Zhi Charles v. The Stock Exchange of Hong Kong Ltd and Others

HCA 1618/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1618 OF 2016

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J U D G M E N T

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Introduction

1.This is an application by the 1^st defendant to strike out the present claim against it.  The 1^st defendant contends that the plaintiff’s claim against it in this action is manifestly misconceived and must be struck out.

2.Originally, there were a total of 16 defendants in this action.  It can be seen from the Statement of Claim that the 2^nd to 9^th defendants are various listed companies who had engaged one Herman Tso to issue expert reports on their mining assets.  The 10^th to 16^th defendants are auditors of the 2^nd to 9^th defendants.

3.The 1^st defendant is the Stock Exchange of Hong Kong Limited (“SEHK”).

4.The plaintiff alleges that Herman Tso was plainly an unsuitable mining expert.  He was expelled from membership of the Australasian Institute of Mining and Metallurgy on 12 April 2016.  The plaintiff says that Herman Tso “has never been a Competent Person or mining expert”.

5.The plaintiff then says that under Chapter 18 of the Listing Rules, a technical report by a mining expert is very important.  He then says in paragraph 19 of the Statement of Claim that: “any securities issued on the strength of Herman Tso’s technical or valuation report must be declared ab initio void and must be rescinded or totally recalled since the major condition precedent has never been satisfied in these issues.  Likewise, any initial recognition of the intangible assets consequent to Herman Tso’s technical or valuation report must be voided and be restated with proper technical or valuation reports”.

6.As regards the SEHK, the plaintiff says that it has failed in its duty under section 21 of the Securities and Futures Ordinance, Cap 571 (“SFO”) to ensure, so far as reasonably practicable, an orderly, informed and fair market.  The plaintiff then seeks: –

(1)   A declaration that SEHK is not entitled to claim immunity under section 22 of the SFO.

(2)   A mandatory injunction that the SEHK do send letters to the 2^nd to 9^th defendants to the effect that they be required to conduct investigations on their mining assets to address whether they have been properly reported in the financial statements and “whether the issue of securities was valid”.

(3)   An injunction to restrain the SEHK from allowing the trading of shares in the 2^nd to 9^th defendants. 

7.In the striking out application, SEHK contends that the plaintiff’s claim against it is unsustainable and an abuse of process of the court.  In short,

(1)   The plaintiff’s claim is a civil claim against the SEHK.  Quite apart from SEHK’s statutory immunity (discussed below), there is no viable private law claim against the SEHK to compel it to direct investigations and/or suspend trading of shares.

(2)   The SEHK has a statutory immunity (subject to an exception of bad faith) under section 22 of the SFO, which is another complete answer to the plaintiff’s claim.

(3)   Section 22 of the SFO is plainly constitutional.

(4)   There is plainly no viable claim that the SEHK is guilty of bad faith.

No viable private law claim

8.In contrast to the judicial review proceedings the plaintiff had issued against SEHK and the Securities and Futures Commission (“SFC”) in HCAL 169/2016 seeking certiorari, mandamus and declaration concerning resumption of trading in the 2^nd defendant’s shares, the present claim is a private law claim.

9.Quite apart from the statutory immunity, I agree it is impossible to see how the plaintiff could have a private law claim against SEHK which could entitle him to mandatory orders to require investigations and suspension of trading.

Section 22 of the SFO

10.Further, I agree that any civil claim by the plaintiff must be barred by SEHK’s statutory immunity.  Section 22(1) of the SFO relevantly provides that: –

“… no civil liability, whether arising in contract, tort, defamation, equity or otherwise, shall be incurred by … a recognized exchange company … in respect of anything done or omitted to be done in good faith in the discharge or purported discharge of the duties of the company under section 21 or in the performance or purported performance of its functions under its rules.” (Emphasis supplied)

11.SEHK is a “recognized exchange company” for these purposes.

Section 22 of the SFO is plainly constitutional

12.The plaintiff claims that section 22 of the SFO is unconstitutional.  In particular, the plaintiff challenges the constitutionality of section 22 on the basis that it violates his right to access to courts enshrined under Article 35 of the Basic Law.

13.I agree that this challenge is wholly misconceived and has no chance of success.  The right to access to courts under Article 35 of the Basic Law is simply not engaged: –

(1)   In Matthews v Ministry of Defence [2003] 1 AC 1163 (HL), which concerned a statutory immunity exempting the Crown from liability in tort in certain cases, Lord Hope spoke of the right to access to courts under Article 6 of the European Convention of Human Rights in these terms:

“51. … in order to invoke [the right to access to courts] one must first be able to say that the individual has a claim for the infringement of a civil right. The European Court of Human Rights has made it clear that this is a matter for the domestic law. Article 6(1) does not have anything to say about the content of the individual’s civil rights, nor does it impose an obligation on the state party to confer any particular rights in substantive law on the individual … Article 6(1) extends only to “contestations” over civil rights and obligations which can be said, at least on arguable grounds, to be recognised in domestic law. Where limitations on a person’s right of action are in issue, therefore, there is a dividing line which must be identified between those which are the product of rules of procedure and those which are the product of substantive law.

