Tam Sze Leung and Others v. Secretary for Justice and Another
Read the full judgment text of HCAL 177/2022 on BabelCite. This High Court CFI judgment was delivered on 26 September 2022.
1. Is the sequel as good as the original?
Cited by 4 cases · Cites 12 cases
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HCAL 177/2022 [2022] HKCFI 2330 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 177 OF 2022 ________________________
________________________ Before: Hon Coleman J in Court Dates of Hearing: 28-29 July 2022 Date of Judgment: 26 September 2022 ______________ J U D G M E N T ______________ A. Introduction 1.Is the sequel as good as the original? 2.The Applicants in these proceedings were also the applicants in the ‘original’ proceedings, HCAL 191/2021. In that action, the Applicants made a constitutional challenge to the use of Letters of No Consent (“LNCs”) used by the Commissioner of Police informally to freeze funds in various bank accounts held by the Applicants with certain banks. In my Judgment dated 30 December 2021, [2021] HKCFI 3118 [2022] 1 HKLRD 480 (“Tam Sze Leung (No.1)”), I held that the LNC Regime as operated by the Commissioner was (1) ultra vires, (2) not ‘prescribed by law’, and (3) a disproportionate interference with property rights. 3.These proceedings might be regarded as the ‘sequel’. Here, the Applicants make a constitutional challenge to the use of Restriction Notices (“RNs”) issued by the Securities and Futures Commission (“SFC”) to freeze assets held in various trading accounts held by the Applicants with certain licensed corporations. There is no vires challenge, but the assertion is that the regime for the issuing of RNs (“RN Regime”) is also (1) not ‘prescribed by law’, and (2) a disproportionate interference with property rights. 4.In accordance with my directions, the matter came on for a ‘rolled-up’ hearing. The Applicants were represented by Mr Jin Pao SC, leading Mr Timothy Parker and Mr Geoffrey Yeung of Counsel. The SJ was represented by Ms Leona Cheung, Principal Government Counsel (Ag.), with Mr Peter Dong of Counsel. The SFC was represented by Mr Benjamin Yu SC, leading Mr Norman Nip SC and Mr Byron Chiu of Counsel. 5.At the end of the hearing I reserved my decision. This is my Judgment. B. Background Facts 6.The material background facts can be briefly stated. 7.The case arises from the SFC’s investigation into various persons suspected of engaging in market misconduct and/or committing offences of false trading, price rigging and stock market manipulation in respect of shares of WMCH Global Investment Ltd, stock code: 8208 (“WMCH”). 8.The suspected activity is a large-scale ‘Ramp and Dump Scheme’, which is a form of unlawful market manipulation where suspected perpetrators use different dishonest means to “ramp” up the share price of a listed company and then “dump” the shares onto retail investors at an artificially high price. The suspected activity as regards WMCH shares was conducted by a syndicate whose suspected members include the Applicants. 9.From the date of listing of WMCH to 9 September 2020, WMCH shares had been trading within the range HK$0.27 and HK$0.4, with an average daily trading volume of a little over 3 million shares. 10.It is suspected that between 10 September and 25 November 2020, the syndicate members ramped up the price of WMCH shares to an artificially high level and caused false or misleading “investment advice” to be disseminated through social media platforms to facilitate members of the syndicate to offload their WMCH shares to retail investors at inflated prices. In that period, the share price rose from HK$0.315 to HK$3.27 (at its peak), representing a price surge of 938% over the period of 51 trading days. 11.On the morning of 25 November 2020, the SFC executed two search warrants at the residential premises of the 1st and 2nd Applicants. On the afternoon of the same day, the suspected syndicate members began to offload their holdings in WMCH shares. After the offloading of shares, the share price of WMCH plunged to HK$0.26 on 26 November 2020, a drop of 92% from the close on the previous day, with a total trading volume of 151 million shares and a market turnover of HK$42.6 million. 12.In March 2021, the SFC issued RNs to a total of 15 licensed corporations in relation to 32 trading accounts held by 26 individuals, including the three Applicants. 13.The Applicants are members of the same family. As a result of four RNs issued on 15 March 2021, some of their assets, comprising cash and securities totalling more than HK$35 million deposited in their accounts held with three securities firms, have been frozen. 14.All four RNs were accompanied by an identical “Statement of Reasons”. The statements said, amongst other things, that:
15.The RNs also stated that the Applicants could apply to the SFC to withdraw, vary or substitute the RNs under section 208 of the Securities and Futures Ordinance Cap 571 (“SFO”) or to apply to the Securities and Futures Appeal Tribunal (“SFAT”) under section 217 of the SFO for review of the SFC’s decision. 16.On 10 November 2021, the 1st Applicant applied to the SFC to have the RNs against him withdrawn. On 16 November 2021, the SFC requested detailed reasons and explanations why the RNs should be withdrawn. The correspondence then came to a halt and that application was not taken forward. From December 2021 to February 2022, upon the Applicants’ application to the SFC, the SFC allowed the Applicants to liquidate their securities held in their accounts but with the sales proceeds of the securities to be kept in their accounts. 17.The RNs have remained in effect up to the time of the hearing, i.e. more than 16 months from the initial issuing of them. However, no charges as to alleged market misconduct or other offences under the SFO had yet been laid. C. The RN Regime 18.As this is a constitutional challenge against the statutory powers granted under the SFO to the SFC as regards RNs, it is helpful to set out the relevant statutory RN Regime in some detail. 19.But, first, it may be helpful to point out that though the Applicants, who succeeded in Tam Sze Leung (No. 1), were understandably keen to draw comparisons between the RN Regime here and the LNC Regime there, the two regimes are markedly different:
20.Therefore, and as should be obvious anyway, the RN Regime must be examined against its own statutory context under the SFO (and all references below to numbered sections are, unless the context otherwise makes plain, references to the numbered sections of the SFO). 21.Part II, Division 1 of the SFO, headed ‘The Commission’ includes (amongst others) sections 4 and 5. Section 4 is headed ‘Regulatory objectives of Commission’ and provides as follows:
22.Section 5 is headed ‘Functions and powers of Commission’. The functions are numerous as set out in section 5(1) paragraphs (a) to (r), and include (insofar as might be material for present purposes) the following:
23.Part X of the SFO is headed ‘Powers of Intervention and Proceedings’ and is divided into two divisions. Division 1 is headed ‘Powers of intervention’ and comprises sections 204 to 211 inclusive. 24.In this context, it is to be noted that the references in the various provisions to “the Commission” identify that the exercise of powers under the relevant sections must be as a result of the non-delegable decision made by the board of directors of the Commission (“Board”). The Board consists of a Chairman, Chief Executive Officer, four executive directors and eight non-executive directors, all of whom were appointed by the Chief Executive of Hong Kong under section 1 of Part 1 of Schedule 2 to the SFO. 25.Sections 204, 205 and 206 provide:
26.Section 207 identifies when the SFC can act under sections 204, 205 and 206, as follows:
27.The focus of argument for this case is on section 207(e). Hence the focus is on the provision that empowers the SFC to impose a prohibition or requirement under section 204, 205 or 206:
28.It should also be noted here that it has been decided in the recent decision of the SFAT in Leung Yuk Kit v SFC (SFAT Appeal No. 21/2021, 25 April 2022) that the powers could be used with the purpose of targeting clients of the licensed corporations (“LC Clients”) rather than the licensed corporations themselves – see further below. 29.It is also relevant to note here that section 8 of Part 1 of Schedule 1 of the SFO draws the distinction between “the interest of the investing public” and “the public interest”, in the following terms:
30.Section 208 of the SFO provides as follows:
31.Section 209 has certain general provisions relating to the earlier sections in terms (as material for present purposes) as follows:
32.Thus, section 209 provides (amongst other things) for: the mandatory giving of notice to persons affected by the prohibition or requirement; the mandatory publication of the notice of the prohibition or requirement or any change to it; and the possibility of a statement specifying the reasons for the imposition, withdrawal, substitution or variation to which the notice relates. 33.Section 211 empowers the SFC to apply to the Court of First Instance in respect of the failure by any person to comply with a prohibition or requirement in force in respect of him as a result of the exercise of any of the powers under sections 204, 205, 206 and 208. On such an application, the Court may enquire into the case and, (amongst other things) if satisfied that the failure was without reasonable excuse, the Court may punish the person in the same manner as if he had been guilty of contempt of court. Hence, the potential punishment would include a period of imprisonment. 34.Part X Division 2 is headed ‘Other powers and proceedings’ and comprises sections 212 to 214B inclusive. 35.Section 213 addresses applications to Court for injunctions and other orders, and provides (insofar as is material) that:
36.The Applicants place great weight upon the provisions in section 213. Therefore, at this point, it can usefully be noted that, under this section 213:
37.Part XI of the SFO is headed ‘Securities and Futures Appeals Tribunal’. 38.Section 216 establishes the SFAT, which is to consist of a presiding chairman and two other members. The chairman shall be a judge – meaning a sitting or former judge or deputy judge of the Court of First Instance or a former Justice of Appeal of the Court of Appeal – and the other two members shall not be public officers. 39.Section 217 permits reviews by the SFAT, and provides as follows:
40.Section 218 provides as follows:
41.Hence, the SFAT has wide powers of review in an adversarial setting, applying the Court’s civil standard of proof. There is also no dispute that the review by the SFAT is a de novo full merits review: see Tsien Pak Cheong v SFC [2011] 3 HKLRD 533 (“David Tsien”). 42.Section 219 deals further with the powers of the SFAT as follows:
43.Section 227 relates to ‘Applications for stay of execution of specified decisions’. Whilst the making of an application for review does not by itself operate as a stay of execution of the specified decision to which the application relates, section 227(2) permits a person who has made an application for review under section 208 or an application pursuant to section 217(4) to apply, at any time before the review of the application is determined by the SFAT, for a stay of execution of the specified decision to which the application relates. 44.Section 229 of the SFO – to be found in Part XI Division 3 ‘Appeals’ – provides that a party to a review who is dissatisfied with a decision of the SFAT relating to the review may appeal to the Court of Appeal against the decision on a point of law. On such an appeal, the Court of Appeal may (a) allow or (b) dismiss the appeal, or (c) vary or set aside the decision in question, and substitute for the decision any other decision it considers appropriate, or (d) remit the matter to the SFAT with the directions it considers appropriate, which may include a direction to conduct the review in question afresh for the purposes of determining any question specified by the Court of Appeal. 45.By way of overall summary, it might be said that:
46.In the evidence filed on behalf of the SFC, it was asserted that:
47.The SFC’s evidence also seeks to draw a distinction between the RN Regime and the possibility of making an application to Court under section 213. The suggestion is that section 213 is not specifically tailored for certain situations, particularly at the early stages of an investigation when there is limited available information and evidence which is highly unlikely to be sufficient to pursue such an application to Court. There may be circumstances where it would be impractical or even not feasible for the SFC to apply for an injunction under section 213. Hence the different threshold requirements for the RN Regime and section 213 respectively. 48.On top of these review mechanisms which the individuals affected are entitled to under the law, the SFC also says that it will carry out its own periodic review of the restrictions or prohibitions imposed by the RNs issued under sections 204 and 205. 49.The evidence identifies a process for ongoing review of a RN, particularly by reference to suspected misconduct by LC Clients. It is said that what usually happens after the imposition of the RN is that (a) the SFC continues to conduct further investigation; and/or (b) when the investigation has yielded sufficient findings of evidence, the SFC will commence legal action/proceedings. 50.Where a RN has been issued and the related investigations are still ongoing (prior to the commencement of any legal action), the relevant Enforcement Division will periodically review the case to consider the progress of the investigations and whether the RN should be maintained. The example given is that:
51.As I understand it, the view that there is no realistic prospect of enforcement – see (4) above – would be one reached by the relevant committee, but not the Board. 52.The SFC also recognises that more complex cases will require a greater length of time for investigation and obtaining evidence before commencing legal action/proceedings (if any). The SFC says that, in such cases, it is not possible to anticipate how long the investigations will take before a decision can be made either to proceed with legal proceedings or that no further action is required and the RN(s) can be revoked. It is for that reason that it is said that it would be impractical and unrealistic to set an arbitrary timeframe, given the myriad cases and factors which will affect the time to be taken in an investigation (and where the time taken may also be affected by actions taken by the suspects themselves). D. The Intended Grounds of Review 53.The Applicants say that the powers under section 204(1)(a) and 205(1) interfere with their property rights guaranteed by Article 6 and Article 105 of the Basic Law (“BL6” and “BL105”). Insofar as the powers are invoked on the basis of section 207(e) – as they were in the present case – that is said to be unconstitutional on two grounds, which obviously overlap, and which can be summarised as follows:
54.There is no fact-specific challenge on the issuance or the continuance of the actual RNs in this case. Whether that is because it is thought that the specific facts do not serve the Applicant’s ends in this case need not matter, because the deliberate decision to make no fact-specific challenge must be assumed, whatever its motivation. But, the point is that the Applicants’ challenge is a purely systemic one. 55.It is also to be noted that it is not the Applicants’ contention that the administrative powers do not serve any legitimate aim or that they are not rationally connected to that aim, and the complaint only targets the last two steps of the proportionality analysis. 56.But just as the four steps in the proportionality analysis are not air-tight compartments, the absence of challenge to the first two steps does not mean that the legitimate aim or the purpose served by the administrative powers is irrelevant to the inquiry. Indeed, Mr Yu and Ms Cheung are keen to remind the Court – often done in the name of providing “context” to the inquiry – of the legitimate aim served by granting such administrative powers to the SFC. 57.I can address the two Grounds each in turn. E. Ground 1: Prescribed by Law Ground E.1 Applicable Legal Principles 58.The law on the ‘prescribed by law’ requirement is well settled and is common ground between the parties. It probably does not require much reference to authority. My offered summary is as follows. 59.There are two requirements flowing from the concept of ‘prescribed by law’:
60.As regards the first limb, a holistic approach should be adopted, where the Court should have regard not only to the statutory provision in question but also to the common law and published policy and guidelines. The Court should also take into account how the law is actually administered, including the effectiveness of judicial supervision through judicial review. As a matter of general principle, there is no requirement that all statutory discretions must contain explicit limitations upon them. 61.As regards the second limb, the level of precision required of domestic legislation cannot in any case provide for every eventuality. In other words, the degree of precision needed is contextual and will be adjusted depending on the particular subject matter of the discretion, the content of the instrument in question, the field it is designed to cover, and the number and status of those to whom it is addressed. Therefore, whilst the law requires a sufficiently clearly formulated ‘settled core’, at the same time the principles also recognize the need for both flexibility and development. 62.Absolute certainty is unattainable, and would entail excessive rigidity. Further, the law must be able to keep pace with changing circumstances. Hence, many laws are inevitably couched in terms which, to a greater or lesser extent, are vague and whose interpretation and application are questions of practice, and which may require clarification by the courts. It is a specific characteristic of the common law to develop concepts on a case-by-case basis, and the generality of the terms used may entail a greater role for the judiciary. 63.The threshold for a holding of vagueness is relatively high. Courts should be wary of using the doctrine of vagueness to prevent or impede administrative or government action in furtherance of valid objectives, by requiring the law to achieve a degree of precision to which the subject matter does not lend itself. 64.But, where the law does not consist of general terms conferring broad discussion, but of terms failing to give any direction as to how the discretion will be exercised, that may be impermissibly vague. The lack of any indication as to how decisions must be reached, such as which factors are to be considered or are to be determinative, may deprive the Courts of effective means of controlling the exercise of the discretion. 