JESSIE WONG WING YEE v. REAL GRANT LTD.

1996, MP No. 1814

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. This is a matter which has been adjourned over from last November. On that occasion I had made an order that the court was satisfied that the Defendant had failed without reasonable excuse to comply with the requirements of the notice dated the 29th April 1996 as revised by the notice dated the 14th June 1996.

2. I adjourned this matter over for two reasons. First, so that the Defendant could make further disclosure, because it appeared that there was still a lacuna in their disclosure on that occasion, and, secondly, to give the Defendant an adequate opportunity of putting everything in mitigation which it could before the court.

3. This matter, very briefly, concerns a requirement which was served under section 33(4)(a) of the Securities and Futures Commission Ordinance upon the Defendant. Initially, when that notice was served the Defendant was represented by other solicitors who took the view that the notice was too wide. The notice was amended, but come the 14th June the notice had been narrowed down to what it is now, and also the Defendant was represented by its present solicitors and there was no question of any challenge to that notice as such.

4. The matter concerns dealings by the Defendant in various companies quoted on the Stock Exchange which have been given the name "UFOs"; those are shares where the price has suddenly risen for unexplained reasons, usually connected with tight shareholding and large purchases and sales of those shares.

5. In purporting to effect compliance with that notice it became clear at the last hearing that the Defendant failed to disclose two categories of matters; one was a bank account into and out of which there had been substantial sums of money transferred each month. In some months the amounts were comparatively small, in millions. In other months it appears that the turnover of that account exceeded $200 million.

6. The other category of matters which were not disclosed were various dealings in the relevant shares. I say 'various dealings', I have not gone through them transaction by transaction, but a mere glance through some of the voluminous pages in the exhibits setting out these transactions shows that some of those transactions are very large indeed, again dealings in millions of dollars worth of shares. Since then further evidence has been filed and it has been conceded on behalf of the Defendant that even last November there were some transactions which were not disclosed and have now subsequently been disclosed.

7. I have before me in particular the second affirmation of Mr. Victor Choi Hok-wan who is one of the directors of the Defendant company, and as was pointed out to me, his second affirmation shows perhaps some defects in the first affirmation. A reading of the first affirmation gives one the impression that Mr. Victor Choi was the person who had been responsible for the preparation of the enquiries which led up to the filing of his first affirmation. However, in his second affirmation he says:

"I had not been involved personally with the earlier attempts to comply with the notice because I had delegated this to my co-director, Mr. Kwong."

8. It goes on to say that when he had learned of the outcome of the hearing in November that the Defendant's failure to comply was extremely serious he assumed personal control of the matter. I have to say that at the hearing last November I had already understood that he had assumed personal control of the matter.

9. Since then it appears that the Defendant has been to a great deal of trouble to make sure that the notice has now been complied with; four extra staff have had to be employed, and indeed the activities of the company have had to be curtailed because the staff have had to devote more of their time to complying with the notice. As a result, the Defendant has suffered a reduction in trading.

10. I do not view this matter as one where the Defendant has been obstinate. This case has not been presented by Mr. Ribeiro QC, who appeared on behalf of the SFC, as a case where the Defendant was obstinate. I do, however, view this is as a case where there has been a culpable failure to comply with the notice; culpable because I consider that proper efforts were clearly not made to comply with that notice, and that is demonstrated only too clearly by the further matters which I have already referred to which became apparent by the hearing on 7 November, and indeed, apparently, the further transactions which are revealed in the documentation which has now been disclosed. The fact that the SFC may have been able to obtain some or all of that information from other sources I would regard as irrelevant.

11. It has also been submitted to me that I should take into account the question of the legal advice that was given initially. Again, it seems to me that come the 14th June when the revised notice was effective, the Defendant was being advised by its current lawyers, and I do not see that anything thereafter is relevant as to the failure to comply fully with the notice.

12. It has also been submitted to me that I should take into account that there was not a proper staffing level in the Defendant's organisation. These are matters of the records within the Defendant company which seems to have been a very active trader on the stock market. I have, during the course of argument, raised the question as to how it could be that the Defendant might not have had to keep proper records, in any event, for the purposes of taxation and other reasons. This has not been clarified, at any rate to my satisfaction, and it seems to me that if the Defendant did not have proper records available to it that is not something which it can really pray in aid in these circumstances. It might have been that they needed further time to go through their records, but I simply feel that they have not properly complied with the notice.

13. The seriousness with which I view this matter was demonstrated I think very clearly on the last hearing, and that is one of the reasons why I think it was brought home to the Defendant that full compliance was necessary and one of the reasons why now it would appear that at last all the transactions which were relevant have been disclosed.

14. On the last occasion, and indeed on this occasion, I raised the question whether or not the penalty to be imposed for failure to disclose the transactions should not, in view of the very heavy size of the transactions, in some way be related to the profits that might have been made on the transactions which were not disclosed. I have been persuaded, and I have to say by the submissions made on behalf of the SFC by Mr. Ribeiro QC, that that would not be an appropriate course.

15. However, it seems to me that the requirement to comply with notices of the SFC under section 33 is a very important requirement. Those upon whom such notices are served must be in no doubt that they must be complied with. If those upon whom notices are served were to get the impression that they may be ignored with impunity, or expect merely a slight rap over the knuckles when eventually they were forced to comply there would considerable mischief. They must be disabused of that. It is my view that this court in appropriate cases must and should always impose a severe penalty which will bring home to those the importance with which the court regards this.

16. The penalties which the Ordinance provides, in lieu of contempt proceedings being brought should the matter be subject to criminal proceedings, include fines on conviction on indictment of up to $1,000,000, and in the case of an individual imprisonment for two years. On summary conviction the fine is up to $100,000 and imprisonment for a period of up to six months.

17. In appropriate cases should the refusal to comply be obstinate, I would not hesitate to impose a sentence of imprisonment. However, this is not such a case, but in my view the fine that should be imposed should be such as to bring home, in the circumstances, to the individuals the seriousness with which I regard it.

18. Using, as has been drawn to my attention the guidelines in the Ordinance, I consider that it is appropriate in the circumstances of this case, taking into account the large volume in trades which were not disclosed, the bank account which was not disclosed, that in addition to paying the costs of the Plaintiff in this case on an indemnity basis, the Defendant should pay a fine of $650,000. I have used the penalties in the Ordinance as a yardstick. The fine is two-thirds of the maximum fine which might have been imposed on indictment, and I have to say that that is somewhat less than the fine that I had at one stage been thinking of prior to hearing submissions.