On 8 December 2016, the Hong Kong Court of Final Appeal (“the CFA”) gave judgment in HKSAR v Luk Kin Peter Joseph and Yu Oi Kee [FACC 6/2016]. The ruling clarified the meaning of “agent” and “other document” for the purposes of section 9 of the Prevention of Bribery Ordinance, Cap 201 (“POBO”). The ruling focused on section 9(3) which makes it an offence for an agent, “with intent to deceive his principal”, to use “any receipt, account or other document” containing “any statement which is false or erroneous or defective in any material particular” and “which to his knowledge is intended to mislead the principal”.
The first defendant, Luk Kin Peter Joseph, was the Chief Executive of Innomaxx Biotechnology Group Limited (“Innomaxx”) until 7 July 2007, when Richard Leung succeeded him. The second defendant, Yu Oi Kee, was the Financial Controller of Innomaxx until 2006. Innomaxx controlled a holding company called Biogrowth Assets Limited (“Biogrowth”), which held shares in Cell Therapy Technologies Centre Limited (“Cell Therapy”). In 2006 Innomax was taken over by Investec PLC and was renamed China Mining Resources Group Limited (“China Mining”). Both defendants continued as directors of Biogrowth after the takeover.
In July 2007, China Mining asked Mr Luk to find a third party buyer for Cell Therapy. In October 2008, Mr Luk informed Mr Leung that United Easy Investments Limited (“United Easy”) was interested in buying Cell Therapy for HK $15 million. The board of Biogrowth had to authorise the sale of its shares, which required its directors to declare any interests in the transaction. The minutes of the board meeting authorising the sale, signed by both defendants, stated that none of the directors had an interest in the transaction.
The Independent Commission Against Corruption, which was established in 1974 and is responsible for preventing corruption in the public and private sector in Hong Kong, found that:
- Both defendants knew that these board minutes were false as Mr Luk was the beneficial owner of United Easy; and
- Mr Luk had bribed Miss Yu to co-operate in this deception by offering her 1.5 million shares in China Mining.
Both defendants were convicted under section 9(3) of POBO for conspiracy to deceive Biogrowth and/or China Mining. Mr Luk was also convicted of bribing another contrary to section 9(2)(a), and Miss Yu was convicted of taking a bribe under section 9(1)(a). The Court of Appeal upheld these convictions.
The CFA granted leave to appeal on three main grounds:
- The meaning of “agent” for the purpose of section 9 of POBO.
- Whether “other documents” for the purposes of section 9(3) of POBO should be confined to financial documents.
- Whether, in the context of POBO, the principle that the mind and will of the sole director are treated as the mind and will of the limited company applies.
Issue 1: the meaning of “agent”
POBO’s definition of an “agent” includes persons “acting for another.” The defence argued that a person could not be an agent under POBO unless there is a “pre-existing legal, contractual or fiduciary relationship” requiring them to act. The prosecution asserted that accepting a request to act creates a duty to do so honestly and in good faith. The CFA held that to be an agent, all that must exist is an obligation to act honestly and in good faith. This may arise from acting for the principal at the time when the false document is used. The CFA addressed this issue in Hung John Terence v HKSAR (FAMC 85/2010), where it held that it was not even necessary for there to be a request to act, if a person was in a position to act for another and voluntarily chose to.
The CFA held that the defendants acted as agents of China Mining. Mr Luk had acted for China Mining by agreeing to find a buyer for Cell Therapy. This agreement established “a reasonable expectation that he would act in the interests of China Mining to the exclusion of his own interests”. Miss Yu was aware of China Mining’s expectations of Mr Luk when she participated in the deception.
Issue 2: the meaning of “other document”
Section 9(3) of POBO made it an offence for an agent to use “any receipt, account or other document” with intent to deceive his principal. The defence argued that the “other documents” referred to in section 9(3) should be confined to documents in the same class as receipts and accounts. The CFA disagreed, holding that the meaning was wider and should be understood from paragraphs (a) to (c) of section 9(3). “Other documents” included any document the principal is interested in and which contains a false or erroneous answer. The board minutes therefore counted.
Issue 3: the mind and will of the company
The finding in issue 1 made it unnecessary for the CFA to decide whether the defendants also deceived Biogrowth. Nonetheless, the obiter remarks of the CFA on the concept of deception are instructive. The Court of Appeal held that deception requires someone “to think that something is the case when in fact it is not.” Biogrowth could not be deceived, as the only candidates who could have acted as the ‘mind’ of Biogrowth were the defendants, who already knew the true state of affairs. The CFA disagreed and clarified that the offence under section 9(3) is the act of using a document with intent to deceive, rather than actually deceiving a particular mind. A defendant need not have contemplated whose state of mind will be treated as the mind of the company.
The CFA then considered the alternative possibility of the defendants being solely agents of Biogrowth. The defendants raised section 9(4) of POBO, which provides a defence in cases where an advantage was accepted or offered by an agent with the “permission of his principal.” They argued that Mr Luk and Miss Yu had permission to award the advantage as directors of Biogrowth. The CFA dismissed this and held that the defendant’s knowledge of the bribe could neither be attributed to the company nor treated as granting permission to give and receive bribes.
The CFA stressed that there are no uniform principles by which knowledge or states of mind can be attributed to a company: “the criteria for attribution must give effect to the purpose and policy of the relevant substantive rule” (in this case, targeting wrongdoers who give or receive a bribe). There is a clear logic in linking attribution with specific ordinances, as it ensures the courts give effect to legislative intention.
The CFA’s ruling should serve as a reminder to directors to fully and properly disclose all of their interests. Rigorous practices in this respect will ensure that directors avoid personal liability for corruption offences and companies comply with their obligations under the Stock Exchange Listing rules.