A v. The Securities and Futures Commission

HCAL29/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.29 OF 2014

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HCAL31/2014

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.31 OF 2014

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AND

HCAL33/2014

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.33 OF 2014

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(HEARD TOGETHER)

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J U D G M E N T

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1.The three applicants (‘A’, ‘B’ and ‘C’), together with two other persons, are respondents in the disciplinary proceedings (‘DP’)[1] before the Takeover and Mergers Panel (‘the Panel’) instituted by the Executive of the Securities and Futures Commission (‘SFC’).

2.They are also defendants in the criminal trial[2] scheduled to be heard at the High Court in March 2015.  Both proceedings arose from the same set of events.

3.In October 2013, the applicants applied for a stay of the DP until the completion of the criminal trial.  Their main argument was essentially that in order to answer the allegation put by the Executive in the DP, they had to disclose substantially their defence in relation to the criminal charges.  This infringed their right to silence and privilege against self-incrimination.  The Chairperson of the Panel held an oral hearing and refused the application in February 2014.

4.I granted leave for judicial review of the Chairperson’s decision in May 2014.  The substantive hearing was held on 22, 23, 24 and 26 September 2014.

Background

5.Both proceedings arose from an investment project in which ‘A’ and ‘B’ agreed to sell their interest in a gas and oilfield to a public listed company in Hong Kong (‘the company’).  ‘A’ was the major shareholder and Chief Executive Officer of the company.  The company agreed to pay part of the purchase price by issuing consideration shares. 

6.On 16 May 2011, one day before the issue of the consideration shares, ‘A’ purportedly sold all his shares of the company to ‘C’ and the two other respondents in the DP.  There was no actual payment by the latter buyers.  After the consideration shares were issued, ‘C’ and the two other respondents transferred their shares of the company back to ‘A’.  Later, ‘A’ also purchased all the shares of the company held by ‘B’ (including the consideration shares).  There was no actual payment in this transaction.

7.The Executive alleged that ‘A’, ‘B’, ‘C’ and the two other respondents were acting in concert.  This was a scheme to avoid making a mandatory general offer under rule 26.1(c) and (d) of the Takeover Codes.

The substantive hearing

8.In gist, ‘A’ raised the following grounds to challenge the decision of the Chairperson:

a. Illegality

i. The Chairperson erred in applying the “balance of justice” test[3].

ii. As there was infringement of the right to silence in the DP, the correct test should be the “proportionality test”[4].

iii. The burden is on the Executive to show that the infringement was justified and proportional.

b. Illegality—in exercising the balancing exercise, the Chairperson:

i. failed to consider the right to silence,

ii. failed to consider the different elements the Panel had to prove,

iii. erred in holding that the Panel had the power to make compensation order to shareholders,

iv. erred in holding that a close-door hearing would be a sufficient safeguard,

v. erred in holding that secrecy provisions would be a sufficient safeguard, and

vi. erred in holding that to delay publishing the DP findings would be a sufficient safeguard.

c. Given (a) and (b) above, the refusal to stay was disproportionate and unreasonable.

d. The Chairperson refused to adjourn the DP pending judicial review.  This was irrational and oppressive.

e. The Chairperson had taken into account irrelevant consideration that the Panel had power to make binding compensation order.

9.‘B’ raised the following main grounds:

a. The Chairperson erred in adopting the ‘balance of justice’ test.

b. The Chairperson failed to consider the consequence of ‘B’ failing to answer.

c. The Chairperson failed to consider the right to silence and privilege against self-incrimination.

d. The Chairperson take into account irrelevant consideration that the Panel had the power to make a compensation order.

e. The timetable decision by the Chairperson was oppressive.

10.‘C’ raised the following grounds:

a. The Chairperson failed to apply the proportionality test.

b. The Chairperson failed to consider the right of a fair trial.

c. The refusal to stay infringed the right to silence and privilege against self-incrimination.

d. The Chairperson had not given sufficient weight to the right to a fair trial.

e. The Chairperson was irrational and unreasonable.

f. The Chairperson erred in holding that the Panel had power to make a compensation order.

11.The respondent argued the following:

a.  The principles set down in Jefferson[5], i.e. ‘the balance of justice’ test, should be applicable and binding to this court.  There is no real danger of injustice in the criminal trial.

b.  There should be sufficient safeguard under the ‘Rules of procedures’ to maintain confidentiality of the DP.

c.  The Panel was entitled to take the interest of the investors into account, albeit contingent.  Any compensation could be in the form of a condition to the ‘cold shoulder order’.

Which test is applicable—‘balance of justice’ or ‘proportionality’?

12.Section 386 of the Securities and Futures Ordinance (“SFO”) provides that,

“(1) The existence of any judicial or other proceedings, or circumstances that disclose the commission of an offence, shall not by itself constitute justification for any other proceedings or action under this Ordinance being stayed or deferred.

