HKSAR v. CHAN WAI YIP AND OTHERS

HCMA449/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MAGISTRACY APPEAL NO. 449 OF 2008

(ON APPEAL FROM FLCC NO. 886 OF 2007)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Tang VP:

Introduction

1.  19 defendants were charged with one single count of conspiracy to defraud, contrary to common law and punishable under section 159C(6) of the Crimes Ordinance, Cap. 200. The particulars of offence alleged that:

“… between a date unknown in June 2004 and the 21^st day of July 2004, in Hong Kong, conspired together with AU Wing and other persons unknown, to defraud the Food and Environmental Hygiene Department (‘the FEHD’), by dishonestly pre-allotting amongst themselves and their representatives the cooked food stalls at Tai Po Hui Market at No.8 Heung Sze Wui Street, Tai Po prior to the auction held by the FEHD on the 21^st day of July 2004 (‘the Auction’) and agreeing amongst themselves and their representatives not to compete against one another in bidding the aforesaid cooked food stalls at the Auction, thereby deceiving the FEHD into believing that there was only one bid offered at the upset price for each of the aforesaid cooked food stalls and renting the aforesaid cooked food stalls at the upset prices to the aforesaid persons or their representatives.”

2.  After trial, apart from the 1^st defendant who had pleaded guilty, all the defendants were convicted by Deputy Magistrate Eric Cheung Kwan-ming (as he then was). They were each sentenced to imprisonment ranging from 9 months to 12 months. They appealed against both conviction and sentence. On 13 May 2009, Deputy High Court Judge Toh transferred these appeals to this Court pursuant to section 118(1)(d) of the Magistrate Ordinance, Cap. 227. She also granted the appellants bail pending appeal. They had earlier been denied bail by the learned Deputy Magistrate. Unfortunately, pending appeal, the 19^th defendant died. His appeal was abated on 2 March 2010.

3.  We have allowed the appeal and now give reasons for our decision.

Facts

4.  The facts are quite straight-forward. For the present purpose they can be stated briefly.

5.  The appellants were the tenants or assistants to the tenants of cooked food stalls at the former Tai Po Temporary Market (“the Old Market”). In 2004, the appellants and other tenants were required by the Food and Environmental Hygiene Department (“FEHD”) to move from the Old Market to the newly built Tai Po Hui Market (“the New Market”). They were given priority to bid for stalls at the New Market in a restricted auction （圍內競投） which was held exclusively for them. The bid price would become the rent to be paid. The upset prices for these stalls were fixed at 75% of the market rent as assessed by the Rating and Valuation Department. These upset reserved prices were made known by letters sent by FEHD to the potential bidders including the defendants in early June 2004.

6.  The prosecution’s case is that before attending the restricted auction, the appellants had attended a pre-allotment exercise held among themselves and other tenants of the Old Market. The exercise was conducted by way of the drawing of lots. The numbers drawn in the first round would determine the sequence of the draw in the second round. A number drawn in the second round would be the number of the stall in the New Market allotted to the drawer of that number. The participants also agreed amongst themselves that, each would only bid for the stall which had been allotted to him/her in this manner.

7.  The restricted auction was held on the 21 July 2004 and was attended by 36 eligible bidders, including these appellants. 40 cooked food stalls were put up for auction. There were no competitive bidding during the auction and the stalls were knocked down to all the 36 bidders at the upset prices.

Rival submissions

8.  Mr Terence Wai, who appeared for the prosecution below and before us, relied on the pre-allotment and the agreement not to compete, as the constituents of the offence. He does not rely on any aggravating feature such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract as he had not relied on any of these aggravating features at trial.

9.  Nor did he rely on section 7(1) of the Prevention of Bribery Ordinance, Cap. 201 (“PBO”) which makes it an offence for:

“(1)  Any person who, without lawful authority or reasonable excuse, offers any advantage to any other person as an inducement to or reward for or otherwise on account of that other person's refraining or having refrained from bidding at any auction conducted by or on behalf of any public body, shall be guilty of an offence.”

10.  Section 7(2) makes it an offence for a person to solicit or accept any advantage in similar circumstances. Section 6 covers corresponding offences in respect of tenders by public body. I will return to section 7 of PBO in due course.

11.  Instead, Mr Wai relied on what Viscount Dilhorne said in Scott v Metropolitan Police Commissioner [1975] AC 819 at page 840:

“… in my opinion it is clearly the law that an agreement by two or more by dishonesty to deprive a person of something which is his or to which he is or would be or might be entitled and an agreement by two or more by dishonesty to injure some proprietary right of his, suffices to constitute the offence of conspiracy to defraud.”

12.  He submitted that FEHD had suffered economic loss as a result of the appellants’ conduct.

13.  The arrangement complained of in this case, namely, an agreement by which parties agreed not to bid against one another at an auction is not a recent or uniquely Hong Kong phenomenon. Mr Martin Lee, SC, who, leading Ms Bonnie Tam, appeared for the 3^rd, 5^th to 9^th, 13^th, 15^th to 17^th appellants on appeal but not below, submitted that such an agreement has always been held to be valid and enforceable by English courts and more importantly, has never been held to be criminal. The other appellants have adopted Mr Lee’s submissions.

Authorities up to 1975

14.  The first authority relied on by Mr Lee is Galton v Emuss [1844] 1 Coll 243. The agreement was that in consideration of A’s withdrawing his opposition to B’s purchase of an estate at a sale by auction, A shall have the right of pre-emption of that estate and of another estate belonging to B during his lifetime, and for twelve months after his disease. The agreement was held to be founded upon valuable consideration and specific performance was ordered.

