CHUI TAK KEUNG DUNCAN v. MARKET MISCONDUCT TRIBUNAL AND ANOTHER

HCMP 1848/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1848 OF 2012

(ON AN INTENDED APPEAL FROM AN ORDER

OF THE MARKET MISCONDUCT TRIBUNAL)

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Hon Fok JA (giving the Reasons for Judgment of the Court):

Introduction

1.  By its Report of 9 July 2012, the Market Misconduct Tribunal (MMT) concluded that Mr Chui Tak Keung, Duncan (Mr Duncan Chui) had together with Mr Yau Chung Hong, Peter (Mr Peter Yau) been guilty of false trading[1], price rigging[2] and stock market manipulation[3] in respect of shares in Sino Katalytics Investment Corporation (Sino Katalytics) on 9 January 2009.

2.  By its subsequent Report dated 16 August 2012 and its Order of 4 September 2012, the MMT:

(1)   made an order[4] prohibiting Mr Duncan Chui from acting as a director or in any way being concerned or taking part in the management of a listed company for 2 years from 20 August 2012;

(2)   made a cold shoulder order[5] against him prohibiting him from dealing in any securities for 2 years from 20 August 2012; and

(3)   ordered him to pay[6] the Government and the SFC the respective sums of HK$1,261,679 and HK$65,761 by way of costs and expenses.

3.  Mr Duncan Chui, being dissatisfied with those orders, wishes to appeal.  The ambit of the application for leave to appeal is described below.  At the conclusion of the hearing before us, we dismissed the application with costs and indicated that we would hand down our reasons for doing so in due course.  These are those reasons.

The necessity for leave to appeal and applicable test

4.  Under s. 266 of Cap. 571, a person identified as having engaged in market misconduct who is dissatisfied with a finding or determination of the MMT may appeal to the Court of Appeal against the finding or determination on a point of law or, with the leave of the Court of Appeal, on a question of fact. In order for leave to be granted the proposed appeal must be one which has “a reasonable prospect of success” (see Leung Chi Keung v Market Misconduct Tribunal & Anor. HCMP 2539/2009, 16 November 2010, unrep., at §8), i.e. prospects of success that are reasonable and therefore more than fanciful, without having to be probable (SMSE v KL [2009] 4 HKLRD 125 per Le Pichon JA at §17).

5.  By summons dated 30 August 2012,[7] Mr Duncan Chui seeks leave to appeal against the MMT’s determinations in its Reports and the Order dated 4 September 2012 on the basis of the draft grounds of appeal annexed to the summons.  We shall refer to those grounds of appeal as GOA followed by the relevant number or numbers as they appear in the draft.

6.  On the same date, 30 August 2012, a notice of appeal in CACV 191/2012 was filed containing many of the same grounds of appeal.

7.  Save that GOA 19 and 24 are not, strictly speaking, grounds of appeal (the former being a statement of fact and the latter being an application for taxation of costs), the proposed draft grounds of appeal identify points of law, for which no leave to appeal is required, and questions of fact, for which leave is required.  In the skeleton submissions served on behalf of Mr Duncan Chui, it is accepted that leave to appeal is required in respect of GOA 3, 5, 6, 8, 9, 10, 12, 14, 16, 17 and 18.

8.  In the statement of opposition to the application for leave filed on behalf of the Financial Secretary (FS), it is rightly conceded that the points of law do not require leave.  Counsel for the FS confirmed at the hearing before us that save for the grounds of appeal for which leave was being sought, the other grounds of appeal do not require leave. Those grounds of appeal are the subject of an appeal as of right and, save for GOA 22, are all reproduced in the notice of appeal in CACV 191/2012.

