HKSAR v. LEE MING TEE

HCCC 191/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CRIMINAL CASE NO. 191 OF 1999

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JUDGMENT

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The Application and its Context.

1. This application before me to stay the present proceedings against the 1st Defendant was first intimated by letter from Messrs Haldanes acting on his behalf on the 6 November enclosing a copy of the preliminary Advice of Mr Jonathan Caplan QC, who had appeared for the 1st Defendant at the original trial which had commenced on 5 November 2001 and been terminated by me on 22 March 2002.

2. Prior to this most recent development there had been several applications either to stay the proceedings provisionally or to have the trial transferred to another judge. The position in respect of these has been set out in a series of judgments. On the 25 September I allowed an application by the Defence to set aside my ex parte order relating to Letters of Request to courts in Singapore and Arizona, USA. These had concerned what I regarded as belated attempts by the Department of Justice to obtain evidence from witnesses who were either reluctant to come to Hong Kong or were incapacitated from so doing. There had been earlier applications which I had refused either just before the original trial was due to start or during the course of the trial. My decision to allow the renewed applications was based on what turned out to be limited reference to the law involved and an ex parte argument that it was simply an evidence gathering exercise for which judicial approval was little more than a formality, leaving open arguments as to admissibility of the evidence obtained to be made at trial. I had good cause to change my overall view of the law and the practical situation on a detailed review.

3. This was almost immediately followed by an application that I should recuse myself from further management or involvement in this trial. The argument was tenuous to say the least. In part it seemed to be based on a suggestion that in allowing the Department of Justice to proceed with ex parte applications to issue Letters of Request I had acted in such a way as to inculcate in the 1st Defendant's mind a perception of bias. A simple reading of my judgment would have shown such perception to be without rational basis. It proceeded to encompass what appears to be criticism of my decision to restrict possession of my judgment on that ex parte hearing to the 1st Defendant's legal representatives, and a review of the correspondence relating to that. I rejected this application for recusal. It had all the hall-marks of 'forum-shopping'.

4. The final application was to stay proceedings pending payment of Defence costs incurred as a consequence of the original trial being terminated in March of this year. Although I concluded that in principle the Defence were entitled to costs there was no justification for staying proceedings until they had been determined and paid, and that in any event the ambit of any order in respect of costs would have to abide the determination of pending proceedings, in effect, the outcome of the trial. That judgment was delivered on 15 October 2002.

5. Although the re-trial had been due to commence on 4 November this had been postponed until 18 November to enable counsel then appearing for the 1st Defendant to have more time to consider the expert accountancy evidence served by the Prosecution. The Prosecution had been willing to extend the postponement beyond this date but I formed the view that that was unnecessary and was likely to lead to a slackening of the overall schedule. By this stage, the 2nd Defendant had been allowed to return to Australia for an urgent operation on his failing left eye. It was also now apparent that his right eye would require prompt surgery as soon as the left eye had settled down reasonably following the initial operation. The 2nd Defendant had been receiving treatment for glaucoma in Australia for some years. Because it was obvious that this defendant would not be fit enough to return to Hong Kong and stand trial for some months it had been decided that the re-trial - as I have termed the proceedings for reasons that will become readily apparent - should proceed of the 1st Defendant with the re-trial of the 2nd Defendant taking place as and when practicable. An added complication as far as the 2nd Defendant was concerned was his change of solicitors. That change took place immediately after his departure for Australia. The solicitors are in Hong Kong. The potential for further reasonable delay whilst their client recovers is obvious.

6. Once this application for a stay on behalf of the 1st Defendant had been intimated it was also apparent that the scheduled date for the commencement of this re-trial was not feasible. Mr Jonathan Caplan could not arrive in Hong Kong until 12 November. It was necessary to serve upon the Department of Justice and the Securities and Futures Commission an outline of the case. This was done with commendable expedition and by Friday 15 November all concerned had received this outline of submissions and I in turn had received the reply of the Department of Justice and the Securities and Futures Commission. As far as the latter was concerned it was clear that it had to be represented and when the application was first formally listed in Chambers "For Mention" on 8 November I requested Counsel for the Department of Justice to notify the Securities and Futures Commission that I required it to be represented when the case was next listed on the 18 November. It was obvious that the trial itself could not proceed on that date.

7. On 18 November, Mr Jonathan Caplan QC gave a short outline of the application concerning the SFC and Mr Adrian Bell for the SFC indicated that he would be serving affidavits from the SFC personnel who were involved with the investigation and disciplinary inquiry into the activities of ICEA and Mr Meocre Li in respect of a placement of shares in a company called Kin Don Holdings. He anticipated rightly that those three persons would have to be called to be cross-examined on the contents of their affidavits and more particularly on the documents with which they were associated. One of them was currently in the United Kingdom and another on the Mainland. I adjourned the proceedings until the 20 November when they were listed 'For Mention' in order to ascertain what progress had been made. On that date the hope was expressed that the substantive hearing could proceed on the afternoon of 26 November. Unfortunately, but for good reasons, it could not proceed on that afternoon but did so on the morning of 27 November. The hearing was completed on 29 November. I will deal with the evidence and the submissions in due course but I will shortly state the core of the Defence argument and the significance of the SFC involvement with Mr Meocre Li.

8. Mr Meocre Li was the expert witness whose non-disclosure of his involvement with a Mainland company under the scrutiny of the Stock Exchanges of Hong Kong and Shenzhen had brought about the abrupt termination of the original trial shortly before the jury were to retire to consider their verdicts. The Defence lawyers had ascertained general information about this undisclosed matter a day before the application to discharge the jury was made. Between July and October of this year another matter had come to their attention which resulted from the SFC's investigation into certain aspects of a share placement involving Mr Meocre Li and ICEA, the company of which he was the Chief Executive. That investigation and inquiry lasted from September 1999 through to September 2001. Mr Meocre Li had not disclosed this matter either, but more importantly neither had the SFC. This non-disclosure by the SFC, the nature of its investigation and disciplinary inquiry, its decisions and the motivations for those are at the heart of this application to stay. Inevitably, it also involves a history of these tortuous criminal proceedings.

The History of the Prosecution.

9. The timescale for the alleged offences is June 1990 to June 1992. They are in the form of conspiracies to deceive and defraud a number of individuals and entities, including the Securities and Futures Commission and the Stock Exchange of Hong Kong in relation to the placement of a large number of shares in various companies within the Allied Group of Companies, and the publication of Annual Reports in which significant untrue statements were made as to the proceeds from those share placements. The Securities and Futures Commission was, with others, a victim and complainant in relation to those activities. As is immediately plain, over a decade has now passed.

10. An investigation into these matters was conducted by the Securities and Futures Commission following the receipt of complaints, and the Chairman (of the SFC) wrote to the Financial Secretary on 11 June 1992 recommending the appointment of a company inspector to undertake a wider investigation into the affairs of the Allied Group in view of suspected wrongdoing by this Defendant and others.

11. In early August 1992, the Financial Secretary decided to appoint an inspector whose work would be monitored by a steering group under the Deputy Secretary for Monetary Affairs. It was to comprise members of the Attorney-General's Chambers and of the Securities and Futures Commission.

12. The letter to the Financial Secretary to which I have referred is at section 2 of the Additional Bundle of documents prepared for this hearing. It is a detailed letter and it enclosed the interim report. Included in the suggested terms of reference for the Inspector (or Inspectors) to be appointed was:

"(e) to obtain evidence in a form admissible in criminal proceedings in respect of any fraud or other offence against Hong Kong law that is identified in the course of the investigation."

In recommending the ambit of the inspection the writer (the Chairman of the SFC) wrote:

".... there are a significant number of transactions in which misconduct and/or misfeasance seem apparent which seem to involve criminal offences including fraud, and which are sufficient to justify the appointment of inspectors to undertake the necessary further investigation work."

Almost at the end of the letter the Financial Secretary was informed that the SFC had established a list of people "whom we consider presently qualified to carry out inspections".

13. The SFC was therefore the initiator, prime mover and directing influence in relation to the further investigation or inspection to be conducted.

14. Subsequent to this approach to the Financial Secretary, Mr Nicholas Allen of Coopers and Lybrand was appointed Inspector and amongst his terms of reference was the suggested obtaining of "evidence in a form admissible in criminal proceedings in respect of any fraud or other offence against Hong Kong law". The SFC, in the person of Mr Gerard McMahon, wrote to Mr Allen making available files and records to assist him in his investigation, on several occasions.

15. There are minutes of meetings of the Steering Committee in 1992 and 1993 with the SFC making significant contributions. The latest record I have is dated 23 April 1993 at which Mr McMahon is minuted as saying that the "SFC, AGC (Attorney-General's Chambers) and police to sit together to decide on when prosecution".

16. In January 1993 interviews of the 1st Defendant (and others) had taken place in the course of the inspector's investigation. From that month the Police were supplied with documents and other materials obtained including the interview transcript. The steering group was concerned at that stage with the extent to which the Inspector's report should be made public, the SFC in particular, and I am adopting the words of Ribeiro, PJ in HKSAR v Lee Ming Tee and Another [2001] HKLRD 599, at page 611C, "wished to publicise to the market the Inspector's concerns regarding the probity of Allied Group's management and to demonstrate that corporate misconduct would be pursued and uncovered".

17. In September 1993, the Police in possession of the necessary search warrants, conducted a series of raids on the offices of the Allied Group of companies. On 18 September, the Inspector's report, in an agreed abridged form, to meet concern that publication in full form would prejudice a fair trial, was publicised at a press conference.

18. Thereafter the Police through the Commercial Crimes Bureau, worked on all the seized documents to prepare a criminal prosecution against the 1st and 2nd Defendants in particular.

19. Over three and a half years following the publication of the report the 2nd Defendant was arrested in Australia and he returned voluntarily to Hong Kong on 26 August 1998. The 1st Defendant, who had remained in Hong Kong was arrested the day before. These events, it should be noted, occurred over four years ago.

20. Both Defendants were committed for trial on 16 June 1999. Over ten months later the Defendant made an application to Pang J for the proceedings to be stayed. He made an order in those terms on 21 July 2000, now over two years ago. The Court of Final Appeal reversed that decision on 22 March 2001 having heard argument over six days in the latter part of February.

21. The case first came before me on 8 May 2001. I had brought this forward from 15 June because I was under the impression that the prosecution case was in order and hoped a trial could commence in early September 2001. A timetable was agreed in outline with a proposed trial date of 29 October 2001. It was apparent at that stage that the prosecution was far from ready for trial since it was stated on its behalf that it would not be in a position to serve a schedule of admissions until mid-September, and would not be able to serve a written opening until 15 October. For a variety of reasons it was now clear that the trial could not commence until the end of October or early November.

