WONG SIN HUA FELIX v. THE INSIDER DEALING TRIBUNAL

HCAL 124/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO. 124 OF 1999

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J U D G M E N T

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1. Introduction

In 1996, the Insider Dealing Tribunal ("the Tribunal") inquired into allegations of insider dealing in relation to shares in Paragon Holdings Ltd. The Applicant and other persons were found to have been parties to insider dealing. The findings of the Tribunal that two of the other persons had been parties to insider dealing were challenged by judicial review. The application for judicial review was heard by Sears J who quashed the findings of the Tribunal. An appeal from his decision was dismissed by the Court of Appeal.

2. The reason why the findings of the Tribunal were quashed related to the procedure which the Tribunal had adopted. The procedure was described at some length by Sears J (see [1998] 1 HKLRD 630) and by Mortimer V-P in the Court of Appeal (see [1999] 2 HKC 83). The Tribunal had required counsel to the Tribunal to assist it in private. On the Tribunal's instructions, counsel made submissions on the evidence which the Tribunal had heard in public, and commented on the drafts of various chapters in the Tribunal's final report. In addition, after the public hearings were over, the Tribunal received some evidence in private. Nine instances were asserted, some of which were conceded. The implicated persons had not known what had been going on in private. Nor had their lawyers. The "parallel private proceedings", as they were called by Mortimer V-P at p. 95C, were held to be unfair and in breach of the rules of natural justice, though Mortimer V-P went out of his way to point out at p. 100H that "the minutes [of what occurred in private] demonstrate no intention on the part of the Tribunal to be unfair. Rather the reverse."

3. In due course, the Applicant applied to the Tribunal for his costs of the inquiry under section 26A of the Securities (Insider Dealing) Ordinance (Cap. 395) ("the Ordinance"). However, sections 26A(5)(c) and 26A(5)(d) prevent the Tribunal from awarding costs where the applicant for costs has brought the inquiry upon himself. In order to decide whether the Applicant had brought the inquiry upon himself, the Tribunal had to decide whether it could use the evidence which had been given in the inquiry, even though the findings of the Tribunal following that inquiry had been quashed. The Tribunal ruled that it could, and that is the ruling which the Applicant now challenges by way of judicial review.

The Tribunal's reasoning

4. The evidence which the Tribunal heard in public constituted the raw data which it had to evaluate in order to decide whether the Applicant and the other implicated persons had been insider dealers. The procedure which the Tribunal adopted in private in relation to that evidence affected the fairness of that evaluation. That was why the findings of the Tribunal, all of which depended on the fairness of that evaluation, had to be quashed. But the evidence given in public remained unaffected by what had occurred in private. Although the use to which that evidence had previously been put - namely to determine whether the Applicant and the other implicated persons had been insider dealers - had been affected by the unfair manner in which it had then been evaluated, the use to which the evidence was intended to be put in the future - namely to determine whether the Applicant had brought the inquiry on himself - would be permissible if the manner in which the evidence is then evaluated would be fair.

5. However, the Tribunal recognised that problems lay with the nine instances of the Tribunal allegedly hearing evidence in private. The Court of Appeal had not determined whether the Tribunal's findings would have had to be quashed if the receipt of evidence in private had been the only procedural impropriety. Counsel to the Tribunal told the Tribunal that the evidence which had been given in private had been supplied to the Applicant and his advisers - thought that was disputed by the Applicant's counsel. In the event, the Tribunal decided to take the course of least resistance, and it ruled that it would not be taking that evidence into account in determining whether the Applicant had brought the inquiry on himself.

The Applicant's case

6. The wide-ranging arguments of Mr Gerard McCoy SC for the Applicant can be distilled into three propositions:

(i) The quashing of the findings of the Tribunal amounted in law to the quashing of "the whole of the inquiry", with the result that evidence given in the course of the inquiry was to be treated as if it had never been given.

(ii) Alternatively, if the evidence given in public survived the quashing of the findings made as a result of that evidence, the fact that submissions were made in private by counsel to the Tribunal on that evidence "contaminated" that evidence to such an extent that the evidence could no longer be relied upon.

(iii) Alternatively, if the evidence given in public was not "contaminated" as a whole, it would still be necessary to conduct an inquiry into each piece of evidence given in public for the purpose of determining whether the submissions made in private on that piece of evidence contaminated that piece of evidence to such an extent that it could not be relied upon. That inquiry would take so long, and would be so difficult to conduct, that the only proper course to take was to proceed on the assumption that all the evidence given in public had been contaminated.

