Zai Corporate Finance Ltd v AIM Disciplinary Committee of the London Stock Exchange Plc & Anor

This is an appeal from an order made by Mostyn J in the Administrative Court on 11 April 2017: R (ZAI Corporate Finance Ltd) v AIM Disciplinary Committee of the London Stock Exchange PLC (London Stock Exchange PLC, interested party) [2017] EWHC 778 (Admin). Permission to apply for judicial review on the points which are now before us was granted by Briggs LJ on 25 April 2017. He directed that the application should be retained in this court.

The issues for decision by Mostyn J arose in the context of disciplinary proceedings before the AIM Disciplinary Committee of the London Stock Exchange PLC (“the Committee”) brought by London Stock Exchange PLC (“the Exchange”) against ZAI Corporate Finance Ltd (“ZAI”). In relation to AIM, the Alternative Investment Market, ZAI is what is known as a “nominated adviser” or “nomad”. The dispute was whether, as ZAI contended, the hearing before the Committee should be in public or whether, as the Committee directed on 24 May 2016 and again, having received further representations, on 21 October 2016, the hearing should be in private.

The relevant provisions on which the dispute turned are to be found in the following paragraphs of the AIM Disciplinary Procedures and Appeals Handbook – May 2014 (“the Handbook”):

“This handbook, which forms part of the AIM rules, sets out the procedures to be followed when … the Exchange wishes to commence disciplinary proceedings against an AIM company or nominated adviser for a breach of the AIM rules …

C15.1.2 The AIM Disciplinary Committee … shall, as a tribunal of first instance, hear and determine charges against a nominated adviser in respect of a breach of its responsibilities under the AIM rules or in respect of any allegation that the integrity and reputation of AIM has been or may be impaired as a result of its conduct or judgement …

C15.3 If the AIM Disciplinary Committee finds, on the balance of probabilities, that a nominated adviser has breached the AIM rules, or that the integrity and reputation of AIM has been or may be impaired as a result of its conduct or judgement it may impose one or more of the following sanctions:

C15.3.1 fine the nominated adviser;

C15.3.2 censure the nominated adviser;

C15.3.3 remove the nominated adviser from the register; and/or

C15.3.4 publish the action it has taken and the reasons for such action.

C18.3 Other than as set out in these rules, and other than as between the parties and their advisers, all parties shall keep confidential any matters relating to any proceedings save where disclosure is permitted or required by law.

C21.1 … the Chairman or any member of the AIM Disciplinary Committee whom he nominates may give any directions and take any other steps he considers appropriate for the clarification of the facts and issues and generally for their just, efficient and expeditious presentation and the determination of the matters in issue. The Chairman or any member of the AIM Disciplinary Committee whom he nominates may hold one or more pre-hearing reviews for those purposes and the determination of the matters in issue …

C22.1 The AIM Disciplinary Committee will usually conduct hearings in private, although an AIM company or nominated adviser which is subject to proceedings has the right to ask for such hearing to be conducted in public. An AIM company or nominated adviser requiring such hearing to be conducted in public shall notify the Chairman at least five business days prior to commencement of the hearing.

C22.8 At a hearing the AIM Disciplinary Committee may:

…

C22.8.2 make any directions which may be given at a pre-hearing review, and vary any direction which has been made; and

C22.8.3 make all such directions with regard to the conduct of and procedure at the hearing as the AIM Disciplinary Committee considers appropriate for securing a proper opportunity for the parties to present their cases and otherwise as may be just.

C23.6 The AIM Disciplinary Committee may publish part or all of its decision or a summary of it, and the reasons for the decision. Where the sanction imposed is a private censure, the AIM Disciplinary Committee may publish its decision in part or a summary of it and the reasons for the decision without revealing the identity of the AIM company or nominated adviser sanctioned.

C25.1 The AIM Disciplinary Committee may vary any of these procedures to adapt to the circumstances of any particular case.”

On 15 April 2016, ZAI’s then solicitors, Addleshaw Goddard, wrote to the Secretary of the Committee requesting an oral pre-hearing review to consider, inter alia, a “direction that the oral hearings be in public.” That request was not further elaborated or explained. On 29 April 2016, the Exchange’s solicitors, CMS CameronMcKenna LLP, wrote to the secretary of the Committee:

“We do not consider ZAI’s request for an oral pre-hearing review is justified.

… ZAI has offered no reason why a departure from Rule 22.1 of the Handbook is justified and therefore the Exchange would request ZAI to explain by way of written submission why it wishes the hearing to be in public.”