(2) For the avoidance of doubt, nothing in subsection (1)—

(a) …

(b) prevents a court of competent jurisdiction from ordering that any proceedings or action under this Ordinance shall be stayed or deferred.”

13.This section recapitulates the position in Common Law.  It provides that proceedings under the SFO will proceed despite there is other concurrent proceedings which might disclose the commission of an offence.  The provision draws no distinction between disciplinary or other kinds of civil proceedings.  However, a court has the discretion to order otherwise.

14.In Common Law, the principle was set down in Jefferson, Megaw L.J. said:

“There is no principle of law that a plaintiff in a civil action is to be debarred from pursuing that action in accordance with the normal rules for the conduct of civil actions merely because so to do would, or might, result in the defendant…giving an indication of what his defence was likely to be in the contemporaneous criminal proceedings…the burden is on the defendant in the civil action to show that it is just and convenient that the plaintiff’s ordinary rights of having his claim processed and heard and decided should be interfered with…a very important factor is whether there is a real danger of the causing of injustice in the criminal proceedings.”[6]

15.There is a long line of authorities in UK which had held that the issue of a stay to prevent civil proceedings when criminal prosecutions arising out of the same events are also pending is a matter of discretion to be exercised by reference to the competing consideration.[7]

16.In Panton, when giving judgment for the Judicial Committee of the Privy Council, Sir Kenneth Keith emphasized succinctly that,

“Both courts (the Supreme Court and Court of Appeal of Jamaica) began with the need to balance justice between the parties. The plaintiff had the right to have its civil claim decided. It was for the defendants to show why that right should be delayed. They had to point to a real and not merely a notional risk of injustice. A stay would not be granted simply to serve the tactical advantages that the defendants might want to retain in the criminal proceedings. The accused’s right to silence in criminal proceedings was a factor to be considered, but that right did not extend to give a defendant as a matter of right the same protection in contemporaneous civil proceedings. What had to be shown was the causing of unjust prejudice by the continuation of the civil proceedings…”[8] (emphasis added)

17.The Court of Appeal in Hong Kong first adopted this test in Petroliam Nasional Berhad and others v Tan Soon-gin in 1989[9].  Later, in Normura International (HK) Ltd. and others v SFC[10], the Court of Appeal again applied this test in 1998.  By that time the Bill of Rights had already come into effect on 9 June 1991.  Rogers JA, as he then was, applied the “balance of justice” test.  His Lordship stressed that,

“ The fact is that in all cases the courts have applied a very stringent test. The courts have not been satisfied with mere hypotheses. The courts have looked carefully at the relevant proceedings and examined whether there really has been prejudice in the sense of the complaining party being unable to put forward its case.

Just because criminal proceedings are on foot it does not mean that civil proceedings must come to a halt or that a defence may not be filed. If there is no real danger, for example, that a jury may be prejudiced by learning the facts or outcome of disciplinary proceedings, both have been allowed to proceed.”

18.The courts in Hong Kong had consistently applied this test.  There is no change after the commencement of the Hong Kong Bill of Rights.[11]

19.In Prime Computer (HK) Ltd., counsel for the first defendant relied on the Bill of Rights in his argument.  Bokhary J (as Bokhary NPJ then was) held that it was not necessary.  His Lordship commented,

“In my judgment, it is quite unnecessary for the first defendant to rely on the Bill of Rights. The presumption of his innocence is there rooted in the Common Law; and so is his right of silence. There is no statutory or other inroad attempted against either of those rights, which are fundamental rights of his, just as the plaintiff’s right to access to the courts is a fundamental right of his…If any such inroad were attempted, no doubt the Bill of Rights would have to be looked at to see what protection it may afford against the same. The decision of the Court of Appeal in England in Jefferson Ltd. v Bhetcha and that of our Court of appeal in Petroliam Nasional v Tan Soon-gin make no inroad into anyone’s fundamental rights. They recognize the rights on both sides; and they provide guidance as to how such rival rights are to be balanced so as to achieve a just result. They are consistent with the Bill of Rights.”[12]

20.I entirely agree with Bokhary J that in applying the “balance of justice” test, the right to silence and the presumption of innocence must be important factors.

21.All applicants argued that the approach in Latker[13] should be adopted.  I venture to consolidate their arguments as follows:

a.  That the DP is quasi-criminal in nature.[14]

b.  The Panel has the following powers which have the cumulative effect of infringing the right to a fair trial under Article 10 of the Bill of Rights:

i. Rely on the presumption of ‘acting in concert’.

ii. Compel the applicants to file submission with supporting documents thus disclosing their defence.

iii. Compel the applicants to attend and answer question in the DP thus disclosing their defence.

iv. May draw adverse inference from silence.

v. The preservation of secrecy requirement does not apply to the chairperson if it is for the purpose of any criminal proceedings under s.378 (2)(b) , SFO.

c.   The applicants point out that the chairperson should have applied the test in Latker as there is an infringement of the right to a fair trial.  The rationality and proportionality tests should be considered.  The burden is on the respondent to satisfy the court that the infringement is justified.

