HENRY TAI HON LEUNG v. INSIDER DEALING TRIBUNAL

cacv 333/2004 AND CACV 334/2004

cacv 333/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 333 of 2004

(on appeal pursuant to section 31 of

the securities (insider dealing) Ordinance (“SIDO”) cap. 395

from determinations and orders of

an insider dealing tribunal

in relation to

siu fung ceramics holdings limited)

____________________

____________________

cacv 334/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 334 of 2004

(on appeal pursuant to section 31 of the

securities (insider dealing) ordinance, cap. 395

for determinations and orders of

an insider dealing tribunal

in relation to the listed securities of

siu fung ceramics holdings limited)

____________________

____________________

BETWEEN

____________________

____________________

J U D G M E N T

____________________

Hon Rogers VP:

1.  These are appeals by 3 parties in respect of the report of the Insider Dealing Tribunal in an inquiry conducted in relation to the shares of Siu Fung Ceramics Holdings Ltd (“Holdings”).  The report is in two parts namely the major part delivered on 18 March 2004 in which the Tribunal considered liability and the second part, delivered on 25 October 2004 in which the Tribunal made various orders.  It is clear, however, that the matter is not complete and that there may well be further hearings at which the liability of two companies will be investigated.  As a consequence, the Tribunal deferred making any orders in relation to two of the appellants in this case other than to disqualify them from being directors for one year.  The monetary or other penalties and costs orders in respect of those two appellants have been deferred pending the outcome of the inquiry in respect of the two companies’ potential liability.

Background

2.  Holdings’ business had been established in 1983 by Siegfried Lee, from whom it takes its name Siu Fung.  It suffices to say that when it commenced business, Holdings was engaged in selling German ceramics production equipment.  However, initially it was very successful; it soon diversified into all aspects of the ceramics business and expanded rapidly.  Holdings was listed on the Hong Kong Stock Exchange on 28 October 1993.  In the following year a subsidiary was established namely Siu-Fung Ceramics Concept Company Ltd (“Concept”).  Concept’s function was to act as the holding company for Holding’s ceramics joint ventures in the Mainland.  It was not quoted on the stock exchange but had a number of shareholders who were institutional investors.  The outside shareholding was 35% of the company and the shareholders included, amongst others, Search China Ventures Ltd. (“Search China”).

3.  Search China was a subsidiary of Search Investment Group (“Search”).  The latter company was a private investment company set up in the early 1990’s by Robert Miller who remained its chairman.  The major control of the group was conducted by the Office of the Chairman (“OC”).  The chairman together with Nicholas Prior constituted the OC.  Both those persons had been implicated persons but the Tribunal held that it would be inappropriate and unjustified to make findings of insider dealing against them.

4.  Two other persons connected with Search were also implicated persons and the Tribunal did make findings of insider dealing in respect of those persons.  The first such person was Henry Tai and the other was William Lam.  They were both appellants in this case.  Henry Tai had joined Search as Vice-President of the Direct Investment Division in March 1996.  In May 1996 he was appointed a director of Concept.  In June of that year he was put in charge of Search’s investment in Holdings.  That investment was valued at approximately US$30 million.  The total portfolio for which he was responsible was worth approximately US$100 million.

5.  William Lam had joined Search in September 1993.  He had had experience in other investment companies before joining Search.  He was the Senior Vice-President heading Search’s Direct Investment Division during the time of the sales into which the Tribunal was investigating.  He had been a director of Concept from 1994 but Henry Tai replaced him as a director in May 1996.  William Lam’s wife, Lisa Lam, was an employee of Concept and she, too, was an implicated person and also an appellant.  She had joined Concept as Deputy Chief Executive Officer in October 1995 and became one of its directors in February 1996.  She had previously worked in the same investment companies as her husband.  In August 1995 Siegfried Lee had given Lisa Lam 10 million Holdings shares as an incentive to induce her to come to work for him.  That incentive evidently worked.  The 10 million shares ultimately lead to some of the events which gave rise to the inquiry.

6.  In 1993 Holdings had acquired a German manufacturer, Dubois and in 1995 it acquired all the shares in Heimsoth Keramische Öfen und Anlagen GmbH.  These were amalgamated to form H & D Holdings Company Limited (“H & D”).  Then in March 1996 H & D entered an agreement to acquire the ceramic production equipment business of Erich Netzsch GmbH.  A new subsidiary company of Holdings, called NHD International Ltd (“NHD”) was incorporated in Bermuda to take over the undertakings of all those companies.

