CHONG WAI LEE, CHARLES AND ANOTHER v. INSIDER DEALING TRIBUNAL AND ANOTHER

CACV 255/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 255 OF 2009

(ON APPEAL PURSUANT TO SECTION 31 OF
THE SECURITIES (INSIDER DEALING) ORDINANCE, CAP. 395
FROM DETERMINATIONS AND ORDERS OF
AN INSIDER DEALING TRIBUNAL IN RELATION TO
HARBOUR RING INTERNATIONAL HOLDINGS LIMITED)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Kwan JA:

1.  I agree with the Reasons for Judgment of Fok JA.

Hon Fok JA:

Introduction

2.  This appeal arose from an inquiry conducted by the Insider Dealing Tribunal[1] into alleged insider dealing in shares in Harbour Ring International Holdings Limited (Harbour Ring) on 29 February 2000 and 1 March 2000 by, amongst others, the two appellants, who are brother and sister.

3.  By its report dated 6 August 2009 (the Harbour Ring Report), the Tribunal concluded that the appellants were both guilty of insider dealing in breach of s. 9(1)(e) of the Securities (Insider Dealing) Ordinance (Cap. 395) (the Ordinance) and made orders of disqualification, disgorgement and costs against them.  The disgorgement orders were substantial, being, in the case of the 1^st appellant, $25,560,473 and, in the case of the 2^nd appellant, $44,296,905, reflecting the volume of shares in Harbour Ring they had each respectively traded and the substantial share price increase resulting from the relevant price sensitive information.

4.  One of the critical issues in the inquiry, and the issue with which this appeal is concerned, was the question of whether the 1^st and 2^nd appellants had received relevant information within the meaning of s. 9(1)(e).  In the case of the 1^st appellant, Charles Chong Wai-Lee, the Tribunal found that he had received relevant information directly from Mr Sammy Tse Kwok-Fai (Sammy Tse) and indirectly from Sammy Tse by way of Mr Dennis Yat-Tung Li (Dennis Li).[2]  In the case of the 2^nd appellant, Becky Chong Bun-Bun, the Tribunal found that she had received relevant information directly from Sammy Tse and indirectly from Sammy Tse by way of the 1^st appellant.[3]

5.  The appellants challenged the findings and consequential orders of the Tribunal on the grounds that they are vitiated by errors of law.  The Tribunal, 1^st respondent to the appeal, did not appear and was not represented before us, as was customary.  The Financial Secretary, 2^nd respondent to the appeal, sought to uphold the Tribunal’s determinations.

6.  At the conclusion of the hearing:

(1)   We allowed the appeal, quashed the Harbour Ring Tribunal’s findings of insider dealing against the appellants and set aside the consequential orders against them.

(2)   We ordered the 2^nd respondent to pay the costs of the appeal to the appellants, such costs to include their costs before the Harbour Ring Tribunal.

(3)   We granted leave to the 2^nd respondent to notify the Registrar in writing within 21 days of the handing down of our Reasons for Judgment if a remitter to the Insider Dealing Tribunal was sought.  If so, the parties were directed to seek further directions from this court as to whether there should be a hearing as to whether a remitter should be ordered or whether such application should be dealt with on the basis of written submissions.

(4)   We indicated that we would hand down our reasons for allowing the appeal in due course, which we now do.

The alleged insider dealing

7.  It is sufficient for present purposes to summarise briefly the background facts giving rise to the alleged insider dealing.

8.  Harbour Ring’s business was the manufacture and trading of toys and investment in property.  In 1999, shares in Harbour Ring were infrequently traded and only in small volumes.  Its share price began to rise in early January 2000, closing up 93.2% at $0.57 on 31 January 2000 with an average daily turnover of 4.18 million.  Its share price continued to rise in early February 2000 closing at $0.83 on 8 February 2000 with a turnover of 24 million.  The share price then dropped for the period between 9 and 25 February 2000, falling to $0.62, with an average daily turnover of 6.37 million.

9.  On 28 February 2000, turnover increased substantially to 12.1 million and the price closed at $0.66.  On 29 February 2000, the turnover again increased substantially to 20.8 million and the price rose to $0.70.  On the morning of 1 March 2000, turnover increased dramatically to 140.6 million and the share price rose to $1.33 before closing at $1.23 at the close of morning trading.  Trading in the shares was then suspended “pending an announcement concerning a possible change of the controlling shareholder of the company”.

10.  On 10 March 2000, Harbour Ring announced that it had entered into subscription agreements with Internet Capital Group (ICG), Promising Land International Limited Inc and the Li Ka Shing Foundation which would result in those three parties holding 82.1% of the enlarged issued share capital of Harbour Ring.  ICG was an internet company engaged in the USA in business-to-business e-commerce through a network of partner companies.  The Foundation was established by the major shareholder and chairman of Hutchison Whampoa Limited, which had a high profile in the then emerging technology business including business-to-business e-commerce.  Promising Land was one of the existing shareholders in Harbour Ring but ICG and the Foundation were new shareholders and, as a result of the subscriptions, became the majority shareholders in the company, thereby securing what is known as a “backdoor listing”.

11.  On the resumption of trading on 10 March 2000, the Harbour Ring share price reached a high of $9.20 before closing at $7.85, up 538% from its closing on 1 March 2000.

