FACC No.

11 of 2014

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION
FINAL APPEAL NO. 11 OF 2014 (CRIMINAL)
(ON APPEAL FROM HCMA NO. 490 OF 2013)
____________________

BETWEEN
SECURITIES AND FUTURES COMMISSION

Respondent

and
PACIFIC SUN ADVISORS LTD

1st Appellant

MANTEL, ANDREW PIETER ()

2nd Appellant

____________________

Before:

Mr Justice Ribeiro PJ, Mr Justice Tang PJ,

Mr Justice Fok PJ, Mr Justice Stock NPJ and
Mr Justice Gleeson NPJ

Date of Hearing:

5 March 2015

Date of Judgment:

20 March 2015
____________________
JUDGMENT
____________________

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Mr Justice Ribeiro PJ:

1.

I agree with the judgment of Mr Justice Fok PJ.

Mr Justice Tang PJ:

2.

I agree with the judgment of Mr Justice Fok PJ.

Mr Justice Fok PJ:

3.

Section 103(1) of the Securities and Futures Ordinance 1 makes it

an offence to issue advertisements, invitations or documents relating to

investments in certain cases but there are various exemptions specified in
section 103(3).

This appeal concerns the proper construction of section

103(3)(k), specifically the ambit of the exemption it provides from the

application of the offence-creating section. Does the exemption apply where
an advertisement relates to a product which, as a matter of fact, is only
disposed of or intended to be disposed of to professional investors? Or, does
the advertisement have to actually state that the product is intended for
professional investors before the exemption can apply?
A.

Section 103 of the SFO

4.

Section 103(1) of the SFO creates an offence in the following

terms:
(1) Subject to subsections (2), (3) and (5) to (9), a person commits an
offence if he issues, or has in his possession for the purposes of issue,
whether in Hong Kong or elsewhere, an advertisement, invitation or
document which to his knowledge is or contains an invitation to the public
(a)

to enter into or offer to enter into

(i)

(Cap.571) (the SFO)

an agreement to acquire, dispose of, subscribe for or

underwrite securities; or

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(ii)

(b)

a regulated investment agreement or an agreement to

acquire, dispose of, subscribe for or underwrite any
other structured product; or

to acquire an interest in or participate in, or offer to acquire

an interest in or participate in, a collective investment
scheme,

unless the issue is authorized by the Commission under section 105(1).

5.

A person who commits an offence under section 103(1) is liable

on summary conviction to a fine at level 6 2 and to imprisonment for 6

months. 3
6.

Section 103(3) provides a list of exemptions from the application

of section 103(1), which includes that in sub-section 103(3)(k), as follows:

(3) Subsection (1) does not apply to the issue, or the possession for the
purposes of issue

(k)

7.

of any advertisement, invitation or document made in respect

of securities or structured products, or interests in any
collective investment scheme, that are or are intended to be
disposed of only to professional investors.

The term professional investors is defined at some length in

section 1 of Part 1 of Schedule 1 of the SFO and includes persons prescribed

as being within the meaning of that definition in section 3 of the Securities
and Futures (Professional Investor) Rules 4 made by the Securities and Futures
Commission (the Commission) 5.
8.

It is common ground, and it is self-evident from the structure of

the provisions, that the burden of proof of the material elements of the offence

i.e. a maximum fine of HK$100,000

Section 103(4)(b). Conviction on indictment gives rise to a liability to a fine of HK$500,000 and to
imprisonment for 3 years: section 103(4)(a).
4
(Cap.571D) (the PI Rules)
5
Respondent in this appeal
3

- 4 -

in section 103(1) rests on the prosecuting authority, whilst the burden of proof
that the exemption in section 103(3)(k) applies rests on the person charged
with the offence. The issue in the present case relates to what that person
must show to pray in aid the exemption.
B.

The material facts

9.

