Issue 1 of 2011: August
Role of Securities and FuturesAppeal Tribunal redefined by Role of Securities and Futures
Appeal Tribunal redefined by Court
of Appeal . 1
by Karen Dicks (karen.dicks@deacons.com.hk)
In 2009, the Market Misconduct Tribunal (“MMT”) Court of Final Appeal Ruling on
found that Daniel Tsien Pak Cheong (“Mr Tsien”), had State Immunity in Hong Kong . 2
been guilty of insider trading whilst employed as anequity salesman of JP Morgan, contrary to Section 270 Court Rules on Slip and Fall
(1)(c) of the Securities and Futures Ordinance, Cap 571 Accident in MTR Station . 3
(“SFO”). The MMT suspended Mr Tsien’s trading England’s Supreme Court
licence for nine months and ordered him to pay over abolishes expert immunity . 3
Costs Consequences of refusing to
On the basis of the MMT’s decision, the Securities and mediate . 4
Futures Commission (“SFC”) took disciplinary actionagainst Mr Tsien and banned him for life from carryingout any regulated activities, under Section 194 (1)(iv) ofthe SFO. Mr Tsien applied to the Securities and FuturesAppeal Tribunal (“SFAT”), under Section 217 of theSFO, for a review of that decision. The appeal wassuccessful and the SFAT replaced the life long ban witha 10 year one.
The SFC then appealed to the Court of Appeal, whereone of the points raised by the SFC for decision, was theproper role and function of the SFAT on a review underSection 217 of the SFO.
Until then, the SFAT’s approach had been not tointerfere with a SFC ruling, unless it was plainly wrong.
However, the Court of Appeal held that the SFAT’spowers of review are not limited and that it couldconduct a full merits review and come to its owndecision. For example, where a finding of misconduct is litigation & dispute resolution newsletter disputed, the SFAT may hear evidence and make up itsown mind. The SFAT is entitled, the Court of Appealsaid, to exercise its own independent judgment on areview.
The Court of Appeal rejected the SFC’s argument that immunity in the PRC has always been absolute i.e. the the SFAT should give SFC decisions “special respect” PRC courts have no jurisdiction over foreign states, i.e. the same level of respect which a court would give even in respect of commercial transactions, unless the a decision of say a disciplinary tribunal of a profession, foreign state has submitted to the PRC’s jurisdictionsuch as The Law Society. The Court of Appeal said that a review by the SFAT is a “full merits review” and Post-1997, it has been unclear whether state immunity the SFAT may conduct a review as if it were the in Hong Kong is still restrictive or is now absolute.
original decision maker. Mr Justice Tang said: “The On 8 June 2011, the Court of Final Appeal (“CFA”) contention that a person’s reputation or livelihood could be clarified the position and ruled that state immunity in so seriously affected by a regulator, acting as prosecution Hong Kong is absolute, rather than restrictive, as and judge, without a genuine full merits review by an Hong Kong could not have a doctrine of state independent tribunal is so abhorrent to our system, that I immunity inconsistent with that of the PRC.
Consequently, the CFA held that two arbitration The Court cannot interfere with an SFAT decision awards against the Democratic Republic of Congo unless it has erred in law. In this case the Court of Appeal held that it had not made any error in law. The The judgment is at present “provisional” because it 10 year ban imposed by it was eminently reasonable has to be referred to the Standing Committee of the and a life ban manifestly excessive. Accordingly, the National People’s Congress. The CFA is required by Court of Appeal dismissed the SFC’s appeal and the Basic Law to refer questions of interpretation ordered it to pay Mr Tsien’s costs.
relating to foreign affairs and the relationship between This decision is important because prior to it, the the Central Authorities and Hong Kong to the SFAT’s approach was not to interfere with SFC Standing Committee. This is the first time since 1997 decisions, unless they were plainly wrong. The Court that the CFA has submitted such questions to the of Appeal has now made it clear that a SFAT’s review should be a “full merits” review and may be conductedas if the SFAT was the original decision maker.
What are the implications of the judgment?