15.  Knight Bruce VC said at 246:

“Two men, severally desirous of effecting a purchase of an estate, become acquainted with each other’s intentions, and, with a view to their own benefit, enter into an engagement together that one shall retire, leaving the field open to the other.  It is not suggested that this arrangement involved any matter of fraud or misrepresentation; it was merely that one should not bid while the other was a competitor.  No authority has been cited to show that a contract founded on such a consideration is illegal …”

16.  In In re Carew's Estate[1858] 26 Beav. 187, on a sale under the court, two persons agreed not to bid against each other, but that one should bid up to £1,500 and divide the lot between them. They bought it for £650. When the agreement became known to the vendors, they took out a summons to set aside the sale. Sir John Romilly MR refused to set aside the sale, and in a reserved judgment said at 189:

“… I am not aware of any case, or of any principle which establishes that such an agreement is inequitable. … Its validity must depend on the legality of such an agreement, and not the amount to be given.”

17.  After examining an earlier authority he said at page 190:

“I find that it does not bear out the proposition that a mere agreement, between two persons, each desirous to buy a lot that they will not bid against each other, is sufficient to invalidate a sale to one of them …”

18.  In Heffer v Martyn [1867] 36 LJ Ch 372, where the plaintiff, to induce B not to bid at a public auction, agreed to pay B £500 if the plaintiff should buy the property at a price not greater than £6,500. He also tried unsuccessfully to arrange with other persons that they should not bid. The plaintiff eventually bought the property at £3,000, which was the reserve. On the vendor’s refusal to complete, Lord Romilly MR ordered specific performance and said:

“I had to consider this in the matter of In re Carew's Estate, and I came to the conclusion that such an arrangement is not illegal; that the intending buyers may arrange between themselves which lots they will bid for and which not, and agree not to compete with each other; and if they may do so in that case I think also they may take money for abstaining to compete as well as arrange to take one lot against another.”  p. 373

19.  Lord Romilly went on to say the:

“… real remedy in such a case as this is in fixing the reserved bidding …”

20.  Rawlings v General Trading Co [1920] 3 KB 30 was described by Shearman J as:

“… a case of considerable importance, as it involves the question whether on a sale of Government stores by public auction, where no reserve is fixed, two or more buyers may agree that one of them only shall bid in order to keep down the price, and that they shall then share the profits between them.  I have come to the conclusion that such an agreement is one which it is not the policy of the law to enforce.” at p. 32

21.  The decision of Shearman J was overturned on appeal by a majority of the Court of Appeal, Bankes and Atkin LJJ, and Scrutton LJ dissenting.

22.  Bankes LJ said in Rawlings v General Trading Co [1921] 1 KB 635 at 641 the case is covered by authorities beginning with Galton and:

“Having regard to the state of the authorities in the Chancery Courts for over 70 years, I do not think that it was open to the learned judge to take the view he did, nor do I think that this Court should after this lapse of time overrule those authorities, even if this Court considered that they were wrong, which I am far from suggesting that they were. … If the law under modern conditions requires alteration, it must, I consider, be altered by the Legislature, …”

23.  Atkin LJ said at 652:

“I can see no reason for saying that this contract is ex facie illegal.  It would probably be sufficient to say that for nearly a century Courts of equity have held similar agreements legal and enforceable by suit for specific performance.  But apart from decided cases, as between the parties it appears to be plainly reasonable, and if the defendant wished to establish that the public interests suffered he should have so pleaded so as to give the plaintiff notice. If I may adopt the language of Lord Sumner in (North Western Salt Co. v. Electrolytic Co. [1914] AC 461): ‘I should require to know much more of the conditions of the trade and of the effect of such arrangements as these before I could profitably, express any opinion on the practical rights and wrongs of the sale of’ these tins.”

24.  Scrutton LJ described the parties’ agreement as:

“… the simplest form of a transaction which with more parties, and a little more complication in bidding, is popularly known as a ‘knock-out’.” at 642.

25.  He went on to say:

“The question is whether this contract will be enforced by the Courts, and it may be unenforceable though it is neither criminal nor actionable. …

It is not therefore necessary to find that the agreement in the present case is either criminal, or actionable at the suit of the vendors.  I am clearly of opinion it is not.” at 643.

26.  He concluded:

“… the agreement was contrary to public policy, as a restraint of trade contrary to the interests of the public.” at 647.

27.  On the question whether the arrangement was criminal Bankes LJ said:

“A dictum by Gurney B. in Levi v. Levi, 6 C. & P. 239 at nisi prius to the effect that an agreement by several not to bid at an auction was an indictable offence was expressly disapproved of by Parke B. when delivering judgment in Doolubdass v. Ramloll 5 Moo.Ind.App.133.” at 641.

28.  Baron Gurney’s dictum in Levi[1833] was described by Alkin LJ at 649 as:

“… already killed in 1850 by Parke B. in delivering the judgment of the Privy Council in Doolubdass v. Ramloll.”

29.  I turn to consider Harrop v Thompson & Anor [1975] WLR 545, a decision of Templeman J (as he then was). There, the plaintiffs sought specific performance of an agreement for the sale of two farms which he had purchased at a public auction. The defendant vendors had refused execution of the conveyance on the ground that the purchaser, prior to the auction, had agreed with another potential bidder that the latter should not bid and, in consequence, the purchaser had obtained the property cheaply. Templeman J conducted a historical survey of the law. In addition to Galton, Carew's Estate, Heffer and Rawlings, two other authorities were mentioned.

30.  First, Cohen v Roche [1927] 1 KB 169, a decision of McCardie J, where McCardie J said “the existence of a ‘knock out’ does not of itself afford any answer” to an action for specific performance by the purchaser, citing Rawlings at 173.

31.  The second case, Pallant v Morgan [1953] Ch 43, of which, Templeman J said in Harrop at 548:

“… there was a formidable array of distinguished counsel and it did not occur to them or to Harman J, who decided the case, that there was anything wrong with an agreement between two bidders not to compete at an auction.”