22. A pre-trial Review was fixed for 8 October and a number of measures to be carried out was to be expedited. The trial was fixed to start on 29 October at the Defence request. The written opening was to be served a few days before the 8 October so that the Defence and I could see how the case was to be opened. I also fixed the 3 September as the date by which the prosecution's expert report was to be served upon the Defence. Having been told on 8 May 2001 by Mr Nigel Aiken for the prosecution that the expert, Mr Meocre Li, was the crucial witness, it was a matter of note then that such an integral part of the prosecution case was missing. I was merely referred to an affirmation by him dated 2 May 1997. With the benefit of hindsight that has become a matter of great surprise. The essential bundles and core bundles would not be available until later. When they did eventually arrive their format was not well organised or helpful.

23. When 8 October arrived the core bundles were still not available. An indication was given that the evidence of certain witnesses would be taken abroad. This last matter was the subject of an ex parte application after the inter partes hearing. The prosecution applied for Letters of Request in respect of two witnesses, one of whom was in Singapore and had indicated long ago that he would not come to Hong Kong to give evidence against the Defendants. The other was in Arizona, USA, and he had stated that he was not well enough to travel. For such applications to be made at this stage was a matter of concern. They had a badly prepared basis in that the essential material to support such applications was lacking and the timing of these applications meant that there would be two interruptions to the trial if they were allowed. I could not understand why they were made so late. No satisfactory explanation has ever been forthcoming. I refused both applications. On 26 October, the date to which I adjourned the review in the hope and expectation that the finishing touches could be put, a number of preparatory matters was concluded and the trial was due to commence on 5 November 2001. By the 8 November the preliminary issues had been disposed of and the prosecution commenced its opening to the jury.

The Termination of the Trial.

24. The matter that caused me to bring the trial to an end on 22 March 2002 on its 76th day is fully set out in my judgment or ruling of that date following a submission by Mr Jonathan Caplan, QC for the 1st Defendant with which Mr Gary Plowman SC for the 2nd Defendant had associated himself.

25. Although it is therefore not necessary for me to repeat myself in detail it is necessary for the purpose of seeing the full context of this application to set out in short form the essence of the situation.

26. Mr Meocre Li was the expert witness for the prosecution. The text of his evidence was to deal with the transactions which formed the crux of the charges in the indictment. He traced them through the documents. He gave evidence of the accounting exercises through the various records and books of account, and the relationship between the various companies within the Allied Group which featured in these transactions. He prepared charts and schedules which were put before the jury. He set out how these transactions should be conducted in accordance with the requirements of the SFC and the Hong Kong Stock Exchange. He had commenced giving evidence on 6 February 2002, Day 54 of the trial. He finished his evidence at the end of Day 56, the 8 February 2002 when the trial was adjourned for the Chinese New Year holiday.

27. When he outlined his credentials at the start of his testimony he spoke of his long experience as an accountant with Arthur Andersen investigating transactions where fraud was alleged. He had given evidence in two criminal trials and conducted more than ten other investigations. When he left that well-known firm of accountants in 1995 as managing partner for Hong Kong and China operations, he joined an investment banking business and then in 1998:

"I formed a joint venture with the Industrial and Commercial Bank of China, the largest commercial bank in China, along with the Bank of East Asia and formed ICEA, and I was the Chief Executive of ICEA since then ...

Q: "Does it follow that you have practical experience of banking?

A: "I do.""

It emerged that he had produced a report on his investigation into these transactions in mid-May 1997. He had been appointed in September 1993 to do this. The work had therefore occupied him and a number of his staff over a period of about three and a half years. Cross-examination of Mr. Meocre Li was very limited. His expertise and experience were not challenged. The substantial part of the questioning on behalf of the Defence was limited to aspects of certain Consolidated Accounts. At the end of the evidence I indicated to Defence Counsel following their submissions that I would in effect withdraw counts 3 and 5 from the jury.

28. When Mr. Li's relationship with Guangdong Kelon as a non-executive director and chairman of its audit committee emerged it was of considerable potential significance. His association with that company had begun in or about 1996 not long after he left Arthur Andersen and ventured into the commercial world. He was now a businessman and no longer a practising accountant. That company had entered into connected transactions with its subsidiaries. Trading in its shares was suspended in late December 2001 until 14 March 2002. All this occurred during the course of the trial. The board of directors which included Mr. Li resigned. This was before he gave evidence. The nature of the defence of these Defendants involved connected transactions being carried on behalf of companies within the Allied Group by other directors and personnel of the companies. Mr. Li's knowledge and experience of such transactions by Guangdong Kelon, if not as director, then certainly as Chairman of the Audit Committee could be highly pertinent to the defence case. It was a matter of some comment, as I referred to in my ruling on 22 March 2002, that the Allied's accountants had not in 1991 or 1992 questioned the transactions as not having produced any assets or working capital for the Companies concerned. No cash receipts had resulted from the overwhelming proportion of the share issues or placements. The annual accounts purported to show that the Companies share capital and assets had increased. There were statements to the effect that the shares had been paid for. The accountants had either overlooked what appeared to me to be fundamental to the capital and income position of the relevant companies (and the Allied Group) or, if they had not overlooked it, had proceeded to ignore it. They did not even question or inquire behind some obviously backdated documents.

29. Representatives of the accounting firm concerned, Deloittes, were called on behalf of the Prosecution to give evidence. They were therefore not taken to task in respect of their own omissions or shortcomings, to use comparatively neutral terms. For obvious reasons they were not taken to task by the Defence.

30. The Defence called a gentleman as a character witness who became a non-executive director of the Allied Group in1993, and later the Chairman of its audit committee. In fact he gave evidence about the 1992 accounts which were put before the board in May 1993. Although the prosecution questioned him about the notes in the accounts concerning the Prudential issue, he said that he had no idea about it. He was not questioned on the 1990 and 1991 accounts although he said that he knew "if at all possible that no re-statements had to be made of the audited accounts for previous years" (i.e. 1990 and 1991).

31. The other aspect of the Defence which could properly have been put to Mr. Meocre Li, had the Guangdong Kelon matter been known to the Defence, was the extent to which a Chief Executive could properly rely upon and delegate to other directors or managers, particularly in relation to market exercises such as the placements of shares and the revenue to be realized as a consequence, including what may or may not be proper measures to salvage a market placing which had failed in the sense that it had not been taken up as provided for and anticipated.

32. I made it clear at the time of my decision that it was incumbent upon an expert witness to disclose any matter which might be considered to affect his expertise, status, independence or authority and that that was a duty to the court. Mr. Meocre Li ought to have disclosed it to the prosecution. The prosecution sensibly accept that had it been disclosed to it, it would have disclosed it to the Defence. The consequence of Mr. Meocre Li's failure was my decision to stop the trial.

33. I required the prosecution to obtain a statement from Mr. Li explaining the situation more fully and particularly identifying whether he had disclosed it to anyone and if not, why not. To my surprise he sent his own explanation with a letter to me. In that, he sets out why he considered he did not need to disclose his involvement in the Guangdong Kelon matter and that, although Chairman of the Audit Committee, he was not involved in any aspects of the company's audits. It is essentially an exculpatory statement indicating that it never occurred to him that he should disclose any such matter, and that he did not believe even now that he should have disclosed it, although he said that there were "some superficial similarities between the two situations" (i.e. Guangdong Kelon and the Allied Group). In paragraph 36 of his statement he says:

"In the interests of full disclosure I should mention that shortly before Easter (2002), a query was raised by the Shenzhen Stock Exchange regarding the board of directors of Kelon in its affairs. However the situation has been explained in full to them ..... "

However he made no mention of the fact that he and ICEA of which he was the Chief Executive, had been under investigation by the SFC in respect of ICEA's role in the placement of a tranche of shares in a publicly listed company resulting in a significant loss to the public, for almost two years, and that his solicitors had been informed that the SFC would not be proceeding with its inquiries "unless new information is brought to its attention."

34. By the end of May 2002 the Department of Justice had decided not to continue to use the services of Mr. Li as the expert witness in the trial. It had earlier in the month examined SFC documents at the Commission's offices relative to the Kin Don Holdings share placement. The outcome therefore was the commissioning of a new report from another accountant experienced in this forensic field. That report would not be available until 1 September 2002. The re-trial was then due to commence on November 4, two months later.

The Kin Don Share Placement.

35. On 8 September 1999, the Director of Enforcement of the Securities and Futures Commission instituted an investigation into persons who may have committed offences in relation to dealing in shares in Kin Don Holdings Limited, a publicly listed company.

36. On 24 June 1999, the Board of Kin Don had made an announcement following the suspension of trading in its shares which had taken effect on the same day. That announcement disclaimed any knowledge of or responsibility for the recent increase in the price and volume of trading of its shares, and the placement of any shares as reported in the newspapers of that morning.

37. There had in fact been a substantial placement of shares the previous day to the value of approximately $78.5m at a price of $1.38, representing a discount on the current market price of $1.65. The price of the shares fell rapidly following the announcement when trading resumed. There were a number of concerns as to the dubious nature of the transaction and the SFC became involved as the "watchdog" and/or regulator.

38. Their inquiries focused on the placing agent. The principal placing agent was ICEA of which Mr Meocre Li was the Chief Executive. ICEA appears to be part of the business entity described by Mr Meocre Li at the outset of his evidence to which I referred earlier. ICEA as the placing agent received commission of $2,008,748.70. It then remitted over $1.466m to a sub-agent by the name of Clarea Au - ICEA thus retained only about 25% of the commission even though it was the prime agent. Clarea Au was not a registered agent of ICEA.

39. The Commission gave notice to ICEA of its inquiry on 17 September 1999 requiring production of documents and the identity of the employees in ICEA who had contact with the sub-agent in respect of the placement. That notice must have come to the attention of Mr Meocre Li as ICEA's Chief Executive.

40. Five days later ICEA wrote to the SFC identifying Michael Ng and Gary Fong as the "main contacts of ICEA" in relation to the placement. Copies of requested documents were forwarded with the letter.

41. On 9 December, the SFC sent a further notice to ICEA requiring further information and documents to be supplied by 13 December. Following receipt of that there was a telephone conversation with Raymond Tang of ICEA. Although he was unable to provide all the information requested he did state that ICEA was approached by Clarea Au to do the placing and that she was paid the $1.466m odd in the form of a cheque made out to a company (this was subsequently identified to be Universal Apparel Inc.). A few days later, Mr Tang for ICEA wrote confirming this information and identifying Michael Ng and Gary Fong as the two employees of ICEA who had been approached by Clarea Au.

42. The investigation team then set about arranging to interview the main participants. Both Gary Fong and Michael Ng were written to and asked to attend for interview on 29 and 30 December 1999 respectively. Their interviews duly took place on the dates arranged.