22.In Latker, the defendant challenged the constitutionality of s.63 of the Road Traffic Ordinance (“RTO”).  That section compelled the owner of a vehicle to disclose the identity of the driver, suspected of having committed an offence under the RTO, while driving that vehicle.  The Court of Appeal held that if the owner was also the driver, s.63 would infringe the right to a fair trial[15].  The Court of Appeal then applied the rationality and proportionality test.  Ma CJHC (as CJ then was) ruled that s.63 was constitutionally justified and did not infringe the right to a fair trial.

23.To decide which test is applicable, it is necessary to consider whether there is any infringement or imminent infringement of the rights of the applicants in the DP.

What is the nature of the DP?

24.The right to silence must be distinguished from the privilege against self-incrimination in our case.  The former is not applicable or subject to the court’s discretion in civil proceedings.  The latter applies in all proceedings.[16]  It is in this context that the nature of the DP becomes relevant.

25.In determining the nature of the proceedings, three factors should be considered: (1) the classification of the proceedings under domestic law; (2) the nature of the offence; and (3) the nature and severity of the potential sanction. The third factor is the most important.[17]

26.I first look at the Codes on Takeover and Mergers and Share Buy-backs (“the Codes”) governing the conduct of the DP.  Section 12.2 of the Introduction to the Codes clearly provides that the sole or main purpose of a disciplinary case is to propose whether disciplinary action should be taken.

27.If the Panel finds that a person has breached the Codes or a ruling of the Executive or the Panel, the Panel may, apart from reporting to regulatory authorities or professional bodies, impose the following sanctions:

(a)  public statement which involves criticism;

(b)  public censure;

(c)  requiring licensed corporations, licensed representatives, registered institutions or relevant individuals not to act or continue to act for that person. (‘cold shoulder order’);

(d)  banning advisers from appearing before the Executive or the Panel; and

(e)  any further action as the Panel thinks fit.[18]

28.Rule 11.1 of the Rules of Procedure of the DP (“the Rules”) provides that proceedings before the Panel are civil in nature and it is for the party making an allegation to prove it on the balance of probabilities.

29.Rule 6.2 empowers the Chairperson to direct:

a.  the respondent of a DP to respond to the Executive submissions and submit supporting documents;

b.  the Executive to file reply if appropriate; and

c.  deadlines for filing submissions and witness statements from both parties.

30.In my view, all the power to make directions above is comparable to the power in courts exercising civil jurisdiction.  In fact the Rules classify the DP as civil proceedings.

31.I then look at the nature of the allegation.  The Executive alleged that the applicants were acting in concert and avoided making a general offer under rule 26.1(c) and (d) of the Codes.  This breach, though serious, is civil in nature.  Unlike other misconduct such as insider dealing, false trading, price rigging etc under Part XIV of SFO[19], there is no corresponding criminal offence referable to a breach of rule 26.

32.Lastly, the Panel may impose sanctions including a cold shoulder order.  Would this amount to a penalty and make the DP criminal in nature.  Mason NPJ commented in Koon Wing Yee v Insider Dealing Tribunal[20],

“It follows that proceedings which may result in the imposition of a penalty for wrongful conduct will involve the determination of a criminal charge unless they have a character which is neither criminal nor penal. Disciplinary proceedings, which do not concern the public at large, usually have such a non-criminal, non-penal character. Proceedings under regulatory legislation whose purpose is essentially protective rather than punitive and deterrent may also have such a character, a matter to be discussed at greater length later in these reasons. So also with proceedings that have a preventative rather than a punitive or deterrent purpose. Likewise, proceedings for a penalty which is compensatory in nature have a non-criminal and non-penal character.”

33.In my view, a cold shoulder order prohibits other licensed persons to act for the person sanctioned.  It serves to maintain the integrity of the market.  It is not meant to be a deterrent.  The effect of a cold shoulder order is tantamount to a disqualification order.  Both orders have been held to be protective in nature.

34.In Koon Wing Yee[21], the Court of Final Appeal ruled that a disqualification order under s.23(1)(a) of the then Securities (Insider Dealing) Ordinance (Cap.395) was protective in nature.  Their Lordships agreed with the comment of the Strasbourg court in DC, HS and AD v United Kingdom:[22]

“In the present case, the proceedings were classified as civil in domestic law, the disqualification of directors is a matter which is regulatory rather than criminal, and the penalty is neither a fine nor a prison sentence, but rather a prohibition on acting as a company director without the leave of the court. Whilst a great deal was undoubtedly at stake for the applicants, it cannot be said that what is inherently a regulatory matter can thereby become a criminal charge within the meaning of art.6(1) of the Convention.”

