LELALERTSUPHAKUN DUSANEE v. THE INSIDER DEALING TRIBUNAL

CACV 350/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 350 OF 2005

(ON APPEAL FROM HCAL NO. 9 OF 2005)

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J U D G M E N T

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Hon Ma CJHC :

1. For the reasons contained in the Judgment of Sakhrani J, I would dismiss the appeal with an order nisi as to costs that the Applicant pay the Interested Party’s costs of the appeal, such costs to be taxed if not agreed.

Hon Stock JA :

2. I agree with the Judgment of Sakhrani J and with the orders proposed by the Chief Judge.

Hon Sakhrani J :

3. This is an appeal against the dismissal by the Court below (Hartmann J and Reyes J) of the Applicant’s application for judicial review of a determination of the Insider Dealing Tribunal (“the Tribunal”).

4. By a notice dated 10 February 2001 pursuant to s. 16 of the Securities (Insider Dealing) Ordinance Cap. 395 (“the Ordinance”) the then Financial Secretary requested the Tribunal to conduct an inquiry involving a number of persons including the Applicant, also known as Mrs Lee (“Mrs Lee”) and her husband Mr Siegfred Lee (“Mr Lee”).

5. The ambit of the inquiry fell into a number of areas one of which was the sale of Mrs Lee’s shares in Siu Fung Ceramics Holdings Ltd (“Holdings”) in two tranches within a short period of time.  The relevant sales were the sale of 40 million shares on 2 July 1996 and the sale of another 40 million shares on 8 July 1996.  

6. After a lengthy inquiry, Mrs Lee was found not guilty of insider dealing.  However, Mr Lee was found guilty of insider dealing.  The Tribunal (at page 149 of its First Report dated 18 March 2004) was satisfied that Mr Lee:

“ engaged in insider dealing when he, a person connected with Holdings and in knowing possession of relevant information in relation to Holdings, counselled or procured Mrs Lee to sell the 80 million Holdings shares registered in her name on 2 and 8 July, knowing or having reasonable grounds to believe she would sell them.”

7. Mrs Lee then applied for her costs of the inquiry under s. 26A of the Ordinance.

8. S. 26A provides as follows:

“(1) Subject to subsection (5), at the conclusion of an inquiry or as soon as reasonably practicable thereafter, the Tribunal may award to-

(a) …………………………………………………………………………….

(b) any person whose conduct is, in whole or in part, the subject of the inquiry,

such sum as it thinks fit in respect of the costs reasonably incurred by him in relation to the inquiry.”

9. Subsection (5) provides that :

“ This section shall not apply to any person referred to in subsection (1)   who is -

(a) a person who has been identified as an insider dealer in a determination under section 16 (3);

(b) ……………………………………………………………………………….

(c) ………………………………………………………..……………

(d) any other person who and in respect of whom it appears to the Tribunal has by his own acts or omissions caused or brought about (whether wholly or in part) the institution of the inquiry under section 16.”

10. The Tribunal rejected Mrs Lee’s application for costs.  Its decision and the reasons are contained in its Second Report dated 25 October 2004.

11. Leave was granted to Mrs Lee to apply for judicial review of the decision of the Tribunal by Hartmann J on 18 January 2005.

12. The application was heard by Hartmann J and Reyes J on 2 September 2005 when the Court dismissed the application.

13. It is a rule of natural justice that the Tribunal’s finding must be based on some material that tends logically to show the existence of facts consistent with the finding (Peter Thomas Mahon v Air New Zealand Ltd and others [1984] 1 AC 808 at 820F to 821B).

14. The Tribunal may take into account any material which, as a matter of reason, has some probative value(Reg. v Deputy Industrial Injuries Commissioner, Ex Parte Moore [1965] 1 QB 456 at 488).  There must, however, be sufficient material of a probative value to justify the finding (Lam Kai Hing & Others v Hong Kong Housing Authority [1990] 2 HKC 417).

15. The background facts are set out in the judgment of Reyes J at paragraphs 5 to 11 as follows :

“5. At the time of the transaction which prompted the inquiry, [Mrs] Lee was the wife of Mr. Siegfried Lee. 

6. Holdings is in the ceramics business.  Mr. Lee founded Holdings in 1983.  Holdings became a listed company in 1993.

7. Prior to Holdings’ flotation, 20% of the company’s shares were registered in [Mrs] Lee’s name.  After Holdings’ listing, [Mrs]  Lee held 10% of the company’s shares in her name.

8. 80 million shares in [Mrs] Lee’s name were sold in 2 tranches of 40 million each on 2 and 8 July 1996.  Mr. Lee arranged for the shares to be sold by a broker on behalf of his wife.

9. The shares were sold at $1.30 per share, when the market price for Holdings’ shares was $1.43.  At the time of the sale, Holdings was facing serious financial difficulty.

10. On 9 July 1996, in accordance with disclosure requirements, Holdings issued an announcement that [Mrs] Lee had sold her 80 million shares.