43. Following these the investigation team sent a similar letter to Mr Meocre Li requiring (note the word) him to attend for interview on 26 January 2000. Mr Meocre Li responded to that with a letter of 20 January in which he disclaimed all knowledge of Clarea Au and any of the sub-agents and had only very limited knowledge of the placement itself in the form of having agreed that ICEA could take on the placement. He asked the SFC to waive the interview. He stated that "there is nothing more that I can personally add". It was in effect an invitation to the SFC not to pursue their investigation against him. The SFC responded by saying that although there was no urgency for the interview to take place on the 26 January, they "will still require to interview you" and that he would be notified later. As far as Mr Meocre Li was concerned the matter then 'hung fire' for another five months and then for a further ten months after that, as will be seen.

44. On 2 February 2000, the SFC wrote to ICEA for the attention of the Compliance Manager, Ms Anna Chan, requiring production of all files and records, including those omitted from compliance with an earlier notice. In view of Mr Meocre Li's position within ICEA Capital, it is in my view inconceivable that he would not know how matters were progressing from ICEA's view point. Mr Michael Ng had of course ceased to be employed by ICEA in November 1999.

45. On 21 February 2000, there was compliance by ICEA when Ms Anna Chan brought a quantity of documents to a meeting with the SFC investigator.

46. Events moved on to 15 May 2000 when Michael Ng was required to attend a second meeting at the SFC's offices. He did so on the 29 May. Gary Fong was similarly notified and he attended his second interview on 1 June 2000.

47. One week later, on 8 June 2000, SFC wrote to Mr Meocre Li with a further notice requiring him to submit written answers to a series of questions by 19 June 2000. He complied with this on 16 June from his home address. At this stage, I should encapsulate the content of these replies because they are material to assessments subsequently made by the SFC:

"He was the immediate supervisor of Gary Fong and Michael Ng; Ng informed him of the potential placement of the shares late in the morning of the 23 June 1999.

Placees for the block sale of existing shares had been ascertained and there was no commercial risk for ICEA.

Ng referred to the deal being introduced by a contact. Li had no recollection of Au's name being mentioned. Authority had never been delegated to Au by ICEA or Li. All arrangements were already in place before Ng consulted with Li.

The sharing of the commission was proposed by Au to Ng who obtained his approval for it."

It may be of some importance to note that in this reply Mr Meocre Li did not disclaim all prior knowledge of or contact with Clarea Au (viz. I have never met her nor have I ever heard of her before this).

48. The SFC minute two months later dealt with the position of all the main persons being investigated. It was noted that "Meocre Li ... could still be held responsible for the conduct of Michael Ng and Gary Fong despite his claim of limited involvement in this placement. I suggest he at least be warned".

49. The next minute, at point 7, sets the picture for the concern about ICEA's involvement.

"ICEA was named as the placing agent for the placement, however, it did not appear to have carried out its duty properly. Not only did it fail to inform the sub placing agents that the shares were placed out by the second major shareholder of Kin Don when it was made known to it, it also failed to supervise diligently Clarea Au to conduct business on behalf of ICEA.

The recommendation in the previous minute was supported.

50. A minute of 21 September also confirmed that Meocre Li, amongst others, should at least be warned. However the next minute (of 25 September) is more illuminating.

51. The transaction at the root of this investigation (i.e. the share placement) was, on information available, described by Clarea Au to sub-agents as a "top-up", and that Kin Don had obtained certain trading rights on the Mainland - Au may have secured ICEA's participation on the basis of this misinformation. Behind Au was the Emperor Group, at least as the perception of observers. ICEA and Meocre Li must have appreciated Au's role. The "testimony of Michael Ng is particularly damaging for Meocre Li. ICEA and Meocre Li must bear ultimate responsibility for the dissemination of false information".

52. The consequence of all this was the decision in late December 2000 to prepare what are described as Letters of Mindedness to Vanessa Fan (the dealing director at Emperor), Clarea Au and Michael Ng. It was also stated that such a letter, or a warning letter should be sent to Meocre Li. Because of the evidence (no doubt essentially that from Michael Ng) indicating Meocre Li's knowledge of Clarea Au and her role vis-à-vis ICEA, it was felt that Meocre Li deserved a public reprimand.

53. Over three months then passed and there is no document illustrating any activity or decision during this period. On 4 April 2001, now well over a year since Michael Ng and Gary Fong were interviewed, the Directors of ICEA, and Meocre Li individually, were sent the Letters of Mindedness. The intention was to give a public reprimand to all of them. The Grounds for Concern set out in the letter to Meocre Li are a succinct statement of the questionable transaction (i.e. the placement of shares) and ICEA's role in it. Even to a layman's eye there were dubious aspects as far as the actual placement through agents was concerned. Much turned upon ICEA's knowledge of Clarea Au's position but the apportionment of commission alone should have rung warning bells. What Michael Ng said he told Meocre Li was crucial to the case for a reprimand against Meocre Li. What is absolutely clear is that ICEA was used as a "front" or legitimate agency for the transaction in general, with 73% of the commission being paid directly by ICEA to Clarea Au. Meocre Li was invited to make representations by 4 May 2001.

54. Contemporaneous with these letters is a minute which sets out a consideration of the position of each of the main participants, and approves the course recommended by the SFC team.

55. The reaction of ICEA (through Meocre Li) dated the 10 April was to request a copy of the cassette tape records previously sent to the SFC by ICEA. This was duly done. The other development was a request by the Solicitors, Messrs Clifford Chance, for an extension of time so that they could make representations on behalf of ICEA and Meocre Li. It appears from a subsequent SFC minute that Clifford Chance had requested copies of the statements on which the SFC had relied, and SFC duly gave them copies. Meocre Li had also indirectly sought a meeting with Alex Pang but, for some reason not clear at all to me, the SFC decided that the meeting should take place after Clifford Chance and Meocre Li had had the chance of considering the evidence. It is to be noted at that stage that Meocre Li had avoided being interviewed hitherto. He was now being supplied with all the evidence to enable him to make representations without ever having been confronted with the bare allegations and being required to explain his role. It appears that the SFC, again for some reason which I do not understand, had been content with short written points from Meocre Li without any follow up. He had certainly managed to avoid the form of inquiry imposed upon Gary Fong and Michael Ng.

56. On 3 May 2001, Meocre Li having considered the statements supplied, a meeting was arranged for him and Alex Pang on 8 May. Before that meeting took place Clifford Chance wrote a letter of some significance to the SFC, dated 7 May 2001. Its purpose was to obtain the SFC's consent to Meocre Li informing the Department of Justice of the state of the inquiry and its possible outcome (i.e. a public reprimand). It is the third paragraph which requires direct quotation - the underlining is mine:

"Mr Li is an expert witness in the Government's prosecution of Lee Ming-tee and Tse Chun-fair in connection with the Allied Investigation (HCCC No. 191 of 1999). The hearing is due to commence in the 4th quarter of 2001. In view of the closeness of the trial, it would be courteous, to say the least, for Mr Li to inform the Department of Justice of the current situation."

57. The approach of Clifford Chance was an entirely proper, even exemplary one. They clearly realised the significance of the situation in relation to their client's position as an expert witness, if no one else did.

58. The timescale was important. In late March 2001 the Court of Final Appeal had removed the stay and ordered the Allied Trial to take place. It is highly likely that some members of the SFC investigation team would have known this. When Clifford Chance's letter arrived it does not seem to have occasioned any surprise or concern. There is no minute of referral of the topic for guidance or advice. However Mr Alex Pang said that Anna Woo had referred the letter to him and he had simply put it aside for the time being. There was no reply to that in conventional form. At a meeting on 8 May requested by Meocre Li with the SFC, Mr Pang is recorded in the minute as telling Meocre Li that there was no need to inform the Department of Justice at the moment as a decision (in relation to the inquiry into Mr Li) would be made soon. There would therefore be no reply to Clifford Chance in the meantime.

59. Mr Pang's handling of this matter is odd. I find it difficult to believe that Clifford Chance's inquiry with its specific mention of the two defendants and the Allied Group Investigation did not remind him of an important investigation in which the SFC had been deeply involved. He said he had experience of acting as an expert witness in Insider Dealing cases. He must therefore have recognized the importance of an expert witness in such cases. The letter informed him that the Allied trial was to start in the 4th quarter of 2001 - i.e. from October. Equally clearly in my view, he must have had some understanding of the timescale of such matters. Even if he did not, the obvious course was to inquire. There are in-house lawyers in the SFC. There may have been investigators or other personnel who were still directly involved in the Allied Trial proceedings. These were obvious ready sources of information and advice. He spoke to no-one. He simply put it "on the back-burner" to await his decision on the disciplinary inquiry into Mr Meocre Li.

60. At the meeting on 8 May 2001 Mr Meocre Li produced his 'agenda' for it. A copy of it is attached to the back of the minutes. At this stage, it is relevant to recall some of Mr Pang's background evidence. The Kin Don Holdings placement and its consequences was a serious matter. There had been misrepresentations and public investors had lost many millions of dollars. There had been a lot of malpractice in the market as a result of or as part of the financial crisis of 1997/98. Many resulting disciplinary cases were being handled in 2000/2001. In that context he was the effective decision - maker and agreed with the Letters of Mindedness that had been issued to ICEA, Meocre Li and Clarea Au. But he made it clear in his evidence that he was "desperate to clear this case as soon as possible". He said he had tendered his resignation on 4 May 2001. He had known Meocre Li since 1983 although not on a personal basis - they had exchanged casual chat and acknowledgements socially.

61. When Meocre Li attended the meeting it was of course for him to make submissions against any disciplinary step. He was accompanied by the Chief Operations Officer of ICEA whom he identified as a witness. He distributed his agenda and said that his solicitors would make full representations for ICEA and himself.

62. The record of that meeting is essentially an expanded form of the Agenda. Very little intervention was made by the SFC members present. The meeting lasted only 30 minutes. Of note in particular was Meocre Li's statement that he did not know who Clarea Au was and therefore was unaware of her involvement with ICEA and the fact that she was employed by Emperor Securities who, it transpired, had declined to be associated with the placement. Clarea Au was in fact a registered dealer with Emperor Securities but was not a registered dealer with ICEA. Meocre Li's alleged lack of knowledge of Clarea Au was an extremely important feature of his case.

63. On the 16 May 2001 just over a week after that meeting Clifford Chance's letter of the same date was received. It was detailed and set out the answers of ICEA and Meocre Li to the Letters of Mindedness and draft public statements of reprimand. It sought to correct Mr Ng's statement in relation to the time of the day on which he acquainted Meocre Li with the deal, and the extent of the detail explained. Although the letter refers to Mr Ng's statement as being "factually incorrect" it was merely a contradiction of Mr Ng's version.

64. At paragraph 30, the letter asserts that "there is no question of Mr Li knowing and approving the payment of 73% of the fee earned by ICEA to Ms Au". However this is itself a contradiction, in my judgment, of Mr Li's own answer in his letter of 16 June 2000 to one of the questions posed by the SFC:

"My understanding is that CA(Au) proposed the sharing method and took it to MN(Ng). MN thought it was reasonable from a commercial angle and proposed such for my approval. We agreed to giving out a greater portion of the underwriting commission in exchange for an elimination of the underwriting risk".