32.  At page 459, the learned judge said:

“An alternative argument that some agreements between potential bidders constitute fraud on the vendor is only open in a higher court or to the Law Commission. If two potential bidders have entered into some form of agreement which results in one of them keeping his mouth shut at the auction, there is no method open to me in the light of the authorities to distinguish a good agreement from a bad agreement. The present case may open up a vista of litigation. It is said in this case that an obliging potential bidder confided to the vendors at some stage that he might bid £130,000, but in the meantime he arranged with the purchaser that he would not bid for a consideration, and then later on confided the whole plot to the vendors. If such allegations and conversations must be investigated before a purchaser is allowed to complete, then only the lawyers may benefit. It may be better that the property should fall with the hammer. A vendor can protect himself by conditions under which he imposes a reserve and keeps the right to bid and to withdraw. A timid vendor need not sell by auction. These matters can be pursued in a higher court or with the Law Commission. As the law now stands I am bound by authority to ignore the agreement between the purchaser and the potential bidder which is alleged in the evidence in this case. That being so, there is no triable issue and the purchaser is entitled to specific performance.”

33.  Up to 1975, the authorities all went one way and they support Mr Lee’s submission.

Authorities after 1975

34.  Mr Wai relies on the fact that the definition of conspiracy at common law has been reformulated. Thus, Hodgson J (as he then was) sitting in the Court of Appeal, said in R v Hollinshead [1985] 1 AC 975 at 982,:

“… the classic, if imprecise, definition of conspiracy at common law as ‘an agreement to do an unlawful act or a lawful act by unlawful means.’ This definition has no longer any place in the law.”

35.  Also in Scott at page 838, Viscount Dilhorne quoted from and agreed with what Lord Radcliffe said in Welham v DPP [1961] AC 103 at 123:

“… this word ‘defraud’ … requires a person as its object: that is, defrauding involves doing something to someone. Although in the nature of things it is almost invariably associated with the obtaining of an advantage for the person who commits the fraud, it is the effect upon the person who is the object of the fraud that ultimately determines its meaning. …”

36.  Also,in R v Wai Yu-tsang [1992] 1 AC 269, a decision of the Privy Councilon appeal from Hong Kong, Lord Goff said at 276:

“(Welham) establishes that the expression ‘intent to defraud’ is not to be given a narrow meaning, involving an intention to cause economic loss to another.  In broad terms, it means simply an intention to practise a fraud on another, or an intention to act to the prejudice of another man’s right.”

37.  Mr Wai submitted that since deceit was not an essential element of the offence, the emphasis is now on dishonesty. He also relied on Mo Yuk Ping v. HKSAR [2007] 10 HKCFAR 386 which I will discuss in greater detail later in the judgment.

38.  Mr Wai’s submission is supported by a judgment of the English Divisional Court (Auld LJ and Field J) in Norris v Government of the United States of America and Ors[2007] 1 WLR 1730, the judgment of which was delivered on 25 January 2007, as well as the judgment of the Court of Appeal in Goldshield Group plc and Ors v R [2007] EWCA Crim 2659 (Moses LJ and Jack and Owen JJ), judgment dated 9 November 2007. Neither judgment had been cited to the learned magistrate.

39.  Both of these decisions have been reversed on appeal, Mr Wai accepts that if they are applicable the appeals must be allowed, unless, as he submits, Mo Yuk Ping requires otherwise.

40.  Both Norris and Goldshield were heard on consecutive days before the House of Lords, and the judgments were handed down on 12 March 2008. Norris v Government of the United States of America [2008] 1 AC 920 and R v Goldshield Group plc and Ors [2009] 1 WLR 458. Neither judgments were referred to below although counsel’s submissions had not concluded until 4 April 2008.

41.  Norris concerned an application by the US Government for the extradition of the defendant to stand trial in an indictment containing four counts. The first of which alleged that the defendant had conspired with producers of carbon products to operate a price fixing agreement or cartel in several countries including the USA. That alleged offence was a statutory offence of strict liability under US legislation which declared price fixing cartels to be illegal. It did not require proof of fraud, deception or dishonesty, and count 1 made no such allegation. Because the Extradition Act 2003 required that the conduct complained of should be criminal in both the requesting and the requested states, the court had to consider whether count 1 involved a crime in England. In the Divisional court, Auld LJ and Field J having so held, Norris appealed to the House of Lords.

42.  The facts in Norris can be taken from the judgment of Auld LJ in the Divisional Court, at 1735:

“10  At all material times Morgan was involved in the manufacture and sale of carbon products in the United States and in other countries.  Between late 1989 and May 2000 Morgan and various companies based in France, Germany and Austria agreed to suppress and eliminate competition by fixing the prices of certain carbon products they respectively manufactured and sold.  The purpose and effect of that conspiracy were to enable the companies to sell their products for prices higher than they could have sold them if they had been competing with one another as to price.  In furtherance of the conspiracy, Mr Norris and his co-conspirators took part in and agreed at meetings to charge prices at certain levels and otherwise to maintain or increase prices of certain carbon products sold by the companies that were party to the conspiracy in the United States and elsewhere.  To that end, they discussed and exchanged price quotations to certain customers, so as to ensure that they did not undercut each other’s prices, and submitted collusive, non-competitive or otherwise rigged bids, and refrained from submitting bids to public transit authorities.  In at least two instances when a co-conspirator inadvertently quoted lower prices to Morgan customers in the United States, Morgan complained and the co-conspirator significantly increased its quoted prices, falsely claiming to the customer that its original prices had been miscalculated.