7.  After Lisa Lam had joined Concept she put forward a proposal in December 1995 to form a management committee.  This proposal was accepted at a management meeting.  Very early in 1996 Lisa Lam informed the investors in Concept that there might be a potential listing of H & D.  It seems that Lisa Lam was well aware of the importance of the potential listing because at a meeting with the auditors in March 1996 concern had been expressed about Concept’s cash-flow position and she had mentioned that one of the means to finance Concept would be from the proceeds of the IPO.  The proposal to list NHD on the New York Stock Exchange was announced publicly in April 1996, at the same time as the nine-month results for Holdings.

8.  It was, as already mentioned, at the beginning of May 1996 that Henry Tai was appointed a director of Concept.  Very soon after that, on 6 May 1996, the Investment Division of Search (“IND”) recommended the purchase of up to US$10 million worth of Holdings shares.  At that time it was noted in a memo written by Henry Tai and another member of Search that if the listing of NHD did not occur in June, Search might have to hold the investment for 6 to 12 months.  It is quite clear from Search’s internal memos that the investment in the Holdings shares was a “bet” on NHD being floated.  The plan was apparently that the investment would be divested within three months after the listing.  Search’s shares in Holdings were held in the name of another subsidiary, Moredale, and it is of note that the purchase of the shares commenced on 8 May and ended on 12 June, when, although there was a substantial amount of shares which had been purchased, the full amount of US$10 million had not been spent.  This date is not insignificant because on 13 June 1996 Credit Suisse First Boston (“CSFB”), who were responsible for arranging the listing, reached the decision not to complete the IPO of NHD.  CSFB concluded that the IPO should be postponed until audited financial statements for 1996 were available and other information was provided which could form a better platform to market NHD.  Siegfried Lee was informed of this straight away and it appears that the accountants were also aware of that postponement.  Further reference will be made below to various meetings and exchanges which took place which had a bearing as to the consequences of the IPO not going ahead.

9.  The events which formed the subject of the inquiry, insofar as they are relevant to these appeals, were the sales of the remaining 6 million shares belonging to Lisa Lam in Holdings which she still had in July 1996 and the sales of the shares held by Moredale, which were sold over a period commencing on 2 August 1996 and ending on 5 September 1996.  In May and June 1996 the first part of Lisa Lam’s 10 million shares had been sold.  The May and June sales were not the subject of the inquiry because they took place prior to the relevant dates. 

The findings of the Tribunal

10.  The Tribunal found that relevant information within the meaning of section 8 of the Securities (Insider Dealing) Ordinance, Cap. 395 (“the Ordinance”) was a combination of the knowledge that the listing of NHD proposed for June 1996 would not take place as planned coupled with the knowledge that Holdings and its group had severe liquidity problems which it had been hoped would have been cured or, at least, allayed by receipt of proceeds from the IPO.  The Tribunal held that it was not until 10 August 1996 that it would have been generally known that the IPO initially proposed for June 1996 would not go ahead and that it was not until the announcement of Holdings’s six-month results on 27 September 1996 that the seriousness of the cash-flow difficulties would have been generally known.  The Tribunal held that Lisa Lam and William Lam had been guilty of insider trading in respect of Lisa Lam’s shares in Holdings which were sold in July 1996 and that William Lam and Henry Tai were guilty of insider trading in counselling and procuring the sale of the Holdings shares held by Search in the name of Moredale.  The Tribunal also held that other persons had been guilty of insider trading but those persons have not brought appeals and it is unnecessary to refer to them further.

These appeals

11.  Although under section 31 of the Ordinance appeals to the Court of Appeal from the Tribunal are on a question of law unless leave is given, it would appear that the appeal by Henry Tai amounts almost entirely to an appeal on fact.  The appeals by Lisa Lam and William Lam in respect of the sale of Lisa Lam’s shares in Holdings do raise one point of law.  No leave to appeal on a question of fact has been given.  Indeed, there has been no proper application for such leave.  It suffices to say that having considered all that has been submitted on behalf of the appellants, both in writing and orally, no leave to appeal on a question of fact should be given.