GOA 3, 5, 6, 9, 10 and 12

9.  These grounds collectively seek to attack the inferences drawn by the MMT concerning Mr Duncan Chui’s intentions in purchasing Sino Katalytics shares on 9 January 2009 (a Friday).  The crux of Mr Duncan Chui’s complaints are that the inferences drawn by the MMT as to his intentions were not compelling by reason of various facts including primarily the fact that the MMT chose not to determine whether it was only on the evening of Sunday 11 January 2009 that Mr Duncan Chui first learned of any prospective placement of Sino Katalytics shares from Mr Peter Yau.

10.  In posing the question of whether Mr Duncan Chui’s purchases of shares from Mr Peter Yau in the last 20 minutes of trading on 9 January 2009 were intended to inflate the closing price prior to arranging a placement through Guoyuan Securities Brokerage (Hong Kong) Ltd, the MMT was aware that the approach by Mr Peter Yau to Mr Ben Cheung of Guoyuan was not made until the morning of 12 January 2009.[8]

11.  Nevertheless the MMT made findings that there was a flurry of late-night telephone calls on 11 January 2009 between Mr Duncan Chui and Mr Peter Yau in which Mr Peter Yau raised the question of the possibility of the trading in shares of Sino Katalytics being suspended on 12 January 2009.[9]

12.  Moreover, the MMT rejected the two explanations proffered by Mr Duncan Chui for his purchases of millions of Sino Katalytics shares on 9 January 2009.  It also rejected Mr Peter Yau’s explanation for his sales of the shares on that date.[10]

13.  Having done so and in considering why the relevant trades occurred, the MMT then posed various questions to set the context of its reasoning:

“Was it coincidence that 97.2% of the Sino Katalytics shares bought by Mr Duncan Chui were sold to him by Mr Peter Yau? Was it significant that those trades occurred in the last 20 minutes or so trading that day? Why did Mr Duncan Chui buy those shares at such a significantly increased price than he had bought shares in the previous two days? Was the fact that the trading between the two men raised the closing price of Sino Katalytics shares 30.95% above its closing price on 8 January 2009 connected with the suspension of trading in their shares pending a placement announced by Sino Katalytics on 13 January 2009?”[11]

14.  The reasoning of the MMT[12] did not proceed on the basis that Mr Duncan Chui knew of the placement through Guoyuan on 9 January 2009. Rather, the MMT considered whether the circumstances of the share trading were such as to give rise to the inference that the purpose of that trading was to secure an increase in the closing price of Sino Katalytics shares with a view to enable arrangements to be pursued in respect of the placement that was announced the following trading week.

15.  Thus, the MMT’s conclusion was that the share trading between Mr Duncan Chui and Mr Peter Yau on 9 January 2009, which it found was not conducted by them as genuine buyer and seller, was directed towards creating an opportunity to pursue a possible placement rather than steps in an impending placement of which they already knew.

16.  In the light of the rejection of the explanations proffered by Mr Duncan Chui and Mr Peter Yau for the share trading and given the very unusual circumstances of that trading[13] leading to the questions posed by the MMT at §108 of the Report, we are not satisfied that these grounds of appeal challenging the MMT’s adverse inferences as to Mr Duncan Chui’s intentions at the time of the share trading in question satisfy the reasonable prospect of success threshold to justify the grant of leave to appeal.

Ground 8

17.  This proposed ground of appeal raises a complaint as to the MMT’s treatment of various matters of evidence said to be highly germane, if not determinative, of Mr Duncan Chui’s intentions at the time of the impugned share trading.

18.  However, the weight to be attached to any particular matter of evidence was clearly a matter for the MMT and we are not satisfied that this ground of appeal gives rise to an appeal with a reasonable prospect of success.  For our part, in the context of the share trading between Mr Duncan Chui and Mr Peter Yau on 9 January 2009, we do not accept that the matters relied upon are of any significant weight.

Grounds 14 and 16

19.  These grounds of appeal seek to challenge the MMT’s rejection of Mr Duncan Chui’s explanation for his purchases on 9 January 2009 (GOA 14) and the MMT’s treatment of evidence said to support that explanation (GOA 16).