11  Ms McClain, in her affidavit, summarised the nature and effect of this conduct, in the following words:

‘The conspirators routinely sold product to their customers pursuant to their agreement to avoid price competition.  In effect, the conspirators defrauded their customers by requiring that they pay higher prices than they might otherwise have paid had there been no conspiracy.’”

43.  Additionally, there was a request for extradition in respect of a conspiracy to obstruct the investigation in the USA with which we are not concerned.

44.  The composite judgment the House of Lords considered various authorities relating to restrictive trade agreements. The first of which is Jones v North[1875] LR 19 Eq 426:

“… four parties were invited to tender for the supply of stone to a public authority. They made a collusive agreement by which one party was to buy stone from the other three and submit the lowest tender, two parties were to submit a higher tender and the fourth party was to submit no tender. There is nothing in the report to suggest that the public authority knew of this agreement, and every reason to suppose that it did not. The matter came before the court when the defendants, in breach of the agreement, submitted a tender, which was accepted, and the party which was to supply under the agreement brought proceedings to restrain performance by the party which had broken ranks. The action succeeded. Bacon V-C considered the plaintiff’s case, at p 429, as ‘very honest’. It was submitted, at p 428, that the plaintiff could not obtain equitable relief since the arrangement was a device to compel the authority, under the fiction of a public competition, to accept tenders not representing the real market price of the commodity, but this submission the Vice-Chancellor rejected, finding the agreement, at p 430, to be ‘perfectly lawful’, to contain ‘nothing illegal’, and not deserving to be characterised as a conspiracy.” para. 10, p. 931.

45.  The next case is Mogul Steamship Co Ltd v McGregor Gow & Co [1888] 21 QBD 544, where the plaintiff:

“… claimed damages for a conspiracy to prevent it carrying on its trade between China and Europe.  Its complaint was made against a group of shipowners who banded together in order to keep the trade between China and London in their own hands for their own commercial benefit and to that end offered a very low rate and an agreed rebate to shippers who shipped tea on their vessels but not, in the relevant year, on the plaintiff’s, the object being to exclude the plaintiff from the trade. …The Chief Justice (Lord Coleridge CJ) (pp 552-553), found no evidence of bribery, coercion or (in the relevant sense) inducement, and held, at p 554, that the agreement was not unlawful, wrongful or malicious.”  para. 11, p. 931.

46.  In the Court of Appeal [1889] 23 QBD 598, a majority (Bowen and Fry, LJJ, Lord Esher MR dissenting) agreed with Lord Coleridge CJ. The appeal to the House of Lords was unanimously dismissed by a seven-member bench [1892] AC 25.

47.  Norris went on to say:

“… Bowen LJ, in a justly celebrated judgment, held that in the absence of aggravating features such as, at pp 614, 615, 618, fraud, intimidation obstruction, violence or interference with contractual or other rights, there was nothing in the defendants’ agreement or conduct to make it unlawful or actionable, and even if it were held to be a restraint of trade, at pp 619-620, the agreement would be void and unenforceable, not actionable or criminal. Fry LJ, at p 632 gave a reasoned judgment, upholding the judgment of Lord Coleridge CJ.”

48.  Bowen LJ after considering the limitations, such as fraud, misrepresentation or intimidation, said:

“But the defendants have been guilty of none of these acts. They have done nothing more against the plaintiffs than pursue to the bitter end a war of competition waged in the interest of their own trade.” at 614.

49.  The judgment in Norriswent on to say at para. 13:

“13 A further appeal to the House was unanimously dismissed by a seven-member bench [1892] AC 25. It was accepted that the defendants had acted to advance their own commercial interests, and with no malicious or wrongful object of injuring the plaintiff company, although their gain was inevitably its loss. In the absence of any aggravating feature such as misrepresentation, compulsion, intimidation, violence, molestation or inducement of breach of contract, the defendants’ conduct would not have been unlawful if done by a single independent party and was not rendered unlawful by their combination. Even if a restraint of trade, the defendants’ agreement was at most void and unenforceable, not actionable or indictable.”

50.  After considering North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1913] 3 KB 422 and Rawlings v General Trading Co [1921] 1 KB 635, the judgment in Norris went on to conclude:

“17 The effect of these authorities may be succinctly summarised. The common law recognised that an agreement in restraint of trade might be unreasonable in the public interest, and in such cases the agreement would be held to be void and unenforceable. But unless there were aggravating features such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract, such agreements were not actionable or indictable. In the course of the authorities a number of different reasons were given for this conclusion. They included the following. (1) While commercial parties could not lawfully act with the wrongful and malicious object of injuring another party, they were free to promote their own business as they thought fit, ‘however severe and egotistical’ such means might be, even though this might inflict loss on others. See the Mogul case: Lord Coleridge CJ 21 QBD 544, 552-553; Bowen LJ 23 QBD 598, 614, 620; Fry LJ, at pp 622, 624, 625; Lord Halsbury LC [1892] AC 25, 36, 40; Lord Hannen, at pp 58-59. (2) While agreements in restraint of trade might be injurious to the public interest, they might also confer benefits on the public, as by preventing cut-throat competition, loss of supplies or services or production facilities, lowering of wages or unemployment. See the Mogul case: Lord Coleridge CJ 21 QBD 544, 548; Bowen LJ 23 QBD 598, 619; Fry LJ, at pp 626-627; Lord Bramwell [1892] AC 25, 46; the Adelaide Steamship case [1913] AC 781, Lord Parker, at pp 809-810, 813, 816; the North Western Salt case [1914] AC 461, Lord Haldane LC, at pp 469-471; Lord Parker, at p 480; Lord Sumner, at p 481. (3) Other than in very clear cases the courts were not well-fitted to assess whether restraints of trade were injurious to the public or not, and it was not ‘the province of judges to mould and stretch the law of conspiracy in order to keep pace with the calculations of political economy’. See the Mogul case: Bowen LJ 23 QBD 598, 615, 620; Fry LJ, at pp 625-626; Lord Watson [1892] AC 25, 43; Lord Bramwell, at pp 45, 49; Lord Morris, at pp 50-51. (4) To limit the bounds of competition would be contrary to what modern legislation had shown to be the present policy of the state. See the Mogul case: Fry LJ 23 QBD 598, 626. (5) The victim of an anti-competitive practice could show no legal right which had been infringed. See the Mogul case: Lord Halsbury LC [1892] AC 25, 38. (6) There was no authority for the proposition that it was actionable for one party to compete against another for the purpose of gain and not out of actual malice, even though the object was to drive that party away from his place of business and did so. See the Mogul case: Fry LJ 23 QBD 598, 630-632; Lord Bramwell [1892] AC 25, 46; Lord Field, at p 57.

