was attributable to your recklessness.”

14. The case came on before Ms Ho Wai Yang, a Magistrate sitting at Eastern Magistracy, who on 8 November 2013, after a trial lasting some 12 days, acquitted the respondent of the offences she faced.  She gave a comprehensive and detailed set of reasons for her verdict.

15. On 22 November 2013, the SFC appealed by way of case stated the Magistrate’s ruling during the course of the trial that four letters sent by PME to the SEHK were inadmissible and findings on the substantive issue. Between December 2013 and July 2014, the stated case was drafted by the SFC with input from the respondent and submitted to the Magistrate for her approval.  Eventually, on 8 October 2014, a stated case was signed by the Magistrate.  In the course of settling the stated case the SFC sought the inclusion of the following questions of law.

“On the admissibility of the Four Letters:

1. Did I err in law in finding the Four Letters to be inadmissible? In particular, did I err in law in:

(a) finding that the threat of disciplinary proceedings could amount to a real threat in the mind of the letter recipient, whom I considered was the Respondent, when four inquiry letters from the SEHK (PP41A, C, E, G) were addressed only to PME and its Chairman, and not to the Respondent;

(b) failing to give any weight to the fact that the Respondent had voluntarily undertaken to the SEHK (upon the Respondent becoming a listed company director) that she would cooperate in any investigation conducted by the SEHK including answering promptly and openly any questions addressed to the Respondent;

(c) finding that the SEHK amounted to a “person in authority”;

(d) finding that the privilege against self-incrimination applied in the present case and that it was not waived;

(e) finding that statements in the Four Letters were made involuntarily?

2. Is it correct that no reasonable magistrate properly directed could have found the Four Letters to be inadmissible?

On the substantive issue:

3. Given the undisputed evidence (including but not limited the evidence of Agnes Yeung (PW1), company resolutions, minutes, notices, letters and agreements), is it correct that no reasonable magistrate properly directed could have found that PME and Richcom had not manifested an intention to exercise Richcom’s conversion rights to shares of Betterment at the latest by 14 February 2008?

4. Having found that the Subscription Agreement did not fall under the definition of an “option” under rule 14.72 of the Listing Rules, did I err in law in failing to consider whether the Convertible Bond (issued on 14 February 2008) fell within that same rule?

5. Did I err in law in failing to find that the HK$64M Loan, the Subscription Agreement together with the execution of the Convertible Bond, all completed on or prior to 14 February 2008, amounted to (either individually or collectively) a disclosable transaction pursuant to Rules 13.23 and/or 13.09 of the Listing Rules?

6. Having accepted the evidence of PW3, did I err in law in finding that his evidence (as to his role as PME’s Company Secretary) absolved the Respondent (as PME’s Executive Director) from criminal liability (as that liability is prescribed in s.390 of the Securities and Futures Ordinance) in relation to PME’s three announcements dated 15, 18 and 20 February 2008, the subject of the three summonses?

7. Did I err in law in failing to consider the contents of PME’s announcement dated 12 March 2008 (exhibit P40) when making the finding that there was no evidence to show that the Respondent had in any way made an active decision not to disclose the documents (relating to the Betterment transaction) despite knowing that it was disclosable?

8. Is it correct that no reasonable Magistrate properly directed could have acquitted the Respondent of any of the three summonses laid against her?”

16. The Magistrate disagreed with the questions of law as drafted by the SFC, except for Questions 2 and 8 , which she directed be included in the stated case in the following terms.  They read:

“The questions of law arising from the above for the opinion of this Court are:

On the admissibility of the Four Letters:

(i) Did I err in law in finding the Four Letters to be inadmissible in that no reasonable magistrate properly directed could have come to that conclusion?

On the substantive issue:

(ii) Is it correct that no reasonable Magistrate properly directed could have acquitted the Respondent of any of the three summonses laid against her?”

17. Notwithstanding the inclusion of essentially the same questions as set out in Questions 2 and 8 in the case stated, the application for amendment of the case stated included Questions 2 and 8.  In the course of submissions these two questions were not pursued as it was rightly acknowledged that they were already covered by the two questions that the Magistrate had included in the case stated.

Admissibility of the four letters

18. At the trial, the SFC sought to rely on four letters sent by PME to the SEHK between 23 September 2008 and 20 May 2010.  The four letters were in response to inquiry letters from the SEHK which was looking into possible breaches of the Listing Rules in respect of the three announcements.

19. The respondent objected to the admissibility of the letters at the trial on the basis that the statements made in the letters could not be established to have been made voluntarily because they had been made to a person in authority under a threat of disciplinary proceedings and in violation of the privilege against self‑incrimination.

