CHENG KAI MAN WILLIAM v. THE PANEL ON TAKEOVERS AND MERGERS and Another

IN THE COURT OF APPEAL

1994, No. 16 & 61
(Civil)

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J U D G M E N T

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Penlington, J.A.:

1. This is an appeal from a judgment of Liu J dated 17th February 1994 in which he refused an application by Mr. William Cheng Kai-man ("the applicant") for an order of certiorari to remove into the High Court and to quash decisions of the Panel on Takeovers and Mergers ("the Panel") dated 22nd October 1993 and 9th December 1993, revised sanctions imposed on 11th December 1993, "remedies" of 21st December 1993 and a letter of intention to publish dated 14th January 1994. Leave to apply for such review had been granted by Kaplan J on 31st January 1994, limited to the question of bias. He had refused leave on other grounds argued; lack of jurisdiction and that there had been procedural irregularity.

Background

2. By a letter dated 17th October 1991 from the Securities and Futures Commission ("the SFC"), the applicant was informed that a complaint had been received regarding alleged breaches of the "Takeover Code" in respect of the sale of shares in a company called Shun Ho Resources Holdings Ltd ("Shun Ho"). The letter stated that there would be a hearing to inquire into the complaint on 9th December 1991 and the applicant was invited to make submissions relative to the complaint; meanwhile the SFC would make further inquiries.

3. The complaint in the letter of 17th October was from Messrs Iu, Lai and Li, solicitors acting for General Nominees Ltd, a subsidiary of the Chuang Group of Companies, in regard to the purchase by Royle Corporation ("Royle"), a company controlled by the applicant, of shares in Shun Ho. However in addition to the formal complaint by Iu, Lai and Li, Mr. Stephen Clark, a long-serving member of the SFC, had also, by a letter of 9th April 1991 to the Chairman of the SFC, Mr. Ermanno Pascutto, drawn Mr. Pascutto's attention to a Press announcement made on 8th April saying that Royle had acquired 100,000 shares in Shun Ho at c40 a share, thus increasing its shareholding in Shun Ho to 35.2%. It made a general offer accordingly to all other shareholders at that price.

4. That letter is of very considerable importance to this appeal and it reads as follows:

"9th April, 1991	BY FAX
Mr Ermanno Pascutto The Securities and Futures Commission 38th Floor, 2 Exchange Square 8 Connaught Place Central Hong Kong

Dear Ermanno,

I am writing to you in my assumed capacity as the keeper of the conscience of the Chairman of the Takeovers Committee. In the newspaper, Royle Corporation Limited announced that it had purchased 100,000 shares in Shun Ho Resources at 40c per share, thereby triggering a takeover offer. Since the shares in Shun Ho Resources have, with the exception of one day in January, traded consistently above 40c per share over the last six months (see attached chart), the seller must have been particularly well disposed to Royle Corporation to have sold share at below the market price.. Has any enquiry been made as to the identity of the party who sold these shares, as it has the looks of a concert party action.

If you look back at the press clippings, you will find that William Cheng purchased marginally less than 35% of Standard Lloyds (now Shun Ho Resources) and the Soon family's shareholding dropped from about 65% to nil, the balance of the Soon family's holding apparently being placed. It is quite conceivable that William Cheng knew the identity of the placees as it is entirely illogical for him to have controlled a listed pyramid on such a small shareholding base.

Best regards,

Yours sincerely,
(sd)
Stephen Clark
SEC/dy
Encl."

5. It was the case for the applicant before Liu J and here that the letter from Mr. Clark put him in the position of an accuser and that he had already formed an opinion as to the culpability of the applicant. As a result he should have taken no part in any subsequent hearings to investigate the allegations he had made.

6. On 19th November Iu, Lai and Li wrote to the SFC advising that their client no longer wished to pursue its complaint but nevertheless on 3rd December the SFC advised the applicant that it would still proceed with the hearing which in fact took place on 11th and 12th December before what was then the Committee on Takeovers and Mergers ("the Committee"). The applicant was advised that in addition to the complaint from General Nominees Ltd concerns had been raised by "a committee member" as to why the applicant should acquire a small number of shares which had the effect of triggering a mandatory general offer. Mr. Clark was a committee member at the time but was not then named as the one who had written the letter.

