DCCC190/2017

DCCC190/2017

A A B DCCC 190/2017 B [2018] HKDC 31 C C D IN THE DISTRICT COURT OF THE D HONG KONG SPECIAL ADMINISTRATIVE REGION E E CRIMINAL CASE NO. 190 OF 2017 F ----------------------------------- F HKSAR G G v. H WONG KENNEDY YING HO (D1) H ----------------------------------- I Before: HH Judge Douglas T.H. Yau I Date: 8th January 2018 at 9:33 am J J Present: Mr. GJX McCoy, S.C., Mr. Steven Kwan & K K Mr. Albert Wong, Counsel on fiat, for HKSAR L Mr. Joseph Tse, S.C., Mr. Johnny Mok, S.C., Ms. Doris Ho & L Ms. Selina Kung, instructed by M/s Li & Partners, for D1 M M Offence: Offering an advantage to an agent (向代理人提供利益) N ---------------------------- N Reasons for Verdict O O ---------------------------- P 1. The defendant pleaded not guilty to one charge of offering an P advantage to an agent, brought under s.9(2) of the Prevention of Q Q Bribery Ordinance, Cap.201 (“POBO”). R R Background S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 2 - A A B B 1 2. HKRH , a listed company in Hong Kong, was in financial C C difficulties and trading of its shares was suspended. D D 3. The defendant, together with others, took part in a restructuring E E operation to rescue HKRH from delisting. The operation was F successful and the defendant ended up being a majority shareholder F of HKRH through his interest in a corporate vehicle, Perfect Ace G G Investments Company Limited (“PAIL”). H H 4. The defendant was appointed as the Chairman, the Chairman of the I I Board and Executive Director of HKRH after the restructuring, on J 30th September 2008. J K K 5. Mr Herbert Hui (“HH”) was an Executive Director of HKRH before, L during and after the restructuring. For the purpose of present L proceedings, it is admitted fact that HH was acting as an agent of M M HKRH from his first appointment on 19th August 2002 to his death N on 30th August 2014. N O O 6. Subsequent to the restructuring, HKRH sought to expand its P business. P Q Q 7. On 23rd December 2008, a subsidiary company of HKRH (China R Gold Silver Group Company Limited, hereinafter as “CGS”) R entered into a restructuring agreement with the provisional S S 1 T Previously Ocean Grand Chemicals Holdings Limited, renamed to Hong Kong Resources Holdings T Company Limited on 7 th January 2009. The name change is not relevant to present proceedings, therefore, HKRH is used throughout. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 3 - A A B B liquidators of another listed company known as 3D-Gold Jewellery C Holdings Limited2 (“3D-Gold”). C D D 8. 3D-Gold was in financial difficulties and its shares had been E E suspended from trading since 30th September 2008. F F 9. About 7 months after the signing of the restructuring agreement, G G HKRH acquired the retail business and brand name of 3D-Gold. H HKRH intended to continue to seek to acquire the company H 3D-Gold itself and to have its shares resume trading. I I J 10. On the same day of the retail and brand name acquisitions, 28th July J 2009, CGS, 3D-Gold and their provisional liquidators entered into K K an Exclusivity Agreement, whereby, CGS was granted exclusive L rights to negotiate the acquisition of 3D-Gold. The agreement was L to automatically terminate at 3pm on 19th August 2009. M M N 11. By 19th August 2009, the pre-conditions for the acquisition had not N all been met. The deadline was extended for 1 month by agreement. O O P 12. The acquisition of 3D-Gold by HKRH was ultimately unsuccessful. P 3D-Gold was delisted by the Hong Kong Stock Exchange on 9 th Q Q July 2012. R R S S T T 2 Previously known as Hang Fung Gold Technology Limited, hereinafter as “3D-Gold”. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 4 - A A B B 13. Prior to the delisting of 3D-Gold, HKRH had continued its attempt C C for the acquisition of 3D-Gold and the resumption of trading of its D shares. D 14. On the same day as the Exclusivity Agreement deadline of 19 th E E August 2009, a Deed of Offer was executed by the defendant on F behalf of PAIL to HH. The Deed of Offer granted HH an option to F subscribe for 15 million preference shares of HKRH held by the G G defendant through PAIL for a consideration of HK$1.8 million, in H other words, at HK$0.12 per share. H I I 15. According to the Deed, the grant was made in consideration of the J “substantial effort” HH had spent since November 2008 in relation J to HKRH’s business concerning 3D-Gold. K K L 16. HH accepted and exercised the options, depositing the HK$1.8 L million consideration into the account of a limited company owned M M and controlled by the defendant’s wife on the same day. N N 17. Slightly less than 3 months later, on 11th November 2009, HH O O exercised his right and gave notice to convert the 15 million P preference shares into ordinary shares. 6 days later, on 17 th P November, 15 million ordinary shares were registered in HH’s Q Q name. R R 18. The price of the ordinary shares of HKRH on 17th November 2009 S S was at HK$1.54 per share. On paper, HH would have made a gross T profit of HK$21,300,000, had all 15 million shares been sold at that T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 5 - A A B B price. Those shares were, however, never sold and, as at the death C C of HH, were still registered in his name. D D 19. The defendant was first arrested by the Independent Commission E E Against Corruption (“ICAC”) on 4th July 2011 but was released F without charge. F G G 20. The defendant was arrested for a second time on 14th February 2012 H but was again released without charge. The defendant, however, did H voluntarily take part in 3 video recorded interviews under caution I I on the same and following day of this second arrest. J J 21. The defendant was arrested for a third time on 1st August 2015 and K K was formally charged with the pre-amended version of the present L offence. L M M 22. The defendant’s case was originally committed for trial in the Court N of First Instance. It was eventually transferred to the District Court N under s.65F(1) of the Criminal Procedure Ordinance, Cap.221. O O P 23. The defendant applied to this court under s.16 of the Criminal P Procedure Ordinance for his discharge on the ground that there is Q Q insufficient evidence to establish a prima facie case against him for R the offence. R S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 6 - A A B B 24. The defendant also applied for a stay of proceedings under common C C law on the ground that a fair trial is impossible, and/or to continue D with the trial would be an abuse of process. D E E 25. Both applications were refused. The rulings given are at the F annexure below. F An outline of the prosecution’s case G G 26. The prosecution set out 7 individual acts in the particulars of the H H charge, embracing both past and future acts, alleging the defendant I to have induced HH to conduct each of those acts against the I interest of his principal HKRH by way of the offer of the 15 million J J preference shares options, thus rendering the defendant guilty of the K present offence. K L L 27. According to their opening submissions, it is the prosecution’s case M that the defendant ran HKRH, of which he was one of the major M shareholders, “as though it were his own private business”. That the N N defendant did so by paying a director, HH out of the defendant’s O own pocket in order to secure “personal continuing loyalty” of HH O to “carry out the defendant’s will in HKRH’s business and affairs”3. P P Q An outline of the defendant’s case Q R 28. The defendant does not dispute the granting of the share options or R that it is capable of being an advantage under s.9(2). S S T T 3 See paragraph 1 of the prosecution’s Opening Submissions. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 7 - A A B B 29. The defendant does not dispute the acts as particularized as items (1) C C to (6) of the charge had been done, or were being done, by HH, or D that the grant was as a reward for those acts. D E E 30. It is the defendant’s case that his intention behind the offering of the F advantage was to reward HH for what he had done, and was doing, F in particulars (1) to (6) for the principal HKRH, and not for the G G defendant himself or PAIL. H H 31. Furthermore, those acts in particulars (1) to (6) were all beneficial I I to HKRH’s business and affairs and there had in fact been no J detriment suffered by HKRH, nor had there been an undermining of J the agency relationship between HH and HKRH as a result of HH K K doing those acts. L L 32. More importantly, the defendant had never intended to undermine M M that relationship by way of the offering of the advantage, or N otherwise. N O O 33. In relation to the alleged act in particular (7), where the defendant is P accused of offering the advantage to keep HH favourably disposed P to the defendant or PAIL, it is the defendant’s case that it has never Q Q been his intention to keep HH in his own pocket. R R 34. It is the defendant’s case that in addition to rewarding HH for what S S he had done in relation to particulars (1) to (6), another intention T behind the offer of the advantage was to encourage HH to stay T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 8 - A A B B committed to the principal HKRH, not to the defendant himself or C C PAIL, in the future so that HKRH can continue to benefit from D HH’s experience and expertise in all of HKRH’s business and D affairs, not limited to just that concerning 3D-Gold. E E F 35. The defendant says that if the two intentions behind his granting of F the options to HH is true, then he never had the intention to do an G G act that would undermine the relationship of trust and loyalty H between HH and HKRH. H I I 36. If the defendant did not have the intention to so undermine, and the J acts done or to be done by the agent HH were congruent with, and J beneficial to, the interest of the principal HKRH, then in light of the K K CFA decision in the case of Secretary for Justice v Chan Chi Wan L Stephen 4 , the prosecution would not be able to prove beyond L reasonable doubt the element of “in relation to the principal’s M M affairs and business” since the defendant lacked the necessary mens N rea. N O O 37. It is the defendant’s case that no prior consent for the grant was P legally required from the Board of Directors of HKRH; that should P such consent had been sought, it would have been readily granted Q Q by the Board; that the reason why the defendant decided to use his R own personal resources to reward and encourage HH was because R any further granting of share options by HKRH would result in a S S T T 4 Secretary for Justice v Chan Chi Wan Stephen (2017) 20 HKCFAR 98 U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 9 - A A B B ‘hit’ in the profit and loss account of HKRH, which the defendant C C believed would not have been in the best interest of HKRH. D D 38. It is also the defendant’s case that he can rely on the defence of E E having reasonable excuse to make the offer in any event. F F Brief introduction of the prosecution witnesses G G 39. Two principle characters in the present case were not available to H H give evidence. Mr Herbert Hui, the agent, and Mr Michael Wong, I the Company Secretary of HKRH at the material times, had both I passed away in 2014. J J K 40. To prove their case against the defendant, the prosecution rely K mostly on non-contentious evidence that are contained in two sets L L of extensive admitted facts5. They also called 6 live witnesses to M supplement their case. M N N 41. The defendant elected not to give evidence and did not call any live O defence witnesses. 