20. The SFC argued that the answers given by PME in the letters were made voluntarily and the letters were admissible, on the basis, that both PME and the respondent had agreed, in being listed as a company and being a director of a listed company respectively, to provide information to the SEHK when requested; that there was no legal obligation on either PME or the respondent to respond to the SEHK inquiries, as the Listing Rules were contractual in nature and did not have any statutory backing; that neither PME nor the respondent elected to remain silent at the time despite knowing that as a matter of normal procedure, any answers they gave to the SEHK might be passed on to the SFC; that the SEHK inquiry letters were not directed at the respondent, and any director of PME could have signed the letters on behalf of PME, but the respondent voluntarily elected to do so; and that failure to answer the SEHK queries would at worst result in disciplinary proceedings leading to possible sanctions of a reputational nature only without any penal consequences.  The SFC further argued that it could not be found that the answers provided in the letters were made involuntarily on the basis that they were made to a “person in authority” because the SEHK was not a person in authority as it was not acting on behalf of the SFC or in any control over the proceedings commenced by the SFC.  The SFC finally argued that the respondent had waived the privilege against self‑incrimination.  

21. I note however that the SFC’s arguments are somewhat inconsistent with each other.  On the one hand, the SFC argued that PME and the respondent were required to provide information to the SEHK when requested and that they knew that as a matter of normal procedure, any answers they gave to the SEHK might be passed on to the SFC, and on the other hand, that PME and the respondent were under no legal obligation to respond to the SEHK inquiries and that the SEHK was not acting on behalf of the SFC.

22. The Magistrate found that the letters were inadmissible on the basis that they were made involuntarily under threat of possible disciplinary proceedings; that the SEHK was “a person in authority”; and that there had been no waiver by the respondent of the privilege against self‑incrimination.

23. The relevant part of the Magistrate’s reasons on this issue are as follows:

“The letters sought to be admitted, which were labelled ‘PP41B’, ‘41D’, ‘F’ and ‘H’, were clearly made pursuant to the obligations under the Listing Rules to answer enquiries made by the Stock Exchange. It is trite law that any confession sought to be admitted against a person in criminal proceedings must be voluntary. If there were any threats made or fear of prejudice held out by a person in authority, then a confession will be held involuntary and, therefore, inadmissible.

I will first deal with whether there were any threats. Although there were no explicit reminders by the Stock Exchange about threat of disciplinary proceedings in the first two letters, all letters require the answers to be truthful and threatened criminal proceedings if false. Moreover, all letters contained a reminder about the undertaking to the Stock Exchange. Hence, all answers were made with the knowledge that any failure to comply may subject the person or the company to disciplinary proceedings.

This is confirmed by PW1 [Yeung Sau-han, Agnes, a former director of PME] of the voir dire hearing and the statement of Joanna Hui in that there was an obligation to reply, failure of which would result in disciplinary proceedings.

I had considered the prosecution’s submissions that the sanctions of any disciplinary proceedings were negligible such that it would not be a real threat in the defendant’s mind. However, I did not accept those submissions. I am of the view that any possible sanction, even a censure, can affect the reputation of the defendant or the company and this damage can be irreparable.

Hence I found that the threat of disciplinary proceedings could amount to a real threat in the mind of the letter recipient and, in this case, it is the defendant.

As to whether the Stock Exchange is a person in authority, although the answers in the letters were not provided to the SFC, they were provided to the Stock Exchange. The Stock Exchange must have been a person in authority in the mind of the defendant as they were the ones who could issue disciplinary action against her. Moreover, according to Joanna Hui, the Stock Exchange had the power to refer the matter to SFC for possible consideration of criminal offences. Hence, objectively and subjectively, the Stock Exchange must have been a person in authority.

As to the waiver of privilege, the prosecution submitted that the defendant must have waived the privilege. According to the listing agreement submitted by Joanna Hui at JH5 and a directors’ undertaking at Exhibit P50, there is no clause in which the defendant had unequivocally agreed to waive her right against self-incrimination in respect of criminal proceedings. I noted that there is no statutory provision allowing such answers provided under the compulsion to be used in criminal proceedings.

Although there is a Memorandum of Understanding between the SFC and the Stock Exchange in respect of the exchange of information for investigation purposes, the MoU – that is, the Memorandum of Understanding – is not binding on any other party except for the SFC and the Stock Exchange. Moreover, the MoU is not legally binding even as between the parties themselves.

Authorities in the Court of Final Appeal have clearly stated that, in cases where answers are provided under compulsion in various civil proceedings, the court must still consider the voluntariness of those answers for the purposes of criminal proceedings. Hence, there is no automatic waiver of the right against self-incrimination when it comes to criminal proceedings and any waiver of such right, that is, the right against self-incrimination, must be unequivocal.

There is nothing in the letter of request that indicate the Stock Exchange would pass the material on for criminal investigation and nothing to remind them of their right to silence. From the letters, the recipient of the letter could not have anticipated the use of the same material in criminal proceedings. Therefore, I do not accept the defendant waived her right against self-incrimination for the purposes of the present criminal proceedings.