In written directions dated 24 May 2016, the Chairperson of the Committee in accordance with Rule 21.1 made a direction that “All oral hearings in this matter are to be held in private.”

On 7 October 2016, ZAI submitted draft directions providing, inter alia, for the hearing to be in public. On 10 October 2016, CMS CameronMcKenna LLP wrote to the secretary of the Committee that the Exchange saw “no good reason” why the Committee should depart from its existing direction. On 18 October 2016, ZAI responded:

“The Exchange states that it sees no good reason why the ADC should depart from its existing direction that the hearing be in private. The good reason is that it is expressly within the rules of AIM that up to five business days before the date of the hearing a party “has the right to ask for such hearing to be conducted in public” by notification to the Chairman of the ADC to that effect. It was thought to be helpful to be transparent on this point at this stage even though we could simply provide such notification shortly before the hearing.

It is a point of considerable concern that the Exchange even seeks to make the representations it does in respect of our request the hearing be in public. Such representations are manifestly inconsistent with the rules of its own market. Further, the Exchange, in receipt of advice will, or should, know that the right to be heard fairly in public is a principle generally enshrined in law and to seek to assert a contrary outcome is not consistent with the proper conduct of a regulator and, again, is an example of the Exchange pursuing this matter as though it were a commercial litigation and not a regulatory proceeding. We must reserve our position to come back to this point on another date, in another place or at the hearing itself.”

On 19 October 2016, CMS CameronMcKenna LLP wrote again to the Secretary of the Committee, reiterating that there was no good reason to depart from the existing direction. Later the same day, ZAI sent an email to the Secretary of the Committee:

“…we will refrain from a detailed response. We are, however, bound to note with rising concern the ongoing resistance by the Exchange to our right to have the matter heard fairly in public. This is not a matter of discretion, requiring only notification under the rules, and the Exchange seeking, on advice, to argue otherwise would we believe be viewed very dimly in any forum.”

On 21 October 2016, and in accordance with Rule 21.1, the Chairperson of the Committee made directions including a direction that the relevant direction made on 24 May 2016 “stands” and that “the hearing of this matter shall be in private.”

In its judicial review pre-action protocol letter before claim dated 4 November 2016, ZAI set out its contention very clearly:

“C22.1 of the Handbook only states that the general rule is that AIM disciplinary hearings are to be held in private. According to this provision, an automatic exception to the general rule takes effect in the event that a request to have the hearing conducted in public is made. Indeed, the fact that a nominated adviser can require the hearing to be conducted in public and need only notify the ADC Chairman a mere 5 days prior to the hearing taking place makes it abundantly clear that there is no residual discretion of the ADC to deny the request once it has been made. The lack of ADC power to refuse such a request once made is borne out by the fact that nowhere in C22.1 of the Handbook is there a list of factors to be taken into account when deciding whether or not to ‘approve’ a nominated adviser’s request for a public hearing. The ADC’s attempt to rely on a discretion that does not exist is undeniably ultra vires.”

In its formal response dated 18 November 2016, the Committee said this:

“The Rules only state than an AIM company or nominated advisor has the right to ask for the hearing to be in public and do not state that the ADC must agree to such a request. The ADC does not consider that the inclusion of the word “requiring” contains an obligation on the ADC to conduct the hearing in public once asked.

Further, the Rules do not state that the ADC must grant such a request when asked. In the absence of such a rule the ADC considers that it must assess such requests as part of its general case management powers. Rule C21.1 affords the ADC wide case management powers to “give any directions and take any other steps [he] considers appropriate for the clarification of the facts and issues and generally for their just, efficient and expeditious presentation and the determination of the matters in issue”.

If, which is not agreed, Rule C22.1 gives an AIM company or Nominated Advisor a right to compel the ADC to hold the hearing in public, Rule C25.1 permits the ADC to vary any of the procedures set out in the Rules to adapt to the particular circumstances of the case. As such, the ADC can choose to vary the procedures to not permit public hearings and / or grant itself discretion to refuse a request for a public hearing.

When considering making its direction of 24 May 2016 in response to a request by ZAI for the hearing to be in public, the ADC considered the fact that both the Statement of Case from the Exchange and the Response to the same from ZAI name a number of individuals and companies and makes comment on their conduct. Some of these individuals and companies are still active in the market and the ADC considered that holding the hearing in public would be unduly prejudicial to their rights, particularly given that they have no notice of these proceedings and therefore no right of reply.

