Citic Pacific Wins Bid to Block Police Use of Legal Papers
Citic Pacific Ltd. (267), which delayed reporting a potential HK$15.5 billion ($2 billion) loss from a failed derivatives bet, won its appeal that police shouldn’t have access to documents it argued were private.
There isn’t evidence that the six documents -- including advice from the steelmaker and property developer’s law firm Mayer Brown JSM (JOHNSL) that it gave to the Securities and Futures Commission -- were produced to facilitate dishonest conduct, Court of Appeal Judge Michael Hartmann wrote in a ruling handed down today.
Citic Pacific’s raising of loans from three banks after it became aware of its financial difficulties in September 2008 but before its Oct. 20 profit warning that year doesn’t constitute a prima facie case of dishonest concealment, he said in a 34-page judgment agreed to by judges Susan Kwan and Jonathan Harris.
Even if there was evidence of dishonest conduct by any of Citic Pacific’s directors, that doesn’t “indicate a dishonest purpose in obtaining the advice” from their lawyers, Hartmann said.
Hong Kong’s Department of Justice said last year it suspected Citic Pacific defrauded four banks before Oct. 20, 2008, when it sought financing without disclosing losses on currency bets. The company is also appealing another decision to allow police access to documents seized in a raid on its offices in April 2009.
“We are studying the reasoning of the Court and will consider what action, if any, we should take,” Josephine Chan, spokeswoman for the department, said by e-mail.
Citic Pacific’s officers didn’t know the implications of the company’s currency exposure when they failed to disclose potential losses, a lawyer for the company told the appeals court in December.
“In contracts of this complexity, how can you decide within two days that you’re going to sustain huge losses that would require a report to the stock exchange?” said Collingwood Thompson, a lawyer for the steelmaker.
Citic Pacific’s bets on the Australian dollar prompted a bailout from its parent Citic Group, which is backed by China’s cabinet, and the resignation of its chairman Larry Yung.
Foreign Exchange Loss
The company had said in a stock exchange filing on Sept. 12, 2008, that its directors weren’t aware of any material adverse change in the group’s financial position. It announced on Oct. 20 that its bet the Australian dollar would fall against its U.S. counterpart could result in losses of as much as HK$15.5 billion. The company learned of the exposure on Sept. 7, it said.
Justice Department lawyer Charlotte Draycott said last year that any responsible director would have been monitoring the relevant exchange rates on a daily basis.
“It’s completely unrealistic to say the people in charge of this company, the board of directors, were not fully aware of what was happening,” she told the court.
The case is Citic Pacific Ltd. and Secretary of Justice, Commissioner of Police, CACV60/2011 in Hong Kong’s Court of Appeal.
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