18  The contemporary relevance of these common law principles was affirmed by the House relatively recently in British Airways Board v Laker Airways Ltd [1985] AC 58, 79. Laker had brought proceedings in the United States District Court for the District of Columbia claiming large damages under the Sherman and Clayton Acts against a number of airlines, including British Airways and British Caledonian Airways. The text of Laker’s Complaint was annexed to the judgment of the Court of Appeal [1984] QB 142, 203-209. It alleged that the defendants had conspired to drive Laker out of business on the North Atlantic route by (among other things) carrying passengers at loss-making fares, supplying free in-flight services to low-fare passengers, seeking to discourage potential participants in a scheme to rescue Laker from the financial straits to which it had been reduced and paying very high secret commissions to travel agents to divert potential Laker passengers. British Airways and British Caledonian brought counter-proceedings in the English court, seeking to restrain Laker from proceeding in the US District Court. This action was not, however, based on the contention that England was a more convenient forum for pursuit of Laker’s claim, although plainly Laker would have had no difficulty serving those airlines here. It was accepted before Parker J at first instance [1984] QB 142, 150 and before the Court of Appeal (p 186) that neither Laker’s claim nor substantially the same claim could be pursued in the English court. In an opinion with which the other members of the House agreed, Lord Diplock fastened on two propositions which were decisive of the civil appeals before the House. The second, alone relevant for present purposes, was stated in these terms [1985] AC 58, 79-80:

‘The second proposition, that of English law, was understood by your Lordships to have been common ground between the parties, at any rate throughout the lengthy hearing of the appeal; no argument casting any doubt upon it was advanced. The proposition is that, even if the allegations against BA and BC in the complaint in the American action can be proved, they disclose no cause of action on the part of Laker against BA or BC that is justiciable in an English court. The Clayton Act which creates the civil remedy with threefold damages for criminal offences under the Sherman Act is, under English rules of conflict of laws, purely territorial in its application, while because the predominant purpose of acts of BA and BC that are complained of was the defence of their own business interests as providers of scheduled airline services on routes on which Laker was seeking to attract customers from them by operating its Skytrain policy, any English cause of action for conspiracy would be ruled out under the now well-established principle of English (as well as Scots) law laid down in a series of cases in this House spanning 50 years of which it suffices to refer only to Mogul Steamship Co Ltd v McGregor Gow & Co [1892] AC 25 and Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435.’

19  In cases where aggravating elements, notably misrepresentation and deception, have been found, defendants have been successfully prosecuted for conspiracy to defraud. Thus in R v De Berenger (1814) 3 M&S 67 the defendants were successfully prosecuted for conspiring by false rumours to raise the price of the public funds, causing loss to those who bought during this temporary rise. In R v Lewis (1869) 11 Cox CC 404 the defendants were convicted of conspiring to obtain money by divers false pretences and deceptive practices. In Scott v Brown Doering, McNab & Co [1892] 2 QB 724, a civil case, the plaintiff was found to have created a false market in shares by false and fictitious acts. All these cases fall very clearly on the wrong side of the line drawn in the authorities summarised above.”

51.  Their lordships turned to the judgment of Auld LJ and said:

“… [Auld LJ] said, at para 55, that the critical point is not one of law as to the applicability or otherwise of the common law offence of conspiracy to defraud to price-fixing agreements, but one of fact or evaluation on a case by case basis as to the presence of dishonesty. Laker was not cited to the Divisional Court.”

52.  Their lordships then concluded:

“21 The Divisional Court’s treatment of these authorities cannot, with respect, be supported. (1) The defendant in Jones v NorthLR 19 Eq 426 attacked the agreement as being contrary to public policy, and failed because the parties were held to be free to make the agreement they did. That was what, in the heyday of Victorian capitalism, public policy was held to require. The decision has never been overruled. The criminal law, to be fair, must be certain, and the requirement of certainty is not met by asserting that at some undefined later time a different view would have been taken. (2) The Divisional Court did not address the principles for which Mogul has long stood as classic authority. It cannot be dismissed on the ground that there was on the facts no dishonesty. Mr Norris does not advance the contention that price fixing agreements can never be conspiracies to defraud even if accompanied by aggravating features such as dishonest misrepresentations, a proposition expressly and repeatedly contradicted by Mogul. He contends that agreements to fix prices, whether disclosed or not, have not been treated as in themselves dishonest. That contention is supported by Jones v North and Mogul or the decisions in those cases would necessarily have been different. (3) The Divisional Court did not address the central point in Adelaide Steamship [1913] AC 781, which was the court’s recognition, foreshadowed in Mogul, followed in North Western Salt and later reflected (as will be seen) in statute, that a restrictive trade agreement lacking aggravating features of the kind noted above may operate to the benefit of the public. This is why, as Lord Hoffmann recently put it in OBG Ltd v Allan [2008] 1 AC 1, para 56, the ‘common law has traditionally been reluctant to become involved in devising rules of fair competition,’ the judges regarding themselves as ill-fitted for the task. (4) Rawlings cannot be distinguished on the basis suggested. None of the four judges, including the two who found for the defendant, suggested that the agreement could be criminal (Scrutton LJ was clearly of opinion that it was not [1921]1 KB 635, 643). Had it been, the agreement would have been criminal when made, and the price at which the goods were actually knocked down would have been irrelevant. (5) R v Berenger 3 M&S 67, R v Lewis11 Cox CC 404 and Scott v Brown Doering McNab & Co[1892] 2 QB 724 are authority for the proposition that a conspiracy to deceive the public by express or implied misrepresentations is and has for many years been criminally indictable. But the correctness of that proposition is not in doubt, and has certainly not been challenged by Mr Norris. They are no authority for the proposition that a price-fixing agreement without aggravating features was indictable in this country at common law.