7. On 27th November the applicant's solicitors wrote to the SFC requesting that a Mr. Francis Leung should not sit as a member of the Committee as he had a close business relationship with Mr. Alan Chuang, who had initiated the complaint from Iu, Lai and Li. This was agreed to on 3rd December.

8. After the committee hearing on 11th and 12th December 1991 further investigations were made by the staff of the SFC and on 23rd November 1992 a further report of the SFC committee was sent to the applicant. In the meanwhile, moreover, on 1st April 1992, a new Code on Takeovers and Mergers was promulgated and from that date the former Committee of the SFC was called a Panel.

9. The applicant made submissions to the SFC based on the November 1992 report and on 3rd February 1993 a further paper was sent to which he was again invited to reply. Eventually however the SFC decided that a Panel should be appointed to consider, inter alia, the question of whether the acquisition of the 100,000 Shun On shares in April 1991 at $0.40 a share was genuine. By a letter dated 23rd August the SFC advised the applicant's solicitors that, while the membership of the Panel was yet to be finalised, one member would be Mr. Clark, Managing Director and founder of a company called Anglo-Chinese Corporate Finance Ltd ("Anglo-Chinese"). The letter reads as follows:

"	Private & Confidential BY FAX (5252886) & BY POST
Carey & Lui 25th Floor Nine Queen's Road Central, Hong Kong

Dear Sirs,

Re: Panel Proceedings in relation to Shun Ho Resources Holdings Limited ('Shun Ho Resources')

I advised in my letter of 14 August 1993 that the membership of the Panel for purposes of the proceedings in relation to Shun Ho Resources (the "Proceedings") is yet to be finalised. The Chairman of the Takeovers and Mergers Panel has since been advised by Mr Stephen Clark of Anglo-Chinese Corporate Finance Limited ("Anglo Chinese"), an intended member of the Panel for the Proceedings, that Shun Ho Resources is now a client of Anglo Chinese as a result of the acceptance by Anglo Chinese of a non-exclusive mandate in respect of the possible sale of Shun Ho Resources. Mr Clark has also confirmed to the Chairman that he was not involved in the securing of the engagement and will not work in relation to it.

The Chairman, having regard to the fact that the Proceedings relate to historical matters concerning Shun Ho Resources, is of the view that the present engagement of Anglo Chinese by Shun Ho Resources does not amount to a conflict of interest which disqualifies Mr Clark under the Guidelines on Conflicts of Interest for members of the Panel and so Mr Clark can sit on the Panel for the purposes of the Proceedings. Should Mr William Cheng wish to raise any objection, please let me know with reasons in writing before 4 p.m. on 25 August 1993.

Yours faithfully,

Pinky Tse
Acting Secretary
Takeovers and Mergers Panel"

10. There was a strong reaction to that letter. The applicant wrote to the SFC as follows:

"	24th August 1993

BY HAND

STRICTLY PRIVATE AND CONFIDENTIAL

Securities & Futures Commission
12th Floor, Edinburgh Tower
The Landmark
15 Queen's Road Central
Hong Kong

Dear Sirs,

Re: Panel Proceedings in relation to Shun Ho Resources Holdings Limited

Thank you for your letter of yesterday's date. We have considered the position with Mr. Cheng and are writing on his behalf to object, in the strongest possible terms, to the inclusion of Mr. Stephen Clark of Anglo- Chinese Corporate Finance Limited ("Anglo-Chinese") as a member of the Panel in these proceedings.

We do not know whether you have been given a copy of the Agreement made between our client and Anglo-Chinese ("the Agreement") which was entered into last month. However, it goes without saying that our client's intentions, as evidenced by the Agreement, are highly confidential and it is a matter of extreme concern to our client that Mr. Clark has seen fit to disclose to you the existence and nature of the Agreement and its goes without saying that we are considering our client's position with regard to this disclosure.

We have to say that we simply fail to comprehend how it can be contemplated that Anglo-Chinese could properly perform their obligations under the Agreement with our client whilst, at the same time, being, through Mr. Clark, fully cognisant of our client's position in relation to the present proceedings and, indeed, apparently the initiator of those proceedings. This is a clear conflict of interest and it is in our view, wholly irrelevant whether or not Mr. Clark is, or is not, involved in the work to be done by Anglo- Chinese for our client. The conflict that exists is a conflict of Anglo-Chinese and not of any one individual.