The 1st appellant is a company of which the 2nd appellant is the

Chief Executive Officer and provides investment advice. On 2 November

2011, the 1st appellant sent an email prepared by the 2nd appellant to various
recipients. The email announced the launch of a fund called the Pacific Sun
Greater China Equities Fund (the Fund) and attached a press release to the
same effect (exhibit P8 at trial). On 25 November 2011, the 1st appellants
website published three documents relating to the Fund (exhibit P9 at trial).
It is not disputed that the Fund is a collective investment scheme 6,

10.

which was launched by the 1st appellant on the 2nd appellants instruction, and
that exhibits P8 and P9 were advertisements for the Fund issued to the public
or a sector of the public. It is also common ground that authorisation had not
been obtained from the Commission in respect of the issue of the
advertisements.
11.

The key facts for the purposes of the present appeal are that:
(1)

as found by the Magistrate 7, the Fund was or was intended to be

available solely to professional investors and was not one for
investment by the general public; and

(2)

6
7

this fact is not expressly stated in the advertisements themselves.

As defined in Schedule 1, Part 1, s.1 of the SFO

Mr Joseph To Ho-shing

- 5 -

C.

The course of the proceedings below

12.

The email attaching exhibit P8 formed the basis of two charges 8

brought by the Commission against the appellants for breach of section 103(1)
of the SFO. The publication on the 1st appellants website of the documents
which were exhibit P9 formed the basis of two further charges 9 brought by
the Commission under section 103(1).
13.

After trial, the Magistrate acquitted the appellants on two bases.

(1)

First, based on disclaimers in the exhibits and subsequent

screening procedures adopted by the 1st appellant to ensure that
the Fund was available to professional investors only, he held
that he was unable to conclude beyond reasonable doubt that the
advertisement contained an invitation to the public to invest in
the Fund. Instead, he found that it constituted an invitation to the
public to seek further information from the appellants if
required. 10

(2)

Secondly, he found that the Fund was or was intended to be

available solely to professional investors 11 and was not one for
investment by the general public, so that the exemption in
section 103(3)(k) applied. 12

14.

The Commission appealed by way of Case Stated against the

Magistrates verdict and the Judge allowed the appeal, ruling that the
Magistrate had erred in respect of both bases on which he had acquitted the
8
9
10
11
12

ESS 30881/2012 & 30882/2012

ESS 30883/2012 & 30884/2012
ESS 30881-84/2012, Statement of Findings, 21 March 2013 (SOF) 51
As defined in Schedule 1, Part 1, s.1 of the SFO
SOF 52

- 6 -

appellants. 13 In this appeal, we are only concerned with the Judges holding
that the Magistrate erred in respect of the applicability of the section 103(3)(k)
exemption. In that regard, the Judge held that for the exemption in section
103(3)(k) to apply it was necessary for it be seen from the advertisement itself
whether it was, by its terms, confined to professional investors to the
exclusion of other members of the investing public. She also held that the
carrying out of a screening process to ensure that all investors in the Fund
were professional investors was irrelevant.
15.

Her Ladyship remitted the matter to the Magistrate with her

opinion on the questions raised in the Case Stated to determine whether to

convict or acquit on the facts he found. On the remitter, the Magistrate has
since convicted the appellants of the offences charged and sentenced the 1st
appellant to a total fine of HK$20,000 and the 2nd appellant to two concurrent
terms of 4 weeks imprisonment suspended for 12 months. 14

Those

convictions are the subject of an appeal to the Court of First Instance by the
appellants but that appeal has been stayed pending the outcome of this
appeal. 15
D.

The issue in this appeal and the parties rival contentions

16.

As already stated, in this appeal, the Court is concerned only

with the Judges holding that the exemption in section 103(3)(k) does not
apply. The questions for which leave to appeal was granted 16 are:
(1)

Whether for section 103(3)(k) of the SFO to be applicable, it

must be seen from the advertisement, invitation or document

13
14
15
16

HCMA 490/2013, V. Bokhary J, Judgment dated 24 January 2014

ESS 30881-84/2012, Statement of Findings, 11 July 2014
By direction of the Appeal Committee in its Determination granting leave to appeal (5)
FAMC 39/2014, Determination, 26 September 2014

- 7 -

itself, that it is, by its terms, confined to professional investors to

the exclusion of other members of the investing public; and
(2)

Whether the carrying out of a screening process to ensure that all

investors investing in the collective investment scheme are
professional investors is irrelevant.