12.  Mr Huggins SC, who appeared on behalf of Henry Tai, sought to draw a distinction between the listing of NHD being postponed and failing.  That argument simply does not stand up.  The fact of the matter is that CSFB informed Holdings that it would not go ahead with the IPO given the financial state of the company at the time.  By saying that it needed the 1996 financial statements and other material, it was saying that there had to be a change in the circumstances before the IPO could take place.  Whether that was euphemistically called a postponement or delay or whether it was called the failure of the listing matters not.  It was a failure of the listing as envisaged and as the financial state of the company was in June 1996.  It might have been a postponement if circumstances had changed materially and the 1996 financial statements had been such that CSFB had considered that it would be possible to have an IPO but, even then, it would have been a different listing.

13.  The Tribunal went through the events in which Henry Tai was involved which would have given him knowledge in respect of both the refusal by CSFB to proceed with the IPO as originally envisaged and the serious need to fund Concept’s operations.  Stringent criticism was made of the statement by the Tribunal that “by 25 June 1996, at the latest, William Lam and Henry Tai, by their attendance at the meeting of representatives of HPEM, PAMA and Search on that day, must have been aware of the listing’s failure.”  It is quite clear from the report that the Tribunal did not rely solely upon the notes of the meeting of 25 June, which showed that Henry Tai had been there.  It is quite clear that prior to the sale of the Moredale shares Henry Tai and William Lam were fully aware of the relevant information.  That emerges not only from what had taken place prior to 25 June but also what took place after 25 June 1996 as well as various documents for which they were responsible or at least saw including, indeed, those which were signed.  For example on 27 June Henry Tai sent cash-flow projections to William Lam in Singapore.  The cash-flow projections covered the period from 15 June 1996 to 30 May 1997.  They had been described by those responsible on behalf of the outside investors in Concept as being alarming.  Furthermore, the sheet shows that the IPO would only take place in April 1997, and it would seem only if, by that time, there were earnings of some US$40 million.  It also shows that the repayment of the loan which had been obtained to purchase the Erich Netzsch GmbH business was dependent upon the successful IPO in April 1997. 

14.  This was closely followed by a meeting of the IND Executive Committee Meeting on 28 June 1996 where the postponement of the IPO was discussed.  The Holdings’s funding needs were discussed at a meeting with Siegfried Lee on 2 July 1996; those at the meeting included Henry Tai and William Lam. 

15.  All this led up to what was perhaps the most significant document in the case namely that which has been referred to as the divestment memo.  That document was dealt with in some detail by the Tribunal at pages 172-6 of its report.  Henry Tai, apparently, drafted the first six paragraphs of the divestment memo and the Tribunal appears to have been justified in the observation which was made at page 175 that “William Lam and Henry Tai, the putative authors of the divestment memo were both rather coy about claiming responsibility for it and its contents.  So much so, that we, at times, were left with the impression that somehow it had written itself by magic.”  That graphic comment was not, it would seem, unjustified as Mr Huggins would have this court consider.  In this regard, our attention was drawn, for example, to the passages taken from Henry Tai’s evidence at pages 104-5 day 110. 

16.  In any event paragraph 4 of that memo was one of the paragraphs drafted by Henry Tai.  It reads:

“Following the delay in the NHD spin off, SFH has informed shareholders of Concept on 29 July that SFH Group, including Concept, is in a cash crisis.  SFH is still putting together a comprehensive cashflow plan.  Based on preliminary information, it appears that SFH Group needs additional funding for 1996 and 1997 in the region of US$170 m.  The amount of funding needs is enormous compared with its existing debt level of US$228M.”

17.  Paragraph 7 of the divestment memo goes further and identifies the recommendation by IND to dispose of the shares in Holdings as being based upon the postponement of the NHD IPO and the short-term funding needs. 

18.  Mr Huggins sought to criticise the Tribunal because it had come to the conclusion that the divestment memo had probably been written a few days after the meeting of 31 July 1996 at which the IND Executive Committee had taken the decision that the Moredale shares should be sold.  The Tribunal considered that there were good reasons to believe that paragraphs 5 and 6 of the divestment memo reflected matters which had been discussed on 1 and 2 August 1996 at meetings at which Henry Tai was present throughout.  Their estimation in this respect appears to be justified.  The observation which they made is a question of fact.  Whether or not that hypothesis had been put specifically to a witness, or to counsel in argument, matters not.  It was a view the Tribunal was entitled to express having considered the evidence.  It suffices to say that, in my view, it makes no difference as to whether the divestment memo was indeed drafted on or before 31 July 1996 or a few days later.  It represented Henry Tai’s and William Lam’s justification to management for selling the Holdings shares.  That was based upon what the Tribunal held to have been relevant information.