Neither our client nor we were aware of the letter from Mr. Stephen Clark to Mr. Ermanno Pascutto dated 9th April 1991 which you have now disclosed for the first time as Document 77. In that letter Mr. Clark took it upon himself to question a transaction in which our client was involved. We consider that the existence of this letter should have been disclosed at the outset. We have previously drawn attention to the invidious position of the Committee in its role as acting both as prosecutor and as judge and our concern in this regard is only heightened by our knowledge now that it was a member of the Committee that first made complaint to you concerning our client. It is of paramount importance, in our submission, that the Committee to be appointed is seen by all parties to be fair and wholly impartial.

Yours faithfully,"

The agreement referred to reads as follows:

"27th July, 1993

Royle Corporation Limited
3rd Floor Shun Ho Tower
24-30 Ice House Street
Central
Hong Kong

Attention:

Mr William Cheng

Dear Sirs,

We set out below the basis on which Anglo Chinese Corporate Finance, Limited ("Anglo Chinese") will act for you in connection with the disposal by you or persons associated with you of an interest(s) in a company, a partnership or a business, or of assets of any of them, in this letter individual and collectively called "property".

In particular we will use our reasonable endeavours:

-	to identify potential purchaser(s) of the property;
-	to approach on your behalf potential purchaser(s); and,
-	to assist with regard to the negotiation of the commercial terms for the sale and purchase of the property, including, if necessary, acting as a mediator between you and the purchaser(s).

Fees

In the case only of any disposal of any interest in Shun Ho Resources Holdings Limited our fees is subject to a minimum of US$200,000 and to a flat fee of 2% of the consideration paid instead of the graduated fees set out above which shall apply in all other cases and in the case only of any disposal of any interest in Shun Ho Resources Holdings Limited our fees will also include an additional, incentive fee equivalent to 20% of the consideration paid in excess of US$12 million.

........

Details of purchases/property

We will provide you with whatever information we may be able to procure in relation to the potential purchaser(s) for the purpose of the proposed transaction which we consider appropriate under the terms of our appointment. We will provide a potential purchaser with whatever information we consider appropriate in relation to the property, if necessary, including an information memorandum in connection with the property. We will obtain a confidentiality undertaking, if appropriate, from potential purchaser(s) and will obtain your approval in relation to the identity of a purchaser prior to releasing any such information to any such purchaser. .....

Please indicate your agreement of the above by signing and returning the endorsed copy of this letter.

Yours faithfully,
For and on behalf of
Anglo Chinese Corporate Finance, Limited

(sd)
Christopher Howe
Director"

11. That letter was replied to on 8th September by the Secretary of the SFC. He said that the Chairman had considered the objection but had decided that Mr. Clark should sit as a member of the Panel. the Chairman said that he considered that Mr. Clark had simply brought the matter to his attention, as members of the SFC's Panel are encouraged to do. As regards the agreement between the applicant and Anglo-Chinese, Mr. Clark was under a duty to not disclose confidential information and the applicant must have been aware that as a member of the 1991 Committee which sat in December of that year he would be very likely to be a member of the Panel at the resumed hearing and yet he had still entered into the agreement with Anglo-Chinese. Any conflict which might exist was as a consequence of the applicant's own actions. Mr. Clark was, in any event, not personally involved in the agreement entered into between the applicant and Anglo-Chinese.

12. At the hearing before the Panel on 4th October 1993 the objection to Mr. Clark was repeated by the applicant's solicitor in his opening written submissions, made at the invitation of the Chairman, Mr. Christopher de Boer. He drew attention to the fact that of the eight members of the Committee which sat and heard evidence in December 1991 only three were now members of the Panel. He considered this was very much to the disadvantage of the applicant as the five new members would not have heard the evidence Mr. Chuang had given then, which he submitted was most unsatisfactory, and Mr. Chuang was now not available to give further evidence. He went on:

"It is trite to state that justice must not only be done but must be seen to be done. It is clear, however, that a situation in which a member of the public (albeit a member of the Takeovers Committee) has drawn the attention of the SFC to what appeared to him to be a possible breach of the Code and that individual is then on the Panel to adjudicate on the issues conveys the impression that the enquiry and the adjudication process is unfair. In our submission Mr. Clark's presence as a member of the Panel is not necessary and on behalf of Mr. Cheng we repeat our request that Mr. Clark withdraw from the Committee."