I propose to deal with each of these arguments in turn.

The effect on the evidence of the quashing of the Tribunal's findings

7. The order giving effect to Sears J's judgment described what was being quashed as "all decisions (including findings)" of the Tribunal. I take that to mean that what Sears J was quashing was (a) the findings of fact which the Tribunal made on the evidence and (b) the decisions of the Tribunal that, in the light of those findings of fact and applying the relevant law, the Applicant and the other implicated persons were insider dealers. The order of the Court of Appeal was simply that the appeal should be dismissed.

8. The effect on the evidence of the quashing of the Tribunal's findings of fact was not an issue which either Sears J or the Court of Appeal addressed. The issue would not have occurred to them. If the Financial Secretary decided that a new inquiry should be held, the Tribunal (differently constituted, of course) would have had to take the evidence again and make new findings of fact. If the Financial Secretary decided that a new inquiry should not be held, both Sears J and the Court of Appeal would have assumed that that would have been the end of the matter. The circumstances in which questions might arise relating to the status of the evidence, once the findings of fact made by the Tribunal as a result of that evidence had been quashed, would simply not have occurred to them. Thus, no inference as to what Sears J or the Court of Appeal thought about the status of the evidence can be drawn from the language of the orders they made. The issue is simply whether, as a matter of law, the fact that the Tribunal's findings of fact and its decisions that the Applicant and the other implicated persons had been insider dealers were quashed meant that the evidence was to be treated as if it had never been given.

9. In order to assist me in determining that question, I was taken through the history of the remedy of certiorari and its modern place in public law. In the time available to me since the hearing, I have looked at a number of materials not brought to my attention by counsel. But in the final analysis, I do not think that the argument calls for a dissertation on the history of the prerogative writ of certiorari as a remedy for official or administrative abuse of power. The modern law requires the court's attention to be focused on the decision being challenged, and the making of an order of certiorari is the conventional method of quashing that decision. But it is only the decision which is being quashed - which is why in the present case the decisions which were challenged and which were actually quashed were (a) the Tribunal's findings of facts (which the Tribunal had to make in order to determine the outcome of the inquiry) and (b) the Tribunal's decisions that the Applicant and the other implicated persons were insider dealers (which were the ultimate decisions which the inquiry had been established to decide). The quashing of the findings of fact and the decisions made in the light of those findings does not mean that the evidence on which those findings of fact were made was also "quashed", in the sense that the effect of quashing the findings of facts and the decisions made in the light of them was that the evidence was to be treated as if it had never been given.

10. Mr McCoy depicted, in colourful language, what in his submission the consequence of that conclusion was: once divorced from the findings of fact which had been made on it, the evidence was in a state of limbo, living in the ether. For my part, I would not characterise the evidence in that way. History cannot be rewritten, and the fact that certain witnesses gave certain evidence cannot be ignored. The fact that that evidence was evaluated in a manner which was procedurally unfair and which for that reason undermined the findings of fact made on that evidence does not mean that the evidence should be regarded as never having been given.

11. Mr McCoy pointed out that Sears J did not remit the matter back to the Tribunal pursuant to his powers under Ord. 53 r. 9(4). That, said Mr McCoy, was because there was nothing to remit: the quashing of the Tribunal's findings of fact and the decisions based on them amounted to the quashing of the whole of the inquiry. I disagree. The reason why the matter was not remitted to the Tribunal is more likely to have been because Sears J was leaving it to the Financial Secretary to decide whether a new inquiry should be held.

12. Thus, I reject the notion that the effect in law of the order of certiorari made by Sears J (and not interfered with by the Court of Appeal) was to treat the evidence as if it had never been given. I am conscious that my reasoning for reaching this conclusion is little more than an assertion of what I believe to be the obvious, but at the end of the day I do not think that the point is susceptible to detailed analysis. However, I should record that in reaching that conclusion I have noted the reliance placed by Mr Benjamin Yu SC for the Financial Secretary on a passage in Lewis, "Judicial Remedies in Public Law", 1st ed., para. 6-004:

"Certiorari may ... be coupled with a declaration. That is particularly useful when the precise consequences of quashing a decision need to be articulated."

For the reasons I have already given, I do not regard as indicative of anything the fact that a declaration as to the use, if any, which could be made of the evidence was not made. That question was not addressed, because no one at the time was alive to the circumstances in which the status of the evidence might be material.