17.

The Commissions case is that, for the exemption in section

103(3)(k) to apply, the advertisement must make it clear that the relevant
advertised investment product is or is intended only for professional investors.
It was the submission of Mr Jat Sew Tong SC 17 , leading counsel for the
Commission, that the advertisement has to state expressly that the investment
product is or is intended to be disposed of only to professional investors. He
submitted that any other construction would defeat the statutory purpose and
would be inimical to the protection of the investing public intended by the
statutory scheme.
18.

For their part, the appellants contend that the exemption applies

if, as a matter of fact, the relevant investment product is or is intended to be

sold only to professional investors.

Mr Laurence Li, counsel for the

appellants, submitted the burden will be on the person issuing or possessing

the advertisement to prove this fact, for example by proving that there is a
screening process to exclude persons who are not professional investors.
E.

The proper construction of section 103(3)(k)

19.

The issue raised and the parties respective submissions give rise

to a short point of construction of section 103(3)(k). For the reasons that

17

Appearing with Mr Derek C.L. Chan

- 8 -

follow, I would reject the Commissions construction of that section and,

instead, accept the appellants construction.
E.1

The natural and ordinary meaning of section 103(3)(k)

20.

By reason of section 103(3)(k), section 103(1) does not apply to

the issue or possession for the purposes of issue of an advertisement,

invitation or document:
made in respect of securities or structured products, or interests in any
collective investment scheme, that are or are intended to be disposed of only
to professional investors.

21.

Since the other elements of section 103(3)(k) (namely (i) the

issue or possession for the purposes of issue of , (ii) any

advertisement, invitation or document and (iii) made in respect of
securities or structured products, or interests in any collective investment
scheme ) are already constituent parts of the offence created by section
103(1), it is the additional concept of disposal only to professional investors
that provides the substance of the exemption created by section 103(3)(k).
22.

It is clear, as a matter of grammar, that the concept of being

disposed of or intended to be disposed of only to professional investors

qualifies the securities, structured products or interests in a collective
investment scheme that are being advertised rather than the advertisement,
invitation or document. First, the use of the plural are or are intended
must relate the concept of disposal to the (plural) securities or structured
products, or interests in any collective investment scheme rather than the
(singular) advertisement, invitation or document.

Secondly, the entire

clause that are or are intended to be disposed of only to professional

- 9 -

investors 18 must qualify the securities or structured products, or interests in

any collective investment scheme rather than the advertisement, invitation
or document since it is only the former and not the latter which can be
relevantly disposed of to anyone.
23.

For the exemption to come into play, the advertisement,

invitation or document must be made in respect of one of the relevant

products. The words in respect of mean having a relation, connection,
reference or regard to something 19. In Cunards Trustees v Commissioners of
Inland Revenue, they were described by Lord Greene MR as colourless 20.
Mann CJ in The Trustees Executors & Agency Co. Ltd. v Reilly 21 said of them:
The words in respect of are difficult of definition, but they have the
widest possible meaning of any expression intended to convey some
connection or relation between the two subject-matters to which the words
refer.

24.

The use of this wide expression to frame the exemption provided

by section 103(3)(k) does not support the construction advanced by the

Commission. The exemption simply applies to the issue of an advertisement
made in respect of [the relevant investment products] that are or are intended
to be disposed of only to professional investors; that is to say, having some
connection or relation to the investment products disposed of only to
professional investors. It is not drafted in terms, for example, of disapplying

18

Prior to the enactment of the Securities and Futures Companies Legislation (Structured Products
Amendment) Ordinance 2011 section 103(3)(k) was identical to its present wording save that the word that
before are or are intended to be disposed of read which. That particular change of wording made no
material difference to the section.
19
Shorter Oxford English Dictionary (6th Ed.) Vol.2 at p.2549
20
(1946) 174 L.T. 133 at p.136; see also Saab v Saudi American Bank [1999] 1 WLR 1861 at 24
where they were similarly described by Clarke LJ (now Lord Clarke of Stone-cum-Ebony NPJ).
21
[1941] VLR 110 at 111; this view is reflected also in the decision of the Supreme Court of Canada
in R v Nowegijick [1983] SCJ No.5 at p.7, followed by the High Court of Australia in Smith v Federal
Commissioner of Taxation (1987) 164 CLR 513 at 21.