12.  Sammy Tse was the Chief Executive Officer of Hutchison E-Commerce Limited, a wholly-owned subsidiary of Hutchison, which was engaged in business-to-business e-commerce.  The Harbour Ring Tribunal found, and this is not challenged, that he became privy to two pieces of price sensitive information (the relevant information), namely the fact that:

(1)   ICG and Hutchison contemplated investing in Harbour Ring and using it as a vehicle to invest or acquire other business-to-business companies (this was referred to as Information A); and

(2)   ICG contemplated using Harbour Ring for a back-door listing (this was referred to as Information B).

13.  It was the Harbour Ring Tribunal’s finding that Sammy Tse came into possession of Information B on the afternoon of 24 February 2000 and of Information A on the morning of 28 February 2000.

14.  The 1^st appellant placed a purchase order for 1 million shares in Harbour Ring shortly before 11.20 am on 29 February 2000 on his account with his broker Christfund Finance Ltd.  A further purchase order for 1 million Harbour Ring shares was then placed by the 2^nd appellant shortly before 11.35 am on the same day on the 1^st appellant’s account with his broker Pacific Challenge Securities Ltd. and, at the same time, the 2^nd appellant placed a purchase order for 2 million Harbour Ring shares on her Pacific Challenge account.  Shortly before 10.19 am the next day, 1 March 2000, purchase orders were placed by the 2^nd appellant for 3 million Harbour Ring shares on the 1^st appellant’s account with Pacific Challenge and for 7 million Harbour Ring shares on the 2^nd appellant’s account with Pacific Challenge.  These purchases were effected before the suspension of trading on 1 March 2000 and, when trading resumed on 10 March 2000, the value of their respective shares had soared.

15.  It was alleged that the appellants’ acquisition of Harbour Ring shares was the result of their having received the relevant information from Sammy Tse.  Accordingly, by notice pursuant to s. 16(2) of the Ordinance dated 25 September 2003, the Financial Secretary required the Insider Dealing Tribunal to inquire into and determine whether there had been insider dealing in relation to dealings in the shares of Harbour Ring by the appellants, amongst others, on 29 February 2000 and 1 March 2000.

Procedural history

16.  The inquiry into insider dealing in the shares of Harbour Ring was not the only inquiry into alleged insider dealing by the appellants.  They were also the subject, together with a number of other individuals, of an inquiry into alleged insider dealing in shares in Vanda Systems and Communications Holdings Limited (Vanda) between 14 and 17 February 2000.

17.  By a report dated 21 November 2006 (the Vanda Report), a differently constituted Tribunal[4] concluded that the appellants and others were guilty of insider dealing in the shares of Vanda.  It is convenient to quote from Bokhary PJ’s judgment in the Court of Final Appeal arising from this inquiry:

“8. In finding that allegation of insider dealing proved against the appellants, the Tribunal reasoned essentially as follows. They never offered any coherent explanation of why they would have dealt in Vanda shares on the scale and with the urgency that they did unless they were acting on inside information. And there was evidence of a source from which they could have got the relevant information. The brother knew a Mr Sammy Tse who was the Chief Executive Officer of a Hutchison subsidiary and had the relevant information. There was evidence that the brother and Mr Tse had spoken on the telephone on a number of occasions at what the Tribunal considered to be a material time. And it was to be inferred that Mr Tse had passed the relevant information on to the brother and that the brother had shared it with the sister. That, in short, is what the Tribunal thought and found.”

18.  The brother and sister referred to in the paragraph quoted above are respectively the 1^st and 2^nd appellants in this appeal and the Mr Sammy Tse is the same Sammy Tse who is alleged to have been the source of the relevant information giving rise to the insider dealing in the shares in Harbour Ring.

19.  An appeal by the appellants against the findings and orders of the Vanda Tribunal in CACV 96/2007 was dismissed on 10 February 2010.

20.  A further appeal to the Court of Final Appeal in FACV 4/2011 was successful and the decision of the Vanda Tribunal was quashed.

The CFA’s decision in relation to the Vanda inquiry

21.  By its judgment dated 1 December 2011, the CFA unanimously quashed the findings of insider dealing made against the appellants by the Vanda Tribunal and set aside the remaining orders against them.

22.  In the course of his analysis of the problems with the findings of insider dealing, Bokhary PJ addressed an issue arising from the admission, by the Vanda Tribunal’s Ruling dated 4 May 2006, of certain evidence relating to the Harbour Ring inquiry.  He said:

“12. By far the biggest problem arises out of the Tribunal having admitted certain evidence which had been gathered for the then pending Harbour Ring inquiry which was to be into suspected insider dealing in Harbour Ring shares by a number of persons including the appellants and Mr Tse.

13. Three items of Harbour Ring evidence was admitted. They were, as described by the Tribunal, the following items of evidence:

“(a) Evidence that [Mr Tse] attended meetings concerning a proposal to have investment funds injected into Harbour Ring.

(b) Evidence of the purchase of Harbour Ring shares by or on behalf of [,among others, the brother and sister].

(c) Evidence of any telephone communications between [the six implicated parties including Mr Tse, the brother and the sister] at or about the time of the Harbour Ring meetings attended by [Mr Tse] and the purchase of shares.”

The Tribunal ruled that such evidence was admissible to negative coincidence. At the same time, the Tribunal ruled that there would be no exploration of issues that would be explored at the Harbour Ring inquiry.

