Aa and Another v. The Securities and Futures Commission

HCAL 41/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 41 OF 2016

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D E C I S I O N

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Introduction

1.This is a mention hearing to address two matters in relation to the substantive hearing for judicial review following the grant of leave by this Court on 5 May 2016. 

2.The first matter concerns the applicants’ application under the affirmation of Chik Man Dick Michael filed on 28 June 2016 for leave for substituted service of the court documents set out in paragraph 3 of the affirmation on the Financial Services Agency (FSA) and Securities and Exchange Surveillance Commission (SESC) in Japan by way of international courier to their offices in Japan. 

3.The second matter concerns the application by the Securities and Futures Commission (SFC) by way of summons issued on 7 July 2016 to set aside the ex parte leave granted to the applicants by this Court on 5 May 2016 on the ground of delay and lack of reasonable arguability in the grounds of challenge set out in the applicants’ Amended Form 86. 

Application for substituted service on the Japanese parties

4.In the Amended Form 86 the FSA and SESC are named as interested parties in the present proceedings.  See Order 53 rule 4A(2)(b) of the Rules of the High Court (RHC).  See also Order 53 rule 1A where “interested party” in relation to an application for judicial review, means any person (other than the applicant and respondent) who is directly affected by the application. 

5.The applicants are applying for judicial review against the SFC for relief that includes, a declaration that the SFC acted unlawfully in transmitting compelled answers, testimony and documents to the FSA and SESC in Japan absent a binding prohibition against the use in criminal proceedings in Japan and/or proper assurance by the FSA and SESC against the answers, testimony and documents (or their contents) being leaked to the media and otherwise made public; and a declaration that section 181 of the Securities and Futures Ordinance, Cap 571, contravenes Article 10 of the Hong Kong Bill of Rights Ordinance, Cap 383, (section 8), and is unconstitutional.

6.I have already given a detailed account of the present proceedings and the grounds upon which it is being advanced in my written decision dated 5 May 2016 and a very brief summary will suffice for present purposes in dealing with this application. 

7.The matter giving rise to the application for judicial review is in relation to a regulatory investigation by the SFC in respect of the 1^st applicant’s trading of shares in a company listed on the Tokyo Stock Exchange.  During the course of the investigation, the applicants were compelled pursuant to the SFC’s statutory powers to provide certain information in response to requests made by the SFC.  The SFC subsequently shared some of the information provided by the applicants with the FSA and SESC.  After receiving the information provided by the SFC, the FSA in Japan commenced “administrative proceedings” against the 1^st applicant in Japan where the FSA alleges that the 1^st applicant violated Japanese law by its trading of shares in the Japanese company.

8.By the present proceedings the applicants are challenging the lawfulness of the SFC’s collection of information and sharing of it with the FSA and SESC.

9.It is submitted by the applicants that the rights and obligations of the FSA and SESC do not fall to be determined in the present proceedings and they are only interested parties in the broader sense contemplated by Order 53 rule 5 of the RHC. 

10.It is further submitted by the applicants that the present proceedings do not give rise to any issue of foreign sovereign immunity.  Such an issue arises where a domestic court is called upon to determine the lawfulness of the actions of a foreign Government, whether under international law or under the domestic law of that State.  See FG Hemisphere Associates LLC v Democratic Republic of Congo [2009] 1 HKLRD 410 at §§128-133; in the Court of Appeal [2010] 2 HKLRD 66 at §§14-17, 22-23, 178 and 280; and in the Court of Final Appeal (2011) 14 HKCFAR 95 at §§19-21 and 415(c). 

11.As is apparent from the Amended Form 86, the applicants are not challenging the lawfulness of the conduct of any foreign government bodies in these proceedings and no relief is sought against the FSA and SESC.

12.Pursuant to Order 53 rule 5 of the RHC, the originating summons in these proceedings must be served on all persons directly affected and therefore the FSA and SESC should be served with the court documents as interested parties even though, as contended by the applicants, their legal rights do not fall to be determined in these proceedings.

13.As the FSA and SESC are foreign state agencies, the prescribed course is to make an application for leave to serve out of the jurisdiction pursuant to Order 11 rule 7 of the RHC. The applicants make the point that such an order would be inapposite because of practical difficulties in ensuring service through diplomatic channels.  I am informed that since the change of sovereignty requests made to the Chief Secretary to serve a foreign state out of the jurisdiction are forwarded to the Ministry of Foreign Affairs of the People’s Republic of China.  However, according to the commentary in Hong Kong Civil Procedure, 2016, at paragraph 11/7/1A, the Ministry refuses to effect service through diplomatic channels and the Chief Secretary therefore cannot proceed further.  It would seem therefore that there may be practical difficulties in formally serving the court documents in the present proceedings on the FSA and SESC.

14.On 17 May 2016, the applicants’ solicitors wrote to the FSA and SESC in both English and Japanese enclosing the relevant court documents.  I am told that the letter was sent by international courier and informed the Japanese parties that both had been named as interested parties in these proceedings and they were requested to acknowledge service of the documents by way of courier correspondence and agree to stay the “administrative proceedings” pending resolution of the present proceedings.  I am informed that no replies have been received, although it would appear that the Japanese parties have received the documents, as mentioned of the request to stay the proceedings was recently made at a recent hearing in the administrative proceedings in Japan.