- 10 -

section 103(1) to the issue of an advertisement expressed to be for, or

containing a statement that it is for, the exempted investment.
E.2

Construing section 103(3)(k) in context

25.

Since, however, the proper construction of the words in respect

of will necessarily depend on their context 22, one must look to the context of
their use in section 103(3)(k) to determine whether any conclusions can be
drawn as to their legislative intent.
26.

In this regard, when one construes section 103(3)(k) in its

context, it is abundantly clear that, where the Legislature chose to express an

exemption to section 103(1) in terms of express statements contained in the
relevant advertisement, invitation or document, it said so in clear, express and
unambiguous terms.
27.

A clear example of this can be seen in section 103(2)(ga), which

provides:
(2) Subsection (1) does not apply to the issue, or the possession for the
purposes of issue, of any advertisement, invitation or document

(ga) to the extent that the advertisement, invitation or document

relates to an offer falling within paragraph (b)(ii) of the definition of
prospectus in section 2(1) of the Companies (Winding Up and
Miscellaneous Provisions) Ordinance (Cap.32). (Italics in original)

28.

Section 2(1)(b)(ii) of Cap.32 provides that prospectus:

(b)

22

does not include any prospectus, notice, circular, brochure,

advertisement, or other document

See: R(on the application of Geologistics Ltd) v Financial Services Compensation Scheme [2004] 3
All ER 39 at 17 per Waller LJ; Saab v Saudi American Bank [1999] 1 WLR 1861 at 24; similarly,
Technical Products Pty Ltd v State Government Insurance Office (1989) 85 ALR 173 at 175 where the High
Court of Australia described the words as having a chameleon-like quality in that they commonly reflect the
context in which they appear.

- 11 -

(ii)

29.

to the extent that it contains or relates to an offer specified in

Part 1 of the Seventeenth Schedule as read with the other
Parts of that Schedule.

The Seventeenth Schedule is headed Offers Specified for the

Purposes of Paragraph (b)(ii) of the Definition of Prospectus in Section 2(1)

of this Ordinance and Part 1 of that schedule contains a list of 12 offers not
falling within the definition.

Paragraph 2 in Part 1 of the Seventeenth

Schedule lists:
An offer

30.

(a)

to not more than 50 persons; and

(b)

containing a statement specified in Part 3 of the Eighteenth Schedule

to this Ordinance. 23

Part 3 of the Eighteenth Schedule is headed Statement to Be

Contained in Certain Offers Specified in Part 1 of the Seventeenth Schedule

and provides:
A statement, in a prominent position, if in the English language, in the
following form or a form to the like effect
WARNING
The contents of this document have not been reviewed by any
regulatory authority in Hong Kong. You are advised to exercise
caution in relation to the offer. If you are in any doubt about any of
the contents of this document, you should obtain independent
professional advice.;
and, if in the Chinese language, a statement in the following form or a form
to the like effect

23

The reference to an offer containing a statement specified in Part 3 of the Eighteenth Schedule to
this Ordinance is repeated in paragraphs 3, 4, 7, 8, 9, 10 and 11 of Part 1 of the Seventeenth Schedule.

- 12 -

31.

Thus, when an advertisement, invitation or document must

contain a particular express statement in order for an exemption to the

application of section 103(1) to apply, the Legislature has clearly and
expressly stated this and identified the substance of the particular form of
words to be used.
32.

In the face of this compelling contextual argument, Mr Jat

submitted, first, that Cap.32 is directed to offers made to certain persons and
so expressly regulates the wording of such offers to those persons whereas
section 103(3) is dealing with advertisements, invitations or documents
seeking to elicit investment interest from their recipients. With respect, this is
a distinction without any difference.

Section 103(1) is directed to

advertisements, invitations or documents relating to investments in certain

cases. There would not appear to be any good reason for recipients of offers
to be afforded greater protection by the legislation than recipients of
advertisements, invitations or documents relating to investment products.
33.