The ADC does not consider that holding the hearing in public will alter its approach to hearing the matter brought by the Exchange or impact on its obligations to be impartial and diligent when deciding the matters before it. Further, pursuant to Rule C22.10 the hearing will be recorded and the parties may request a transcript. A right of appeal from the decisions of the ADC also exists. The ADC therefore saw no reason when making the direction of 24 May 2016 for it to depart from the default position that the hearing be in private and was provided with no compelling reasons by ZAI to persuade the ADC otherwise.”

That reasoning was elaborated in the witness statement dated 7 March 2017 of the Committee’s chairman, Elizabeth Kennedy:

“… we were mindful of the fact that both the Exchange’s Statement of Case dated 30 December 2015 and ZAI’s Response dated 15 April 2016 named a number of individuals and companies, some of which are still active in the market, and commented on their conduct. The other members of the ADC and I shared the concern that there would be a serious, detrimental and irreparable impact on those individuals and companies if unproven allegations against them were circulated in the public domain. Some of the relevant allegations are summarised in the Confidential Annex to this statement (I invite the Court to hear submissions on the Confidential Annex in private, to avoid causing the very prejudice that our decision to hold a private hearing seeks to avoid. I understand that the consent of the parties participating in these proceedings to this course of action has been sought. The Confidential Annex will be served once agreement has been reached). We therefore considered that holding the hearing in public would be unduly prejudicial to the rights of these individuals and companies, particularly since they had no notice of the Disciplinary. Proceedings and therefore right of reply. We were concerned about the effect this might have on the individuals and companies to which the Statement of Case referred.

… we did not consider that holding the hearing in public would alter our approach to hearing the matter brought by the Exchange or have an effect on our duty to be impartial and diligent when deciding the matters before us.”

I have set out this material in some detail because it brings out, with stark clarity, three cardinal aspects of ZAI’s stance before the Committee:

Before us, as before Mostyn J, ZAI mounted three grounds of challenge to the Committee’s ruling: first, that it misconstrued Rule C22.1; secondly, that its exercise of discretion was flawed; and, thirdly, that it breached Article 6 of the Convention. It is convenient to take these in turn. First, however, I should record that there is dispute between the parties as to whether the Committee is amenable to judicial review at all, though not a dispute which anybody suggested we should resolve. A similar issue (the amenability of a private body to judicial review in the financial services context, but not the amenability of the Committee specifically) is, we were told, to be determined shortly by this court in another case. And everyone was agreed, rightly in my judgment, that, given the issues which arise in this particular case, the arguments and the outcome would be precisely the same whether litigated by way of judicial review or by way of private law proceedings under CPR Part 8.

Meaning of Rule C22.1

This is, in the final analysis, a short matter of construction, but it is, of course, necessary to have regard to the context; both the specific regulatory context in which the Committee operates and the wider context to which reference was made both by the judge and in the course of submissions before us.

Play has understandably been made of the principle that justice must be administered in public, and reference has, inevitably, been made to Scott v Scott [1913] AC 417. But it is important to note the exception there recognised in relation to secret processes, confidential information and the like. I need not go through all the speeches. The essential point emerges clearly enough from the speech of Viscount Haldane LC, p 437:

“While the broad principle is that the Courts of this country must, as between parties, administer justice in public, this principle is subject to apparent exceptions … But the exceptions are themselves the outcome of a yet more fundamental principle that the chief object of Courts of justice must be to secure that justice is done … litigation as to a secret process, where the effect of publicity would be to destroy the subject-matter, illustrates a class which stands on a different footing. There it may well be that justice could not be done at all if it had to be done in public. As the paramount object must always be to do justice, the general rule as to publicity, after all only the means to an end, must accordingly yield.”

Referring to what he described as trade secrets or private correspondence, the Earl of Halsbury commented, p 443, that:

“it would be the height of absurdity as well as of injustice to allow a trial at law to protect either to be made the instrument of destroying the very thing it was intended to protect.”

To similar effect, Lord Shaw of Dunfermline, p 483, said this:

“The third case – that of secret processes, inventions, documents, or the like – depends upon this: that the rights of the subject are bound up with the preservation of the secret. To divulge that to the world, under the excuse of a report of proceedings in a Court of law, would be to destroy that very protection which the subject seeks at the Court’s hands.”

Similar observations appear in the speeches of Earl Loreburn and Lord Atkinson.

In R v Chief Registrar of Friendly Societies, ex p New Cross Building Society [1984] QB 227, the principle was applied in a case where the hearing of an appeal in public would have imperilled the ability of the appellant building society to continue in business: see the discussion by Sir John Donaldson MR, pp 235-236.

In my judgment, it is this aspect of the teaching of Scott v Scott which is most relevant for present purposes in the particular context – the regulation of a financial and commercial market – with which we are here concerned. So I do not, with all respect to Mostyn J, find assistance from the rules and practices of either the Family Court or the Court of Protection. And, if I may say so, I think that caution is called for in seeking to apply the very interesting passage from Bentham that he has set out for us. As Mostyn J has demonstrated, Lord Shaw of Dunfermline plainly had the previous page from Bentham open before him when he penned the famous passage in his speech in Scott v Scott. But whether Lord Shaw turned the page over we shall probably never know and in any event, if he did, he chose not to include in his speech the passage relied upon by Mostyn J.

We, like Mostyn J, were taken to various definitions in the second edition of the Oxford English Dictionary. Mostyn J took the meaning of “ask” as being “to say something to a person with the aim of eliciting a response” and the meaning of “require” as being “to ask, request, or beseech (a person) to do something.” But as was pointed out to us during the course of argument, one of the definitions of “ask” is “to ask as by right, call for, demand.” On the other hand, it can be seen from the dictionary that although the word “require” often has the connotation of making a “demand”, that is not always so, for it can mean, for example, “to ask or request (one) for something” or “to ask or request to have.” The short point is that, as so often in a case on construction, the dictionary alone does not provide a clear answer.

One thing, in my judgment, is, however, quite clear. The two key phrases in Rule C22.1 – “the right to ask” and “requiring” – have to be read together (and, of course, in the context of the Handbook read as a whole) and have to be construed in a sense in which each phrase is compatible with the other. As Mostyn J said (para 9), and I agree:

“… to construe the verb in the first sentence as doing no more that expressing a request but construing the verb in the second as granting an entitlement leads to a reading which is nonsensical.”

Mostyn J’s view (para 9) was that “the two sentences are to be read as if “to request” and “requesting” appeared instead of “to ask” and “requiring”.” The question for us is whether he was correct in that reading. In substance, in my judgment, though I would express the point rather differently, he was indeed correct. Properly construed, having regard both to the context and to the Handbook read as a whole, Rule C22.1 does not entitle a nomad to demand a public hearing; the nomad is entitled to ask for or request such a hearing but the Committee has a discretion whether or not to direct what the nomad is seeking.

Three interlocking factors drive me, and, I have to say, without much difficulty, to this conclusion.

The first is that this is the more natural meaning of the language used in Rule C22.1. The rule begins by setting out that the Committee “will usually conduct hearings in private,” before going on to say that the nomad “has the right to ask for” the hearing to be conducted in public. That is the language of discretion. ZAI’s entire argument depends on the use of the word “requiring” in the phrase a nomad “requiring such hearing to be conducted in public.” Reading Rule C22.1 as a whole, I simply cannot agree with ZAI that the single word “requiring” is capable of bearing the weight of the argument which is sought to be derived from it. Moreover, although Rule C22.1 confers on the nomad the “right to ask” it does not confer a “right” to “require”. There is one point which I should add, though strictly speaking it does not arise before us; for it formed no part of ZAI’s presentation to the Committee. Rule C22.1 states that a hearing will “usually” be held in private, which envisages that there may be exceptions to the usual rule. Unless the power to initiate a departure from the usual rule lies solely with the Committee it is necessarily inherent in the rule that either party can ask for such a departure. Yet the rule confers the “right” to ask only on the AIM company or the nomad. This seems to be something stronger than that which is inherent in the rule, even if it falls short of a right to require. I am inclined to think that the combination in Rule C22.1 of the phrases “right to ask” and “requiring such hearing to be conducted in public” means that, if a nomad exercises its “right to ask”, it is for the Committee to justify a decision to conduct the hearing in private, rather than for the nomad to justify its request that the hearing be in public. However, since ZAI gave no specific reasons to underpin its request, and the Committee did in fact give reasons for its decision, even if this interpretation is correct it does not alter the outcome of this appeal.

Secondly, and despite counsel’s attempts to demonstrate the contrary, Rule C22.1, construed as ZAI would have us accept, would, in my judgment, sit very uncomfortably indeed with the scheme embodied in, for example, Rules C18.3, C22.8.3, C23.6 and C25.1.

Thirdly, the construction contended for by ZAI – giving it the absolute right to demand a hearing in public – makes no sense at all in the particular context with which we are here concerned: the regulation of a financial and commercial market where a public hearing might have the reputational and other adverse consequences on third parties identified (see paragraphs 8-9 above) by the Committee and its chairman.

In relation to this last point there is, in my judgment, much force in what Mostyn J said (para 12):

“… an interpretation should not produce absurd results. Were the interpretation by the claimant to be adopted then, notwithstanding that the rule plainly inclines to privacy, the result would be to leave proceedings in the ADC in a worse position than open court proceedings governed by CPR 39.2. Under that provision the general rule is that a hearing is to be in public but there is a discretion, in certain specified circumstances, to hear a matter in private. One of the exceptions is where the case involves confidential information and publicity would damage that confidentiality. If the interpretation advocated by the claimant were correct then, on asking for a hearing in public, that would have to be granted without scope for refusal on any ground, not even national security. Mr Jaffey QC rightly argues that such a ‘right’ to force a public hearing could be used by a person to defeat disciplinary proceedings against them. For example, ADC hearings may involve market-sensitive information about an AIM company which a nomad has advised is unnecessary to disclose; unproven allegations by the LSE that an AIM company breached the Rules; unproven allegations by a nomad that an AIM company misled or otherwise disabled it from ensuring the company’s compliance; or evidence about confidential governmental contracts entered into by an AIM company, e.g. for the sale of defence or surveillance equipment. In such cases the disclosure of such information could result in serious harm to private or public interests. The very question under examination in the disciplinary proceedings may be whether certain information should have been made public. If nomads could insist on a public hearing, it may force the LSE to abandon the disciplinary action against them. A public hearing could also affect third parties such as former employees, AIM companies and their senior staff.”

In my judgment, Rule C22.1 does not have the meaning attributed to it by ZAI.

Discretion

There are, in my judgment, two short answers to ZAI’s contentions:

Mostyn J said (para 18):

“In my judgment the decision made by the ADC was rational and fair and cannot be impugned. It may have been laconic, but that is of the nature of case management decisions. When it comes to case management decisions in my opinion the general rule should be that “less is more”.”

I respectfully agree.

Article 6

Article 6.1 of the Convention provides as follows:

“In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interest of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice.”

There is an issue between the parties as to whether Article 6 can apply at all to the Committee and as to whether “civil rights and obligations” are here in contention. There is, however, no need for me to explore that any further, for the Committee takes its stand, and in my judgment, successfully takes its stand, on the more limited proposition that, even if Article 6 is engaged, it has not been breached.

The qualification that “the press and public may be excluded from all or part of the trial … in special circumstances where publicity would prejudice the interests of justice” is reminiscent of the rule in Scott v Scott.

In my judgment, Mostyn J was right (paras 21-23) to read the decision of the Strasbourg court in B v United Kingdom, P v United Kingdom (2001) 34 EHRR 529, [2001] 2 FLR 261, as essentially determinative of the issue. He drew attention to what the court had said. First (para 39):

“… while the Court agrees that Article 6(1) states a general rule that civil proceedings, inter alia, should take place in public, it does not find it inconsistent with this provision for a State to designate an entire class of case as an exception to the general rule where considered necessary in the interests of morals, public order or national security or where required by the interests of juveniles or the protection of the private life of the parties, although the need for such a measure must always be subject to the Court’s control. The English procedural law can therefore be seen as a specific reflection of the general exceptions provided for by Art 6(1).”

Secondly (para 48):

“… a literal interpretation of the terms of Article 6.1 concerning the pronouncement of judgments would not only be unnecessary for the purposes of public scrutiny but might even frustrate the primary aim of Article 6.1, which is to secure a fair hearing.”

The legal historian may quibble with the assertion that English procedural law in this respect reflects Article 6 – more correctly, it might be thought, Article 6 in this respect reflects the English common law enshrined in Scott v Scott – but the key point remains. In this respect, English procedural law and the Convention march hand-in-hand. In my judgment, and in common with Mostyn J, both the construction of Rule C22.1 as contended for by the Committee and the Committee’s decision were compliant both with the domestic rule and with Article 6. As Mostyn J said (para 22): “To apply that rule for the reasons stated by the ADC was in my opinion wholly compliant with the terms of article 6.1.” I agree.

Accordingly, for these reasons, which in large measure reflect the reasoning of Mostyn J, I would, for my part, dismiss the appeal and refuse ZAI’s application to quash the decision of the Committee that the hearing be in private.

I agree.

I also agree.