13. In his oral remarks he said that while he did not now consider he would wish to cross-examine Mr. Clark, he did wish it to remain on the record that he "formally reiterated" his client's position as set out in the correspondence and it would be better if Mr. Clark was not a member of the Panel. The hearing however continued with Mr. Clark as a member.

14. The decision of the Panel was sent to the applicant on 9th December 1993 and he was asked to comment on the factual accuracy of the decision before its public release on the 17th of December. The decision is that the Panel found that the applicant, Royle and a Mrs. Geraldine Wong had acted in concert in acquiring more than 35% of Shun Ho shares in November 1988 and a general offer to all other shareholders at a price of $1.21 a share, the highest price paid by the applicant within the previous six months, should have been made. The Panel said it intended to censure the applicant; it was considering ways in which the position could be remedied and generally what further action should be taken.

15. The applicant was asked to make representations in the light of that finding and a meeting was held at which it was suggested by the SFC that the other 1988 shareholders should be compensated in a total amount of $39-46 million. There was also to be a "cold-shoulder" order which it was expected would severely limit the applicant's future financial and business activities if he did not comply with the SFC's requirement on compensation. It would probably prevent him buying or selling securities on the Hong Kong Stock Exchange or being a director of any company which applied for a listing.

16. There was then an exchange of letters between the applicant's solicitors and those then instructed for the SFC regarding a review of the Panel's decision but they were fruitless. These proceedings were then launched.

Allegation of Bias

17. It was emphasized to us by Mr. Michael Thomas Q.C., leading counsel for the applicant, that there was no allegation that Mr. Clark, a prominent and respected figure in the financial community of Hong Kong, was in fact biased against the applicant at the hearings. But, he contended, that is irrelevant. The test is, as laid down now very clearly in R. v. Gough [1993] 2 WLR 883, was there a real risk of injustice having been done as a result of bias. As Lord Goff said at p. 896, having referred to the dicta of Lord Campbell in Dimes v. Proprietors of Grand Junction Canal (1852 3 H.L. Cas. 759:

"In such a case, therefore, not only is it irrelevant that there was in fact no bias on the part of the tribunal, but there is no question of investigating, from an objective point of view, whether there was any real likelihood of bias, or any reasonable suspicion of bias, on the facts of the particular case."

He had earlier at p. 894 set out what he considered the position to be as follows:

"A layman might well wonder why the function of a court in cases such as these should not simply be to conduct an inquiry into the question whether the tribunal was in fact biased. After all it is alleged that, for example, a justice or a juryman was biased, i.e. that he was motivated by a desire unfairly to favour one side or to disfavour the other. Why does the court not simply decide whether that was in fact the case? The answer, as always, is that it is more complicated than that. First of all, there are difficulties about exploring the actual state of mind of a justice or juryman. In the case of both, such an inquiry has been thought to be undesirable; and in the case of the juryman in particular, there has long been an inhibition against, so to speak, entering the jury room and finding out what any particular juryman actually thought at the time of decision. But there is also the simple fact that bias is such as insidious thing that, even though a person may in good faith believe that he was acting impartially, his mind may unconsciously be affected by bias - a point stressed by Devlin L.J. in Reg. v. Barnsley Licensing Justices, Ex parte Barnsley and District Licensed Victuallers' Association [1960] 2 Q.B. 167, 187. In any event, there is an overriding public interest that there should be confidence in the integrity of the administration of justice, which is always associated with the statement of Lord Hewart C.J. in Rex. v. Sussex Justices, Ex parte McCarthy [1924] 1 K.B. 256, 259, that it is 'of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done." I shall return to that case in a moment, for one of my tasks is to place the actual decision in that case in its proper context. At all events, the approach of the law has been (save on the very rare occasion where actual bias is proved) to look at the relevant circumstances and to consider whether there is such a degree of possibility of bias that the decision in question should not be allowed to stand."