Mr Jats second submission in answer to this contextual

argument was that there is no defined category of situations in sections 103(2)

and (3); rather, the two sub-sections contain a collection of discrete
exemptions and there is no rationale for thinking that the same requirements
apply to different exemptions. However, while it is correct that the various
situations in sections 103(2) and (3) disapplying section 103(1) constitute a
disparate list of exemptions, Mr Jats argument does not answer the more
significant fact that, within the same division of the same part of the same

- 13 -

ordinance, where an exemption to the application of an offence-creating

section is provided for, insofar as the exemption depends on the inclusion in a
document of a particular form of words, the legislation expressly states the
fact that particular wording must be used and specifies the substance of that
wording. The absence of this in section 103(3)(k) points strongly to the
conclusion that, as a matter of context, the Commissions construction of that
exemption is erroneous.
E.3

The purposive construction of section 103(3)(k)

34.

There was no dispute that the modern approach to statutory

construction is to adopt a purposive interpretation and that the language of a

statutory provision is to be construed having regard to its context and
purpose 24. It is this principle of construction that the Commission primarily
relies upon in support of its construction of section 103(3)(k).
35.

Section 103 is to be found in Division 2 of Part IV of the SFO.

Part IV of the SFO is headed Offers of Investments and Division 2 of Part

IV carries the sub-heading Regulation of offers of investments, etc. Section
103 itself is headed Offence to issue advertisements, invitations or
documents relating to investments in certain cases.
36.

Broadly, section 103(1) regulates the issue of advertisements

containing an invitation to the public to acquire certain investments. It is that

invitation which constitutes the prescribed content which section 103(1) seeks
to regulate and the system of regulation thereunder is subject to the
overarching authority of the Commission to authorise the issue of an
advertisement containing such an invitation under section 105(1). However,
24

HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568 at 11-12; Leung Chun Ying v Ho Chun Yan
Albert (2013) 16 HKCFAR 735 at 12

- 14 -

the system of regulation in section 103(1) does not stand alone and must be
read in the context of the opening words which expressly make section 103(1)
subject to sub-sections (2), (3) and (5) to (9). Thus, for example, section
103(2) provides that:
Subsection (1) does not apply to the issue, or the possession for the
purposes of issue, of any advertisement, invitation or document

falling within the terms of any of paragraphs (a) to (i) under section 103(2)
and section 103(3) provides a further list of circumstances (in paragraphs (a)
to (k)) in which section 103(1) does not apply.
37.

It was the Commissions contention that, in the light of its

regulatory objects and functions 25, the key object of the SFO is to ensure that
the interests of the investing public are protected. In this context, it was
submitted that the purpose of section 103(1) is to regulate the issue of
advertisements that contain the prescribed content (set out in that section) in
relation to certain investment products unless authorised by the Commission.
Thus, it was submitted, since it is not an offence to launch or sell a collective
investment scheme that has not been authorised by the Commission, the
Legislature has chosen to protect the investing public by regulating the
advertising of the investment products as distinct from their subsequent sale.
38.

Mr Jat submitted that, since section 103(1) was designed to

protect the

investing public

from being exposed to

unauthorised

advertisements with a particular type of content, it was at the point of issue of

the advertisement that the protection was required, as distinct from and prior
to any actual sale activity. This was also consistent, it was submitted, with the
Commissions duty to exercise regulatory oversight, by way of the grant of
25

Set out, for example, in sections 4 and 5 of the SFO

- 15 -

authorisation for the issue of an advertisement, to ensure that the contents of

advertisements are accurate and not misleading so far as practicable. As a
development of this argument, it was submitted that criminal liability under
section 103(1) attaches at the point in time when an advertisement is issued,
or when a person has such an advertisement in his possession for issue, and if
the content of the advertisement contains the invitation prescribed by section
103(1)(a) or (b).

It does not, it was submitted, depend on whether any

investment product was actually sold subsequently to the issue of the

advertisement.
39.