If the Standing Committee allows the decision to The decision will probably lead to an increased stand, it could have a significant impact on Hong number of appeals by licensed persons against Kong’s standing as a dispute resolution venue, in decisions made by the SFC which they consider respect of commercial agreements involving foreign states. If a party contracting with a foreign statewishes Hong Kong to be the arbitral seat in the event of any dispute, they would have to ensure that thearbitration agreement contained a very clear and unequivocal waiver of state immunity. The CFA held in this case that states can, as a matter of internationaland common law, waive their immunity and submit by Karen Dicks (karen.dicks@deacons.com.hk)
voluntarily to the jurisdiction of the forum state, but Prior to the handover of Hong Kong to the Peoples that in this case, the Democratic Republic of Congo Republic of China (“the PRC”) in 1997, restrictive state had not done so. The court said that an agreement toimmunity applied in Hong Kong, meaning that Hong refer disputes to arbitration does not amount to Kong Courts had no jurisdiction over foreign states in submitting to another state’s jurisdiction and does not relation to legal or enforcement proceedings, unless constitute a waiver. The court said that to be effective, such arose out of commercial transactions or unless any waiver of immunity had to be explicit.
the foreign state had submitted to Hong Kong’sjurisdiction and waived immunity. Conversely, state The court said that a station concourse is different from other smaller venues such as restaurants, where the risk of spillage of water or oily substance on the by Karen Dicks (karen.dicks@deacons.com.hk)
floor is much greater. It said that to require the MTRto implement a system which could avoid all Hong Kong’s High Court, has recently ruled in accidental spillage of water on the ground was simply relation to a slip and fall accident in an MTR station.
unrealistic. The court decided that the measures taken The judgment is interesting because it provides by the MTR were adequate and reasonable.
insight into what measures the MTR Corporationwould have to have in place in order to successfully The court said that an MTR station, being a public rely on the statutory defence under Section 3(4)(b) of place accessible by many members of the public, the the Occupiers Liability Ordinance, Cap 314 (“the MTR could not be expected to place a worker in every place in the station to guard against passengersspilling water on the ground. What was required, was A passenger fell when walking through the concourse a reasonably effective system for getting rid of the of an MTR station, injuring her lower back and right danger that might from time to time exist. If, as in knee. The passenger claimed that water on the the present case, the MTR sub-contracted cleaning to ground had caused her to slip and fall. The defendant, an independent contractor, then the MTR had to take the MTR Corporation Ltd (“the MTR”), denied that the reasonable steps to supervise the cleaning work and ground had been wet or slippery. In the alternative, the MTR relied on the statutory defence under Section3(4)(b) of the Ordinance, arguing that even if there hadbeen water on the ground, it had discharged its common duty of care, by having reasonably entrustedthe cleaning of the station to an independent cleaning contractor and having taken reasonable steps to ensure by Karen Dicks (karen.dicks@deacons.com.hk)
that the cleaning had been properly done.
In a recent English Supreme Court decision, the The court found that there had not been water on the immunity from being sued in negligence, enjoyed by ground at the time of the accident. The court said that experts in England and Wales for more than 400 years, even if there had been water on the ground, the MTR was abolished. The court held that there is no was entitled to rely on the defence under the justification for continuing to hold expert witnesses Ordinance, because it had properly discharged its immune from legal proceedings in relation to common duty of care, by having in place a reasonable evidence given by them in court or for their views and proper system to ensure that the station was safe given, in anticipation of court proceedings.
for passengers and having taken reasonable steps to The appellant, Jones (J), appealed against a decision ensure that the cleaning work was properly done.
striking out his claim for negligence against the In this case, the MTR had sub-contracted the cleaning respondent psychologist, Kaney (K). J had been works to a company who had three, eleven person injured in a car accident and K had been instructed as teams, working three shifts a day, supervised by a an expert to prepare a report in relation to J’s claim.