14. What coincidence was there to be negatived?  And how could it be negatived by pointing to the Harbour Ring dealings unless and until one determined that those dealings involved insider dealing by the appellants in reliance on inside information provided by Mr Tse?

15. Just about every time insider dealing is alleged against an outsider it could be said that his or her denial of having acted on inside information raises a question of coincidence.  But that is no reason to treat coincidence as a separate hare to be chased.  It is simply a matter of looking at the whole of the evidence, weighing it and coming to a conclusion as to whether or not insider dealing has been duly identified and proved.

16. As for using the Harbour Ring evidence in the circumscribed way laid down by the Tribunal, it gave rise to one of the problems with going into marginal matters.  Such matters hardly warrant going into in depth.  But going into a matter without getting to the bottom of it is an inherently risky exercise.

17. And so it proved in the present case.  The inside information on Harbour Ring at the time was of a proposal for the injection by Hutchison of investment funds into Harbour Ring.  But it was not found by the Tribunal that Mr Tse even had that inside information let alone that he had communicated it to anybody. And yet the Tribunal said that the Harbour Ring evidence “negates, in [their] view, any possibility that the purchase of Vanda shares by the Chongs while Charles CHONG was in contact with Sammy TSE was mere coincidence.”  The Tribunal, Mr Duncan accepts, proceeded on the basis that the Harbour Ring evidence showed that those purchases were connected with the brother’s contact with Mr Tse at the material time.

18. Quite simply, the Harbour Ring evidence did not negative coincidence or show connection.  So the Tribunal’s finding that coincidence had been negatived and connection shown was erroneous in law as having been made in the absence of evidence.  It was an error of law of a crucial nature, for the finding that coincidence had been negatived and connection shown was tantamount in the circumstances to findings of insider dealing in Vanda shares on the part of the appellants.

19. The other and no less serious problem about what the Tribunal did in regard to the Harbour Ring dealings is this.  When Mr Chiu asked the Tribunal to go into the Harbour Ring dealings fully if it went into them at all, he was asking for no more than a fair hearing for his clients.  By going into the Harbour Ring dealings in the circumscribed manner which it laid down and then treating the Harbour Ring evidence as evidence which negatived coincidence and showed connection, the Tribunal had, unwittingly of course, denied the appellants a fair hearing.”

23.  Litton NPJ also addressed the Harbour Ring evidence and said:

“44. I have had the advantage of reading in draft Mr Justice Bokhary PJ’s judgment on this aspect of the case and agree with it.

45. When counsel says that the evidence was put in to “negative coincidence”, he meant the coincidence of two events: (1) Sammy Tse being engaged in price-sensitive negotiations and (2) the appellants buying Vanda shares at that time. The introduction of that evidence is predicated upon a doubt: A doubt as to whether the purchase of Vanda shares was as a result of a tip-off by Sammy Tse. Or was it a mere coincidence.

46. But, without a finding that the appellants’ purchase of Harbour Ring shares was as a result of information leaked by Sammy Tse, how could the doubt relating to the purchase of Vanda shares be dispelled by the fact of purchase of Harbour Ring shares? But the Tribunal said this: The two appellants had bought a total of 14 million Harbour Ring shares, at a time when Sammy Tse was involved in the Harbour Ring negotiations: This, said the Tribunal, negated any possibility that the purchase of Vanda shares by the two appellants, while Charles Chong was in contact with Sammy Tse, was mere coincidence. It did nothing of the sort.

47. This, in my judgment, is a serious error of law, not corrected by the Court of Appeal.”

24.  Bokhary PJ rejected the submission made on behalf of the Financial Secretary that the appeals should be dismissed because “the findings of insider dealing in Vanda shares on the part of the appellants ought nevertheless to be affirmed as inevitable on the evidence apart from the Harbour Ring evidence” (§20).

25.  Accordingly, the findings of insider dealing were quashed and the other orders set aside and it was directed that, if the Financial Secretary did not notify the Registrar that a remitter to the Tribunal was sought, the appeals would be allowed.  No such remitter was sought and, the appeals therefore being allowed, the result was that the appellants’ purchases of Vanda shares were not to be regarded as insider dealing on the basis of price sensitive information emanating from Sammy Tse.

The admission of Vanda evidence in the Harbour Ring inquiry

26.  In the same way that the Vanda Tribunal admitted the Harbour Ring evidence in the inquiry before it, the Harbour Ring Tribunal, by a Ruling dated 27 February 2007, admitted the following three classes of evidence from the Vanda inquiry, namely:

(1)   Evidence that Sammy Tse attended meetings and was involved in the proposal by Hutchison to invest in Computer and Technologies Holdings Limited (C & T) and Vanda;

(2)   Evidence of the purchase of C & T shares or Vanda shares by or on behalf of, among others, the appellants; and

(3)   Evidence of any telephone communications between the six implicated parties, including Sammy Tse and the appellants, at or about the time period commencing 1 February 2000 and concluding on 1 March 2000.

27.  It will be noted that the Vanda evidence admitted in the Harbour Ring inquiry is the mirror image of the Harbour Ring evidence admitted in the Vanda inquiry.

