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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

HKCFA clarifies agency relationship under Prevention of Bribery Ordinance in Hong Kong

The Hong Kong Court of Final Appeal (HKCFA) clarifies that no pre-existing legal relationship is required for an agency relationship to arise under section 9 of the Prevention of Bribery Ordinance (Cap. 201) (POBO)

The HKCFA provides helpful guidance on the definition of "agent" under section 2 of the POBO and the true construction of section 9(1), which provides that:

"Any agent who, without lawful authority or reasonable excuse, ... accepts any advantage as an inducement to or reward for or otherwise on account of his ... having done ... any act in relation to his principal's affairs or business; ... shall be guilty of an offence."

In particular, the HKCFA reiterates that no pre-existing legal relationship is required for an agency relationship to arise under section 9 (which captures both the public and private sectors, but is generally used to prosecute private sector briberies).

The facts

The respondent was a private violin teacher who accompanied her student and her student's parent to a music instruments shop to choose a violin. A violin was purchased under her recommendation at a discount after she had negotiated the price. It was later discovered that the respondent received a secret commission from the shop without informing the parent; and that the higher the discount the respondent succeeded in negotiating for on behalf of the student, the less commission she would get.

The charge

The respondent was charged with accepting an advantage as an agent contrary to section 9(1)(a) of the POBO. Before the Magistrate, the defence submitted, and the Magistrate accepted, a plea of "no case to answer", holding that the respondent was not an “agent” for the purposes of that section. On the prosecution’s appeal, that ruling was upheld by the High Court. The prosecution sought leave to appeal from the Appeal Committee of the HKCFA on a reformulated question and on the substantial and grave injustice basis, pointing out that a number of similar cases had arisen with the same outcome, and submitting that guidance was needed as to the proper approach to the status of “agent” in the aforesaid context. The prosecution conceded that, treating this as a test case, even if successful on appeal, it would not seek an order for the case to be remitted for resumption of the trial before the Magistrate, so that the verdict of acquittal would stand.

HKCFA's reasoning

The HKCFA held that a person is an "agent" for the purposes of section 9(1)(a) where he or she "acts for another", having agreed or chosen so to act in circumstances giving rise to a reasonable expectation, and hence a duty, to act honestly and in the interests of that other person to the exclusion of his or her own interests. There is no need for any pre-existing legal relationship between the two persons for an agency relationship to arise. Acceptance of a request to act may suffice.

It held that the lower courts erred in focusing on the independent contract for services whereby the respondent gave violin lessons as the relevant pre-existing relationship and concluded that the respondent was not an "agent" under the charge on the basis the purchase of the violin fell outside the scope of that pre-existing contractual relationship.

In this case, the respondent acted for the parent in assisting her to purchase the violin from the shop. The purchase constituted the relevant "affairs or business" conducted by the parent as principal. The respondent created a reasonable expectation that she would act honestly and in good faith in the interest of the parent, to the exclusion of her own interest in connection with the purchase.

The court concluded that the respondent was in a conflict of interest situation, where the integrity of an agency relationship would be subverted.

The HKCFA reiterates the point raised in Secretary for Justice v Chan Chi Wan Stephen (2017) 20 HKCFAR 98 that economic loss is not an element of the offence. The lower courts were erroneous to suggest that the respondent was not caught by section 9(1)(a) because the principal had not suffered economic loss. Also, a person may not escape liability under section 9(1)(a) of the POBO even if she accepts an advantage in a situation where commissions might be considered "normal practice".

On the above basis, the HKCFA unanimously allowed the appeal and set aside the rulings of no case to answer in the Courts below.

In response to the proposition that section 9 should not be construed to be so wide as to penalize persons who merely seek to "give a helping hand" to "friends, colleagues and even strangers", the HKCFA notes the "agent" requirement is only one element of the section 9 offence. The conduct and the "advantage" must be aimed at the principal's affairs or business and subverts the integrity of the agency relationship. A person acting honestly and in good faith may also easily avoid POBO liability by disclosing the commission arrangement rather than keeping it secret from the person for whom he or she is acting. The other person's prior permission to accept the rebate might be sought.

There should be no doubt, going forward, that, a person runs a risk of committing an offence under section 9 of the POBO if he receives undisclosed advantage in the course of conducting business affairs for and on behalf of another person where such advantage would put himself under a potential conflict, in breach of a duty of trust and loyalty.