18. Here there were two grounds on which the applicant relied as showing a real danger of bias. The first, and, in my view, the more substantial, was that Mr. Clark had not only drawn the attention of the Chairman of the SFC to the possibility that the 1988 dealings were suspect and the recent purchase of 100,000 shares were at less than market price.

He seems to have come to a conclusion about them. He says in relation to the recent purchase "the seller must have been particularly well disposed to Royle Corporation to have sold shares at below the market price." He goes on "it has the looks of a concert party." It is contended for the applicant that the whole tone of the letter is not just informative but is accusatorial and, as such accuser Mr. Clark should have played no part in the hearings.

19. The second ground is that Mr. Clark had a pecuniary interest, albeit contingent, in the matter to be decided in that if the applicant was forced by the Panel decision to sell his interest in Shun Ho, Anglo-Chinese may well have acted for him and would make a profit on such sale. Even though Anglo-Chinese was acting though another director, Mr. Clark was a substantial shareholder. Moreover, Anglo-Chinese had highly confidential information from the applicant as to what his own valuation of Royle's interest in Shun Ho was. That would be relevant to a consideration of whether the general offer he had made through Royle of $0.40 a share was genuine.

20. Lord Goff in Gough has reviewed extensively all the authorities relating to bias, beginning with R. v. Rand (1866) L.R. 1 Q.B. 230 and including the classic dicta of Lord Hewart in R. v. Sussex Justices, Ex parte McCarthy [1924] 1 KB 256, in considering the actions of the justices' clerk in retiring with the justices when they were considering their verdict, he being the solicitor for a party involved in civil proceedings arising from the same traffic accident. Was he unfit to be the justices' clerk? Lord Hewart said at p.663:

"The answer to that question depends not on what actually was done but upon what might appear to be done. Nothing is to be done which creates even a suspicion that there has been an improper interference with the course of justice."

21. Liu J was of the view that Mr. Clark's letter simply drew the attention of the Chairman to what looked like a concert party action. He did not purport to decide that it was. However, Liu J goes on to say that any residual doubt as to the possibility that Mr. Clark had come to that conclusion "has been removed by the affidavit evidence of Mr. Clark that he made no pre-determination and had at no stage been less than wholly impartial". With respect, the authorities I have just referred to make it clear that Mr. Clark's evidence of impartiality, even though unchallenged, is irrelevant. Lord Goff referred with approval to the decision in R. v. Barnsley Licensing Justices [1960] 2 QB 161 and what Lord Devlin said at 186-187:

"Here is an application by the co-operative society and there is sitting to decide it a bench which is wholly composed of members of the society and one woman whose husband was a member of the society, presided over by a chairman who had interested himself actively in the conduct of the affairs of the society or was desirous of doing so. Is there, in those circumstances, a real likelihood of bias? I am not quite sure what test Salmon J. applied. If he applied the test based on the principle that justice must not only be done but manifestly be seen to be done, I think he came to the right conclusion on that test. I cannot imagine anything more unsatisfactory from the public point of view than applications of this sort being dealt with by a bench which was so composed, and, indeed, it is conceded that steps will have to be taken to rectify the position. but, in my judgment, it is not the test. We have not to inquire what impression might be left on the minds of the present applicants or on the minds of the public generally. We have to satisfy ourselves that there was a real likelihood of bias - not merely satisfy ourselves that that was the sort of impression that might reasonably get abroad. The term 'real likelihood of bias' is not used, in my opinion, to import the principle in Rex. v. Sussex Justices to which Salmon J. referred. It is used to show that it is not necessary that actual bias should be proved. It is unnecessary, and, indeed, might be most undesirable, to investigate the state of mind of each individual justice. 'Real likelihood' depends on the impression which the court gets from the circumstances in which the justices were sitting. Do they give rise to a real likelihood that the justices might be biased? The court might come to the conclusion that there was such a likelihood, without impugning the affidavit of a justice that he was not in fact biased. Bias is or may be an unconscious thing and a man may honestly say that he was not actually biased and did not allow his interest to affect his mind, although, nevertheless, he may have allowed it unconsciously to do so. The matter must be determined upon the probabilities to be inferred from the circumstances in which the justices sit."