28.  The same purpose for the admission of this evidence was identified by the Harbour Ring Tribunal as identified by the Vanda Tribunal in respect of the Harbour Ring evidence.  The Harbour Ring Tribunal expressed the purpose as being two-fold:

“4. First, it is argued that evidence of Mr Sammy Tse’s involvement in the two sets of negotiations is evidence of his earlier knowledge of the type of transaction in which Hutchison undertook in relation to Harbour Ring. Second the evidence of Mr Sammy Tse’s involvement in the Vanda negotiations, together with telephone calls between various implicated parties and Mr Sammy Tse, around the time of all three transactions, and the subsequent share dealings, is evidence which goes to rebut any defence of coincidence, that defence appearing from the records of interview with the implicated parties.

5. It is the position of Counsel to the Tribunal that this evidence will go to establish that the persons who purchased both Vanda and Harbour Ring shares did so only after having received information from Mr Sammy Tse concerning the business transactions being undertaken by his employer, Hutchison, in relation to the two companies.  The evidence goes to negative any contention that might be made that it was a mere coincidence that the implicated parties purchased Harbour Ring shares only after Mr Sammy Tse became involved in negotiations which provided him with information concerning that company, and after communication between the implicated parties and Mr Sammy Tse.  It will be the contention of Counsel to the Tribunal that the evidence may even go so far as to establish a system involving the various implicated parties.”

29.  It will therefore be seen that the basis of admission of the Vanda evidence in the Harbour Ring inquiry was the same as the basis of admission of the Harbour Ring evidence in the Vanda inquiry.

Did the admission of the Vanda evidence taint the Harbour Ring

Tribunal’s findings of insider dealing?

30.  The first ground of appeal is that the admission of the Vanda evidence was an error of law in that it amounted to the admission of irrelevant evidence and gave rise to unfairness.

31.  Mr Simon Chiu, counsel for the appellants, sought to derive a number of propositions from the CFA’s judgment in relation to the Vanda inquiry, two of which were that:

(1)   because the Vanda Tribunal failed to make any finding whether or not insider dealing had taken place in the Harbour Ring share dealings, the Harbour Ring evidence did not negate coincidence or show connection in the Vanda share dealings between the appellants and Mr Tse; and

(2)   by the Vanda Tribunal’s decision to refuse to allow full probing into the Harbour Ring evidence but instead to admit it in a circumscribed manner, the appellants were denied a fair hearing.

32.  In the light of the passages from the CFA’s judgment quoted above, I am satisfied that those propositions as to the scope and effect of the CFA’s judgment are sound and I did not understand Mr Nicholas Cooney SC, leading counsel for the 2^nd respondent,[5] to argue to the contrary.

33.  The real issue between the parties was whether the Harbour Ring Tribunal had allowed its reasoning in respect of insider dealing in Harbour Ring shares to be tainted by the admission of the Vanda evidence.  For the appellants, Mr Chiu submitted that the Harbour Ring Tribunal repeated the same errors of law as the Vanda Tribunal in these two respects and that those errors heavily impinged on its findings against the appellants.  For the 2^nd respondent, Mr Cooney submitted that the Harbour Ring Tribunal’s reasoning process was untainted by the Vanda evidence and its findings of insider dealing stood alone without reference to the Vanda evidence.

34.  In my view, notwithstanding the submissions of Mr Cooney to which I will return, Mr Chiu’s submission must be accepted for the following reasons.

35.  It is clear that the Harbour Ring Tribunal was aware “of the fact that Sammy Tse, Dennis Li, Debbie Ng, Chris Wong, Charles Chong and Becky Chong had each been found to be insider dealers in the Vanda enquiry [sic]” (§61).  The relevance of the C & T and Vanda transactions was considered in Chapter 5 of the Harbour Ring Report.  It is clear that they were used in that context to support the Harbour Ring Tribunal’s conclusion (§122) that Sammy Tse was in possession of relevant information in relation to all three transactions.  Critically, however, the Harbour Ring Tribunal went further and said:

“123. We were equally satisfied that to assert that it was a mere coincidence that following the extent of the telephone conversations given evidence between the various implicated parties, and the timing of the acquisition by the implicated parties of the shares in both Vanda and Harbour Ring, it was a mere coincidence that the implicated parties had acquired shares in both Vanda and Harbour Ring would be equally completely contradictory to common sense.

124. We were accordingly satisfied that the probative value of the evidence outweighed any prejudicial nature that might come with it. The evidence was not merely evidence of bad character on the part of the implicated parties, or any particular disposition on their part to engage in insider dealing. It was evidence which we were satisfied was capable of tending to persuade us that an informal system had developed and that consequently insider dealing may have taken place. There was such a striking similarity between the circumstances in which the acquisition of Vanda shares were made, and the circumstances in which the acquisition of Harbour Ring shares were made, that the evidence was capable of establishing a significant connection, going beyond a mere propensity or coincidence.

125.     At the end of the day, when we came to weigh the evidence of the circumstances surrounding the acquisition of Harbour Ring shares, we found that the probative value and cogency of the Vanda evidence was such that there could be no other reasonable explanation for the whole of that conduct than that those involved in the acquisition of Vanda shares had also acquired Harbour Ring shares as a result of insider dealing.”

(Underlining added)

36.  Further, although the Harbour Ring Tribunal accepted “that the fact of communication [of the relevant information to the other implicated parties] had to be separately established” (§128), it is clear that the Vanda evidence was used, in relation to Dennis Li, “to rebut … any suggestion that it might be a mere coincidence that following telephone conversations or meetings at relevant times between Sammy Tse and Dennis Li, there were subsequent telephone conversations between … Dennis Li and Charles Chong …” (§129).