19.  Great play was made as to whether there had been counselling or procuring of the sale by Search of the Holdings shares held in Moredale.  In my view the argument in this respect was unsustainable.  Given Henry Tai’s and William Lam’s positions in Search and the role they played in the meetings together with the documentary evidence, particularly the divestment memo, I fail to see how it can possibly be suggested that they did not each counsel and procure Search to have the Holdings shares sold.

20.  It was argued very strongly by Mr Huggins that the Tribunal had made factual errors which materially affected the assessment of Henry Tai’s credibility.  One of those factual errors was the statement on page 162 of the report where it was said that Henry Tai claimed that it was not until April 1997, at least, that he had any understanding of a definite postponement of the listing.  Taken at its face value it might be said that if the Tribunal had understood Henry Tai to be saying that, it could only have come to the conclusion that he was talking nonsense.  That statement, however, not only does not tie up with anything else that the Tribunal had said in that respect and contradicted, for example, what had been said on page 160 of the report, but when the relevant part of the transcript namely day 108 page 44 is considered it will be seen that the statement at page 162 of the report was an attempt by the Tribunal to paraphrase an answer which Henry Tai had given in relation to questions which were directed to his understanding of what was contained in the cash-flow statement dated 27 June 1996 and as to whether he knew at that time when the document was being faxed to William Lam in Singapore that the proposed listing would not take place until April 1997. 

21.  The statement referred to at page 162 of the report was clearly an obvious syntactical error made by the Tribunal in recording in the report the answer given by Henry Tai as recorded in the transcript.  Given the contents of the report and the context in which this happened it would clearly be wrong to conclude that the Tribunal misunderstood what had been said, still less that it had held it against Henry Tai when it came to assessing his credibility.

22.  Neither does the fact that the Tribunal stated at page 158 that Henry Tai was recorded in Raymond Leung’s note as being at the meeting on 10 May 1996.  The note does not show that but, even on the basis that Henry Tai was not present at that meeting, there is such a plethora of evidence indicating his knowledge that the point is quite irrelevant.

23.  The point was made that the Tribunal had not taken into account the delay between the dealing in the Holdings shares and the hearing in the Tribunal.  It was said that the Tribunal should have reminded itself of the difficulties which such delay posed to the witnesses giving evidence.  In my view two points are relevant here.  In the first place I do not consider that it is necessary for the Tribunal to put in writing when they make a report exactly the factors that they take into consideration in weighing up the evidence.  The Tribunal was well aware of when the dealing took place and the distance in time from the hearing.  What effect it had on the evidence and the extent to which the Tribunal was prepared to accept protestations from the witnesses that they could not remember this, that or the other is a matter entirely for the Tribunal.  The Tribunal heard evidence and submissions over the course of 116 days.  Only the Tribunal was in a position to assess what effect the delay might have on the witness’s evidence.  This court was naturally not provided with transcripts of the whole of the hearing and indeed those parts of the transcript which were provided to this court were voluminous enough.  But it was still not a matter for this court to assess the witnesses and the way they gave their evidence.  The fact that the Tribunal did not incant in its report a statement that in assessing the evidence it took into account the delay cannot, in my view, affect the integrity of the report.  Neither would I, in any way, wish to suggest that it is necessary in a report from the Insider Dealing Tribunal for the Tribunal to have to state that, for example, it took delay into account in assessing the evidence.  That is a natural matter once a witness is giving evidence and is proclaiming that he cannot remember something.  It is then up to the Tribunal to decide whether it accepts that or not.

24.  It was said that the Tribunal did not take into account, in assessing whether the information was relevant, the lack of variation in prices either around the time of 10 August or 27 September 1996.  The Tribunal devoted one chapter of the report and one schedule to the report to a consideration of the price of the shares over an extended period of time.  It would only have done so on the basis that it was considering the effect any information had on the market price of the shares.  It was for the Tribunal to take into account whether the absence of a marked movement immediately after the period when it held that the information, or part of it, had become public knowledge negated the obvious conclusion that, if a company had intended to solve very significant cash-flow problems by a particular course and that that course was now no longer open to it, that information taken together must have been highly relevant to the price of the shares.  The fact that the share price did not move when part of the information became available and did not drop any further than it already had done by the time the whole of the information became known to the public, does not negate the importance and the price sensitivity of that information.