It was therefore submitted that it is only by construing section

103(3)(k) in the manner contended by the Commission that effect could be

given to the legislative purpose of protecting the public from exposure to the
prescribed type of unauthorised advertisements, which by definition would
not previously have been vetted by the Commission, and in ensuring that the
public is protected before the actual sale of the investment products.
40.

An obvious flaw in the Commissions argument is that if the

investment products are not in fact sold or intended to be sold to the general
public and instead are sold or intended to be sold only to professional
investors, there is no necessity for protection to be afforded to the general
public since they are not exposed to any material risk. It was accepted by the
Commission that the purpose of the exemption in section 103(3)(k) is clear,
namely that professional investors, as opposed to the general investing public,
do not require statutory protection under section 103(1) so that advertisements
of products intended only for them are exempted from the prohibition.
41.

Mr Jat sought to side-step the force of this point by referring to

the advertisements in this case and drawing attention to the fact that one of

- 16 -

the documents in exhibit P9 indicated a minimum investment of US$100,000

and that the presentation slides in that exhibit did not indicate the Fund was
only to be disposed of to professional investors, merely containing the
statement preference for professional investors reduces trading volatility.
Since the prescribed portfolio threshold for professional investors is HK$8
million 26, the minimum investment amount was well within that threshold and
therefore non-professional, or retail, investors might think the Fund was
intended for disposal to them.
42.

The thrust of the Commissions argument in this respect would

appear to be that, because the advertisements did not expressly state that the
Fund was or was intended to be disposed of only to professional investors,
retail investors might have their interest piqued and, relying on the minimum
investment amount, might wrongly think the Fund was intended for them.
But, if that were so, a retail investor would soon be disabused of this
misapprehension upon his expressing an interest in the Fund to the appellants.
Once telephone or other inquiries informed a retail investor that the Fund was
not intended for disposal to him, there would be no interest of the retail
investor for the statutory regime to protect, save possibly from a waste of the
time necessary to discover that the Fund was only for professional investors.
There is nothing to suggest the legislative purpose of section 103(3)(k) is to
protect retail investors from wasting their time or, alternatively, against
having their investment appetites whetted.
43.

What appears to lie behind the Commissions contention that

retail investors might think the Fund was intended for them is a complaint
about the Magistrates finding of fact that the Fund was or was intended only
26

PI Rules, ss.3(b) & 3(c)

- 17 -

for professional investors and not for the general public. However, although
it is a fair point that the presence of express wording in the advertisement
might go towards satisfying the burden of establishing that the exemption
applies, the opposite by no means follows, and, in any event, this complaint is
not open to the Commission on this appeal.
44.

A further weakness in the Commissions purposive construction

argument is that, as Mr Jat rightly accepted, the exemption cannot properly be

claimed merely because an advertisement states that a particular investment
product is intended only for professional investors. The exemption goes to
the substance of the investment and it is therefore necessary for a person
claiming its benefit to demonstrate that the relevant investment is in fact
intended solely for professional investors. It is the demonstration of this fact
that shows that a retail investor is protected against exposure to an unsuitable
investment product. Once it is accepted that the substance of the question of
whether the investment product is or is not intended for professional investors
has to be investigated in order to invoke the exemption, the statutory purpose
of investor protection is achieved, without reference to the express wording of
the advertisement in question.
45.

As to Mr Jats point in time argument, namely that criminal

liability must attach at the time of the issue of the advertisement, an

acceptance of the appellants construction argument does not necessarily
result in criminal liability attaching at a subsequent time. The burden will be
on the issuer of the advertisement to establish that the investment product is
intended only for professional investors. If, as a matter of fact, the product
has already been disposed of to a non-professional investor, the offence will
have been committed at the point in time of the issue of the advertisement.

- 18 -

Similarly, if the issuer of the advertisement is unable to establish that the

product is intended to be disposed of only to professional investors, the
offence will likewise have been committed at the time of the issue of the
advertisement.
46.

