July 27, 2021 court of first instance - Orders
Claim No. CFI 065/2021
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
ARIF NAQVI
Claimant/Applicant
and
THE DUBAI FINANCIAL SERVICES AUTHORITY
Defendant/Respondent
ORDER WITH REASONS OF JUSTICE SIR JEREMY COOKE
UPON the urgent application filed on 16 June 2021 (numbered CFI-060-2021/1) and supporting Witness Statement of Mr Stuart Walker, solicitor for the Applicant, dated 15 June 2021 filed in support of the application
AND UPON the Applicant undertaking to file an application for permission to apply for judicial review by no later than close of business on 24 June 2021
AND UPON the Consent Order issued on 16 June 2021 in CFI-060-2021
AND UPON the Claimant filing an Application for Judicial Review on 7 July 2021 (the “Application”)
AND UPON the Defendant’s response filed on 7 July 2021
AND UPON the Claimant’s reply filed on 8 July 2021
IT IS HEREBY ORDERED THAT:
1. Permission to apply for Judicial Review is refused.
2. The Claimant to pay the Defendant’s costs of the Application, such costs to be the subject of assessment by the Registrar, if not agreed.
Issued by:
Nour Hineidi
Registrar
Date of issue: 27 July 2021
At: 8.00am
SCHEDULE OF REASONS
1. The Claimant (“Mr Naqvi”) served a 26 page Statement of Facts and Grounds in support of the Claim Form requesting permission to seek judicial review of the decision (the “Decision”) of the Dubai Financial Service Authority (the “DFSA”) dated 19 April 2021 in the regulatory proceedings in which a Preliminary Notice had been issued against Mr Naqvi on 19 January 2021 (“Regulatory Proceedings”). The Decision was in fact made by the Decision Maker appointed by the DFSA under Article 36 (h) of DIFC Law No 1 of 2004 (the “Regulatory Law”), namely the Right Hon. Sir Stanley Burnton.
2. This Ruling should be read together with the Decision. Nothing has happened since the date of the Decision which changes the position with regard to the alleged prejudice that Mr Naqvi says he will suffer if the Regulation Proceedings are not stayed pending the outcome of the US criminal proceedings which are referred to in the Decision (the “US Criminal Proceedings”), the Statement of Facts and Grounds and the Defendant’s Summary Grounds of Opposition. The Statement of Facts and Grounds was supported by an extensive bundle of documents of which the most important are the Decision itself, the Third Witness Statement of Mr Stuart Walker, a Partner in the firm of solicitors representing Mr Naqvi in DIFC and the Witness Statement of Mr Robert Allen, a Partner in the firm of lawyers representing Mr Naqvi in the US Criminal Proceedings.
3. The relevant test for the imposition of a stay of other proceedings, whether civil, on the one hand, or regulatory, on the other, when there are pending criminal proceedings, was not the subject of any real dispute between the parties. It was agreed that DIFC law should follow English law in this respect and that the essential test was set out by Neill LJ in R v Panel for Takeovers and Mergers, ex parte Fayed [1992 BCC 524]:
“It is clear that the court has power to intervene to prevent injustice where the continuation of one set of proceedings may prejudice the fairness of the trial of the other proceedings….. But it is a power which has to be exercised with great care and only where there is a real risk of serious prejudice which may lead to injustice”.
4. The only real difference between the parties concerned the reliance placed by Mr Naqvi on the decision in R v Institute of Chartered Accountants in England and Wales, ex parte Brindle [1994] BCC 297 where Hirst LJ stated that:
4.1. it was inherently unfair that two tribunals should contemporaneously be considering the same issue; and
4.2. if a disciplinary hearing was permitted to go ahead, daily transcripts and extensive papers and/or memoranda emanating from both sides would come into existence which would be discoverable in the civil litigation which would give a substantial and unfair advantage to the party other than the party which was subject to the disciplinary enquiry.
5. The first proposition is not supported by other authorities and, as the second, once again the notion that any such advantage would be unfair is not supported by other authorities which are to contrary effect.
