Introduction

It is not uncommon that persons subject to disciplinary proceedings of the Securities and Futures Commission (“SFC”) may also be facing criminal proceedings in respect of a criminal offence alleged to have been committed from the same set of events. In the recent decision of A v Securities and Futures Commission [2015] 1 HKLRD 47, the Court of First Instance considered whether a stay of the disciplinary proceedings is warranted in face of concurrent criminal proceedings.

Facts

A, B and C (the “Applicants”), together with two other persons, were respondents in disciplinary proceedings before the Takeover and Mergers Panel (the “Panel”) instituted by the SFC. The Applicants allegedly breached the Takeovers Code by acting in concert to avoid making a mandatory general offer. The Applicants were also defendants in a pending High Court criminal trial at that time, the allegations of which arose from the same set of facts.

The Applicants contended that in order to answer the allegation in the disciplinary proceedings, they had to disclose substantially their intended defence in the criminal trial. As such, this would disproportionately infringe their right to silence and privilege against self-incrimination in the disciplinary proceedings. They therefore applied for a stay of the disciplinary proceedings, which was refused by the Chairman of the Panel. They then brought an application for judicial review against the decision of the Chairman not to stay the disciplinary proceedings.

The “balance of justice” test vs the “proportionality” test

First of all, the Court observed that under both common law and statute^[1], the proceedings under the Securities and Futures Ordinance (“SFO”) will not be stayed by the existence of any judicial or other proceedings that disclose the commission of an offence. However, under the “balance of justice” test applicable to civil proceedings, the court has the discretion to stay such proceedings if the defendant (i.e. the applicant for the stay) is able to show that it is just and convenient that the plaintiff’s ordinary right of having his claim heard and decided should be interfered with. In exercising the discretion, the court will refer to the competing considerations, and one of the very important factors is whether there is a real danger of injustice being caused in the concurrent criminal proceedings.

Where the applicant also alleges that his right to a fair trial is infringed upon, the burden will then be on the respondent (i.e. the party against whom the application for stay is being made) to satisfy the court that the infringement is justified and the court will apply the “proportionality” test to examine the alleged justification.

Nature of the disciplinary proceedings?

In doing so, the Court first distinguished between the right to silence and the privilege against self-incrimination. It was noted that the former is not applicable in civil proceedings, but the latter are in all proceedings.

The Court then proceeded to consider whether disciplinary proceedings are criminal or civil in nature. First of all, the Rules of Procedure of the disciplinary proceedings provide that proceedings before the Panel are civil in nature^[2]. Further, the Court found that the consequence of the breach is also civil in nature, as there is no corresponding criminal liability for the breach. The Court also considered the nature and severity of the potential sanction, including the power of the Panel to make a “cold shoulder order”, which prohibits other licensed persons from acting for the person sanctioned. It concluded that the cold shoulder order, similar to a disqualification order, serves to maintain the integrity of the market and is essentially protective rather than punitive in nature. In light of the analysis, the Court was satisfied that the disciplinary proceedings are civil in nature. As such, there would be no infringement of the right to silence because such right is not available in civil proceedings.

Abrogation from the privilege against self-incrimination?

Further, the court noted that the privilege against self-incrimination is not abrogated by the Codes or the Rules. In fact, the Applicants are free to choose whether to reply and how to reply.

The Applicants argued that as the Panel may draw adverse inferences against them from their failure to reply, it is tantamount to compulsion to reply. In this regard, the Court stressed that adverse inference should not be lightly drawn against a defendant who claims the privilege against self-incrimination.

Although the possible sanction following from the disciplinary proceedings, in particular the cold shoulder order, is serious, the Applicants would not be pressured to waive the privilege against self-incrimination in view of such possible sanction. The reason is that such sanction, being the consequence of a preceding civil action, cannot be regarded as a form of compulsion when compared with a fine or imprisonment which is independent of the civil proceedings.

Having said this, the Court was satisfied that there was no infringement of either the right to silence or the privilege against self-incrimination and, therefore, the “proportionality” test was not applicable.  The Court was then left with the “balance of justice” test. The burden is on the Applicants to show that there is a real risk of causing unjust prejudice in the criminal trial by the continuation of the disciplinary proceedings.

No real risk of prejudice

The Court took notice that there was no attempt by the Applicants to explain how they would be prejudiced in the concurrent criminal proceedings if the disciplinary proceedings were not stayed. They only argued on principles without adducing any precise factual evidence to explain the real risk of prejudice it could suffer. As such, they had failed to discharge their burden under the balance of justice test. Moreover, the court observed that the issues in the disciplinary proceedings would be much narrower than the criminal trial. As such, there should be little risk that the Applicants would need to disclose their defence. In addition, the Chairman had also suggested various safeguards against possible prejudice, which included a confidentiality order and to conduct the disciplinary proceedings in private. The Court was satisfied that there was no real risk of prejudice to the concurrent criminal trial. In the end, the application for judicial review is dismissed and the case is remitted to the Panel.

Implications

The case serves as a reminder that, in attempt to apply for a stay of disciplinary proceedings on the ground of pending concurrent criminal proceedings, the respondents are advised to provide sufficiently precise factual evidence on the real risk of injustice as a result of the disciplinary proceedings not being stayed.