It was further contended in the Commissions printed case that

the appellants construction sought to inject an unwarranted additional subject

matter into section 103(3)(k), requiring separate proof that the investment
product is or is intended to be disposed of only to professional investors and
thus requiring an additional element of mens rea. However, the answer to this
contention is that the burden of proving the fact of disposal or intention to
dispose only to professional investors rests with the issuer of the
advertisement so that the Commission would not have any additional
prosecutorial burden. Insofar as an issuer of an advertisement acted through
the medium of a public relations or marketing company, the latter parties
might potentially be liable under section 103(1) but would, if they satisfied
the relevant conditions, be entitled to claim the protection of the exemptions
provided in sections 103(7) or 103(8) and so the Commissions contention
that a further partys mens rea might need to be examined is already inherent
in the statutory scheme.
47.

For the above reasons, I do not accept the Commissions

contention that the purpose of section 103(3)(k) would be frustrated by the

appellants construction of the exemption. On the contrary, to accept the
Commissions construction of the exemption would require the Court to
attribute to a statutory provision a meaning which the language of the statute,
understood in the light of its context and the statutory purpose, is incapable of

- 19 -

bearing 27. The statutory purpose of investor protection is achieved on the

appellants construction since the burden remains on the issuer of the
advertisement to demonstrate that the investment product is or is intended for
disposal only to professional investors.
E.4

Penalisation under a doubtful provision

48.

Where a statutory provision is ambiguous, unclear or open to two

reasonable interpretations, its penal effect may indicate a narrower

construction 28 .

Since, however, I have concluded that, on its proper

construction, the exemption in section 103(3)(k) clearly applies to an

advertisement of a relevant investment product that, as a matter of fact, is or
is intended to be disposed of only to professional investors whether or not this
fact is actually stated in the advertisement itself, it is not necessary for the
appellants to invoke this principle in support of their appeal.
49.

Had the proper construction of section 103(3)(k) not been clear,

there would have been some scope for the application of the principle against
penalisation under a doubtful law. In this regard it is relevant that, whether
tried summarily or on indictment, the offence may result in a term of
imprisonment and, in the present case, the 2nd appellant has been sentenced on
conviction to a term of imprisonment, albeit suspended for 12 months.
50.

In the respondents printed Case 29, it was contended that a reason

not to apply the principle in the present case is that the appellants
construction of section 103(3)(k) is less favourable to an advertiser since, on
27

China Field Ltd v Appeal Tribunal (Buildings) (No.2) (2009) 12 HKCFAR 342 per Lord Millett
NPJ at 36
28
Baker v Quantum Clothing Group Ltd [2011] 1 WLR 1003 per Lord Mance JSC at 46, citing
Franklin v Gramophone Co Ltd [1948] 1 KB 542 at p.557; see also, Bennion on Statutory Interpretation (6th
Ed.), Section 271 (p.749) stating the principle against penalisation under a doubtful law.
29
Respondents Case, 4.23

- 20 -

the respondents construction, the requirement to prove to whom the

investment products are actually sold or intended to be sold is an additional
requirement. This contention, however, is inconsistent with and negated by
the respondents acceptance of the need to have regard, on its construction, to
the substance of a claim in an advertisement that the investment product is or
is intended to be disposed of only to professional investors in order for the
exemption to apply 30.
E.5

The Judges construction of section 103(3)(k)

51.

The two questions in the Case Stated which related to section

103(3)(k) were:
(iii)

For s.103(3)(k) to be applicable, as a matter of statutory

interpretation, does the advertisement, invitation or document itself
need to contain a reference to the fact that the securities or structured
products, or interests in any collective investment scheme being
advertised or promoted are, or are intended to be disposed of only to
professional investors?

(iv)

Given the finding that the Fund launched by [PSA Ltd] was or was
intended to be available solely to professional investors and was not
one for investment by the general public, did I err in law in finding
that s.103(3)(k) applied to exhibits P8 and P9?

52.

The Judges analysis of these questions was brief. She said:

30.

30

The SFC has a duty, to be exercised so as effectively to protect the

investing public, in relation to such advertisement, invitation or
document. Except possibly in wholly exceptional circumstances, and
it is plain that no such circumstances exist in the present case, the
SFC, in order to be able to exercise this duty effectively, has to be
able to see from the advertisement, invitation or document itself
whether it is, by its terms, confined to professional investors to the
exclusion of other members of the investing public. Section103(3)(k)
is concerned with the advertisement, invitation or document itself
and not with what may or may not be the arrangement or intended
arrangement behind it.

