NOMURA INTERNATIONAL (HONG KONG) LTD AND OTHERS v. SECURITIES AND FUTURES COMMISSION

FAMV No. 14 of 1998

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 14 OF 1998 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM CACV No. 34 OF 1998)

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D E T E R M I N A T I O N

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Mr Justice Litton, PJ:

Introduction

1. The background facts leading to this application for leave to appeal can be briefly stated. They go back some 2 1/2 years, to 29 March 1996 when there were unusual transactions effected by Nomura International (Hong Kong) Limited in the Australian share and futures markets. The suspicion of the regulatory authorities in Sydney, London and Hong Kong was that Nomura (in its various corporate guises) was effecting false and misleading transactions and thus manipulating the markets. The positions taken in those markets were in the name of Nomura UK, but the trades on 29 March 1996 were done through the agency of Nomura Hong Kong.

2. In Australia, the investigations by the Australian Securities Commission led to a civil action being instituted by the Commission on 25 February 1997 against Nomura UK in the Federal Court (Action No. N63045 of 1997). The action was taken under various sections of the Corporations Law. The allegations against Nomura UK were, in essence, that the impeached transactions were false and misleading, in contravention of statute. There were pleadings and discovery in that action and, at the end of November 1997, the case was listed for a directions hearing before the designated trial judge. In Hong Kong, investigations by the Securities and Futures Commission (SFC) led eventually to a letter dated 23 October 1997, written by solicitors on its behalf, in which the SFC indicated its intention to take disciplinary action under the Securities Ordinance cap 333 and the Commodities Trading Ordinance cap 250 against Nomura HK and three other registered persons, officers of Nomura HK. Two of these persons were traders: It was through them that the impeached transactions in Sydney were effected. I shall refer to Nomura Hong Kong and the three officers as the applicants. None of them are parties to the Australian proceedings. Under the two Ordinances the SFC has power, after inquiry, to revoke or suspend the registration of registered persons, or to reprimand such persons, on various grounds set out in the relevant sections, including misconduct. In the letter of 23 October 1997 the applicants were given 30 days to submit answers to matters of concern to the SFC: These matters had previously been set out in what are called "letters of mindedness" addressed to the applicants.

3. The applicants' response to the SFC's letter of 23 October 1997 was to apply for judicial review under Order 53 of the Rules of the High Court. This led to an inter partes hearing lasting 3 days: The judge (Stone J) found for the applicants: His order of 22 December 1997 reads:

"That there be an Order of prohibition whereby the [SFC] is prevented as regards the 1st, 3rd, 4th and 5th Applicants under section 56(2) of the Securities Ordinance, Cap. 333 or as regards the 3rd, 4th and 5th Applicants under section 36(2) of the Commodities Trading Ordinance, Cap. 250 from requesting responses to the respective 'Letters of Mindedness' prior to 31st May 1998."

4. The intended effect of this order was that the SFC should not proceed further with the disciplinary proceedings until after 30 May 1998.

The Judge's Order

5. That order, in the circumstances of this case, was an unusual one for the judge to make. The SFC was, in discharge of its statutory functions and duties, inquiring into suspicions of misconduct in financial markets by registered persons. The issue, in essence, was whether Nomura Hong Kong and the three individual applicants were "fit and proper persons" to be registered under the two Hong Kong statutes: From beginning to end there was no suggestion that the SFC lacked proper grounds for inquiry. Indeed, in answer to the 'letters of mindedness' the solicitors for the applicants had said: "We should emphasize ... that Nomura Hong Kong and [the 3rd and 4th applicants] are not questioning the SFC's legitimate regulatory interest in the trading aspects of this matter". It was never suggested that the SFC had acted beyond its jurisdiction or behaved unlawfully in any way. What then was the basis for the judge's order? It is not easy to find it in Stone J's elaborate judgment. At one point (p18) he said:

"The fundamental thrust of the prejudice debate, and indeed the core of [the applicants'] argument, lies in the difficulties endemic in the multiplicity of proceedings concerned with the same, or largely similar, subject matter."

6. What the judge did was not to stay the disciplinary proceedings altogether: He merely prohibited the SFC from requiring a response to the "letters of mindedness" from the applicants, under the relevant sections of the two statutes, until after 30 May 1998. Mr Thomas SC, counsel for the applicants, had sought a stay until the conclusion of the Australian action: The judge rejected this and merely gave to the applicants what he called a "breathing space".

The Court of Appeal

7. The Court of Appeal did not agree with this approach, and by its judgment of 7 May 1998, discharged the judge's order. Without attempting to summarize the three judgments in the Court of Appeal, which covers 63 pages, it would be fair to say that all three Justices of Appeal came to the conclusion that the grounds for a temporary stay of the SFC inquiry were far too nebulous; moreover, the judge had failed to give due weight to the SFC's statutory responsibilities in encouraging proper conduct among registered persons, suppressing dishonorable and improper practices and promoting integrity amongst registered persons (see section 4(1) of the Securities and Futures Ordinance). Hence, the judge's prohibition order was discharged.

8. The point taken on behalf of the applicants, as understood by the Court of Appeal, was formulated in this way: There was a real danger that the continuation of the proceedings in Hong Kong would lead to serious injustice. As Mr Thomas SC has explained in the hearing before us, this focussed upon the timing of the proceedings, not the fact that they were instituted by the SFC. Not surprisingly the Court of Appeal had difficulty in grasping this concept. The effect of the judge's order was simply to delay the disciplinary proceedings. But was not the pace of those proceedings uniquely for the body charged with the responsibility of those proceedings to decide? And was there not a public interest in the inquiry being concluded speedily? The judge seems to have founded his decision on "injustice". Injustice to whom? In Australia, Nomura UK had submitted to the jurisdiction of the Australian courts. There was no suggestion that the High Court in Hong Kong should intervene to prevent injustice to Nomura UK in Australia: The only parties who could have qualified for protection from injustice were the parties in Hong Kong. How, one might ask, was injustice to be prevented by a temporary stay?

9. Here, the inherent weakness of the applicants' case is revealed. It was never their case that the inquiry initiated by the SFC was unlawful. Sooner or later it had to reach a conclusion. That is common ground. In fact the inquiry was at a very early stage when the judge intervened. Assuming that the SFC was not satisfied with the applicants' explanations in response to its letter of 23 October 1997 (and there was in fact no material before the judge to found such an assumption) and disciplinary powers were exercised against the applicants, that is not the end of the road: They have a statutory right of appeal to a tribunal appointed under s20 of the Securities and Futures Commission Ordinance, cap 24. What then was the justification for the judge to intervene at the stage he did? The applicants had never indicated that the 30 days given to them to deal with the matters in the "letters of mindedness" were too short; so any idea that the SFC was acting oppressively in some way immediately goes out of the window. The applicants had never undertaken that they would regard themselves bound by the findings of the Australian court; so any suggestion that time and expense would necessarily be saved if the SFC stayed its hand becomes untenable. Moreover, the Australian action was not directly concerned with the question whether the applicants were "fit and proper persons" to be registered in Hong Kong; a finding exonerating Nomura UK did not necessarily mean that the Hong Kong inquiry must end. So where is the "injustice" which lies at the heart of the applicants' case?

Practical considerations

10. When the matter was before Stone J he was told that the Australian action was listed for hearing on 27 July 1998. We are now told that the hearing has taken place and judgment is awaited. The likelihood is that the Australian judgment will be given long before the Court of Final Appeal can sit to hear the appeal, if we should grant leave. And, in the meanwhile, what is the SFC to do? If it should proceed with the inquiry (no order of the court prohibits this) the appeal will be largely academic; if it continues to stay its hand, the applicants would have achieved by the appellate process what it has failed to attain by the court's determination.

Conclusion

11. In our view the application is wholly without merit and must be dismissed, with costs.