35.Similarly in relation to a cold shoulder order, the Court of Appeal held in Cheeroll Ltd v MMT, HCAL123/2007:

“In our judgment, a ‘cold shoulder’ order serves the same essential purpose as a disqualification order. It is not penal in character. It is protective. The integrity of the financial markets must be safeguarded and, if it has been demonstrated that a person cannot be trusted to operate in the markets in accordance with the requirements of the Ordinance, then he can be prevented from doing so for such period of time as the Tribunal considers appropriate. A cold shoulder order serves to protect financial institutions as well as the investing public.”

36.In my judgment, the power to make a cold shoulder order would not make the DP criminal in nature.

37.Given the analysis above, I conclude that the DP is civil in nature.

38.As pointed out above, the right to silence is of limited application in civil proceedings but the privilege against self-incrimination always applies.  So far as the DP is concerned, the power of the Chairperson to make directions[23] is similar to any court exercising civil jurisdiction and would not infringe the right to silence.  In fact, the power in case management under the Rules of High Court (“RHC”) is much wider.[24]

39.Having said so, there is nothing in the Codes or the Rules which abrogates the privilege against self-incrimination.  In fact the Chairperson accurately acknowledged this in paragraph 8.11 of the Decision:

“So far as the privilege against self-incrimination is concerned, there is nothing in the Code which can override the privilege which is available not just to those who are facing criminal charges but to all witnesses and to all who face questioning unless the privilege is abrogated by statute. The privilege is therefore available to all Respondents in the Proceedings and will continue to be available during every stage of the Proceedings before the Panel and can be involved at any time in relation to any particular question put in cross-examination. At the same time, the Panel can be expected to keep any questions limited to matters relevant to the issues before the Panel.”

40.The right against self-incrimination is expressly preserved under s.65(1) of the Evidence Ordinance Cap.8,

“The right of a person in any legal proceedings other than criminal proceedings to refuse to answer any question or produce any document or thing if to do so would tend to expose that person to proceedings for an offence or for the recovery of a penalty-(a) shall apply only as regards criminal offences under the law of Hong Kong…”

41.I fully agree with the Chairperson.  In my view, the applicants have a choice whether to reply and how to reply.  Their right to self-incrimination is not abrogated.  Needless to say, if they chose to reply, they could claim the privilege against self-incrimination at an appropriate point.  If they chose not to reply at all, they should be prepared to bear the consequences of the DP.

Adverse inference

42.The applicants argue that on failure to reply, the Panel may draw adverse inference against them during the DP.  This amount to compulsion to reply and infringed the right to silence.

43.Since the DP is civil in nature.  The power of the Panel is quite similar to a civil court.  In civil proceedings, a failure to serve a defence or to comply with a court order may lead to judgment in default.[25]  There is nothing objectionable.  This however would not abrogate the privilege against self-incrimination.

44.Rule 7.2 of DP states that,

“If a party fails, without reasonable excuse, to comply with any direction of the Chairman or any time limit, the Panel may proceed…Without prejudice to the powers of the Panel, including the power to receive and consider such evidence as it thinks fit and to draw inferences, the Panel may draw such adverse inferences from the failure to comply with the direction or time limit as it thinks fit…”

45.The adverse inference from failure to comply with directions above is an additional inference that may be drawn.  The Panel is not absolved from considering all the evidence and draws inferences as circumstances warrant.

46.This rule is silent as to whether adverse inference could be drawn when a respondent in the DP claimed privilege against self incrimination.  Would this amount to compulsion to reply?

47.In Rank Film Distributors Ltd. v Video Information Centre[26], Templeman L.J. in the Court of Appeal, upheld the defendant’s claim of the privilege against self-incrimination to resist discovery, His Lordship however commented:

“…The civil court may draw conclusions where a criminal court may not. If the privilege (against self-incrimination) is raised in connection with an inquiry as to damages the court will be driven to draw conclusions as to the scope and harm caused by the defendant’s activities and, in the face of silence and concealment on the part of the defendant, will not be slow to make assumptions and draw inferences which will enable damages to be awarded on a scale which will do justice to the plaintiff. If in the event damages are more generous than would have been the case if the defendant had answered all the interrogatories and afforded full discovery, the defendant can hardly complain.”

48.This dictum was relied on by subsequent courts in UK to justify drawing an adverse inference against a defendant who claimed the privilege against self-incrimination.  There was however other courts which refused to draw adverse inference.

