ONSHINE SECURITIES LTD. v. THE STOCK EXCHANGE OF HONG KONG LTD.

IN THE COURT OF APPEAL

1993. No.195
Civil)

HEADNOTE

Onshine was found guilty by the Disciplinary Committee of the Stock Exchange of offences against the Stock Exchange Rules. It did not seek redress from the Disciplinary appeals Committee but sought Judicial Review on the grounds that it had, inter alia, been denied legal representation and that the hearing had contravened the Rules of Natural Justice. The hearing judge granted the application being satisfied that exceptional circumstances existed.

Held: The court acted upon the basis that there was impropriety at the hearing that where in the case of a domestic body like the Stock Exchange the appellate procedure may, or may not, ensure justice for the party. aggrieved. Generally speaking the court should not be asked to second guess the appellate tribunal's decision. In the absence of exceptional circumstances requiring immediate intervention by the court the aggrieved party should be told to wait and see what happens before the appellate tribunal.

IN THE COURT OF APPEAL

1993, No.195
(Civil)

________________________________

_________________

J U D G M E N T

_________________

Power, V.-P.:

1. This is the judgment of the Court.

2. Onshine Securities Limited ("Onshine") the applicant, is a firm of stock brokers against whom the Stock Exchange of Hong Kong Limited ("the Stock Exchange") brought the following disciplinary proceedings:

(1) At all material times Onshine Securities Limited ("Onshine") has been a Member of the Exchange trading under broker number 3390.

(2) At all material times Onshine has been registered under Part VI of the Securities Ordinance (Cap.333) as a dealer.

(3) References below to rules are references to the Rules of the Exchange.

(4) As a Member of the Exchange Onshine has been at all material times bound by the Rules.

(5) The Exchange has received complaints from six of Onshine's customers regarding the conduct of a former runner Yeung Shu Hung ("Yeung") employed by Onshine from January 1990 to December 1990, the basis of which are as follows:-

(a) During the months of June and July 1990, the following six customers entered into a series of transactions through Yeung to purchase securities having a total value in excess of one million dollars (HK$1 million):-

Mr. Tong Chun Chung

Mr. Ng Hon

Ms. Chan Suk Wah

Mr. Yi Moon Wah

Mr. Wong Chi Hung

Mr. Wong Shiu Cheung

(b) All of the transactions were done on a cash basis.

(c) Commissions in respect of the transactions were paid by Onshine to Yeung

(d) None of the scrip the subject of the transactions was delivered to any of the customers.

(e) Throughout the whole of period he was a runner for Onshine including at the time of the transactions referred at (a), Yeung was registered as an Authorised Clerk with another Member of the Exchange.

(f) Yeung had a margin account with Onshine and the majority of the shares which were not delivered to the six customers appear to have passed through this account.

(g) Yeung was found guilty in respect of summons relating to the short selling to ITC warrants through both Onshine and the Member with which he was registered of and although denied by Onshine it has been alleged by the customers that these shares were sold by Onshine to cover the losses incurred by Yeung in the short selling of ITC warrants.

(h) In August 1992 Yeung was sentenced in the District Court by His Honour Judge Yam to 18 months' jail suspended for 2 years for the theft from one of the complainants, Ms Chan Suk- Wah, of shares worth $198,000.

(i) Onshine has declined to compensate the six customers.

(6) Onshine has denied that it is liable to the six customers because :-

(i) it never met the complainants; and

(ii) instructions for the purchase were given by Yeung who claimed to be the customers' agent and/or representative.

(7) (a) During the course of investigations it was revealed that a Mr. Chu Moon Sun and a Mr. Tsang Kwong Shek, Samuel ("Tsang") had also acted as runners of Onshine whilst being employed as Authorised Clerks of other Members.

(b) In respect of Chu, he has been registered with the Securities & Futures Commission as a Dealer's Representative since 14th March 1986. During the period April 1986 to November 1990 he was registered with another Member as an Authorised Clerk but during the period January 1990 and November 1990 acted as a runner for and received commissions from Onshine.

