YANG CHIH CHEN v. SECURITIES AND FUTURES COMMISSION

HCMA 204 & 371/2005

HEADNOTE

It is true that whether there is evidence to support a finding of fact is a question of law.  But where a tribunal of fact declines to convict because it has a reasonable doubt on a crucial issue of fact, it is not making a finding on that issue.  It proceeds on the basis that, being unsure on that issue, it refrains from making a finding thereon.  So there is no finding for the prosecution to appeal against as a finding open to attack in law as a finding unsupported by evidence.  If the Magistrate’s Court were to find all the material facts against an accused but nevertheless acquits, the High Court can say there should in law have been a conviction on those findings of fact.  But if the Magistrate finds some of the material facts against an accused, indeed even if he finds all but one of the material facts against the accused, the High Court cannot direct the Magistrate to find the facts or fact of which he felt unsure and to convict the accused. (Chandler v DPP [1964] AC 763 and R v Wang [2005] 1 WLR 661 applied)

HCMA 204 & 371/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NOS 204 & 371 OF 2005

(ON APPEAL FROM ESS 8857 OF 2004)

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J U D G M E N T

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1.  Mr Yang Chih Chen, who is the Appellant in HCMA No. 204 of 2005 and the Respondent in HCMA No. 371 of 2005, was tried before Anthony Yuen, Esq. in the Magistrate’s Court at Eastern on an information preferred on behalf of the Securities and Futures Commission (“the SFC”), which is the Respondent in HCMA No. 204 of 2005 and the Appellant in HCMA No. 371 of 2005.

2.  By that information Mr Yang was charged with employing a device, scheme or artifice to defraud, contrary to sections 63(a) and 65 of the Commodities Trading Ordinance, Cap. 250.  The particulars were that he did on 3 July 2002 employ a device, scheme or artifice to defraud a purchaser of September 2002 Hang Seng Index futures contracts.  Mr Yang was acquitted by the Magistrate who dismissed the information.  But the Magistrate refused Mr Yang his costs.  HCMA No. 204 of 2005 is Mr Yang’s appeal against that refusal of costs.  HCMA No. 371 is the SFC’s appeal by way of case stated against the Magistrate’s acquittal of Mr Yang.

HCMA No. 371 of 2005

3.  It is only logical to deal with an appeal against an acquittal before dealing with an appeal against a refusal to award the accused his costs despite that acquittal.

4.  In para. 4 of the case stated by the Magistrate in HCMA No. 371 of 2005, he says that the following facts were proved and found:

“	(1)	a futures trading account no. TM 9068 in the name of Wu Fan Hsiu-Lan (“the said account”) was opened with Top Equity Derivatives Ltd on or about 28th July 2000;
	(2)	the said account was a discretionary account which was operated by the Respondent, who was the son-in-law of Wu Fan Hsiu-Lan;
	(3)	the Respondent traded actively on the said account between 3rd June and 20th August 2002.  Details of such trading are set out in the trading records exhibited as CLY-2 to the certificate of Chung Lai Yung (Exhibit P6) given under section 22A(5) of the Evidence Ordinance, and produced to the Court.
	(4)	on 3rd July the Respondent placed orders on the market through the said account, in relation to September 2002 Hang Seng Index futures contracts (“HSIU2 contracts”) during the “pre-opening” period between 9:15:00 a.m. and 9:40:59 a.m.
	(5)	the orders placed by the Respondent and other persons for HSIU2 contracts during this time are set out at items 1-6 of Exhibit CKS-3 to the expert report of Cheng Kai-sum, Eric (Exhibit P9).  In particular:
		(i)	an “auction bid order” for 3 contracts was input by J.P. Morgan at 9:18:23 a.m.;
		(ii)	this was matched by an “auction ask order” for 3 contracts input by the Respondent at 9:21:26 a.m.;
		(iii)	the effect of (i) and (ii) was that, if a “calculated opening price” (“COP”) could be established, JP Morgan would be obliged, under the rules of the Futures Exchange, to buy 3 HSIU2 contracts from the Respondent at whatever the COP happened to be;
		(iv)	2 further auction orders were input at about 9:21:34 a.m. by the Respondent.  These could not establish a COP because auction orders do not specify a price;
		(v)	only “limit orders” specify a price and can establish a COP; under the rules of the Exchange, no limit orders can be input after 9:40:59 a.m.;
		(vi)	shortly after 9:40:57 a.m. the Respondent input 1 “limit bid order” and 1 “limit ask order” for HSIU2 contracts, each at a price of 10,570.  As these orders matched, and since no other order was input before 9:40:59, the Respondent’s matching limit orders fixed the COP at 10,570;
		(vii)	thus under the rules of the Futures Exchange JP Morgan was obliged to purchase 3 HSIU2 contracts from the Respondent at a price of 10,570 per contract, which it did at 9:44:00 a.m.
		(viii)	explanations of the terms “auction bid order”, “auction ask order”, “limit bid order”, “limit ask order”, “COP”, “pre-market-opening period”, “pre-opening period” and other terms are given in the expert report of Cheng Kai Sum, Eric;
	(6)	At 9:44 a.m. on 3rd July 2002 an alert was issued by the surveillance system of the Futures Exchange in respect of the HSIU2 contract.  The alert was based on the difference between a theoretical price calculated by the surveillance system and the COP of 10,570 actually executed.  The alert is issued when there is a divergence of more than 50 points.  In the present case there was a divergence of 217 points between the COP of 10,570 and the theoretical price of 10,353.
	(7)	The Respondent was interviewed by representatives of the Appellant on 18th June 2003 and 10th July 2003.  Records of these interviews together with translations were admitted at the trial (Exhibits P7, P7A, P8, P8A).”