…

53. … One can at least say that there is a plain and obvious difference in principle between a procedural bar which impairs or restricts the enjoyment or enforcement of a right on the one hand and a substantive bar which prevents an alleged right from ever coming into existence at all.  What Article 6(1) seeks to do is to protect the individual against anything which restricts or impairs his access to the courts for the determination of a civil right whose existence is at least arguable.  But the precise scope and content of the individual’s civil rights is a matter for each state party to determine…”

(Emphasis supplied)

(2)   Similarly, in a case concerning the same statutory immunity as Matthews, the European Court of Human Rights held in Roche v United Kingdom (2006) 42 EHRR 30 that the right to access to courts is procedural (not substantive) in nature:

“116. … Art.6(1) secures to everyone the right to have a claim relating to his civil rights and obligations brought before a court.

117. Article 6(1) does not, however, guarantee any particular content for those (civil) “rights” in the substantive law of the Contracting States: the Court may not create through the interpretation of Art.6(1) a substantive right which has no legal basis in the state concerned. Its guarantees extend only to rights which can be said, at least on arguable grounds, to be recognised under domestic law.

…

119. [The Court] does not find any inconsistency between the autonomous notion of “civil” and the requirement that domestic law recognises, at least on arguable grounds, the existence of a “right”. … [The Court has affirmed] the necessity to maintain that procedural/substantive distinction: fine as it may be in a particular case, this distinction remains determinative of the applicability and, as appropriate, the scope of the guarantees of Art.6 of the Convention. In both these respects, the Court would reiterate the fundamental principle that Art.6 does not itself guarantee any particular content of substantive law of the Contracting Parties.

…

121. Finally, in carrying out this assessment, it is necessary to look beyond the appearances and the language used and to concentrate on the realities of the situation. The Court must not be unduly influenced by, for example, the legislative techniques used or by the labels put on the relevant restriction in domestic law: as the Government noted, the oft-used word “immunity” can mean an “immunity from liability” (in principle a substantive limitation) or an “immunity from suit” (suggestive of a procedural limitation).”

(Emphasis supplied)

(3) In this case, it is clear that the restriction imposed by section 22 of the SFO on a person’s rights to sue is substantive (and not procedural) in nature. Section 22 provides that “no civil liability … shall be incurred” by the SEHK. Thus, I agree that the effect of section 22 is to extinguish the existence of liability, rather than precluding the enforcement of such liability. Applying the principles above, Article 35 of the Basic law is not engaged.

14.In any event, it is well established that the right under Article 35 of the Basic Law is not absolute, but may be subject to limitations.  Such limitations are valid if they pursue a legitimate aim, are proportionate to that aim and are not such as to impair the very essence of the right [see: Ng Yat Chi v Max Share Ltd (2005) 8 HKCFAR 1, at paragraph 73 per Ribeiro PJ].

15.In this case, the purpose of section 22 of the SFO is to ensure that the SEHK’s exercise of power in relation to listing matters would not be hindered by the threat of legal action.  On the question of immunity, it is essential that the SEHK should be able to act firmly and without the fear of liability in relation to listing matters.  This is clearly a legitimate aim.

16.I agree that the restriction imposed by section 22 is proportionate to this aim.  First, although the SEHK may not be sued directly, the SFC may impose various sanctions against the SEHK under section 28 of the SFO in relation to any breach of duties under section 21 of the SFO.

17.Secondly, section 22 of the SFO will not avail a defendant if he did not act in good faith.  Where the SEHK (or any of its employees or officers) acted dishonestly or maliciously, or where they deliberately abused their powers, those who have suffered loss may claim the appropriate civil remedies.

18.For the above reasons, I agree that section 22 of the SFO is plainly constitutional.  Section 22 does not engage the right of access to court, and in any event the section clearly pursues a legitimate aim and is a proportionate restriction on the right of access to court.

19.In this regard, I note that Chung J has come to the same conclusion in his Decision in Zhi Charles v Roma Group Limited et al, HCA 584/2016 (Decision dated 26/01/17).

No viable claim of bad faith

20.If the statutory immunity stands (which as I have held above it must), it is plain that there can be no viable claim that SEHK acted in bad faith.  As explained in Practice Note 18/12/11 of the Hong Kong Civil Procedure 2017 at page 432:

“An allegation that a party has been guilty of bad faith or lack of good faith is the equivalent of an allegation of dishonesty, though not necessarily for a financial motive, and proper particulars of such an allegation must be pleaded, otherwise the allegation will be struck out…” (Emphasis supplied)

21.I agree that there is plainly no proper plea of bad faith.  It is wholly unclear why the plaintiff feels able to contend that SEHK failed to act in good faith.

Conclusion

22.For the reasons set out above, I order that the Statement of Claim herein as against the 1^st defendant be struck out, and consequently the action against the 1^st defendant be dismissed.

23.Further, I order that the costs of and occasioned by this application and the costs of this action be paid by the plaintiff to the 1^st defendant, such costs are to be taxed if not agreed.

24.The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

The plaintiff appeared in person

Mr Bernard Man, SC, instructed by Linklaters, for the 1^st defendant