22. Lord Goff goes on to discuss various later decisions such as Metropolitan Properties Co (F.G.C.) Ltd. v. Lannon [1969] 1 QB 577 and the lack of clear authority as to whether the correct test was a "real likelihood" or a "reasonable suspicion" of bias. He finally concluded that "a real likelihood in the sense of a real possibility" was the proper test (at p.902). At p. 904 he concluded that it was for the court looking at the matter through the eyes of a reasonable man to say whether or not in the light of all the circumstances "there was a real danger of bias on the part of the relevant member of the tribunal in question in the sense that he might unfairly regard (or have unfairly regarded) with favour or disfavour the case of a party to the issue before him".

23. Lord Woolf at p. 906 of Gough repeated the warning as to the insidious nature of bias and at pp. 906, 907 approved the dicta in Camborne Justices [1955] 1 QB at 41, 47 as regards pecuniary interest "any direct pecuniary or proprietary interest in the subject matter of a proceeding, however small, operates as an automatic disqualification. In such a case the law assumes bias."

24. There are only two other decisions that I would refer to, the law now having so well consolidated in Gough. The first is R. v. Gaisford [1892] 1 QB 381. There a member of a parish vestry, Mr. Gaisford, proposed a resolution that a man called Sayer should remove a heap of rubbish from a highway. The resolution was passed but Sayer failed to remove the heap. He was summonsed and the prosecution came before two justices, one of whom was Mr. Gaisford. It was held that Mr. Gaisford, having initiated the prosecution should not have sat as a justice because as Mathew J said at p. 383:

"it is not likely that a magistrate should knowingly be under the influence of an improper bias, although he may be placed in such a position as to be influenced, or to run the risk of being influenced, unconsciously to himself, in his decision. " (my emphasis)

25. Mathew J also held that even though Mr. Gaisford's financial interest in the matter was only that of a ratepayer, that objection had also been made out. A.L. Smith J agreed.

26. Recently the question of bias was considered in R. v. Inner West London Coroner, the Times 16th June 1994. There inquests into the deaths of passengers on the "Marchioness" disaster had been adjourned at the intervention of the DPP. Following the conclusion of criminal proceedings the Coroner refused an application by the mother of one deceased to re-open the inquest and a newspaper article appeared alleging a cover-up. The Coroner had a meeting with journalists when he described the deceased's mother as "unhinged" and seemed to be hostile to her. An order was made that, despite the lapse of time, the inquest should be re-opened and Simon Brown LJ said that "for a judicial officer to say publicly of someone that he was unreliable because unhinged showed without doubt an appearance of bias." In my view it would not matter whether the statement was made publicly or not.

27. On the facts here I am satisfied that, applying the tests set out in Gough and reiterated in R. v. Inner West London Coroner, Mr. Clark should not have sat as a member of either the Committee in 1991 or the Panel in 1993. The whole tone of the letter of 9th April 1991 was accusatorial. Although the complaint from Iu, Lai and Li was the one which sparked the inquiry, when that complaint was withdrawn the Committee decided nevertheless to go on to consider the applicant's actions. This decision must have been influenced by the letter from Mr. Clark, a very well-known figure in Hong Kong financial circles, and a long standing member of the Committee. His reference to himself as "the keeper of the conscience of the Chairman of the Takeover Committee" was without doubt jocular but it does show that he regarded himself, and no doubt was so considered by others, as an important figure in relation to the regulation of takeover bids. At the resumed hearing by the Panel in 1993 he was one of only three who had sat in 1991.

28. I am of the view that a reasonable man, looking at all the facts of this case would say that there was a real risk of Mr. Clark being unconsciously biased when considering the matter, applying the test considered correct by Lord Denning in Lannon, by Simon Brown LJ in Inner West London Coroner and by Lord Goff in Gough.

29. It is perfectly proper for a member of the Panel to bring to the attention of the SFC any matter which he considers calls for investigation but if he goes further than that and appears to be accusing somebody of being in breach of the Code, he should not be a member of the Panel if, subsequent to that communication, an inquiry is held. On the facts here, and in particular the wording of the letter of 9th April 1991, I think Mr. Clark did go beyond merely informing the Chairman and was an accuser.