11. [Mrs] Lee transferred the proceeds from the sale of her shares to Mr. Lee.”

16. It is also pertinent to refer to the facts set out at paragraphs 9 to 11 of the Form 86A as follows :

(1) in July 1996 the Stock Exchange of Hong Kong Ltd (“SEHK”) referred Mrs Lee’s sale of the shares to the Securities and Futures Commission(“SFC”) to investigate possible insider dealings by Mr and Mrs Lee.

(2) On 27 September 1996 Holdings announced its interim results   for the six months ended 30 June 1996.  In that announcement Holdings said that the directors had decided not to pursue the previously announced proposal for separate listing of a subsidiary, NHD International Ltd, on the New York Stock Exchange.

(3) Trading in Holdings’ shares on the SEHK was at the request of the directors of Holdings suspended both on 5 October and on 16 October 1996 and finally on 28 October 1996.  Trading in Holdings’ shares never resumed after that.

(4) Mrs Lee was interviewed twice by the SFC.  She said that she had always wanted to sell her shares but had been persuaded not to sell by Mr Lee.  In July 1996 Mr Lee told her that she could sell then and he had found a buyer for her 80 million shares and she agreed to sell.  She paid over the proceeds to Mr Lee on the understanding that he would use the same to discharge the mortgage loan of their house at 72 Deep Water Bay Road which had been mortgaged in September 1995 to secure a loan of around $100 million.  She had no idea that the money was channelled to Holdings.

(5) On 10 February 2001 the Financial Secretary caused a reference to be made to the Tribunal in respect of, inter alia, the sale of the 80 million shares on the grounds that it appeared to him insider dealing had taken place.

17. The Tribunal’s decision is contained in the Second Report.  The Tribunal said (at page 28 of the Second Report) that :

“ Mrs. Lee

Mrs. Lee, who was named in the section 16 notice and to whom subsection 26A(5)(d) applies, made an application for costs through her counsel Mr. Bernard Mak.

It was the sale of her 80 million Holdings shares on 2 & 8 July 2004 that brought upon her and Holdings the attention of the HKSE and ultimately the attention of the SFC.  We agree with Mr. Davies that in effect her sales started the whole of this inquiry.  She was also Siegfried Lee’s wife with whom he was living in June and July 1996, and he was very much involved in insider dealing.

Mr. Mak argued that Mrs. Lee stuck to her account of the reasons for her sale throughout the SFC investigation and the Inquiry and that we ultimately decided that it would be inappropriate and unjustified to make a finding of insider dealing against her.  It is however the case that we were not impressed by Mrs. Lee’s evidence (see Chapter 11, pages 148 & 149).  We reached the decision we did because there was no direct evidence that she sold her shares because she was in possession of relevant information concerning Holdings and although the circumstantial evidence against her on that issue was very strong, we did not believe it was the only reasonable inference which could be drawn.

Given her relationship to Siegfried Lee, whose wife she was, and with whom she was living in the spring and summer of 1996, she should have been aware that the sale of the 80 million Holdings shares registered in her name could incur suspicion and cause an inquiry into the circumstances of that sale to be instituted.  It was in fact the sale of those shares that first aroused the interest of the SEHK’s Listing Division.  Although she may not have done any other provable positive act to mislead the investigating authorities into thinking that the case against her was stronger than it was she is in our view caught by the provisions of subsection 26A(5)(d) and is not entitled to her costs.’

18. As stated in its decision as set out above, the Tribunal also referred to what it had earlier said in Chapter 11, pages 148 and 149 of the First Report.  This is as follows :

“ Conclusions

Mrs Lee

We have to say that we were not impressed with Mrs. Lee’s evidence.  We find it strange, given that she had held her 80 million Holdings shares since the autumn of 1993, that her wish to see (sic) the Deep Water Bay Road house free of mortgage came at the very time her husband and his companies were under severe financial pressure.  We are also aware that there appears to be an inconsistency in her claims.  On the one hand she spoke of wanting to gain the proceeds of sale for herself, yet on the other hand expressed concern to see that the mortgage was redeemed. This would not have brought her any immediate financial gain, only the rather bourgeois satisfaction of seeing the family unencumbered by debt.

The circumstantial evidence against Mrs. Lee is certainly very strong, but we do not believe that the only reasonable inference which can be drawn from it is that she was aware of the listing’s failure and the funding problems that it caused, both of which pieces of information were relevant information, when she sold her 80 million Holdings shares in two lots of 40 million on 2 & 8 July 1996.  Accordingly we have decided that it would be inappropriate and unjustified to make a finding of insider dealing against her.”

19. Mr Dykes SC, together with Mr Mak, for Mrs Lee, submitted that the sole question to consider was whether the Tribunal’s conclusion in the Second Report that Mrs Lee was a person within section 26A(5)(d) could be sustained by the findings and/or by the materials on which the findings were based.