49.In Sociedade Nacional de Combustiveis de Angola U.E.E. and Others v Lundqvist and Others, Staughton LJ[27] took the opposite view:

“Whilst Leggatt J. rejected the suggestion that the ex parte order had been improperly obtained, he did accept that a claim for the privilege was not evidence of guilt: ‘To comment adversely about a person who claims privilege to avoid incriminating himself is plainly wrong.’ Although the point has not been directly in issue before us, and notwithstanding a dictum of Templeman L.J. in Rank Film Distributors Ltd. v. Video Information Centre [1982] A.C. 380, 423, which might be thought on one view to suggest the contrary, I consider that the observation of Leggatt J. was right.”

50.Both cases concerned defendants relying on the privilege against self-incrimination to resist discovery.  In Rank Films Distributors Ltd, the defendants successfully raised the privilege against self-incrimination to resist an Anton Piller order requiring the defendants to disclose information of their suppliers of illicit copies of films and the relevant invoices and accounts.  In Sociedade Nacional de Combustiveis de Angola, the defendant resisted a Mareva Injunction requiring him to disclose the whereabouts of his assets.  The court upheld the privilege but ruled against the defendant because the whereabouts of his assets would not incriminate him.

51.Rank Films Distributors Ltd is relevant in another aspect.  When the case went up to the House of Lords, counsel for the appellant invited their Lordships to adopt a flexible approach by making exceptions to the privilege against self-incrimination with safeguards against improper use of the disclosed material.  Counsel argued that many copyright or passing off cases were made criminal offences.  The privilege would create a huge obstacle for plaintiffs to sue for damages in a civil court[28] Lord Wilberforce rejected this suggestion and stressed that:

“Mr Nicholls was therefore obliged to suggest that even granting this, the courts had power positively to decide in a particular case, as the counterpart of the obligation to disclose, that any matter which is compulsorily disclosed as the result of the court’s process should be inadmissible in evidence. But I cannot accept that a civil court has any power to decide in a manner which would bind a criminal court that evidence of any kind is admissible or inadmissible in that court. Certainly a criminal court always has a discretion to exclude evidence improperly obtained if to admit it would unfairly prejudice a defendant. But to substitute for a privilege a dependence on the court’s discretion would substantially be to the defendant’s detriment.” (my emphasis)[29]

52.Lord Fraser of Tullybelton made similar comment as follows:

“But it is obvious that a person who has to rely on an exercise of judicial discretion is in a less secure position than one who, by relying on the privilege, can avoid providing the information in the first place…Such qualified restrictions are clearly of much less value to the party making discovery than the privilege itself would have been.”

53.The House of Lord did not comment on the view of Templeman L.J. on drawing adverse inference.  However, the clear message was that the privilege against self-incrimination must be upheld without qualification.

54.In VTFL v Clough,[30] Waller L.J. further explained his position in Den Norske[31].  In the latter case, he supported the drawing of adverse inference against a defendant claiming the privilege against self-incrimination.  His Lordship explained as follows:

“What it is perhaps right to emphasize is that I was not seeking to suggest that an adverse inference or an adverse comment would be justified simply because of a person claimed the privilege. Each case turns on its own circumstances. The Den Norske case concerned a refusal to answer on cross-examination in relation to assets in the Mareva context. If as seemed possible in that case, either an explanation was sought to be given at trial which was not incriminating, or, if there was simply no answer to the claimant’s evidence because there was still a refusal to answer, I see no reason why an inference should not be drawn in favour of the claimant.” (my emphasis)

55.In my judgment, adverse inference should not be lightly drawn against a defendant who claims the privilege against self-incrimination.  To do otherwise is tantamount to abrogating the privilege against self-incrimination.  Given the Chairperson’s comment in paragraph 8.11 of her Decision, I am sure the risk of drawing adverse inference against an applicant in the DP, who claimed the privilege against self-incrimination, is minimal.

Compulsion

56.The applicants also argue that the adverse finding of the DP and the possible sanctions, in particular, the cold shoulder order, would put pressure on them to waive the privilege against self-incrimination.

57.In all cases cited above where there were concurrent proceedings[32], the consequence of the preceding civil proceedings was never regarded as a form of compulsion.

58.As an example, in VTFL[33], the court entered summary judgment against the defendant for sums totaling £11.3 million on his failure to file a defence albeit that he claimed the privilege against self-incrimination.  The huge loss in the preceding civil proceedings was never of concern to the courts in refusing the defendants’ application for stay.

59.In those cases[34] where compulsion was found, they were in the form of a fine and/or imprisonment which was independent of the civil proceedings.

60.I would not go so far as to hold that compulsion is confined to fine and/or imprisonment.  I am however satisfied that the consequence of the preceding civil proceedings would not amount to compulsion.