foreman. Apart from those shifts, if the floor was In his initial report, K suggested a diagnosis of post- found to be wet or slippery by a cleaning worker, it traumatic stress disorder. The expert for the defence would be mopped dry immediately. The work of the concluded that J was exaggerating his symptoms and cleaning contractor was also supervised by Station so the court ordered that a joint expert report be Controllers and their staff, who would conduct regular prepared. The joint report was very damaging to J’s inspections to ensure that the station floor was clean case and it transpired that K had signed the report without any comment or amendment. As a result, J’s claim settled for a much smaller sum. J issued proceedings against K for negligence and K’s defencewas a plea of witness immunity, in accordance with by Karen Dicks (karen.dicks@deacons.com.hk)
the case of Stanton v. Callaghan [2000] QB 75. J’s case One of the “underlying objectives” of the High Court was struck out on the basis that the Stanton decision and District Court rules, brought in by the Civil Justice was binding upon the court. J appealed and the issue Reforms, on 2 April 2009, is to facilitate the settlement for determination on appeal was whether public policy of disputes. These rules place a duty on the court to continued to justify conferring immunity from liability further the underlying objectives, by actively managing for negligence on an expert witness in relation to the cases, including, where appropriate, encouraging performance of his duties in that capacity.
parties to use Alternative Dispute Resolution (“ADR”)procedures (i.e. alternative to litigation) and facilitating Allowing the appeal, the Supreme Court held that the the use of such. The parties and their legal immunity from suit for breach of duty that expert representatives are also under a duty to assist the witnesses had enjoyed in relation to their participation in legal proceedings should be abolished and theStanton case overruled. The court said that there was A common form of ADR is mediation, a voluntary no justification for the assumption that if expert procedure, in which a trained and impartial third party witnesses were liable to be sued for breach of duty, (called a mediator) helps the parties settle their they would be discouraged from providing services at dispute. The mediator helps the parties discuss the all. All who provided professional services which issues in dispute, identify their real needs and involved a duty of care were, the court said, at risk of interests, explore possible settlement options and being sued for breach of their duty and they reach a settlement agreement. If the mediation customarily insured against such risk. The court said results in settlement, an agreement will be drawn up that a lesson could be learned from the position of containing the agreed terms and, once signed by the advocates in that removal of immunity had not parties, will be legally binding. If the mediation does resulted in any diminution of their readiness to not result in a settlement, the parties can still litigate Implications for Hong Kong?
A court Practice Direction on Mediation (“the It remains to be seen whether the decision will be Mediation Practice Direction”), which came into effect followed by the Hong Kong Courts. The decision is on 1 January 2010, requires parties to legal likely to be persuasive if the issue arises in Hong proceedings to consider using mediation to resolve Kong, given that much of Hong Kong’s common law their dispute. It requires each party’s solicitor to file a is rooted in that of England. Experts may therefore Mediation Certificate with the court stating whether wish to review their professional indemnity insurance the party is willing to attempt mediation and, if not, or obtain such if they do not already have it.
why not. If the court considers that a party hasunreasonably refused to engage in mediation, it maymake an adverse costs order against that party. If, forexample, a party refuses to engage in mediation andinsists on litigating a matter to trial, even if that partywins at trial, the court may decline to award him hislegal costs, if it considers that his refusal to mediatewas unreasonable.
This article looks at some court decisions involving aparty refusing to mediate and the consequence of suchrefusal.
What is the minimum level of participation required?
any) and participation by the parties in the mediation up The Mediation Practice Direction provides that in to and including at least one substantive mediation session exercising its discretion in relation to legal costs, the (of a duration determined by the mediator) with the court takes into account all relevant circumstances, including any unreasonable failure by a party to In Hak Tung Alfred Tang v Bloomberg L.P. (a firm) and engage in mediation. It says that the court will not Others (HCA 198/2010), 16 July 2010, the Plaintiff was make any adverse costs order against a party on the concerned with the time involved in a mediation ground of unreasonable failure to engage in mediation because he had to travel between Hong Kong and the Mainland for business. He considered it unacceptable (1) The party has engaged in mediation to the to allow the mediator unlimited power to call meetings minimum level of participation agreed to by the for mediation from time to time, but said that he did parties or as directed by the court prior to the not mind having three hours for mediation. The court said that the “minimum level of participation” shouldnot be construed as a number of hours for mediation (2) A party has a reasonable explanation for not and that the quality rather than quantity of mediation should count. The court said that if the parties were (i) where active without prejudice settlement sincere in resolving their dispute by mediation, the mediation may take a very short period of time and, on parties. However, where such negotiations the contrary, if not sincere, the length of the mediation would not assist them. The Plaintiff, the court said, explanation will have gone and the parties should have confidence in the mediator to determine should then consider the appropriateness of the length of the mediation. As mediation was voluntary, a party who considered the mediationunhelpful or unable to assist the parties to settle, could (ii) where the parties are actively engaged in some terminate the mediation at any time and whether such other form of ADR to settle the dispute.