22 defence witness statements were admitted O into evidence under s.65B of the Criminal Procedure Ordinance. P P The defendant relies on them as evidence of his positive good Q character. Q R R 42. Below is a brief introduction of the 6 prosecution witnesses. S S T T 5 Admitted pursuant to s.65C of the Criminal Procedure Ordinance, Cap.221, marked as exhibits P-129 and P-133 U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 10 - A A B B Estella Ng C C 43. Ms Ng was appointed to HKRH in September 2008 as an D Independent Non-Executive Director (“INED”). She ceased to be D its director in July 2015. E E F F 44. Ms Ng was invited to join HKRH by HH. HKRH was already in G provisional liquidation before her appointment. G H H 45. In addition to being an INED of HKRH, Ms Ng was also the Chief I Financial Officer of another listed company, as well as Executive I Director of yet another listed company known as Hang Lung J J Properties Limited. K K 46. Ms Ng was called by the prosecution for the primary purpose of L L proving that the Board of Directors of HKRH were not aware of the M existence of the Deed of Offer or the grant of 15 million Preference M Shares by the defendant through PAIL to HH. N N O Anthony Fan O P 47. Mr Fan was appointed to HKRH in September 2008 as an INED. P He still held that position at the time of his testifying. Q Q R 48. Mr Fan had, at various times, been concurrently INED of more than R 8 public companies in Hong Kong and can fairly be described as a S S professional INED. T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 11 - A A B B 49. Similar to Ms Ng, the prosecution called Mr Fan for the primary C C purpose of establishing that the Board was not aware of the D existence of the Deed of Offer. D E E Edmond Yeung F F 50. Mr Yeung was a partner of the Restructuring Department of G Deloitte. On 17th October 2008, he and other colleagues were G appointed as provisional liquidators of 3D-Gold mentioned in the H H charge. I I 51. Although Mr Yeung was called by the prosecution, there was no J J examination-in-chief. K K 52. In cross-examination, the defence sought to establish the L L importance of HH’s role in the acquisition of the 3D-Gold M subsidiaries and brand name, as well as the continued effort HH had M put in concerning the resumption of trading of 3D-Gold shares and N N its acquisition. O O Juliana Wong P P 53. Ms Wong is a solicitor by occupation. She joined Phillip KH Wong, Q Q Kennedy YH Wong & Co. (“the firm”), as a trainee in 2006, R becoming an assistant solicitor in 2008. Ms Wong continued R working there until end of 2011 when she left the firm. She is now S S working as an in-house counsel for another company. T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 12 - A A B B 54. During the time when she was with the firm, the defendant was the C C managing partner of the firm. D D 55. Ms Wong worked under Mr Michael Wong, the then Company E E Secretary of HKRH. Since Mr Michael Wong had passed away in F 2014, the prosecution called Ms Wong to seek to establish certain F facts in relation to how the defendant, Michael Wong, Ms Wong G G and her colleagues had communicated over the Deed of Offer in and H around August 2009 when the Deed was being prepared. H I I ICAC officer Fung Chi Kin Berek J J 56. Mr Fung is an investigator with the ICAC. He executed a search K K warrant on the office of HKRH on 14 February 2012 and seized L exhibits P-22 to P-26. Mr Fung was not cross-examined. L M M ICAC officer Chan Ka Ho N N 57. Mr Chan is an Assistant Investigating Officer with the ICAC. He O was sent to the HKRH office on 10th November 2017 to inspect O their Register of Directors’ and Chief Executives’ Interests and P P Shorts Positions. Q Q 58. The prosecution seek to use Officer Chan’s evidence to question the R R provenance of the said Register produced through Juliana Wong in S D-3, where the transfer of the 15 million preference shares between S the defendant and HH appeared to have been duly recorded, and T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 13 - A A B B would have been made available for inspection by any Board C C member of HKRH. D D The charge and the prosecution case E E 59. The way that the prosecution particularized the charge against the F F defendant utilizes both s.9(2)(a) and (b) of POBO. It is necessary to G set out the charge particulars in full in order to properly understand G the prosecution case. H H I “Particulars of Offence I J J WONG Kennedy Ying-ho, on or about 19th day of August K K 2009, in Hong Kong, without lawful authority or reasonable L excuse, offered an advantage, namely, a gift, loan, fee, L reward or commission consisting of a share option at $1 M M Hong Kong currency for the subscription of 15 million N preference shares of Hong Kong Resources Holdings N Company Limited (formerly known as Ocean Grand O O Chemicals Holdings Limited) (“HKRH”) for $1.8 million P Hong Kong currency, to an agent, namely HUI Ho-ming, P Herbert, being an executive director of the said HKRH, as an Q Q inducement to or reward for or otherwise on account of the R said HUI Ho-ming, Herbert doing or having done acts, or R showing or having shown favour to the said WONG Kennedy S S Ying-ho and/or Perfect Ace Investments Limited, in relation T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 14 - A A B B to the said HUI Ho-ming, Herbert’s principal’s affairs or C C business, namely:- D D 1. formulating a proposal (“the Proposal”) for E E HKRH’s acquisition of 3D-GOLD Jewellery F Holdings Limited (“3D-GOLD”); and/or F G 2. carrying out HKRH’s proposed acquisition of G 3D-Gold; and/or H H 3. arranging the requisite financing for HKRH to I facilitate the Proposal; and/or I 4. negotiating with the relevant counterparties and J J enabling HKRH to be awarded the 3D-Gold tender; K and/or K 5. acquiring 5 subsidiaries of 3D-Gold; and/or L L 6. negotiating with the relevant counterparties for an M Exclusivity Agreement to assist in the resumption of M trading in shares in 3D-Gold; and/or N N 7. remaining favourably disposed towards the said O WONG Kennedy Ying-ho and/or Perfect Ace O Investments Limited.” P P Q 60. The prosecution categorized particulars 1, 3, 4, 5 and 6 as past acts Q done in relation to the acquisition of the subsidiaries of 3D-Gold; R R and particulars 1, 2, 3, 4 and 6 as future acts to be done in relation to S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 15 - A A B B the acquisition of 3D-Gold and the resumption of trading in its C C shares6. D D 61. Particular 7 stands alone in its own category. The prosecution allege E E that at the time of the offering of the advantage, the intention of the F defendant was to induce the defendant to remain favourably F disposed towards the defendant and/or PAIL. G G H 62. There is no direct evidence from the prosecution to prove how H favour had been shown by HH towards the defendant or PAIL prior I I to the granting of the Deed of Offer, whether in relation to HH’s J conduct over HKRH’s affairs and business related to the defendant J or PAIL or otherwise. K K L 63. There is also no direct evidence from the prosecution to prove that L the granting of the share options was for favour to be shown to the M M defendant or PAIL in the future, whether in relation to HH’s N conduct over HKRH’s affairs and business related to the defendant N or PAIL or otherwise. O O P 64. The prosecution rely only on the drawing of inferences to prove the P defendant’s intention. They say that because of the size of the Q Q advantage, it is the only reasonable inference that the defendant R must have intended for the advantage to keep HH sweet so that he R would show favour towards the defendant or PAIL in the future S S T T 6 See paragraphs 1.1 to 1.3 of the prosecution’s Closing Submissions. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 16 - A A B B dealings with the defendant in relation to the affairs and business of C C HKRH. D D 65. The prosecution summarize their case as follows in their Closing E E Submissions: F F “3. In gist, it is the prosecution’s case that the payment of a G G massive bonus (with a value of over HK$22 million) by the H Defendant to Mr Hui without a true consent by HKRH H debased the disinterestedness that HKRH and other I I shareholders of HKRH are entitled to expect of Mr Hui.” J J K 66. This self-summary of the prosecution case suggests that the act that K is being complained of is the act of the offering of the advantage L L itself, and not the acts as set out in particulars (1) to (6) of the M charge. M N N 67. The prosecution assert that the mere offering of the grant by the O defendant without consent from HKRH had the effect of debasing O the disinterestedness expected of HH by HKRH and other P P shareholders of HKRH. Q Q 68. This understanding of the prosecution case finds support later on in R R their Closing Submissions. Having dealt with the applicable legal S principles and the relevancy of the size of the advantage, the S prosecution move on to submit on the idea of the offer being a T T ‘General Sweetener’ at paragraph 30 of their Closing Submissions. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 17 - A A B B 69. They summarize their case in this regard as follows: C C D “33. It is the Prosecution’s case (as proven by the D Defendant’s own admission under caution) that the purposes E E of the advantage were not limited to Mr Hui’s act in relation F to the completed acts in relation to the acquisition of the F subsidiaries of 3D-GOLD or the on-going acquisition of G G 3D-GOLD shell as a quid pro quo but were also to keep Mr H Hui sweet.” H I I 70. Here the prosecution distinguish between the past or continuing J J acts of HH in particulars (1) to (6) and the future act in particular (7), K identifying this act as ‘keeping sweet’ of HH by the granting of the K advantage. L L M 71. The prosecution proceed to submit on how the acts of HH had M undermined the integrity of the agency relationship with HKRH N N from paragraph 42 onwards. O O 72. They say that the “continued negotiations for the acquisition of the P P 3D-Gold shell and the resumption of the trading of its shares which Q finally became unsuccessful must have caused immediate or Q tangible economic loss to HKRH, at least in the form the expenses R R and time involved in the negotiations.”7 S S T T 7 At paragraph 43 of the Closing Submissions. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 18 - A A B B 73. That was the extent of their submissions in relation to how the acts C C in particulars (1) to (6) had an adverse effect on the relationship D between HH and HKRH. D E E 74. The prosecution also allege that the offering of a sizable advantage F on HH, if revealed to HKRH’s other shareholders who knew as a F fact that HKRH had already incentivised HH under the approved G G Share Option Scheme, “would damage HKRH’s reputation with H them.” 8 H I I 75. The prosecution then move on to discuss the defence of reasonable J excuse in their Closing Submissions. J K K 76. A proper understanding of the prosecution’s case, it would seem, is L just as they had summarized in the above referred to paragraph 3 of L their Closing Submissions, that is to say, the mere act of granting of M M the share options by the defendant to HH amounted to the act that N was adverse to the relationship of agent and principal between HH N and HKRH, and as such, the defendant is guilty of a s.9 offence. O O P 77. I find that this is the only way that the charge as particularized can P be understood. Q Q R 78. This is the true case of the prosecution, as opposed to their R allegation of how the acts in particulars (1) to (6) were, by S S T T 8 At paragraph 44 of the Closing Submissions. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 19 - A A B B themselves, adverse to the relationship between the agent HH and C C the principal HKRH. D D 79. Be that as it may, I will still make a finding on what the intention of E E the defendant was when he granted HH the reward with regard to F those 6 acts and deal with whether the acts in particulars (1) to (6) F were adverse to the relationship between HH and HKRH. G G H The defendant’s case H I 80. The defendant does not dispute that HH had in fact done the acts in I particulars (1) to (6). It does not matter to the defendant how they J J are categorized, whether they were past or continuing or future acts. K K 81. It is the defendant’s case that all those acts that were done by HH, L L the agent, were done in the best interest of HKRH, the principal. M M 82. As to the ‘remaining favourably disposed’ allegation, it is the N N defendant’s case that there is no evidence to show that favour had O been shown, or that favour will be shown by HH to the defendant or O PAIL. It is the defendant’s case that if any favour had been shown P P or was to be shown, it was towards HKRH and HKRH only. Q Q 83. On the basis that the evidence from the prosecution witnesses as R R well as from the defendant’s admissions made under caution all S support the defendant’s case that all except one of the 7 alleged acts S done by HH were done with the best interest of HKRH in mind and T T had proven to have been beneficial to HKRH, the defendant says U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 20 - A A B B that the prosecution has failed to prove beyond reasonable doubt C C that those acts were adverse to the relationship of trust and loyalty D between the agent and the principal, either in fact or intended by the D defendant, thus failing to prove this element of the offence. E E F 84. As for the one exception out of the 7 acts, being the one alleging the F defendant granted the options so that HH would remain favourably G G disposed to the defendant or PAIL in the future, the defendant says H that there is no evidence to prove that any favour had been shown H by HH to the defendant or PAIL in the past, whether in relation to I I the acts particularized in the charge or otherwise. J J 85. The defendant also says that, in relation to future showing of favour K K to the defendant or PAIL, the prosecution has failed to prove that it L is the only reasonable inference that the intention of the defendant’s L offer of the advantage was to keep HH sweet, since there is another M M plausible and entirely reasonable inference in the defendant trying N to keep HH committed to HKRH. N O O The issues P P 86. There are only two issues. Q Q 87. The first issue is what the intention, or intentions, of the defendant R R was when he offered the advantage to HH. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 21 - A A B B 88. The second issue is whether that intention, or intentions, would C C amount to the requisite mens rea under the charge, in light of the D decision of the CFA in the case of Chan Chi Wan Stephen. D E E The first issue: The intention of the defendant at the time of the F making of the offer F G 89. I find as a fact that the intention of the defendant when he made the G offer to HH was first, to reward HH for the substantial effort he had H H undertaken in relation to the acquisition of the subsidiary I companies and brand name of 3D-Gold by HKRH, as well as in I relation to the acquisition of 3D-Gold, and the resumption of J J trading of 3D-Gold shares. K K 90. Secondly, the defendant intended the grant to induce HH to L L continue to be committed to the business and affairs of HKRH. M M 91. For the sake of clarity, I find that the defendant had never intended N N the reward to induce HH to show favour to the defendant or PAIL O when HH did the 6 acts relating to 3D-Gold. O P P 92. I further find that the defendant had never intended the reward to Q induce HH to remain favourably disposed to the defendant or PAIL. Q R R 93. The reasons for my findings on this issue are as follows. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 22 - A A B B The defendant’s video recorded interview evidence C C 94. The only direct evidence to prove the intention of the defendant D comes from the defendant’s answers given in his 3 cautioned video D recorded interviews. E E F F 95. The defendant is of clear record. This fact is relevant as to how the G court should deal with the defendant’s evidence given in his video G recorded interviews, as well as to the defendant’s propensity to H H commit the crime as charged. I I 96. For the purpose of present proceedings, 3 video recorded interviews J J are produced into evidence by agreement. It is admitted fact that the K defendant had voluntarily taken part in the interviews and that their K contents are accurate. L L M 97. Together, the 3 video recorded interviews contain both M incriminating and exculpatory statements. N N O 98. It is for me to make a finding as to what weight to put on which part O of the statements, bearing in mind the good character of the P P defendant. Q Q 99. I find that the witnesses who gave evidence by way of the 22 R R character references are honest and reliable witnesses and I give full S weight to their evidence as to the defendant’s positive good S character. T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 23 - A A B B 100. According to the witnesses’ evidence, the defendant is a C philanthropist who cares deeply about helping society’s youth. C D D 101. Although the defendant has chosen not to give evidence, he did E E explain his intentions to the ICAC officers in the video recorded F interviews. In considering the defendant’s explanations and what F weight I should give them, I bear in mind that the explanations were G G made by a person of good character, and take that into account H when deciding whether I can believe them. H I I 102. The fact that the defendant is of good character may mean that he is J less likely than otherwise might be the case to commit the crime he J is being charged with. K K L 103. These are matters to which I should have regard in the defendant’s L favour. It is for me to decide what weight I should give to them in M M this case. In doing this I am entitled to take into account everything N I have heard about the defendant, including his age, occupation, and N what his character witnesses have said about his character. O O P 104. The defendant is a person of unblemished character of mature P years, and has a positively good character. I find that based on the Q Q evidence in relation to the defendant’s character, I must give R considerable weight to that good character when deciding whether R the prosecution has satisfied me of his guilt. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 24 - A A B B 105. I now refer to the relevant parts of the defendant’s video recorded C C interview where he was asked about the making of the grant to HH. D D 106. In the 14th February 2012 morning video recorded interview, at E E counter 1112, the defendant, having been shown the Deed of Offer, F said he did not remember the document very clearly, but he did F remember signing something later to allow HH to get some G G Preference Shares. H H 107. The ICAC officer then asked “why it was handled this way”. This I I is the defendant’s answer in full at counter 1114: J J “The defendant: He in fact, I at that time, I might not need K K him on a long term basis. Subsequently, (I) was minded to L cooperate with him on a long term basis. Well, when (I) L looked back, (I realized) that he offered a lot of assistance. M M One two three four five six --- [ A : Mm. ] And that's why I N wanted him to have some involvement. I mean it turned out – N O O ICAC officer: But there was already – P P Q Q The defendant: These are two different matters. This was a R Share Option Scheme of the company, [ A : Mm. ] this one R was my personal matter. I mean, it's just like me personally S S distributing [ A : Mm. ] some shares to some senior T management staff or selling (the shares) to them at a lower T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 25 - A A B B price. [A :Mm. ] I didn't do this to this one only but to several C C of them.” D D 108. It must be pointed out that, when the defendant said “one two three E E four five six”, he was referring to items (i) to (vi) of the Deed of F F Offer that was being shown to him. G G 109. For the sake of completeness, I set out below the relevant items of H H the Deed: I I “In consideration of the substantial effort you have spent J J since November 2008 on- K K (i) formulating a proposal ("the Proposal") for the L Company's acquisition of 3D Gold Company L Limited ("3D Gold"); M M (ii) successfully arranging the requisite financing for N the Company to facilitate the Proposal; N (iii) negotiating with. the relevant counterparties and O O enabling the Company to be successfully awarded P the 3D Gold tender; P (iv) successfully completing the Company's acquisition Q Q of 5 companies within the 3D Gold Group before R 31 July 2009; R (v) successfully completing the negotiations with S S relevant counterparties for an Exclusivity T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 26 - A A B B Agreement to assist in the resumption of trading in C C shares in 3D Gold; and D (vi) the payment of a sum of HK$1.00” D E E 110. Items (i) to (v) of the Deed of Offer correspond to particulars 1, 3, 4, F 5 and 6 of the charge. In other words, the defendant had F acknowledged that granting of the share options was to reward HH G G for what he had done for HKRH in relation to 3D-Gold. H H 111. At counter 11289, the defendant explained that whoever holding I I Preference Shares of HKRH should have a long term view of “the J company”, meaning HKRH. J K K 112. The defendant went on to explain that in the beginning, he did not L plan to keep HH for a long time, but as time went by, he recognized L that HH’s performance was quite good, stressing that HH was still M M the Head of “our” Corporate Finance Committee and the Corporate N Governance and Supervisory Committee. The defendant explained N how HH had been supervising and working on some special O O projects, cooperating with some diamond companies in the US. P P 113. Although the defendant used the words “for me” at counter 1136 Q Q when he was talking about the special projects regarding diamond R companies in the US, it is the evidence of Ms Estella Ng that she R was aware that HH was involved in this diamond project for and on S S behalf of HKRH; that this proposed joint venture with a US T T 9 Page 1662 of bundle. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 27 - A A B B diamond brand was purely an investment project of HKRH; and C C that it was not a private project of the defendant or PAIL. D D 114. The defendant then said this in the same counter: E E The defendant: “So at that time (I) wanted him to have an F interest in it and er, kind of long term, so these things were F granted to him.” G G H H 115. The defendant clarified that by “these things”, he meant the I granting of the 15 million preference shares. I J J 116. As at the time of the video recorded interview, it was both the K defendant’s and the interviewing ICAC officer’s understanding that K HH would not have been able to trade in the Preference Shares until L L one year had passed10. M M 117. I find that a proper reading of the defendant’s answers above leads N N to the conclusion that the defendant’s intention for the granting of O the share options was to reward HH for what he had done for O HKRH and to induce HH to have a long term view of HKRH and by P P inference, to keep HH committed to HKRH. Q Q 118. Nothing in the above referred to answers, and in the video recorded R R interviews in general, would allow the court to draw the inference S that the defendant intended that the grant to reward HH was for S T T 10 See counters 1126 and 1127 of 14 th February morning interview U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 28 - A A B B anything other than the stated items in the Deed of Offer and for HH C C to have a long term commitment to HKRH. D D 119. Later on, at counter 1210, after being asked about the payment by E E HH for the Preference Shares, the defendant returned to the items in F the Deed of Offer and repeated how HH had done a lot of work “for F me”. Again, I find that a proper understanding of the defendant’s G G answer is that he was talking about the items in the Deed of Offer H and, therefore, in fact, what HH had done for HKRH and not H himself personally. I I J 120. It was also the defendant’s understanding, at counter 1214, that HH J “had a commitment to the company and wished to work here on a K K long term basis”. This part of the defendant’s answer supports the L inference that the defendant had all along intended HH to be L committed to the company on a long term basis, and not to himself M M or PAIL. N N 121. ICAC officer then sought to challenge the defendant’s assertion O O that the defendant was rewarding HH for what HH had done for the P company by pointing out that HKRH had already granted share P options to HH twice before the defendant’s own grant. Q Q R 122. It is admitted fact in present proceedings that HKRH had granted R HH a total of around 5.5 million ordinary share options at $0.01 S S rd th each in two grants dated 23 January 2009 and 28 July 2009. T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 29 - A A B B These two grants were before the defendant’s grant of 15 million C C preference shares. D D 123. As to why he chose to make the grant personally, the defendant E E gave the following explanation between counters 1224 and 1240: F F “I mean, Hong Kong Resources did offer (it) to different, I G G mean, directors, but because --- we should appreciate that if H the Share Option was offered by the company --- well, I, I, in H the future I won't do this. (It'll) hit the one known as P and L.” I I J J “I mean it created a deficit to our Profit and Loss account K immediately.” K L L “And that's why now in reality quite a number of listed M M companies let the major shareholder offer a small share of N it.” N O O “If you want to reward those, er, directors and senior P P management staff --- currently, share option is not so popular Q since it hits the P and L quite seriously..” Q R R “That is, if you say I've really offered to him 10 million shares, S S 15 million shares, and I mean, immediately, I mean, if they T are granted --- there’s a formula for this, it would T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 30 - A A B B immediately create a loss in our listed company C immediately.” C D D “A big loss. [ A : Mm. ] You; you, you take a look at this point: E E [ A : Mm. ] That's why last two years I didn't --- didn't do that F F again. It's because I --- since I came to know about this --- and G the most important point is, he hold a long term view.” G H H “I mean, of the company.” I I J 124. I find that a proper understanding of the defendant’s evidence J above is that one of the reasons the defendant decided to reward HH K K for what he had done for the company by way of granting the L options personally and not by way of HKRH issuing further options L was because the defendant believed it was in the best interest of M M HKRH to do so. N N O 125. This part of the defendant’s evidence is supported by the evidence O of Ms Ng and Mr Fan. P P Q Evidence of prosecution witness supporting the defendant Q R 126. The following exchange appears in Ms Ng’s cross-examination: R S S “Counsel: The granting of share options by a listed company T would have a substantial impact on the profit and loss T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 31 - A A B B account of the company when it would come to do its finances, C C am I correct? D D Ms Ng: Yes. E E F F Counsel: Because irrespective of whether the grantees would G exercise the share options, those share options would be G counted as costs to employees under principle of accounting. H H Do you agree? I I J Ms Ng: Completely correct. ” J K K 127. It is the evidence of both Ms Ng and Mr Fan that, when the grant of L L options under the Deed of Offer by the defendant to HH took place M on 19th August 2009, the listed company HKRH was in serious M financial difficulties because of the various loans it had taken out N N from different companies. O O 128. Therefore, the worry that the defendant had about a further reward P P granted directly by the company to HH would cause the profit and Q loss account of the company to take a further ‘hit’ is not unfounded. Q R R th 129. In the video recorded interview conducted in the evening of 14 S S February, the defendant basically repeated his position regarding T the granting of the shares, explaining that it was to reward the senior T management of HKRH who had contributed to HKRH’s business, U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 32 - A A B B and those whom the defendant considered loyal to HKRH and who C C will continue to have contributions to be made towards HKRH 11, as D in the case of HH. D E E 130. In the video recorded interview conducted on 15th February, the F questions were mainly focused on whether the grant of the 15 F million preference shares should be regarded as a “contract of G G significance” and, whether it should have been included in the 2010 H Annual Report of HKRH. The defendant disagreed with the ICAC H officer’s view that it was to be so regarded. No evidence was called I I by the prosecution at trial on this and no submissions were made on J this point. J K K The prosecution’s stance on the defendant’s video recorded L interview assertions L M 131. In relation to what the defendant had said about his intentions of M making the grant, the prosecution claim that the defendant was N N being dishonest in his answer, basing their claim on the following O reasons. O P P 132. HKRH had already granted share options twice to HH and other Q directors. These were the grants that the defendant was asked about Q in the video recorded interview and discussed above. R R S 133. The prosecution point out that 8 months after the Deed of Offer the S defendant proposed and the Board of HKRH resolved to grant 18 T T 11 See counters 357 to 372 at page 1755 of bundle. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 33 - A A B B million odd share options to 3 individuals, one of them was a C C director of HKRH. D D 134. It is the prosecution’s argument that if the defendant really E E believed that the grant of the 15 million shares would ‘hit’ the Profit F and Loss account of HKRH, the company would not then have F granted over 18 million share options to others just 8 months after G G the Deed of Offer. H H 135. For the following reasons, I do not agree with the prosecution’s I I proposition that the defendant was being dishonest in his answer. J J 136. In relation to how the company had already granted a reward to HH K K and there was no need for the defendant to grant a further reward L and therefore it must be the only reasonable inference that the L defendant was lying about the reason for the grant, I find that no M M such inference can be drawn. N N 137. There is nothing inherently improbable in the defendant’s O O explanation. It was confirmed by the evidence of prosecution P witness Ms Ng that any reward of share options by the company P would in fact be a ‘hit’ on HKRH’s Profit and Loss accounts. The Q Q defendant was not lying about that. R R 138. Everything that the defendant wanted to reward HH for was what S S HH had done for HKRH. Either in relation to 3D-Gold or other T company businesses such as the diamond business mentioned in the T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 34 - A A B B video recorded interview. This was also confirmed by prosecution C C witness Ms Ng to have been known to the Board and was being D done for HKRH and not the defendant or PAIL. D E E 139. According to Ms Ng and Mr Fan, the financial situation of HKRH F was dire at the time of the granting of the Deed of Offer options. 8 F months later, that is to say in April 2010, the financial position of G G HKRH might very well have been different than before. It is not the H only reasonable inference that because another grant was made by H the company 8 months later, the defendant must have been lying I I about his intention behind the grant 8 months ago. J J 140. For the reasons above, I find that the defendant was telling the truth K K when he answered the ICAC officer in the video recorded L interviews as to his intentions of granting the shares to HH. I find L that I can give full weight to the defendant’s exculpatory part of his M M evidence given in his video recorded interviews. N N 141. In other words, I find as a fact that the defendant’s intentions O O behind the granting of the 15 million preference shares was to P reward HH for what he had done and will continue to be doing for P HKRH, and that it was also to be an inducement for HH’s long term Q Q commitment to the business of HKRH. R R Issue 2: Would the defendant’s intentions, as I have found, S S amount to the requisite mens rea under s.9 with regard to the T particulars of the charge T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 35 - A A B B 142. Based on the intentions of the defendant making the offer as I have C C found, I find that the prosecution have failed to prove beyond D reasonable doubt that the defendant had the necessary mens rea for D an offence under s.9(2). My reasons are as follows. E E F The applicable law F G 143. The question of the mens rea behind the element of “in relation to G the principal’s affairs or business” in s.9(2) of POBO was dealt H H with in the said case of Chan Chi Wan Stephen. I I J 144. At paragraph 53 of the Judgment, Ribeiro PJ stated this: J K K “…In my view, on a proper construction of section 9 in the L light of its mischief, the induced or rewarded conduct “aimed L at the principal’s business” has to be conduct which subverts M M the integrity of the agency relationship to the detriment of the N principal’s interests. It is not the legislative intent to N stigmatize as criminal, conduct of an agent which is O O beneficial to and congruent with the interests of the principal P (as in the present case).” P Q Q 145. The required mens rea is summarized at paragraphs 68 and 69: R R S “68. The reference in section 9 to the agent’s act or S forbearance being “in relation to his principal's affairs or T T business” is properly construed to mean that the agent’s act U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 36 - A A B B or forbearance must be aimed at and intended to influence or C affect the principal’s affairs or business in a manner that C D undermines the integrity of the agency relationship by D injuring the bond of trust and loyalty between principal and E E agent. F F G 69. In offering cases, the prosecution must prove that the G offeror intended that the advantage would be accepted as an H H inducement or reward for or otherwise on account of the I agent’s act or forbearance which is aimed at and intended to I influence or affect the principal’s affairs or business.” J J K K 146. At paragraphs 142 and 143 of the Judgment, Fok PJ stated this: L L “142. The section does not, in my view, criminalise any and M M all payments of money by a third party to an agent made N without the principal’s knowledge and consent. If it had been N intended to cast the offence in such wide terms (and they O O would be very wide indeed), section 9 would have been very P differently and much more simply worded. P Q Q 143. Instead, the Legislature required that the advantage R R solicited, accepted or offered must have been as “an S inducement to or reward for” the agent’s doing (or S forbearing to do) an act “in relation to his principal’s affairs T T or business” (in sub-sections 9(1)(a) and 9(2)(a)) or showing U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 37 - A A B B or forbearing to show “favour or disfavour” to someone “in C relation to his principal’s affairs or business” (in C D sub-sections 9(1)(b) and 9(2)(b)). The words “inducement” D and “reward” require the advantage solicited, accepted or E E offered be invested with some quality of purpose. This is F reinforced by the use of the words “favour” and “disfavour” F in sub-sections 9(1)(b) and 9(2)(b).” G G H H The applicable law and the acts in particulars 1 to 6 of the charge I I 147. In the present case, all the evidence points to the fact that the acts J HH had done, doing, or was going to do in particulars 1 to 6 were J entirely in the interest of HKRH. K K L 148. In addition to what the defendant had said in his video recorded L interviews, the fact that HH had made substantial effort in relation M M to the items in the Deed of Offer and that what HH did was N beneficial to the business of HKRH is supported by the evidence of N both Ms Ng and Mr Fan, the two INEDs. O O P 149. According to Ms Ng’s evidence, Project Midas, the project name P given to the acquisition of 3D-Gold by HKRH, was given the go Q Q ahead at a Board meeting12 held on 28th November 2008. Ms Ng R attended this meeting by way of conference call. She confirmed that R there had been discussion about the project, that the Board viewed S S the project favourably and the resolution to proceed was passed. T T 12 Minutes of the meeting are at p.1144 of trial bundle, exhibit P-56 U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 38 - A A B B 150. When Ms Ng was asked by counsel for the defendant if she could C C confirm that right from the beginning to the end, when eventually D the resumption of trading of 3D-Gold shares failed, HH was heavily D involved in each and every step for HKRH, Ms Ng gave this E E answer: F F “Ms Ng: Agreed, as I said before, if not 100%, I would say G G it’s the most important one.”13 H H I 151. Ms Ng confirmed in her evidence that the result of the acquisition I of the subsidiary companies of 3D-Gold by HKRH through CGS J J was beneficial to the HKRH group. More specifically, Ms Ng K agreed that the result of the acquisitions was to enable HKRH to K move into the retail business and to expand into the China market, L L opening 265 shops in various cities and provinces there. M M 152. Ms Ng confirmed what is stated in the HKRH Annual Report 2010 N N in relation to a 1256% increase in turnover from the previous fiscal O year, and that the reason for the increase in the group’s turnover and O gross profit arose from improvement in the retailing business of P P gold products and other precious metal products. Q Q 153. Ms Ng also confirmed that the number of employees increased as a R R result of the acquisition of the 5 subsidiary companies from 15 to S 2,117 as at 31st March 2010. S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 39 - A A B B 154. When Ms Ng was asked directly if the acquisition of the retail C C business and brand name of 3D-Gold and the 5 subsidiaries of D 3D-Gold by HKRH through CGS was beneficial to the interest of D HKRH, she said yes. E E F 155. When Ms Ng was asked if she would agree that, had the F resumption of the trading of 3D Gold shares been successful, it G G would also be beneficial to HKRH, she agreed. H H 156. Ms Ng also agreed that the fact that HKRH would have shares in I I 3D-Gold, if they were both listed in the Stock Exchange of Hong J Kong, would have a complementary effect to the business of the J two listed companies, because they can work together, they have K K increased financial strength, and there would be synergy. L L 157. Mr Fan’s evidence14 on the importance of HH and the benefit of M M the 3D-Gold acquisitions is similar to that of Ms Ng. N N 158. After confirming with Mr Fan that HH was involved in items (i) to O O (v) of the Deed of Offer, Mr Joseph Tse put the following question P to him: P Q Q “Counsel: Everything that HH had done in those 5 matters R which are listed in this document were beneficial to the listed R company were they not? S S T T 13 Ms Ng’s evidence on HH’s role is set out in more detail at paragraphs 249 to 251. 14 Mr Fan’s evidence on this point is set out in more detail at paragraphs 252 to 256. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 40 - A A B B Mr Fan: Yes.” C C D 159. Mr Fan also considered that the proposal for HKRH to acquire D 3D-Gold to relist in the market and to expand the business of the E E HKRH group into China beneficial to the interest of HKRH. F F G 160. Mr Fan confirmed that he knew that HH was going to be involved G heavily in the proposed acquisition of a controlling interest in the H H 3D-Gold holding company. He agreed with counsel that HH was a I most important figure playing that role in the proposed acquisition. I J J 161. Mr Fan agreed that what HH would be doing in the continuing K acquisition of the shares in 3D-Gold would be in the interest of K HKRH. L L M 162. The evidence is overwhelming. The acts, either as set out in the M Deed of Offer or in particulars 1 to 6 of the charge, done or to be N N done by HH were, in fact, entirely beneficial to the interest of O HKRH. O P P 163. Neither Ms Ng nor Mr Fan was asked in re-examination as to Q whether there were any detriments or adverse effect that they could Q think of regarding those acts. R R S 164. This is what Ms Ng said in cross-examination when she was asked S by Mr Tse in a rather lengthy question that, “had she known about T T this grant by the defendant to HH, had she known that it was not U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 41 - A A B B disclosed to the Board because it was not a connected transaction, C C had she known that by making a private grant it avoided a further D deterioration in the financial positon of the listed company, and had D she known that the purpose of this grant was to provide additional E E incentives to HH so that he could continue to make his F contributions towards the interest of the listed company, in what F was to follow namely, the resumption, the 2nd stage, the resumption G G of the trading of shares of 3D Gold, had she known all those, and H had she known that the defendant in making that grant was using H his own resources for the benefit of the listed company, and they I I had asked her for consent, would she have given it”: J J “Ms Ng: First of all, since it’s something that involved the K K majority shareholder of Perfect Ace, in fact, it’s not a L transaction of such and it did not require the approval of the L Board of Directors of the listed company. So there was no M M need to make any declaration or seek any approval, that’s N clear. It was simply a private arrangement of the majority N shareholder. O O P P However, assuming that everything was made clear to