22  The Divisional Court did not have the opportunity to consider Laker. The respondent submits that Laker is not authority for the proposition that dishonest price-fixing is lawful at common law. That is partly true. It does not establish that a price-fixing agreement with aggravating features, or an agreement with the predominant purpose of injuring another rather than defending one’s own business interests, is lawful at common law. The authority which Lord Diplock cited is inconsistent with such a proposition. Laker is, however, clear authority that an anti-competitive price-fixing agreement of the kind alleged in the complaint against British Airways and British Caledonian would have given Laker no cause of action which it could have pursued in the English court. That complaint alleged price-fixing and much besides.

23  At no time up to the present has anyone, whether an individual or a company, been successfully prosecuted for being party or giving effect to a price-fixing agreement without aggravating features. The respondent did not suggest that they had. At the date of the respondent’s indictment against Mr Norris, no such prosecution had been brought.”

53.  The facts of R v Goldshield Group plc and Ors can be taken from the head notes at page 458:

“The defendants were companies, which manufactured, sold and/or distributed pharmaceutical drugs to wholesalers and pharmacists who supplied drugs to members of the public on National Health Service prescriptions, and individuals who had at the material times been employees or directors of those companies. The defendants were charged on two counts of an indictment alleging ‘conspiracy to defraud at common law’, the case against them being that in their respective capacities the defendants had dishonestly fixed and maintained the price of the drugs which they had supplied. The particulars of offence stated that the defendants had conspired together and with others to defraud the Secretary of State for Health and others concerned with the provision of medicinal drugs by dishonestly fixing and maintaining prices and manipulating the supply of those drugs. The prosecution alleged that there were elaborate arrangements between the defendants to keep up the prices of drugs by the maintenance of secrecy and the masking of the true position by the adoption of false documents by active misrepresentations to the Department of Health, thereby leading the department to believe that the list prices represented the true competitive market prices. The prosecution case statement which was ordered by the trial judge stated that the defendants had agreed, inter alia, to withhold the sales of drugs in order to clear out stock that was already in the supply chain, that they had divided the market between themselves and others in accordance with pre-determined allocations and had policed the agreed prices and allocations by auditing one another with agreed overall penalties, that they had increased retail and wholesale selling prices several times, that they had paid compensation to other manufacturers to stay out of the United Kingdom market, and that they had given false reasons for stock shortages and price rises to customers and to the Department of Health. The defendants applied to quash the indictment on the ground that it did not disclose an offence against the criminal law. The judge ruled that the prosecution should proceed and the Court of Appeal upheld the judge's ruling.”

54.  There was no dispute between the parties as to the meaning of conspiracy to defraud. In the judgment of the Court of Appeal given by Moses LJ he referred to:

“… the varying definitions of fraud in (Welham, Scott and Wai Yu-Tsang) …”  para. 13

The House of Lord thought it:

“… sufficient to refer to the definition formulated by (Lord Goff in Wai Yu-Tsang, 280) that the conspirators have dishonestly agreed to bring about a state of affairs which they realize will or may deceive the victim into so acting, or failing to act, that he will suffer economic loss or his economic interests will be put at risk. …”  para. 11 p. 463

55.  In their Lordships’ judgment, they said:

“14.  The Court of Appeal upheld the judge’s ruling. In his submissions to them, which he repeated before the House, Mr Pannick QC did not assert on behalf of the appellants a right to practise positive deceptions. He submitted that mere entry into a secret cartel was not criminal and was to be distinguished from positive action such as deceptive misrepresentation. The court rejected this argument, Moses LJ stating at para 22 of his judgment:

‘22.  We do not accept that such a distinction can be made. The allegations in the instant case of what Mr Pannick QC described as positive deception are no more than that the defendants took steps to maintain the deception which the secrecy of the agreement was designed to achieve. There seems to us to be no satisfactory point at which a boundary can be drawn between such secrecy and cases of positive deception. In the instant appeal the secrecy of the agreement was essential to the purpose of the agreement, deception of the Department. To maintain secrecy it may well have been necessary to provide false information but, as Auld LJ remarked in Norris (para 66) the distinction is merely one of degree.’

15.  The Appellate Committee considered these arguments in Norris v Government of the United States [2008] AC 920 and came to the conclusion that the appellant’s submission in that case, the relevant part of which largely mirrors that which was advanced on behalf of the appellants in the present appeal, was correct. …”

56.  The House of Lords remitted the matter to the judge to consider whether leave to amend the changes should be granted to rely on “aggravating elements, consisting of allegations of lies and positive deception”.