I have considered the prosecution’s submission that, since the defendant claimed the legal professional privilege in the third letter, the failure for her to claim other privileges in other letters amounts to wavier of self-incrimination.  However, I did not accept that submission.”

Findings on the substantive issue

24. The substantive issue at trial was whether the information contained in the three announcements published by PME on 15, 18 and 20 February 2008 was false.  The SFC alleged that the three announcements containing the same “negative statement” where the company confirmed that, other than the announcement on 15 January 2008, there were no other negotiations or agreements relating to intended acquisitions or realisations which were disclosable under Rule 13.23 of the Listing Rules and that neither was the Board aware of any matter disclosable under the general obligation imposed by Rule 13.09 of the Listing Rules which was or might be of a price‑sensitive nature.

25. The SFC, on its interpretation of the relevant rules, contended that there was an ongoing acquisition by PME through its subsidiary, Richcom Group Ltd, (‘Richcom”), of the shares of another company called Betterment Enterprises Ltd (“Betterment”) which was disclosable under Rules 13.23 and 13.09.  The SFC argued that the significance of the Betterment acquisition lay in its 50.28% shareholding of another company listed on the SEHK known as ZZNode Technologies Co Ltd (“ZZNode”) which had a market value of around HK$377 million which represented around 43% of the value of PME’s total net assets.  The SFC argued that the statement in the three announcements was false and misleading in a material particular because it effectively stated that there was nothing to disclose under either of the two rules.

26. It was not disputed that PME ultimately acquired Betterment and that the transaction was disclosable.  On 28 February 2008, trading in the shares of PME was suspended at PME’s request.  PME then issued a public announcement on 12 March 2008 that on 11 February 2008 its subsidiary entered into a Subscription Agreement with Betterment and a Convertible Bond was issued to the subsidiary on 15 February 2008 and that on 19 and 25 February 2008, the subsidiary exercised the conversion rights under the Convertible Bond and converted the Convertible Bond into 51 and 9898 shares of Betterment respectively.  It was acknowledged that the Subscription Agreement and the Conversion constituted disclosable transactions by the company.  Trading in PME’s shares resumed on 13 March 2008.

27. The respondent’s case was that there was no intention to acquire Betterment prior to 20 February 2008.  The respondent argued that the exercise of conversion rights prior to 20 February was PME acting to protect its security for an unrepaid loan and on that basis there was nothing disclosable prior to 20 February 2008 and therefore there was no false statement contained in the three announcements.  Just to put this matter in context, Richcom had lent substantial funds to Betterment and its sole director and shareholder (PW2 at trial) in January 2008.  There was a loan of $15 million to PW2 and $64 million to Betterment.  Richcom was also obtaining finance for Betterment.  The respondent also argued that she did not know and was not reckless as to whether the three announcements were false or misleading.

28. The Magistrate found that PME’s subsidiary did not manifest its intention to convert the shares until a resolution was passed to that effect on 18 February 2008 and she went on to conclude that the conversion was liable to disclosure under the relevant rules only after that date.  The Magistrate also found that the respondent did not have the requisite mental element prescribed by section 390.  The Magistrate on this latter issue reasoned that unless the respondent had personal knowledge that the matters were disclosable, she would have fulfilled her duty so long as she had kept the company secretary (PW3 at trial) informed of the matters to ensure that he had all necessary information to make that decision.  The Magistrate found that there was no evidence that the respondent had such knowledge and that there was no evidence to show that she actively made a decision not to disclose the matters despite knowing that the matters were disclosable.  It is argued by the SFC that even though the company secretary knew of the conversion of the Betterment shares at the time of the earlier announcements, the respondent did not tell him that the acquisition of Betterment brought with it the ZZNode shares, worth over HK$300 million, which was a significant matter in deciding whether there was a need to disclose and therefore did not put the company secretary in an informed position to properly make that decision.

29. On the key issue as to whether PME had an intention to acquire Betterment’s shares as from 14 February 2008 the Magistrate addressed the issue in her reasons as follows:

“Having considered the evidence and submissions, I find that I am unable to draw the irresistible inference that, since 14 February 2008, PME’s intention was to acquire Betterment’s shares. The documents show that Richcom was entitled to exercise its security in the manner it did as PW2 failed to hand over the three million shares in PYI as part of the $15 million loan agreement. There is no dispute that PW2 had failed to hand over the shares in time, though he explained that it was because of the restrictions on the Swiss account. Once in default of a condition in the loan agreement, Richcom was entitled to exercise its rights.

I have considered the prosecution’s submissions as to why Richcom insisted on exercising their rights under the subscription agreement. However, I found those submissions to be speculative. There may be many factors that influenced Richcom’s decision to exercise the conversion rights.

Although the prosecution’s submission as to the intention behind the exercising of the conversion rights is one possible inference to be drawn from the facts, it is not the only inference, must less the only irresistible inference. In the absence of any concrete evidence pointing to any ulterior motive behind the exercising of the conversion rights, I find I am unable to draw an irresistible inference that the conversion rights were exercised pursuant to a pre-existing intention to acquire Betterment’s shares.