61.While we are on the topic of compulsion, it is noteworthy to look at the case of X7 v Australian Crime Commission[35] in more detail.  In that case, X7 was arrested and charged with various conspiracy offences.  He was also required to attend a compulsory examination before an examiner of the Australian Crime Commission (‘ACC’).  In the first interview, X7 was unrepresented.  He was questioned about various matters including the subject matters of the charges.  He answered the questions but claimed protection under the ACC Act against self-incrimination[36].  In the second interview, X7 was represented.  He refused to answer further questions about the subject matters of the charges.  He was charged with failing to answer questions which was an indictable offence punishable by a maximum of 200 penalty units and five years imprisonment[37].  The Chief Executive Officer of ACC directed that all the answers, documents and evidence from X7 must not be published to any person connected with the investigation and prosecution of the charges against X7.  Subsequently, X7 challenged the compulsory examination in court.  The High Court of Australia was invited to consider the constitutionality of the compulsory examination procedures.

62.The High Court ruled that the ACC Act did not authorize an examiner to require a person charged with a Commonwealth indictable offence to answer questions about the subject matter of the charge.  The majority stressed that to allow compulsory examination would depart from the accusatorial nature of the process of criminal justice and thus the general system of law.  Any alteration must be expressly and clearly made by statute.  Even if the answers given at a compulsory examination were kept secret, the requirement to give answers would fundamentally alter the accusatorial judicial process.

63.In this case, the ACC Act in effect abrogated the privilege against self-incrimination by requiring a person under examination to answer questions.  Failure to do so would attract a fine and /or imprisonment.  The majority[38] stressed that,

“…Even if the answers given at a compulsory examination are kept secret, and therefore cannot be used directly or indirectly by those responsible for investigating and prosecuting the matters charged, the requirement to give answers, after being charged, would fundamentally alter the accusatorial judicial process…The accused person would have to decide the course to be followed in light of that material and in light of any self-incriminatory answers which he or she had been compelled to give at an examination conducted after the charge was laid…The accused person is thus prejudiced in his or her defence of the charge that has been laid by being required to answer questions about the subject matter of the pending charge…If an alteration of that kind is to be made to the criminal justice system by statute, it must be made clearly by express words or by necessary intendment.”[39] (my emphasis)

64.The minority also acknowledged the importance of the privilege against self-incrimination.  Their Lordships emphasized that,

“Compulsory examination by a member of the executive after a charge has been laid might prejudice the fair trial of the person examined where the prosecution is, as a result, afforded an unfair forensic advantage, being an advantage which would not otherwise be obtainable under ordinary rules of criminal procedure. A direct use immunity is a protection in that respect. However, a use immunity alone does not place an accused person in as good a position as he or she would be if able to rely on the privilege against self-incrimination,…Given the onus on the prosecution to prove an offence, and the non-compellability of an accused, in the absence of a factor such as the independent sourcing of evidence it is not possible to reconcile a fair trial with reliance on evidence against a person at trial which drives from compulsorily obtained material establishing that person’s guilt, or disclosing defences.”[40] (emphasis added)

65.Their Lordships went on to hold that the protective provisions under s.25A of the ACC Act were capable of preventing unfair burden on the examinee when defending criminal charges.  These measures included restriction on publication of the proceedings and control of persons attending the examination.[41]

66.In our case, the Chairperson had expressly acknowledged the importance of the privilege against self-incrimination in the DP.  No one would be required to waive that privilege.  As will be discussed below, she was prepared to consider other safeguards for protecting the applicants from possible prejudice.  These safeguards were similar to those accepted by the minority in the X7 case.  In my judgment, it would be open to the applicants to claim the privilege and/or invite the court to adopt the safeguards.  The situation in the X7 case would not occur in the DP.

67.For the analysis above, I do not think there is any infringement of the rights of the applicants, the approach in Latker is not applicable.  In my view, the test in Jefferson—balance of justice—should be applied.  The burden is on the applicants to show that there is real risk that the continuation of the DP would cause serious prejudice to the criminal trial.

Real risk of prejudice

68.The applicants argue that during the stay application before the Chairperson, they could not show by evidence that there would be real risk of prejudice.  If they do so, it would be necessary for them to reveal their defence in the criminal trial.  They would have to waive the right to silence and privilege against self-incrimination.

69.Each applicant had in fact attended interviews before the investigator and answered questions.[42]  Only applicant “B” exercised her right under s.187 (2) SFO to exclude her answers in subsequent criminal proceedings.  I do not propose to go into the details of what the applicants had said during those interviews[43].  Suffice it to mention that both “A” and “C” gave exculpatory explanations in detail about the transfer of the shares of the company.  While “B” claimed protection under s.187(2), her answers were also exculpatory.

70.There was no attempt by any of the applicants, during the stay application before the Chairperson, to explain how they would be prejudiced if they answer the case put forward by the Executive.  Similarly, there is no attempt to explain the same in this hearing before me.  In gist, they only argue on principles.