15.The SFC takes a neutral stance in relation to the applicants’ application for substituted service on the Japanese parties.  I am informed by Mr Jonathan Chang, for the SFC, that there exists a formal arrangement between the SFC and the Japanese parties and accordingly there is a formal line of communication between them over this matter. 

16.In light of the foregoing, I am satisfied that there are clear impracticalities in serving the court documents in the manner prescribed and therefore an order for substituted service is just and expedient in the circumstances of this case.  I also note that it is an essential component of service of process to bring knowledge of the proceedings to the relevant party and on the information before me that has been achieved by the applicants’ solicitors letter of 17 May 2016. 

17.I grant leave for substituted service under Order 65 rule 4(1) of the RHC on the FSA and SESC by way of international courier on them at their official offices and I also deem that the applicants’ solicitors letter of 17 May 2016 attaching the court documents to have satisfactorily complied with the order for substituted service. 

Application to set aside the ex parte leave order

18.When this Court granted the ex parte application for leave to commence judicial review, it expressly preserved the right on the part of the SFC to oppose leave on the ground that no extension of time ought to be granted to the applicants. 

19.It is the SFC’s position that there were no good reasons to extend time for the applicants to apply for leave to commence the present proceedings, for the reasons as set out in the affirmation of Chan Kwok Ho Jimmy filed on 7 July 2016.  He points out that in the third Section 183 Notice issued on 22 October 2014, the applicants were notified that they would be interviewed as part of the SFC’s assistance to the FSA and SESC and an officer of the FSA participated in an interview on 27 and 28 November 2014. 

20.He submits that the applicants must have realised that the information gathered in the SFC’s investigation would be shared with the FSA and SESC.  He states that at least by 5 December 2014, when the SESC issued the SESC Announcement recommending the administrative monetary penalty against the 1^st applicant, the applicants must have known as a fact that the SFC had shared information gathered in its investigation with the FSA and SESC.  He states that this was clearly apparent in the letter dated 13 October 2015 from the solicitors for the applicants to the SFC. 

21.He further submits that it is inaccurate for the applicants to contend that at the time of filing at the present application the SFC’s exchange of information took place one or more times between 22 October 2014 and 2 December 2014, when the true situation was clear to the applicants on 5 December 2014 when the SESC made the SESC Announcement. 

22.He finally submits that the explanation from the applicants that they waited for the SFC to confirm that the exchange of information had taken place is unconvincing and does not amount to a good reason to extend time.  He states that no inquiry was made with the SFC since 5 December 2014 until the solicitors for the applicants wrote to the SFC on 13 October 2015. 

23.Where there is an issue of delay in making an application for judicial review, the Court of Appeal in its decision in BI v Director of Immigration [2016] 2 HKLRD 520 made the following observations and suggestions:

(1) If leave has been granted, unless it was set aside in the meantime, the court has no jurisdiction at the substantive hearing to re-open the question of leave: paragraph 135.

(2) If the court granted leave with extension of time on an ex parte basis, it is open to a respondent to apply to set aside such leave at an inter partes hearing: paragraph 137.  Accordingly, two procedural options are then open to the court:

(a) hearing and disposing of the respondent’s application to set aside the ex parte leave separately ahead of the substantive hearing; or

(b) directing a rolled-up hearing for the respondent’s setting aside leave application to be heard together with the substantive hearing of the judicial review.

(3) It is ultimately a matter of case management by the judge as to which of the above two procedural options to take: paragraph 138.  In a very straightforward or clear cut case, it may be that hearing and disposing of the setting aside leave application separately ahead of the substantive hearing of the judicial review may be appropriate.  If the judge considers that all issues (both procedural and substantive) should be dealt with together in one go by reason for example of urgency or other public interest, a rolled-up hearing may be more desirable. 

24.The SFC submits that the Court should take the approach of a rolled-up hearing for the setting aside leave application and the substantive judicial review because the Court may wish to consider the merits when dealing with the setting aside leave application.  This is so because one of the SFC’s grounds in setting aside leave is the lack of reasonable arguability in the grounds of challenge set out in the applicants’ Amended Form 86 and further the merits, or the lack thereof, of the judicial review is one of the relevant factors on the question of whether time for leave to apply for judicial review ought to be extended. 

25.There was no opposition to this approach from the applicants, and from my point of view it would seem more expedient and cost-effective to have both the setting aside leave application and the substantive judicial review heard together. 

Conclusion

26.In light of the foregoing, I grant the applicants’ application for substituted service on the Japanese parties and I will fix the setting aside leave application to be heard together with the substantive judicial review.  

Mr Gerard McCoy, SC, and Mr Timothy Parker, instructed by Norton Rose Fulbright Hong Kong, for the 1^st and 2^nd applicants

Mr Jonathan Chang, instructed by the Securities and Futures Commission