In respect of the prosecution’s submissions that PME intended to acquire Betterment’s shares since, at least, 14 February 2008, I am unable to accept that submission. Although I noted, by 14 February 2008, Betterment had passed various resolutions and agreed to issue the convertible bond, the resolution of Richcom itself to convert the shares was not passed until 18 February 2008. Up until the actual conversion of shares, Richcom had no actual controlling interest in Betterment.

There were no documents before 18 February 2008, save and except a solicitors’ letter dated 11 February 2008 which indicated Richcom had decided to convert the shares. However, in respect of the letter dated 11 February 2008, there has been no explanation as to why the letter was written before the resolution was passed by the board of directors and no explanation as to under whose instructions or whose authority the solicitors wrote the letter.

Having considered the evidence and the submissions of senior counsel, I find that Richcom did not manifest its intention to convert the shares until the resolution was passed on 18 February 2008.”

Submissions

30. Ms Charlotte Draycott, SC, with Mr Derek C. L. Chan, counsel for the SFC, argued that the drafting of the questions to be considered by the appellate court in a stated case is in general a matter for the appellant.  Ms Draycott relied on the comments of the Hong Kong Full Court in AG v Leung Chi-kin [1974] HKLR 269 at 272 where it stated that it is for the appellant to decide what questions he wishes to raise upon the appeal and the only justification for altering draft questions presented by an appellant would be that they were not clear, that they misrepresented the magistrate’s decision or that they included questions which the court ought not to be asked to answer.  It was noted that even if the magistrate drafts the case it should be submitted to both parties for comment before it is signed, so as to avoid the necessity of an application for amendment.  The Court also emphasised that the questions the appellate court is asked to answer should be stated clearly and concisely with the contentions of law of each party upon each of the issues referred for its opinion.

31. The Court of Final Appeal in Li Man Wai v SJ (2003) 6 HKCFAR 466 emphasised that an appeal by way of case stated is not an appeal by way of rehearing but a review by the appellate court on the limited ground that there is an error of law or an excess of jurisdiction.  The Court went on to explain that where a magistrate has come to a conclusion or finding of fact which no reasonable magistrate, applying his mind to the proper considerations and giving himself the proper directions, could have come to, this would be regarded as an error of law which is often described as being perverse.  The appellate court would be entitled to intervene where it is satisfied that the magistrate, in reaching his conclusion or finding, has misdirected himself on the facts or misunderstood them, or has taken into account irrelevant considerations or has overlooked relevant considerations.  

32. I was hardly directed to any substantial contentions of law by the SFC in its submissions and that will be apparent in the analysis that is to come.  It is mainly on the statement of principle in Li Man Wai that the SFC seem to rely on in its submissions to justify the amendment they seek to the stated case by the inclusion of the questions they have framed as opposed to the two general questions of law currently contained in the stated case. 

33. Ms Draycott argued that the questions proposed by the SFC are all proper questions of law relating to the parts of the Magistrate’s reasons that were critical to her decisions as to the admissibility of the four letters and to acquit the respondent.  She submitted that there was no sound basis for the questions not to be included into the stated case for the court’s consideration in the substantive appeal.  She further argued that the Magistrate included only two questions of law, the generality of which would not assist the court in identifying the errors of law that the SFC will contend were made by the Magistrate.  It did not go unnoticed that the two questions submitted by the Magistrate were in exactly the same terms as contained in the proposed list of questions submitted by the SFC (Questions 2 and 8). 

34. Mr Peter Duncan, SC, with Mr Jonathan Kwan, counsel for the respondent, argued that the questions sought to be incorporated in the stated case pursuant to this amendment application are in effect challenges to the acquittals on the basis of findings of fact by the Magistrate and are not concerned with questions of law.

35. I will now deal with the submissions by the parties as each of the questions as set out in paragraph 15 of this decision. 

1. Question 1(a)

36. In respect of this question, Ms Draycott referred to the following remarks from the Magistrate where she said that “… the threat of disciplinary proceedings could amount to a real threat in the mind of the letter recipient and, in this case, it was the Respondent”.  She submitted that none of the four inquiry letters from the SEHK were addressed to the respondent and even though she subsequently signed three of the four letters in response to the four inquiry letters from the SEHK, she was under no obligation to do so.  She submitted that the so-called “threat” of disciplinary proceedings was not a matter that could amount to a “real threat” at all “in the mind” of the respondent for the purposes of the law relating to the admissibility of confessions.  She said that the SFC will contend at the substantive hearing that the Magistrate misdirected herself on the facts and/or misunderstood them. 

37. It is submitted by Mr Duncan that the question posed is self-evidently a question of fact which the Magistrate considered.  He submitted that there was nothing plainly wrong in the Magistrate coming to the conclusion that the threat of disciplinary proceedings amounted to a real threat to the respondent. 