Although Mr Pang seemed to think that Meocre Li was referring to what he subsequently found out when payment was being made to Au (or more strictly to a company nominated by her) it can only mean that at the time the sharing method was proposed i.e. 23 June 1999, Meocre Li approved it with Au having the greater portion. The question posed in the SFC's letter of 8 June 2000 was equally clear. It identified the amount of the commission and the split. It asked who approved the sharing method. Meocre Li could only have approved the method at the time that it was put to him. It was approved because there was no commercial risk. That approval had to be given before the deal could proceed. For some reason which is not satisfactorily explained this contradiction was never taken up with Clifford Chance, nor did it feature in any of the later SFC considerations.

65. The most persuasive part, ultimately, of the letter from Clifford Chance lies in paragraphs 43 to 45. The contents seek to impress upon the SFC the high reputation, skill and experience of Mr Meocre Li. He is put forward, as the very model of a modern Chief Executive. The SFC were, in my judgment, very, and overly impressed.

66. A copy of his résumé was sent by the solicitors. It is not in the documents in the bundle. The letter contains self-serving statements of his skill and standing, his membership of the Listing Committee of the Hong Kong Stock Exchange from 1996-1999, and his experience as an expert witness in many investigations including that of the Allied Group and the prosecution of the two Defendants.

67. On 1 June 2001 - two weeks after the representation letter from Clifford Chance - Anna Woo recorded a minute for Alex Pang and Kim Roden. It is a synopsis of the submissions made by Meocre Li himself on the 8 May and by his solicitors in the letter earlier referred to. The statements made by the solicitors as to his reputation etc. find a special section headed "Mitigating factors."

68. For some reason the SFC were impressed by the production of part of Meocre Li's diary showing appointments in the afternoon of 23 June 1999 at his interview. What the SFC describes as "circumstantial evidence and potential witnesses" together with a denial of Ng's version led to the conclusion that "it appears Michael Ng's credibility is more in doubt." I cannot see any rational basis for that conclusion.

69. The proposed action abandoned the threatened public reprimand and instead recommended a warning letter or no further action. A telling sentence continues:

"I have taken into account the mitigating factors..."

i.e. - Meocre Li's reputation and career and the steps taken to improve ICEA's internal control procedures, all set out in Clifford Chance's written submissions and Meocre Li's oral submissions based on his written agenda, respectively. The note concludes that on the basis of disciplinary action being confined to a warning letter there would be no need to consent to the Department of Justice being informed of the position.

70. Mr Kim Roden follows this with a memo or minute of his own. The first paragraph (of MI2.) is not entirely accurate. The SFC's case did not depend entirely on Ng's version of events. Meocre Li's admitted approval of the sharing method and his position as Dealing Director of ICEA were important features. The former admission was indeed supportive of Ng's credibility.

71. In these circumstances it is difficult to see how the submissions by Meocre Li and on his behalf could be said to cast "grave doubt upon the evidence of Mr Ng and his knowledge of the events." A highly tentative attitude is then adopted culminating in a recommendation to close the case as "I do not believe further investigation will take us any further." A warning letter and consent to the Department of Justice being informed of the matter were regarded as unnecessary. There then followed the letter of 5 June 2001 from the SFC to Clifford Chance. It stated:

"The Commission .... is not satisfied the adverse findings in the letter can be made out to the required standard of proof."

That, as will be seen from the following sentence, is a somewhat premature assertion:

"The Commission will not, unless new information is brought to its attention, be proceeding further with its inquiries into your client's conduct."

The first sentence would have been appropriate if the investigation was formally closed and no further action would be taken. In the light of the second sentence, which indicated that the 'file would remain open', the first was unfortunately expressed.

72. After this and still during the month of June, the SFC was involved in "negotiating" with Clarea Au's solicitors the "Terms of Settlement" as they were described, leading to her public reprimand and surrender of her registration. This was finalized in about mid-July when she was deleted from the inquiry list. The SFC then turned its attention back to Michael Ng against whom it had issued a Letter of Mindedness on 4 April 2001, the same day as that to Meocre Li.

73. Simmons and Simmons wrote to the SFC on the 4th May 2001 with submissions on behalf of Michael Ng. They offered to attend a meeting and to answer any questions raised.

74. A meeting in fact took place on 11 July with Michael Ng and his solicitor and the three principal members of the SFC team - Alex Pang, Kim Roden and Anna Woo. It was tape recorded in contrast to that of Meocre Li - Mr Alex Pang had said that he had no power to tape record his so it was not suggested! The written record shows quite clearly that Alex Pang was asking all the questions. Michael Ng had not come with an agenda.

75. The records show a number of interesting features including (at paragraph 13) that Michael Ng was saying that ICEA had had previous dealings with Clarea Au who had been introduced by Stephanie Chan, a Sales Director of ICEA. At paragraph 22, Ng said he would gather additional evidence in respect of Meocre Li's knowledge of his (Ng's) role (It may be that it should be Au's role). There is to say the least, a dubious aspect to the SFC's approach in that meeting. Alex Pang clearly offered Ng a public reprimand based upon an allegation that Ng had abrogated "the responsibilities of a placing agent to Clarea Au" and failed "to properly and closely, monitor Au's activities" resulting "in the dissemination of false information, and the false market that developed in the shares of Kin Don".

76. Then Kim Roden put Ng in an alternative position - if Ng were to provide further information to the SFC which he had offered then it might consider issuing a second Letter of Mindedness setting out the new allegations and new penalty.

77. Mr Pang stressed that a public reprimand was indeed a very lenient penalty although he had earlier said in relation to Meocre Li that such a penalty would be a death-blow.

78. On several occasions in the course of his evidence Alex Pang said that he wanted to finish off the case as soon as possible. With any new information the whole process would have to start again. He could not handle it because he had given in his notice and further investigation would have to be passed back to others.

79. I fail to understand Mr Pang's emphasis upon completing the matter prior to his retirement. He regarded it, he said, as a serious investigation of a serious matter. Yet here he was, with Kim Roden, discouraging Michael Ng from producing further information by indicating it would open up the prospect of further disciplinary inquiry into his position and "a new penalty". I have no doubt that this was a concerted effort by the two members of the SFC team to put an end to the inquiry and discourage Michael Ng from producing any more information which might be relevant to the case against Meocre Li. Subsequent records confirm this to be the case. I also believe that Mr Pang's comment to the effect that Michael Ng was trying to delay the process, had obtained extension after extension, and put forward excuses to delay matters generally, is simply not borne out by the SFC records before me. Mr Pang's attitude towards Michael Ng does lend support to the notion that he formed a view favourable and partial to Meocre Li and adverse to Michael Ng. That attitude and view were irrational.

80. Following that meeting the SFC sent a draft press release containing the public reprimand to Michael Ng's solicitors on 12 July 2001. The next day Simmons & Simmons wrote requesting further information and indicating that Mr Ng would provide "additional information about Mr Li's understanding, based on a previous course of dealings with Ms Au", at a meeting the following week. That meeting does not appear to have taken place but correspondence passed between the SFC and Simmons & Simmons before the latter wrote what I regard as a particularly significant letter to the SFC on 4 September 2001 for Mr Roden's attention.

81. It identified two previous transactions involving Clarea Au and ICEA and stated that Au was introduced to Meocre Li by Stephanie Chan. The dates, nature and company involved in the transactions were identified. This was the greater detail referred to by Michael Ng in paragraphs 13 and 22 of the record of his meeting with the SFC on 11 July 2001. It was set out in two paragraphs.

82. The importance of this information, if correct, is that it unquestionably casts serious doubt on Mr Meocre Li's credibility. He had denied all previous knowledge of Clarea Au at the time of the Kin Don placing. But it went beyond that. Potentially it showed that Meocre Li well knew Clarea Au's position, the type of deal with which she was associated and the commission arrangement. It could destroy any answer he had to the disciplinary measure proposed against him. It constituted, if true, the "new information" to justify proceeding further with inquiries into his conduct, at the very least.

83. In fact what resulted was a tame end to the inquiry evidenced by a minute (M.19) by Mr Roden to Paul Bailey. By this time Alex Pang had left the SFC. It shortly referred to the state of play at that time (13 September 2001). As to the details of Meocre Li's alleged knowledge of and previous dealings with Clarea Au, it acknowledged that if Ng's version were true he had a complete answer to the charges. It continued:

"On the basis of the material (supplied by Ng through Simmons & Simmons), the next step would be to further investigate the matter by interviewing Meocre Li and putting the matters to him, Meocre Li is in my view likely to deny the matters raised by Michael Ng and we are left with the classic difficulty of who to believe."

I have to say that this is an extremely facile approach. The next step was most certainly not to interview Meocre Li. His word had already been accepted in preference to that of Ng. The obvious and proper steps were to interview Stephanie Chan, if possible, Clarea Au, and require production of the records of ICEA in relation to the transactions involving Singapore Hong Kong Properties Investment Limited. To go to Meocre Li first was inviting a simple repeat of the earlier exercise. The note proceeds somewhat lamely:

"The resolution of this question will take some considerable time and given the age of the matter, nearly 2? years, and as the major player Au, has been disciplined, I consider that we should write to Michael Ng informing him that we will not be proceeding further with our disciplinary action into his conduct."

And that is where it ended - A letter, in identical form to that sent to Clifford Chance for Meocre Li on 5 June, was sent to Simmons & Simmons for Michael Ng on 17 September. The SFC did not have the will to take obvious and straightforward steps to resolve what it had itself created - an over simplified issue between Michael Ng and Meocre Li. From its somewhat prejudiced stance against Michael Ng it had retreated.

84. Why had it retreated and lost its will? At some stage prior to the hearing before me and during it, I raised the matter as to whether the SFC regarded its investigation and/or inquiry as closed. I did not consider I had received a conclusive reply because the SFC continued to use section 59 of the Ordinance as the basis for its desire to keep all the material and records in relation to this under a protective screen of secrecy.

85. Section 59(2)(b) of the Securities and Futures Commission Ordinance provides that the Commission may disclose information with a view to the institution of, or otherwise for the purposes of (my underlining) any criminal proceedings or any investigation whether under the relevant ordinances or otherwise. All the information referred to has been disclosed to the Court. It is not therefore subject to section 59(1) if the Court considers its publication essential for an understanding of the issues.

86. The SFC's reply to my inquiry subsequent to the hearing was that the investigation and/or inquiry was closed in October 2001 and has remained closed. No minute subsequent to M. 19 of 13 September 2001 has been disclosed. The Allied Trial in which Mr Meocre Li was to give evidence for the prosecution was due to commence on 29 October though in fact it was delayed until 5 November 2001. Clifford Chance had warned of the trial commencing in the 4th quarter of 2001 in early May 2001. Was the timing of the closure and the antecedent measures on the one hand, and of the commencement of the trial, simply a coincidence?