37.  When one then turns to analyse the sections of the Harbour Ring Report dealing with the dissemination of the relevant information by Sammy Tse (Chapter 11), the share acquisitions by the 1^st appellant (Chapter 12) and the share purchases by the 2^nd appellant (Chapter 13), one sees that the Vanda evidence is clearly an integral part of the Harbour Ring Tribunal’s reasoning process leading to the findings of insider dealing.

38.  Thus, in Chapter 11, having established Sammy Tse’s opportunity, when in possession of Information A and Information B to disseminate it, the Harbour Ring Tribunal analysed the relationships between the various parties.  In respect of Sammy Tse and Dennis Li, the Harbour Ring Tribunal found they had lied to conceal the true purpose of a loan of $500,000 from Sammy Tse to Dennis Li, which the Harbour Ring Tribunal concluded was for the purpose of the latter buying shares in Vanda.  The gravamen of this conclusion was that an adverse inference was warranted by reason of their concealment of the truth about the use of the funds to purchase shares in Vanda.  However, if the purchase of those shares was not insider dealing, it is difficult to see how far the adverse inference goes.

39.  More directly, in respect of the relationship between Sammy Tse and Debbie Ng, the Harbour Ring Tribunal clearly took the insider dealing nature of the Vanda share purchases as a reason for concluding that the price sensitive information relating to Harbour Ring would have been disclosed to Dennis Li and Debbie Ng by Sammy Tse:

“256. On that day, there were 10 calls between Sammy Tse and Dennis Li, and 17 between Sammy Tse and Debbie Ng. Dennis Li and Debbie Ng had, only shortly before 25 February 2000, made substantial profits in dealing in Vanda shares, in circumstances that directly paralleled the circumstances of Harbour Ring.

257. We find it simply unbelievable, with that background, that the Harbour Ring transaction would not have been disclosed to Dennis Li and Debbie Ng by Sammy Tse. That is especially so when regard is had to the fact of the very substantial profits so recently made by both Dennis Li and Debbie Ng, as a result of being in receipt of inside information from Sammy Tse in respect of Vanda. Debbie Ng’s evidence, which we accepted, was that Sammy Tse was a person who would boast of his position at Hutchison. It is entirely consistent with such an attitude that such a person would tell others of important transactions he was involved.”

(Underlining added)

40.  Critically, when dealing with the relationship between Sammy Tse and the 1^st appellant, the Harbour Ring Tribunal relied on the fact that the 1^st appellant “knew that Sammy Tse worked for Hutchison, and had made profits from transactions in Vanda” (§266). They used this as a basis for reasoning that it was more likely that not that Sammy Tse passed the relevant information to Charles Chong:

“272. We are satisfied, to the appropriate standard, bearing in mind the prior involvement of Sammy Tse in Hutchison, and profits made by Charles Chong through C & T and Vanda, that it is more likely than not that the discussions included Sammy Tse telling Charles Chong of the impending involvement of Hutchison with Harbour Ring.”

However, if the 1^st appellant’s purchase of Vanda shares was not insider dealing, in the same way that the C & T share purchases were not insider dealing (and that was never alleged), it is difficult to see why those transactions make it more likely that Sammy Tse would have disclosed the relevant information in respect of Harbour Ring.  It follows that the Harbour Ring Tribunal’s reasoning must have proceeded on the basis that there was insider dealing in respect of the Vanda shares.

41.  It is also clear that the Harbour Ring Tribunal’s conclusion on the dissemination of the relevant information by Sammy Tse to Dennis Li and the 1^st appellant prior to the 1^st appellant’s purchase of shares in Harbour Ring was infected by their taking into account the Vanda insider dealing:

“274. We are equally satisfied that when Sammy Tse did pass the information he had concerning Hutchison and ICG’s proposed involvement in Harbour Ring, to Dennis Li, Debbie Ng and Charles Chong, Sammy Tse had reasonable cause to believe that Debbie Ng and Charles Chong would deal in Harbour Ring shares. He knew that they had dealt in Vanda shares and had made substantial profits with those shares. The very purpose of passing the information to them was to enable them to deal in the shares, as insider dealers.”

42.  Turning to Chapter 12 where the Harbour Ring Tribunal analysed the 1^st appellant’s purchases of shares in Harbour Ring, it is also apparent, in my view, that the insider dealing nature of the Vanda share purchases was an integral part of the reasoning leading to the conclusion of his insider dealing in respect of the Harbour Ring shares. Although the Harbour Ring Tribunal relied on other evidence (to which I shall refer below), this is apparent from the following extract:

“304. We have also had regard to the circumstances of Charles Chong’s acquisition of shares in Vanda. The acquisitions of shares in Harbour Ring follow precisely the same pattern as in Vanda. He refused to acknowledge any similarity between the Vanda and Harbour Ring transactions, a refusal which was quite unjustified in the face of the evidence. His explanation that the shares were purchased whilst he was in Japan simply avoids the point. It is nothing to the point that he might have been in Japan, having regard to modern communications methods.

305. We reject Charles Chong’s assertions as to the basis upon which he made his acquisition in Harbour Ring shares. We are satisfied to the appropriate standard of proof that he learnt of the potential involvement of Hutchison and ICG in Harbour Ring from Sammy Tse or Dennis Li. If he learnt of the information from Dennis Li he must have known that came from Sammy Tse. In any event he knew that Sammy Tse was a connected person.”

