Carecraft procedure – things to look out

What is Carecraft procedure?

The Carecraft procedure, originating from the case Re Carecraft Construction Co Ltd [1994] 1 WLR 172, provides a mechanism for settling legal proceedings and expediting case disposal. It involves both parties agreeing on a statement of facts, which then forms the basis for the judge’s decision on the appropriate orders to be made, thus eliminating the need for a full trial. This procedure is commonly employed in proceedings under section 214 of the Securities and Futures Ordinance (Cap. 571) (SFO), where the Securities and Future Commission (SFC) seeks disqualification orders from the Court against directors of a listed company who are found to have been involved in misfeasance or other misconducts. The Carecraft procedure allows for an efficient, economical, and expeditious disposal of proceedings, contributing to the public interest by simplifying and accelerating administrative procedures, avoiding substantial costs that would otherwise be incurred if there is a trial.

While the Carecraft procedure provides an efficient mechanism for settling cases, it’s important to understand that the court retains full discretion and is not bound by the agreed facts and proposal submitted in the Carecraft Schedule produced by the parties. The court remains open to make its own findings regarding the facts, assess whether the facts would fall under the ambit of section 214 of the SFO, and decide if the agreed facts would warrant the proposed order. In the case of a disqualification order sought against a director, the court also determines the appropriate period of disqualification and/or any other relief.

However, the court is usually guided by the agreement between the SFC and the party unless the proposed orders fail to adequately reflect or are inconsistent with the agreed facts. In the case of a director disqualification proceeding, the court could view the director’s cooperation and prompt consent to the Carecraft Procedure and the orders proposed by the SFC as mitigating factors, which can potentially lead to more lenient sanctions. Hence, even though the court might disagree with the proposed terms, the Carecraft procedure still offers significant advantages in managing legal proceedings.

What happens if the court does not adopt the proposed order?

In the event that the court does not adopt the proposed order, parties have the option to consider several potential recourses. The primary approach involves negotiating and revising the proposed order with the SFC to specifically address the concern(s) raised by the court. For instance, if the court expresses concerns about certain aspects of an agreement, such as the appropriateness of carving out certain company that would not be subject to the proposed disqualification order, it’s crucial to promptly and appropriately address these issues. In this regard, the court could allow parties’ legal representative to make open submissions in court as to why such carve-out would be justified. If the court is still not satisfied or convinced, it could grant leave for the respondent to file additional evidence to alleviate these concerns. In such circumstances, the respondent should be prepared to provide further evidence by way of filing affidavit(s) to clarify and substantiate the position, explain the nature of the entities in question, and describe the respondent’s role in those company. It's important to bear in mind that the Court holds broad discretion in such matters, and the parties should grasp every opportunity to provide the necessary information and context to guide the court.

Key takeaways

• The Carecraft procedure is a settlement and expedited resolution mechanism commonly used in proceedings under section 214 of the SFO. It involves both parties agreeing to a statement of facts, which forms the basis for the judge’s decision on the appropriate orders, thereby eliminating the need for a full trial.
• Although efficient, the court retains full discretion during the Carecraft process. It is not bound by the agreed facts and proposals of the parties and has the power to make its own findings, assessments and decisions under section 214 of the SFO. However, the Court will generally take into account the agreement between the parties and consider the Director's cooperation (in a director disqualification case) as a mitigating factor which may lead to more lenient sanctions.
• If the court does not adopt the proposed order, the parties may consider negotiating and revising the proposed terms to address the court’s concerns. In some cases, the court may allow the respondent to submit additional evidence by way of filing affidavit(s).

Conclusion

In conclusion, while the Carecraft procedure offers an efficient framework for settling legal proceedings, it’s essential to remember that the court’s acceptance of the proposed order is not a mere formality. The court retains broad discretion throughout the process and is not bound to rubber-stamp all the agreed terms. It thoroughly examines the proposed terms and their alignment with the agreed facts, raising concerns and asking for additional evidence or clarifications as necessary.

Therefore, parties should be prepared to revise the proposed terms or providing further evidence to substantiate their position. Ultimately, the goal of the Carecraft procedure is to reach a resolution that is both in the public interest and fair to all parties involved, and the court’s active role in scrutinizing the proposals is an integral part of this process. By understanding these dynamics and proactively addressing them, respondents can navigate the Carecraft procedure more effectively and safeguard the integrity and success of their own interests.

Based on our experience, successfully navigating cases involving the Carecraft procedure requires a delicate balance of strategic negotiation with the SFC and compelling evidence-based arguments to the court. At the end of the day, the respondent must not only attempt to validate the suitability of the proposed order, but also reassure the court that the proposed order would be the most appropriate way to resolve and bring closure to the matter in question.