the Q Board of Directors, I as a member of the Board of Directors, I Q would give my consent. But I emphasize again, since it was R R not a transaction of such nature and did not require approval S of the Board of Directors of the listed company, HKRH or S OGC.” T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 42 - A A B B 165. In relation to Mr Fan, although he did say in evidence-in-chief that C C he would not have allowed a financial payment or reward to be paid D to an Executive Director by someone other than the company for D doing work within the company, because if that director was doing E E something within the company then it is something that the board of F directors has to be informed, Mr Fan explained in F cross-examination that it is a different situation regarding the G G defendant’s grant to HH: H H “Counsel: But then, you also said that had you known about I I the circumstances in which this grant was made, you would J have given consent, can you explain this why generally you J would not, but given the circumstances of this case you K K would? L L M Mr Fan: I think that the first question was very general M question, the second question was very specific, I was aware N N of the contributions made by HH to the company, so I felt that O he could.” O P P 166. During re-examination, Mr Fan made clear why he would have Q Q consented to the grant: R R “Counsel: What was your principle reason for why you might S S consent to this advantage? T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 43 - A A B B Mr Fan: I think I had known HH for a very long period of time. C C He is a very experienced figure in the capital market in Hong D Kong, so given his experience and his background, for a listed D company, he can increase the credibility of the company. E E Furthermore, after he had joined the board of director of F HKRH, and this few items of work that he had completed for F the company, I personally feel that, in addition to advantage G G granted under this grant, it is acceptable.” H H I 167. By “this few items of work”, Mr Fan was referring to items (i) to (v) I of the Deed of Offer. J J K 168. Both prosecution witnesses were unqualified in their answer as to K the consent they would have given for the granting of the 15 million L L preference share options by the defendant in his personal capacity M to HH. They both considered the work done, being done, and to be M done by HH being greatly beneficial to HKRH and would have N N merited the grant of the options by the defendant. The fact that the O grant was made by the defendant personally would have the added O advantage of not utilizing any of HKRH’s resources. P P Q 169. The prosecution seek to dilute the importance of the role of HH in Q general through the evidence of Edmond Yeung, one of the R R provisional liquidators of 3D-Gold. S S 170. It is Mr Yeung’s evidence in cross-examination that in the case of T T 3D-Gold, HH was just representing HKRH, which was just one of U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 44 - A A B B the investors in the bidding process. HKRH did win the bid but as C C far as the successful restructuring of 3D-Gold is concerned, it relied D on the work of all the staff and management of the company to try D to continue the operation of the jewellery shops and to assist the E E provisional liquidators so that the restructuring could be completed. F Without the internal staff and the management continuing to F operate the shops and do their job properly, the liquidators would G G not be able to sell 3D-Gold to the investor because if the quality and H operation level was not good, the investor would not have accepted H it. “When it comes to successful restructuring, it’s the collective I I contribution and effort” is what Mr Yeung said. J J 171. Yet, Mr Yeung did confirm that HH was heavily involved in the K K preparation of resumption proposals, and that he had submitted a lot L of business plans to the provisional liquidators of 3D-Gold, L although they were ultimately rejected and 3D-Gold was delisted M M by the Hong Kong Stock Exchange on 9 July 2012. N N 172. I find that the evidence of Mr Yeung does not take anything away O O from the evidence of Ms Ng and Mr Fan as to HH’s contribution to P HKRH. The INEDs were in an excellent, and better, position to see P what HH had done for the company. Q Q R 173. I find that it is the only reasonable inference that Ms Ng and Mr R Fan must have considered the making of the offer by the defendant S S to HH wholly beneficial to the interest of HKRH, otherwise they T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 45 - A A B B would not state so unequivocally that they would have granted their C C consent. D D 174. On the contrary, there is no evidence whatsoever of the acts in E E particulars 1 to 6 not being in the interest of HKRH. F F 175. As earlier mentioned, the prosecution did propose that the G G following detriment had resulted from the acts in particulars 1 to 6: H H “Continued negotiations for the acquisition of the 3D-Gold I I shell and the resumption of the trading of its shares which J finally became unsuccessful must have caused immediate or J tangible economic loss to HKRH, at least in the form the K K expenses and time involved in the negotiations”15 L L M 176. I find that I cannot agree with the prosecution’s proposition. Any M investment would carry with it variable degrees of risk as well as N N incur different levels of expenses. The expenses and time spent on O negotiations on the 3D-Gold project had been approved by the O Board of HKRH. The negotiations, if ultimately successful would P P be hugely beneficial to HKRH. Furthermore, there is no evidence Q from either of the INEDs that the risks and expenses incurred in Q relation to the 3D-Gold project were excessive or disproportionate R R having regard to the scale of, and possible return from, the S investment. For these reasons, I find that, in the present case, the S incurring of expenses and time spent on negotiations for the 6 T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 46 - A A B B particularized acts cannot amount to the detriment against the C C interest of HKRH in the context of the required mens rea under D s.9(2). D E E The applicable law and the act in particular 7 of the charge F F 177. The act alleged in particular 7 of the charge differs with the G previous six particulars in that it alleges the offer of the 15 million G shares by the defendant itself as the act that was intended by the H H defendant to injure and undermine the agency relationship by I keeping HH sweet towards the defendant or PAIL. I J J 178. Based on my finding that one of the intentions behind the K defendant’s offer of the advantage to HH was to try to keep HH K committed to HKRH on a long term basis, and not so that HH L L would “remain favourably disposed” towards the defendant or M PAIL, it must follow that the prosecution have failed to prove M beyond reasonable doubt that the defendant had the requisite mens N N rea for this particularized act. O O 179. There is no evidence to support a finding that the defendant had P P intended the offer to HH to influence the business of HKRH in a Q manner that undermined the integrity of the agency relationship by Q injuring the bond of trust and loyalty between principal and agent. R R S S T T 15 At paragraph 43 of their Closing Submissions. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 47 - A A B B 180. I find as a fact that all the defendant had intended was for HH to C C continue his good work for HKRH and that the defendant wanted D HH to be committed to HKRH on a long term basis. D E E 181. The evidence of Ms Ng and Mr Fan referred to above when dealing F with particulars 1 to 6 are also applicable here. Their evidence F prove how important HH’s contributions were to HKRH and how G G his continued presence in HKRH was beneficial to the business of H HKRH, thus enhancing the credibility of the defendant’s stated H desire to keep HH committed to HKRH. I I J 182. It is not against common sense to think that it would be to the best J interest of the defendant himself that HH stays on with HKRH. If K K the acquisition of 3D-Gold and the resumption of trading of its L shares had succeeded, the shareholders of HKRH, with the L defendant being a major one, would all have profited from HH’s M M commitment and contributions. N N 183. Furthermore, in the 5 years between the making of the offer and the O O death of HH (August 2009 to August 2014), despite the defendant P having been arrested and released without charge twice in this time, P suggesting continued investigation on the part of the ICAC, there is Q Q no evidence whatsoever from the prosecution to show that favour R had in fact, or might have been shown by HH to the defendant in R relation to HH’s conduct of the business of HKRH. None. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 48 - A A B B 184. Perhaps the reason why no such evidence had been uncovered is C C because the reward was never intended for HH to show favour to D the defendant and PAIL or for HH to be committed to the defendant D or PAIL, thus verifying what the defendant had all along been E E telling the ICAC officers. F F 185. As to the prosecution’s stance that the size of the advantage itself G G would cause one to draw the only reasonable inference that it was H meant to induce HH to remain favourably disposed to the defendant H or PAIL, my finding is as follows. I I J 186. It is the evidence of both Ms Ng and Mr Fan that had they known J about the grant by the defendant, they would have given their K K consent at that time. There is nothing in their evidence to suggest L that the size of the grant was inappropriate or unfair. L M M 187. Their readiness to grant the approval is entirely understandable N when one considers their evidence as to the important role that HH N had played in his work for HKRH, as well as the significant O O contributions HH had made towards the business of HKRH. P P 188. I find, therefore, that it is not the only reasonable inference that the Q Q size of the grant was inappropriate or unfair because of the sheer R size of it. It follows that it is not the only reasonable inference that R the defendant must have intended for the grant to induce HH to S S remain favourably disposed to himself or PAIL when he made the T sizable offer. Therefore, it is not the only reasonable inference that T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 49 - A A B B the defendant intended to undermine the relationship of trust and C C loyalty between HH and HKRH by keeping HH sweet. D D The offer of the advantage as the act complained of and E E reputational damage F F 189. As mentioned above in my setting out of the prosecution case, the G charge as particularized, and as expounded in their Closing G Submissions, indicate that the prosecution allege that the act of H H offering the advantage itself was intended by the defendant to I induce HH to remain favourably disposed to the defendant or PAIL I and therefore would have undermined the relationship between HH J J and HKRH, thus providing the necessary mens rea under s.9. K K 190. It is the prosecution’s case that the detriment of the offer of the L L grant by the defendant without disclosure to the Board of HKRH is M in the form of reputational damage to HKRH if the grant was found M out. N N O Concealment? O P 191. Since the act of concealment is alleged by the prosecution, I will P first make a finding of fact as to whether the defendant did, or try to, Q Q conceal from the HKRH Board of Directors his grant of the 15 R million preference shares to HH. R S S 192. For the following reasons, I find that there is insufficient evidence T to so prove. T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 50 - A A B B The defendant’s video recorded interview C C 193. First of all, there is the evidence of the defendant in his video D recorded interviews. D E E 194. I find that it was the defendant’s honest belief that the grant of F F Preference Shares by him did not require the approval of the Board G of Directors of HKRH. G H H 195. The defendant’s belief is supported by the evidence of Ms Ng. I Having confirmed with Ms Ng that she is familiar with the relevant I part of the Listing Rules, counsel for the defendant proceeded to J J cross-examine Ms Ng and she confirmed that it is her K understanding that no such approval would have been required for K the grant by the defendant to HH since it was not a connected L L transaction16. M M ‘Register of Directors’ and Chief Executives’ Interests and Short N N Positions’ O O 196. I also find that the grant had, in fact, not been hidden from the P Board of HKRH. P Q Q 197. The grant was required by law to be recorded, and the records were R public records, open to be examined by anyone upon request. R S S T T 16 This aspect of Ms Ng’s evidence is referred to at paragraphs 164 and 233-234 as well. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 51 - A A B B 198. The defendant produced through Ms Juliana Wong exhibit D-3, C which is two pages of the ‘Register of Directors’ and Chief C D Executives’ Interests and Short Positions’ of HKRH. D E E 199. Ms Wong was asked about her duties concerning the Deed of Offer F and the related documents. Her evidence is as follows. F G G “Counsel: You handled this transaction? H H I Ms Wong: My duty was to, if there is transfer of shares and I required to do timely disclosure to the Stock Exchange Hong J J Kong, then MW will send it to me and then brief me about the K transfer of shares and perhaps I would then direct Louisa for K her to prepare some Disclosure of interest forms. L L Counsel: So the purpose of MW forwarding the Deed of Offer M M to you, why, for what? N N O Ms Wong: I think, first, because MW did not keep all the filing O things, maybe some he would keep and some of them kept by P P me, and would be kept in folder for HKRH in the same file for Q full record. Another reason was for the purpose of making a Q declaration to the Stock Exchange Hong Kong. R R S S Counsel: So the purpose was for filing and disclosure to the T Stock Exchange? T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 52 - A A B B Ms Wong: One more purpose, as I said, whenever there is C C share transfer, we had to give notification to the Bermuda D company secretary.” D E E 200. Ms Wong was then shown the document in D-3. She admits to F F possibly being the person to have compiled the Register. She G confirmed that a mistake had been made in the ‘19/08/2009’ row in G relation to ‘Wong, Kennedy Ying Ho’, in that the figure under the H H column ‘Price for grant’ is wrongly stated as ‘0.14’. The correct I figure should be ‘0.12’. I J J 201. Based on this Register, the transaction of the 15 million preference K shares between the defendant and HH appears to have been duly K recorded. L L M 202. According to the evidence of Ms Ng, the Register is a requirement M under s.352(5) of the Securities and Futures Ordinance, Cap. 571, N N which prescribes that such a register be kept by a listed company. O O 203. Ms Ng was shown the Register in D-3, which sets out the positions P P from 20th July to 28th August 2009. She confirmed that the Q document recorded all transactions involving directors’ interest, Q including share options, preference shares and convertible shares. R R S 204. Ms Ng also confirmed the following in her evidence: That the S Register had to be kept updated by the listed company whenever T T there was any transaction that involved the directors or senior U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 53 - A A B B executives, within 3 days of that transaction; that it is the C C responsibility of the company secretary of the listed company to D keep the Register; that the Register had to be made accessible to all D the directors at all of the board meetings; and that, from the Register, E E any director could see that there had been a transaction involving 15 F million preference shares from the defendant to HH, and at what F price. G G H 205. Ms Ng’s attention was drawn to notes 42 and 43 on the second H page of the exhibit where the fact that the defendant ceased to be I I interested in 15 million preference shares at $0.12 each and HH J became interested in a total of 15 million preference shares at $0.12 J each is clearly set out. K K L 206. Ms Ng confirmed that the Register had duly recorded the L transaction between the defendant and HH, and it is clear that, when M M one looks at the Register, the two sides of the deal actually appeared N together. N O O 207. It is Ms Ng’s evidence that she was not aware of this transaction P between the defendant and HH until she was approached by the P ICAC because she “simply did not look at this Register”. Q Q R 208. The prosecution called ICAC officer Chan Ka Ho to question the R provenance of this Register. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 54 - A A B B 209. Officer Chan said he was instructed, towards the end of the C C prosecution case, to visit the registered office of HKRH to request D to see the Register. D E E 210. One Mr Gordon Fu, who claimed to be the company secretary of F HKRH, met with Officer Chan. Officer Chan said he revealed his F ICAC officer identity before he made the request to see the G G Register. H H 211. Mr Fu told Officer Chan that he became the company secretary of I I HKRH in 2014. Mr Fu was only able to provide the Register from J 2014 onwards. Officer Chan took the records (P-132) given to him J and left. K K L 212. The 7 pages in P-132 contain tables of “directors shareholding” L from 3rd February 2014 to 21st December 2016. The prosecution M M appear to question why Mr Fu did not produce the relevant records N for the periods prior to February 2014, impliedly attacking the N provenance of the Register in D-3. O O P 213. I find that Officer Chan’s evidence is inconsequential for the P following reasons. Q Q R 214. No reason was given by Mr Fu to Officer Chan as to why he did not R give records earlier than February 2014 to him. Since Mr Fu was S S not called as a witness, we do not know whether he in fact had T access to those earlier records at the time of Officer Chan’s visit. T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 55 - A A B B 215. It is not for this court to speculate what the answers to those C C questions might be. It cannot, however, be the only reasonable D inference that the reason why Mr Fu was only able to produce the D 2014 onwards records must be because the defendant had fabricated E E the Register produced in D-3. F F 216. On the other hand, we have credible and reliable evidence from Ms G G Juliana Wong and Ms Ng speaking to the provenance and accuracy H of D-3. H I I 217. Officer Chan’s evidence regarding the provenance of D-3 is of no J evidential value, and I find that I can place full weight on D-3. J K K The notice and knowledge of HKRH’s Company Secretary, L Michael Wong L M 218. The granting of the share options was open and known to the M company secretary of HKRH at the material time, Mr Michael N N Wong. It was the defendant who had forwarded the draft Deed of O Offer to MW, expecting MW to deal with the matter as he saw fit. O P P 219. Although Mr Wong is not with us anymore, there are documents in Q the form of email communications to shed some light on whether he Q would have been aware of the grant or not. R R S 220. According to the email in defence exhibit D-8, the defendant had S forwarded the draft Deed of Offer and Acceptance of the Grant of T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 56 - A A B B Share Option and Form of Notice of Exercise of Option that he had C C received from HH, directly on to MW. D D 221. The email that the defendant received from HH has the time stamp E E of 12:01pm on 19th August 2009. The defendant forwarded that F email to MW at 12:20 pm without adding anything to the text of the F original email from HH. G G H 222. The defendant’s email was then forwarded by MW to his H subordinate at the time, Ms Juliana Wong, again without further I I explanation or annotation, at 3:55 pm the same day. The two J forwarded emails are found in P-19 as well. J K K 223. According to the evidence of Ms Juliana Wong, upon receipt of the L draft Deed of Offer, she reviewed the documents in that email. L M M 224. Ms Wong wrote this upon review: “when checking the exe docs, N we’ve just noted a typo in the Acceptance letter, i.e. the total N consideration stated as $1,800 M instead of $1.8M, please mark up O O in the attached doc. As such we will cancel the one signed by you P this afternoon, please sign and return a fresh acceptance letter as P attached to us. Regards, Juliana.” This is found in defence exhibit Q Q D-9, an email from Ms Wong to HH directly, with the sent time R stated as 4:08 pm on the same day, 19th August 2009. R S S 225. It is Ms Wong’s evidence that she and MW went through the T contents of the documents for this transaction, either as company T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 57 - A A B B secretary or legal adviser of HKRH. She confirmed that by the time C C HH executed the final version of the documents in the transaction, D MW had been in receipt of the final draft of the Deed of Offer for 4 D hours. E E F 226. Ms Wong’s evidence as to whether MW had instructed or advised F her that the Board of HKRH should be notified about this G G transaction is that she had no such impression. H H 227. I find that the email between the defendant, MW and Juliana Wong I I suggests that the defendant had never tried to hide the grant from J MW, and that MW had known about the grant even before the J formal Deed of Offer had been signed. K K L 228. If the defendant had intended to hide the reward from the Board of L Directors of HKRH, he would not have chosen to seek the legal M M advice and assistance of MW, the company secretary of HKRH. N N 229. The only reasonable inference must be that the defendant never O O intended to conceal the grant from the Board of HKRH. P P 230. The fact that MW is not available to give evidence means that there Q Q is no direct evidence as to whether he had considered it necessary to R table the grant for the approval of the Board of HKRH, and, if not, R why not. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 58 - A A B B 231. Based on the evidence of Ms Juliana Wong about MW never C C instructing her or advising her that the HKRH Board should be D notified, one of the possible inferences is that MW had not D considered it necessary to do so. E E F 232. There is, however, evidence from one prosecution witness who F spoke directly on that matter. G G H 233. As mentioned above, the evidence of Estella Ng, herself a qualified H company secretary, is that approval of the Board of directors would I I not have been required, supporting the defendant’s belief as J expressed in his video recorded interview, thus taking away the J need to conceal the grant in the first place. K K L 234. This is Ms Ng’s evidence when she was cross-examined on the L issue: M M N “Counsel: Go back to the grant of option by the defendant to N HH. See exhibits P-22, bundle 2, p.714. That was the Deed of O O Offer by PAIL to HH, who was the director of the listed P company. We can see the parties to this transaction did not P include the listed company, am I correct? Q Q R R Ms Ng: 100% correct. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 59 - A A B B Counsel: I am asking you from point of view of the Listing C C Rules requirement. Therefore, under the Listing Rules, 14A, D this transaction was not a connected transaction, am I D correct? E E F F Ms Ng: I agree with you completely. G G Counsel: In fact, I can read to you the particular Rule, “Any H H transaction between a listed issuer’s group and a connected I person is a connected transaction.” I J J Ms Ng: I know. K K L L Counsel: If you had been the company secretary of the listed M company, and you became aware of this grant of option M between PAIL and one of the directors of the listed company, N N would you have considered that this was a connected O transaction? O P P Ms Ng: Certainly I would not. Q Q R R Counsel: Would you have advised that the 3 steps would have S to be taken, i.e. declaration to board, announcement and then S shareholders meeting? T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 60 - A A B B Ms Ng: Certainly I would not, because not required and it C C was not a transaction of this nature.” D D 235. Based on the evidence above, I find that it is not the only E E reasonable inference that the defendant was trying to conceal the F F Deed of Offer from the Board of Directors of HKRH. G G 236. In fact, I find that the only reasonable inference must be that the H H defendant did not intend to hide the reward from the Board of I HKRH and that he must have been telling the truth when he said I that he believed that no approval was required from the Board for J J the reward in his video recorded interviews to the ICAC. K K 237. As such, the prosecution’s allegation that the defendant had L L deliberately concealed the grant from the Board of HKRH cannot M stand. M N N Reputational Damage? O O 238. I now proceed to make a finding on whether reputational damage P was likely, and intended by the defendant. P Q Q 239. As mentioned above, the prosecution argue that there will be R reputational damage towards the company should the other R shareholders find out about the undisclosed grant of options by the S S defendant to HH. T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 61 - A A B B 240. Putting aside the question of whether this alleged reputational C C damage would be applicable to the acts done by HH in particulars 1 D to 6, I find the prosecution have, in any event, failed to prove D beyond reasonable doubt that such damage was likely to have E E resulted from the making of the offer of the grant of share options F itself. F G G 241. The prosecution never asked any of the prosecution witnesses, in H particular the two INEDs, if such reputational damage was likely, H or even possible, and how it might have resulted from the acts done I I by HH in particulars 1 to 6. J J 242. It was also never asked of the prosecution witnesses as to whether K K the mere fact of the granting of the options would bring reputational L damage to HKRH, or anyone, for that matter. L M M 243. The prosecution is asking this court to draw an inference that N reputational damage must result from the defendant offering the N advantage to HH, relying on Principle 9 of a publication by the O O Hong Kong Companies Registry, entitled A Guide on Directors’ P Duties17, which states, among other things, that “a director of a P company must not accept any benefit from a third party, which is Q Q conferred because of the powers he has as director or by way of R reward for any exercise of his powers as a director”. R S S T T 17 Item 18 of the prosecution’s List of Authorities. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 62 - A A B B 244. Putting aside that the prosecution did not call evidence as to the C C legal status of this Guide, nor call any witness to speak to the D principles set out there, I find that the prosecution have failed to D prove beyond reasonable doubt that reputational damage was likely E E to have resulted from the defendant making the personal grant to F HH without the consent of the Board. My reasons are as follows. F G G 245. In order for the court to draw an inference against the interest of the H defendant, it must be the only reasonable inference. H I I 246. As pointed out above, the prosecution never asked any of the J witnesses if there would be such reputational damage. Ms Ng and J Mr Fan were the INEDs and they would be in a position to give K K evidence on such matter. L L 247. Without their direct evidence, we are left wondering whether M M reputational damage is the only reasonable inference. N N 248. I say this because of the evidence of the INEDs testifying to the O O important role of HH, and the expertise possessed by HH in the P field. P Q Q 249. This is Ms Ng’s evidence on HH’s role in the restructuring of R HKRH given in cross-examination: R S S “Counsel: Can I say this, this result was a successful one, T whereby a company which was in provisional liquidation T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 63 - A A B B managed to enter into restructuring agreement with a white C C knight, the purpose of which was to try to resurrect a D company which was in trouble? D E E Ms Ng: I would describe it as a very successful outcome, F F through many years working in the Stock Exchange this was G something unprecedented （前無古人後無來者）. G H H Counsel: Would you say that HH’s efforts had contributed I I substantially to the tremendous success of the restructuring of J OGC(HKRH)? J K K Ms Ng: Yes, I agree, biggest if not all. He contributed fully or L L all the credits would go to him, I would say that he made the M largest contribution to the restructuring agreement. M N N Counsel: Are you aware that HH, in that process, had worked O O tirelessly, acting as the go between of PAIL and the P Provisional Liquidators, who were in control of P OGC(HKRH)? Q Q R R Ms Ng: I agree. ” S S T 250. In relation to HH’s contribution to HKRH’s business regarding T 3D-Gold, this is her evidence in cross-examination: U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 64 - A A B B “Counsel: Can you confirm that right from the beginning to C C the end, when eventually the resumption failed, HH was D heavily involved in each and every step for HKRH? D E E Ms Ng: Agreed, as I said before, if not 100%, I would say it’s F the most important one. ” F G G 251. Most directly to the point, Ms Ng had the following exchange with H H Mr Tse: I I J “Counsel: Do you agree that the acquisition of the retail J business and the brand name of 3D Gold and the 5 K K subsidiaries of 3D-Gold Holdings Limited by HKRH, in fact L subsidiary of HKRH (CGS), was beneficial to the interest of L HKRH? M M N N Ms Ng: Agreed. O O Counsel: Do you agree that, had the resumption of the P P trading of 3D-Gold Holdings Limited shares been successful, Q Q it would also be beneficial to HKRH? R Ms Ng: Agreed. R S S Counsel: The fact that HKRH would have shares in 3D-Gold, T T if they were both listed in the Stock Exchange of Hong Kong, U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 65 - A A B B this would have a complementary effect in fact to the business C C of the two listed companies, because they can work together, D they have increased financial strength, there is a synergy. D Would you agree? E E F F Ms Ng: I agree.” G G 252. As to the other INED Mr Fan, his evidence is this: H H I “Counsel: In P-22, the Deed of Offer, you were aware that I J HH was involved in all those 5 particulars which are stated at J p.714 of the Deed of Offer? K K L Mr Fan: Yes. L M M Counsel: Everything that HH had done in those 5 matters N N which are listed in this document were beneficial to the listed O company were they not? O P P Mr Fan: Yes.” Q Q R R 253. Mr Fan also confirmed that by the time of the Deed of Offer, S HKRH was entering into another critical phase in the resumption of S the trading of shares of 3D-Gold by way of the submission of a T T viable business plan to the HKSE. Mr Fan confirmed that this was U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 66 - A A B B announced by the company through official announcements and he C C fully supported that plan. D D 254. It is Mr Fan’s evidence that he considered this proposal of HKRH E E to acquire 3D-Gold to relist in the market and to expand the F business of the group into China beneficial to the interest of HKRH. F G G 255. Mr Fan knew that HH was going to be heavily involved in the H proposed acquisition of a controlling shares in the 3D-Gold holding H company. In fact, Mr Fan confirmed in cross-examination that HH I I “was a most important figure playing that role in this proposed J acquisition”. J K K 256. Lastly, in re-examination, Mr Fan explained why he would have L approved the grant if permission was in fact sought. Mr Fan’s L answer has already been recited above at paragraph 166. In gist, Mr M M Fan found that given HH’s experience in the capital market in Hong N Kong, his presence increases the credibility of HKRH’s Board. He N considered the grant offered by the defendant “acceptable”. O O P 257. It is also prosecution witness Ms Ng’s evidence that HKRH was P doing very well as a result of the acquisitions of the subsidiary Q Q companies and brand name of 3D-Gold. R R 258. As mentioned above, Ms Ng confirmed that the result of the S S acquisitions was to enable HKRH to move into the retail business T and to expand into the China market; that the annual report figures T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 67 - A A B B show that there were 265 shops in various cities and provinces of C C China; that as a result of the acquisitions, the turnover of the group D increased by 1256% as compared to the turnover the previous year. D E E 259. Ms Ng also confirmed that the reason for the improvement was the F retailing business of gold products and other precious metal F products; that there had been a net asset increase from 215,758M in G G 2009 to 702,442 M in 2010; and that the number of employees had H increased because of the acquisition of the 5 subsidiaries. H I I 260. Based on the unqualified praise that both prosecution witnesses J have for HH, and the improvement in HKRH’s business, I find that J it may very well be the case that, if the average shareholder of K K HKRH was to find out that HH had been rewarded for what he had L done for HKRH, and that he was being induced to stay on the board L of HKRH so that he can continue with his excellent work that he M M had done and was continuing to do for HKRH, the reasonable N inference of how that shareholder may feel could very well be N gratefulness and appreciation for the granting of the offer, O O especially when it was achieved without using HKRH’s resources. P P 261. With this possible scenario, reputational damage is not the only Q Q reasonable inference that can be drawn based on the mere act of the R granting of the share options. R S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 68 - A A B B 262. The prosecution is, therefore, unable to prove beyond reasonable C C doubt that the mere act of making of the offer would lead to D reputational damage to HKRH. If they cannot prove beyond D reasonable doubt that there would be reputational damage, they also E E cannot prove beyond reasonable doubt that the mere act of offering F of the advantage was “aimed at and intended to influence or affect F the principal’s affairs or business in a manner that undermines the G G integrity of the agency relationship by injuring the bond of trust and H loyalty between principal and agent”, and the requisite mens rea for H the charge would be lacking. I I J Reasonable excuse J K 263. As a result of my findings on the defendant’s intentions and that K they do not amount to the requisite mens rea under the charge, there L L is no need for me to deal with whether the defendant can rely on the M defence of reasonable excuse. M N N 264. Having said that, I would like to make the following observations. O O 265. The defendant conceded that it is for him to prove on the balance of P P probabilities that there was reasonable excuse to offer the Q advantage. Q R R 266. The way that this defence is put forward and argued by the S defendant suggests that it is the defendant’s case that, because he S honestly believed that approval for the grant would have been given T T for the grant to HH, it would have amounted to a reasonable excuse. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 69 - A A B B 267. I find that, if it is proven that the defendant had intended HH to do C acts in relation to HKRH’s business and affairs in a manner that C D would undermine the relationship of trust and loyalty between HH D and HKRH, then the fact that the defendant believed consent would E E have been given by HKRH could not have amounted to a F reasonable excuse. F G G 268. In fact, if it is proved beyond reasonable doubt that the act would so H undermine, it would likely be inferred that no such approval would H have been given by the Board, and that the defendant’s belief was I I not honestly held. J J 269. But then, these are only my observations based on the hypothetical K K situation of there being the necessary mens rea in the first place and L is not part of my findings. L M M Conclusion N N 270. For the analyses undertaken and reasons given, I find the O defendant’s intentions as I have found them to be, and that they do O not amount to the requisite mens rea for an offence under s.9(2) as P P charged. Q Q 271. The defendant is acquitted. R R S S T Douglas TH Yau T District Judge U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 70 - A A B B Annexure C C D Rulings on D’s s.16 and stay applications D E E 1. The defendant’s case was originally committed for trial in the Court F of First Instance. It was eventually transferred to the District Court F under s.65F(1) of the Criminal Procedure Ordinance. G G H 2. The defendant now seeks to apply under s.16 of the Criminal H Procedure Ordinance for his discharge on the ground that there is I I insufficient evidence to establish a prima facie case against him for J the offence. J K K 3. The defendant also applies for a stay of proceedings under common L law on the ground that a fair trial is impossible, and/or to continue L with the trial would be an abuse of process. M M N 4. Both applications are opposed by the prosecution. N O O The s.16 application P P 5. It is the defendant’s position that s.16 of the Criminal Procedure Q Ordinance applies to our present proceedings by the operation of Q s.75(1A) and s.79(1) to (4) of the District Court Ordinance R R (“DCO”). S S 6. The present District Court case came into being by way of a CFI T T judge exercising his power under s.65F(1) of the Criminal U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 71 - A A B B Procedure Ordinance and transferred the case. Prior to the transfer, C C there was no District Court case in existence. D D 7. Under s.65F(11), once the Order of Transfer was made, the CFI E E proceedings are terminated unless otherwise ordered by the CFI F Judge. No such order was made, therefore, the CFI proceedings F were terminated upon the making of the Order of Transfer. G G H 8. Once the transfer was made under s.65F, s.75(1A) of the DCO H specifically empowers the District Court as follows: I I J 9. s.75(1A): J K K “(1A)Where any proceedings on indictment are transferred to L the Court under section 65F of the Criminal Procedure L Ordinance (Cap. 221), the Court shall have jurisdiction and M M powers over all proceedings in relation to the offence alleged N in the indictment similar to the jurisdiction and powers the N Court of First Instance would have had if the proceedings had O O not been so transferred save that nothing in this section shall P be deemed to give jurisdiction to hear and determine such P indictment.” Q Q R R 10. The defendant says that, by application of s.75(1A), the District S Court can assume the jurisdiction and powers of the CFI under s.16 S of the Criminal Procedure Ordinance to discharge, and hence acquit, T T an accused where the court finds that there is insufficient evidence. U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 72 - A A B B 11. It is the defendant’s suggestion that, there being no evidence to C prove that the agent’s act or forbearance was or would be adverse to C D the principal’s interest, by reason of the Court of Final Appeal D decision in Secretary for Justice v Chan Chi Wan Stephen (2017) E E 20 HKCFAR 98, there can be no prima facie case against the F defendant. F G G 12. For the following reasons, I find the defendant’s position that s.16 is H applicable in our present proceedings unsustainable. H I I Proper reading of s.16 of the Criminal Procedure Ordinance J J 13. S.16 reads as follows: K K “(1)Where the accused was committed for trial under section L L 80C(4) of the Magistrates Ordinance (Cap. 227) or M proceedings stand transferred to the court for trial under M section 77A(6) of the District Court Ordinance (Cap. 336), N N the accused may at any time— O O P (a) if the Secretary for Justice does not institute P proceedings within the period specified in section Q Q 14(1)(a) or (aa), as the case may