71.Mr Huggins, SC, for ‘A’ admits that ‘A’ has not shown by evidence precisely how the DP would cause prejudice in his criminal trial.  Mr Huggins reiterates that ‘A’ cannot do so unless he waives the right to silence and privilege against self-incrimination.[44]

72.Mr Westbrook, SC, for ‘B’ argues that if she co-operates with the Panel, she would have to give up her constitutional rights and causes prejudice to her criminal defence.  If she failed to co-operate, she prejudiced her position in the DP.[45]

73.Mr Li, counsel for ‘C’, argues similarly that ‘C’ would be compelled to produce documents and give information in the DP.  In the absence of any safeguard, her right to silence and privilege against self-incrimination would be infringed.[46]

74.To decide this issue, it is necessary to examine the issues in the DP.  According to the Executive Summary, the applicants were suspected to have breached rule 26.1(c) and (d) of the Takeover Codes.  There were three stages at which a general offer should have been made.[47]

a.  When A and B take up the consideration shares.  This was one day after A had disposed of his shares of the company to C and two others.  The total interests of the five of them had increased by more than 2%.

b.  Even excluding B’s interest in the company, the aggregate interest of A, C and the two others had increased by more than 2%.

c.  A had subsequently acquired the interest of the company from B and another person, the aggregate interest of A, C and another person had increased by more than 2%.

75.The Panel would only be concerned with the aggregate interest at different stages and whether the applicants and the others were acting in concert.  The Panel needed not consider whether there was fraud or dishonesty.  I agree with the Chairperson that the conspiracy charges (Counts 1 and 2) do not concern the transactions set out above.  Nor was the Panel concerned with dishonest or fraudulent intent of any applicants.  The Panel was not concerned with the legitimacy of the oil field transaction by A and B to the company which is the subject matter of the conspiracy charges.[48]

76.As to count 11 in the criminal trial, the allegation is that the transfer of interest of the company from A to another respondent in the DP was a sham.  In my view, the Panel would not be concerned with the legitimacy of the oil field transaction either.  The more important issue would be whether these two persons were acting in concert.

77.I also agree with the Chairperson that the other money laundering charges against the applicants would not be of any concern to the Panel.

“Acting in concert”

78.In the definition section of the Codes, persons ‘acting in concert’ is defined as persons who, pursuant to an agreement or understanding, actively cooperate to obtain or consolidate “control” of a company through the acquisition by any of them of voting rights of the company.

79.In general, the Executive bears the burden to prove an agreement or understanding.  It is only when certain classes of persons are involved that the presumption would be triggered.  These classes of persons are presumed to be acting in concert.  However, this is a rebuttable presumption.  In the DP, the Executive has to prove the five respondents[49] to be acting in concert according to the definition above.

80.Among the five respondents in the DP, only A and C are directors of the company and would be caught by the presumption.  In rebutting the presumption, there is no need to touch upon the particular acts alleged in any one of the criminal charges.  In my view, this presumption should not create any difficulty for the applicants to answer the Executive case if they choose to.

81.In all, the issues to be canvassed in the DP would be much narrower than the criminal trial, if not entirely different.  In the circumstances, there is little risk that the applicants need to disclose their defence in the criminal trial.

82.The applicants must by evidence point to some real risk of prejudice.  Their argument on principle cannot satisfactorily discharge the burden of proof as required by the balance of justice test.

83.In Nomura[50], counsel for the defendant pointed out that the defendant faced disciplinary proceedings by the SFC in Hong Kong and also civil proceedings for breach of corporation law in Australia.  Counsel argued that the defendant had to prepare for concurrent proceedings which involved ‘extensive discovery’, ‘substantial witness statements’ and ‘wide ranging expert evidence’.  This involved too heavy a burden for the defendant.  They refused to explain their difficulties in detail.

84.In rejecting the defendant’s argument in the application to stay the disciplinary proceedings, Rogers JA said,

“In my view, if it is sought to rely upon the difficulties of preparing a case and adducing evidence as constituting grounds of prejudice, it is necessary to provide sufficiently precise factual evidence to satisfy the court as to what those difficulties are and how they arise. It would be necessary to show whether they are permanent difficulties or simply temporary. It would be necessary to show with some precision that the alleged difficulties are not just matters of inconvenience encountered in any disciplinary proceedings. It would also be necessary to identity the real risk of prejudice. If the facts adduced in support of the application do not themselves establish this, the applicant cannot seek to do so simply by repeating until tiredness sets in, expressions such as ‘oppressive’, ‘burdensome’, ‘duplicative’ and ‘unfair’.”