5.  The Magistrate then says this in para. 5 of the case stated:

“The underlying transactions and facts in the case were not in dispute.  Other than the evidence of Cheng Kai Sum, Eric, the Appellant’s evidence was adduced by way of statements under Section 65B of the Criminal Procedure Ordinance, Cap. 221 and Certificates under Section 22A of the Evidence Ordinance, Cap. 8, none of which were disputed by the Respondent.”

6.  Then the Magistrate identifies what he regarded as the issue, saying this in para. 6 of the case stated:

“I therefore found that the issue in the case was the mens rea of the Respondent, and whether he intended to defraud the purchaser of the 3 HSIU2 contracts on 3^rd July 2002 when he placed a pair of equal and opposite limit orders for such contracts at a price of 10,570.”

7.  In para. 7 of the case stated the Magistrate notes that the defence evidence consisted of Mr Yang’s own oral evidence and that of his expert, Mr Clive Rigby.

8.  The Magistrate then turns to the SFC’s contention, saying this in para. 8 of the case stated:

“It was contended by the Appellant that there was an irresistible inference that the Respondent by trading in the manner that he did was manipulating the market by fixing the COP at 10,570; and that he therefore on 3^rd July 2002 had employed a device, scheme or artifice to defraud a purchaser of September 2002 Hang Seng Index futures contracts, as alleged in the information, and had thereby contravened Sections 63(a) and 65 of the Commodities Trading Ordinance (Chapter 250).”

9.  Then the Magistrate says why he acquitted, doing so in para. 9 of the case stated which reads:

“I, however, was of the opinion and held that:
a.	the evidence established beyond doubt that the Respondent was manipulative when he input the pair of equal and opposite limit orders;
b.	the purpose of the Respondent doing so was to ensure that the final COP for the HSIU2 contract be fixed at 10,570, which is the price the Respondent had in mind when he put in the pair of (auction) orders (as admitted by the Respondent in his evidence);
c.	I could not be sure that the Respondent at the time should have known or believed that 10,570 was an artificial and unreasonably high price which did not reflect the market situation;
d.	I could not be sure that the Respondent had the intention to defraud other investors when he input the pair of limit orders;
e.	In these circumstances the Respondent should be acquitted.”

10.  Finally the Magistrate sets out the questions of law which he states for the opinion of the High Court.  He does so in para. 10 of the case stated which reads:

“The question of law arising on the above statement for the opinion of this court therefore are:
(i)	whether, having found that the Respondent was manipulative when he input a pair of equal and opposite limit orders, and having found that he did so in order to ensure that the final COP for the HSIU2 contract e fixed at 10,570 (the price desired by the Respondent) it follows that the Respondent was acting dishonestly;
(ii)	whether, having found that the Respondent was manipulative and that the Respondent’s purpose was to ensure that the final COP for the HSIU2 contract be fixed at 10,570, it follows that the Respondent caused prejudice or the risk of prejudice to a purchaser of HSIU2 contracts;
(iii)	whether it was necessary for the Appellant to prove that the Respondent knew or believed that 10,570 was an artificial and unreasonably high price;
(iv)	whether in the light of the answers to (1), (ii), and (iii), and on the basis of my findings of primary fact,
	(a)	what the Respondent did on 3rd July 2002 was to employ a device, scheme or artifice; and
	(b)	such device, scheme or artifice was employed by the Respondent to defraud a purchaser of HSIU2 contracts, in that he was dishonestly causing prejudice or the risk of prejudice to such purchaser in procuring him to purchase at a manipulated price,
	so that the Respondent was guilty of the offence as charged.”

11.  In R v Wang [2005] 1 WLR 661 the House of Lords held that “there are no circumstances in which a judge is entitled to direct a jury to return a verdict of guilty”: see p. 672F.  At p. 667 E-F they quoted with approval what Lord Devlin said at pp 803-804 in Chandler v DPP [1964] AC 763.  Lord Devlin said there (at p. 803): “I cannot accept that the judge is entitled to direct the jury how to answer a question of fact, however obvious he may believe the answer to be and although he may be satisfied that any other answer would be perverse.”  These statements reflect the difference between the province of the tribunal of law and the province of the tribunal of fact.  A Magistrate sits as both the tribunal of law and the tribunal of fact.  Appeals from the Magistrate’s Court to the High Court are usually brought under section 113 of the Magistrates Ordinance, Cap. 227.  Sometimes they are brought under section 105 of that Ordinance.  Appeals under section 113 are on law and fact and can only be brought by the defence.  Appeals under section 105, being appeals by way of case stated, are on law or excess of jurisdiction and can be brought by the prosecution or the defence.  So the prosecution too can appeal, but not on fact.