43.  This then led to their conclusion, in respect of the 1^st appellant, that:

“338. Contrary to s 9(1)(e) of the Ordinance, Charles Chong, being a person who had information which he knew to be relevant information in relation to Harbour Ring, which he received directly from Sammy Tse, and indirectly from Sammy Tse by way of Dennis Li, he knowing Sammy Tse to be connected with Harbour Ring, and having reasonable cause to believe that Sammy Tse held that information by virtue of being so connected, dealt in the securities of Harbour Ring.”

44.  As we shall see, there is no finding or evidence of any direct communication between Sammy Tse and the 1^st appellant prior to his purchase of the Harbour Ring shares, so the relevant information could only have come to him indirectly from Sammy Tse via Dennis Li.

45.  As for the 2^nd appellant, an analysis of Chapter 13, where the Harbour Ring Tribunal considered her share purchases, also demonstrates that the insider dealing nature of the Vanda share purchases was an integral part of the reasoning leading to the conclusion of her insider dealing in respect of the Harbour Ring shares.  Again, although the Harbour Ring Tribunal relied on other evidence (to which I shall refer below), this is apparent from the following extract:

“307. Charles Chong and Becky Chong had both acquired shares in Vanda consequent upon the [sic] Charles Chong receiving relevant information from Sammy Tse. Charles Chong and Becky Chong are brother and sister, and plainly have a close relationship. We think it more likely than not that that relationship is even closer following the unfortunate death of Becky Chong’s a [sic] husband.

308. There is no doubt at all that both were very interested in share trading and that this was a topic they from time to time discussed. Having regard to the very substantial investment and profits they had made, both at the same time although not jointly, in Vanda, we have no doubt at all that they would have discussed between themselves the outcome of the investment and the reason for the profit. The outcome was a substantial profit for each, the reason for the profit was that Charles Chong had received, from a reliable source, inside information.”

46.  This was clearly part of the reasoning leading to the conclusion (§314) and finding (§339):

“314. In those circumstances we are satisfied to the appropriate standard of proof that Becky Chong received information which she knew to be relevant information indirectly, (that is through Charles Chong), from a person whom she knew was connected with Harbour Ring, namely Sammy Tse, and that he had that information by virtue of being so connected.

…

339. Contrary to s 9(1)(e) of the Ordinance, Becky Chong, being a person who had information which she knew to be relevant information in relation to Harbour Ring, which she received directly from Sammy Tse, and indirectly from Sammy Tse by way of Charles Chong, she knowing Sammy Tse to be connected with Harbour Ring, and having reasonable cause to believe that Sammy Tse held that information by virtue of being so connected, dealt in the securities of Harbour Ring.”

47.  In passing, it is relevant to recall (see FN3 above) that it is accepted by the 2^nd respondent that the reference, in §339, to the 2^nd appellant having received the relevant information directly from Sammy Tse must be in error since there was no suggestion to that effect in §314.

48.  Mr Cooney submitted that when the Harbour Ring Tribunal first referred to the Vanda inquiry in the Harbour Ring Report (at §61), it was in the context of discussing the relevance of good character and the fact that had both inquiries been heard together the 1^st and 2^nd appellants would both be treated as having unblemished records, which the Harbour Ring Tribunal accepted should be the case (§62).  In other words, the Harbour Ring Tribunal did not assume insider dealing in relation to Vanda.

49.  However, whilst the context of the reference to the Vanda inquiry in §61 was that of good character, the later references to the Vanda inquiry, which I have quoted above, make it clear that the Harbour Ring Tribunal did nevertheless proceed on the basis of the actual finding of insider dealing in relation to Vanda shares and not on the assumption that no such insider dealing had occurred.  This (i.e. the fact of insider dealing in relation to Vanda) is also the case notwithstanding the Harbour Ring Tribunal’s acceptance that the fact of communication of the relevant information to the alleged insider dealers had to be separately established (§128).

50.  Mr Cooney also sought to suggest, in respect of the Vanda references in Chapter 11, that they were limited to establishing the nature of the relationship between the various parties.  I do not accept that submission which, in the light of the extracts from the Harbour Ring Report I have quoted above, seems to me, with respect, to be unrealistic.

51.  As to the references to Vanda in Chapters 12 and 13, Mr Cooney was effectively constrained to submit that the other evidence relied upon by the Harbour Ring Tribunal made the findings of insider dealing inevitable.  That does not demonstrate that the findings were not tainted by the Vanda evidence but instead gives rise to the next question to be considered which is whether, assuming the Harbour Ring Tribunal’s reasoning was tainted by the Vanda evidence, its findings of insider dealing by the 1^st and 2^nd appellants were inevitable, to which I shall return in the section of these Reasons which follows.

52.  Mr Chiu further submitted that the Harbour Ring Tribunal also erred in admitting the Vanda evidence in a circumscribed manner because it resulted in the appellants being unable to address findings in the Vanda Report either by way of challenge or, in one particular respect, by way of support for a contention being advanced by them in the Harbour Ring inquiry.  This latter point relates to an acceptance by the Vanda Tribunal that it was common ground that Sammy Tse and the 1^st appellant were not close friends: see the Vanda Report at p. 198.  Yet, the Harbour Ring Tribunal found that the 1^st appellant and Sammy Tse were good friends together with Mr Dennis Li and Ms Debbie Ng, two of the other implicated parties: see the Harbour Ring Report at §§265-269.