(c) In respect of Tsang, he has been registered with the Securities and Futures Commission as a Dealer's Representative since 18th August 1983 and as the Authorised Clerk of another Member since 1986. During the period January 1990 to May 1991 Tsang acted as a runner for and received commissions from Onshine.

(8) Section 50(IC) of the Securities Ordinance provides inter alia that a dealer's representative shall not act on behalf of any person other than the person specified in the registered in accordance with Section 501(1B) of the Securities Ordinance.

(9) Paragraph 4.3(d) of the Securities and Futures Commission publication "The Fit and Proper Criteria" states that knowingly or negligently aiding or abetting other persons in breaches of the Rules of the Exchange must cast doubt on a person continuing to be fit and proper to remain registered.

(10) Rule 354 states that a Member shall be responsible for all acts done, commitment and contracts entered into by his employees in his business of dealing in securities.

(11) Rule 601 provides that all Members shall strictly comply with and adhere to, inter alia, the Securities Ordinance and the Rules of the Exchange.

(12) Rule 723(1)(c) states that the Exchange's disciplinary powers may be exercised if a Member has been in breach of the Securities Ordinance.

(13) Rule 723(2)(e) states that the Exchange's disciplinary powers may be exercised if a Member has failed to carry out any legal obligation relating to securities.

(14) Rule 723(2)(f) states that the Exchange's disciplinary powers may be exercise against a Member if Member appears to be guilty of conduct which may be injurious to the character and interests as prejudicial to the objects of the Exchange.

IN RESPECT OF THE ABOVE, THE COMPLIANCE DIVISION PREFERS THE FOLLOWING CHARGES AGAINST ONSHINE SECURITIES LIMITED IN THAT IT FAILED TO COMPLY WITH RULE 601:-

(a) that contrary to Rule 604 Onshine has failed to ensure that its employee Yeung Shu Hung acted in the best interest of Onshine's customers;

(b) that contrary to Rule 723(2)(e) Onshine has failed to deliver scrip to its clients;

(c) that contrary to Rule 723(2)(f), in failing to compensate its customers, Onshine is guilty of conduct which may be injurious to the character and interests of the Exchange; and

(d) that contrary to Rule 723(1)(c) Onshine has aided and abetted a breach of Section 50(1C) of the Securities Ordinance by:-

(i) Yeung Shu Hung;

(ii) Chu Moon Sun; and

(iii) Tsang Fook Wan, Samuel

Particulars

The Compliance Division repeats Paragraphs (5) to (7).

 

3. Onshine denied any wrongdoing. It claimed that five individuals, who were referred to as "runners", three of whom were the persons named in the complaint, had approached it saying that they could introduce customers. They were, operating through a company called Sino Fair Investment Ltd., to introduce interested parties to Onshine with a view to their purchasing shares. Onshine agreed to pay part of the commission payable on any shares purchased to Sino Fair. The profits would thereafter be apportioned among the five runners. The five traded both in their own names and in the names of the persons they introduced. The matter came to light when Mr. Yeung Shu Hung ("Yeung") misappropriated shares purchased by six of the persons whom he had introduced. In writ HCA 4343/91 issued on 11th June 1991 four of the six commenced legal action against Onshine for recovery of their losses. This action was heard in March 1994 by Liu J. who gave judgment against Onshine. This decision is, we are told, to be appealed. Onshine contended in that action, and still maintain, that Yeung was not an employee and that they are therefore not liable.

4. After receiving the complaint, Onshine sought to have the charges adjourned until after the outcome of HCA 4343/91. Initially the Stock Exchange had agreed to an adjournment and had vacated the hearing date. However, the Exchange was, as time passed, not satisfied as to the progress of the case and insisted that the hearing of the disciplinary proceedings commence on 17th March 1993. The Secretary of the Disciplinary Committee refused Onshine's application to be legally represented and it was represented at the hearing by a Mrs. Li, one of its directors. The Committee was chaired by Mr. Anthony Neoh, Q.C. At the completion of the hearing the Stock Exchange sent Onshine the following letter.