A case of Special Treatment?

87. It is an odd feature that Mr Meocre Li was able over a period of about 16 months to evade the SFC's requirement to interview him; he had slipped out of it with a rather bland denial of knowledge and a request for waiver of the required interview. This was regarded as an important matter. The section 33 Notice to him made this clear. By the time it was sent (14 January 2000) the SFC had already interviewed Gary Fong and Michael Ng who had complied promptly with the section 33 Notices sent to them. They were interviewed again at the end of May and beginning of June 2000. Again they had complied promptly. Following these interviews a further Notice was sent to Mr Meocre Li, not, as one would have expected, requiring him to attend an interview, but to answer five questions. Those were answered promptly enough but there the matter was allowed to rest.

88. I have not heard from those involved directly in this stage of the investigation nor is there any affidavit from them. Mr Geoffrey Harris, now a senior director of the Investigation Department of the Enforcement Division of the SFC, had some recollection of this stage of the process. He said in his affidavit that the Notice sent to Mr Meocre Li on the 8 June 2000 (which raised five questions) was:

"considered more expedient than requiring him to attend an interview because he had already indicated his resistance to this course of action."

One is tempted to conclude that showing successful resistance to the SFC's requirement for an interview indicates that the section 33 Notice revealed the SFC to be something of a "paper tiger".

89. It is difficult to understand why Mr Meocre Li was not subjected to the same requirements as his two subordinates. As Mr Harris said in evidence:

"My view was that he had shown that he was in breach of his obligations by his replies (those of 16 June 2000). My view was that he deserved some sanction. The case against him was strong."

I have concluded, in the absence of any evidence from the other SFC officers concerned that Mr Meocre Li, adopting an approach that he was too busy and important a Chief Executive to be subjected to an SFC interview, had managed to evade an interview with members of the investigation team who were too easily impressed by his disclaimer of knowledge or simply, too easily put off. Nothing much transpired until 4 April 2001 when the Letters of Mindedness were sent.

90. I am satisfied that, although the SFC was too easily deflected from its course by Mr Meocre Li's rather disdainful approach to its requirement, it was not then dissuaded from pursuing disciplinary inquiry, and that the Letter of Mindedness, late in the day, makes this clear.

91. It remains an odd feature of the investigatory system that despite having evaded an interview from January 2000, shortly after the Letter of Mindedness was sent out in April 2001, he was allowed to have access to statements and exhibits i.e. all the evidence against him.

92. It is what happened thereafter which gives cause for concern. Once the SFC had received the letter from Clifford Chance of 7 May 2001, the SFC, particularly in the form of Mr Alex Pang, was eager to conclude matters as quickly as possible. No answer was sent dealing with the inquiry as to whether the Department of Justice should be informed.

93. In the light of Mr Pang's position and experience, he ought to have sought advice on that letter. He never did. He may well have been keen to conclude the whole matter before he left the SFC but it was in any event the wrong priority since this was a serious matter. The way in which he dealt with that letter has led me inexorably to the conclusion that he intended to conclude matters as soon as possible. Everything that followed supports that view. He knew of Mr Meocre Li's engagement to give expert evidence in an important case. The nature of that case must have been known to Mr Pang. Once it was identified in the letter he must have been aware of its importance. I think he had made up his mind to clear the decks for Meocre Li to meet that commitment. That is why he did nothing about the letter and answering the matter raised. It may well be that he did not appreciate the full implications of a finding adverse to Meocre Li but he ought to have done. He had been an expert witness himself in Insider Dealing inquiries.

94. The way the interview with Mr Meocre Li proceeded and the form it took - Meocre Li's agenda and the SFC record of the interview indicated he held the initiative - and the fact that it was not recorded, all showed that his version of events was being accepted. Mr Pang's emphasis in his evidence on the credibility of the Chief Executive who ought to be able to rely upon his subordinates was telling confirmation that the SFC were prepared to fall in line with his case. He was never seriously put to the test.

95. His solicitors' written submissions were more or less accepted at face value. His career and asserted reputation found their way into the SFC's summary as mitigating factors. One paragraph of that summary says simply, on the basis of arguments in the solicitors' letter:

"It appears Michael Ng's credibility is more in doubt."

The position of Mr Meocre Li as an expert witness at the forthcoming trial was repeated. The original intention of delivering a public reprimand - the 'death-blow' as Mr Alex Pang described it - was abandoned. A warning letter was to be considered instead. The last sentence was:

"In the circumstances we would not need to grant consent to Meocre Li to inform the Department of Justice about the proposed disciplinary action."

The same point was repeated by Mr Kim Roden in his minute (M.12) of 4 June. There is nothing to indicate how, when and why this matter was resolved in this way.

96. The emphasis was now upon Michael Ng. He had been interviewed twice. He had given full corporation, as had Gary Fong. On the basis of one self-serving interview and written submissions by a firm of solicitors the version of the Chief Executive who had evaded an interview subsequent to the requirement of a section 33 notice was preferred to that of his subordinate.

97. When Meocre Li's solicitors were informed of the SFC's change of "mindedness" they were informed that the inquiries into their client's conduct would not proceed further unless "new information" was brought to its attention. The SFC now turned its guns on Michael Ng. When he and his solicitors provided new information, which if accurate, was extremely important evidence against Mr Meocre Li, not only did they seek to put Michael Ng in a somewhat prejudicial position, but they decided not to investigate the information. They shied away from this. They also decided not to proceed against Michael Ng. At least that was a fair and rational decision on the face of it. Alex Pang wanted the inquiry closed. He had succeeded.

98. In relation to the decision to withhold consent to the Department of Justice being informed of the inquiry into Meocre Li, I have concluded that this was a high-handed act. Alex Pang ought to have sought advice at the very least. Furthermore that request for advice should have been accompanied by some explanation to the effect that any finding adverse to Meocre Li would affect Li's professional reputation. It was wrong to ignore Clifford Chance's inquiry. It was far too important for that.

99. After that letter was received, and after the interview with Meocre Li, the inquiry was accelerated, particularly in respect of him. His story was "swallowed" without objective assessment. Subsequent events confirm this to be the case. The decision in relation to him was, I believe, motivated by a desire to give him a clean bill of health. Whilst I accept that Mr Alex Pang was eager to complete the inquiry before he left the SFC this played only a minor part in the decision making process. He adopted a partisan approach favouring Meocre Li's position and the manner in which he gave evidence lent support to this. He said he was concerned that the whole investigation had lasted too long. But sixteen months of that time had elapsed without any interview of Meocre Li. All the SFC had was one letter answering five questions, and the full significance of one answer had been overlooked by Mr Alex Pang. It led to at least a superficial view of the case against ICEA's Chief Executive.

100. There was I believe more to it than that. I do not think that Mr Pang set out deliberately to prejudice the Defendants in the trial by concealing matters which could call Mr Meocre Li's reputation and expertise into question. There was no "mala fides" in that way. There was no such deliberate unfairness. But he was influenced by Mr Meocre Li's reputation, his role as an expert witness and the proximity of the trial at which he was to appear as an expert witness, so as to abandon a disciplinary inquiry, which might if continued to its proper conclusion affect his reputation and the important role he had. The effect was to contrive a false picture, and to conceal what were material matters. A distortion was created.

101. I have no doubt that he accorded Meocre Li deliberately favourable treatment because of his reputation and career, as set out by Clifford Chance, and that included the fact that he was an expert witness due to give evidence in an important trial which would start within a few months time. The haste was unseemly. There was an attempt to secure a 'scalp', that of Michael Ng, but that had to be abandoned. I have no doubt that the SFC sought to act unfairly against Michael Ng in its desire to give Meocre Li special treatment. No one will know what would have been the ultimate proper decision in respect of Mr Meocre Li because the new information was not then acted upon, has not been acted upon since, and, on the basis of information most recently before me, never will be acted upon. It may not of course exist now.

The SFC, the Prosecution, and disclosure

102. The Securities and Futures Commission were at the heart of the broad investigation into the activities of the Allied Group of Companies. As stated earlier in this judgment they were instrumental in the appointment of the Inspector and played an integral role in the steering group. They are one of the entities alleged to have been misled. Evidence from employees or officers in support of this was given at the trial.

103. Mr Adrian Bell, on behalf of the SFC, has argued that the SFC is not part of the prosecution. He relies on the SFC's position as a statutory body independent of government. I do not consider that that fact simpliciter puts it outside the ambit of the prosecution in this case. Apart from being an independent regulatory body it has power to interview and require disclosure of documents as we have seen, and in appropriate cases to prosecute in the courts.

104. It makes no difference, in my view, that the decision-makers in relation to the ICEA/Kin Don inquiry, did not sit in on the Steering Group meetings in 1992-93. The point is that the SFC, as a body, was instrumental in both aspects however varied or disparate its representatives may have been.

105. Equally the fact that the Department of Justice (then the Attorney-General's Chambers) became the prosecuting agency as a department of the Special Administrative Region does not change the SFC's position. It is equally conclusive that the SFC was the potential initiator of criminal proceedings in setting out the terms of reference for the Inspector.

106. Mr Jonathan Caplan relies in general upon the statement set out at section A-249, of the 3rd supplement to the current (2002) edition of Archbold's Criminal Pleading and Practice:

"What is reasonable will vary from case to case, prosecutors should inform the department or other body of the nature of its case and of relevant issues in the case in respect of which the department or body might possess material, and ask whether it has such material."

Although this is but a general statement it comes closer to outlining the duty and alerting prosecuting agencies than the more general statement upon which Mr Nigel Aiken SC for the Department of Justice, relies which is paragraph 22 of section A-247:

"Prosecution advocates should use their best endeavours to ensure that all material that ought properly to be made available is either presented by the prosecution or disclosed to the Defence. However the prosecution cannot be expected to disclose material if they are not aware of its existence. As far as is possible, prosecution advocates must place themselves in a fully informed position to enable them to make decisions on disclosure."

I will come to the question of disclosure shortly but it is important to distinguish between the role of the advocate and that of those instructing him. The former can advise and should do so, in respect of all material available. He should inquire as to whether other departments or agencies have been asked to supply information and complete documentation. He cannot discharge his duty unless he has. In relation to expert witnesses, and any other witnesses he should ask if the prosecuting authority is satisfied that all information which might affect a witness' credibility has been sought. He must also ask whether an expert's standing has been affected by any event. No assumptions should be made. In this case it would be very surprising if the SFC had not been made aware, in the course of the preparation of the prosecution case, of the identity of the expert witness. Such an expert might well need access to documents held by the SFC.

107. If the Department of Justice was able to say that the burden of disclosure was limited solely to what had been supplied to it and that it had asked all complainants and interested bodies if they had disclosed everything, it would in my view make a nonsense.

