A v Securities and Futures Commission
Court of First Instance
Constitutional and Administrative Law List Nos. 29, 31 and 33 of 2014
Patrick Li J
Administrative law
7 November 2014

Administrative law – Takeover and Mergers Panel – concurrent criminal proceedings against applicants arising out of same events – burden on applicants to prove real risk of injustice

A was the major shareholder and CEO of a public listed company in Hong Kong (the “Company”). A, B, C (the “Applicants”) and two other persons (“Xs”) were respondents in disciplinary proceedings (the “DP”) before the Takeover and Mergers Panel (the “Panel”) instituted by the Executive of the Securities and Futures Commission (the “Executive”). The Applicants were also defendants in a pending High Court criminal trial. Both proceedings arose from an investment project in which A and B agreed to sell their interest in a gas and oilfield to the Company. The Executive alleged that the Applicants and Xs were acting in concert to avoid making a mandatory general offer under r. 26.1(c) and (d) of the Takeover Codes (the “Codes”). The Applicants applied for a stay of the DP until the completion of the criminal trial, contending 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 thereby infringing their right to silence and privilege against self-incrimination. The Chairman of the Panel rejected the Applicants’ application and they now applied for judicial review of that decision.

Held, dismissing the applications, that:

  • While s. 386 of the Securities and Futures Ordinance (Cap. 571) (“SFO”) provided that proceedings under the SFO would proceed although there were other concurrent proceedings which might disclose the commission of an offence, the court had the discretion to order a stay of civil proceedings by reference to competing considerations when criminal prosecutions arising out of the same events were pending. The presumption of innocence and the defendant’s right to silence in criminal proceedings were important factors to be considered, but that right did not give him the same protection in contemporaneous civil proceedings. The burden was on the defendant in the civil proceedings to show that it was just and convenient that the plaintiff’s ordinary rights of having his claim heard and decided should be interfered with. The defendant had to point to a real and not merely a notional risk of injustice in the criminal proceedings.
  • In determining the nature of the proceedings, the court would consider their classification under domestic law, the nature of the offence, and most importantly the nature and severity of the potential sanction. The Rules of Procedure of the DP (the “Rules”) provided that the DP was civil in nature. The power of the Chairperson to make directions for responding to the Executive and submission of supporting documents etc. was comparable to that in courts exercising civil jurisdiction. While the allegations against the Applicants were serious, the alleged breach of the Codes had no corresponding criminal offence. Therefore, the DP was civil in nature. The power to make a “cold shoulder” order would not make it criminal in nature, as this served to maintain the integrity of the market and was not meant to be a deterrent.
  • The right to silence was of limited application in civil proceedings but the privilege against self-incrimination always applied. The power of the Chairman to give directions would not infringe the right to silence. Further, the privilege against self-incrimination was not abrogated by the Codes or the Rules and was expressly preserved under s. 65(1) of the Evidence Ordinance (Cap. 8). The Applicants had a choice whether to reply and how to reply. If they chose to reply, they could claim the privilege at an appropriate point. If they chose not to reply at all, they should be prepared to bear the consequences of the DP.
  • While the Panel might draw adverse inferences from the failure to comply with directions, it was not absolved from considering all the evidence and drawing inferences as circumstances warranted. Adverse inferences should not be lightly drawn against a defendant who claimed the privilege against self-incrimination. To do otherwise was tantamount to abrogating the privilege. Therefore, the risk to an Applicant who claimed the privilege in the DP was minimal. Further, the consequence of the preceding civil proceedings would not amount to compulsion.
  • The Applicants had not explained how they would be prejudiced if they answered the case put forward by the Executive. The issues in the DP would be much narrower than the criminal trial, if not entirely different, so there was little risk that the Applicants would need to disclose their defence in the criminal trial. The Chairperson had also suggested various safeguards against possible prejudice, including a restriction on publication of the DP and control of persons attending. The Court was satisfied that there was no real risk of prejudice to the criminal trial.

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