25.  Complaint was also made that the Tribunal had not accepted everything contained in the statements of two of the expert witnesses despite the fact that those persons had not been called to give evidence.  In the first place it should be noted that it is the function of expert evidence to instruct the Tribunal about the technicalities of the matters with which it is dealing and with which it might be expected to be unfamiliar.  It is also the function of the expert to clear up ambiguities in this regard.  In relation to share dealing it may be necessary for the Tribunal to understand relevant matters, for example as to the rules and processes of share dealing and as to how investment companies may be expected to go about their business.  It is for the Tribunal having understood what might be termed the technical evidence to draw its own conclusions of fact as to what did or did not occur.  It is most important that the factual basis upon which an expert gives his evidence is ascertained.  If the Tribunal comes to a conclusion of fact which is different from that upon which the expert proceeded when making his statement, then it is for the Tribunal to decide just how much of that expert’s evidence can be accepted and is relevant.  Insofar as an expert indulges in an historical assessment of what was known and not known to dealers in the market that is, to a large extent, trespassing upon the province of the Tribunal.  It is for the Tribunal to decide what was relevant information and in particular whether any piece of information was generally known or not.  Insofar as an expert might be permitted to express his opinion on such a matter it is subject to the overriding findings made by the Tribunal.

Lisa Lam’s shares

26.  Apart from the factual matters raised on behalf of Lisa Lam and William Lam in connection with the sale of the remainder of the 10 million shares in Holdings which had been given to Lisa Lam by Siegfried Lee, there is one question of law which was raised.  The question of law relates to the defence under section 10(3) of the Ordinance.  That section reads as follows:

“A person who enters into a transaction which is an insider dealing shall not be held to be an insider dealer if he establishes that he entered into the transaction otherwise than with a view to the making of a profit or the avoiding of a loss (whether for himself or another) by the use of relevant information.”

27.  In approaching the defence under this subsection the Tribunal had reference to what was said in the report of the inquiry in respect of Hanny Holdings Ltd dated 15 June 2000.  Insofar as the approach outlined on page 27 of the report in the present inquiry said that the defence was available to an implicated person only if the evidence shows, on a balance of probabilities, that the true reason or reasons for dealing were wholly unconnected with any desire or intention to make a profit or avoid any loss, no exception can be taken to that.  However the Tribunal went on to refer to what was said in the Hanny Holdings report and went on to say both at pages 28 and 196 of the report that in the case of a disposal of securities the evidence must show, on a balance of probabilities, that circumstances compelled the implicated person to sell and that, without alternative resources, he had no choice but to sell at that time, regardless of whether or not he had come into possession of the relevant information.

28.  Of course, if a person can establish that he had no choice but to sell securities he will, no doubt, be in a strong position to establish a defence under section 10(3) on the basis that there was not an intention to make a profit or avoid a loss.  However, the subsection is clear.  What has to be determined is whether there was any desire or intention to make a profit or avoid a loss by use of the relevant information.  The section does not incorporate any test as to whether the person was compelled to or had no choice but to sell securities.  In those circumstances it seems to me it would be wrong to interpret the Ordinance as if it incorporated this as part of the statutory defence.

29.  Despite the fact that I consider that the Tribunal went too far in expressing the difficulties that are faced by the person seeking to establish a defence under section 10(3), I consider that the Tribunal was correct in coming to the conclusion that the defence failed.  The evidence, which the Tribunal accepted, was that the Lams had contracted to purchase a flat in Bowen Road which, together with incidental expenses, cost a total sum of $16,320,804.  They had decided to do so on the basis that Lisa Lam’s shares would be sold.  The preliminary sale and purchase agreement was dated 10 May 1996 but completion was not take place until the end of July.  A large part of the shareholding was sold in the period from 10 May to 13 June.  It appears that the Lams may have made a substantial profit in what might be termed day trades in Holdings shares.  As a result, by 13 June, there was an amount which had been gained from that trading and from liquidation of the Holdings shares of $6,492,099 as recorded by the Tribunal (although my own calculation of the figures as shown to this court is slightly different, but not to any material extent).  In addition, in August 2006, the Lams received a net sum of $1,589,682 as proceeds from the previous flat.  That left an amount to be found in the sum of the order of $8.25 million.  That appears to have been covered by a mortgage from the Standard Chartered Bank in the sum of $9,490,000 and an overdraft of $1.5 million.  The Lams went on to sell shares on 2, 26 and 29 July 1996.  That raised a further $7.5 million.  Of that, $5 million went into a deposit account which was not apparently used for any immediate purpose and $1.5 million was used to discharge the bank overdraft. 