20. The Court below came to the view that the Tribunal reasonably concluded on the evidence that Mrs Lee knew or ought to have known that her status as wife, coupled with the sale of her 80 million shares, would likely prompt an inquiry(paragraph 24 of the judgment of Reyes J to which Hartmann J agreed). 

21. It was Mr Dykes’ submission that in the final paragraph at page 28 of the Second Report the Tribunal referred only to two matters namely, the fact of Mrs Lee’s relationship with Mr Lee and the fact of the sale of the shares.  That being so, he submitted that it was found by the Tribunal that the only provable positive act by Mrs Lee to mislead the investigating authorities was the act of selling the two tranches of shares within a short interval coupled with her relationship with Mr Lee.  That, he submitted, was not enough for the Tribunal to find that Mrs Lee was a person “who has by his own acts or omissions caused or brought about (whether wholly or in part) the institution of the inquiry” within the meaning of s. 26A(5)(d) so as to deprive her of an award for costs under s. 26A.

22. I am unable to accept Mr Dykes’ submissions.  The final paragraph at page 28 of the Second Report cannot be read in isolation.  All of what the Tribunal said in its decision and reasons at page 28 of the Second Report must be considered.  And what they said at Chapter 11, pages 148 and 149 must also be considered as the Tribunal referred to the same.

23. It seems to me that when the Tribunal said

“ Although she may not have done any other provable positive act to mislead the investigation authorities into thinking the case against her was stronger than it was……….”

on a fair reading of the same, it must mean that they did find that there was a provable positive act done by Mrs Lee to mislead the investigating authorities.  Otherwise, there would be no need for the use of the word “other”.

24. What was that provable positive act done by Mrs Lee as found by the Tribunal?  Although the reasons given by the Tribunal could have been clearer, it is in my view reasonably clear when reading the whole of the reasons together with the passages referred to in the First Report, the Tribunal took the view that the explanation proffered by Mrs Lee was weak or unconvincing.  The explanation was that she wanted to have the mortgage on the Deep Water Bay Road property redeemed at the very time that her husband and his companies were under severe financial pressure.  Further, as Reyes J observed, correctly in my view, at paragraph 21 of his judgment, the Tribunal also found the explanation proffered by Mrs Lee to have been contradictory: on the one hand she was saying she wanted cash, on the other hand she was saying that she needed the sale proceeds to redeem a mortgage. 

25. Mrs Lee cannot be regarded as wholly naïve in financial matters.  She, as Reyes J said at paragraph 23, must have realized that the sale of 80 million shares in the course of a single week could prompt speculation as to her motives.  The Tribunal was certainly entitled to regard the magnitude of the shares sold by Mrs Lee over a short span as something which called for an explanation. 

26. An explanation was given by Mrs Lee to the SFC in July 1996 and at that stage no enquiry was initiated.  It was only after the subsequent events in September 1996 that Mrs Lee was interviewed again.  Her explanation as found by the Tribunal was contradictory.  The Tribunal was dealing with a submission made on her behalf by counsel that she had stuck to her account of the reasons for her sale throughout the SFC investigation and the inquiry and that the Tribunal decided not to make a finding of insider dealing against her.  However, the Tribunal made it plain that they found the explanation given by her unsatisfactory.  On her own case that must have been the same explanation that she had given to the SFC as it was submitted on her behalf that she had stuck to her account of the reasons for her sale throughout the SFC investigation and the inquiry.  The SFC must have also found her explanation unsatisfactory as otherwise the inquiry would not have proceeded against her. 

27. It is evident that although the Tribunal found her not guilty of insider dealing they considered that the circumstantial evidence against her was certainly very strong.  It is obvious, in my view, that not only the Tribunal but the SFC also did not accept her unconvincing and unsatisfactory explanation and it was decided to proceed with the inquiry against her.

28. In the final paragraph at page 28 of the Second Report the Tribunal did not specifically mention the fact that Mrs Lee had given an unconvincing and unsatisfactory explanation which “caused or brought about (whether wholly or in part) the institution of the inquiry” against her.  But in my judgment it must necessarily be implied that the Tribunal came to that view when the whole of the reasons are read in context.  It seems to me that the provable positive act done by Mrs Lee to mislead the investigating authorities into thinking the case against her was stronger than it was as found by the Tribunal was her giving an unconvincing and unsatisfactory explanation.

29. It seems to me that on the material before the Tribunal they were entitled to come to the view that she was caught by the provisions of s. 26A(5)(d) and was not entitled to her costs.

30. In my judgment the Court below correctly dismissed the application.

31. I would dismiss the appeal.  I would also make an order nisi that Mrs Lee pay the Interested Party his costs of the appeal, such costs to be taxed if not agreed.

Hon Ma CJHC :

32. For the above reasons, the appeal is dismissed.  There will also be a costs order nisi that the Applicant do pay the Interested Party’s costs of the appeal, such costs to be taxed if not agreed.