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HCMP 2575/2010
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO. 2575 OF 2010
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IN THE MATTER of an application under section 213 of the Securities and Futures Ordinance, Cap. 571, concerning Young Bik Fung, Lee Kwok Wa, Lee Siu Ying Patsy and Lee Siu Fan Stella arising from certain dealings in the shares of Hsinchu International Bank Company Limited and Asia Satellite Telecommunications Holdings Limited between September 2006 and February 2007 |
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| BETWEEN |
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THE SECURITIES AND FUTURES COMMISSION |
Plaintiff |
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and |
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YOUNG BIK FUNG |
1st Defendant |
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LEE KWOK WA |
2nd Defendant |
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LEE SIU YING PATSY |
3rd Defendant |
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LEE SIU FAN STELLA |
4th Defendant |
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| Before: Hon Anthony Chan J in Court |
| Date of Hearing: 28-30 October, 2-3 November and 11-12 November 2015 |
| Date of Judgment: 15 January 2016 |
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J U D G M E N T
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Introduction
1. These proceedings are brought by the Securities and Futures Commission (“SFC”) in respect of 2 cases where the defendants had allegedly acquired shares by using “confidential material price sensitive information”[1] (“CMPSI”) for personal profit.
2. The first of these cases involves the takeover of a Taiwanese bank, Hsinchu International Bank Co Ltd (“Hsinchu Bank”) by Standard Chartered plc (“SCP”). The second concerns the privatisation of Asia Satellite Telecommunications Holdings Ltd (“AsiaSat”) by its major shareholder, CITIC Group (“CITIC”).
3. The SFC brings these proceedings pursuant to s.213 of the Securities and Futures Ordinance, Cap. 571 (“SFO”) and seeks :
(1) declarations that the defendants have contravened or were concerned in fellow defendants’ contravention of s.300 of the SFO in the Hsinchu Bank case and s.291 of the same Ordinance in the AsiaSat case; and
(2) remedial orders to return the profits from those illicit dealings in Hsinchu Bank shares and to restore the counterparties to their pre-dealing positions in respect of AsiaSat shares.
4. As an overview, the basic facts in this case are not in dispute. There are undisputed contemporaneous documents, emails, telephone, bank, and trading records from which much of the facts can be ascertained. In addition, there are admissions made in pleadings and a fairly extensive Admission of Facts filed by the defendants pursuant to a Notice to Admit Facts served on them by the SFC.
5. In this judgment, unless it is indicated otherwise, the facts stated are not in dispute. However, the legal issues in this case are extensive, and in order to resolve the same this court is required to venture into certain areas of the criminal law.
Parties
6. The 1st defendant (“Betty”) was, at the material times, a solicitor at Messrs Slaughter & May (“S&M”). S&M served as solicitors to Standard Chartered Bank (HK) Ltd (“SCB HK”). SCB HK was a subsidiary of Standard Chartered Bank, which was SCP’s banking arm. For ease of reference, these entities will be referred to collectively as “SCB”.
7. At the times material to the Hsinchu Bank case, Betty had been seconded to and was working in SCB’s Group Legal Department, spending a lot of her time on SCB’s takeover of Hsinchu Bank.
8. The 2nd defendant (“Eric”) was a solicitor in the Mainstream Corporate Department (“MCD”) of Messrs Linklaters (“Linklaters”). Linklaters served as solicitors to CITIC in relation to the privatisation of AsiaSat. It also acted for the corporate entity making the offer for all the shares in AsiaSat.
9. Betty and Eric, by virtue of their profession as solicitors and employment with S&M (and secondment to SCB) and Linklaters stood in the position of fiduciaries. They owed various duties of loyalty and confidentiality to their principals (including the duties not to disclose, misuse, let others use or abuse confidential information and to abstain from insider dealing), and were subject to restrictions on trading securities[2].
10. Betty and Eric were in a romantic relationship and cohabited between 2003 and 2006. According to them, their romantic relationship came to an end in January 2006 but they remained close friends.
11. The 3rd defendant (“Patsy”) is Eric’s elder sister. She was a customer service assistant in a property management company. The 4th defendant (“Stella”) is Eric’s elder sister and Patsy’s younger sister. She was a housewife.
12. Through Eric, Betty was acquainted with Patsy and Stella. When Patsy was asked to describe her relationship with Betty, she said that they would chat when they met up. Such evidence suggests that they were not close friends.