30. The case for the applicant on the basis that Mr. Clark had a pecuniary interest in the matter is not as strong. The agreement between the applicant and Anglo-Chinese was a non-exclusive mandate. It would only result in fees being payable to Anglo-Chinese if that company was successful in selling the applicant's Shun Ho shares and any other company engaged in corporate finance work, of which there are many in Hong Kong, could have done that. Nevertheless, if the Panel ruled, as it did, that the applicant had to make a general offer at a price more than double the then market price there must have been a distinct possibility that to avoid the "cold shoulder" sanction, and the applicant is a member of a very well-known and respected family in Hong Kong, the shares would have to be sold and Anglo-Chinese might have been involved. It is not relevant in my view that Mr. Clark was not personally involved in the arrangement made between Anglo-Chinese and the applicant. He was a substantial shareholder in Anglo-Chinese and knew of the agreement. I would not have allowed the appeal on the ground of pecuniary interest alone but it does add weight to the objection on the ground of risk of bias. InBostock v. Kay [1989] 153 JP 549 it was held that there could be a pecuniary interest barring a school governor from sitting on a issue even though his pecuniary interest might come to nothing, and was contingent on the happening of other events.

31. There is also some force in the applicant's argument that as Anglo-Chinese was aware of the applicant's own estimate of the value of his Shun Ho shares there was a danger that Mr. Clark might have that confidential information which would be relevant to the question of the genuineness of the $0.40 general offer.

32. This is a matter not without difficulty. Liu J has, as usual, considered all the relevant authorities with great diligence but, not without some hesitation, I would allow the appeal and grant the orders sought.

Godfrey, J.A. :

33. I agree. I think that on the facts of this case (rehearsed in the judgment of Penlington, J.A., which I have had the advantage of reading in draft) there was a real danger here that Mr. Clark might, consciously or unconsciously, have unfairly regarded Mr. Cheng's case with disfavour (compare R. v. Gough [1993] 2 WLR 883, per Lord Goff of Chieveley at p. 904). Mr. Clark says he did not do so and what he says is unchallenged. This is something on which, at any rate to some extent, the judge below relied; but it is not the point. The point is that there was a real danger that he might have done so and for this reason I find myself obliged to disagree with the judge below.

34. It is true that Mr. Clark did not set in motion the proceedings at which he sat as a member of the panel. It was General Nominees Limited (who instructed Iu, Lai and Li, solicitors, to lodge the complaint dated 17 October 1991) who set those proceedings in motion. For my part, I would in these circumstances hesitate to describe Mr. Clark's letter of 9 April 1991 as accusatory (this is a difficult area of the law, as can readily be appreciated on a consideration of the recent case of Martin v. Wilson [1994] QB 425, in which the question was examined in connection with the tort of malicious prosecution). But I do not think it matters whether the letter of 9 April 1991 is or is not treated as an accusation. Mr. Clark's letter left me, on reading it, with the distinct impression that the writer had not only already decided that Mr. Cheng had a case to answer but that it was up to Mr. Cheng to rebut that case. Mr. Cheng and his advisers were therefore amply justified, in my opinion, in considering, when they first saw Mr. Clark's letter, that there was a real danger of bias on the part of Mr. Clark. I am surprised that the Securities and Futures Commission (the "SFC"), when this point was made to them by Mr. Cheng's advisers, failed to see the danger, and chose to reject the request that Mr. Clark stand down. The SFC seems to have asked itself the wrong question, whether there was a probability of actual bias on the part of Mr. Clark, rather than the right question, whether there was a real danger of bias. I would myself have answered the question whether there was a probability of actual bias on the part of Mr. Clark in the negative; but I hope that I would have had the sense, in all the circumstances, not to take a chance on it. The SFC must have appreciated that Mr. Cheng would be almost certain to challenge a decision adverse to him made by a panel of which Mr. Clark was a member. The SFC's decision to risk this, nevertheless, was in my opinion most unfortunate.