38. I agree with Mr Duncan and in my view no point of law arises from this matter. 

2. Question 1(b)

39. Ms Draycott noted that the respondent had previously and voluntarily signed an undertaking to the SEHK to cooperate in any investigation conducted by the SEHK including answering promptly and openly any questions addressed to her.  She argued that this undertaking did not feature in the Magistrate’s assessment of voluntariness and that the SFC will contend at the substantive hearing that the Magistrate erred in law in failing to take into account a plainly relevant consideration. 

40. Mr Duncan on the other hand, submitted that there was no need for the Magistrate to attach any weight to this matter, as the fact of the earlier undertaking did not obviate the need for the prosecution to prove that the answers were given in the absence of any threat and that the evidence clearly showed the likelihood of the answers being provided under the influence of threatened disciplinary proceedings. 

41. I do not see that this question raises a point of law which the Magistrate has misunderstood or wrongly applied.

3. Question 1(c)

42. Ms Draycott referred to the Magistrate’s finding that the SEHK was a person in authority in the mind of the respondent “as they were the ones who could issue disciplinary proceedings against her” and that “… the SEHK had power to refer the matter to SFC for possible consideration of criminal offences.  Hence, objectively and subjectively, the SEHK must have been a person in authority”.  She argued that the SFC will contend at the substantive hearing that the two reasons cited by the Magistrate do not as a matter of law render the SEHK a “person in authority” for the purposes of the law concerning the admissibility of confessions.  She argued that the SFC will contend at the substantive hearing that, as a matter of law, the concept of a “person in authority” referred only to those who the accused perceived to be exercising the coercive power of the state in the investigation and prosecution of the criminal offence in question.  She referred to the test as stated in R v Hodgson [1998] 2 SCR 449 where per Cory J stated at paragraph 32:

“Thus, from its earliest inception in Canadian law, the question as to who should be considered as a person in authority depended on the extent to which the accused believed the person could influence or control the proceedings against him or her. The question is therefore approached from the viewpoint of the accused”

43. And at paragraph 36:

“The important factor to note in all of these cases is that there is no catalogue of persons, beyond a peace officer or prison guard, who are automatically considered a person in authority solely by virtue of their status. A parent, doctor, teacher or employer all may be found to be a person in authority if the circumstances warrant, but their status, or the mere fact that they may wield some personal authority over the accused, is not sufficient to establish them as persons in authority for the purposes of the confessions rule. As the intervener the Attorney General Canada observed, the person in authority requirement has evolved in a manner that avoids a formalistic or legalistic approach to the interactions between ordinary citizens. Instead, it requires a case-by-case consideration of the accused’s belief as to the ability of the receiver of the statement to influence the prosecution or investigation of the crime. That is to say, the trial judge must determine whether the accused reasonably believed the receiver of the statement was acting on behalf of the police or prosecuting authorities. This view of the person in authority requirement remains unchanged.”

44. She noted that Hodgson had been applied by the High Court of Australia in Tofilau v The Queen (2007) 231 CLR 396, and referred to the following extracts at paragraphs 320 and 323:

“320. Whether the basis of the inducement rule be reliability, preventing improper state coercion, disciplining the police, or avoiding unfair reductions in the choice of suspects to speak, a perception by the suspect that the coercive power of the state is being used is central: ‘most criminal investigations are undertaken by the state, and it is then that an accused is most vulnerable to state coercion’. Where that perception does not exist, the basis of the inducement rule is not present.”

…

“323. The Director is correct in submitting that a person to whom an accused has made admissions cannot be a person in authority at least unless that person is perceived by the accused, on reasonable grounds, to have the lawful authority of the state to investigate the circumstances.”

45. Mr Duncan submitted that the finding that the SEHK amounted to a “person in authority” was clearly a question of fact and that no question arose concerning the wrong legal test for a “person in authority” having been applied. He submitted that it was simply a question of fact as to whether the SEHK fell into this category.

46. As I will explain later in more detail, the question does not raise an error or issue of law.  As far as I can ascertain, the Magistrate properly directed herself on the law on this point.  In any event, the Magistrate has included the general question in the case stated as to whether a reasonable magistrate properly directed would have ruled the four letters inadmissible. 

4. Question 1(d)

47. Ms Draycott submitted that the question of whether the privilege against self-incrimination applied in the present case and if so, whether there was a waiver of the privilege against self-incrimination was a matter of law.  She said that the SFC will contend that, if the privilege against self-incrimination applied, then there was in law an effective waiver of that privilege on the basis of the undertaking signed by the respondent when she became a director of PME.

48. Mr Duncan submitted that the issue was not that the privilege against self-incrimination did not apply but whether the privilege was waived by the respondent.  He submitted that this was a question of fact and did not involve a question of law. 

49. I agree with Mr Duncan that it would appear that the issue was whether the privilege was waived by the respondent which was a question of fact.