" THE STOCK EXCHANGE OF HONG KONG LTD.

1/F, ONE & TWO EXCHANGE SQUARE,
CENTRAL, HONG KONG
G.P.O. BOX 8888, HONG KONG.

Our Ref: MD/FC/1360/93

19 March 1993

Onshine Securities Limited 8/F Malahon Centre 10-12 Stanley Street Central Hong Kong	CONFIDENTIAL BY HAND
Attn.: Mr. Li Chi Keung
Dear Sirs
Disciplinary Proceedings Case No. 62/92

We refer to the disciplinary hearing for the above case before the Disciplinary Committee held on 17 March 1993 attended by your Mrs. Li Wong Hoi Ping.

The Disciplinary Committee, having considered the Compliance Division's Statement of Case dated 19 October 1992, the Compliance Division's supporting documents for the charges which were under the cover of their letter dated 13 November 1992, your statement of defence dated 16 November 1992, your supporting documents for the defence dated 13 November 1992 and the representations of the Compliance Division, your Mrs. Li Wong Hoi Ping and the four affected clients at the hearing, found the following charges against you in that you failed to comply with Rule 601 of the Rules of the Exchange proven:-

(a) that contrary to Rule 604 Onshine has failed to ensure that its employee Yeung Shu Hung acted in the best interest of Onshine's customers;

(b) that contrary to Rule 723(2)(e) Onshine has failed to deliver scrip to its clients;

(c) that contrary to Rule 723(2)(f), in failing to compensate its customers, Onshine is guilty of conduct which may be injurious to the character and interests of the Exchange; and

(d) that contrary to Rule 723(1)(c) Onshine has aided and abetted a breach of Section 50(1C) of the Securities Ordinance by:-

(i) Yeung Shu Hung;

(ii) Chu Moon Sun; and

(iii) Tsang Fook Wan, Samuel

Pursuant to Para. 4.13 of the "Disciplinary Procedures" of the Exchange, you may submit a written plea in mitigation to the Exchange within 5 days of the notification of the verdict, i.e. before 24 March 1993.

The Committee will, based on your plea in mitigation, if any, and if no plea in mitigation is received, based on the information before it, decide on what penalty should be imposed on each charge.

Yours faithfully,

For The Stock Exchange of Hong Kong Ltd.

Signed

Fanny Chung
Secretary
Disciplinary Committee

FC/KC/sw

c.c. Mr. Alec Tsui

Securities and Futures Commission

Mr. Paul Phenix
SEHK"

5. On 21st April 1993 Onshine pre-empted further action by the Disciplinary Committee by filing a Notice of Application for leave to apply for Judicial Review. Paragraph 1 alleges that "The said Disciplinary Committee failed to act in accordance with the rules of natural justice or alternatively acted contrary to the Bill of Rights Ordinance."

6. The following matters were relied upon:

"(a) The "prosecutor" and the "judge" at the said Disciplinary Committee are all members of the Council of the Stock Exchange.

(b) In the course of the disciplinary proceedings, the Applicant was improperly deprived of legal representation.

(c) The identity of the principal witness at the hearing was not revealed to the Applicant and contrary to prior representations to the Applicant no statement of that principal witness was furnished to the Applicant.

(d) No attempt was made to elicit from the witnesses called at the initiation of the Stock Exchange of Hong Kong Limited to produce documents relevant to the Applicant's case and a document tendered by the principal witness had not been revealed to the Applicant prior to the hearing.

(e) The Applicant was led to believe and did believe that cross examination of the witnesses was confined to matters raised in the course of questions posed by the tribunal.

(f) Despite the Applicant's prior intimation of its intention to call 3 witnesses to give evidence on its behalf, no opportunity was given at that hearing for such witnesses to be called.

(g) The representations put forward by the Compliance Division considered by the Disciplinary Committee were not made known to the Applicant and departed fundamentally from the Statement of the Stock Exchange's Case dated 19.10.1992.