30.  Although, on the figures which the Tribunal took and appear to be correct it would seem that it was not necessary to use proceeds of the July sales to discharge that overdraft, the Tribunal appears to have considered that simply because the Standard Chartered Bank was prepared to advance a total of $10,990,000 by way of mortgage and overdraft the Lams had no need to sell the shares that were sold in July.  I have some doubt as to whether that approach was correct in view of the fact that the Tribunal found that the total combined income of the Lams was $3,505,000 which is less than a third of the total advanced by the bank.  Borrowings in excess of 3 times the combined income of a married couple, have in the past been regarded as imprudent.  Furthermore the fact that the bank divided the amounts advanced between a mortgage and an overdraft is, perhaps indicative that the bank considered that the mortgage was long-term funding whereas the overdraft was short-term funding.  Given the fact that the amount of overdraft was close to the amount of free equity derived from the sale of the previous flat, it would not be unreasonable to draw the conclusion that the intention behind the overdraft facility was that it would be repaid when the proceeds of sale of the previous flat became available.  Hence, whilst I would not necessarily agree with the approach that the Lams might have been expected to borrow long-term on overdraft that probably was never the intention.

31.  So although clearly the May and June proceeds of sale of the Holdings shares were used to purchase the Bowen Road flat, the sale proceeds obtained in July were not so used.  The primary explanation for the sale of the shares to finance the purchase the new flat was thus correctly rejected by the Tribunal insofar as the July sales were concerned.

32.  Unfortunately the evidence of Lisa Lam’s knowledge as to the difficulties faced by Concept and Holdings as a result of the inability to raise sufficient money to satisfy the cash-flow by means of an IPO of NHD is overwhelming.  The Tribunal dealt with the matter starting at page 157 of the report.  As far back 29 December 1995 both William Lam and Lisa Lam were at a meeting of Concept’s directors when it was noted that Concept was undercapitalised and borrowing could only be a short-term strategy.  As will be apparent below there can be no doubt about their knowledge.  The Tribunal was indeed not overly harsh in its findings when it is considered that it did not draw any adverse inference from the fact that Lisa Lam did not disclose her holding in the shares in Holdings or their sale in the first interview with the Securities and Futures Commission. 

33.  In the light of their knowledge it was for the Lams to establish that the sales in July were not in any way influenced by their knowledge of the difficulties faced by Holdings and its group.  No doubt, they considered that Holdings would survive since, at least in Lisa Lam’s case, her income depended upon it.  Nevertheless they might well have contemplated either a severely reduced share price as well as a dilution of their shareholding which would have consequently produced the same effect.  Their sale of the shares and the deposit of the proceeds into a deposit account demonstrates their intention to secure a safe haven for their assets.  In the light of their knowledge of the insecurity of Holdings shares being such a safe haven, the onus was clearly on them to establish that they had no intention of avoiding a loss.  Having given this matter very careful consideration, I consider that despite the observations which I have made upon the approach of the Tribunal, nevertheless their conclusion that the Lams failed to establish their case under the section 10(3) defence must remain.

34.  Lisa Lam was present at the meeting of 10 May 1996 and indeed, told the Tribunal that she had provided the information contained in Raymond Leung’s note to the effect that Concept would be unable to fund its requirements of approximately US$50 million from cash-flow and that the necessary funding would come from Holdings following the IPO of NHD.  It is unnecessary to rehearse all the other evidence which the Tribunal considered specifically in chapters 7, 13 and 15 of the report.  It suffices to say that the Tribunal considered very carefully whether, in view of Lisa Lam’s denial, it was right to hold that she knew about the abandonment or postponement of the IPO as far back as the day it occurred.  At page 194 of the report it is said:

“We have asked ourselves, why, if the other members of Concept’s senior management knew about the listing’s failure and the consequences that the failure would have for Concept’s future funding needs on the day it occurred, did’nt Lisa Lam know about it?  The only answer we can come up with is that she did know about it on that day and has untruthfully maintained that she did not.”