5. Question 1(e)

50. Ms Draycott submitted that the SFC will contend that no reasonable magistrate properly directed could find that the statements in the four letters were made involuntarily.

51. Mr Duncan submitted that this was a question of fact which was dealt with by the Magistrate in her ruling on admissibility.  He argued that there was no suggestion that the Magistrate applied the wrong legal test on the issue of voluntariness. 

52. I agree with Mr Duncan but in any event this question is basically incorporated in Question 2 that follows and which is already included in the case stated. 

6. Question 2

53. This question has been included in the case stated and signed by the Magistrate.

7. Question 3

54. Ms Draycott submitted that this is self-evidently a question of law as it is contended by the SFC that the finding of the Magistrate that PME and its subsidiary had not manifested an intention to exercise its conversion rights to Betterment’s shares by 14 February 2008 was perverse.  She further submitted that this factual finding was crucial to the Magistrate’s verdict with respect to the first summons, and likely also with respect to the second summons.

55. Mr Duncan on the other hand submitted that although the SFC contended that the Magistrate’s finding was perverse, the SFC itself acknowledged that this was a factual finding.  He pointed out that after considering the evidence and submissions with regard to this issue, the Magistrate was unable to draw the irresistible inference that from 14 February 2008, PME’s intention was to acquire Betterment’s shares.  He submitted that this was essentially a question of fact.

56. Even though this question is probably covered by the second question of the case stated, it is more specific and complains that the finding was perverse in accordance with the principle stated in Li Man Wai.

8. Questions 4 & 5

57. Ms Draycott submitted that the SFC’s case at trial was that “PME’s ongoing acquisition of Betterment shares ... including the Subscription Agreement, the Convertible Bond, and the conversion of Betterment shares were clearly disclosable transactions…” but complained that the Magistrate in her reasoning did not consider the status of the Convertible Bond (issued on 14 February 2008) either as an “option”, or in assessing whether the state of play of the Betterment acquisition as at 14 February 2008 meant that the impugned statement (in particular the statement that “there was no negotiations or agreements relating to intended acquisitions or realisations which are disclosable...”) on 14 and 18 February 2008 was false or misleading.  She submitted that the SFC will contend at the substantive hearing that the Convertible Bond fell within the definition of an “option” pursuant to the Listing Rules, and/or that it was essential for the Magistrate to have considered the issue of the Convertible Bond together with the other documentation in assessing the state of play of the Betterment acquisition as at 14 February 2008.  She also submitted that the Magistrate erred in law in failing to take into account a plainly relevant consideration.  She said that these errors were crucial to the Magistrate’s verdict with respect to the first summons, and likely also with respect to the second summons.

58. Mr Duncan submitted that the Convertible Bond did not constitute a “transaction” for the purposes of the Listing Rules and until the conversion rights were exercised, no conversion took place.  He pointed to the absence of evidence to acquire the shares in Betterment.  He also noted that Richcom made no move to exercise its conversion rights at any time before 15 February 2008.  He submitted that the SFC’s contention that the Convertible Bond fell within the definition of an “option” pursuant to the Listing Rules was clearly unarguable.  He also pointed out that this was at no time advanced at trial and did not fall for consideration.

59. The argument advanced by Mr Duncan is really an argument for the appeal hearing.  I would allow the questions but in a more appropriate form. 

9. Questions 6 & 7

60. Ms Draycott explained that these questions concerned the respondent’s responsibility for the accuracy of the statements contained in the three announcements.  She submitted that the main basis of the Magistrate’s reasoning was that it was up to PW3 (who she said was described as the part time Company Secretary and who was not on the PME Board) and not the executive directors to decide what transaction was disclosable, and that unless the respondent had personal knowledge that the matters were disclosable, the respondent would have fulfilled her duty (as an executive director) so long as she kept PW3 informed of the matters to ensure that PW3 could make that decision.  She submitted that the SFC will contend inter alia at the substantive hearing that:

“(i) The Magistrate had simply misunderstood PW3’s evidence on the issue of responsibility. The SFC will contend that PW3’s evidence as it stands could not, as a matter of law, absolve the respondent’s liability for the accuracy of the statements contained in the three announcements under s.390 of the SFO. The Magistrate had further failed to take into account that under rule 13.04 of the Listing Rules, the directors of an issuer (PME) are collectively and individually responsible for ensuring the issuer’s full compliance with the Listing Rules, which included compliance with Rule 2.13(2) to ensure, inter alia, that the information contained in any announcement or corporate communication must be accurate and complete in all material respects and not be misleading or deceptive.

(ii) In any event, PME’s subsequent announcement on 12 March 2008, which set out PME’s description of how the transaction transpired, firmly establishes that PME’s directors (including the respondent) had made an active decision not to disclose the transaction at the material time in mid February 2008.  Therefore the SFC will contend at the substantive hearing that the Magistrate erred in law in failing to take into account a plainly relevant consideration.”

