THE Securities and Futures Commission (SFC) was dealt a blow yesterday after the Court of Appeal quashed the decision of the Panel on Takeovers and Mergers against William Cheng Kai-man's dealings in shares of Shun Ho Resources in 1988. The court ruled there was a real possibility of bias on the part of Stephen Clark, of merchant bank Anglo-Chinese Corporate Finance, who was a member of the panel which investigated into Mr Cheng's conduct. Accordingly, Mr Cheng's appeal against the order of Mr Justice Liu on February 17, who dismissed his application for judicial review of the panel's decision, was allowed. With the ruling, the panel can no longer order Mr Cheng to pay $50 million in compensation to Shun Ho shareholders or make a ''cold-shoulder'' order against him, at least for the time being. Under the cold-shoulder order, the services of dealers and advisers, including brokers and merchant bankers, will be withheld from Mr Cheng for a set period. The panel's planned meeting next week, which was supposed to discuss the enforcement of the cold-shoulder order, will be postponed. The SFC has two options remaining. One is to appeal against the ruling to the Privy Council, the other is to reconvene an inquiry by the takeovers panel into Mr Cheng's conduct in 1988 with a panel that excludes Mr Clark. SFC spokesman Wesley McDade would not comment at this stage because he said the SFC was waiting for the written judgment from the court. He said the SFC would consider its options after receiving the written ruling. Speaking outside the courtroom after the ruling, Mr Cheng said he was not afraid of a new inquiry, and questioned the jurisdiction of the takeovers panel in ordering remedial compensation in relation to his conduct in 1988. He said the issue was a personal matter which should not affect the operations of Shun Ho, of which he is chairman. According to the panel's findings, which were published at the end of January, Mr Cheng failed to make a general offer to Shun Ho shareholders in 1988 after he raised his interest in the company above the 35 per cent threshold. He was severely censured by the panel. A statement issued by Carey & Lui on behalf of Mr Cheng said the panel's decision was ''completely null and of no effect'' as a result of the Court of Appeal's ruling. The ruling was handed down on the fourth day of the hearing, which took place before Mr Justice Penlington, Mr Justice Godfrey and Mr Justice Barnett. Mr Cheng, in his submission, said Mr Clark had apparent bias and a direct pecuniary interest, and that he should have been disqualified from the panel. The implications of a letter Mr Clark wrote to the SFC on April 9, 1991, and an agency agreement entered into between Anglo-Chinese and Mr Cheng's corporate vehicle, Royle Corp, last year were the centre of arguments.