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The Hong Kong Court of Final Appeal (“CFA”) in HKSAR v. Luk Kin Peter Joseph (08/12/2016, FACC6/2016) (“CFA Decision“) has clarified the scope of agency under the Prevention of Bribery Ordinance (“POBO”) and highlighted the importance of having proper disclosure of interest in group companies.  When deciding on the agency relationship for the purpose of the POBO’s private sector offence, the CFA has held that it is not necessary to have a pre-existing legal, contractual or fiduciary obligation to act in relation to that principal’s affairs or business.

Our alert discusses this development and its implications.

Implications for corporate clients

The CFA Decision is significant in the context of group company situations. There are two aspects to this.

  1. Although the defendants were only the directors of a subsidiary, they were found to be agents acting on behalf of the parent company and guilty of the relevant offences under section 9 of the POBO.  The CFA confirmed that if a person is in a position to act on behalf of another company even without any pre-existing obligations, he can be considered to be an agent and have fiduciary duties towards that principal in the context of the POBO.
  2. The other more important point is in relation to disclosure of interest.  While the prohibition against offering or accepting bribes for an agent’s act or forbearance in respect of his principal’s affairs is generally well known, the CFA Decision brings attention to the offence of corrupt transactions with agents not involving any advantage.

Under section 9(3) of the POBO, it is an offence for an agent who, with intent to deceive his principal, uses any receipt, account or other document in respect of which the principal is interested and which contains a false or erroneous statement that is intended to mislead.

In transactions involving group companies and listed companies, where a director has an interest in a transaction and is acting on behalf of a company (of which he is not necessarily a director as in this case), that director should make full and proper disclosure of his or her interest.  Failure to make proper disclosure can lead to false or erroneous statements in documents and may expose the director to a risk of private sector bribery under section 9(3).  Of course, such failure can also cause listed companies to breach their obligations under the Stock Exchange Listing Rules.

This case reminds companies to have compliance policies and guidance to their management and employees as well as robust practice on disclosure of interest.  They are necessary not only for compliance of listing requirements but also for avoidance of the potential risk of acting as an agent of other group companies and falling foul of the private sector offence under the POBO.

Background of the case

Joseph Luk and Yu Oi Kee were sole directors of Biogrowth Assets (“Biogrowth”), a wholly owned subsidiary of China Mining Resources Group (“China Mining”), a company listed in Hong Kong.  Luk and Yu were not directors of China Mining. Biogrowth in turn wholly owned Cell Therapy Technologies Centre (“Cell Therapy”).  United Easy Investments (“United Easy”), a company apparently controlled by the aunt of Luk’s wife, acquired Cell Therapy for HK$15 million (“Transaction”).

The board of Biogrowth had to authorize the Transaction and it was necessary that the resolution declare any interest of its directors in the Transaction.  If there was none, China Mining would be able to notify the Stock Exchange that United Easy and its ultimate beneficial owners were independent of both the company and its connected persons.  Luk and Yu signed board minutes of Biogrowth authorizing the Transaction and stating that none of Biogrowth’s directors had an interest in the Transaction.  Luk bribed Yu to cooperate in publishing the false declaration in the board minutes by offering her 1.5 million of his shares in China Mining.

At trial, Luk was found to be the true beneficial owner of United Easy such that the Transaction was a connected transaction requiring disclosures and subject to voting restrictions in accordance with the Listing Rules. Luk and Yu were found guilty of a conspiracy to commit an offence under section 9(3) of the POBO which, among other things, relates to an agent’s intention to deceive his principal using any receipt, account or other document in which the principal is interested and which contains false statements. Luk was also found guilty of offering a bribe, and Yu, as an agent of China Mining, was found guilty of accepting a bribe.

The CFA dismissed the defendants’ appeals and found that Luk and Yu acted as agents of China Mining. The court considered that to become an agent of another under section 9 of the POBO, it is not necessary to have a pre-existing legal, contractual or fiduciary obligation to act in relation to that person’s affairs or business.  It is not even necessary that there should have been a request to act.  A person who is in a position to act on behalf of another and voluntarily does so may also thereby assume fiduciary duties.

Actions to consider

We recommend that clients take the following steps:

  1. Review and seek legal advice on internal policies on disclosure of interests, connected transactions and acceptance of advantages.
  2. Conduct regular training to management and employees on anti-bribery best practices as well as disclosure of interests and its internal polices.

Conclusion

The CFA Decision illustrates the broad scope of agency in private sector bribery.  Corporates and listed companies should be aware of the importance of having proper disclosure of interest and therefore should provide clear guidelines to their management and employees across their entire corporate groups on disclosure of interests and acceptance of advantages.


Author

Anthony Poon is a partner at Baker & McKenzie in Hong Kong. He practices mainly in the area of dispute resolution and he has substantial experience in commercial and insurance litigation, as well as insolvency, defamation and media liability matters. He also handles corporate disputes, corporate governance and corporate compliance matters. Ranked by Chambers Asia Pacific and PLC Which lawyer? as a leading lawyer in the field of dispute resolution, Mr. Poon frequently advises clients on directors & officers liability, media liability, insolvency, insider dealing, fraud prevention and corporate compliance, as well as anti-bribery and corruption investigation, and banking fraud issues. Anthony Poon can be reached at [email protected] and +852 2846 1919.

Author

Bryan Ng is a partner in Baker McKenzie's Hong Kong office and a member of the Firm's Dispute Resolution Group. He has written articles and delivered trainings and seminars on topical issues including regulatory enforcement matters. Mr. Ng’s practice focuses on disputes related to financial services, regulatory investigations, commercial disputes, and insolvency-related matters. He advises and represents clients from the financial industry in regulatory investigations and disciplinary proceedings. Mr. Ng also represents clients in arbitration and court proceedings, including shareholders' disputes and judicial review.

Author

Cynthia Tang is the head of the Dispute Resolution Group for the Firm’s Hong Kong and China offices. She has over 25 years of experience in Hong Kong and Asia. Chambers Asia Pacific, PLC Which Lawyer? and Asia Pacific Legal 500 have ranked her as one of the leading lawyers in the Financial Services/Regulatory field for 5 consecutive years. She previously served on a number of committees in the Securities and Futures Commission and is currently appointed by the Hong Kong Government as a Member of the Standing Committee on Company Law Reform and Disciplinary Panel A of the Hong Kong Institute of Certified Public Accountants. She is also a China-Appointed Attesting Officer.

Author

Mini vandePol was appointed as the Chair of Baker McKenzie's Global Compliance & Investigations Group on 1 September 2014, after successfully completing five years as the Asia Pacific Regional Chair of the Dispute Resolution Practice Group. In this role, she leads a global team of more than 900 compliance and investigations practitioners in Asia Pacific, EMEA, Latin America and North America. Ms. vandePol's work engagements focus on anti-bribery and corruption investigations and risk management and mitigation in China, India and other parts of Asia in a variety of industries. Ms. vandePol and her team are responsible for the Global Overview of Anti-Bribery Laws (2nd Edition 2016) and is the editor of the very popular Global Attorney-Client Privilege Handbook (2nd edition 2014). She has written a number of articles in journals and other publications both in Australia, India and elsewhere in Asia Pacific on topics ranging from corporate compliance investigations and enforcement, fraud risk, international trade and sanctions compliance, and ethical business practices. She is also a highly sought after media spokesperson and has made several appearances in business media in Hong Kong, India, Australia and the US.

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