decision to terminate was reasonable would be for the In Resource Development Limited v Swanbridge Limited trial judge to decide. The court again directed that the (HCA1873/2009), 31 May 2010, the court held that the minimum level of participation should be as set out in whole purpose of having a “minimum level of the Mediation Practice Direction, as referred to above.
participation” requirement is to ensure that the parties In Golden Eagle International (Group) Ltd v GR participate in mediation in a sincere manner. The Investment Holdings Ltd (HCA 2032/2007), 24 May court said that it should not impose anything more 2010, the parties had agreed on the judgment sum, than necessary for the parties to participate because but the Plaintiff sought an award of costs on an mediation is voluntary and any party can decide to indemnity basis (i.e. on a higher basis than usual) for terminate it at any stage. To make an inflexible several reasons, one of them being the Defendant’s direction in relation to the minimum level of unreasonable refusal to mediate. The Defendant participation, the court said, may generate other unnecessary disputes between the parties. The courtheld that the minimum level of participation should be as the dispute concerned the construction of an as stated in the Mediation Practice Direction i.e.
“Agreement between the parties as to the identity of the knowledge of the parties and factual matrix of the mediator and the terms of his or her appointment, case, it was not a dispute that could be easily agreement as to the rules applicable to the mediation (if they reasonably believed they had a strong case; (5) There was no factual basis for the submission that the cost of mediation would be disproportionately a settlement offer had previously been made to the In Ansar Mohammad v. Global Legend Transportation the cost of mediation would be disproportionately Ltd (HCPI 1037/2007), 23 November 2010, which was an action commenced before implementation of the The court held that the burden was on the party Civil Justice Reforms, the Plaintiff’s solicitors had refusing to mediate to provide a reasonable written to the Defendant’s solicitors (again, before explanation for such refusal. The burden was not on implementation of the Civil Justice Reforms and the the willing party to show that mediation had a Mediation Practice Direction) proposing mediation.
reasonable prospect of success. In the present case, The Defendant’s solicitors did not respond to this the court said that the Defendant had not provided any proposal. The court held that this amounted to a reasonable explanation for refusing to mediate and he refusal to mediate and that the Defendant’s should therefore pay the Plaintiff’s costs on a common explanation for refusal (that the Civil Justice Reforms fund basis (i.e. on a higher basis of taxation than and Mediation Practice Direction had not yet been implemented) did not amount to a reasonableexplanation. The court therefore reduced the costs awarded to the Defendant by 20%. The court said that (1) This was a case involving a simple, one-off contract had the mediation regime been in effect at the time it dispute which did not raise any point of law, the had refused to mediate, the Defendant would very determination of which would provide guidance for likely have been at risk of being deprived of its entire the future, whether for the parties or others in the The above decisions show that the courts take a party’s (2) Nor was it a case where injunctive or other refusal to mediate very seriously and will have no hesitation in penalizing a party in costs where suchrefusal is deemed unreasonable. Further, there will be (3) At its highest, the Defendant’s defence could only very few circumstances where the court will find that a be regarded as a “borderline” one.
party’s refusal to mediate is reasonable. Accordingly,in most cases, it will be wise for the parties to engage (4) The Defendant’s settlement offer had been “way off in at least the minimum level of mediation required or the mark”, but the wide difference between the else face the risk of being penalized in costs.
parties did not indicate that mediation would be awaste of time and effort.
For further information, please contact one of the contactslisted hereJoseph Kwan Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice.
If you would like advice on any of the issues raised, please speak to any of the contacts listed.
For further information please email us: hongkong@deacons.com.hk
or visit our website: www.deacons.com.hk

Source: http://www.deacons.com.hk/upload/other/20110803_LitigationDisputeResolution.pdf

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