The basis on which the Singapore Exchange Securities Trading Limited ("SGX-ST") exercises its powers under its Listing Rules has long been a source of debate among commentators. Prior to the recent decision in Yeap Wai Kong v Singapore Exchange Securities Trading Ltd  SGHC 103 ("YWKvSGX"), there were two views on the source of the SGX-ST's power under its Listing Rules: firstly, the powers arise by virtue of the contract each company admitted for listing on the SGX-ST enters into with the SGXST, and secondly, the powers are derived from the Securities and Futures Act and the statutory underpinnings of the SGX-ST's functions as market regulator.
The significance of this distinction was supposedly that only if the SGX-ST was exercising powers derived from statute in carrying out its functions as market regulator would it be deemed to be exercising a public function, and accordingly its decisions would be subject to judicial review. YWKvSGX has affirmed that certain acts of the SGX-ST are susceptible to judicial review, and this article attempts to shed light on the basis of the Honourable Justice Philip Pillai's decision as well as the impact on both the SGX-ST and market participants.
The brief facts of the case are as follows: The applicant, Yeap Wai Kong ("Yeap") was a nonexecutive, independent director and member of the Audit Committee of China Sky Fibre Chemical Limited ("China Sky"), a company incorporated in the Cayman Islands and listed on the SGX-ST. The SGX-ST had noticed discrepancies in China Sky's financial statements and on 19 April 2011 asked China Sky to furnish certain information, which was not provided to the SGX-ST despite several requests. On 23 August 2011, the SGX-ST sent a 'show cause' letter addressed to China Sky and collectively its board of directors (but not to the individual directors by name) for breaching the SGX-ST's Listing Rules through non-disclosure of documentation in relation to discrepancy on a land acquisition agreement.
This was followed by a document directive from the SGX-ST on 3 November 2011, requiring China Sky to deliver specified documents to the SGX-ST. On 16 November 2011, the SGX-ST also ordered a special auditor be appointed by China Sky. China Sky failed to comply with these directions, despite the SGX-ST setting a deadline of 2 December 2011, and on 16 December 2011 the SGX-ST publicly reprimanded all the directors of China Sky, including Yeap for failure to comply with the Exchange's directive pursuant to Listing Rule 704 (14) to appoint a Special Auditor. The application in YWKvSGX came about when Yeap subsequently sought a court order quashing his public reprimand, on the basis that he was not accorded a fair and proper hearing and that the show-cause letter had not been addressed to Yeap as an individual director.
Basis for Pillai J.'s decision in YWKvSGX
Pillai J. considered the case law on judicial review, such as the English case of Reg v Panel on Take-overs and Mergers, ex parte Datafin plc And Another  1 QB 815 and Singapore cases such as Public Service Commission v Lai Swee Lin Linda  1 SLR 644 and UDL Marine (Singapore) Pte Ltd v Jurong Town Corp  3 SLR 94. In coming to his decision, Pillai J. took into account the legislative and regulatory matrix of the Singapore securities market, the statutory underpinning of the SGX-ST's power to reprimand and the nature of the reprimand function.
Pillai J. noted that the public reprimand of directors of a listed company by the SGX-ST, a front-line securities regulator, carries financial and business implications and that the SGX-ST's public reprimand of a listed company's directors accordingly may potentially impact a director both domestically and internationally (for example, business reputational implications, implications on their continued service on board committees and directorships of other listed companies and other professional and financial services licence implications).
Therefore Pillai J. held that the reprimand power would properly be characterised as a public function by its nature and consequently susceptible to judicial review for minimum compliance with the standards of "legality, rationality and procedural propriety" after consideration of the case law and various factors listed out.
What constitutes a fair hearing?
Pillai J. held at paragraph  of the judgment that "The common law prescribes minimum standards of procedural propriety by requiring a fair hearing and the absence of bias. There is no one-size-fits-all template for a fair hearing; instead, what constitutes a fair hearing will depend on the nature and context of each decision." His Honour further added that "in the context of disclosure of information in the securities market, it requires that the person affected is informed of the case against him and that he has an opportunity to make representations before the decision for a public reprimand is made."
In deciding that Yeap had been accorded a fair hearing, Pillai J. took note of two key issues: firstly, the reprimand by the SGX-ST came only after a lapse of six months of continuing nondisclosure and non-compliance with various directives of the SGX-ST by China Sky, and secondly, as regards to the fact that the showcause letter was not addressed to Yeap personally, "if any individual director wished to put his personal representation ... which was at variance with their subsequent directors' approved Company announcements and communications to SGX-ST, he had full opportunity to do so".
Pillai's J. decision to allow judicial review with regards to the SGX-ST's exercise of its powers of public reprimand leaves open the ambit of the court's power to review other types of decisions by the SGX-ST in carrying out its functions regulating the market for listed securities. However, the facts of this case are confined only to judicial review with regards to public reprimand which clearly has the potential to severely impact a director personally. Pillai J. did not go so far as to rule that the entirety of the SGX-ST's exercise of its powers is within the domain of judicial review. It remains to be seen if judicial review is available for light sanctions by the SGX-ST in the form of fines or warnings that would not put the company or directors in the public limelight.
It is also unclear to what extent judicial review will be available with regard to the governance of other approved exchanges in Singapore, in particular for exchanges that have a robust internal control system. For instance, if an exchange has a transparent selection of discipline committee procedure in place as well as a right to appeal with the appeal committee separate from the original disciplinary committee, it remains to be seen if the High Court would grant a judicial review given that the aggrieved has already been accorded a right to fair hearing and appeals process.
However, the argument that was put forward by the SGX-ST, that it exercised its powers by virtue of the contract embodied in its rules, and its decisions to enforce its rules vide public reprimand were on that basis outside the scope of judicial review, was firmly laid to rest by the decision in YWKvSGX.
YWKvSGX also serves as a lesson for directors, in particular for independent directors that they carry personal responsibility for the company's actions. It is the authors' suggestion that if an individual director is of the opinion that the company is heading in the wrong direction and failing to comply with regulatory standards, notwithstanding their own efforts on the board to steer the company in the right direction, proactive steps to disassociate themselves from the company's actions are needed, if they wish to avoid sharing responsibility for them.
This update is provided to you for general information and should not be relied upon as legal advice.
Specific Questions relating to this article should be addressed directly to the author.