108. In R v. Maguire 1992, Cr. App. Reports 133 the English Court of Appeal held that there was no cause to distinguish between a prosecuting authority and forensic scientists providing advice to that authority; the scientist was under a duty to disclose material which he knew might have some bearing on the offence charged and the surrounding circumstances of the case. At first sight that might appear to be a narrow range of persons upon whom such duty lay but it clearly, by analogy, applies to any expert upon whom a prosecuting authority relies for both advice and expert testimony.

109. Without going into details as to the grounds of appeal relating to non-disclosure in that case, it is in general terms helpful to consider briefly the approach of the court to the problem. Neither prosecuting counsel nor those instructing them at trial knew of the test and experiments carried out by the scientists. Stuart-Smith, LJ referred to a number of decisions of the Divisional Court exercising its supervisory jurisdiction.

110. In R v. Knightsbridge Crown Court ex parte Goonatilleke - 1986, QB 1, a store detective had concealed the real reason for his leaving the metropolitan police force and a conviction. The court took the view that his fraud and perjury, if known to the lower court, would have more likely resulted in an acquittal of the applicant.

111. Watkins LJ accepted that the store detective's role was to be equated with that of prosecutor. He presented the applicant to be prosecuted. Similarly with the SFC, it presented a case against the defendants in the form of the investigation it had conducted, the request for the appointment of the inspector, the drafting of the terms of reference and its involvement in the steering group. He went on to say:

"I see no essential difference ... between [the store detective's] conduct and the knowing failure of the prosecution in professional hands to provide the defence with evidence of a previous conviction of a witness."

The facts of that case were much simpler than the ones I have to consider but the principle involved is not one jot different.

112. It is also of some interest to see Watkins LJ's expression of his view of what conclusion the court would have come to had it known of the witness' past:

" ... Had the courts below known the truth about [his] past it is more than likely that they would have acquitted the applicant. Anyway, the applicant lost a real chance of acquittal by [his] perjury."

Although there is an element of speculation in that, it is a perfectly proper judicial consideration or assessment and at a later stage I shall need to deal with Mr Aiken's argument about a similar kind of judicial speculation in relation to this case.

113. A further topic to note in passing is Watkins LJ's acceptance of the argument, albeit in the circumstances of that case, that a matter going to the credit of a witness in a criminal case cannot be said to be collateral to the vital issue that is, to say guilt or otherwise. The store detective's evidence was indispensable to the prosecution and his credit was therefore of the highest importance. I shall have to consider this in relation to the evidence of Mr Meocre Li.

114. Reverting to Maguire's case the words of Glidewell LJ in R v. Liverpool Crown Court, ex parte Roberts 1990 2 All ER 622 were cited in support of an argument that if a conviction is flawed for non-disclosure by a person who is neither the actual prosecutor nor prosecuting counsel or his solicitor then a court should hold that that such a person is under a duty of disclosure.

"In those circumstances (where a police officer knowingly omits information from his police statement) while the prosecuting authority as such may not have failed in their duty, the total apparatus of the prosecution has failed to carry out its duty to bring before the court all the material evidence."

In R v. Blackledge & others 1992 1 Cr. App. R. 326 the Court of Appeal (Taylor LCJ and Macpherson of Cluny J) held "that documents in the possession of one or other of the Government Departments involved in the inter-departmental consideration of licences are to be regarded for the purposes of this case as in the possession of the Crown as an indivisible entity." Although reference was made to "the purposes of the instant case" and government departments the implications of the decision are wider. It was held that despite the pleas of guilty entered, on the face of them unequivocal, the non-disclosure of documents prevented defendants from making properly informed decisions about their defence. The non-disclosure constituted a material irregularity.

115. The fact that the Securities and Futures Commission is an independent statutory body and not a government department makes not the slightest difference to the duty on it. In view of the Chief Executive's power of appointment in section 5 of the Ordinance this apparent independence may be illusory. Its functions include advising and reporting to the Financial Secretary, suppressing illegal, dishonourable and improper practices in dealing in securities etc., and promoting and maintaining the integrity of registered persons (see section 4 of the Securities and Futures Commission Ordinance, Cap. 24).

116. I need not repeat the SFC's involvement in the Allied Group investigation from an early stage. It is not suggested that it would not have a duty to disclose all material obtained by it during the course of its investigation, or which came into its hands subsequently. How then can information concerning the integrity of a registered person who is known to it to be an expert witness in the trial which has resulted from the investigation initiated by it, be regarded as any different from other material? If the promotion and the maintenance of the integrity of such persons (registered dealers) is such a vital function in its own operation, then it must be recognized as of vital importance in the operation of a system of justice. As I have found, there was a recognition of the importance of the role of Mr Meocre Li in the decision to halt the inquiry into him. The SFC was inextricably bound up with the prosecution process. It was part of the "total apparatus of the prosecution" and of the prosecution as an "indivisible entity". To hold otherwise would in my view give a licence for evading a fundamental duty. It is itself a prosecutorial authority. It must know of its duty to disclose.

117. The duty of disclosure has developed logically and often as a consequence of what are commonly termed "miscarriages of justice". It is therefore essentially a common law development aided by guidelines. The law in Hong Kong has developed in accordance with that in England. As I had cause to consider in an earlier application in respect of costs, section 9(3) of the Criminal Procedure Ordinance:

"the practice and procedure in all criminal cases and matters shall be, as nearly as possible, the same as the practice and procedure from time to time and for the time being in force for similar cases in England."

In relation to disclosure there is no reason for Hong Kong to adopt an approach which varies in any way from that adopted in England. The fundamentals of the common law system are common to both jurisdictions. A very general statement of principles of disclosure to be followed by the Department of Justice is set out in Appendix IV - Guidance for Government Counsel 1998 (paragraphs 35-42). I think that Guidance is in fact far too narrow. Whilst the Criminal Procedure and Investigations Act 1996 does not apply to Hong Kong strictly speaking, the procedure contained therein or developed therefrom falls within the ambit of section 9(3) referred to above. The prosecution role is not a passive one. It should actively inquire, as it does or ought to do, in relation to the convictions of witnesses. It should for example inquire of the SFC if the latter had provide all the documentation in relation to its investigation of the Allied Group. That would not relieve the SFC of its obligation, of its own motion, and on a continuing basis to disclose such material.

118. Expert witnesses call for special consideration. The very nature of the basis upon which their evidence and opinion are advanced illustrates the importance of this duty. The need to call such evidence indicates that it is pivotal to the prosecution case in at least one major respect. It cannot be said to be other than material. It follows that it is material as far as the Defence is concerned. The prosecution may not know the extent of that materiality.

119. In Rockefeller & Co Inc. v. Secretary of Justice 2000 3 HKC 48, Godfrey VP, said (at page 58):

"The public policy in favour of all 'unused material' in the possession of the prosecution in a criminal trial being made available for use by the defence outweighs the public policy in favour of preserving the confidentiality in relation to documents to which legal professional privilege would attach."

120. Reference was made by Godfrey VP to the speech of Lord Hope in Taylor v. Serious Fraud Office 1999 2 AC 177 (at page 217-218).

121. Having reviewed shortly the recent origin of the development of the common law disclosure rules from the 1982 Practice Note (Criminal Evidence: Unused Material) (The Attorney-General's Guidelines) through to the Court of Appeal decisions in R v. Maguire, R v Ward (Judith) 1993 1 WLR 619, and R v. Davis 1993 1 WLR 613, Lord Hope went on:

"In my opinion it is necessary here, as in so many matters affecting the criminal law to balance the public interest in the administration of justice against the interests of the individual. The history of the evolution of the disclosure rules shows that the balance has swung a long way towards the interests of the individual who is being prosecuted. This is in recognition of the fact that the defendant in criminal proceedings has the right to insist on a fair trial. Fairness to the defendant demands the widest possible disclosure. In practice to avoid the risk of unfairness and because the prosecutor does not have the time or resources to edit out every item which need not be disclosed, disclosure under the modern rules tends to provide the defence with more material than is strictly necessary.

But the administration of justice is not all about fairness to the defendant. It is also about the interests of those individuals who may be affected by dissemination of the material. There is a public interest also, in the detection and punishment of crime. If that interest is put at risk because of the consequences of the disclosure rules, the balance between the public interest and the interests of the individual is disturbed. It needs to be adjusted in favour of the public interest. This cannot be done by reducing the scope of the disclosure rules. That would prejudice the right of the defendant to a fair trial, which is always paramount."

It may well be that in Hong Kong we are not truly aware of the special obligation with regard to expert witnesses, and many of them are not, of the duty upon them. An expert whose reputation may be called into question by reason of some action or involvement on his part is under an obligation to disclose it. It is not for him to make some subjective judgment as to its relevance. Nor indeed is it for the prosecuting authority, once it is aware of it, to make a similar judgment . It may not be in a position to assess the importance of the information to the defence. Its duty is to disclose it. A prosecutor must be alert to any possible diminution in the status of its expert witnesses. In some cases, such as involve forensic scientists, they are truly dependent upon what such experts reveal to them. That is why the courts have extended the prosecution to include them as part of the "total apparatus of the prosecution" or as part of "an indivisible entity."

122. Chartered accountants in practice are subject to the discipline of their professional body. Chartered Accountants who hold themselves out as expert witnesses, must be taken to know of their obligations in that regard. If, for some reasons, they have been discredited as such, then they should not hold themselves out. That is usually a state of affairs that becomes common knowledge to the legal profession. Similarly if an accountant has been disciplined by his profession he is under an obligation to reveal this to those seeking to instructing him as an expert witness.

123. Mr Meocre Li had ceased to be a Chartered Accountant in private practice. He had been a businessman since in or about 1995. The Department of Justice knew this. They also knew the nature of his business involvement. That was concerned with the running of companies at a high level. The Department was therefore relying on a level of expertise as a professional accountant which pre-existed the commencement of the trial by over five years. Corporate activity in Hong Kong as elsewhere is not regulated by the same professional restraints as a true profession. That is one of the reasons why regulatory bodies exist to protect the public and commercial integrity. In my judgment it was incumbent upon the Department of Justice to inquire of him, as an expert witness, whether there was any matter which questioned his status or integrity and thereby could render his expertise or reputation subject to cross-examination and thereby impugn it. That inquiry should extend to the SFC in respect of any of its officers likely to give evidence or any other person of whom it had knowledge.

124. The Department of Justice acknowledges that had it known of the Guangdong Kelon matter that it would have disclosed it to the defence. Mr Meocre Li took the view that there was no obligation upon him to disclose it. He was quite wrong. I anticipate that the Department of Justice would have disclosed the fact that Mr Meocre Li's integrity and conduct were under scrutiny by the SFC at a time leading up to the start of the trial and had been for over eighteen months, had they known of it. They certainly ought to have done.

