HKSAR v. FU KOR KUEN, PATRICK AND ANOTHER

CACC179/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 179 OF 2010

(ON APPEAL FROM DCCC 981-1020 OF 2008)

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BETWEEN

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JUDGMENT

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Hon Lunn J (giving the judgment of the Court) :

1.  The applicants invite the Court to certify, pursuant to section 32(2) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484, that a point of law of great and general importance is involved in the judgment of this court delivered on 23 December 2010, dismissing their application for leave to appeal against their convictions on 7 May 2010 by Deputy Judge Sham of 20 charges of false trading, contrary to section 295(1)(a) and (6) of the Securities and Futures Ordinance, Cap. 571 (“the Ordinance”). The Particulars of Offence of the charges averred that on the stipulated dates in the period in and between January 2004 and January 2005 the applicants :

“… placed or caused to be placed orders to buy and sell derivative warrants … issued by Macquarie Bank Limited with the intention that, or being reckless as to whether, such orders had, or were likely to have, the effect of creating a false or misleading appearance of active trading in respect of these warrants trading on the stock market operated by the Stock Exchange of Hong Kong Ltd.”

2.  Sub-section (5) of section 295, is a deeming provision.  It provides :

“Without limiting the generality of subsection (1) or (2), where a person—

(a) …

(b) offers to sell securities at a price that is substantially the same as the price at which he has made or proposes to make, or knows that an associate of his has made or proposes to make, an offer to purchase the same or substantially the same number of them; or

(c) offers to purchase securities at a price that is substantially the same as the prices at which he has made or proposes to make, or knows of an associate of his has made or proposes to make, an offer to sell the same or substantially the same number of them,

then, unless the transaction in question is an off-market transaction, the person shall, for the purposes of subsections (1) or (2), be regarded as doing something or causing something to be done, with the intention that, or being reckless as to whether, it has, or is likely to have, the effect of creating a false or misleading appearance-

(i) where the securities are traded on a relevant recognised market or by means of authorised automated trading services, of active trading in securities so traded …”

3.  Sub-section 7 of section 295, provides for a defence in certain circumstances, namely :

“Where a person is charged with an offence under subsection (6) in respect of a contravention of subsection (1) or (2) taking place through the commission of an act referred to in subsection 5(a), (b) or (c), it is a defence to the charge for the person to prove that the purpose for which he committed the act was not, or, where there was more than one purpose, the purposes for which he committed the act did not include, the purpose of creating a false or misleading appearance of active trading in securities … referred to in subsection (1) …”

4.  As noted in the judgment of this court (see paragraphs 46-49), in convicting the applicants the judge made it clear that his findings were reached in a hierarchical sequence.  First, he determined that the applicants “intended the orders had the effect of creating a false or misleading appearance of active trading in the warrants”.  Next, lest he be wrong in that regard, the judge went on to determine the applicants were, in any event, reckless in their conduct such that they were to be convicted on that basis alone.  Finally, the judge went on to consider the operation of the relevant parts of the deeming provisions, namely section 295(5)(b) and (c) of the Ordinance, and, having found that it was operative, went on to consider the defence creating provisions in section 295(7) of the Ordinance. 

5.  This court stated itself to be satisfied that the judge was entitled to approach his findings in a hierarchical manner and, in particular, to determine that he was satisfied of the requisite intention and/or recklessness in the applicants without application of the deeming provision, in which circumstances it was unnecessary for this court to consider the judge’s determination that whilst the deeming provision was operative there was no evidence upon which the applicants could avail themselves of the statutory defence provided for by section 295(7) of the Ordinance. 

The question of law

6.  The question of law of which Mr Peter Duncan SC seeks certification is :

“Where a person is charged with an offence contrary to section 295(1) (a) and 295(6) of the Securities and Futures Ordinance CAP 571 (‘the Ordinance’) is proved to have contravened section 295 (1) (a) without the prosecution or the court having relied on the ‘deeming provision’ contained in section 295 (5) (b) and (c) of the Ordinance, is the statutory defence provided for by section 295 (7) of the Ordinance available to that person when the evidence before the court establishes that he committed an act referred to in the said section 295 (5) (b) and (c)?”

7.  Mr Duncan submits that where a defendant is charged with a contravention of sub-section (1) of section 295 “taking place through the commission of an act referred to in subsection (5)(b) or (c)” then “it is a defence to prove the purpose for which he committed the act” was not or did not include the purpose of creating a false or misleading appearance of active trading in securities.  He submits that is not subject to any limitations that it is of no application if the factual findings to support a contravention of the provision can be established without recourse to the deeming provision. 

8.  As noted in paragraph 46 of the judgment of this court, the judge determined of the trading activities of the applicants that they knew that a virtual certainty of the increase in the number of their trades in the warrants was that the “trading became more active”.  In consequence, he determined that the applicants “intended their orders to have the effect of creating a false or misleading appearance of active trading in the warrants.”  Of their purpose in so trading, the judge found “the more they traded (thus the number of trades increases), the more profit they make”.  Of the mechanics by which that was achieved, the judge had noted earlier :

“Undisputed is the fact that the rebates from the warrant issuer coupled with discount offered by the defendant’s own brokerages would result in a net profit; therefore, as long as the D’s entered into transaction, whether buy or sell in these 20 particularised warrants, they were able to make a profit from the excess of the rebates.”

9.  Clearly, on the judge’s findings, maximising the frequency and/or volume of their trading was the whole purpose and objective of the applicants’ pattern of trading, thereby maximising their profit.  It was that trading that had the effect of creating a false or misleading appearance of active trading in the warrants and was a contravention of section 295(1)(a) of the Ordinance.  Trading between themselves in the circumstances set out in section 295(5)(b) and (c) of the Ordinance was incidental to that trading. 

10.  Accordingly, no question of law of great and general importance arises and we decline to so certify.