2. By virtue of the matters set out in paragraph 1 above and by virtue of the Disciplinary Committee's improper disregard of the pendency of High Court Action No. A4343/1991 in proceeding to hear the charges, the said decision should be quashed and further proceedings be stayed as the principal issue in the disciplinary proceedings is currently before the High Court as part of the subject matter in the said High Court Action."

Relying upon the foregoing Onshine asked that the decision be quashed and further proceedings stayed upon the basis that the principal issue in the disciplinary proceedings was currently before the High Court as part of the subject matter in HCA No.4343/91.

7. The application was heard by Mayo, J. who handed down his judgment on 11th October 1993 quashing the decision of the Disciplinary Committee and deferring a hearing of the disciplinary charges until the outcome of HCA 4343/93. It is from that decision that the Stock Exchange now appeals. The Stock Exchange Disciplinary Procedures Rules, had they been followed, would, Onshine having indicated that it required the case to be referred to the Disciplinary Appeals Committee ("the D.A.C."), have required the Disciplinary Committee to "produce a reasoned decision in writing setting out its findings of fact and the reasons for its verdict and any penalty imposed ..." (Part II Rule 4.16) The member is within 14 days of the receipt of the "reasoned decision" required to lodge "a statement of the grounds of referral and particulars of any fresh evidence he or she wishes to adduce, to the Secretary to the Disciplinary Appeals Committee". (Part II Rule 5.1.1). It is further provided that if "fresh evidence has been produced" before the D.A.C. it being satisfied that it should be allowed "will remit the matter to the Disciplinary Committee for reconsideration of the verdict and the penalty in the light of the fresh evidence." (Part II Rule 5.5).

8. The D.A.C. is required by the rules "to hear matters referred by the member charged". (Part I Rule 6.1). We note that there is no definition section limiting the meaning of the word "matters". There is further nothing limiting the meaning of the word "reconsideration" in Part II Rule 5.5. We note also that Rule 208 of the Stock Exchange of Hong Kong Limited Rules provides that the powers of each committee of the Stock Exchange are "subject always to the overriding right and power of the Council (of the Stock Exchange) to review, vary or supplement its decisions ..." It would appear that the Council has power to put right any injustice shown to have been done to any members by one of its committees.

9. Mayo, J. stated, rightly in our view, having made reference to the what was said by Lord Scarman in Ex Parte Preston [1985] 1 A.C. 835 at p.852 the scope for Judicial Review was limited when there was an alternative remedy available and that the "question which has to be decided was whether the circumstances of this case were such as to amount to "special circumstances" such as to justify a departure from the Rule". We would, for ourselves, prefer to use the term "exceptional circumstances" as did Glidewell L.J. in R. v. Chief Constable of the Merseyside Police, ex parte Calveley [1986] 1 Q.B. 424 at 440:

"I add only that I also agree that, where application is made for judicial review but an alternative remedy is available, an applicant should normally be left to pursue that remedy. Judicial review in such a case should only be granted in exceptional circumstances. If I did not make this clear in my judgment in Ex parte Waldron [1985] 3 W.L.R. 1090, to which Sir John Donaldson M.R. has referred, I now repair the omission. The criteria to which I there referred are amongst the matters which, in my view, a court should consider when deciding whether the circumstances are exceptional."

10. The matters which Mayo J. appears to have taken into account when coming to his conclusion that such circumstances existed were:

(1) Onshine was not allowed legal representation in circumstances in which it could not, without such representation receive a fair hearing.

(2) In the course of the hearing before the Disciplinary Committee there was a failure to inform Onshine of its right to call witnesses and in consequence of this witnesses who might have been crucial were not called.

(3) The rules governing appeal to the D.A.C. were such as to admit of "the not unlikely possibility that difficulties could be encountered" if such an appeal was pursued.

(4) It would have been clearly desirable to adjourn the hearing of the disciplinary proceedings to abide the decision in HCA 4343/91. Mayo J. considered the High Court "a more satisfactory venue to adjudicate" the issues.

None of these seem to us to be exceptional circumstances whether taken separately or together which would require the immediate intervention of the court in the interests of justice which is the principle to be applied.

11. The Stock Exchange appeals the decision of Mayo J. contending that he was wrong to hold:

(1) there were special circumstances justifying the grant of Judicial Review;

(2) that the Disciplinary Tribunal acted unfairly in refusing to adjourn to await the outcome of the High Court proceedings;

(3) that Onshine was improperly deprived of legal representation;

(4) that the Disciplinary Tribunal acted unfairly in not inviting Onshine to call witnesses.

12. Onshine in a Respondent's Notice seeks to rely upon reasons, other than those relied on by the judge, which establish improper refusal of legal representation. It submits also that the judge was wrong to hold as he did that the disciplinary structure under the rules is not tainted by bias. Simply put the argument is that, as all of the members of the Compliance Committee, which brings the charge, of the Disciplinary Committee, which hears the charge, and of the D.A.C., to which appeal lies, are members of the Stock Exchange Council, apparent bias permeates and inherently flaws the hearing and appellate structure at each level.

13. It further seeks to rely upon a number of matters which occurred in the course of the hearing before the Disciplinary Committee which it submits were manifestly unfair and were breaches of the rules of natural justice. These matters are, it is submitted, a consequence of and subsidiary to the principal complaint of a wrongful refusal to grant legal representation.

14. We deal first with the finding of the judge that it was wrong to refuse the adjournment. We disagree. We bear in mind when so doing the words of Lord Denning M.R. in Maynard v. Osmond [1977] 1 Q.B. 240 at p.254:

"The issues in the disciplinary proceedings are very different from those in the civil action. And while great weight will be paid to any findings of the judge in the civil action they will not be decisive or binding in any way: and they may be challenged on appeal. It is very important that the disciplinary proceedings should be dealt with speedily. So much so, that I do not think it would be proper to stay them."

The Stock Exchange has a duty which it owes both to its members and to the public to act swiftly to correct transgressions by its members and flaws in its system of operation. We are mindful that no dishonesty on the part of Onshine is suggested and that the principal issue is whether the action of a runner, in the position of Yeung, binds a broker so as to make him liable to an investor who deals with the runner. This is nonetheless an issue of considerable importance that, in the public interest, requires the earliest possible resolution. The Stock Exchange were, we are satisfied, having given considerable indulgence, quite right to insist that the matter proceed before the Disciplinary Committee. The refusal to adjourn was not a matter to which the judge should have given any weight.

15. Before turning to deal with the other three matters upon which Mayo J. relied we turn to consider the submission of apparent bias raised in the Respondent's Notice. We have no hesitation in rejecting this submission. A professional body such as the Stock Exchange must act through its appointed committees. Self regulation is best and necessarily done by its own members. The fact that the members of particular committees are also elected members of the Council falls far short of any appearance of bias. There is no suggestion of personal bias or the appearance of personal bias, indeed the Disciplinary Rules guard against this.

16. We turn now to deal both with the other matters upon which the judge relied and with the matters, other than bias, raised in the Respondent's Notice. These can all be shortly put as follows:

(1) Improper refusal of legal representation;

(2) Breaches of the rules of natural justice which included, inter alia, failure to inform of right to call witnesses;

(3) Possibly inadequate appellate procedure.

17. We assume for the purposes of this judgment (without deciding) that Onshine can establish that it was wrong to refuse to allow it legal representation, that there were breaches of natural justice and that these matters would warrant a decision that the finding of guilt made by the Disciplinary Committee ought to be quashed.

18. We have no doubt that, if there were no adequate alternative remedy open to Onshine, the court would in these circumstances be entitled and bound to intervene, now, by way of judicial review, to quash the decision.

19. But, says the Stock Exchange, Onshine does have an adequate alternative remedy and therefore the court ought not to intervene by way of a judicial review unless and until Onshine has exhausted that remedy and it can be seen that it has still not received fair treatment.

20. We accept this submission. The authorities in our judgment establish that (save in exceptional circumstances of which, as we have said, none seem to us to be present here) the court will not interfere in the affairs of a body like the Stock Exchange to protect those subject to disciplinary proceedings against unfair treatment if they have a right of appeal to a domestic appellate tribunal which has a jurisdiction wide enough to ensure, in the end, the achievement of a just result.

21. In the present case, Onshine has a right of appeal to the D.A.C. of the Exchange. It is common ground that the D.A.C. will be entitled to quash the decision of the Disciplinary Committee if it is satisfied that the member was indeed unfairly treated by the Disciplinary Committee.

22. Is this enough? Onshine says that it is not. It argues that if for some reason there is a danger that the D.A.C. may decide that it cannot quash the decision on the ground of Onshine's unfair treatment by the Disciplinary Committee, it is entitled now to have the decision quashed by the court. In our judgment, this argument is misconceived. Clearly, if it were impossible, under its rules of procedure, for the D.A.C. to quash the decision of the Disciplinary Committee for this reason, the avenue of appeal to the D.A.C. would not only not afford Onshine an adequate remedy for the wrong done to it; it would afford it no remedy at all.

23. But here Onshine can only say, not that is impossible for the D.A.C. to redress its grievances; only that there is a danger that it might not. In our judgment, this will not do.

24. As Lloyd L.J. pointed out in R v Panel on Take-overs [1989] 1 All ER 509 at 531:

"The justification for the rule is convenience, by which I mean not just the convenience of the court, but the public interest in abating litigation."

It is important to bear this justification in mind when assessing whether there are extraordinary circumstances which require the court's immediate intervention before the available remedies have been exhausted. It is neither advisable nor possible to define "extraordinary circumstances" but if the appeal available is adequate to deal with all the alleged flaws in the original proceedings this will weigh heavily against the granting of leave. However, this cannot be decisive. For example, the applicant may show that immediate intervention is required because the appeal procedure is flawed by delay or some other extraneous matter. Similarly, if the court's immediate intervention will result in abating the litigation, this will also be an important - perhaps decisive - consideration. We have in mind cases where the tribunal had no jurisdiction to entertain the proceedings or where the proceedings were based on an obvious and fundamental error of law. In such circumstances it would not be possible to start the same proceedings again and justice and convenience may require that the decision is struck down immediately. It follows that we reject Mr. Tong's eleventh-hour submissions to the effect that exceptional circumstances are not the sole test.

25. We would state the relevant principle (which we deduce substantially from Calvin v. Carr [1980] AC 575) and R. v. Chief Constable of the Merseyside Police, ex parte Calveley [1986] 1 QB 424 as follows:

26. Where in the case of a domestic body like the Stock Exchange the appellate procedure may, or may not, ensure justice for the party aggrieved by the lower tribunal's decision, then, generally speaking, the court should not be asked to second-guess the appellate tribunal's decision. In the absence of exceptional circumstances requiring immediate intervention by the court, the aggrieved party should be told to wait and see what happens before the appellate tribunal. If that tribunal can, and does, quash the decision of the lower tribunal, that will be an end of the matter. If the appellate tribunal affirms the decision of the lower tribunal, the aggrieved party can then apply for a judicial review; but he will succeed only if, taking the procedure (original and appellate) as a whole, it can be seen that the aggrieved party has still not been fairly treated.

27. It is on this principle that the judge below ought to have proceeded. If he did consider whether the case was one which required the immediate intervention of the court he plainly reached a wrong result and, therefore this court is entitled, and bound, to interfere, and to refuse Onshine the relief it has sought. When so saying we bear in mind the principle upon which the Court of Appeal acts when interfering with the exercise of a judge's discretion which was well put by Stephenson L.J. in Alltrans Express Ltd. v. CVA Holdings Ltd. (1984) 1 W.L.R. 394 at 400:

"We must be very careful not to interfere with the judge's exercise of the discretion which has been entrusted to him. We can only do so if he has erred in law or in principle, or if he has taken into account some matter which he should not have taken into account or has left out of account some matter which he should have taken into account; or-and this is an extension of the law which is now I think well recognised - if the Court of Appeal is of opinion that his decision is plainly wrong and therefore must have been reached by a faulty assessment of the weights of the different factors which he has had to take into account."

We therefore allow the appeal.