The "contamination" of the evidence

13. If the raw data which the evidence constituted survived the quashing of the findings of facts which the Tribunal had made, the raw data had been "processed", said Mr McCoy, by the Tribunal's evaluation of it. Since the fairness of that evaluation had been undermined by the procedural irregularities which had accompanied it, the evidence had become so contaminated that it could no longer be relied upon.

14. In my opinion, this argument blurs the critical distinction between the evidence on the one hand and the evaluation of it on the other. Once the evaluation of the evidence is taken out of the equation, what remains, in its unprocessed and pristine form, is the evidence itself. What was contaminated by the submissions made on the evidence in private by counsel to the Tribunal was not the evidence, but the Tribunal's evaluation of it. The evidence was still what it had always been: the testimony of witnesses about the events to which their evidence related. That testimony remained the same. Where the springs of justice became polluted was after that evidence had been given and in the course of that testimony being evaluated.

15. A powerful argument could have been mounted for saying that, if the membership of the Tribunal remained as it had been in the course of the inquiry, its ability to evaluate fairly the evidence for the purpose of deciding whether the Applicant had brought the inquiry on himself would have been undermined by the procedurally unfair evaluation of the evidence for the purpose of deciding whether the Applicant and the other implicated persons had been insider dealers. Indeed, the Tribunal itself wanted to be addressed on the question whether it should recuse itself from considering the issue of costs. Such an argument, if successful, would have resulted in the Applicant's application for costs, and therefore the question whether the Applicant had brought the inquiry upon himself, having to be decided by a differently constituted Tribunal. Such a Tribunal, not having heard the evidence and therefore being unable to evaluate it, would either have to re-hear such of the evidence as related to the question whether the Applicant had brought the inquiry upon himself or decide that question without the evidence.

16. An argument along these lines had originally been advanced by counsel to the Tribunal in a skeleton argument which he had submitted to the Tribunal prior to the hearing which resulted in the ruling under challenge. Having relied on the evidence given in the course of the inquiry to make the findings of fact which resulted in the Applicant being held to be an insider dealer, counsel was concerned that the public might think that the Tribunal as originally constituted might not be able to evaluate the evidence again impartially. However, by the date of the hearing, he had had second thoughts on the matter, and his further submissions acknowledged that "[p]ublic confidence in the decision-making process of the Tribunal would be maintained so long as the Tribunal is alerted to the possible appearance of bias and approaches the question of costs with extreme care".

17. For his part, the stance of Mr McCoy when he appeared at the hearing which resulted in the ruling under challenge was that the Tribunal as originally constituted should not recuse itself. Having referred the Tribunal to the modern cases on bias, including the seminal decision of the House of Lords in R. v. Gough [1993] AC 646, Mr McCoy told the Tribunal that there was no reason why the Tribunal as then constituted should not decide the question of costs, and therefore whether the Applicant had brought the inquiry on himself, on its merits. Thus, an argument which could persuasively have been advanced to the effect that the Tribunal as then constituted should not proceed to decide the question of costs was expressly disavowed, and the Tribunal was faced with agreement on the topic by the parties.

18. I can understand the tactical considerations which may have led Mr McCoy to adopt the stance which he did. The Applicant may have had a better chance of being awarded his costs of the inquiry if the Tribunal remained as originally constituted. Having itself been responsible, by reason of the procedure which it had adopted, for the Applicant's costs being wasted, it may be more inclined to find that the Applicant had not brought the inquiry on himself. (In that connection, it should be noted that under section 26A of the Ordinance the Tribunal has a discretion to award the Applicant his costs, but that discretion would not arise if the Applicant had brought the inquiry on himself. That is because section 26A(5) begins: "This section shall not apply ..." (emphasis supplied).) Tactically, the Applicant may have been advised that it was in his best interests for the Tribunal as then constituted to consider the application for costs.

19. But the fact remains that the Tribunal as then constituted was not asked to recuse itself. Everyone must therefore be taken to have accepted that the Tribunal's ability to evaluate the evidence fairly for the purpose of deciding whether the Applicant had brought the inquiry on himself had not been compromised by its previous evaluation of the evidence for the purpose of deciding whether the Applicant and the other implicated persons had been engaged in insider dealing. Thus, not only was the evidence itself not contaminated, but the Tribunal's ability to evaluate the evidence fairly for the purpose of deciding whether the Applicant had brought the inquiry on himself was accepted as not having been undermined.