57.  Mr Terence Wai accepted that here the learned magistrate had effectively decided against the appellants on the same basis as Auld LJ in Norris, namely:

“20.  … that the critical point is not one of law as to the applicability or otherwise of the common law offence of conspiracy to defraud to price-fixing agreements, but one of fact or evaluation on a case by case basis as to the presence of dishonesty. …”

58.  As noted, the House of Lords in Norris has rejected that approach. It is to be noted that Auld LJ had said in the judgment of the Divisional Court at para. 60:

“Thus, the critical constituent of the offence is – and has been since at least the mid 20^th century – dishonesty …”

and at para. 64 that

“… The test of dishonesty for a jury, is the well established and well known test articulated by Lord Lane CJ in R v Ghosh [1982] QB 1053, 1064”

59.  In my opinion, neither Norris nor Goldshield is distinguishable from these appeals.

Mok Yuk Ping

60.  However, Mr Wai relies on Mo Yuk Ping v. HKSAR [2007] 10 HKCFAR 386. In that case, Mo was charged with and convicted of two conspiracy charges:

“8 … to create a false picture of active trading in the shares of a publicly listed company, Shanghai Land Holdings Limited (‘SL’) whereby the appellant, who was the first defendant at the trial, arranged for transactions in the shares of SL through the trading accounts of other persons. … ”

61.  Those transactions, apparentlysale and purchase of shares, were in fact conducted for and on behalf of the appellant on both sides of the trade.

62.  The second charge was different from the first in the sense that:

“9.  … the second agreement was the need to maintain the market price of SL shares at a specific level in order to avoid payments falling due under a loan agreement … by which shares in SL were pledged to [the Bank of China (Hong Kong) Limited (“BOC”)].”

63.  But the Court of Final Appeal was concerned only with the certified question, namely,

“5.  … whether the offence of conspiracy to defraud is formulated with sufficient precision to be an offence ‘prescribed by law’ in the Basic Law or ‘according to law’ in the Bill of Rights Ordinance …”

64.  It was in that context that the court considered the varying definitions of conspiracy to defraud. Thus in paras. 28 to 39, the Court of Final Appeal considered the modern authorities, such as Welham, Scott, and Wai Yu-Tsang. Essentially, the Court of Final Appeal agreed with and adopted the modern formulation to be found in such authorities save that it expressed doubt whether:

“… apart from the contrary to public duty cases, conspiracy to defraud (apply) to cases of non-economic loss”.  para. 39 at p. 404

65.  When the Court of Final Appeal considered what is meant by the requirement of “dishonesty” and whether the test is uncertain it said that is a question of fact for the jury and that the appropriate test is the Ghosh test. Mr Wai submitted that we should follow Mo Yuk Ping instead of applying Norris and Goldshield. But we see no inconsistency between Mo Yuk Ping and Norris and Goldshield.

Legal certainty

66.  In Norris, their lordships held:

“… a person should not be punished under a law which was not sufficiently clear and certain to enable him to know what conduct was forbidden before he did it, and no one should be punished for an act which was not clearly and ascertainably punishable when it was done, and since it was for Parliament and not for the judiciary to decide what conduct was to be treated as so unacceptable as to attract criminal sanctions, any development of the law on price fixing necessary as a result of a change in public perception had to be done by Parliament and not by judges …”  see head notes at 921.

67.  Their lordships explained why:

“52  The above analysis of the case law, the legislation, and ministerial and other official observations appears to establish, without more, that there has never been a common law offence of price-fixing. In addition, the material also serves to demonstrate that it would be wrong in principle for any court now to hold that there is or was, at the time of the events complained of in count 1, such a common law offence.

53  In R v Rimmington [2006] 1 AC 459, para 33 Lord Bingham of Cornhill said that there were two ‘guiding principles’ relevant in that case, namely:

‘no one should be punished under a law unless it is sufficiently clear and certain to enable him to know what conduct is forbidden before he does it; and no one should be punished for any act which was not clearly and ascertainably punishable when the act was done.’

As he went on to say in the next paragraph, those principles are ‘entirely consistent with article 7(1) of the European Convention’. At para 35, he discussed a number of decisions of the Strasbourg Court on the topic, which established that, while ‘absolute certainty is unattainable, and might entail excessive rigidity’, and ‘some degree of vagueness is inevitable’ particularly in common law systems, ‘the law-making function of the courts must remain within reasonable limits’.

54  In R v Jones (Margaret) [2007] 1 AC 136, Lord Bingham took the matter a little further when he identified, at para 29

‘what has become an important democratic principle in this country: that it is for those representing the people of the country in Parliament, not the executive and not the judges, to decide what conduct should be treated as lying so far outside the bounds of what is acceptable in our society as to attract criminal penalties. One would need very compelling reasons for departing from that principle.’

Lord Hoffmann said much the same, at para 60.

55  Even if it had otherwise been open to the Divisional Court to decide that price-fixing could now amount to a common law offence, these principles would have required a contrary conclusion. …”

68.  These reasons apply with equal force to these appeals.

69.  On the basis of the authorities I have reviewed above, I was satisfied that these appeals should be allowed and allowed them.

Economic loss

70.  I turn to deal briefly with Mr Wai’s submission that the appellants conduct had resulted in economic loss to FEHD. Mr Wai referred to them as “the opportunity of receiving higher prices”.

71.  In Norris when commenting on Mogultheir lordship said at para. 13 that the loss of the plaintiffs in that case was invariably the defendants’ gain.

72.  I should add that in the Court of Appeal in Mogul, Bowen LJ also said:

“… The acts of the defendants which are complained of here were intentional, and were also calculated, no doubt, to do the plaintiffs damage in their trade.  But in order to see whether they were wrongful we have still to discuss the question whether they were done without any just cause or excuse.  Such just cause or excuse the defendants on their side assert to be found in their own positive right (subject to certain limitations) to carry on their own trade freely in the mode and manner that best suits them, and which they think best calculated to secure their own advantage. …” 613

“… A man is bound not to use his property so as to infringe upon another’s right. Sic utere tuo ut alienum non laedas. If engaged in actions which may involve danger to others, he ought, speaking generally, to take reasonable care to avoid endangering them. But there is surely no doctrine of law which compels him to use his property in a way that judges and juries may consider reasonable.  See Chasemore v. Richards.  If there is no such fetter upon the use of property known to the English law, why should there be any such a fetter upon trade?” 616

73.  In the House of Lords, Lord Halsbury LC said at 37:

“… I should rather think, as a fact, that it is very commonly within the ordinary course of trade so to compete for a time as to render trade unprofitable to your rival in order that when you have got rid of him you may appropriate the profits of the entire trade to yourself.”