61. Mr Duncan argued that the respondent’s mens rea at the material time was clearly a question of fact.  As to the respondent’s obligations as a director, the ultimate question was whether the respondent knew that, or was reckless as to whether, the announcements were false or misleading.  This he submitted was clearly a question of fact which the Magistrate addressed. 

62. It seems to me that these two questions are basically factual but in any event are incorporated in the second question of the case stated.

10. Question 8

63. This question has been included in the case stated and signed by the Magistrate. 

Discussion

64. As I have already observed, the power under section 105 should be used appropriately by prosecuting authorities and only in the most clear and obvious cases where in the interest of justice a judge’s opinion is required in relation to a magistrate’s decision on the ground that it is erroneous in point of law, or that it is in excess of jurisdiction. Where a defendant has been acquitted of a criminal charge he can and should expect that the matter has been finally determined unless there has been some clear and obvious error of law that warrants further adjudication.  The principle of finality plays an important role in fostering trust and confidence in our criminal justice system.  Excessive and inappropriate use of this power may become an instrument of injustice. 

65. The purpose of a case stated is not to retry the case but to identify within the terms of the provision an issue or error of law that requires adjudication on appeal because it is complained that it is fundamentally wrong.  It is important that questions are framed with sufficient precision to clearly and accurately identify the legal issue or error on which opinion from a judge is sought.  The question should not include any unnecessary comments or opinions and should be framed in appropriate language, setting out the basis for questioning the decision of the magistrate as being erroneous in point of law. 

66. It is not uncommon for an appeal by case stated to question whether the magistrate’s decision was correct on the facts found proved by the evidence.  It is equally not uncommon for the magistrate’s decision as to what facts were established by the evidence to be challenged on the ground that there was no evidence to support them or that they were findings to which no reasonable magistrate properly directing himself could make.  I would note, however, that such a challenge should not simply rest on the premise that the party aggrieved would have come to a different conclusion or finding from the magistrate.  If the conclusion or finding was open to be made, and it was reasonable to make, then there is no error of law on which to challenge by way of case stated.  It is an easy ground to formulate and therefore it is incumbent on a party and its legal representatives to ensure that it is an appropriate ground for the case stated procedure and that it is properly particularised and reasonably arguable.  In other words, there is a proper basis for challenge of the magistrate’s decision on a principle of law which has some real chance of success. 

67. It is well to refer to the comments of the Full Court in Leung Chi-kin where it stated at 273 that a case stated should contain:

“(a) the material findings of fact or, where appropriate, a statement that no finding was made upon an issue which is alleged to be material. The evidence should not be set out unless it is the appellant’s contention that the magistrate ruled wrongly that there was or was not a case to answer or that there was no evidence to support one or more of the findings of fact: Mills v Boddy. The facts should include ‘the primary facts based upon [the magistrate’s] estimation of the truthfulness or otherwise of the witnesses who appeared before him and any facts deduced by him from the primary facts as so found’: Attorney General v Munro-Smith:

(b) the contentions of law of each party upon each of the issues referred for the opinion of the Court:

(c) a statement of the decision of the magistrate on those issues. Normally extensive quotations from the judgment will be unnecessary and should therefore be avoided:

(d) the questions the Court is asked to answer.  They should be stated clearly and concisely and care should be taken to ensure that the questions are not wider than is warranted by the facts.  A case stated is not to be used as a device for obtaining the opinion of the Court upon questions which did not form the basis of the magistrate’s decision, and, even where a point did form part of the basis of his decision, if it was not taken at the trial the Court will not allow it to be argued on appeal unless it is one which no evidence could alter: Kates v Jeffery.”

68. I can understand why the Magistrate rejected the questions as framed for the reason that they are either not addressing, or not appropriately expressed to address, an erroneous point of law. 

69. The first set of questions concern the Magistrate’s findings with respect to the admissibility of the four letters which the SFC sought to rely on for the admissions they contained by the respondent.  The respondent challenged the admissibility of the letters on the basis that they were not freely and voluntarily made.  This required the prosecution to prove beyond reasonable doubt on the evidence that the statements were made voluntarily by the respondent.  If, for any reason, it was not made voluntarily, it is inadmissible.  If the circumstances in which it was made were oppressive, including the use of violence, threats, promises or inducements, it must be regarded as having been made involuntarily.  There is also a further safeguard, that a voluntary statement may still be excluded if it was obtained by unfairness or reprehensible conduct, such as trickery, which is judged against what is required to secure a fair trial for the accused.  See S for J v Lam Tat Ming (2000) 3 HKCFAR 168 where Li CJ, with whom the other judges agreed, said that the rule of voluntariness “is an essential safeguard for the accused against the coercive power of the law enforcement agencies” which had as its underlying rationale the need to ensure the reliability of confessions as well as the right of silence.

