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The 3D-Gold saga: bribery charge acquittal lacking the requisite mens rea

2018-01-31

Background

Interpretation of the element “in relation to the principal’s affairs and business” under section 9 of the Prevention of Bribery Ordinance (Cap. 201 of the Laws of Hong Kong) (“POBO”) was considered by the Court of Final Appeal in Secretary for Justice v Chan Chi Wan Stephen (2017) 20 HKCFAR 98, which was discussed in our publication in March 2017 “Moonlighting Is Not an Offence Unless It Undermines the Employer’s Interests, as Clarified in the Stephen Chan Chi-wan Case”.

In a recent high-profile case HKSAR v Wong Kennedy Ying Ho [2018] HKDC 31, the Court of Final Appeal’s interpretation on section 9 of POBO was put into application.

Facts

The defendant, together with others, obtained a restructuring in respect of Hong Kong Resources Holdings Company Limited (“HKRH”), a listed company in Hong Kong that was in financial difficulties at the material time, from the provisional liquidators. After the restructuring, the defendant became a majority shareholder of HKRH through his corporate vehicle. Executive directors of HKRH included the defendant and the late Mr Herbert Hui (“Mr Hui”) (who was considered as acting as an agent of HKRH).

Subsequently, HKRH, with a view to expand its business, acquired subsidiaries of 3D-Gold Jewellery Holdings Limited (“3D-Gold”), a listed company in Hong Kong that was in financial difficulties at the material time and was suspended from trading.HKRH intended to continue to seek to acquire the company 3D-Gold itself and to have its shares resume trading.

In the course of the negotiation for acquisition of 3D-Gold (which was ultimately unsuccessful), the defendant personally granted Mr Hui an option to subscribe for 15 million preference shares of HKRH (the “Option”) held by the defendant through his corporate vehicle at a low price that could have brought to Mr Hui a profit of HK$21 million had all shares under the Option been sold in less than 3 months after the grant of the Option. Such offering of “advantage” to Mr Hui led to subsequent repeated investigations by the Independent Commission Against Corruption (“ICAC”). It was also alleged that the offering of advantage to Mr Hui by granting the Option was adverse to the relationship of agent and principal between Mr Hui and HKRH, contrary to section 9(2) of the POBO.

The decision

Intention of the defendant when making the offer

The defendant in the case did not give evidence in court at the trial. To ascertain his intention at the time of making the offer, the court relied on the video recorded interviews containing the defendant’s explanations made to ICAC officers (the “Interviews”). The defendant’s clear records and evidence of good character had positive effect on the weight given by the court on evidence from the Interviews.

From the Interviews, the court found that the intention of the defendant when making the offer was to reward Mr Hui for his substantial effort undertaken in relation to (i) the acquisition of the subsidiary companies and brand name of 3D-Gold by HKRH, (ii) the acquisition of 3D-Gold, and (iii) the resumption of trading of 3D-Gold shares. Further, the purpose of granting the preference shares was to induce Mr Hui to be committed to the business and affairs of HKRH in long term basis. More importantly, the reward was given for the benefit of HKRH, but not in favour of the defendant or his corporate vehicle.

Whether such intention would satisfy the “mens rea” (mental element)
required under section 9 of the POBO

Under section 9(2) of the POBO, a person would be guilty of an offence if he, without lawful authority or reasonable excuse, offers any advantage to any agent as an inducement to or reward for or otherwise on account of the agent’s:

1.doing or forbearing to do, or having done or forborne to do, any act in relation to his principal’s affairs or business; or

2.showing or forbearing to show, or having shown or forborne to show, favour or disfavour to any person in relation to his principal’s affairs or business.

From Secretary for Justice v Chan Chi Wan Stephen, a rewarded conduct “in relation to his principal’s affairs or business” has to be conduct which subverts the integrity of the agency relationship to the detriment of the principal’s interests. Applying the principle to the present case, the prosecution would have to prove the defendant intended that the “advantage” would be accepted as an inducement or reward for or otherwise on account of Mr Hui’s act which was aimed at influencing HKRH’s affairs or business.

The court considered that Mr Hui’s acts were beneficial to the business of HKRH and entirely in the interest of HKRH. The independent non-executive directors of HKRH gave evidence that they would have readily consented to the granting of the Option by the defendant in his personal capacity to Mr Hui, having in mind the significant contribution Mr Hui had made towards HKRH. It also accepted the reasoning for granting the Option in the defendant’s personal capacity, which was to avoid adversely affecting the profit and loss account of HKRH. This further supported that such grant of Option was in the interest of HKRH.

Despite the acquisition of 3D-Gold eventually failed, it was acknowledged that Mr Hui had significant contribution in the course of negotiating for such acquisition. The court was of the view that any investment would carry variable degrees of risks and incur different levels of expenses. Given there were no disproportionate risks and expenses incurred, a negotiation leading to unsuccessful outcome did not necessarily amount to detriment against the interest of HKRH. If the negotiation had been successful, it would have brought huge benefit to the business of HKRH.

Another allegation is that the grant of the Option by the defendant carried the intention of injuring and undermining the agency relationship between Mr Hui and HKRH, by inducing Mr Hui to be disposed to the defendant or his corporate vehicle. The court considered that the defendant’s act was intended to encourage Mr Hui to be committed to HKRH on a long term basis, which was beneficial to the business of HKRH.

The prosecution also contended that the non-disclosure of the grant of the Option to the board of directors of HKRH (the “Board”) was detrimental in a form of reputational damage to HKRH if the Option was subsequently revealed. Nonetheless, there was insufficient evidence to prove the defendant deliberately concealed the grant of the Option from the Board as he genuinely believed approval from the Board was not required. Further, given the unqualified praises Mr Hui received from the independent non-executive directors of HKRH, it was not the only inference that reputational damage would be caused if the grant of the Offer was later revealed. Thus, the prosecution’s argument was not accepted by the court.

In light of the above, the defendant’s intention did not constitute the requisite mens rea for the offence under section 9(2) of the POBO. The defendant was accordingly acquitted.

Conclusion

The present case serves as a good example to illustrate the application of the Court of Final Appeal’s interpretation on section 9 of the POBO. It is crystal clear that it is essential to establish beyond reasonable doubt an intention for an advantage to be accepted as an inducement or reward for or otherwise on account of the agent’s act or forbearance which is aimed at and intended to influence or affect the principal’s affairs or business. Section 9 of POBO is not meant to criminalise any and all payments of money or benefits conferred by a third party to an agent made without the principal’s knowledge and consent.



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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.


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