53.  That finding that the 1^st appellant and Mr Tse were good friends was material to the Harbour Ring Tribunal’s process of reasoning leading them to the inference that information had been passed between them.  As the Harbour Ring Tribunal observed in its Report:

“246. It is appropriate in considering whether or not Sammy Tse disseminated information, and those who received the information further disseminated that information, to examine in more detail the various relationships. If parties are [sic] have a close relationship, then the inference that one has given information to another maybe [sic] more readily drawn. If the relationship is remote it will be more difficult to draw the inference.”

54.  This is a further reason why, in my opinion, the Harbour Ring Report is tainted by the admission of the Vanda evidence.

Finding of insider dealing inevitable without regard to the Vanda evidence?

55.  In view of the conclusion, for the reasons set out above, that the findings of insider dealing by the Harbour Ring Tribunal were tainted by the admission of the Vanda evidence, it falls to consider whether those findings ought nevertheless to be affirmed as inevitable on the evidence apart from the Vanda evidence: see §20 of the CFA’s judgment in respect of the Vanda inquiry.

56.  It is right that the burden on the 2^nd respondent is to show inevitability of the findings of insider dealing since this would be the only proper basis on which to uphold the findings of the Harbour Ring Tribunal notwithstanding the admission of evidence which has been held to be inadmissible and which, moreover, had the effect of depriving the appellants of a fair hearing.  I shall return to this point later in these Reasons since it is an important element in this analysis.

57.  Mr Cooney submitted that the threshold of inevitability could be shown to be reached in the present case on the evidence.  As against the 1^st appellant, Mr Cooney pointed to the fact that the Harbour Ring Tribunal found that he had received relevant information directly from Sammy Tse and/or indirectly from Sammy Tse by way of Dennis Li and, in particular, the Harbour Ring Tribunal:

(1)   found that there was evidence of a telephone call which lasted for nearly six minutes between the 1^st appellant and Dennis Li at 10pm on 28 February 2000, before the appellants’ first purchase of Harbour Ring shares the next morning;

(2)   found that, before the six minute call, Sammy Tse had come into possession of relevant information (Information A) during that morning and that Sammy Tse had already had a number of telephone contacts with Dennis Li before the latter called the 1^st appellant;

(3)   found that the 1^st appellant had lied with respect to:

(a)  his contacts with Sammy Tse and Dennis Li for the purpose of concealing the extent of the involvement between Sammy Tse, Dennis Li and himself;

(b)  his relationship with Dennis Li for the purpose of distancing himself from Dennis Li, a person whom he knew had been in receipt of relevant information in relation to Harbour Ring, and who had passed that information on to him; and

(c)  the extent of his purchase of Harbour Ring shares for the purpose of concealing from the Securities and Futures Commission the very substantial extent of the investment he had made in the purchase of Harbour Ring shares; and

(4)   rejected the 1^st appellant’s evidence as to the circumstances and explanation of his purchase of Harbour Ring shares.

58.  As against the 2^nd appellant, Mr Cooney pointed to the fact that the Harbour Ring Tribunal found that she had received relevant information from Sammy Tse indirectly via the 1^st appellant and, in particular, the Harbour Ring Tribunal:

(1)   rejected the 2^nd appellant’s case that she made the purchases as a result of visits to the goddess “Kwan Yin” during the Lunar New Year as there was nothing in the evidence to suggest that there were specific references from the visit that the 2^nd appellant should purchase Harbour Ring shares and, further, the Tribunal did not believe her broker, Mr Johnny Chui Tin-Yam (Johnny Chui) of Pacific Challenge;

(2)   was also of the view that the 2^nd appellant was unable to explain why, if she was relying on newspaper reports in Apple Daily on 22 February 2000, she should wait until late in the morning on 29 February 2000, before making her share purchases.

59.  In a respondent’s notice, which we granted the 2^nd respondent leave to file out of time, the 2^nd respondent further contended that the finding of insider dealing against the appellants was irresistible on the evidence because of the further fact that there was inconsistency in the appellants’ evidence as regards the timing of their purchases of Harbour Ring shares since:

(1)   the 1^st appellant’s evidence was that, after he was informed about the Harbour Ring shares by the 2^nd appellant, he decided to place an order for 1 million shares through his Christfund account; and

(2)   the 2^nd appellant’s evidence was that, after she read the relevant reports about Harbour Ring a few days before 29 February 2000, she decided to call her broker to inquire about the price of Harbour Ring shares; but

(3)   Johnny Chui’s evidence was that when the 2^nd appellant called him to inquire about the Harbour Ring shares she did not know the name or the price of the stock but only “a stock with stock code 761, 175 or 757”, so he checked for her and told her there was a stock called Harbour Ring with the code 715 after which she placed the order.

60.  Further, Mr Cooney relied on the fact that the Harbour Ring Tribunal noted (in §271 of the Harbour Ring Report) that during January 2000, and up to 9 February 2000, there had been daily increases of 10% or more in the Harbour Ring share price and that the daily increase had, on one occasion, reached 23.91%.  There had also been substantial increases in the trading volume each day.  Yet, despite those indicators, neither of the appellants bought shares in Harbour Ring before 29 February 2000.

61.  We were taken by Mr Cooney through an extract of Annex D of the Harbour Ring Report which identified the meetings, phone calls and transactions related to the Harbour Ring Tribunal’s findings in respect of the appellants between 24 February 2000 and 1 March 2000.  It will be recalled that Sammy Tse was found to have obtained Information B during the afternoon of 24 February 2000 and Information A during the morning of 28 February 2000.