Hsinchu Bank Case
13. The facts of the Hsinchu Bank case can be summarized as follows.
14. SCB was interested in expanding its operations in Taiwan. In 2006, it was in confidential negotiations with Hsinchu Bank, which was listed on the Taiwan Stock Exchange, to takeover and privatise the latter by making a recommended tender offer for all its shares (“Tender Offer”). The Tender Offer would be “recommended” in the sense that the management of Hsinchu Bank would recommend the shareholders to accept the offer.
15. SCB’s Group Legal Department in Hong Kong was involved in handling and managing the legal and regulatory work. Ms Mabel Chu (“Mabel”) (one of SFC witnesses) was the lead in-house lawyer on the matter. On 20 April 2006, Betty was seconded by S&M to SCB to assist Mabel on the transaction. She was reminded and she acknowledged that she was an insider and had access to highly confidential and sensitive information.
16. Important milestones in SCB’s negotiations with Hsinchu Bank in August and September 2006 are summarised in §11 of the Statement of Claim (“SOC”), which are admitted by Betty at §§15-16 of the Amended Defence of the 1st to 4th Defendants (“AD”). At that time (August and September 2006), Betty was spending around 70-80% of her time working on this project.
17. On around 23 August 2006, SCB and Hsinchu Bank started negotiations on the price for the Tender Offer. By 14 September 2006, the proposed tender price of NT$24.50 per share was approved by SCB and inserted into a draft press release which was circulated internally. Hsinchu Bank shares were then trading at around NT$14 per share.
18. Information about the Tender Offer, together with information about its offer price of NT$24.50 per share, constituted CMPSI about Hsinchu Bank shares before the public announcement of the Tender Offer on 29 September 2006 (the parties’ experts are in agreement on this issue).
19. There is no controversy that Betty was aware of both the Tender Offer and the proposed tender price on 14 September 2006 at the latest. In respect of her fiduciary duties[3], the SFC relies on :
(1) an express duty of confidentiality in her employment letter with S&M;
(2) S&M’s Dealing Rules prohibiting disclosure or misuse of confidential information, in particular in buying and selling any shares (whether directly or indirectly) without first obtaining permission from S&M and complying with insider dealing laws;
(3) an email sent by Betty on 6 June 2006 in which she acknowledged reading and understanding SCB’s Memorandum on Inside Information, imposing a duty of confidence and prohibiting disclosure or use of inside information;
(4) Principle 8.06 of the Solicitor’s Guide to Professional Conduct which prohibits a solicitor from making personal profit by using confidential information acquired in the course of a professional relationship; and
(5) the common law duties of a person in a fiduciary position to act in good faith and not to “act for his own benefit or the benefit of a third person without the informed consent of his principal” (see Bristol & West Building Society v Mothew[1998] 1 Ch 1, at 18B-C).
20. Betty was aware of her obligations to maintain confidentiality in relation to the Tender Offer. As stated in §32 of her witness statement, which was adopted as part of her evidence :
“Having worked as a solicitor on corporate transactions for several years already I was well aware of my professional obligation to avoid breach or misuse of client confidential information. At no time did I discuss any of the bank’s projects with individuals outside and at no point did I knowingly deal in shares of the bank, Hsinchu Bank or any other business in which the bank was interested, nor did I encourage anyone else to deal.”
21. On 20 September 2006, Patsy opened a new securities account in Hong Kong with Tai Fook Securities Co Ltd (“Tai Fook” and “TF Account”) which allowed her to trade in Taiwanese shares. Between 21 and 29 September, Betty, Eric, Patsy, and Stella put together substantial sums of money and injected them into the TF Account. Between 22 and 29 September 2006, Patsy acquired for the defendants a total of 1,576,000 shares in Hsinchu Bank at an average price of NT$16.99 (HK$4.05) per share and an aggregate cost of NT$26,782,000 (HK$6,381,000).
22. This court has been provided by the SFC with a helpful Chronology for the Hsinchu Bank Case. Section II of that document contains the details concerning the raising of funds by the defendants, the acquisitions of Hsinchu Bank shares and the source of the information. Such facts are based on undisputed documentary evidence.
23. Both Betty and Eric went to considerable length in raising funds. Overdraft facilities were drawn down by them, and they liquidated a considerable portion of their investment portfolio[4]. Eric also borrowed HK$430,000 from Patsy. The money came from breaking a fixed deposit, which was due to mature in 2 weeks’ time, with the...
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