85.Similarly, in Chat Tat Chee v Hon Ming Kong [51], the defendant applied to stay the civil action pending the criminal trial.  He argued that to file a defence in the civil action would be tantamount to disclosing his defence in the criminal trial.  Reyes J rejected the argument and commented,

“…It is for Hon to explain, realistically and not fancifully, why a stay of the Actions is necessary to avoid injustice. But Hon has not even sketched out any details of allege prejudice in his affidavit evidence. It is not enough to state that Hon may elect to give evidence or may call witnesses on his behalf. That is stating nothing more than that a trial remains ongoing.”[52]

86.I agree with the approach of both courts in the above cases.  In my judgment, there is very little evidence from the applicants which could support that there is real risk of prejudice if the DP continues.

Safeguards

87.In order to guard against possible risk of prejudice, the Chairperson had suggested the following safeguards to allay the fear of the applicants:

a.  All material supplied by the applicants in relation to the DP would be kept confidential.[53] (“confidentiality order”)  The Chairperson fairly pointed out that it is beyond her control that if the material was disclosed by the Commission under s.378(3)(f)(iii) and (5) to the Secretary for Justice in the interest of the investing public or public interest.[54]

b.  The Chairperson was also prepared to conduct the DP in private if circumstances warrant.[55]

c.  The Chairperson would consider withholding the decision of the Panel depending on the circumstances.[56]

88.The applicants criticized that nothing could stop the Commission from disclosing the material despite the confidentiality order by the Chairperson under s.378.  This may be true at first sight but in reality the trial judge in the criminal trial would be vigilant to protect the interest of the applicants if there was any prejudice caused by the disclosure.  In my view, the Commission would be very reluctant to flout the confidentiality order as it would be against public interest and a blatant disregard of the right to a fair trial.  I entirely agree with the Chairperson’s comment in paragraph 8.7 of her Decision:

“As an overall approach, it seems to me to be wrong to start from a premise that the Panel may be unfair, that the Prosecution may act unfairly, that the trial judge may fail to ensure a fair trial for the Respondents, that a jury may not be properly directed or that a jury may ignore directions from a judge without any basis or evidence justifying the premise. Of course, there is always the possibility, but the possibility does not amount to a real risk of prejudice. Instead, the starting premise must be that all those carrying out their functions will do so properly.”

89.I agree with Mr Yu, SC, that the Chairperson has the power to order the hearing in private pursuant to paragraph 13.1 of the Code and rule 13.1 of the rules of procedure of the DP.

90.Further, the Chairperson emphasized that the privilege against self-incrimination would be available to all applicants and witnesses in the DP.  Chances that incriminating evidence was elicited through cross-examination would be very low.

91.The Chairperson suggested withholding the publication of the Panel’s decision.  She could not possibly decide this issue at the time of the stay application.  In all fairness, it must depend on the nature of the Panel’s decision when the issue arises.

92.The Commission has very onerous duties as set out in s.4 of the SFO.  Their duties include maintaining the fairness, transparency and competitiveness of the securities and futures industry.  Most importantly to minimize crime and misconduct in the industry.  As Rogers JA stressed in Nomura,[57]

“These are important functions and they relate to the integrity of the Hong Kong securities industry…It has to be appreciated that it is a public body, undertaking public duties, in the public interest. To stop that body conducting what are indisputably proper functions is thus a serious matter. The court has no business in preventing such a body carrying out its statutory and public duties unless there are clear and strong grounds for doing so.”

93.Having considered the analysis above, I am satisfied that there is no real risk of prejudice to the criminal trial.  I need not proceed to the second stage of the Jefferson test.

94.The applicants argue that by a letter dated 20 February 2014, the respondents were directed to deliver their submissions to Panel. Despite the respondent’s request, the Chairperson insisted to adhere to the procedural timetable.  This was oppressive and irrational.

95.The leave application was scheduled to be heard in May 2014.  I see nothing wrong for the Chairperson to proceed with the procedural matters pending the outcome.  Order 53 rule 3(10) cannot assist the applicants.  It governs the situation after leave is granted.  There is nothing in this ground.

Conclusion

96.The Chairperson did not err in law.  I am also satisfied that the decision of the Chairperson was not unreasonable.  I dismiss the application for judicial review by each applicant.  I make the following orders:

a.  This case is remitted back to the Panel for the Chairperson to consider whether to proceed with the DP as she thinks fit.

b.  An order nisi that costs of this application be to the respondent.  This order shall become absolute 14 days from the date of this judgment unless any of the parties applies by summons for variation.

Mr Adrian Huggins, SC, Mr Jin Pao and Mr Albert N.B. Wong, instructed by Anthony Siu & Co, for “A”

Mr Simon Westbrook, SC leading Ms Amanda W.M. Li, instructed by Lau, Kwong & Hung, for “B”

Mr Tony C.Y. Li and Mr Ernest C.Y. Ng, instructed by Simon C.W. Yung & Co., for “C”

Mr Benjamin Yu, SC leading Mr Laurence Li, for the Securities and Futures Commission