6. In the Decision, the Decision Maker recognised that there were “Overlapping Allegations” in the Regulatory Proceedings and the US Criminal Proceedings. He unsurprisingly dismissed the argument put forward by Mr Naqvi that the DFSA was not the correct forum to determine the Overlapping Allegations on the basis that:
6.1. regulatory proceedings in the jurisdiction in which financial transactions take place serve an important function, regardless of the fact that Overlapping Allegations may also amount to criminal conduct;
6.2. there are important differences between Regulatory Proceedings and US Criminal Proceedings, including the standard of proof to be applied and the evidence which is admissible;
6.3. there is no basis for saying that there should only be one set of proceedings and it is entirely possible for Criminal Proceedings and Regulatory Proceedings to arrive at different conclusions;
6.4. Mr Naqvi was resisting extradition from the UK to the US for the purpose of the US Criminal Proceedings there, and was not therefore accepting in the UK that the US was an appropriate forum at all;
6.5. in the US District Court for the Southern District of New York, Mr Naqvi had objected to the stay of the Civil Proceedings brought by the SEC pending the conclusion of the US Criminal Proceedings, on the ground that a stay would prevent him from expeditiously clearing his name. At that time, he plainly envisaged parallel sets of proceedings in which the civil claim would get to trial first. The stay appears to have been granted on the basis of a risk arising from the taking of depositions in the US Civil Proceedings, a practice which, course, does not arise in the Regulatory Proceedings;
6.6. there was, furthermore, no certainty that the US Criminal Proceedings would take place at all, whilst the appeal made by Mr Naqvi against the extradition order was still pending; and
6.7. there is the potential for considerable delay, if a stay of the Regulatory Proceedings is granted. (The evidence suggests that a criminal trial in the USA would not take place until sometime in 2022).
7. The Decision Maker went on to consider whether a premature determination of the Overlapping Allegations would jeopardise Mr Naqvi’s right to a fair trial in the US. That is the key issue. He concluded that an earlier determination in the Regulatory Proceedings would not result in any serious prejudice to Mr Naqvi. It is submitted on behalf of Mr Naqvi, and accepted by the DFSA, that this Court is not exercising a Wednesbury review of the Decision and has to reach its own conclusion as to the “real risk of serious prejudice” which might lead to injustice.
8. Nonetheless, I have concluded, after examination of the material afresh, including the Witness Statements which were not before the Decision Maker, that there is no prospect of success on any judicial review of the Decision and that permission to apply for such a review should not be given. Whilst it is said that all that Mr Naqvi has to show is an arguable case, when the authorities are analysed and the limited basis upon which it is said that there would be prejudice suffered by Mr Naqvi, it is clear to me that it cannot properly be said that there is a real risk of serious prejudice which might lead to injustice to him if the Regulatory Proceedings were not stayed.
9. The essence of the alleged prejudice appears in paragraph 76 and 77 of the Statement of Facts and Grounds. It is now said that:
9.1. Both the Regulatory Proceedings and the US Criminal Proceedings will traverse in detail the same events but, as the Decision-Making Committee of the DFSA is only an administrative body which does not, for example, hear oral evidence, it cannot subject the evidence to the same level of scrutiny that will take place in the context of the US Criminal proceedings before a jury. It is said to be “inherently unfair” that two tribunals should contemporaneously be considering the same issue and that the unfairness is compounded where one decision-making body is only exercising an administrative function.
9.2. In the absence of a stay, the Prosecutor in the US Criminal Proceedings will have access to documents generated in the course of the Regulatory Proceedings, which would not otherwise have come into existence and would thus gain a substantial and unfair advantage.
9.3. Were Mr Naqvi to engage fully in the Regulatory Proceedings in order to defend himself, he would have to sacrifice his fundamental right to silence in the parallel criminal proceedings. The effect would be that he would no longer be able to exercise his 5th Amendment Right to stay silent and avoid self-incrimination. This would inevitably impact the strategy for the defence of the US Criminal Proceedings so as to risk serious prejudice to the fairness of those proceedings.
9.4. The US Prosecutor would seek to access any and all documents generated in the course of the Regulatory Proceedings and would seek to use those documents in evidence in the Criminal Proceedings against Mr Naqvi.
9.5. Early access to such material could lead to the US Prosecutor seeking to amend its case against him, so as to strengthen it.
9.6. As Mr Naqvi faces a potential life sentence, if convicted, there is a real risk of prejudice to him if the Regulatory proceedings are not stayed.
9.7. This is not said to be a case where there are any safeguards which could be put in place so as not to prejudice Mr Naqvi’s position in the US Criminal Proceedings because the DFSA has stated that if further material is required by the US authorities, or required or permitted under the Regulatory Law (or any other law), the DFSA cannot agree not to provide further material obtained by it to the US authorities.
10. In the context of an application for the grant of a stay of civil procedure in England, to await the outcome of criminal proceedings in Lithuania, Gloster J (as she then was) set out at paragraph 18 the relevant principles to be applied. Mr Naqvi ‘s Statement of Facts and Grounds at paragraph 58 cited that paragraph of her judgment and set out those principles and it is only necessary to point to subparagraphs (iii), (iv), (vi) and (viii) of it, which, together, sound the death knell to this application.