Respondents Case, 4.6

- 21 -

31.

53.

The answers the Judge therefore gave to the two questions were:
32.

54.

At best for PSA Ltd and Mr Mantel, his evidence that he would
carry out a screening process to ensure that all investors in the fund
were professional investors is irrelevant. If anything, the idea of
such a screening process suggests that the advertisement will result
in some offers to acquire an interest in or participate in the fund
coming from non-professional investors who would then have to be
screened out.

(E)

Answer to Question (iii): Subject to the possibility of a

different answer in wholly exceptional circumstances (which
certainly do not exist in the present case), the answer to this
question is that it has to be apparent from the advertisement,
invitation or document itself that it is confined to
professional investors.

(F)

Answer to Question (iv): Yes.

The Judge would appear simply to have accepted, although

somewhat equivocally, the respondents construction of section 103(3)(k) on

the basis that retail investors require protection against having their
investment appetites whetted or in wasting their time in pursuing an interest
in investing only to be told they are not eligible to do so. With respect, for the
reasons already stated, this is not the statutory purpose of section 103(3)(k).
Insofar as, additionally, the Judge seems to have accepted the respondents
construction for prosecutorial ease and convenience, this is not a good reason
for supporting the respondents construction. On the contrary, it is a clear
example of the vice referred to by Lord Millett of a court distorting or
ignoring the plain meaning of the text of a statute in order to achieve a
perceived desirable result 31.

31

China Field Ltd v Appeal Tribunal (Buildings)(No.2), supra., at 36

- 22 -

F.

Section 103(10)(a) and (b)

55.

As indicated above, this appeal is only concerned with the

application of the exemption in section 103(3)(k). We have not examined the

other basis on which the Magistrate acquitted the appellants, which the Judge
held to have been erroneous.

The Magistrate held that because of the

disclaimers in them and the screening procedures adopted by the 1st appellant,
he could not conclude that the advertisements contained an invitation to the
public to invest in the Fund. The Judge disagreed and held that the deeming
provision in section 103(10)(a) 32 applied. Since the proper scope of section
103(10)(a) has not been the subject of any argument before us, nothing in this
judgment should be taken to indicate support for, or disagreement with, the
Judges interpretation of that provision.
G.

Disposition

56.

For these reasons, I would allow the appellants appeal, set aside

the Judges answers to Questions (iii) and (iv) in the Case Stated and
substitute the answers No to each question. It follows also that I would set
aside the Judges order remitting the matter to the Magistrate to continue the
case since his original decision acquitting the appellants was correct and
should not have been reversed.

The Magistrates subsequent convictions

following the remitter are under appeal and although the disposition of that
appeal is not a matter before us, its outcome will now follow this judgment.
Finally, I would direct that any submissions as to costs be lodged with the
Registrar in writing within 14 days from the date of this judgment.
32

Section 103(10)(a) provides: For the purposes of any proceedings under this section
(a)
an advertisement, invitation or document which consists of or contains information likely
to lead, directly or indirectly, to the doing of any act referred to in subsection (1)(a) or (b)
shall be regarded as an advertisement, invitation or document (as the case may be) which is
or contains an invitation to do such act;.

- 23 -

Mr Justice Stock NPJ:

57.

I agree with the judgment of Mr Justice Fok PJ.

Mr Justice Gleeson NPJ:

58.

I agree with the judgment of Mr Justice Fok PJ.

(R A V Ribeiro)
Permanent Judge

(Frank Stock)
Non-Permanent Judge

(Robert Tang)
Permanent Judge

(Joseph Fok)
Permanent Judge

(Murray Gleeson)
Non-Permanent Judge

Mr Jat Sew-Tong SC and Mr Derek C.L. Chan, instructed by the Securities

and Futures Commission, for the Respondent
Mr Laurence Li, instructed by Timothy Loh Solicitors, for the 1st and 2nd
Appellants