62.  I do not propose to analyse the schedule of telephone calls in detail.  It is sufficient to note that there were calls between Sammy Tse and Dennis Li after the former came into possession of the relevant information which were plainly of sufficient duration for Sammy Tse to impart that information to Dennis Li.  Likewise, there was sufficient opportunity for Dennis Li to pass on that information to the 1^st appellant and for him, in turn, to pass it on to his sister, the 2^nd appellant.

63.  In contrast, there is no evidence of any telephone call between Sammy Tse and the 1^st appellant and so any direct imparting of the relevant information from the former to the latter could only have occurred by reason of their being neighbours in a property development called Deer Hill Bay where the 1^st appellant lived and to which Sammy Tse moved at the end of 1999.  But no such finding was made by the Harbour Ring Tribunal to explain or justify the conclusion that there was a direct communication of the relevant information from Sammy Tse to the 1^st appellant.

64.  The ultimate question is whether, given that opportunity, it is an irresistible inference based on the other evidence that Sammy Tse must have passed the relevant information to Dennis Li, and he, in turn, to the 1^st appellant and the latter to the 2^nd appellant.

65.  In my opinion, the answer to that question is, plainly, no.  There are a number of factors which lead me to this conclusion. These do not, either singly or collectively, demonstrate that insider dealing did not take place as alleged but that is not the relevant question or threshold.  As I have mentioned above, the question is whether a finding of insider dealing is inevitable, i.e. the only reasonable inference that the Harbour Ring Tribunal could have drawn on the evidence before it.  This is the only proper basis on which the findings of insider dealing might be upheld since, as I have explained above, the reasoning of the Harbour Ring Tribunal was tainted by the admission of the Vanda evidence.

66.  First, at the time of the purchases, the Harbour Ring share price had begun to rise again after having fallen slightly from 9 to 25 February 2000.  So it was a stock which had risen quite substantially earlier in the year and, having leveled off and fallen slightly, was beginning to rise again.  It could be said that a speculator might therefore identify this as a stock with a potential for its price to continue rising.

67.  Secondly, there was a phenomenon of spectacular share price increases in companies involved in the high-tech sector – the so-called “high-tech” euphoria arising from the “dot com” boom identified by the Harbour Ring Tribunal.  There were numerous examples of sudden and spectacular rises in share prices of companies involved in this sector: see the Harbour Ring Report at §131.

68.  Thirdly, the appellants purchased a number of different shares around this time, including C & T and Vanda – the former without any suggestion of insider dealing and the latter being assumed to be untainted by insider dealing.  If those purchases were not instances of insider dealing, this provides a further contextual factor when considering whether the Harbour Ring share purchases were the result of insider dealing.

69.  Fourthly, the 2^nd appellant was an extremely wealthy woman who speculated heavily in the share market for some months prior to February 2000 through her Pacific Challenge account.[6]  The 1^st appellant similarly speculated in various tech stocks in the latter part of 1999 and early 2000, particularly in January, February and March 2000.[7]

70.  Fifthly, although she sold some of the 9 million Harbour Ring shares she acquired on 29 February 2000 and 1 March 2000, she continued to buy further substantial quantities of Harbour Ring shares through March, April, May and July 2000 without any suggestion that those purchases were the result of insider dealing.[8]

71.  Sixthly, although the appellants may each have lied in their evidence, on the principles in Yuen Kwai Choi v HKSAR (2003) 6 HKCFAR 113 at §§32 & 34, a lie only affects credibility and cannot in itself prove guilt.  Further, a lie may be used to establish or assist a case or strengthen an inference of guilt, for example by providing corroboration for an accomplice’s evidence or to support identification evidence but if so (i) it must be a deliberate lie, (ii) relating to a material issue in the case, (iii) there must be no innocent explanation for it and (iv) it is admitted or proved by independent evidence.  Applying these principles, it seems to me that it may be difficult to say that the lies found by the Harbour Ring Tribunal and relied upon by Mr Cooney could not be the subject of an innocent explanation but, in any event, they cannot establish guilt on their own.

72.  Finally, the possibility exists that the timing of the appellants’ purchases of shares in Harbour Ring and Sammy Tse’s coming into possession of the relevant information is simply a matter of coincidence. It was that coincidence that the Vanda evidence was designed to counter but, for the reasons already explained, its use for that purpose was impermissible.

73.  For all these reasons, although the purchases of Harbour Ring shares by the appellants may give rise to a suspicion of insider dealing, I do not consider that, if the Vanda evidence is excluded, the Harbour Ring Tribunal’s findings of insider dealing on the part of the appellants was inevitable.  Even assuming it was open to the Harbour Ring Tribunal on the evidence before it to conclude that there had been insider dealing by the appellants in the shares of Harbour Ring, which was a submission advanced to us by Mr Cooney, that does not go far enough for present purposes.  As I have explained, the 2^nd respondent must demonstrate that a finding of insider dealing is the only reasonable inference open on the evidence.  In my judgment, that has not been shown to be the case.

Conclusion

74.  Accordingly, these are the Reasons which, in my view, lead to the disposition of the appeal as set out in paragraph 6 above.

Hon Barma JA:

75.  I agree with the Reasons for Judgment of Fok JA.