HKSAR v. CHEN KEEN (alias JACK CHEN)

CACC 172/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 172 OF 2016

(ON APPEAL FROM HCCC 83 OF 2014)

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D E C I S I O N

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1.  The applicant was D1 at trial.[1] He was jointly convicted with D2 and D3 of two counts of ‘conspiracy to defraud’ (Count 1 and Count 2). On his own, he was convicted of one further count of ‘dealing with property known or reasonably believed to represent proceeds of an indictable offence’ (Count 3).[2] Against all three convictions, he has advanced five grounds of appeal of which four are relied on in this, his application for bail pending appeal.[3] For the following reasons,[4] I dismiss his application.

Background

2.  462 was a listed company.  It embarked on what, according to Hong Kong Stock Exchange (‘HKSE’) terminology, was a “very substantial acquisition” (‘VSA’) in purchasing D2’s company.  In turn, D2’s company would acquire various dairy farms and cattle from the CraFarms Group in New Zealand.[5] D1 was a co-chairman and director of 462.  He was appointed to those positions for the specific purpose of negotiating the VSA with D2.  D3 was a person employed by D2 to compile accounts for the VSA.

Ground 1

3.  This ground applies equally to Count 1 and Count 2 – conspiracy to defraud HKSE and conspiracy to defraud 462, respectively.  It is submitted that there were “errors” in relation to two of the particulars pleaded – particular (a) and particular (b).  Those particulars represented two of the five dishonest means by which the conspiracies were allegedly carried out.[6]

4.  Under particular (a), D1 and D2[7] were charged with falsely representing that D2 and D2’s company were “independent third parties” to 462 and 462’s “connected person”, ie D1.[8]  In the alternative,[9] particular (b) accused D1 and D2 of falsely representing that there was “no existing or prior relationship or understanding” between them “with respect to the [VSA]”.

5.  The reasons why these particulars are said to be problematicare detailed in D1’s written submissions.  Stripped to its core, the essence of D1’s objection can be summarized as follows :

(a)  The relevant HKSE Listing Rules had laid down specific disclosure requirements on “connected transactions”.

(b)  The representations referred to in particulars (a) and (b) were made in connection with those Rules.

(c)  The correct interpretation of those representations, ie whether they were true or false, must be considered in the context of whether, under those Rules, D1 and D2 were “connected persons”, thus rendering the VSA a “connected transaction”,[10] thus giving rise to the duty to disclose.  These are matters of law for the Judge.

(d)  Contrary to the correct approach just mentioned, the judge had, by her pre-trial ruling of 16.10.2015, erroneously held that particulars (a) and (b) can be proved by what the prosecution loosely labelled as D1 and D2 “working together” in respect of the VSA.

(e)  This concept of “working together” is incapable of precise definition.  It allowed the jury to convict on D1’s past and/or otherwise irrelevant association with D2 which, under the Listing Rules, would not have turned D1 and D2 into “connected persons”, nor the VSA a “connected transaction”.

6.  I am not, at the present stage, persuaded that this ground has merit :

(a)  The judge’s ruling of 16.10.2015 was based primarily on the Commission Sharing Agreement (‘CSA’) between D1, D2 and Barry Fraser.[11] The ruling referred to Rules 14A.05 and 14A.06 of the Listing Rules.  Given those rules, the judge concluded that (i) the CSA was subject to disclosure and (ii) its non-disclosure was properly put forward as the basis on which particulars (a) to (c) were pleaded.[12]

(b)  In her ruling, the judge also spoke generally of the “fiduciary duty” of a director (paragraph 15).  She said, “I consider that the commission sharing agreement itself, the relationship between the 1^st and the 2^nd Accused insofar as the commission sharing agreement is concerned as well as their relevant dealings over the Acquisition are properly put forth by the prosecution as the basis for particulars (a) to (c)” (paragraph 19).  Allegedly, it was these observations that enabled the prosecution to slip in the “working together” formula which bypassed the need to consider everything against the Listing Rules.

(c)  Whether that was indeed the case, D1’s complaint is flawed.   It fails to recognize that the judge having ruled on the CSA, and pointed out other supporting bases, it remained a matter of fact for the jury to consider the allegation in particulars (a) to (c); and, to pre-empt any such defences as ignorance or inadvertence, the prosecution was entitled to adduce evidence on (i) the relationship between D1 and D2 and (ii) their dealings in respect of the VSA.

(d)  The respondent makes the additional point that if one were to emphasize the Listing Rules, one could go to Chapter 3 of the Rules where the “fiduciary duties” of a director are examined.  Amongst those duties is the duty to disclose as well as avoid any “actual or potential conflict of interest”.  Rule 3.08.

