FACV No. 23 of 1998
IN THE COURT OF FINAL APPEAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
FINAL APPEAL NO. 23 OF 1998 (CIVIL)
(ON APPEAL FROM CACV No. 41 OF 1998)
|THE INSIDER DEALING TRIBUNAL
|SHEK MEI LING
||Chief Justice Li, Mr Justice Litton PJ, Mr Justice Ching PJ, Mr Justice Bokhary PJ and Lord Nicholls of Birkenhead NPJ
Date of Hearing: 8 March 1999
Date of Judgment: 16 March 1999
J U D G M E N T
Chief Justice Li :
1. I agree with the judgment of Lord Nicholls of Birkenhead NPJ.
Mr Justice Litton PJ :
2. I agree with the judgment of Lord Nicholls of Birkenhead NPJ.
Mr Justice Ching PJ :
3. I agree with the judgment of Lord Nicholls of Birkenhead NPJ.
Mr Justice Bokhary PJ :
4. I agree with the judgment of Lord Nicholls of Birkenhead NPJ.
Lord Nicholls of Birkenhead NPJ :
5. The purpose of the Securities (Insider Dealing) Ordinance, Cap. 395, is to combat the insidious mischief of insider dealing. The Ordinance defines insider dealing in wide terms. For present purposes the definition in section 9 can be sufficiently summarised as follows. Insider dealing takes place when a director or employee of a listed corporation, who has information regarding listed securities of the corporation that is not generally known and that he knows is price sensitive, deals in any listed securities of the corporation. Similarly, if he counsels or procures another person to deal in such listed securities. Insider dealing also takes place when a person who is contemplating or has contemplated making a take-over offer for a listed corporation, and who knows that the information that an offer is contemplated or is no longer contemplated is price sensitive, deals in listed securities of that corporation or counsels or procures another person to do so. Insider dealing may also take place where price sensitive information, or information that a take-over is contemplated or has been abandoned, is disclosed to another person, and where the recipient of such information deals in listed securities of the corporation in question or counsels or procures another person to do so.
6. The Ordinance has not made insider dealing a criminal offence. Instead, the Ordinance has established procedures whereby those who engage in insider dealing may be subjected to penalties, including potentially swingeing financial penalties. When it appears to the Financial Secretary that insider dealing in relation to a listed corporation may have taken place, he may require the Insider Dealing Tribunal, which is chaired by a judge, to inquire into the matter. The object of the inquiry is to determine whether insider dealing in relation to a listed company has taken place, the identity of every insider dealer, and the amount of any profit gained or loss avoided as a result of the insider dealing.
7. At the conclusion of the inquiry the tribunal has power, under section 23, to make all or any of three types of order in respect of a person identified by the tribunal as an insider dealer. First, the tribunal may disqualify him from acting as a director or being concerned in the management of a listed company or any other specified company, for up to five years. Secondly, the tribunal may order that the insider dealer 'pay to the Government an amount not exceeding the amount of any profit gained or loss avoided by that person as a result of the insider dealing' (section 23(1)(b)). Thirdly, the tribunal may make an order imposing on the insider dealer 'a penalty of an amount not exceeding three times the amount of any profit gained or loss avoided by any person as a result of the insider dealing' (section 23(1)(c)). Thus, as can be seen, the formula of 'profit gained .. as a result of the insider dealing' is common to both forms of financial orders. An order under section 23(1)(a) or (c) may also be made against an officer of a corporation identified as an insider dealer (under section 24). The aggregate amount of all the penalties imposed under section 23 (1)(c) and section 24 may not exceed three times the profit gained or loss avoided by all persons as a result of the insider dealing.
8. This appeal concerns the interpretation of section 23(1)(b) and (c), and the proper manner of calculating in one particular circumstance the amount of profit gained by an insider dealer. The Ordinance gives no specific guidance on how the calculation is to be made.
9. In the present case Ms Shek Mei Ling and four others were identified as insider dealers by the tribunal after an inquiry into suspected insider dealing in relation to the listed securities of a garment manufacturing company known as Hong Kong Worsted Mills Limited ('Worsted'). The material facts can be stated shortly. By early May 1993 Shek became aware that her employer Ng Kwong Fung was acting for the Beijing Municipal Treasury Department in identifying a suitable company for acquisition and that Worsted had been mentioned in this context. Between 6 and 11 May Shek, using borrowed money, bought 100,000 shares in Worsted for a total of HK$408,873, at an average cost of $4.08 per share. On 31 May Worsted announced that its majority shareholder had received an approach from an independent third party to acquire a controlling interest in Worsted. The identity of the third party was not disclosed. On 3 and 4 June Shek sold all her shares for a total of $640,619, at an average price of $6.40 per share, and thereby made a profit of $231,745 on her dealings. On 17 June a public announcement was made that the majority shareholder had agreed to sell its shares in Worsted to a state-owned company which was an investment vehicle of the Beijing municipal government. The price was net asset value plus a premium of $100 million. Dealings in the shares of Worsted were suspended, at $9.50. Trading resumed on 22 June, and at the end of that day Worsted shares closed at $15.10. The average price of Worsted shares over the following few days, between 22 June and 30 June, was $16.80.
10. The tribunal held that the profit gained by Shek as a result of the insider dealing was $1,262,643. This sum comprised the profit she would have realised, after deduction of sale expenses, had she sold her shares at $16.80 per share. The tribunal made an order against Shek for payment of $600,000 under section 23(1)(b) and $1.2 million under section 23(1)(c). The tribunal also made financial orders against the three others. All four appealed against these orders. The Court of Appeal, comprising Nazareth V-P, Mortimer V-P and Rogers JA, dismissed the appeal of the three others, but allowed Shek's appeal. The court held that the tribunal had erred in its calculation of the profit gained by Shek. The correct measure of her profit was the amount of $231,745 she actually realised. The court substituted for the tribunal's orders against Shek an order for payment of $231,745 under section 23(1)(b) and $150,000 under section 23(1)(c). From that order the tribunal appealed to this Court.
11. The sequence of events in the present case is unusual. An insider dealer may derive profit from insider dealing in many ways. For instance, where the insider dealing comprises disclosure of information, or counselling someone else to buy shares, the insider dealer may be paid for the information or advice. The present case concerns dealing in shares. Here, the insider dealer sold her shares before the price sensitive information had become fully available to the market. In the nature of things, this is exceptional. The insider dealer who buys shares improperly by misusing confidential information seeks thereby to steal a march on the market. Fulfilment of this object normally requires retention of the shares until the market has had an opportunity to receive all the hitherto confidential information and respond favourably to it. That is not what happened here. Nevertheless, in order to identify the proper approach to calculation of the profit gained by Shek in this unusual case it...