125. Mr Meocre Li should have disclosed this of his own volition. His solicitors had certainly taken the view that by reason of his position as an expert witness, the fact of the inquiry should be disclosed to the Department - their phrase, "at the very least," showed they had the important considerations in mind. We do not know what they advised Mr Meocre Li when the SFC informed them a month later that unless new information came to light it would not proceed further with its inquiries. However, what the SFC letter did not do was relieve Mr Meocre Li of his own professional obligations. He was not relieved of them by section 59. It is my view, that this section does not inhibit him from disclosing to the Department of Justice that his integrity was under the scrutiny of the SFC in respect of a substantial share placement.

126. It is not necessary to recapitulate the position of the SFC. It should immediately have sought in-house legal advice if that was needed. To a qualified accountant (Mr Alex Pang) and a lawyer (Mr Kim Roden) I think it ought to have been obvious that the timescale alone required the Department of Justice to be informed. In short it was an obvious case for disclosure but of course the thinking, such as it was, was distorted by the process which gave the favourable treatment to Meocre Li, terminated the inquiry and dismissed any notion of allowing the Department of Justice to be informed.

127. Meocre Li, as an essential part of the prosecution case and enjoying the privileged status of an expert, was professionally obliged to disclose any matter which could have a bearing on his reputation and expertise. It was not for him to judge his position in relation to any inquiry. I have to proceed on the basis that it was his own conscious decision not to reveal it. There is not the slightest mention of it in his statement following the termination of the trial, not even to suggest that there was any other matter in which his position had been scrutinized, which he had not revealed because his lawyers had advised him it was not necessary. I would not be prepared to contemplate the possibility of his having received such advice in the light of the well-expressed concern in Clifford Chance's letter of 7 May 2001. That is the only document which in my view carries the implicit if not explicit recognition of the duty of an expert witness. The position of Meocre Li is not changed by the fact that he was told, through his solicitors, that "unless new information is brought to its attention" the SFC would not be proceeding with its inquiries into his conduct. It was not an end to the matter, as expressed, whatever the SFC may maintain to the contrary. It was certainly not an acceptance of his version of events whatever Mr Pang thought or however he acted. He could not claim to have been cleared. What effect has this distortion of the criminal process had on the events so far?

The effect of non-disclosure

128. In his affidavit in response to my inquiry of the Department of Justice as to the reasons for the prosecution dispensing with Mr Meocre Li's services in the period between the termination of the original trial and the date fixed for the re-trial, Mr John Reading SC for the Department of Justice was sworn to an affidavit on the 25 November 2002.

129. It is apparent that until the information concerning the Kin Don inquiry emerged the prosecution intended to rely upon Mr Meocre Li as an expert witness for the re-trial. Mr Reading was, he said, re-assured by the contents of Mr Li's statement though I am unclear in what respect. Mr Li's statement certainly underlined a failure on his part to comprehend the essentials of an expert witness. I would not have been reassured by any of its contents.

130. On or about the 7 May, Mr Reading acquainted himself with certain material in the possession of the SFC concerning the Kin Don inquiry. Mr Reading did not consider that "the SFC investigation affected Mr Li's status as an expert". What apparently determined his approach was the view that I "had expressed about Meocre Li's status in regard to the Kelon matter." He considered it important that Mr Meocre Li's status did not become an issue in the forthcoming trial. Accordingly because the re-trial was not due to start until the 4 November he decided to engage the services of another expert. I do not propose to comment upon the prosecution's decision because that is a matter entirely for it to decide. The implications of that approach make it easier to predict a certain course for the events of November 2001 to March 2002 if the Kin Don matter had been disclosed before trial.

131. If the prosecution had obtained the information about the Kin Don inquiry I have assumed, rightly I hope, that it would have disclosed it. On the basis of Mr Reading's consideration they would have retained Mr Meocre Li for the original trial. The defence would then have had the opportunity of using the material to explore certain avenues of commercial activity with Mr Li, and the propriety of his conduct. I have no doubt that they would have availed themselves of that chance. During the course of the trial, the Guangdong Kelon matter emerged. The prosecution have stated unequivocally that they would have disclosed that material. It constituted a second area of commercial activity to be explored by the Defence with Mr Meocre Li. Here was a businessman with considerable experience as a practising Chartered Accountant, giving evidence, as an expert witness, of certain share dealings (to use a general term) and the accountancy implications of those. The jury may well have been singularly unimpressed by such evidence and, seen in the overall picture of a large well-known firm of accountants whose own shortcomings in relation to the accounts which they audited, and of some of a number of businessmen involved in one or more aspects of share placings and subscriptions whose dealings were less than transparent, this may well have led them to acquit the Defendants. At least a substantial aspect of the commercial world of 1990-1993 if portrayed to them would not appear to have been a pretty picture.

132. I now need to consider the position on the basis that neither matter - the Guangdong Kelon or the Kin Don placements - had emerged before the end of Mr Meocre Li's evidence. The Guangdong Kelon matter had emerged late enough. Had it emerged even later, i.e. whilst the jury were considering their verdicts, I would still have discharged them. If I had entertained any doubts as to the correctness of the decision which I did make - and I have entertained none since - the emergence of the Kin Don matter would immediately have dissipated them.

133. But what if they had not emerged before the jury returned their verdicts and those verdicts had been ones of guilty? Mr Aiken suggests I should not speculate but did not venture to explain why. Courts are frequently hearing arguments the basis of which is a decision which would not have been made had the full picture of a particular witness been made known or material evidence revealed. It is not possible to evaluate fully and fairly the force of an argument without factoring into it the possible outcome on the premise of the argument being a valid one. If a jury had convicted either defendant on the strength of - or possibly on the strength of - a purported expert witness, whose claimed expertise may have been diluted by the fact that he was no longer a professional but a businessman who had left his profession behind, and whose own business activities may be seen to have fallen foul of regulatory bodies, I have no doubt that a court exercising common law principles would have set the convictions aside. Whether they would have ordered a re-trial is perhaps a matter of speculation since it would necessarily involve the consideration of the complete history.

134. What is incontrovertible is that a trial which had lasted 76 days spread out over 4 1/2 months had been brought to an abrupt end when all but the jury's verdicts were known. In it the defence of two men accused of fraudulent activity in relation to a number of companies, had been advanced, without it being seen in the context of flawed expert evidence from a prosecution witness, whose own commercial activities may have lent support to the defence case and whose expertise may have been rejected by a discerning jury. If the jury were at all interested in commercial ethical principles they might well have been asking themselves, as the ancients did, "quis custodet custodes"? Would it be an abuse of process for the defendants to be subjected to another trial?

The abuse of process - the perennial dilemma

135. The approach of the courts has consistently been, for some time now, that the power to stop a prosecution should be used only "in the most exceptional circumstances" (see Ld Dilhorne in DPP v. Humphreys (1976) 63 Cr. App. R. at p. 107). It arises only where there is an abuse of the process of the court (see Connelly v. DPP 1964 AC 1254 at 1354). The Divisional Court in R v. Derby Crown Court ex parte Brooks 1985. 80 Cr. App. R. 164 (Ormrod LJ) went on to define the categories of abuse of process as either

"(a) the prosecution have manipulated or misused the process of the court so as to deprive the defendant of a protection provided by the law or to take unfair advantage of a technicality, or

(b) on the balance of probability the defendant has been, or will be, prejudiced in the preparation or conduct of his defence by delay on the part of the prosecution which is injustifiable.

The ultimate object of the discretionary power is to ensure a fair trial according to law. This involves fairness to the defendant and the prosecution.

136. In Jago v. District Court of New South Wales (1989) 168 CLR 23 (at page 30) Mason CJ formulated the issue as follows:

"The question is ... whether the court whose function is to dispense justice with impartiality and fairness to both parties and to the community which it serves, should permit its processes to be employed in a manner which gives rise to unfairness."

It is the second line of cases involving a stay on the basis of abuse of process which calls for consideration in this case before me. In fact it is the first category adopted by Ormrod LJ in the Derby Crown Court decision.

137. This was developed by Lord Griffiths in his speech in R v. Horseferry Road Magistrates Court ex parte Bennett 1994 AC 42. The case itself was concerned with the forcible return of a defendant in disregard of available extradition process and in breach of international law and the laws of the state where the Defendant had been found:

"Your Lordships are now invited to extend the concept of abuse of process a stage further. In the present case there is no suggestion that the appellant cannot have a fair trial ... If the court is to have the power to interfere with the prosecution in the present circumstances it must be because the judiciary accepts a responsibility for the maintenance of the rule of law that embraces a willingness to oversee executive action and to refuse to countenance behaviour that threatens either basic human rights or the rule of law."

This was a hark-back to Lord Devlin's speech in Connelly's case (at page 1354):

"Are the courts to rely on the Executive (in the form of the Crown as prosecutor) to protect their process from abuse? Have they not themselves an inescapable duty to secure fair treatment for those who come or are brought before them? To questions of this sort there is only one possible answer. The courts cannot contemplate for a moment the transference to the Executive of the responsibility for seeing that the process of law is not abused."

Lord Griffiths continued:

"I have no doubt that the judiciary should accept this responsibility in the field of criminal law ... if it comes to the attention of the court that there has been a serious abuse of power it should, in my view, express its disapproval by refusing to act upon it.

and later:

"The courts have no power to apply direct discipline to the police or the prosecuting authorities, but they can refuse to allow them to take advantage of abuse of power by regarding their behaviour as an abuse of process and thus preventing a prosecution."

Lord Lowry followed the same line of approach:

"Whether the proposed trial will be an unfair trial is not the only test of abuse of process.

" ... I consider that a court has a discretion to stay any criminal proceedings on the ground that to try those proceedings will amount to an abuse of its own process either

(1) because it will be impossible (usually by reason of delay) to give the accused a fair trial or

(2) because it offends the court's sense of justice and propriety to be asked to try the accused in the circumstances of a particular case. I agree that prima facie it is the duty of a court to try a person who is charged before it with an offence which the court has power to try and therefore that the jurisdiction to stay must be exercised carefully and sparingly and only for very compelling reasons. The discretion to stay is not a disciplinary jurisdiction and, ought not to be exercised in order to express the courts disapproval of official conduct."

The House of Lords in R v. Latif 1996 1 WLR 104 sets out the legal framework in which the issue of abuse of process had to be considered. There was a weakness of the extreme positions in which, if the court always refused to stay such proceedings, the public perception would be that a "court condones criminal conduct and malpractice by law enforcement agencies" - and if it always stayed such proceedings it would "incur the reproach that it is failing to protect the public from serious crime".

138. The court's discretion involves a balancing exercise. In Latif it was plain that a fair trial was possible. The question was whether the trial ought to have been stayed "on broader considerations of the integrity of the criminal justice system."