be, after the R expiration of that period; or R (b) after the filing of the indictment and prior to his S S arraignment thereon, T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 73 - A A B B apply to a judge for his discharge on the grounds that the C C evidence disclosed in the documents handed to the court D under section 80C(1) of the Magistrates Ordinance (Cap. 227) D or, as the case may be, delivered to the Registrar under E E section 10A, as read with any further evidence the Secretary F for Justice has notified the accused he will seek to have F admitted at the trial, is insufficient to establish a prima facie G G case against him for the offence with which he is charged or H for any other offence for which he might be convicted upon H that charge.” I I J J 14. The key phrase here is “Where the accused was committed for trial K under section 80C(4) of the Magistrates Ordinance (Cap. 227) or K proceedings stand transferred to the court for trial under section L L 77A(6) of the District Court Ordinance (Cap. 336).” M M 15. The wordings of this key phrase are clear and unambiguous. In N N order for s.16 to apply, either of the two conditions set out must first O be met. I will proceed to examine the two conditions. O P P S.77A(6) DCO transfers Q Q 16. s.77A(1) of the DCO governs the transfer of a case from the District R Court upon the Secretary for Justice’s application. The transfer can R either be to the Court of First Instance or to a magistrate for S S proceedings to be dealt with summarily. T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 74 - A A B B 17. Upon a s.77A(1) application being made, s.77A(5) provides that the C C accused shall be asked, and may elect, for a preliminary inquiry D before a magistrate before being transferred to the Court of First D Instance. E E F 18. s.77A(6), the sub-section referred to in s.16, is applicable only F when the accused does not elect to have the charge heard at a G G preliminary inquiry. The proceedings are then transferred to the H Court of First Instance for trial. H I I 19. If the accused does elect for a preliminary inquiry, s.77A(7) J provides that a date will be appointed for the accused to appear J before a magistrate. K K L 20. Once a date is appointed and the accused appears before a L magistrate, s.80C of the Magistrates Ordinance governs the M M proceedings. N N 21. Upon a s.77A(6) DCO transfer, where there is to be no preliminary O O inquiry before a magistrate, the District Judge must “inform the P accused person that he has the right to apply to a judge of the Court P of First Instance for discharge on the grounds that there is no prima Q Q facie case against him” under s.77B(3)(c). This is, again, no doubt R referring to the s.16 Criminal Procedure Ordinance power of the R Court of First Instance. S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 75 - A A B B 22. On the other hand, in situations where cases are ordered by a C C magistrate to be transferred for trial in the District Court under D s.88(1) of the MO, there is no provision for a reminder that the D accused may apply to discharge before a District Judge. E E F 23. The simple reason for this missing provision is that there is no s.16 F Criminal Procedure Ordinance equivalent power given to the G G District Court upon a case being transferred from the magistracy to H the District Court, hence there is nothing equivalent to a s.16 right H to inform the accused in s.90 of the Magistrates Ordinance. I I J S.80C(4) committals J K 24. s.80C(4) of the Magistrates Ordinance is only applicable where the K accused does not elect to have the charge against him heard at a L L preliminary inquiry. M M 25. If the accused does elect for a preliminary inquiry, it must be N N conducted in accordance with sections 81, 81A, 82, 83, 84 and 85 of O the Magistrates Ordinance. The first 4 of those sections govern the O taking of evidence and other procedures of the inquiry. P P Q 26. At the end of the inquiry, the magistrate will make a decision under Q s.85(2) if he finds the evidence sufficient. The wordings of s.85(2) R R are as follows: S S s.85(2): T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 76 - A A B B “(2)If in the opinion of the magistrate, after hearing such C C evidence as aforesaid and taking into consideration any D statement of the accused, such evidence is sufficient to put the D accused upon his trial for an indictable offence, or if the E E evidence given raises a strong or probable presumption of the F guilt of the accused, then the magistrate shall order that the F accused stand committed for trial at the Court of First G G Instance and shall so inform the accused or cause him to be so H informed.” H I I 27. In such a case, the accused would be committed for trial at the Court J J of First Instance under s.85(2) and not s.80C(4) of the Magistrates K Ordinance. K L L 28. If an accused is being committed for trial under s.80C(4), the M magistrate must inform the accused that he has the right to apply to M a judge for discharge on the grounds there is no prima facie case N N against him. This requirement to inform under a s.80C(4) committal O is referred to in both s.80C(3)(c) and s.85A(1)(e). O P P 29. If an accused is being committed for trial under s.85(2) after a Q preliminary inquiry had been held and the magistrate had found the Q evidence sufficient, no such requirement to inform exists. R R S 30. This makes sense because, given the two conditions set down in S s.16, if an accused was committed for trial under s.85(2) instead of T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 77 - A A B B s.80C(4), s.16 does not apply and the right to apply for discharge C C under the section would not be available to him. D D 31. The rationale behind this disparity must be that the accused would E E have had the benefit of the preliminary inquiry to challenge the F prosecution’s evidence and to present his own evidence in a s.85(2) F committal, but not in a s.80C(4) committal or s.77A(6) DCO G G transfer. H H 32. S.16 of the Criminal Procedure Ordinance, therefore, only applies I I to cases where there had been no preliminary inquiry. J J 33. More specifically, s.16 only applies where the accused had been K K committed for trial under s.80C(4) of the Magistrates Ordinance, or L the proceedings were transferred under s.77A(6) of the DCO. L M M 34. The two conditions are substantive considerations to be applied and N not merely formalities to be met. N O O 35. Even though s.75(1A) of the DCO does empower the District Court P with all the jurisdiction and powers of the Court of First Instance in P proceedings transferred under s.65F of the Criminal Procedure Q Q Ordinance, in order to overcome the hurdle of the absence of either R of the two conditions specifically set out in the very beginning of R s.16(1), the District Court judge will have to totally ignore the S S conditions or make up new ones in substitution. T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 78 - A A B B 36. I find that to either ignore the conditions or to replace them with a C C different section from a different Ordinance would be beyond the D power granted under s.75(1A), as well as s.79 of the DCO. Such an D act would amount to a re-writing of s.16, going to the root of the E E substance of the provision. F F 37. I find that nothing in s.75(1A) or s.79 of the DCO would suggest G G that the District Court has such an unfettered power of H interpretation of s.16 of the CPO. H I I 38. It was pointed out by counsel for the defendant that the fact that s.16 J was not specifically excluded under Part I Schedule 2 of the DCO is J that the legislature did not intend it not to be applicable. K K L 39. I disagree. I find that a more straightforward explanation is that L since s.16 would only apply when either of the two conditions are M M met, there is simply no need to exclude it. N N 40. In the present case, the defendant was first committed for trial under O O s.80C(4) of the Magistrates Ordinance. That being the case, the s.16 P remedy was available to him while proceedings remained in the P Court of First Instance. The defendant never applied for a s.16 Q Q discharge at any stage up to the making of the order of transfer by R Andrew Chan J. R S S 41. It is, therefore, not the case that the defendant’s rights under s.16 T would be denied if I find that s.16 does not apply in the District T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 79 - A A B B Court. The defendant had chosen not to exercise that right when he C C was fully entitled to so. D D 42. For the reasons above, I find that s.16 is not applicable to our case E E and therefore the defendant’s application for a discharge under s.16 F must fail. F G G What if s.16 does apply? H H 43. Had I been in a position to ignore the conditions in s.16 and I somehow be allowed to decide whether there is sufficient evidence I to support a prima facie case against the defendant, I would have J J found that there is such a case against the defendant. K K The Application to stay proceedings L L 44. I now deal with the stay application. M M N 45. The basic principles applicable to an application for stay is not in N dispute. There are two categories of cases where a stay can be O O ordered. The first is where it would be impossible for the defendant P to get a fair trial. The second is where a fair trial is possible but P irreparable prejudice would be caused to the integrity of the judicial Q Q system if the prosecution was continued, or an abuse of process for R short. R S S 46. It is the defendant’s position that his case falls within “either or T both” categories. T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 80 - A A B B Impossibility of a fair trial and abuse of process C C 47. The defendant relies on the following factors in support of his D allegation that it is impossible for him to have a fair trial and/or that D to continue with the trial would amount to an abuse of process. The E E factors as set out in the defendant’s Skeleton Submissions are F F interlaced and at times overlapping. I attempt to have them distilled G as follows. G H H 48. Undue delay; Agent’s act not detrimental to principal’s interest I (Hui’s act not detrimental); abuse of process because Agent’s act I not detrimental to principal’s interest and yet P still continued with J J prosecution of the defendant; delay in dropping the original charge K 1 causing the defendant to be in “agony” and incurred “waste of K costs” amounting to an abuse of process when the prosecution L L continued with the present charge; Death of Michael Wong M (relevant to the defendant’s openness regarding the Deed of Offer, M defence of reasonable excuse, and why there was no formal Board N N approval); Death of Hui (his note to MW telling MW to notify O Board and MW telling Hui no need, openness of conduct). O P P Undue Delay Q Q 49. ICAC Officer in charge of the case was called as a prosecution R witness to give evidence on the delay. The chronology as set out in R his evidence is not disputed by the defendant. S S T 50. I accept Mr Kam’s evidence and explanation for the delay. T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 81 - A A B B 51. The prosecution’s case is dependent on contemporary and available C C documents, the majority of which will likely be formally admitted D under s.65C of the Criminal Procedure Ordinance. D E E 52. The facts in the present case are more or less indisputable. The F prosecution will be seeking for this court to draw inferences as to F the intention of the defendant when he offered the advantage. G G H 53. The unavailability of HH and MW would not prejudice the H defendant’s defence to the extent that he will not be able to have a I I fair trial, nor would it amount to an abuse of process. J J 54. I find that the defendant has not shown that he has been or will be K K seriously prejudiced in his defence by the delay. L L Agent’s act not detrimental M M 55. Based on parties’ submissions, it is obvious that the case will be N N decided on the application of the legal principles propounded in the O case of Chan Chi Wan Stephen. This is a matter that should be dealt O with at the end of trial, after hearing evidence and submissions. P P Q 56. Ultimately, it is for the court to consider all the circumstances of the Q case and then exercise its discretion according to the court’s R R decision on whether a fair trial is impossible, and/or whether to S continue with the trial would be an abuse of process. S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V  - 82 - A A B B 57. Since I find that a fair trial is not impossible, and that it is not an C abuse of process to continue with the trial, the defendant’s C D application to stay must fail. D E E Rulings F F 58. The defendant’s s.16 application must fail because s.16 does not G apply to the present proceedings. G H H 59. If s.16 did apply, I would have found that there is a prima facie case I against the defendant. A properly directed jury “could, may or I J might” conclude that the defendant is guilty of the offence. J K K 60. Taking into account all the circumstances of the case, I find that it is L not the case that it would be impossible for the defendant to have a L fair trial. I also find that to continue with the trial would not be an M M abuse of process. N N 61. The defendant’s stay application is refused. O O P 62. Trial of the defendant to proceed. P Q Q R R End of annexure S S T T U U CRT21/8.1.2018 DCCC190/2017/Reasons for Verdict V V