20. This also answers the third limb of Mr McCoy's argument. If the evidence as a whole was not contaminated, then neither was each individual piece of evidence. The spectre of a long and time-consuming examination of each individual piece of evidence to determine whether the Tribunal's evaluation of it now would be affected by the submissions which it had in the past received on that piece of evidence in private disappears. No such examination needs to take place.

Two miscellaneous matters

21. I wish to comment on two miscellaneous matters. First, I was at one stage concerned as to whether the more appropriate course for the Applicant to have taken was to appeal against the ruling to the Court of Appeal. Section 31 of the Ordinance, which deals with appeals to the Court of Appeal, provides:

"(1) Any person identified in a determination under section 16(3) or (4), as the case may be, or in a written report prepared under section 22(1) who is dissatisfied with any finding or determination of the Tribunal may appeal against such finding or determination-

(a) on a point of law; or

(b) with the leave of the Court of Appeal, on a question of fact,

to the Court of Appeal.

(2) Any person against whom an order under section 23, 24 or 27 has been made may appeal against such order to the Court of Appeal."

The Applicant was a person who had been identified as an insider dealer in a determination under section 16(3), and he was a person who was dissatisfied with a determination of the Tribunal, namely the ruling under challenge. However, I have been persuaded that the words "finding or determination" in the phrase "dissatisfied with any finding or determination of the Tribunal" relate to a determination under sections 16(3) or 16(4) or a finding which resulted in such a determination being made. The ruling under challenge was not such a determination. In any event, I doubt whether the legislature intended interlocutory rulings of the Tribunal to be the subject of interlocutory appeals to the Court of Appeal. But even if it had, the absence of a reference to section 26A in section 31(2) suggests that interlocutory rulings in applications under section 26A were not intended to be covered.

22. Secondly, although sections 26A(5)(c) and 26A(5)(d) both prevent the Tribunal from awarding costs where the applicant for costs has brought the inquiry upon himself, there is an important difference between them. Section 26A(5)(c) relates to conduct "subsequent to the institution of the inquiry .... or during the course of that inquiry", whereas section 26A(5)(d) relates to conduct which caused the inquiry to be instituted in the first place. I do not know which is alleged against the Applicant, but the extent to which the evidence given in the inquiry is relevant to the issue of costs will depend on the conduct relied upon. If the conduct relied upon is the Applicant's conduct prior to the institution of the inquiry, what will be relevant was the Applicant's conduct which was known to the Financial Secretary when he required the Tribunal to conduct the inquiry. It may be that in those circumstances very little of the evidence given in the inquiry will be relevant to the determination of that question.

Conclusion

23. Although I have taken some time to produce this judgment - partly because of other judicial commitments but partly because of some research of my own which I conducted - I have, in the end, not found this a difficult case to decide. For the reasons I have given, this application for judicial review must be dismissed. At present, I see no reason why costs should not follow the event, and the order nisi which I make as to costs is that the Applicant must pay to the Financial Secretary his costs of this application to be taxed if not agreed. It was, after all, the Financial Secretary who conducted the principal opposition to this application for judicial review. That is not surprising. Under section 26A(2), any costs awarded by the Tribunal shall be charged on the general revenue, and the Financial Secretary is the principal keeper of the public purse.

24. This application for judicial review was also opposed by the Tribunal, which instructed leading counsel to appear on its behalf. In an interlocutory ruling which I gave on 11 January 2000, I said that it was

".... appropriate for the Tribunal, if it wishes, (a) to appear on the hearing of the application for judicial review, and (b) to seek to defend the ruling challenged. That is because the Financial Secretary did not take part in the argument before the Tribunal which resulted in the ruling which is being challenged."

But that did not mean that the Tribunal had to appear. It could have left the opposition to the application for judicial review in the capable hands of leading counsel instructed on behalf of the Financial Secretary. Indeed, in my interlocutory ruling, I made the point that I was not ordering the Tribunal to conduct the opposition to the application. I was merely directing that it may defend the ruling, and counsel instructed on its behalf may make submissions in defence of the ruling, in addition to any submissions made on behalf of the Financial Secretary in defence of the ruling. Although I do not in any way criticise the Tribunal for appearing by counsel to oppose the application, I do not think that it would be right to saddle the Applicant with two sets of costs. Accordingly, the order nisi which I make in connection with the Tribunal's costs of the application is that there be no order in relation to them.