139. Lord Steyn, relying upon the speeches in R v. Horseferry Road Magistrates Court said:

"[They] conclusively establish that proceedings may be stayed in the exercise of the judge's discretion not only where a fair trial is impossible but also where it would be contrary to the public interest in the integrity of the criminal justice system that a trial should take place. An infinite variety of cases could arise. General guidance as to how the discretion should be exercised in particular circumstances will not be useful. But it is possible to say that in a case such as the present the judge must weigh in the balance the public interest in ensuring that those that are charged with grave crimes should be tried, and the competing public interest in not conveying the impression that the court will accept the approach that the end justifies the means."

Latif's case was concerned with importation of 20 kgs of heroin into England from the USA. The basis of the abuse of process argument was that the defendant had been incited by an informer and customs officers, by subterfuge, to commit the offence and had been lured into the jurisdiction of the English courts. It had been dismissed by the trial judge and the Court of Appeal and House of Lords both dismissed the subsequent appeals.

140. I am mindful of the words of Ribeiro, PJ in HKSAR v. Lee Ming Tee & Anor (at page 640F) that "corporate fraud is today a matter of major concern." Those words were of course stated in the context of the strong regulatory provisions which permit investigation by an Inspector of a company's affairs and the court's sanction of the use of derivative evidence. I have had the opportunity of considering all the evidence in this case. On the face of it it discloses major corporate fraud. Those considerations seem to me to be fully reflected in Lord Steyn's exposition of the "perennial dilemma."

141. The House of Lords maintained their approach in their decision in R v. Martin 1998 1 All ER 193. The complaint in that case resolved itself into a preference for trial by judge and jury over trial by court martial. The trial for murder had been by way of the latter process. No issue arose as to oppression, irregularity or impropriety. There existed the statutory power to proceed against the defendant, the civilian son of a soldier serving in Germany, by way of court martial. It was held that no abuse was involved in the choice or the proceedings themselves.

142. The decision is important for the consistency of approach and range of terminology adopted to describe the abuse which would justify a stay of proceedings:

"No single formulation will readily cover all cases, but these must be something so gravely wrong as to make it unconscionable that a trial should go forward, such as some fundamental disregard for basic human right or some gross neglect of the elementary principles of fairness" (Lord Clyde at page 216 d.)

Lord Clyde also adopted what Lord Hope had said in R v. Hui Chi-ming (1992) 1 AC 34 (at page 57B) on the subject of abuse of process:

... "Something so unfair and wrong that the court should not allow a prosecutor to proceed with what is in all respects a regular proceeding."

Lord Clyde added:

"An abuse may occur through the actings of the prosecution, as by misusing or manipulating the process of the court. But it may also occur independently of any acts or omissions of the prosecution in the conduct of the trial itself." (p. 215 j.)

143. It is against this evolved statement of broad principle that the prosecution's failures and shortcomings with regard to disclosure must be seen and tested. Those for close consideration are best summed up by such expressions as "so gravely wrong", "gross neglect of the elementary principles of fairness", "so unfair and wrong", "misusing or manipulating the process of the court". If those failures can properly be so categorized, are they such as to make it unconscionable that a re-trial should go forward?

The consequences

144. In effect the Defendants had undergone a full trial, albeit without a jury verdict, lasting some four and a half months. That outcome, unsatisfactory to say the least had been brought about by one matter of non-disclosure but it was in relation to a crucial expert witness. In my judgment the jury would not have understood this case without the presentation of that witness' evidence.

145. I do not doubt that the strain of such a long trial imposes its own burden upon the defendants and indeed upon those lawyers representing them. That strain must already have been at an appreciable level, in view of the fact that that trial was taking place a decade after the events with which it was concerned. That is a simple statement of fact. The Court of Final Appeal has already considered the matter of delay in its own discrete context.

146. I have no doubt that the withholding of both matters concerning Mr Meocre Li was a misuse or manipulation of the process of the court. Had they been revealed the Defendants would have advanced their defence in the context of that material. I have to say, without any prejudgement of Mr Meocre Li's responsibility in respect of either matter, that the defendants can only have benefited from the material being made available to them. I cannot envisage a situation in which full disclosure and an examination of Mr Meocre Li, his action or inaction, could have prejudiced them or constituted a risk.

147. The fact that the SFC so determined (to all intents and purposes) an inquiry into Mr Meocre Li's commercial integrity in order to facilitate his commitment to give evidence as an expert is malpractice. As I indicated earlier it was not deliberately done to distort events but it was done consciously to remove any impediment to his existing professional commitment. It must have been obvious however that Mr Meocre Li would have gone forward on a platform that was contrived. Therefore, even though it fell short of actual 'mala fides' it so skewed events as to produce a trial which was as flawed as the expert who failed to reveal matters concerning his commercial integrity. I reject Mr Aiken's suggestion that what happened at the trial was only of marginal relevance.

148. In terminating the original trial I had regard to the integrity of the trial process, to the trial as a self-contained unit. These matters of non-disclosure are concerned with the integrity of the criminal justice system. If a prosecution were to be allowed to proceed it would accord the prosecution a second opportunity to present a case based substantially on expert evidence but from another source. It would, in effect, be an approval, or at the very least an acceptance of an argument which some might say pays scant regard to the right of a defendant to a fair trial. In essence the argument for the prosecution is "we can get it right this time." The original trial which I terminated was palpably not a fair trial. I have not heard argument to the contrary despite the original suggestions as to how I might try and get around the difficulties which had arisen then as a consequence of the first aspect of non-disclosure.

149. Mr Aiken has argued that a costs order to cover the original trial is sufficient to compensate the Defendants for that experience. That is to ignore the other features to which I have referred. If fundamental failures in the criminal justice system could simply be compensated for by costs orders, the jurisprudential development in abuse of process cases would be entirely valueless. Strain, stress, unfairness, malpractice would all be evaluated in money terms without regard to the integrity of the system. The courts have not adopted this somewhat cynical line but taken a principled approach -- it expresses "its disapproval by refusing to act upon it" or by "preventing a prosecution". (Lord Griffiths see paragraph 137).

150. The argument on behalf of the prosecution that the Defendant can still have a fair trial (or trials since the second Defendant is currently unable to stand trial with the first Defendant) is not relevant in the context of this application which is based on the second line of abuse of process. However I will deal with it. It is true that a re-trial with a new expert can be a fair trial within itself i.e. as a self-contained unit, shorn of all that has gone before. I have not overlooked that overshadowing that argument have been persistent attempts by the prosecution to obtain what it hoped would be favourable evidence from dubious witnesses who may have been prepared to make statements favouring the prosecution case from the comfort of their foreign abode, assured of an immunity if they were ever to set foot in Hong Kong, and free from the scrutiny of a quizzical jury. That has not entered the scales of my deliberations but it has served to raise doubts as to whether the prosecution's notion of a fair trial accords with my own. Mr Aiken has also suggested that the defendant can cross-examine Mr Meocre Li at the re-trial. I confess I cannot comprehend how this, even if it were feasible, could correct anything.

151. The Defence invited me to have regard to certain findings of the Court of Final Appeal regarding misconduct of an employee of the SFC, and other conduct which that court found "regrettable". (HKSAR v. Lee Ming Tee & Anor p. 645H - p. 646A) Although those may be seen in a broader overall picture of failures involving unfairness and misrepresentation I do not think it correct to adopt those matters in my consideration at this stage. If appropriate that court may revisit such matters which were ventilated fully before it.

152. Similarly I have not reviewed the matter of delay although it will have escaped no-one's attention that two and a half years have elapsed since Pang J's decision and two years will have elapsed since the Court of Final Appeal's decision, before a re-trial could commence. That would mean twelve years had elapsed since the first alleged criminal activity. It has not however played any part in the basis of my decision.

153. Mr Aiken has urged the fact that the prosecution has a strong case. That may well be so - and no doubt it is logically stronger in the hands of a new expert - but that is not a relevant consideration. Had it been relevant I would have wanted to know how that assessment was reached if the prosecution had thought it necessary to persist in applications for Letters of Request.

154. It is not the strength of case which is relevant but the interests of the public in having crimes prosecuted - efficiently, promptly, fairly and within an accepted framework of principle.

155. Mr Aiken contended that for the application to succeed it was necessary for the defence to show that the prosecution had acted in bad faith or fraudulently. I do not agree. His argument is based on a misunderstanding or misreading of a paragraph on p. 333 of the judgment of the court in Bou-Simon v. Attorney-General (CTH) 113 A. Crim. R. 320. Similarly his reliance upon part of Lord Woolf's judgment in R v. Togher & Others 2001 3 All ER 463 (paragraphs 63-65 at page 477) is misplaced. There are categories of misconduct. The failures in relation to disclosure constituted misconduct or malpractice. I have already dealt with their effect.

156. Mr Aiken is correct in stating that on the authorities the jurisdiction to stay proceedings is not to be exercised as a disciplinary one "in order to express the court's disapproval of official conduct.' (see R v. Horseferry Road Magistrates Court ex parte Bennett, Lord Lowry at p. 74-75). Lord Lowry's prime statement in relation to the second line of cases, had been the context for this - "to try those proceedings will amount to an abuse of its own process ... because it offends the court's sense of justice and propriety to be asked to try the accused in the circumstances of a particular case." (p. 74-G).

The resolution

157. When considering the essential factors before terminating the original trial, now nine months ago, I expressed reservations about the extent of the relevance of the likely cross-examination of the expert witness, had the matters of Guangdong Kelon's activities been disclosed in time, in the light of the unchallenged evidence. But as I said then, I was driven back to the question - was the present state of affairs a fair one? I have no doubt that the question I posed for myself was not an appropriate one. It implied a somewhat presumptuous notion that I had a total view of the defence available. In the light of subsequent developments, with which I have had to deal in some detail, it seems to me clear that the material was extremely relevant to the defence, the more so if there could not be any challenge to the strict accounting evidence.

158. The perception of unfairness resulting from the non-disclosure is one that I do not doubt a defendant, whether guilty or innocent, would have. Such a perception is reinforced by the chance circumstances which eventually revealed the material. It is my view that the public, with knowledge and understanding of all that is involved, would hold the same perception.

159. It may well be that implicit in my findings hitherto, is criticism of those involved in the prosecution, in the comprehensive, embracing sense of that term - the "indivisible entity" - and a desire that the malpractice and distortion of the process should not be repeated. That desire may not be achieved unless greater rigour and discipline is applied.

160. That however is not the rationale of my decision. I find, with respect, the words of Lord Lowry, singularly attractive and apposite as an expression of the guiding force: "the court's sense of justice and propriety". These coupled with Lord Steyn's "integrity of the criminal justice system" help to set the yardstick or criterion by which the abuse complained of is to be measured.

161. In my judgment this is one of those rare cases where the failures constitute an intolerable abuse which compel intervention. Accordingly I order a permanent stay on these proceedings.

Remarks: