AA AND ANOTHER v. THE SECURITIES AND FUTURES COMMISSION

HCAL 41/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 41 OF 2016

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DECISION ON DISCLOSURE

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Introduction

1.  This is an application by the applicants for the production of certain documents from the Securities and Futures Commission (SFC) in the context of judicial review proceedings.  It is unusual in judicial review proceedings for the court to make an order of disclosure because of the special nature of the jurisdiction and the role that the courts are expected to perform. 

2.  The applicants were granted leave to judicially review the decision of the SFC to transmit compelled answers, testimony and documents obtained from them to the Japanese Financial Services Agency (JFSA) and the Securities and Exchange Surveillance Commission (SESC) (the Japanese regulators).  The relief sought by the applicants consists of a declaration that the SFC acted unlawfully in transmitting compelled answers, testimony and documents to Japanese regulators, absent a binding prohibition against their use in criminal proceedings and/or a proper assurance against them, or their contents, being leaked to the media and otherwise made public; and a declaration that section 181 of the Securities and Futures Ordinance, Cap 571, contravenes article 10 of the Hong Kong Bill of Rights Ordinance, Cap 383, and is unconstitutional.

3.  The applicants are under investigation by the SFC regarding suspected market manipulation activities conducted by an asset management fund operated by the 1^st applicant in shares of a company listed on the Tokyo stock exchange.  The 1^st applicant is a Hong Kong company licensed to carry on the regulated activity of asset management. The 2^nd applicant is the majority shareholder of the 1^st applicant and one of its approved responsible officers. 

4.  When I granted leave to the applicants to apply for judicial review, the SFC had not participated in the proceedings and there was no evidence from them in response to the allegations by the applicants.  I mentioned in my decision that the SFC would want to add its account as to what had taken place in order for the matters that had been raised by the applicants to be considered in their full and proper context. 

5.  On 7 July 2016, Mr Chan Kwok Ho, Jimmy, a Director of the Enforcement Division of the SFC, filed an affirmation in response to the allegations by the applicants.  He provides a comprehensive and detailed account of the dealings between the SFC and the Japanese regulators in relation to the applicants’ case.  This includes written exchanges and agreements between them regarding the provision and use of information and materials supplied by the SFC to the Japanese regulators. 

6.  On 31 October 2016, Mr Chan filed a second affirmation addressing the applicants’ requests for the documents pursuant to the present application.

The application

7.  The applicants apply for production of four categories of documents from the SFC as set out in Schedule 1 to their summons.[1]  They are as follows:

(1) audio or written record of a telephone conversation between the SFC and the SESC on 4 December 2014 regarding the publication of the SESC Announcement on 5 December 2014 (the telephone conversation);

(2) the previous correspondence between the SFC and Mr Hida of the JFSA/SESC which were referred to in an email sent by the SFC to the JFSA on 9 July 2014 (the previous correspondence);

(3) an email dated 26 September 2014 from the JFSA/SESC to the SFC which was mentioned in a letter dated 22 October 2014 from the SFC to JFSA/SESC (the 26 September email); and

(4) minutes or attendance notes of the meetings between the SFC and JFSA/SESC on 7 October 2014 and 5 November 2014 during which the regulators discussed their respective investigation plans and operations strategies relating to the applicants (the meetings).

The relevant statutory provisions

8.  The order sought is made pursuant to Order 24, rule 10, rule 11 and rule 11A of the Rules of the High Court and the inherent jurisdiction of the Court.

9.  Order 24, rule 10(1) provides:

“Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements served under Order 38 rule 2A or experts’ reports, reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof.”

10.  Order 24 rule 11 provides amongst other things that if a party who is served with a notice under rule 10 objects to produce any document for inspection, the Court may, on the application of the party entitled to inspection, make an order for production of the document in question for inspection.  Order 24 rule 11A provides, amongst other things, for a party who is entitled to inspect any documents to be supplied with a true copy of them.

11.  These provisions must be read with Order 24 rule 13(1) which provides:

“No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made under any of the foregoing rules unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

12.  See Hong Kong Civil Procedure 2017, 24/10 to 24/11A. 

The relevant legal principles

13.  In judicial review proceedings the courts exercise a supervisory jurisdiction over the decisions of public authorities which is normally limited to addressing issues of legality.  The courts are not concerned with the merits of the decision but rather whether it is a decision the public authority is entitled to make. 