35. I would have been in favour of allowing this appeal on that ground alone. But there is a further complaint, also based on the ground of bias, made by Mr. Cheng in relation to Mr. Clark. This is based on the "non-exclusive mandate" given in July 1993 by the company Shun Ho Resources Ltd (dealings in the shares of which were the subject of the proceedings before the panel) to Mr. Clark's company, Anglo-Chinese Corporate Finance Ltd. Mr. Cheng's objection to Mr. Clark's membership of the panel on this ground was based on an alleged conflict of interest arising out of the "non-exclusive mandate", based on the possession, or putative possession, by Mr. Clark of confidential information. I do not think there is much, if anything, in this. But it seems to me (although I understand I am alone in this) that Mr. Clark had a direct pecuniary interest in the outcome of the panel's proceedings. If (as was on the cards and did in fact happen) Mr. Cheng was ordered by the SFC to dispose of his Shun Ho shares, or some of them, Mr. Clark's company, with its "non-exclusive mandate", would not only be in the running to pick up this business; it would have something of a start over other competitors without such any "non-exclusive mandate" in pitching for this business. It may perhaps not be unfair to describe this interest as "remote" or "contingent" or both; but I do not think these terms (which although often used in this connection seem to me to be employed more happily in relation to questions concerning the validity of grants of future interests in real property) really help to resolve the matter. I think that in considering what might happen as a result of the proceedings before the panel, Mr. Clark would have been bound to ask himself, having regard to the "non-exclusive mandate", the obvious question: "How will this affect me financially?" On this footing, I think he had such a pecuniary interest in the outcome as would automatically disqualify him from sitting as a member of the panel. In the special case of pecuniary interest, there is no need to inquire whether there was in the case a real danger of bias, for that will be assumed. Accordingly I would hold that Mr. Clark should have disqualified himself, or the SFC should have disqualified him, on this ground too, from acting as a member of panel. Again, I am surprised that Mr. Clark and the SFC decided to take the risk of a challenge from Mr. Cheng on this ground and again I think that decision was most unfortunate. But there it is.

36. On both these grounds, and for the reasons I have attempted to state, I have no doubt that Mr. Cheng was justified in his complaint that the SFC had allowed Mr. Clark to remain a member of the panel which ultimately condemned him; and that Mr. Cheng is therefore entitled to the relief which he claims.

Barnett, J.:

37. I too agree that this appeal should be allowed.

38. The applicant, through counsel, made clear that he does not allege Mr. Clark was actually biased. Accordingly, it was necessary for the judge to determine whether there was a real danger of injustice having occurred because of bias on the part of Mr. Clark, one of the decision makers. That determination would turn on the possibility that Mr. Clark was unconsciously biased.

39. The letter which caused the mischief was closely scrutinised by Liu J. The judge rejected a suggestion that the letter showed a "predetermination" on the part of Mr. Clark and said that any doubt about that was removed by Mr. Clark's evidence that he had made no predetermination and had acted impartially. The judge then found that "Mr. Clark did not act or give the appearance of acting as an informer, less a prosecutor. Mr. Clark's letter, in substance and tenor, was not even close to a complaint."

40. I see nothing wrong with a member of the Panel drawing to the attention of his Chairman a newspaper report which he believes warrants consideration. Had Mr. Clark confined his letter to the first paragraph, I think he would have remained within the bounds of what is permissible. In the second paragraph, however, he embarked upon his own investigation of the background to the applicant's ownership of shares in Shun Ho and drew an inference strongly adverse to the applicant.

41. Looking at the letter as a whole, I find it difficult to understand how it can be said the letter was not a complaint and its author not an accuser. Notwithstanding Mr. Clark's evidence that he remained impartial, evidence which in my view the judge wrongly took into account, there distinctly remained the real possibility that Mr. Clark was unconsciously biased against the applicant as a person who had been manipulating shares in a public company.

42. The issue of whether Mr. Clark had a direct pecuniary interest is discrete. I agree with the judge that there was none. The judge arrived at the conclusion after a review of the authorities, authorities copiously cited during this appeal. The authorities are not easy to understand. I content myself with saying it is high time that a simpler test is adopted, namely whether on the facts the person concerned would ask himself "will this affect me financially?" If the answer is "yes", bias must be assumed.

43. So direct pecuniary interest does not on its own assist the appellant. Like my Lord Penlington, however, I think the agreement between the appellant and Mr. Clark's firm lends weight to the general bias point. There must have been the distinct possibility that Mr. Clark, albeit inadvertently, became privy to sensitive information that would have bearing upon what the Panel was investigating.