BERICH BROKERAGE LTD v. SECURITIES AND FUTURES COMMISSION

HCAL 132/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO.132 OF 2004

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REASONS FOR JUDGMENT

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Introduction

1. On 9 November 2004 the applicant filed a notice of application for leave to apply for judicial review.  I directed that there be an oral hearing to determine whether leave should be granted.  That hearing was to be ex parte on notice.

2. The hearing took place on 21 January 2005.  Having heard submissions from Mr Bell, the applicant’s counsel, and Mr John Bleach SC, counsel for the respondent (‘the Commission’), I refused leave.  I did so on the basis that, in my judgment, the applicant had an effective alternative remedy open to it by way of appeal and that in the circumstances no good reason existed why that appeal process should not first be exhausted.

3. I now give my reasons for that decision and, in addition, state my determination of the matter of costs.

Background

4. The applicant carries on business as a registered dealer in securities.

5. In April 2004, the Commission informed the applicant that it was conducting inquiries in terms of s.56 of the Securities Ordinance, Cap.333, to determine whether the applicant had been guilty of misconduct.  The letter set out in detail the various matters which gave the Commission grounds for concern.

6. One of those matters, I am told, related to an alleged failure by the applicant to act in accordance with an undertaking.  In respect of that alleged failure, the applicant registered a complaint with the Commission concerning the conduct of two employees working in the Intermediaries Supervision Department.  It appears that the complaints, if substantiated, would absolve (or go a long way to absolving) the applicant of any misconduct in respect of the undertaking.

7. The Commission agreed to conduct an internal enquiry into the complaint and said that it would not come to any final determination in respect of its inquiries being pursued in terms of s.56 of the Securities Ordinance until that internal enquiry had been completed.  In its letter of 13 May 2004, the Commission said :

“We will only make findings in our disciplinary proceedings against your clients after the SFC’s internal inquiry is finished.  We will not require written submissions from your clients in response to our disciplinary proceedings until that time.  If that inquiry supports your clients’ allegations, we will, to the extent the related allegations in our disciplinary proceedings against your clients are affected, withdraw or amend those allegations and make appropriate findings.”

8. In August 2004, the Commission informed the applicant that it had completed its internal inquiry into the applicant’s complaint of misconduct.  It said that the inquiry had been conducted in accordance with its internal procedures, the findings being supported by evidence.  The letter concluded :

“All the allegations forming the complaint have been duly considered and we conclude that none of them can be substantiated.”

9. The applicant was aggrieved by the way in which the internal inquiry had been conducted.  It asserted that it had not been given an opportunity to make representations.  The opportunity to make representations, it said, was of real importance because so much depended upon the relative credibility of the parties involved, not only the employees of the Commission but also the representatives of the applicant who had dealt with those employees.  The applicant said that the inquiry into the alleged misconduct of the employees had thereby been vitiated by procedural unfairness and/or by the appearance of bias or by actual bias.

10. The applicant asserted that it had suffered ‘substantial prejudice’ by reason of this flawed internal inquiry because it had lost the opportunity of having allegations made against it pursuant to the s.56 inquiry being withdrawn or amended.

11. Although, of course, I have made no finding on the matter, it is to be recorded that the Commission has disputed the asserted fact that the applicant was not given an opportunity to make representations when the internal inquiry was conducted.  It is the Commission’s case that an opportunity was given.

12. Having disposed of the internal inquiry, the Commission proceeded with its inquiry under s.56 and by letter dated 6 October 2004 informed the applicant that it had decided to suspend its licence for a period of four months.

13. The applicant was advised that, if it wished to apply for a review of the Commission’s decision, it should do so by way of an appeal to the Securities and Futures Appeals Tribunal (‘the Appeals Tribunal’) constituted in terms of s.216 of the Securities and Futures Ordinance, Cap.571 (‘the Ordinance’).

14. Although no mention was made of it in the application for leave to apply for judicial review — a matter to which I shall refer later — the evidence shows that in October 2004 the applicant did seek a review in terms of the Ordinance.  While that appeal went to the decision to suspend its licence, one of the matters upon which the appeal was based was the alleged unfair or biased manner in which the Commission had conducted its internal inquiry into the applicant’s complaint of misconduct by two of the Commission’s employees.  In this regard, the notice of appeal contains the following :

“In a letter dated 13^th May 2004 from its Director of Enforcement to the Applicant’s former solicitors, the SFC stated that it would only make findings against the Applicant after an SFC internal inquiry had finished.  The internal inquiry arose from a complaint made on behalf of the Applicant against the conduct of the SFC’s Intermediaries Supervision Department.  It was also stated in the letter that if the internal inquiry supported the Applicant’s allegations, the related allegations in the SFC’s disciplinary proceedings against the Applicant might be withdrawn or amended.  It was therefore incumbent on the SFC to conduct its internal inquiry fairly and impartially.  However it failed to do so in that while it interviewed representatives of the SFC during the inquiry, it failed to interview any representative of the Applicant.  In the event the complaint was dismissed, and the SFC neither withdrew nor amended any of its allegation against the Applicant.