(e)  As did the judge, one could also go to Chapter 14A of the Listing Rules.  There, disclosure requirements are stipulated for the expressed purpose of preventing directors from abusing their positions.  Rule 14A.01.  It is clear from the rules in this chapter that a director should make disclosure if there be the slightest chance that he or she may be entering into a “connected transaction”.  It is then up to HKSE to decide whether that is indeed the case.  HKSE is empowered to deem a person as a “connected person” for that purpose.  Rules 14A.05, 14A.06 and 14A.11.

(f)  I should add that all the relevant Rules are cast in simple, ordinary language.  There is no evidence that any of them bear any technical meaning.

(g)  However one looks at the situation, it is difficult to see how it can be argued that the Listing Rules were circumvented, or that matters of law had been relegated to the jury.  On the contrary, it was against the regime of Listing Rules that the jury must ask why D1 was prejudging the matter for himself.  Was it because he was “working together” with D2 and was anxious to conceal it?  Or was it because he genuinely believed that his association with D2 was irrelevant, notwithstanding the broadly worded and all embracingenquiry from HKSE which was directly on point?[13]

(h)  On this question, it is important that the prosecution case was: not only were they “working together”, they were working together “for their own benefit”.  Evidence was adduced which, if accepted, could establish that D1 and D2 were (i) secretly maneuvering themselves onto the opposite sides of the VSA, (ii) working together to push the VSA and (iii) benefiting from the VSA in a way that was dishonest.  Such was, and consistently had been, the parameter of the prosecution case at least since the trial started.  That was how the judge had properly left it to the jury.  It is difficult to see how the jury might have gone astray and convicted D1 and D2 on an impermissible basis.

Ground 2

7.  Again, this ground applies to both Count 1 and Count 2.  Here, particular (c) is the object of criticism.[14]

8.  Under particular (c), D1 and D2[15] were accused of concealing or failing to declare that D1 had an interest in the VSA, in that he and D2 were parties to the CSA (see paragraph 6(a) above).

9.  What follows are D1’s core contentions :

(a)  The CSA was signed on 8.10.2008.[16] The CSA required its signatories to share the commission receivable from the CraFarms Group sale.

(b)  On 17.11.2008, CraFarms offered to pay Barry Fraser a consultancy fee, in effect a commission payable upon the settlement of a sale.  This Consultancy Agreement (‘CONA’) was, however, subject to a time period during which the sale must be settled.  It lapsed after three months in February 2009.

(c)  It was only in April 2009 that the applicant approached 462 for their possible involvement in a VSA.  By then, the CSA was neither operative nor applicable because (i) as said, the CONA had lapsed and (ii) there was no provision for any commission to be given under the proposed VSA.  The fact that, in the end, no one had ever asked for or was given any commission also supports the contention that the CSA was, in everyone’s mind, no longer a live issue.

(d)  It follows that both objectively and subjective speaking, there was nothing for D1 to disclose.  It follows that the CSA was not a proper basis on which particulars (a) to (c) should be pleaded.

10.  I am not persuaded that the question regarding particular (c) should be so approached.  In my preliminary judgment, the judge’s approach is the correct approach.  It goes roughly as follows :

(a)  The CSA may have its genesis in Barry Fraser/D2’s initial contact with the CraFarms Group. It incorporated an even earlier document dated 3.10.2008.  By that document, D2’s company, already identified as a potential buyer at that stage, undertook to observe the confidentiality of all the information that the CraFarms Group was about to provide it in a period of due diligence lasting one month.

(b)  That said, on a plain reading, the CSA itself was not limited in time.  Nor was it discriminate as to the source of shareable commission.  As a matter of fact, it provided that “all commissions negotiated and paid for by vendors and investors (if any) will be shared” – the significance being on the word “investors”. Given D2’s lack of capital to move things forward, the inference is compelling that the CSA must have been drawn up with a VSA in mind.  The only question is through which publicly listed company the VSA should be carried out.

(c)  Seen that way, the CONA and the related question of whether it had lapsed are of little importance.  It remained a question for the jury as to why the applicant should prejudge the issue and decide for himself that the CSA was not something he had to disclose (particular (c)).  It remained a question for the jury as to why, the CSA notwithstanding, D1 should assert that he and D2 were “independent parties” who had “no existing or prior relationship or understanding” in respect of the VSA (particulars (a) and (b)).

(d)  The fact that, in the end, no one had asked for or was given any commission is a factor the jury could take into account; but it is not determinative.

Ground 3

11.  Pertaining to particulars (d) and (e), this ground also applies to Count 1 and Count 2.[17]  It criticizes the judge for failing to warn the jury of a possible unconnected conspiracy between D2 and D3, thus putting D1 in danger of a conviction on the wrong basis.

12.  Under particulars (d) and (e), all D1 to D3[18] were accused of (i) concealing the true financial position of the CraFarms Group farms and (ii) falsely representing that the farms were making profits when in fact they were suffering losses.  This was done by “cooking the books”.[19]

13.  The nub of D1’s arguments goes as follows :

(a)  D3 was employed by D2 to compile accounts for the VSA.  The evidence was possibly consistent with D2 and D3 forming their own conspiracy to manipulate/falsify the accounts – a conspiracy that excluded D1 (the ‘sub-conspiracy’).