70. It is an established principle that an admission or confession would be involuntary if it was made as a result of hope of advantage or fear of prejudice held out or exercised by a person in authority. Whilst there is no exhaustive definition of a person in authority, it is well settled that it would include “anyone who has authority or control over the accused or over the proceedings or prosecution against him.” See Deokinanan v R [1969] 1 AC 20.  See also Archbold Hong Kong, 2015, paras 15-61 and 15-62.

71. I find that the questions on the admissibility of the four letters (Questions 1(a) to 1(e)) do not address erroneous points of law.  Question 1(a) concerns the finding by the Magistrate of the threat of disciplinary proceedings in the mind of the respondent is a question of fact which the Magistrate addressed.  Question 1(b) concerns whether the Magistrate gave any weight to the respondent’s undertaking to the SEHK to cooperate in an investigation conducted by it but this was a matter before the Magistrate which she considered and does not raise an erroneous point of law. Question 1(c) as framed concerns the Magistrate’s finding that the SEHK amounted to a person in authority.  The Magistrate addressed the law on this issue which is well settled, and whether or not the SEHK was a person in authority in the present case was based on the particular facts and circumstances as found by the Magistrate.  This question does not raise an erroneous point of law.  Question 1(d) as framed concerns the Magistrate’s finding that the privilege against self-incrimination applied and was not waived by the respondent.  The relevant legal principles in relation to the privilege of self-incrimination are well-established and the question that the Magistrate addressed was whether in the present case the privilege applied or had been waived by the respondent.  Mr Duncan pointed out that it was not an issue at trial that the privilege did not apply but whether it had been waived. He submitted that this was a question of fact and that appears to have been the case.  Question 1(e) is covered by Question 2 which is in the same terms as the question signed by the Magistrate in the case stated. 

72. I should add that framing each of these questions as to whether the Magistrate “erred in law” does not necessarily make them questions of law.  It is the substance of the question and the error or issue of law that it seeks to have addressed by the judge that will make it a question of law. 

73. The second set of questions concern a challenge to the Magistrate’s findings on the substantive issue.  Question 3 did not require the commentary about the evidence that is made, however it seeks to question a finding of the Magistrate on the key issue of whether PME and Richcom had not manifested an intention to exercise Richcom’s conversion rights to shares of Betterment at the latest by 14 February 2008.  It is complained that the finding was wrong and that no reasonable magistrate properly directed could have made such a finding.  Without expressing any view as to the substance or merits of this question, it would appear it raises a point of law.  It seems to me that the question is whether the Magistrate erred in her finding on the basis that no reasonable magistrate properly directed could have made the finding.  Question 4 concerns whether the Magistrate erred in failing to consider whether the Convertible Bond issued on 14 February 2008 fell within Rule 14.72 of the Listing Rules.  Question 5 concerns whether the Magistrate erred in failing to find that the $64M Loan, the Subscription Agreement and the Convertible Bond amounted either individually or collectively to a disclosable transaction pursuant to Rule 13.23 and/or 13.09 of the Listing Rules.  In respect of Question 6 I have difficulty understanding what point of law, if any, is being sought to be addressed.  It complains that the Magistrate absolved the respondent from criminal liability on the basis of PW3’s evidence but it is clear that the Magistrate acquitted the respondent on an assessment of the evidence and on the findings that she made as a consequence.  I do not see that this involves a question of law.  Question 7 concerns the Magistrate’s findings that there was no evidence to show that the respondent had in any way made an active decision not to disclose the documents relating to the Betterment transaction, notwithstanding that she knew that it was disclosable. This seems to me to be a question of fact. 

74. Whilst I can understand the Magistrate coming to the view that the two questions as framed deal with the main grounds of complaint of the SFC, it would appear that some of the questions proposed address more specifically issues on which opinion from a judge is sought in relation to this case.  As I have already noted, the questions as framed would benefit without commentary or opinions and should focus on how the decision being questioned is erroneous in point of law.  That may be another reason why the Magistrate refused to include the questions as proposed by the SFC. 

Conclusion

75. In light of the foregoing, I refuse to direct the Magistrate to incorporate the questions in Question 1, and Question 2 is already a question in the case stated, but I direct the Magistrate to incorporate Questions 3, 4 and 5 in the form set out in the next paragraph.

76. In accordance with section 112, I make an order of mandamus requiring the Magistrate to amend the case stated by including the following questions.  

1. Is it correct that no reasonable magistrate properly directed could have made the finding on the evidence that PME and its subsidiary, Richcom, had not manifested an intention to exercise its conversion rights to Betterment’s shares by 14 February 2008?

2. Did the Convertible Bond come within the definition of an “option” under rule 14.72 of the Listing Rules?

3. Was the HK$64M Loan, the Subscription Agreement or the Convertible Bond, either individually or collectively, a disclosable transaction pursuant to Rules 13.23 and/or 13.09 of the Listing Rules?

77. I will hear from the parties on the question of costs.