The SFC ought to have but failed to investigate further complaints by the Applicant against the conduct of the internal inquiry, either before its Notice of Decision, or at all.  The Applicant was thus deprived of the possibility of having the allegations against it withdrawn or amended.”

15. In addition to pursuing its right of appeal under the Ordinance in respect of the manner of the Commission’s internal inquiry, the applicant filed the present application for leave to apply for judicial review, seeking redress in respect of exactly the same issue.  In doing so, it has sought two remedies; first, an order of certiorari to quash the decision absolving the Commission’s employees and, second, an order of mandamus directing the Commission to conduct a fresh internal inquiry, that inquiry to allow for oral evidence to be given by all relevant parties.

The appeal

16. It is not disputed that the applicant does have a right of appeal to the Appeals Tribunal in respect of the decision by the Commission to suspend its licence.  On behalf of the applicant, however, Mr Bell submitted that, despite the wording of the applicant’s notice of appeal (cited in para.14 above), the Appeals Tribunal does not have jurisdiction to review the separate matter of the manner in which the Commission conducted in its internal inquiry.  Mr Bell based this submission on the wording of s.216 of the Ordinance which, in so far as it is relevant, reads as follows :

“There is established a Tribunal to be known as the Securities and Futures Appeals Tribunal which shall have jurisdiction to review specified decisions, and to hear and determine any question or issue arising out of or in connection with any review …”

17. It was Mr Bell’s submission that the manner of internal inquiry could not constitute “any question or issue arising out of or in connection with any review”.  The internal inquiry, he said, had, in terms of time sequence, come before the decision being appealed; that is, the decision of the Commission to suspend the applicant’s licence, and accordingly, as it preceded the decision under appeal, could not be said to be a question or issue ‘arising’ out of it.  I rejected that submission.  In my judgment, the plain reading of the section does not restrict the powers of the Appeals Tribunal in the chronological manner suggested.  Many decisions of the kind subject to judicial review — indeed, almost all decisions — are based on material available at the time when the decision is made, that material having come into existence before the time of the decision itself.  To suggest that such material, whatever its nature, could not be taken into account is, in my view, to place an entirely artifical gloss on the meaning of the section.  It is to be emphasised that the section speaks of ‘any’ question or issue not only ‘arising’ out of the review but having a ‘connection’ with it.

18. It is the applicant’s own case that the manner of the internal inquiry had a very real connection with the decision under review and that the decision under review may well have been materially different if the internal inquiry had been conducted in a fair manner.  On that basis, on a true construction of s.216, it is the applicant’s own case that the issue of the internal inquiry arises out of and has a connection with the decision appealed.

19. The legislature has seen fit to use broad, inclusive language in s.216.  This complements the broad language employed in defining the powers of the Appeals Tribunal under s.218 which, in so far as it is relevant, reads :

“	(1)	After an application for review has been made, the Tribunal shall review the specified decision to which the application relates.
	(2)	Following the review of a specified decision under subsection (1), the Tribunal may—
		(a)	confirm, vary or set aside the decision, and, where the decision is set aside, substitute for the decision any other which the Tribunal considers appropriate;
		(b)	remit the matter in question to the relevant authority with the directions it considers appropriate, which may include a direction to the relevant authority to make a decision afresh in respect of any matter specified by the Tribunal.”

20. The Appeals Tribunal, in my judgment, being given such broad powers of review and such broad remedial powers, in determining any matter which is the subject of a review or is connected with it, clearly has jurisdiction to consider whether the Commission has in any way abused its powers.  In this context, it must be remembered that, in terms of s.216(3) of the Ordinance, the tribunal must be chaired by a judge who is to be a present or former judge of the High Court.

21. It was therefore evident that, when the applicant commenced its judicial review proceedings, it had open to it an alternative remedy, one to be obtained in terms of the Ordinance by way of appeal.  Indeed, when it commenced its judicial review proceedings, it was in the process of pursuing that remedy.

Alternative remedy : the applicable principles

22. While the existence of an alternative remedy does not per se act as a bar, the fundamental principle, as I understand it, is that the existence of an effective alternative remedy is invariably a factor, often a weighty one, in the court’s assessment of whether leave to apply for judicial review should be granted.  This principle is built upon the old ‘rule of discretion’ that, judicial review being an exceptional remedy and a discretionary one, it should be the remedy of last resort.