20.  Again, the weight to be attached to the evidence was a matter for the MMT and does not give rise to an appeal with a reasonable prospect of success.  For our part, we do not consider that the particular matters relied upon constitute matters weighing significantly against the MMT’s rejection of Mr Duncan Chui’s explanation.

21.  As to the MMT’s rejection of Mr Duncan Chui’s assertion that the purchases were made because the shares were good value, we do not consider that the questions raised by the MMT (in §102 of its Report), which would seem to have been posed for rhetorical purposes,[14] demonstrate any reasonably arguable error on its part. On the contrary, those questions would appear to support, rather than undermine, the MMT’s conclusion[15] that each of Mr Duncan Chui and Mr Peter Yau knew with whom he was trading and that each was trying to trade with the other.

Grounds 17 and 18

22.  These grounds of appeal similarly seek to challenge the MMT’s rejection of Mr Duncan Chui’s explanation for his purchases on 9 January 2009 (GOA 17) and the MMT’s treatment of evidence said to support that explanation (GOA 18).

23.  The MMT found Mr Duncan Chui’s explanation that he wished to buy shares from Mr Peter Yau to increase the overall percentage of his shareholding in Sino Katalytics at the same time as reducing that of Mr Peter Yau “equally puzzling” by reason of its analysis of their relative shareholdings.[16]  The queries said in GOA 17 to have been raised by the MMT are statements in the reasoning rejecting that explanation and we are not satisfied that the contention that such reasoning was erroneous is one which enjoys a reasonable prospect of success.

24.  As to GOA 18, the matters of evidence said to be unchallenged or irrefutable would appear not to be accepted by the FS but again, in any event, the weight to be attached to the evidence was a matter for the MMT and does not give rise to an appeal with a reasonable prospect of success.  As in the case of GOA 16, for our part, we do not consider that the particular matters relied upon in GOA 18 constitute matters weighing significantly against the MMT’s rejection of Mr Duncan Chui’s explanation.

Observations in respect of CACV 191/2012

25.  It is to be noted that it is the case for Mr Duncan Chui that the MMT could, as a matter of law, only find the requisite intent for the market misconduct alleged against him if it found that he was aware of the placement through Guoyuan when he engaged in the share transactions with Mr Peter Yau on 9 January 2009.  Therefore, notwithstanding the refusal of leave to pursue these GOA, it remains open to Mr Duncan Chui to pursue his appeal on that basis as a matter of law.

26.  We would make the further observations in respect of GOA 22 (which the FS accepted was not a ground of appeal requiring leave) that it is not clear what finding in §124 of the Report is said to contradict the MMT’s own findings and to sit at odds with unassailable evidence and that GOA 22 would be clearer if that were to be identified.

Disposition and costs

27.  For these reasons, we dismissed the application of Mr Duncan Chui for leave to appeal in respect of GOA 3, 5, 6, 8, 9, 10, 12, 14, 16, 17 and 18.

28.  We considered that costs should follow the event and therefore ordered Mr Duncan Chui to pay the costs of the application for leave to appeal to the FS, to be taxed if not agreed.

(Susan Kwan) Justice of Appeal

(Joseph Fok) Justice of Appeal

[1]       Contrary to s. 274(1)(b) and (3) of the Securities and Futures Ordinance (Cap. 571).

[2]       Contrary to s. 275(1)(b) of Cap. 571.

[3]       Contrary to s. 278(1)(a) of Cap. 571.

[4]       Pursuant to s. 257(1)(a) of Cap. 571.

[5]       Pursuant to s. 257(1)(b) of Cap. 571.

[6]       Pursuant to s. 257(1)(e) and (f) respectively.

[7]       Amended pursuant to a Consent Order dated 22 May 2013.

[8]       Report §100.

[9]       Report §96.

[10]      Report §§101-104 & 105-107.

[11]      Report §108.

[12]      Report §109.

[13]      Report §§21-28.

[14]      In so saying, we should not be taken to be prejudicing any argument on GOA 15.

[15]      Report §109.

[16]      Report §103.