14.  In R v Lancashire County Council ex parte Huddleston [1986] 2 ALL ER 941, Sir John Donaldson MR explained that the judicial review jurisdiction “has created a new relationship between the courts and those who derive their authority from the public law, one of partnership based on a common aim, namely the maintenance of the highest standards of public administration.”[2] He went on to further explain that once permission was granted to judicially review the decision under challenge, the public authority was under a duty “to make full and fair disclosure”[3] with “all the cards face upwards on the table”.[4]  In the same case, Parker LJ similarly acknowledged that:

“In the vast majority of cases authorities whose decisions are challenged will no doubt put before the court all that is necessary to enable justice to be done, for I agree that they have, or should have, a common interest with the courts in ensuring that the highest standards of administration are maintained and that, if error has occurred, it should be corrected. I agree, therefore, that when challenged they should set out fully what they did and why, so far as is necessary, fully and fairly to meet the challenge.”[5]

15.  Parker LJ made the added comment, with which Sir John Donaldson MR agreed,[6] that it should not be taken once an applicant has obtained leave that he is entitled to demand from the authority a detailed account of every step in the process of reaching the challenged decision in the hope that something will be revealed which will enable him to advance some argument which has not previously occurred to him.[7] 

16.  How the judicial review jurisdiction works when addressing an issue of disclosure was explained by the learned author in Judicial Remedies in Public Law:[8]

“...The courts have emphasised that the nature of judicial review proceedings is different from ordinary private law litigation. The court in judicial review proceedings is not usually concerned with making findings of fact. The court is performing a supervisory role. Facts will often be agreed or will appear in documentary form. Furthermore, defendants are under a duty of candour to explain in their evidence to the court the relevant facts and reasoning underlying the decision under challenge. It will usually be the legal consequences attaching to those facts which will be in issue. Disclosure is therefore likely in practice to be ordered in far fewer cases and will be more circumscribed in its extent that would be the case in judicial review proceedings.”

17.  As is clearly apparent, critical to the judicial review jurisdiction is the cooperation and candour of public authorities.  The duty of candour imposes an obligation on a public authority to make candid disclosure to the court of its decision making process, laying before it the relevant facts and reasoning for the decision challenged.[9]  As noted by Laws LJ in R (Quark) v Secretary of State for Foreign and Commonwealth Affairs,[10] it is a “very high duty on the public authority defendants, not least central government, to assist the court with full and accurate explanations of all the facts relevant to the issues that the court must decide”. 

18.  As explained by Lord Bingham of Cornhill in Tweed v Parades Commission for Northern Ireland,[11] an order for disclosure is not automatic, and the test is whether, in a given case, disclosure appears to be necessary in order to resolve the matter fairly and justly.[12]

19.  The duty of candour in the context of judicial review was comprehensively addressed by Ma CJHC (as the Chief Justice then was) in Chu Woan Chyi & Ors v Director of Immigration where he summarised the relevant principles.[13] 

20.  Of particular relevance to the present application, Ma CJHC stressed that the duty of candour was a duty placed on the decision maker to be full and frank to both the court and the applicant in disclosing all relevant facts and documents.  He explained that the obligation to be full and frank in the discharge of the duty was not an open ended or imprecise concept and a court would be astute to prevent a “fishing expedition” by the applicant in the hope of unearthing material to mount a further attack on the decision under challenge.  He further explained that whether in a given case the duty had been discharged will depend on the issue or issues to be resolved by the court.  In line with authority, he acknowledged that there was no automatic discovery in judicial review proceedings and if required would be dealt with by way of a separate application.  He explained that once the critical issue was identified in judicial review proceedings and where the resolution of the issue required that the court be provided with adequate material (material by way of discovery or otherwise), the court would in principle be more inclined to make the necessary orders.  This would turn on a question of whether the order was necessary to enable the court to “fully and fairly” deal with the issue or issues before it.

21.  It is principally on the basis of the duty of candour that the applicants seek the order of disclosure.  As noted by the relevant authorities, the duty involves providing the court and the applicant with all materials and information showing the process of reasoning through which a decision or policy was arrived at, including any materials or information that tend to show the decision to be unlawful.[14]

22.  The applicants argue that where material has been withheld from the court and the applicant that is relevant and necessary to resolve the matter fairly and justly, discovery should be ordered.

23.  With the foregoing relevant principles in mind, it is necessary to examine each of the four categories of documents. 

