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The Principal Behind the Scene: A Discussion of the Agent-Principal Relationship under the Prevention of Bribery Ordinance

2015-03-01

 

Introduction

In HKSAR v Chan Chi Cheung & Ors HCMA 680/2013 (date of judgment: 12 February 2015), the 1st and 3rd Appellants were convicted in the Magistracy on accepting an advantage as an agent, contrary to sections 9(1) and 12(1) of the Prevention of Bribery Ordinance (Cap 201) (the “Ordinance”).  The 2nd and 4th Appellants were charged with, and were found guilty of, offering an advantage to an agent, contrary to sections 9(2) and 12(1) of the Ordinance.

All the Appellants were sentenced to imprisonment for 12 months and the 1st and 3rd Appellants had to return the sums that they received to First China Securities Limited (首華證券有限公司) (“FCS”).  The Appellants appealed against their convictions and sentences.

One of the major issues in dispute is whether the 1st and 3rd Appellants could be agents of 2 principals at the same time.


Background

FCS is the wholly-owned subsidiary of First China Financial Holdings Limited (首華金融控股有限公司) (“FCFH”).  Mr. Wong Man-ming (“Mr. Wong”) was the Chairman of First China Financial Network Holdings Limited (“FCFNH”), the parent company of FCFH.

In late 2008, with the recommendation and facilitation of Mr. Wong, Mr. Ha But-yee (“Mr. Ha) and his two sons (the 2nd and 4th Appellants) opened investment accounts in FCS.  Subsequently, Mr. Ha reached an agreement with FCS that Mr. Ha, his two sons, their family members (the “Ha Family”) and the staff members who assisted the Ha family in the trading of securities (the “Ha’s Group”) would be allowed to use a big room in the FCS office for trading of securities.   FCS would receive 0.01% of the total amount of transactions as the monthly commission, but the cap was set at HK$500,000 per month.

In 2009, through the introduction of Mr. Ha, the 1st and 3rd Appellants were employed under FCS.  The 1st Appellant was employed as a dealer with a monthly salary of HK$10,000; the 3rd Appellant was employed as a marketing manager and his income depended on his commission earned.

Between 2009 and 2011, the Ha Family was very active in trading warrants.  Meanwhile, the 2nd and 4th Appellants had on different occasions transferred money to the 1st and 3rd Appellants.


The Prosecution’s Case

It was the prosecution’s case that the 1st and 3rd Appellants were employed by FCS at the material time.  FCS prohibits its agents to solicit or accept benefits.  The 1st and 3rd Appellants had never disclosed to FCS that they would or have received any benefits.  FCS had never permitted the 1st or 3rd Appellant to solicit or accept any benefits.

The prosecution also relied on the video interviews with the 1st and 3rd Appellants.  The 1st Appellant expressed that Mr. Ha was his boss as he contributed part of the 1st Appellant’s salary.  As for the 3rd Appellant, he said that Mr. Ha guaranteed that he would be entitled to a fixed monthly salary (the “Fixed Income”).  The “commission” that he allegedly earned was titular – every month he received a cheque (purportedly to represent his “commission”) from FCS, he would only be entitled to the amount of the Fixed Income, the remainder had to be returned to the Ha Family.  Where there was deficiency, the Ha Family would pay him the balance such that the 3rd Appellant would still be able to receive the Fixed Income for that month.  The 3rd Appellant admitted that the arrangement with Mr. Ha was inconsistent with the employment agreement but he did not inform FCS of such arrangement.


The Appellants’ Case

The 1st and 3rd Appellants maintained that their agent-and-principal relationship with FCS was just superficial.  In fact, the relevant securities trading activities (for the Ha Family) were detached from FCS.  All along, the 1st and 3rd Appellants believed that Mr. Ha was their real boss.  It cannot be ruled out that the 1st and 3rd Appellants were actually not the agents of FCS, or in the alternative, they were agents of both FCS and Mr. Ha at the same time.

The 2nd and 4th Appellants did not dispute the existence of a prima facie principal-and-agent relationship between FCS and the 1st and 3rd Appellants.  However, they contended that both Mr. Ha and FCS were the principals of the 1st and 3rd Appellants.  Accordingly, the 2nd and 4th Appellants were justified in paying money to the 1st and 3rd Appellants on behalf of their father, Mr. Ha.

The Defence relied on, inter alia, the following matters to establish the outsourcing relationship between FCS and Mr. Ha:

1.        The Ha’s Group operated independently.  They had their own equipment for transactions and FCS provided a separate, big room for the Ha’s Group to use.  The 1st and 3rd Appellants did not serve other clients.

2.        According to a contact list issued with the FCFH’s letterhead, under the heading of “Marketing”, there was a “Ha’s Group”, of which Mr. Ha was identified as the President.  The title of the 2nd and 4th Appellants was stated to be Dealers, and the 3rd Appellant was the Account Executive.

3.        Contrary to the normal practice that the calculation of the commission to FCS was to be based on the amount of an individual’s transactions, the commission arrangement between FCS and Mr. Ha were dependent on the total amount of transactions by the whole Ha’s Group.

4.        In respect of the remuneration arrangement, it was shown that FCS, on behalf of Mr. Ha, paid the Ha’s Group staff members.  Nevertheless, among the HK$500,000 (being the cap of the monthly commission), HK$50,000 was withheld for the salary payments to some of the Ha’s Group staff members.

5.        When the 1st Appellant resigned in May 2011, he signed a declaration (the “Declaration”) and a receipt of severance payment with Mr. Ha.  The Declaration stated that the 1st Appellant was employed by Mr. Ha.  Further, the receipt of severance payment stated that FCS was not the 1st Appellant’s employer and that the 1st Appellant would not claim against FCS for any of the dispute arising out of the employment.  The cheque for the 1st Appellant’s severance payment was issued by Mr. Ha. 


The Magistrate’s Reasoning

The magistrate found that the 1st and 3rd Appellants were employees and agents of FCS.  It was noted that, the Ordinance gives a broad definition to “agent” and “principal”.  In accepting the benefits, the 1st and 3rd Appellants acted in contravention of the Ordinance.  As the 2nd and 4th Appellants did not give evidence, the magistrate found there was no evidence that FCS had given consent to the 1st and 3rd Appellants to receive the relevant payments.


The Court of First Instance’s Decision

Barnes J ruled that, under s.2(1) of the Ordinance, principal includes, inter alia, an employer.  There was sufficient evidence showing the possibility of the outsourcing relationship between FCS and Mr. Ha.  The commission arrangement between FCS and Mr. Ha also pointed to the independence of the Ha’s Group.  If Mr. Ha was the 1st Appellant’s principal, then the money paid to the 1st Appellant by the 2nd Appellant (on Mr. Ha’s behalf) would not constitute bribery.

Based on the available evidence, Barnes J ruled that it is possible that there was an outsourcing relationship between FCS and Mr. Ha, and that the 1st and 3rd Appellants might have 2 principals.  Given that Mr. Ha was possibly the real boss of the 1st and 3rd Appellants, the prosecution could not, beyond reasonable doubt, prove that the 1st and 3rd Appellants were not Mr. Ha’s agents.

The appeals were allowed and the convictions of all 4 appellants were hence quashed.


Conclusion

Bribery cases are always built upon a simple agent-principal model that involves one agent and one principal.  This case demonstrates that this model may not be applicable to every case in practical commercial world in which an agent may have multiple principals at the same time.  In extreme cases, it may even be difficult to tell who the real principal is.




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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.

Published by ONC Lawyers © 2015


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