(b)  That being the case, the judge ought to have but nevertheless failed to direct the jury that before they can convict D1 on particulars (d) and (e), they must be satisfied that the sub-conspiracy formed part of the larger conspiracy to which D1 was party (the ‘larger conspiracy’).

14.  I am not, at this stage, persuaded that this ground is likely to succeed :

(a)  D1’s submission is the same as saying : should the jury find that there was such a sub-conspiracy, they must be satisfied that D2 and D3 had agreed to do whatever was the object of the sub-conspiracy in order to achieve the purpose of the larger conspiracy; only then should they convict D1 on particulars (d) and (e).

(b)  The question is : for what purpose, other than the purpose of the larger conspiracy, would D2 and D3 seek to achieve through entering into the sub-conspiracy?  Given the ShineWing visit, and the large number of emails that followed, both of which would no doubt apprise D3 of what his and D2’s work on the accounts was for, I fail to see any.  The same conclusion would have been reached by the jury if the judge had given them the proposed direction.  It follows that the problem now identified by D1 is more imagined than real.

(c)  I have made the above observations based on the assumption that there was a sub-conspiracy.  It is difficult to visualize how, in reality, such a situation may arise to D1’s detriment.  Given the judge’s helpful directions on assessing multiple defendants against multiple charges, I fail to see how the jury might have convicted D1 on particulars (d) and (e) if they were to find such a sub-conspiracy.[20] Conversely, if indeed the jury had convicted D1 on particulars (d) and (e), then it must mean they were satisfied that D1 was party to what was going on with the accounts compilation.  So, in that sense too, the problem is more imagined than real.

Ground 4

15.  Under this ground, the judge is criticized for permitting herself the error of an unbalanced summing-up.  A long list of examples is given on how she had missed certain points, unjustifiably raised others or was otherwise unfair to the defence.  They run to eight pages in length.  Having reviewed their contents, and the reply of the respondent, and bearing in mind the thoroughness of the closing speeches of counsel and their subsequent lack of submissions on the judge’s summing-up, I am not persuaded that this ground of appeal is capable of an immediate answer in D1’s favour.  In view of the interlocutory nature of this application, that will be the extent of my observation on this ground.

Ground 5

16.  As said, this ground is not articulated in oral submissions.  On paper, it is not immediately apparent that it is likely to be successful.

The Time Factor

17.  D1 was sentenced to the lengthy term of 7 years and 9 months’ imprisonment.  The threshold for granting bail pending appeal in such a case is the taxing one of “prima facie the appeal is likely to be successful”.  That threshold has not been met on any of the above grounds.

Conclusion

18.  For the above reasons, I dismiss D1’s application for bail pending appeal.

[1] I shall continue to call him D1 in this decision.

[2] Those proceeds were said to be the proceeds derived from Count 1 and Count 2 so that, if the convictions on those counts were quashed, the conviction on Count 3 should also be quashed.

[3] “Ground 5 will not be developed”: see paragraph 1.7 of D1’ written submissions.

[4] In view of the nature of these proceedings, I shall keep my reasons advisedly brief.  Only the core contentions will be dealt with.

[5] According to the chairman of 462, she was made to believe that D2 already owned the CraFarms Group farms or at least had the right to purchase those farms.

[6] Particulars (a) to (e) in Counts 1 and 2 were identical.

[7] The judge had directed the jury that particulars (a) to (c) only concerned D1 and D2.

[8] D1, being a director of 462, was a “connected person”: Rule 14A.11(1) of HKSE’s Listing Rules.

[9] By agreement of the parties, a Kevin Brown direction was given to the jury in relation to both Count 1 and Count 2.

[10] The VSA would be a “connected transaction” if D2 was also a “connected persons”; D2 would be a “connected person” if she qualified as D1’s “associate”: Rule 14A.11(4) of the Listing Rules.

[11] Barry Fraser was tasked by D2 to look for New Zealand farms for sale.  It was Fraser who found the CraFarms Group.  Although D2 did not have any capital, she commenced negotiations with the group in late 2008.

[12] This constitutes the subject matter of a separate groundof appeal (Ground 2).

[13] In letter form and including a warning on possible criminal prosecution, the enquiry was directed at D1 personally.  It was sent to him in response to a complaint that HKSE had received about his relationship with D2.

[14] See footnote 6.

[15] The judge had directed the jury that particulars (a) to (c) only concerned D1 and D2.

[16] See footnote 10.

[17] See footnote 6.

[18] The judge had directed the jury that particulars (d) and (e) concerned all three defendants.

[19] These are the words of D2’s counsel at trial.

[20] As a matter of fact, D1’s case in relation to the VSA accounts was that he did not have a head for figures and was not involved in their compilation; a point that was repeatedly made by counsel in his closing speech.