Hong Kong court sets aside examination order in relation to a letter of request from the US Federal Reserve Board

Introduction

In AB v X and others [2022] HKCFI 132, the Court of First Instance (the Court) handed down a decision on January 19, 2022 to set aside an order (the Order) obtained by way of an ex parte application to give effect to a letter of request (LOR). The LOR was issued by the Administrative Law Judge (ALJ) on behalf of the Board of Governors of the Federal Reserve System of the United States (the Federal Reserve Board) regarding administrative enforcement proceedings in the US (the US Proceedings) brought against AB, a former employee of a bank.  The Court set aside the Order on the basis that there was no jurisdiction to give effect to the LOR.

The decision is significant as it touches on whether the Hong Kong court will accept letters of request for evidence issued by a foreign state for the purposes of foreign administrative proceedings.

The LOR

In the US Proceedings, AB was alleged to have violated the United States Foreign Corrupt Practices Act and the bank’s anti-bribery policies and procedures.  The Federal Reserve Board was seeking to prohibit AB from any participation in the affairs of any banking institution and to impose a monetary penalty of US$1 million on AB (§31). The LOR was sought to compel witnesses named in the LOR who were located in Hong Kong to give testimonial evidence to support AB’s defences in the US Proceedings and the Order was granted by a Master following an ex parte application made by AB.

Three of the four witnesses (X, Y and Z) (together, the Witnesses) named in the LOR applied to set aside the Order on the grounds that: (1) the LOR was not issued by a “court or tribunal” as required by section 75(a) of the Evidence Ordinance (Cap.8) (the EO); (2) the US Proceedings were not “civil proceedings” for the purposes of section 75(b) of the EO; and (3) there was material non-disclosure of AB in making the ex parte application for the Order.

Section 75 of the EO

Pursuant to section 75 of the EO, the Court can offer judicial assistance to a foreign court or tribunal further to a letter of request seeking evidence to be obtained in Hong Kong to support civil proceedings instituted before the requesting court. The purpose is to give effect to the 1970 Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (the Convention), with an aim to provide mutual assistance between judicial organs of different states (§14 – 17). Notably, the Convention was unable to specify whether administrative tribunals are “judicial authorities” given their powers and functions significantly vary across the contracting states. (§18).

The Court’s rulings

After considering the parties’ submissions and US law expert evidence, the Court held that the Witnesses’ challenge succeeded on the following grounds:

Ground 1: ALJ or the Federal Reserve Board not “Court or Tribunal”

Under the EO, Hong Kong Courts have jurisdiction to give effect to a letter of request only where it is issued by a body that is a “court or tribunal” under both the law of the requesting State and of Hong Kong. After considering the authority and powers of the ALJ and the Federal Reserve Board (§42), the Judge agreed that the correct body whose status is in question must be the Federal Reserve Board instead of the ALJ because:

(i) the US Proceedings were before the Federal Reserve Board who had the opinion or reasonable cause to believe that AB committed the charges alleged;

(ii) only the Federal Reserve Board makes final decision and determines the penalty;

(iii) the Federal Reserve Board has full authority over the US Proceedings; and

(iv) the LOR was issued by ALJ on behalf of the Federal Reserve Board and is headed with the title of proceedings before the Federal Reserve Board (§53).

With regards to US law, the Court placed reliance on expert evidence, where both experts on US law agreed that neither the Federal Reserve Board nor the ALJ is a “court” or judicial arm as a matter of US law. Rather, the Federal Reserve Board is “a statutory, administrative body answerable to Congress” and is also one of the parties in the US Proceedings (§58-59). As to the issue of whether the Federal Reserve Board is a “tribunal”, noting the conflicting US expert evidence, the Court concluded that the Federal Reserve Board is merely an “administrative banking agency … effecting enforcement with the administrative and regulatory requirements” (§70), and should not be regarded as a tribunal under US law.

A similar conclusion was reached by the Court with regard to Hong Kong law, in that the Federal Reserve Board lacks sufficient judicial qualities for being considered as a “court or tribunal” for the purposes of the EO (§84). In particular, the Court remarked that the Federal Reserve Board sits in its own cause by being “both the decision-maker and a party to the proceedings leading to its own decision” (§83).

The combined effect of the above is that as the Federal Reserve Board (or the ALJ) is not a “court or tribunal” under US law or Hong Kong law, the Court therefore lacks jurisdiction under section 75 of the EO to make the Order and it ought to be set aside.

Ground 2: Material Non-Disclosure

Although the Order could be set aside alone on Ground 1, the Court moved on to consider other grounds advanced by the Witnesses, including the ground of material non-disclosure, where the Witnesses complained that various matters were not placed before the Master by AB in the ex parte application (§108). The Court found that:

(i) there was indeed material non-disclosure in relation to the risk of self-incrimination and prosecution in Hong Kong and/or in the US, where criminal investigations had been taken and could well be ongoing (§110); and

(ii) a statement from a Witness (X) previously obtained was subsequently withdrawn (§107, 117-118).

The Court was therefore of the view that the non-disclosure was material and relevant to the exercise of the Master’s discretion, leading to the setting aside of the Order and that no re-grant would be appropriate (§141).

“Civil Proceedings” under the EO

Separately, the Witnesses raised the argument that the US Proceedings should not be considered as “civil proceedings” under section 74 of the EO. Section 74 of the EO defines “civil proceedings” as “proceedings in any civil or commercial matter”, which is taken directly from Article 1 of the Convention. Per the case of In re Norway’s Application (Nos 1 & 2) [1990] 1 AC 723, jurisdiction would only be established if the relevant proceedings were proceedings in a civil or commercial matter under the law of both the requesting state and requested state (§89).

The Court highlighted the connection between Ground 1 and the issue of whether the proceedings concerned are “civil proceedings”, noting that the latter is secondary to the first in that it is not necessary to consider this issue “if the requesting body is not a ‘court or tribunal’ for the purposes of section 75” of EO (§92). However, if this issue is to be considered alone, the Witnesses would not succeed for the following reasons:-

(i) although the experts could only conclude that the proceedings were “administrative proceedings which are similar to civil proceedings”, the Court concluded that Hong Kong courts should not decline jurisdiction to make the Order as (i) the LOR itself stated that the US Proceedings are “a civil proceeding” (§94), (ii) “the sanctions sought are civil sanctions (by nature and by label) as a matter of US law”, and (iii) “any appeal to a court from the Board’s decision would likely be regarded as a ‘civil appeal’” (§99); and

(ii) given that all proceedings which are not criminal proceedings are considered as civil proceedings under Hong Kong law, having regard to the procedural and surrounding nature of the US Proceedings, the Court concluded that the US Proceedings are “civil proceedings relating to a civil matter, denying them the character of criminal proceedings” (§103) under Hong Kong law. In reaching the conclusion, the Court also took into account of the Federal Reserve Board’s function, the main purpose and the sanctions sought in the US Proceedings (§104).

Key takeaways

The decision is significant in that it sets a precedent for the court to set aside examination orders giving effect to letters of requests issued by foreign requesting states for having no jurisdiction if the court considers that foreign authority issuing the letter of request is not a “court or tribunal” under the EO.

The decision also sheds light on what may be considered as “civil proceedings” under the EO, particularly on proceedings of administrative nature where the position has all along been nuanced.

Last but not least, the case is a reminder that applicants must comply with the duty of full and frank disclosure of materials facts when making an ex parte application to the court.  In making an application of similar nature, the applicant should disclose the risk of self-incrimination on the part of the witnesses in both Hong Kong and in the relevant foreign jurisdiction.

Representations

Norton Rose Fulbright Hong Kong acted for Witness X in the action.