10.1. the applicant must point to a real, and not merely a notional, risk of injustice;
10.2. the fact that a person has a right to remain silent in criminal proceedings and would, by serving a defence in civil proceedings, be giving advance notice of his defence, carries little weight in the context of an application for a stay of civil proceedings;
10.3. there is no right to invoke the privilege against self-incrimination in relation to putting in a defence, as compared with the right in civil proceedings to invoke the privilege where a defendant is being interrogated, being compelled to produce documents or cross-examined;
10.4. a positive defence is likely to exculpate, rather than incriminate a defendant; and
10.5. a defendant has a choice between remaining silent in the civil proceedings or risk giving an indication of his defence which may be used by the prosecuting authorities. The latter is not a good grounds for staying civil proceedings in the ordinary way.
11. Here the issue arises in relation to Regulatory Proceedings and not Civil Proceedings. Both can continue without necessary impact on the other because they are concerned with different considerations and proceed on different bases. Mr Naqvi does not have to incriminate himself in one jurisdiction or the other. Mr Naqvi has different options open to him. Thus far, he has declined to offer any defence in the Regulatory Proceedings which have led to the Preliminary Notice. It is open to him to make representations in the Regulatory Proceedings before the issue of any Final Notice, in which case there is the possibility that this material may become available for use in the US Criminal Proceedings. That might provide the US Prosecutor with a clue as to the defence which Mr Naqvi might run in the criminal proceedings or provide material for cross-examination of Mr Naqvi, should he choose to give evidence in those proceedings. It is equally open to him to decide not to make any representations in the Regulatory Proceedings, whether because of any potential impact on the US Criminal Proceedings, or for other reasons. He is not bound to put forward a defence of any kind in either jurisdiction and his 5th Amendment rights are not therefore prejudiced by the continuation of the Regulatory Proceedings or his decision whether or not to participate in them.
12. As the Decision Maker said at paragraph 21 of the Decision, “the loss of the element of surprise in the US proceedings” by virtue of setting out a defence in the Regulatory Proceedings is not serious prejudice. It certainly is not enough to create a real risk of injustice. He relied on the dictum of the Privy Council in Panton v Financial Institutions Services Ltd [2003] UK PC 86:
“A stay would not be granted simply to serve the tactical advantages that the defendants might want to retain in criminal proceedings. The accused’s right to silence in criminal proceedings was a factor to be considered, but that right did not extend to give a defendant as a matter of right the same protection in contemporaneous civil proceedings. What had to be shown was the causing of unjust prejudice by the continuance of the civil proceedings.”
13. Questions of prejudice suffered by the DFSA are neither here nor there. The balance which has to be drawn, if there is a risk of serious prejudice leading to injustice for the accused, is between that prejudice and the public interest in the prompt and efficient operation of the relevant regulatory scheme, with its Regulatory Proceedings. The allegations in the Preliminary Notice relates to conduct which has been admitted by ACL and AIML, which concerns serious breaches of DIFC legislation carried out by a business which had chosen to base itself in the DIFC and which implicate, critically, the regulatory standards and reputation of the DIFC as a financial centre. Mr Naqvi was the CEO, who is alleged in the Preliminary Notice to have played a central role in the events which led to the liquidation of these companies and substantial losses to investors. If there is any risk of prejudice at all, that is what would have to be weighed in the balance.
14. In my judgment, however, as submitted by the DFSA, there is no real risk of serious prejudice to Mr Naqvi, who failed to identify any risk at all until 15 March 2021, when having sought further time to respond to the Preliminary Notice, he sought a stay. The existence of overlapping issues does not show a real risk of serious prejudice. It may be a necessary requirement to show serious prejudice, but it is not a sufficient one. One set of proceedings will not determine the outcome of the other, in either direction and, as it now appears from the latest material, there is unlikely to be any new material generated by the Regulatory Proceedings which is not already in the hands of the DFSA or the US authorities, being documents contemporaneous to the time of the alleged misdoings.
15. So far as concerns the effects of publicity of the Regulatory Proceedings, there is no evidence before the Court that press coverage, which would inevitably follow on the publication of a Final Decision by the DFSA, would have a serious effect in swaying public opinion in the US or the jury, who will doubtless receive instructions from the trial judge about proceeding only on the basis of the evidence before the court. Any Final Decision would doubtless be inadmissible in a criminal trial in the US and it is not contended otherwise. It is a matter for the DFSA and FMT whether or not to impose restrictions on publication.
16. In the circumstances and for the above reasons, the application for permission for judicial review is refused and costs must follow the event.