The opposition to the application

24.  The SFC opposes the application essentially on the basis that the applicants are not entitled to the documents according to law, and are unable to prove the relevance of the documents to the present proceedings.

25.  The SFC contends that the documents sought by the applicants are not documents referred to in the pleadings, affidavits, or witness statements.  Two of the documents were referred to in exhibits but they say that they do not fall within the ambit of the power of discovery under the Order.  They stress by virtue of Order 24 rule 13, it is incumbent on the applicants to demonstrate to the Court’s satisfaction that the production sought is necessary for disposing fairly of the cause or matter or for saving costs, and that the applicants have failed to do so. 

26.  The SFC further contends that because of the nature of judicial review proceedings, the Court is only concerned with the legality of the decision impugned, and does not perform a merits review.  Accordingly, they argue that the practice as regards discovery in judicial review proceedings is more restricted than discovery in ordinary private law litigation. 

Request 1: the telephone conversation

27.  Request 1 refers to an audio or documentary record of a telephone conversation between the SFC and the SESC on 4 December 2014. 

28.  According to the applicants, the significance of the telephone conversation is that it takes place a day before the SESC made its public announcement that it had recommended that an Administrative Monitoring Penalty Order be issued in regard to market manipulation by the 1^st applicant and that the SESC in the public announcement expressed its gratitude for the cooperation of the SFC on the matter.

29.  The applicants contend that the telephone conversation goes to the issue as to whether the SFC transmitted the compelled material from the applicants without adequate controls concerning secrecy and use in criminal proceedings, contrary to the statutory requirements under the SFO.

30.  The applicants point to the SFC’s evidence that the SESC and FSA had confirmed in writing that they would not disclose information and documents received from the SFC in relation to the investigation, and that they had undertaken that any dissemination of information and documents would not take place without the SFC’s prior consent.  The applicants argue that on the SFC’s evidence, the Japanese regulators appeared to have acted unilaterally, and in breach of undertakings they had given, in making the 5 December 2014 public announcement.

31.  The applicants submit that the contents of the telephone conversation are crucial to the question whether the Japanese regulators sought permission from the SFC in advance to make the disclosure of 5 December 2014, or otherwise informed the SFC about it in advance.

32.  The applicants complain that the contents of the telephone conversation were not disclosed by the SFC in its affirmation in opposition to the substantive judicial review even though it was relevant to the grounds of the judicial review. 

33.  As I have already noted, the SFC’s affirmation was filed by Mr Chan, the Director of Enforcement Division of the SFC, on 7 July 2016.  The solicitors for the applicants in a letter dated 23 August 2016 raised questions in relation to certain matters in the SFC’s affirmation.  The solicitors requested:

“Please let us know whether the Commission has been consulted or informed by the FSA or SESC before the publication of the SESC announcement on 5 December 2014. If the Commission was so consulted, please let us know whether the Commission had given express consent to the FSA or SESC that the SESC announcement could be published. Please also let us have copies of the relevant documents and correspondence.”

34.  The SFC in its reply letter dated 9 September 2016 stated that the SFC was not involved in the recommendation, nor would it be involved in making a final decision as this is entirely a matter for the Japanese authorities under Japanese law; and for the avoidance of doubt, the FSA and/or the SESC did not consult the SFC before the SESC announcement was issued on 5 December 2014, and that the SESC merely informed the SFC by way of telephone on 4 December 2014 that they would issue an announcement on 5 December 2014.  They concluded that in light of what had been stated the position could not been clearer, and makes the point that the applicants have not explained what if any issue arises from the mere fact that the SFC had been informed of the proposed announcement by the SESC. 

35.  The applicants take issue with the SFC’s reply and note that Mr Chan did not say whether or not he has personal knowledge of the contents of the telephone conversation on 4 December 2014, and that no foundation had been established for him to assert that the contents of the call involved the SFC being “merely informed of” the intended disclosure. 

36.  I agree that the nature and ambit of the communication between the SFC and the Japanese regulators on 4 December 2014 is a matter that warrants further disclosure.  I direct that the SFC provide information or any relevant material in relation to the contents of the conversation of 4 December 2014 in respect of the public announcement by the Japanese regulators on the following day.  

Requests 2 and 3: the previous correspondence and 26 September email

37.  Requests 2 and 3 can be considered together.  As noted by the applicants, central to the applicants’ case is the arrangement that was in place between the SFC and the Japanese regulators in relation to the provision and use of material supplied by the SFC to the Japanese regulators.   

38.  In an email dated 9 July 2014, the SFC informed the Japanese regulators that it would handle their request for information set out in their letter of request dated 4 July 2014 and the Japanese regulators were asked to alert the SFC before they took any administrative action against the 1^st applicant in Japan.  In the second paragraph of the email the SFC stated:

“As you may know, [the 1^st applicant] and [2^nd applicant] are SFC-licensees. You may also note from our previous correspondence with Mr Hida that the SFC has an on-going investigation against [the 1^st applicant] on the same matter as well.”

39.  Mr Chan in his 2^nd affirmation confirmed that the SFC did not transmit or share any materials or information obtained from the applicants to the Japanese regulators under the cover of the previous correspondence.  He explained that the previous correspondence has no bearing on any of the issues in these proceedings and are not necessary for fairly disposing of the cause or matter or for saving costs. 

40.  The SFC submits that the applicants are not entitled to seek disclosure merely for the purpose of verifying whether they have been candid when there is no basis to suggest otherwise.  As a matter of principle, that is correct.[15] 

41.  The SFC further submits that the applicants are speculating that every single piece of correspondence between the SFC and the Japanese regulators may concern the transmission of information provided by the applicants in the SFC’s investigation to the Japanese regulators.  The SFC, correctly in my view, points out that there is no basis for such speculation. 

42.  The SFC notes that there could be no factual basis as to the steps taken by the SFC to ensure that the Japanese regulators would not use the information provided from the SFC in any intended criminal proceedings and that secrecy would be observed as fully set out in Mr Chan’s 1^st affirmation in opposition to the judicial review.  They make the point that whether such measures were adequate could be argued based on the existing materials before the Court without the need for any further discovery.  It seems to me from these comments that the SFC is arguing that there is no need for further discovery as the issue can be properly addressed on the existing materials before the Court.  However, whether there are adequate materials before the Court in order to resolve the issue will be fact and case specific and depend on whether there is a “full and fair” picture of the matter without any obvious gaps.[16] 

43.  The SFC had provided information and documents obtained from the applicants to the Japanese regulators on three separate occasions, namely 3 September 2014, 22 October 2014 and 26 March 2015 respectively. 

44.  When the SFC provided the second batch of information and documents to the Japanese regulators, in its letter dated 22 October 2014, the following introductory remarks were made:

“I refer to your email of 26 September 2014 in which you requested further information from [the 1^st applicant] subsequent to their reply dated 27 August 2014 (“the Email”).”

45.  The letter went on to set out the information and documents that were passed to the Japanese regulators.  It is submitted by the SFC that the email had nothing to do with the sharing or transmission of the purported compelled materials between the SFC and the Japanese regulators.  This was confirmed by Mr Chan in his 2^nd affirmation.

46.  As pointed out by the SFC, the 26 September 2014 email from the Japanese regulators was a request by them for further information, and is therefore not relevant to any issue in the proceedings and is not necessary for the fair disposal of the case.  I agree.

47.  I refuse Requests 2 and 3.

Request 4: the meetings

48.  Request 4 concerns meetings which took place between the SFC and the Japanese regulators concerning the investigation on 7 October and 5 November 2015. 

49.  The SFC in response to a query from the applicants as to any meetings that had taken place between the SFC and the Japanese regulators, informed them that there were such meetings on the dates in question during which there were discussions about the respective investigation plans and operational strategies relating to the case of the regulators. 

50.  The applicants point out that the meetings took place some weeks before the compelled interviews, and subsequent to the public announcement by the Japanese regulators.  The applicants express incredulity that there would have been no discussion about the transmission of materials from the SFC to the Japanese regulators, and the expectations concerning the use and disclosure.  The SFC in response has stated in its affirmation evidence that it had not provided any information or documents obtained from the applicants to the Japanese regulators during these meetings and are therefore not relevant to any of the issues in the present proceedings because no materials were disclosed at the meetings which were concerned.  It would be expected that regulators with a common interest in a matter under investigation in their respective jurisdictions would meet and discuss operational issues and strategies.  There is no reason to doubt the nature and subject of these meetings as explained by the SFC.  The critical issue is whether there is any relevant information or material arising from these meetings that address any of the issues in the present proceedings.  The SFC under its duty of candour has indicated that there is no such information or material which I accept. 

51.  I refuse Request 4.

Conclusion

52.  In light of the foregoing, I allow Request 1 and refuse Requests 2, 3 and 4.  I make an order nisi that costs be in the cause.