23. Judicial review is, by its nature, a ‘collateral process (Lord Scarman in R v. Inland Revenue Commissioners, ex parte Preston [1985] AC 835 at 852) and, unless restrained within permissible boundaries, may result in a proliferation of proceedings when one set of proceedings would be entirely adequate.

24. As a factor to be taken into account in assessing whether to grant leave, the existence of an effective alternative remedy assumes even greater weight when — as in the present case — relevant legislation lays down a comprehensive system of appeals procedure guaranteeing that alternative remedy.  In such cases, it has been observed that leave will only be granted in exceptional circumstances : see Harley Development Inc v. Commissioner of Inland Revenue [1996] 1 WLR 727.

25. It is to be emphasised of course that in refusing leave in these circumstances the court is doing no more than determining the right course of action that an applicant should pursue.

My conclusion as to the exercise of the discretion

26. Lord Templeman observed in R v. Inland Revenue Commissioner, ex parte Preston [1985] 1 AC 835, at 862, that “ the judicial review process should not be allowed to supplant the normal statutory appeal procedure”.  In the present case, there clearly exists a comprehensive statutory appeal procedure available to the applicant, one which is capable of giving to it the remedy it has sought.

27. Other than disputing the jurisdiction of the Appeals Tribunal to assist the applicant, Mr Bell was unable to advance any submissions which revealed the existence of exceptional circumstances which demanded that I should exercise my discretion, despite the existence of the appeal procedure, to grant leave.

28. I therefore saw no reason to agree to the applicant being entitled to pursue a collateral action in this court, one which would, for no material purpose, add to the costs of the litigants, place an extra burden on this court and go to the public expense.

Costs

29. On behalf of the Commission, Mr Bleach sought costs.  I said that I would reserve my decision in this regard.

30. I am of the view that the Commission should be entitled to its costs in the present case.  In coming to this view, I am aware that I must act with caution before penalising any applicant at the permission stage when proceedings are in their essential nature ex parte.  But, as Mr Bleach emphasised, it was only through the assistance of the Commission that the court came to learn that the applicant had open to it an effective alternative remedy and that it had, in fact, taken advantage of that alternative remedy and was continuing to do so.

31. As Judge LJ observed in respect of civil litigation generally in Ford v. GKR Construction Ltd [2000] 1 WLR 1397, at 1400 :

“Civil litigation is now developing into a system designed to enable the parties involved to know where they stand in reality at the earliest possible stage, and at the lowest practicable cost …”

32. The principle that litigation should be conducted with all the cards face up on the table takes on extra significance in matters of judicial review, especially at the permission stage.  The principle is clear that, when applying for leave to apply for judicial review, the court should be informed of the existence of any alternative remedy and why that alternative remedy is not being pursued.  Unless the court is advised of such matters at the permission stage it is unable fully to exercise its discretion, judicial review being a discretionary remedy.  The reason why there should be disclosure at the permission stage was described by Brooke J in R v. Cornwall County Council, ex parte Huntington and Another [1992] 3 All ER 566, at 576, when he said :

“The judges who handle paper applications in the Crown Office list have to consider cases arising from many different modern statutes and statutory instruments, with some of which they may not be immediately familiar, and it is, in my judgment, incumbent on practitioners who are responsible for drafting their clients’ statement in Form 86A under RSC Ord 53 to draw the court’s attention to any relevant preclusive clause and to explain the reasons why they contend that it does not bar an application to the High Court otherwise than in accordance with its terms.  If this is done, then there will be significantly less risk of a judge granting leave for an application for judicial review in circumstances in which Parliament has provided that that route for attacking the validity of a decision complained of should not be open, and of respondents being put to the trouble and expense of having to make an application to set aside that leave.”

33. On behalf of the applicant, Mr Bell said that the existence of the alternative remedy of appeal was not made known in the application for leave papers because it was the applicant’s view that it did not, in law, constitute an alternative remedy.  That is not a satisfactory answer.

34. The applicant after all has at all material times been pursuing its appeal and in that appeal has sought to have the Appeals Tribunal review not only the decision of the Commission to suspend its licence but also the manner in which the Commission came to a directly connected decision; that is, the decision arising out of its internal inquiry.  Mr Bell did not suggest that the applicant had amended its appeal papers in this regard.  In any event, even if the applicant had some concern as to the jurisdiction of the Appeals Tribunal, I am firmly of the view that it had an obligation to at least reveal to the court that an appeal procedure did exist, one which was being pursued, but stating why — in the circumstances of this particular case — it was not capable of providing a suitable remedy.

35. In summary, I am satisfied that there was non-disclosure by the applicant and that it constituted a material non-disclosure.  It was only through the assistance of counsel for the Commission that the court came to be sufficiently advised of relevant circumstances, those circumstances dictating the outcome of the applicant’s application for leave.  That being so, I am satisfied that the Commission should be entitled to its costs.  I make an order accordingly.