74.  From the point of view of the intending tenants of the stalls, obviously it was in their commercial interest to pay as low a rent as possible. Just as it was in the commercial interest of a landlord to obtain as high a rent as possible. Say that a commercial landlord, or, all the landlords, of a market wish to auction stalls in the market for butchers. Suppose all the butchers were to band together and agreed not to pay more than a certain rent for any of the stalls. Or that they decided to boycott the auction and insisted on collective bargaining with the landlords. Or that the butchers attended the auction but had also agreed to keep the fact that they were acting in concert from the landlord. It is difficult to see how on the existing authorities it could be said that the butchers are guilty of a conspiracy to defraud.

75.  Lord Romilly said in Heffer, see para. 19 above, the real remedy is in fixing the reserved bidding. Templeman J said in Harrop:

“… A timid vendor need not sell by auction. …” see para. 32 above.

76.  To borrow the words of Bowen LJ,

“… the tenants may bid in the mode and manner that best suits them”.

Misrepresentation by silence

77.  Mr Wai placed little reliance on this, but a complete answer can be found in Johnson v Nobbs (unreported, dated 9 March 1983), a decision of the English Court of Appeal, which was relied on by Mr Shaw counsel for the 13^th defendant before the learned magistrate, Slade LJ said at page 3:

“Fraud or deception in the present context, it seems to me, would necessarily have involved some mis-representation. Accordingly, if it is to be said that there was a conspiracy to obtain a tenancy by deception from the Department of the Environment, or, alternatively, a conspiracy to defraud the Department, it has to be said that the plaintiff and the defendant agreed, in some way, to make some mis-representation to the Department of the Environment.

I cannot, for my part, see that such a mis-representation was either made or contemplated, on the evidence before the Court. The highest it can be put on the evidence is that the plaintiff and the defendant agreed to conceal, from the Department of the Environment, the facts that the plaintiff was intended to hold the contemplated tenancy as trustee for the defendant, and that it was contemplated that he would be the owner of the nursing home business. But the mere concealment of these facts could, by itself, amount to mis-representation only if there was a duty on the parties to disclose the facts to the Department. As my Lord, Lord Justice Dunn, however pointed out in the course of argument, the relevant transactions with the Department of the Environment were not transactions ubertimae fidei which imposed any such duty of disclosure.”

Restricted auction

78.  I do not believe the fact that this was a restricted auction makes any difference. No doubt it was for good policy reason that the FEHD decided that the auction should be restricted. As was pointed out during the course of submission, if FEHD had wanted to protect itself, it could have requiredsuitable written warranties from a potential bidder. If a warranty is untrue, one of the necessary aggravating features identified in Goldshield would be available. It is not for the court to find a criminal liability because FEHD thought that they had been hard done by or that the appellants had taken advantage of a restricted auction.

Section 7 of PBO

79.  Section 7 of the PBO is not relied on. However, I note in Bribery & Corruption Law in Hong Kong, 2^nd ed by Ian McWalters, SC, the learned editor said at 346 of sections 6 and 7:

“But very deliberately they only criminalise this type of corrupt practice as it relates to the tenders and auctions of public bodies ‑ tenders and auctions conducted by other bodies do not receive its protection.  Also very deliberately they focus on only a very narrow aspect of what can occur as collusive tendering or auction rigging.  Usually this kind of activity focuses less on bribery persons not to tender or bid and more on agreeing not to outbid an accomplice or not to tender above a previously agreed upon price.  This may explain why these offences have been so rarely, if ever, used.”

80.  The comments suggest that the conduct of the appellants would not have fallen within the ambit of section 7 in any event.

81.  The significance of section 7 is that the legislature in Hong Kong has decided what conduct should be treated as criminal. It has chosen to criminalise certain conducts in relation to auctions held by public bodies. For the reasons given in Norris (see para. 67 above), I believe the court should not say that conduct falling outsider the ambit of section 7, and lacking any of the aggravating features identified in Norris, constitutes the offence of a conspiracy to defraud.

Clause 20

82.  Mr Wai relies on clause 20 of the Invitation for Restricted Auction documents which provided that:

「競投者請注意，根據《防止賄路條例》（第201章）第7條，任何人士如提供利益以誘使或酬謝他人對某檔位不作競投，或以不競投某檔位為理由而向他人索取或接受利益，均屬違法，一經定罪，可被判入獄七年及罰款五十萬元。

另外，任何人如透過不誠實手段在競投過程中詐騙食物環境衛生署（例如串謀不作競價，令人人得以底價投得檔位，亦將被刑事檢控。」

83.  The reference to section 7 of the PBO in clause 20 is not relied on. As for the statement that the agreement not to compete in an auction might lead to prosecution for a conspiracy to defraud the FEHD by dishonest means, that was not relied on as a condition of the restricted auction. Indeed, the evidence is that there was no reference to clause 20 when the auction was held. It also appears that this was the first time that a reference to conspiracy was included in an invitation for restricted auction documents and that after the auction, it was not repeated in any subsequent FEHD invitations for restricted auction documents.

Disposition

84.  For the above reasons, I have allowed the appeals.

Hon Yeung JA:

85.  I agree with the judgment of Tang VP and have nothing further to add.

Hon D Pang J:

86.  I agree.