12.  It is true that whether there is evidence to support a finding of fact is a question of law.  But where a tribunal of fact declines to convict because it has a reasonable doubt on a crucial issue of fact, it is not making a finding on that issue.  It proceeds on the basis that, being unsure on that issue, it refrains from making a finding thereon.  So there is no finding for the prosecution to appeal against as a finding open to attack in law as a finding unsupported by evidence.

13.  If the Magistrate’s Court were to find all the material facts against an accused but nevertheless acquits, the High Court can say there should in law have been a conviction on those findings of fact.  But if the Magistrate finds some of the material facts against an accused, indeed even if he finds all but one of the material facts against the accused, the High Court cannot direct the Magistrate to find the facts or fact of which he felt unsure and to convict the accused.

14.  Since the time material to the present case itself, the Commodities Trading Ordinance has been repealed.  That limits the relevance of a question as to the ingredients of the offence of employing a device, scheme or artifice to defraud, contrary to sections 63(a) and 65 of that Ordinance.  Subject to that, Question (iii) posed in the case stated would be of the kind normally posed in appeals by way of case stated if it were read as asking whether the knowledge or belief to which it refers was an ingredient of that offence.  But as I understand the Magistrate, he did not say that such knowledge or belief was an ingredient of the offence.  He merely regarded the same as relevant to the issues of dishonesty and intention to defraud in the circumstances of the case which he was trying.

15.  It may be surprising that the Magistrate, having found the facts which he found, did not go on to find dishonesty and intention to defraud.  But he was the tribunal of fact, and he felt unsure that Mr Yang was dishonest or intended to defraud.  I cannot as an appellate tribunal force him to feel sure on an issue of fact on which he felt unsure.  But that is in effect what I would be doing if I were to give the answers which counsel for the SFC asks me to give to the questions posed in the case stated.  So I decline to give those answers, and I dismiss the SFC’s appeal.

HCMA No. 204 of 2005

16.  Mr Yang named the HKSAR as the Respondent to his appeal against the Magistrate’s refusal to award him costs.  Counsel for the SFC invited him to apply to amend the title of this appeal to substitute the SFC for the HKSAR as the Respondent.  Counsel for Mr Yang made such application; it was not opposed; and I allowed it.

17.  It is submitted on Mr Yang’s behalf that the Magistrate violated the rules of natural justice by dismissing Mr Yang’s application for costs without giving him an opportunity to be heard on such application.  What happened can be taken from paras. 7, 8 and 9 of the written submissions supplied by counsel for Mr Yang.  These paragraphs read:

“	7.	The Learned Magistrate, without hearing Defence Counsel’s full submissions on the question of costs and/or inquiring as to the Prosecution’s position and/or asking for any reasons for opposing the application, refused the same on the ground that the Appellant’s conduct brought suspicion upon himself.
	8.	After the Appellant was acquitted, Defence Counsel (1) made an application for costs, (2) indicated that he wished to make submissions if his application was opposed, by which (3) he sought an indication from the Prosecution as to whether the application was to be opposed (see AB 29T-U).
	9.	However, the Learned Magistrate, instead of inviting the Prosecution to state its stance in answer to (3) and/or allowing the parties to make relevant representations, and thereby ignoring Defence’s Counsel’s indication in (2) and the right of the Defence to make submissions, immediately refused the application (see AB 30A-C).”

18.  In my view, there has been a violation of the rules of natural justice as complained of by Mr Yang.  Given that the trial court is the one in the best position to weigh the matters relevant to whether an acquitted accused should be deprived of costs (see Tong Cun Lin v HKSAR (1999) 2 HKCFAR 531 at p. 535H)  I gave Mr Yang the choice of having the matter remitted to the Magistrate for him to deal with the trial costs or of having those costs dealt with by me exercising a fresh discretion.  Mr Yang chose the latter course.  So I have heard the parties on how, exercising a fresh discretion, I ought to deal with Mr Yang’s costs of the trial.  I have borne in mind Tong’s case and other relevant cases including the Court of Final Appeal’s latest decision on defence costs, Tsang Wai Ping v HKSAR [2005] 1 HKLRD 825.  On the facts found by the Magistrate, I am driven to the conclusion that Mr Yang brought suspicion upon himself and ought properly to be deprived of his costs in the Magistrate’s Court.  Accordingly, his appeal is dismissed. 

Costs of each appeal

19.  In each appeal, I make an order nisi, to become absolute 21 days from today if no application for some other costs order is initiated before then, that each party be left to bear his or its own appeal costs.