35.  It was for the Tribunal to decide that.  As Mr Yu pointed out, no doubt the Tribunal took into account the nature of the Holdings’s office, its relatively small size and compactness, the unreality of regarding Holdings and Concept and the staff and employees as being separated.  All these matters no doubt were taken into consideration as with a host of other matters that are for the Tribunal, being the fact finding body, to consider.

36.  During the course of argument, Mr Harris, who appeared on behalf of Lisa and William Lam, sought to argue that Lisa Lam would have been kept deliberately in the dark by Siegfried Lee.  This a question of fact on which Tribunal was amply justified in reaching the conclusion that it did on the evidence that was before it and was outlined in the report.  It is not for this Court to find the facts anew based on some hypothesis.  Even on an appeal where questions of fact are open, this court is only justified in interfering in findings of fact if they can be shown to be demonstrably wrong.  In the present case, as already noted, the appeal is on matters of law.

37.  To suggest that even on the footing that the Lams possessed relevant information they were not aware of its significance and the fact that it was price sensitive is, frankly, so jejune as to be ridiculous.  Neither of them would have been fit for their jobs which they held if they had not realised the importance of the information which they possessed.

38.  It was argued on behalf of the Lams that the Tribunal should have taken the date of 10 August 1996 as being the date for calculation of the loss which the Lams avoided by selling the shares in July.  In my view that argument is not tenable when one considers that what the Tribunal was considering was the importance of the combined information that the IPO was not to take place as planned coupled with the knowledge of the cash-flow difficulties which that presented.  In view of the Tribunal’s findings of fact the date of 10 August would clearly have been inappropriate and the Tribunal was justified in taking the date it did.

39.  Criticism was also levelled at the Tribunal in respect of the order of costs.  Whereas Mr Lee had been ordered to pay 40% of the costs, Lisa Lam and William Lam had together to bear 20% of the costs.  This was said to be manifestly excessive and disproportionate in relation to Mr Lee’s liability.  Whereas on a simple mathematical basis it is clear that Mr Lee had avoided a far greater loss than the Lams, there were no doubt many other factors be taken into account, as Mr Yu pointed out in the course of argument, including the fact that Mr Lee apparently channelled much of the sale proceeds from the shares that had been sold for which he was responsible back into Holdings.  In my view it would not be right for this court to interfere with the assessment of the costs that should be borne by the Lams.

Conclusion

40.  In my view these appeals fall to be dismissed and I would make an order nisi as to costs in favour of the Financial Secretary.

Hon Le Pichon JA:

41.  I have had the advantage of reading the judgments of Rogers VP and Tang JA in draft and agree with both judgments.

Hon Tang JA:

42.  I agree.  I wish only to say a few words about Mr Huggins’ argument, which has been adopted by Mr Harris, that any knowledge gained by either Mr Henry Tai or Mr William Lam, after the meeting of 31 July 1996, at which the IND Executive Committee had taken the decision that the Moredale shares should be sold, cannot support any finding that they had counseled or procured the sale of those shares whilst in possession of such information.  Moreover, that, even if the divestment memo revealed knowledge of price sensitive information, since the divestment memo was probably prepared a few days after 31 July 1996, the divestment memo cannot prove the requisite knowledge at the time of the counseling or procuration.  Even so, I am of the view that they were in possession of the price sensitive information at or before the decision was taken on 31 July 1996, as the following passage in the divestment memo shows: “Following the delay in the NHD spin off, SFH has informed shareholders of Concept on 29 July that SFH Group, including Concept, is in a cash crisis.”  This shows the knowledge of Mr Lam and Mr Tai of the price sensitive information, namely, that the group, including Concept, was in a cash crisis, at or before the meeting of 31 July 1996. 

43.  Mr Yu has also referred us to the transcript of a meeting on 29 July 1996 which was attended by Mr William Lam, when Mr Du said, referring to the parlous state of the company’s financial situation, that “Another thing, I want to make sure everybody understand this is very confidential information because once you speak out, it will be a disaster.”  The transcript is clear evidence that the information was not generally known.  Mr Lam was at the meeting and having regard to Mr Tai’s position and all the circumstances, the only reasonable conclusion is that, he was also aware that the information was not generally known.

Hon Rogers VP:

44.  There will therefore be an order in terms of paragraph 40 above.