65.Therefore (as stated), a law or norm must be formulated with sufficient precision to enable a citizen to regulate his conduct so that he is able, with legal advice if necessary, to foresee the consequences which a course of action will entail. The very nature of a discretionary power means that it might not always be predictable with certainty as to its application. But, if a citizen consults a lawyer and such lawyer is able to tell him that the discretionary power can be exercised within a certain scope and in a particular manner and there are safeguards against abuse, the requirement of foreseeability is satisfied. The crucial question in the relevant context is whether there is sufficient clarity as to the scope of the power and the manner of its exercise and whether the law provides adequate effective safeguards against abuse. 66.Ultimately, the question is answered by whether the law is able to enunciate some boundaries which create an area of risk. There will be conduct which falls along the boundaries of the area of risk for which no definite prediction or answer can be given in advance; but the identification of the area of risk will provide guidance to citizens and that suffices for the purpose of certainty. 67.The application of the ‘prescribed by law’ requirement must also be realistic. It is enough that the law lays down principles which are capable of being predictably applied to any situation, although with the infinite variety of situations in which issue of compliance may arise and the inevitable element of judgment involved in assessing them, complete codification is impossible. 68.It may also be important to remember that there is a distinction between the test for whether interference is ‘prescribed by law’ and the test relating to proportionality. The former is a prior question that does not subsume the issue of proportionality. 69.Practically, the analysis of the ‘prescribed by law’ requirement turns on the scope of powers and the safeguards against abuses as reflected in the text of the statutory provisions themselves, together with published guidelines or policies documents on how the powers would be exercised, the internal control of the common law, the statutory review mechanisms, and judicial oversight by way of judicial review. E.2 The breadth and intrusiveness of the powers 70.Mr Pao submits that the way in which the RN Regime has been drafted significantly increases the risk of misuse or abuse of the powers or, as he put it, the risk of “overreaching” is very high. Section 207 of the SFO potentially affects all licensed corporations, and their clients – and in a way which is similar to a freezing injunction imposed by the Court, ordinarily recognised to be one of the “nuclear weapons” of the law which might be deployed. That is why, he says, there needs to be effective and practical safeguards against abuse. 71.Mr Pao also emphasises two key matters of context, namely that: (1) the exercise of power under section 207(e) necessarily involves infringement of BL6 and BL105 rights, and (2) where the power is invoked, it will involve allegations on unproven suspicion only. 72.As will be seen below, Mr Pao mainly focuses on the text of section 207(e), which he says has created powers of impermissible breadth and width. Mr Yu and Ms Cheung seek to justify the breadth of the powers by reference to mischief in the myriad varieties which the SFC as a market regulator has to fight, the control on the exercise of statutory powers by public authorities imposed by the common law, the availability of the statutory review mechanisms, and the judicial control by way of judicial review. In reply, Mr Pao says that public law control, statutory review or judicial review are toothless, because it is difficult to find that a virtually unrestricted power has been improperly exercised. 73.Logically, the enquiry can start with an attempt to see the contours of the breadth and width of the relevant powers. 74.The effect of sections 204(1)(a), 205(1) when used in conjunction with section 207(e) has never been considered by the Court before. Mr Pao says he is content take the SFC’s own construction which it put forward in Leung Yuk Kit, and which was endorsed by the SFAT in its Ruling. But, Mr Pao says, the product of the SFC’s own construction exercise is unconstitutional. He suggests that the SFC cannot be right in both (a) its asserted statutory construction and (b) the contention that the provisions, as construed, are also constitutional. 75.Leung Yuk Kit does not seek exhaustively to define the breadth and width of section 207(e). The question with which the SFAT was seized was whether the section is wide enough to allow the SFC to ‘target’ clients of the licensed corporation (i.e. the LC Clients) under the rubric of “in the interest of the investing public” or “in the public interest”. 76.It was decided that section 207(e) is wide enough. The SFAT (with the Chairman Mr Ian McWalters, a former Court of Appeal Judge) came to its view after examining a substantial part of the SFO. The SFAT ruled (see §§68-76, 78, 84-85 of the Ruling) that:
77.As stated, Mr Pao has no quarrel with the broad construction of section 207(e) in Leung Yuk Kit. Indeed, the very broad basis for accessing the section 204 and 205 powers is the key plank to his arguments. Mr Pao submits that the powers under section 204(1)(a), 205(1) and 207(e) are enormous and have a wide impact in society:
78.Mr Pao says the powers to freeze assets under section 204(1)(a), 205 and 207(e) are, thus, deeply intrusive. The substantial interference with fundamental rights heightens the needs for precision in the formulation of the provisions to prevent misuses and abuses. 79.Mr Yu seeks to downplay the intrusiveness of such powers. Whilst I acknowledge that the extent of the restriction is a relevant consideration, I do not accept his arguments:
80.Ms Cheung also submits that the measure of intrusion is not as drastic as Mr Pao suggests. Again, I do not accept her submissions:
81.I agree with Mr Pao that the administrative intervention powers granted to the SFC are highly intrusive to the individual’s property rights under BL6 and BL105. E.3 The breadth of section 207(e) and its trigger ‘threshold’ 82.Mr Pao then submits that, despite the highly intrusive powers exercisable through the RN Regime, section 207(e) provides no real indications as to when and under what circumstances the SFC is allowed to use these powers. He says the formulation of “it appears to the Commissioner that…is desirable in the interest of the investing public or in the public interest” does not lay down any objective triggering threshold as to when the powers may be used. 83.I think Mr Pao’s submissions can be summarized as follows:
84.Mr Pao also relies on the broad construction of those sections granting the powers as creating a low, or even very low, threshold of the trigger to the exercise of those powers. In that regard, when he refers to “threshold”, Mr Pao mostly seems to refer to an evidential threshold. He says, for example, that it is not required that the SFC has to establish a prima facie case or that its unproven suspicion must be based on reasonable grounds – tying this aspect of his submission to the words “appears” and “desirable” in the provision. 85.But his complaints do not end with the evidential threshold. His concerns also venture to the quality of the evidence needed and what facts the evidence has to show. This ties in with his submission that “public interest” is too vague to provide a sufficient guide in the SFC’s decision making process. Section 207(e) provides no guide to tell us what are the facts the SFC should seek to establish by evidence and the strength of evidence before this precondition could be considered fulfilled. Overall, Mr Pao complains of a lack of objective triggering threshold in all aspects pertaining to the bar which must be crossed before the administrative powers could be exercised, not only the required evidential threshold. 86.Mr Pao does not focus on the alternative limb of “in the interest of the investing public”. As stated above, this limb is distinct from, and not wider than, “in the public interest”: see section 8 of Schedule 1 of the SFO. 87.But as to those words which do form the centre of Mr Pao’s argument – “appears”, “desirable” and “public interest” – Ms Cheung says she has made a search of those terms in the e-Legislation website (the online website for Hong Kong’s statutes, as maintained by the Department of Justice) and found hundreds and thousands of results. The point she makes is that these terms are no strangers to our legal system. They are frequently used and have a well-established meaning, even if the particular meaning might vary from one context to another. 88.It may be appropriate to look first at “appears” and “desirable”. 89.During the hearing, I indicated to Mr Pao that, as a matter of language, the phrase “it appears to the Commissioner” surely means simply that the SFC has formed a certain view on the materials available to it. Mr Pao does not say otherwise, but he suggests that “appearance” has a connotation related to the strength of the evidence required. I do not agree that the phrase on its own indicates that the view to be formed by the SFC could be based on what may be thought to be ‘weak’ evidence. In any event, what must “appear” to the SFC must be that the RN is “desirable”. The phrase is composite, and it may not be helpful to focus on one word to the exclusion of the meaning in the totality of the phrase. 90.But Mr Pao says “desirable” also provides no objective guide. Allowing the SFC to exercise the administrative intervention powers on the basis that he is of the view that something is desirable is, he says, no objective threshold. 91.First, reference can be made to R (Javed) v Home Secretary [2002] QB 129 at §55, where it was recognised that to have advanced an argument that the words “it appears to him that” empowered the Secretary of State to apply a purely subjective approach would have been untenable. There has to be some appropriate evidence permitting a rational conclusion. In other words, there has to be some proper objective basis for forming the subjective view. 92.Secondly, I also drew the parties’ attention to section 213 of the SFO, in which the term “desirable” is employed in a similar context. As set out above, section 213 is located at the same Part X of the SFO as is the RN Regime, entitled ‘Powers of Intervention and Proceedings’, though Part X is divided into two divisions:
93.The Court-supervised regime under section 213 features in Mr Pao’s argument as a model of intervention with sufficiently circumscribed powers and adequate safeguards. So it is helpful to look at that regime. 94.Section 213(1) enables the SFC to apply to Court of First Instance for an injunction if it appears to the SFC that some form of contravention of the provisions of the SFO or of the requirements imposed under those provisions has occurred, is occurring, or may occur. Section 213(4) provides the conditions as to which the Court must be satisfied before granting the injunction, namely (1) that it is “desirable” that the order be made, and (2) that the order will not unfairly prejudice any person. Section 213(6) further enables the grant of interim relief pending the determination of the substantive injunction application, when the Court considers it “desirable” to do so. 95.I indicated to Mr Pao that in the context of section 213, the language that the Court should consider it “desirable” that the order be granted appears to me to mean simply that the Court should consider the grant of the order the right or just thing to do. If it is desirable, that is because it would seem to achieve a just result; but it would not be desirable if to do so would not seem to achieve a just result or would give an unjust result. The concept here as to what is “desirable” does not, to my mind, signal a low, or a lack of any, evidential threshold. There is no reason why when a similar construction is used in section 207(e), the word “desirable” should take on a different meaning. 96.Mr Pao’s reply suggests that the section 213 regime would confer on an individual the substantive and procedural safeguards built into Court proceedings, such as that: (1) the SFC would be subject to the duty of full and frank disclosure in an ex parte application made to the Court; (2) the Court is accustomed to a structured way of thinking in deciding whether an injunction should be granted; and (3) the SFC would have to report regularly to the Court at every return date. Whereas, the individual cannot avail himself of these protections when the SFC decides to invoke its non-Court-supervised administrative powers under sections 204(1)(a), 205(1) and 207(e). 97.What Mr Pao explains is, of course, how the Court would go about its own business. But the difference in the decision-making process between the Court and the SFC (as suggested by Mr Pao) clearly does not hinge on the word “desirable”, which is used in both sections 207(e), 213(4) and 213(6). In all three subsections, “desirable” refers to that the Court or the SFC considers it right to invoke the powers granted to them by the statue – for the Court, to grant an injunction; and for the SFC, to issue a RN. 98.Contrary to Mr Pao’s submission, the language of “it appears to the Commission that the imposition of the prohibition or requirement is desirable” does not concern the strength of evidence required to rely on section 207(e). In short, it simply means that the SFC must form the view on the materials available to it that the imposition of the prohibition or requirement is the right and appropriate step to take in the circumstances those materials identify. 99.The suggested lack of an evidential threshold in section 207(e) is an important strand to Mr Pao’s arguments. In his written submissions, he argues that while one can see why the breadth of misconduct may warrant a flexible market definition of market misconduct, it is hard to see why it would justify a “fluctuating threshold of proof” (as he put it). Mr Pao also suggests that the proposition that there is no objective or definitive evidential threshold could be taken from Leung Yuk Kit. 100.But, at the hearing, I drew his attention to §71 of Leung Yuk Kit, which states:
101.The language of “real possibility” of an unfavourable outcome and “a need to act” in order to provide safeguards or protection to persons echoes phrases that lawyers commonly use to describe the evidential threshold or level of confidence that the Court would require when making decisions at an interim stage. 102.Though Leung Yuk Kit is not a decision on the evidential threshold required to satisfy section 207(e) or section 207 generally, what §71 shows is that, at the interim stage, it is natural for consideration to be given to the level of apparent possibility/likelihood that the matters giving rise to the concerns would be later proved, and whether there is a need to protect or preserve property until more can be known from investigation, so as to safeguard the rights of others or to protect the public interest. Further, because the possible prohibition or requirement is bound to cut across the rights of others, the consideration will encompass the risks of potential impact on others should the interim view turn out to be wrong. 103.In other words, a prohibition or requirement can be triggered by section 207(e) when – after balancing (1) the stage of the investigation, (2) the potentiality of the unfavourable outcome (which might include both its degree of likelihood and its possible gravity of effect) which has been identified by the materials generated by the investigation, (3) the apparent need to safeguard the rights of others or protect the public interest, and (4) what the impact will be from the prohibition or requirement in mind – that balancing makes it seem right to do so, namely that it appears to be desirable. 104.Sections 213(4) and 213(6) are further examples where no particular evidential threshold is prescribed, the reference being simply to the desirability of the order and the absence of unfair prejudice to any person. But in SFC v A [2008] 1 HKC 89, Kwan J (as Kwan VP then was) was able to decide on the evidential threshold and the quality of evidence that would be required. At §§26-29, she stated that:
105.In passing, I can deal with submission made by Mr Pao based upon §45 of the SFC v A case. There, the judge noted that:
106.Mr Pao makes a submission to the effect that the necessary clarity to meet the ‘prescribed by law’ requirement is hardly to be found where the SFC is either (a) unsure about the relevant regimes, or (b) has changed its mind from its previous stance that resort should be had to the express statutory mechanism to be found in section 213. However, with respect, I do not think the intended reliance by Mr Pao in this regard is entirely fair. It is not the same as the matter leading to my comment in Tam Sze Leung (No.1) at §112. In my view, what was noted by the judge was the doubts expressed by the SFC in that particular instance, and it does not follow that anything is to be gained for the present exercise in this particular case. In any event, it is ultimately a question for the Court to decide whether the challenged regime meets the ‘prescribed by law’ requirement. 107.A similar approach to that described in SFC v A vis-a-vis section 213 can be taken as regards section 207. In my view, any vagueness of section 207(e) does not hinge on the lack of an expressed prescription for a certain evidential threshold, such as carried by a reference to “reasonable” suspicion or “necessity”. The vagueness, if any, comes from the breadth of “public interest” serving as the ultimate yardstick guiding the exercise of discretion. 108.On the face of section 207(e), “in interest of the investing public and in the public interest” – of which “in the public interest” seems to be the broader concept – is that yardstick guiding the SFC’s decision making process. “Public interest” is undoubtedly a broad and general concept. In effect, what Mr Pao submits is that using a test of what the SFC considers desirable in the public interest provides no real boundary on the scope of powers and the manner of their exercise, and opens them to potential abuse. 109.Mr Pao says that “in the public interest” is at least as broad and general as the provision struck down in Leung Kwok Hung v HKSAR (2005) 8 HKCFAR 229 (“Leung Kwok Hung (Procession)”). There, the provision enabling the Commissioner of Police to object to a procession for the purpose of “public order (ordre public)” under the Public Order Ordinance Cap 245 was held to have failed the ‘prescribed by law’ test. I do not think Mr Pao can gain much mileage by drawing comparison with “ordre public”, which is a notoriously broad concept. Apparently, Mr Pao also did not see Leung Kwok Hung (Procession) as his strongest case and did not pursue argument on this basis with any great enthusiasm at the hearing. 110.Mr Pao places more reliance on Leung Kwok Hung v Chief Executive of the HKSAR (unreported, HCAL 107/2005, 9 February 2006) (“Leung Kwok Hung (Covert Surveillance)”). There, the analysis was of section 33 of the Telecommunications Ordinance Cap 106 (“TO”), which gives the Chief Executive in Council (“CEIC”) general power to order interception of telecommunications including private communications, “whenever he considers that the public interest so requires”. Hartman J refused to read into “the public interest” that the CEIC should only invoke the powers for the purposes of public security or for combating crimes. But he held that, even if he did, there is no body of detailed law to provide sufficient clarity on the broad provision, to provide independent control over the CEIC’s powers or to provide any measure of legal protection to individuals against abuse of executive power. On an ordinary reading, the section was not formulated with sufficient precision to enable Hong Kong residents, with legal advice if necessary, to foresee to a degree that is reasonable in the circumstances the consequences of any telecommunication intercourse they may have with others even if those consequences may not be foreseeable with absolute certainty: see §§127-133. 111.However, in that case, it was also noted that the relevant power was general and free of any legislative safeguards, and was also open-ended and not subject to any judicial or other independent oversight: see §§41 and 100. But, as will be seen below, that is not the position as regards the RN Regime. 112.Mr Yu and Ms Cheung do not dispute that the formulation of section 207(e) is broad, but they emphasise that the ‘prescribed by law’ requirement does not outlaw broad and general legal concepts. They refer to Hong Kong Television Network Ltd v Chief Executive in Council [2016] 2 HKLRD 1005 (“HKTVN (CA)”), where Cheung CJHC (as Cheung CJ then was) said at §99:
113.It was decided that “public interest” is wholly appropriate as a primary consideration to be taken into account by the CEIC under section 10(1) of the Broadcasting Ordinance in deciding if a license for domestic free television programme services should be granted. 114.What Leung Kwok Hung (Covert Surveillance) and HKTVN(CA) show is that whether “public interest” is a sufficiently clear yardstick to delineate the scope of powers on a constitutional level depends on the context of each particular regime. It is, therefore, necessary to look at the meaning of “in the public interest” in section 207(e) within the RN Regime, and to do so in light of the low threshold of the trigger for the exercise of powers. 115.The question might then arise as to what facts and evidence that the SFC would look for when it evaluates what is or is not in the public interest. 116.Naturally, both Mr Yu and Ms Cheung are not keen to delineate the content of “public interest” in section 207(e) by explaining what kind of facts or factors which would tend to a conclusion that the imposition of restrictions would be in the public interest. But in the evidence filed, it is said that the usual matters which the Board would be asked to consider before deciding issuing RNs are:
117.Mr Yu and Ms Cheung emphasise the importance for the SFC to have a flexible tool in regulating the financial market which is fluid, dynamic and ever-evolving – and where, it is said, there is no limit to the ingenuity and sophistication of those manipulating the market in engineering novel means of doing so, so that the corresponding statutory provisions combatting such vice must be cast generally, as opposed to prescribing in advance the factors to be taken into account. 118.Specific reference is made to an increasing sophistication and complexity of ‘ramp-and-dump’ schemes. Mr Yu has taken the Court to the factual foundation leading to the issuance of the RNs in this case, which was both set out in the Statement of Reasons and the affirmation evidence filed on behalf of the SFC (see above), as an example supposedly to show that the apparently broad drafting of section 207(e) would entail no difficulty in actual application to the facts. Where the Applicants are alleged, through a few price spikes from September to November 2020, to have pushed up the price of an illiquid stock to an artificially high level and then to have disposed of their holdings in the shares in two days, to obtain profits at the expense of unwary retail investors, Mr Yu says a lawyer would have no hesitation in advising that activities of this sort would risk enforcement actions from the SFC. I agree. 119.Of course, on the SFC’s own Statement of Reasons (see above), the Applicants’ conduct could already amount to various market misconduct or criminal offences as defined in the SFO. Given that the SFC was able to pinpoint the criminal offences or market misconduct by referring to specific sections – and the activities in this case, if proven, may firmly fall within a situation where it is in the public interest for the SFC to intervene – those matters are not novel misconduct which would not otherwise be caught by the SFO. The reason why the SFC had to resort to section 207(e) in the present case, as it did in Leung Yuk Kit, was not because there came some new type of misconduct not yet regulated by the SFO, but because section 207(a) to (d) covers only licensed corporations, and the intended target of restrictions was the LC Clients. 120.At the oral hearing, the SFC provided another example to justify the use of a broad term: the well-known bankruptcy of Lehman Brothers amid the global financial turmoil in 2008. Then, the SFC issued RNs to four Lehman Brothers entities in Hong Kong for the purpose of preserving assets of the companies and their clients. Mr Yu says that wide drafting in section 207(e) shows the foresight of the legislature in enacting a flexible tool to deal with the fluid and dynamic financial market. Though that example was provided on spot and there was no opportunity to examine it closely, it would appear that the incident could easily fit into section 207(a) to (d) without resorting to section 207(e). 121.That said, it is not fatal to the SFC or the SJ that they are yet to come up with any particular undesirable conduct or factual scenario which falls outside the ambit of those already regulated by the SFO but which should be made subject to the SFC’s intervention powers in the public interest. Their argument is that the need for a broadly drafted basis is precisely because there are or will be some other forms of conduct or scenarios which will be in the public interest for the SFC to regulate even though they have escaped the imagination of the drafter. This I accept. 122.But it is also important not to forget that another part of section 207(e) refers to the “interests of the investing public”, not least because that is part of the full rubric within the subsection. Hence, though the focus of the argument has been on the phrase “public interest”, it must be correct that the desirability of a RN can be seen obviously to arise from the “interests of the investing public”, with or without also being desirable in the “public interest”. For example, in the context of a ‘ramp and dump’ scheme such as is alleged to have occurred in this case, it might be readily thought in the interests of the investing public for funds to be preserved for possible repayment to those investors who may have been the victims of that scheme. E.4 Statutory context and clarifications through future decisions 123.Returning to the main area of argument, Mr Yu submits that there is sufficient guidance from the statutory context to give contours to the meaning of “public interest” in section 207(e). There are detailed provisions setting out the SFC’s role, regulatory objectives, functions and powers as the market regulator, and the SFC can only issue RNs for the purpose of performing its statutory functions in pursuit of the regulatory objectives set out in the SFO: see Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997. 124.Reference can also be made to Cheng Poh v Public Prosecutor [1980] AC 458 at 473C-E, which makes clear that once the exercise of the particular power to issue a RN is no longer considered necessary for the particular purpose for which that power was given, it would be an abuse of discretion to fail to exercise the power of revocation and to maintain the RN in force for some different purpose. 125.The regulatory objectives and statutory functions of the SFC are set out in sections 4 and 5 (see above). Mr Yu submits that those detailed provisions put the RN Regime on a very different footing from, say, section 33 of the TO examined in Leung Kwok Hung (Covert Surveillance). I agree. The TO is concerned with the regulation of telecommunication services, and there is nothing in the preamble which suggests that the TO might concern covert surveillance. The TO’s preamble says “to make better provision for the licensing and control of telecommunications, telecommunications services and telecommunications apparatus and equipment”. That gives very little statutory context to shed light on how “public interest” should be understood in section 33 when deciding whether covert surveillance should be ordered because the TO as a whole is not for that purpose. In contrast, the regulatory purposes served by sections 204, 205 and 207 are central to the statutory role and functions served by the SFC as the market regulator. 126.I think this point on relevant statutory context is also linked to Mr Yu’s and Ms Cheung’s submissions that the admittedly broad and general concept of “public interest” in section 207(e) could gradually be clarified through applications to specific facts. I accept that point, and I do not agree with Mr Pao that it is speculative to suggest that the meaning of section 207(e) will gradually develop. 127.In HKTVN(CA), Cheung CJHC stated even though the CEIC does not consider himself bound to give reasons but still, given time and experience, a pattern of how and what public interest may be taken into account will and can be observed through, for example, judicial review proceedings in which the CEIC had to explain his decision to the Court. I also agree with Ms Cheung that the framework of the RN Regime is even more conducive to gradual development on the meaning of “public interest” under section 207(e), given that the SFC’s decisions would be reviewed by the SFAT, which gives and publishes reasoned decisions. 128.I further agree that the common law – that is, a model including development through case law – is also consistent with the ‘prescribed by law’ requirement. In Mo Yuk Ping v HKSAR (2007) HKCFAR 386, the Court of Final Appeal had to decide whether the offence of conspiracy to defraud is formulated with sufficient precision to meet the ‘prescribed by law’ requirement. At §62, Sir Anthony Mason NPJ said:
129.The existence of the review mechanism in the SFAT provides an infrastructure which is conducive to the gradual development or clarification on the meaning of section 207(e). Further assistance or development may come from Court decisions, either on appeal from the SFAT or in judicial review. E.5 The lack of a temporal limit 130.Mr Pao places great weight on the lack of any temporal limit on RNs issued under the RN Regime. I acknowledge that this is a proper and entirely understandable concern when considering whether the RN Regime meets the requirement of being ‘prescribed by law’. But, on balance, I accept the position adopted by the SFC and SJ that the fact that there is no express time limit for the RN after issuance (and no legally required periodic review of the RN) does not mean that the SFC can maintain a RN for as long as it wishes. 131.Reference can be made to Interush Ltd v Commissioner of Police [2019] 1 HKLRD 892 (“Interush”) where the “informal freezing” of funds caused by the LNC Regime was challenged in part for imposing no time limit on the freeze. In Interush, it was said that, although there no express time limit at a general or systemic level, the duration which an individual’s property right is restricted in any particular case will be circumscribed by the requirement of reasonableness in public law sense and the requirement of proportionality on a constitutional law level: see §§6.41-6.55 and §§11.2-11.3. When the statute imposes no time limit on when a public authority should take a certain step, the response of the law is not to read in time limits but to subject the actions of the public authority to public law control. It was also observed that whilst OSCO does not lay down any express expiry time, equally it contains nothing that prevents the authorities from exercising their powers in a way that common law principles and respect for the property rights protected by BL6 an BL105 may require. Nor does it impede the Court from giving relief where there is a failure by the authorities in any particular case. 132.As already stated, there is no dispute that the review by the SFAT is a de novo full merits review. What the SFAT has to consider is not whether the RN has been maintained for such a long time that is outside the realm of public law rationality. Rather, the SFAT will decide for itself whether the duration was, or continues to be, reasonable. In this respect, the protection afforded to the individual affected by a RN seems to me to be stronger than that envisaged by the CA in Interush. E.6 Safeguards & review by the SFC, the SFAT and the Court 133.This leads to consideration of the safeguards which might be offered – including by the SFAT by the courts in judicial review. It is worth noting at this point that the choice of the exercise of powers under section 207 rather than under section 213 cannot be one taken to seek to avoid further and judicial scrutiny. 134.Whilst the basis for invoking section 207(e) is broadly drafted, Mr Yu and Ms Cheung rely on the internal control and requirements imposed by the public law that the SFC’s decision be made in good faith in pursuant to its regulatory objectives and statutory functions; for the decision to stay within the boundary of public rationality; and for the decision not to be made in an arbitrary manner. They also rely on the procedural requirements and practice when decisions are made at the SFC level, the review mechanism to the SFAT, and eventually the oversight by Courts by way of judicial review and/or appeal from the SFAT, to submit that there is sufficient safeguard against abuses and misuses of the SFC’s administrative powers. 135.Mr Pao says the minimum requirements imposed by the common law may be sufficient to exclude extreme cases (for example arbitrariness, or where there is simply no evidence, or where the step taken is plainly contrary to the statutory objective), but they are no remedy when the statutory power itself is virtually without limits. He says that given that the threshold for exercise of powers is so low and the grounds for invoking the powers are so broad, all but the clearest abuses of powers will inevitably be found properly authorized by the law. It is, he says, difficult to have meaningful review by an independent tribunal (or even by a Court) where, because the bar is set so low, it is difficult to show that the power was improperly exercised in the first place. Mr Pao says that, perhaps except the clearest cases, it is hard to imagine how anyone could argue with the SFC whether something is or is not in the public interest. 136.Mr Pao places reliance on the two cases of Gillan and Quinton v UK (2010) 50 EHRR 433 and Beghal v United Kingdom (2019) 69 EHRR 28. Both concerned police powers to stop and search without requiring reasonable suspicion, under the counter-terrorism legislation in the UK. In both, the UK government relied on the availability of court proceedings to challenge the use of police powers in individual cases to argue that the powers met the ‘prescribed by law’ requirement. 137.In Gillan, the relevant legislation empowered a senior police officer to authorize any constable to stop and search a pedestrian in any area specified by him if he “considers it expedient for the prevention of acts of terrorism”. At §80, it was said:
138.A similar point was made in Beghal in §105. But, as will be seen below, I agree with Mr Yu and Ms Cheung that the relevant regime in Gillan and Beghal cases can be readily distinguished from the operation of the RN Regime, and its review mechanisms. 139.First, at the SFC level, there are various statutory requirements imposed when the SFC makes a decision to issue a RN under sections 204, 205 and 207 – already touched on above:
140.Further, section 227(2) permits a person who has made an application for review under section 208 – or an application pursuant to section 217(4) – to apply, at any time before the review of the application is determined by the SFAT, for a stay of execution of the specified decision to which the application relates. 141.I have also already referred to the evidence that there will be periodic reviews of each case where a RN has been issued, to consider the progress of investigations and whether the RN should be maintained, involving senior management of the relevant division. On the other hand, there is little description of what will actually be taken into account in the reviews, except at any point reached when any actual charges seem out of prospect. 142.Mr Pao submits that the supposed reliance on the safeguards in sections 208 and 209 is misplaced. Essentially, those matters arise only after the RN has been decided upon and put into effect. Whilst that may be correct, for example as regards the giving of reasons and notices, and the ability to seek redress, I think it downplays the effect of the various requirements. It seems to me that the effect is to require real focus on why the RN is said to be appropriate to the particular circumstances, both when first contemplated and at any challenge to its continuation (with or without variation). 143.I also reject the submission that to take any real benefit from the ability to seek relief from the SFC under section 208 would require the person affected by the RN to prove his innocence. It is further not correct to compare the SFO provisions to cases where there is an inflexible rule not permitting of exceptions or the exercise of discretion. 144.Mr Yu accepts that the affected individual’s property rights should be taken into account. But he says that it would be up to the individual to inform the SFC of prejudice he suffers as a result of the RN. I doubt this is the right starting point. The imposition of the RN on its own is an intrusion into a person’s property rights. The prejudice continues as long as the RN is maintained. In general, it might be thought that the longer the RN is maintained, the greater is the intrusion and the prejudice to the property rights. To my mind, that is a factor which the SFC should always bear in mind, rather than a factor to be ignored unless and until the SFC is urged to do so. Therefore, on their own, I am not sure the unpublished internal policy or guidelines add much to the statutory safeguards. 145.Obviously, the better safeguards against abuses of the broadly drafted section 207(e) come from the potential involvement of and oversight by the SFAT – which I have also touched on above:
146.These seem to me to be much stronger safeguards than the very limited powers of safeguard offered by the Independent Reviewer in Beghal and Gillan. The Independent Reviewer could only conduct ad hoc checking of the records of stop-and-search administered without the benefit of examining the reasons for exercising the powers. He or she had no right to cancel or alter authorisations made, but only to report on the general operation of the statutory provisions. Further, it was noted in Gillan at §82 (see also Beghal at §107) that many of the recommendations made by the Independent Reviewer were not implemented. For completeness, I note that Mr Yu also emphasises that, even in Beghal at §94, it was recognized that the lack of a reasonable suspicion condition alone is not fatal to the “in accordance with the law” requirement. E.7 Can individual property rights be taken into account by the SFAT? 147.At the oral hearing, I explored with Counsel how the intrusion into the individual’s property rights would be taken into account in the review of a specific decision by the SFAT. 148.Ms Cheung says that the SFAT would, of course, take into account the property rights of the individual when deciding if a RN is properly issued or maintained under the SFO, because property rights is a relevant factor. Failing to consider that would fall foul of the public law requirement of taking into account all relevant factors. Mr Yu also submits that the fact that the Chairman is a current or former High Court Judge would mean he or she would be well alive to the individual’s fundamental rights. I agree with their submissions. 149.Because the SFAT conducts a full merits review and makes the decision as if it is the original decision maker, it should take into account what the original decision maker has to take into account. It follows that the SFAT should not only take into account the intrusion into individual’s property rights, but also to decide the proper weight that should be accord to that factor. There is no room to suggest that the SFAT should allow the SFC to decide how much weight it would assign for the intrusion into property rights. 150.Mr Pao seems to suggest that the SFAT could not and would not take the intrusion into fundamental rights into account. He says the SFAT is a statutory creature and is bound to adjudicate according to the terms of sections 204, 205 and 207(e). He says that if it is to be assumed (for the purpose of this aspect of the argument) that the RN Regime, invoked on the basis of section 207(e), has already been found constitutional and proportionate at the systemic level, there would be no room for the SFAT to apply a constitutional proportionality test at a decisional level. This proposition assumes that the SFAT can only take into account an individual’s fundamental rights when reviewing the SFC’s decision though the lens of a constitutional challenge. But I do not think that is correct. 151.The SFAT can take it into account all relevant factors as if it should have been by the SFC in the very first place. In fact, in Leung Yuk Kit, the SFAT was alive to the fact that people’s rights are a factor which should be taken into consideration when exercising the powers under sections 204 and 205: see §71 (set out above). Indeed, it seems to me to be obvious that the rights of the individuals against whom the restrictions might be imposed would be taken into consideration when the specific consideration is whether or not it is desirable – in light of all the relevant circumstances – to impose a restriction which interferes with those rights. 152.Therefore, it seems that the question whether one could challenge the constitutionality at the decision level when the RN Regime has already been found constitutional at the systemic level is not as important for the present purposes as one would think. But Mr Pao has contended that such review at the decisional level is not possible before the SFAT. 153.He relies on Hysan Development Co Ltd v Town Planning Boad (2016) 19 HKCFAR (“Hysan”) and HKTVN(CA). In Hysan, there was no constitutional challenge at the systemic level against the regime as a whole under the Town Planning Ordinance, but only at the decisional level against the specific decision made by the Board. Tang PJ said at §142 that:
154.But I do not understand Tang PJ as suggesting that constitutional review is only available at a systemic level but not at decisional level. What he means is that if a system is found to be constitutional in its design, and the decision generated by that system cannot be flawed on conventional administrative law grounds, then constitutional review at the decisional level is still available but the more stringent standard of manifestly without reasonable foundation should be used. This is but a logical recognition that a decision generated by a system which is constitutional in its design and produced in a process which does not fall foul of conventional administrative law requirements is unlikely to be unconstitutional. 155.In HKTVN(CA), there was no constitutional challenge against the licensing established under the relevant ordinance. The constitutional challenge was directed only at the decision level. In response to the argument that proportionality is the right standard for review the CEIC’s decision because a fundamental right of freedom of expression is at stake, Cheung CJHC said at §103:
156.Cheung CJHC cited the Court of Appeal (“CA”) decision in Hysan Development Co Ltd v Town Planning Board (unreported, CACV 232/2012, 13 November 2014), where it had been said at §87:
157.But the CA’s decision was subsequently overturned by the Court of Final Appeal (“CFA”), when only in 2016 was the structured enquiry – commonly known as the proportionality test – settled to be widely applicable to assess derogation from all constitutional rights, and not confined to those rights entrenched through Article 39 of the Basic Law. The CA was of the view that proportionality was not applicable to BL 105 and the comment at (c) was made on the premise that the proportionality test (assuming that it applies to BL 105) is only directed to the “law” in “in accordance with the law”, and thus only the “law” would be examined but not the specific decision. But, this interpretation of BL 105 was not accepted by the CFA. 158.Cheung CJHC did not cite other Hong Kong cases, but recognized different approaches in the UK authorities and remarked at §106 that he did not find it necessary to resolve the difference, and in any event, even under a conventional public law review, given that freedom of expression is involved, the intensity of review has to be a heightened one so as to be commensurate with the fundamental right at stake. 159.As Mr Yu submits, constitutional review is available at the decisional level even if the system has been found to be constitutional. He drew attention to the CA’s decision on the constitutionality of the Emergency Regulations Ordinance in Leung Kwok Hung v Secretary for Justice [2020] HKCA 1396, where at §182 Poon CJHC (Ag) stated:
160.Also, in Cheng Tak Wing v Director of Administration [2020] HKCA 124, the CA had to decide if the Government’s scheme regulating the use of a forecourt in the Central Government Offices for public meetings and processions is constitutional. At §142, under the heading “Policy versus enforcement”, reference was made to the European Court decision in Kudrevicius v Lithuania (2016) 62 EHRR 34 at §§150-151], and it was stated that:
161.On the Hong Kong authorities overall, I am of the view that constitutional review could be available at the decisional level, even if the system under which the decision is generated has been considered to be constitutionally compliant. 162.A further question arises as to whether the SFAT, as a specialist tribunal created by the SFO, has the jurisdiction to adjudicate a constitutional challenge when raised in the context of a review of a decision made by the SFC. I think it does: see, for example:
163.In any event, in view of what I have already said, it is not strictly necessary to resolve whether the SFAT has the necessary jurisdiction to decide on the constitutional challenge raised in the context of reviewing a SFC decision. E.8 Judicial oversight/control 164.As already noted, section 229 of the SFO provides that, if a party is still aggrieved by the decision of the SFAT, he or she can further appeal to the CA, but only on points of law. Section 231 further provides that, subject to the right to appeal to the CA under section 229 and section 50 of the High Court Ordinance (which concerns appeals related to contempt of courts), any decision of the SFAT shall be final and not subject to appeal. 165.In view of section 231, it may be asked whether the Court’s judicial review jurisdiction over SFAT’s decisions (on factual grounds rather than on law points) has been ousted by the provision. But all parties before me have proceeded on the basis that judicial review is available. Indeed, both Mr Yu and Ms Cheung heavily rely on the judicial oversight by way of judicial review to make good their arguments that the RN Regime is constitutional. In any event, I agree with their position. It would be surprising if discretionary powers couched in terms as wide as section 207(e) are not subject to the Court’ supervision. 166.Albeit in a different context (and in a case where the ‘prescribed by law’ requirement was not engaged), the Court of Final Appeal addressed the question of judicial control in Kwok Wing Hang v Chief Executive in Council (2020) 23 HKCFAR 518 at §55, where the following was said:
167.Thus, the exercise of powers might be subject to judicial review on conventional grounds, and the SFAT’s decisions are subject to appellate review on points of law, as well as being subject to judicial review. This seems to me to be of importance in the consideration of whether the relevant provisions in the SFO meet the ‘prescribed by law’ requirement. E.9 Conclusion on ‘prescribed by law’ 168.Overall, I am satisfied that sections 204 and 205 when invoked on the basis of section 207(e) satisfy the ‘prescribed by law’ requirement. F. Ground 2: Proportionality Ground F.1 Introduction 169.Many aspects of the analysis on the ‘prescribed by law’ requirement are equally relevant to the proportionality analysis. But Mr Pao correctly emphasises that the two analyses are, nonetheless, separate and distinct. He submits that even if section 207(e) is found to have met the required level of certainty, still the intervention powers exercised on such a broad basis would amount to a disproportionate and impermissible intrusion on the Applicant’s property rights. He says that even if the Court is of the view that there is an objective triggering threshold, the threshold is far too low and the enormous administrative powers resulting from such a low threshold are not constrained by proper safeguards. 170.The central question is not whether it is, in general terms, necessary or proportionate for the regulator to maintain an asset freezing regime. The focus is, instead, on the necessity for and proportionality of an asset-freezing regime couched in the expensive terms, and without any need for prior judicial scrutiny, as that promulgated through sections 204 and 205 when used on the basis of section 207(e). 171.The starting point, which Mr Pao emphasises, is that the burden on the proportionality point rests on the SFC. He advocates the approach in the Tam Sze Leung (No.1) case, namely to ask whether the SFC has demonstrated that the use of section 207(e) without additional safeguards is still proportionate, and to ask whether the imposition of the suggested safeguards would erode the value in the section. He says that the SFC has not shown why additional safeguards would cause real difficulties or erode the value and utility of the RN Regime. F.2 Standard of review 172.In the proportionality context, there has been the usual argument as to the appropriate standard of review. Mr Yu and Ms Cheung advocate the ‘manifestly without reasonable foundation’ standard. Mr Pao says the ‘not more than necessary’ standard is the correct standard, emphasising the significance and extent of the interference with rights at issue, where the individual and systemic interferences strike at the core of the right to property. 173.In socio-economic context, the Court is ordinarily more inclined to adopt the ‘manifestly without reasonable foundation’ standard, in recognition of the Government’s institutional capacity in making decisions in this context. The decision maker is afforded latitude to adopt one of a relatively wide range of possible alternatives. The Court will ordinarily be astute not to insist on a potentially less intrusive measure, but will only intervene to strike down the measure as unconstitutional if the option chosen is clearly beyond the spectrum of reasonable options: see Tam Sze Leung (No.1) at §§144 and 155; Hysan at §§100-104,114-123; and Interush at §§6.35-6.37. 174.As the authorities make clear, the choice of standard is not strictly an either/or choice, because there is a spectrum. In this case, I am persuaded the current context favours a standard of review closer to the ‘manifestly without reasonable foundation’ end of the spectrum. Regulation and enforcement in the financial markets stands firmly with the type of matters where the Court should, and is accustomed, to accord the Government with a broad margin of discretion. But, of course, I also accept the proposition that careful scrutiny is required in every case. F.3 Proportionality analysis 175.The four steps of the proportionality analysis established in Hysan are well-known and are as follows, and require consideration as to: (1) whether the intrusive measure pursues a legitimate aim; (2) if so, whether it is rationally connected with advancing that aim; (3) whether the measure is no more than necessary for that purpose; and if the encroaching measure passes the first three steps: (4) whether a reasonable balance has been struck between the societal benefits of the encroachment and the inroads made into the constitutionally protected rights of the individuals, asking in particular whether pursuit of the societal interest results in an unacceptably harsh burden on the individual. 176.Mr Pao does not challenge the first two steps. But it does not mean that the legitimate aim of the RN Regime when invoked on the basis of section 207(e) should be overlooked. Step 3 requires measuring the intrusive regime against the legitimate aim it strives to serve by using the appropriate standard of review. 177.Mr Yu relies on Mr McWalters’ observations in Leung Yuk Kit at §§71 and 125, submits that the purpose of the administrative powers under sections 204, 205 and 207 is to enable it more effectively to carry out its statutory duties in the early stage of an investigation, when it is handicapped by not having a complete picture of the misconduct that may have occurred and is lacking in formal evidence to provide its suspicions, but the situation demands the SFC to act urgently and expeditiously. The SFC is trying to do no more than preserve the property and no final rights to property are being determined until more can be know from the investigation. 178.Mr Pao emphasises that in considering proportionality, it is important to bear in mind particular features of the RN Regime in its statutory context, namely that:
179.Albeit in the context of the ‘prescribed by law’ consideration, I have already commented on a number of these points and the import of those comments remains relevant in the context of the proportionality consideration. There is no need to rehearse those comments. 180.As to section 213, Mr Yu submits that the RN Regime and the section 213 regime are not alternative or substitutes to each other. He says the RN Regime is there to supplement the SFC’s powers under section 213, when such powers are likely to be either inadequate or inappropriate. I have already referred to the evidence where the SFC explains that the RN Regime is to be invoked when, at the early stages of investigation, there is limited available information and evidence which are highly unlikely to be sufficient for the SFC to pursue an application under section 213. But Mr Pao does not agree there is any real impracticality or infeasibility preventing an application under section 213. 181.As to the lower threshold required of the RN Regime in terms of information and evidence, Mr Pao’s reply is – although he did not put it quite the same way himself – that the threshold required of the section 213 is already sufficiently low to allow the SFC to fulfil its regulatory role. This is because an interim injunction is possible under section 213(6), where the SFC v A case (see above) identifies that what is needed is at the early investigation stage is only general circumstances, the nature of the investigation and the reason why it is thought that there may be some liability on the part of a relevant person. In that case, the order was granted even before the suspect was interviewed. 182.As to the alleged urgency to prevent asset dissipation before an application could be made to the Court, Mr Pao highlights that the Court has mechanisms to entertain very urgent applications, for example by a duty Judge. He also submits that the purpose of taking immediate action to prevent asset dissipation in an urgent situation would not be hindered by, say, requiring the SFC to apply to the Court under section 213 after the RN has been issued for, say, 3 or 6 months. There is no risk of assets dissipation then, because the assets have already been preserved by an extant RN. Tailoring the submissions made in Tam Sze Leung (No.1) to his own purpose, Mr Pao submits that the safeguards he suggests would not erode the value of the RN Regime to any extent. 183.I agree that urgency alone cannot explain why there is no temporal limit in any form. But there are points to be made on a practical level too. The RNs affecting the Applicants have been maintained for 16 months and yet no charges have been pressed. Nor has the SFC made an application to the Court under section 213. Nor is the SFC required to give an account of the investigation progress or to explain why insufficient evidence has been gathered even after the lapse of 16 months. No estimation has been given for the further time required to press charges or to make an application under section 213. These are powerful submissions, and all of these points must go into the balancing exercise when looking at proportionality. 184.In this context, further reference can be made to the Leung Yuk Kit decision of the SFAT. There, though it was not part of the decision whether the overall content of the RN Regime was a disproportionate, and therefore unconstitutional, response to the problem the legislature seeks to address, the question of proportionality was addressed in testing the argument against the SFC’s proffered interpretation of section 207(e). As was held at §136, the only way to do that was to assess proportionality by reference to the four steps. 185.The SFAT’s analysis at §§138-146 is not binding on me, but I have found it helpful and persuasive. That analysis is, in summary:
F.4 Conclusion on Proportionality 186.It is also important to remember that questions of proportionality and whether a fair balance has been struck do not turn on any one individual factor; the challenge is a systemic challenge, and it is necessary to look at the multitude of factors within the whole system under challenge. 187.Ultimately, I am satisfied as to all four steps in the proportionality analysis. The restriction or limitation pursues a legitimate aim. The restriction or limitation is rationally connected to that legitimate aim. The restriction or limitation is on balance no more than is necessary to accomplish that legitimate aim, and strikes a reasonable balance between the societal benefits of the encroachment and inroads made with the constitutionally protected rights of the individual, and does not result in an unacceptably harsh burden on the individual. G. Conclusion 188.I see little value following the rolled-up hearing to state whether leave would be granted on either limb of the challenge brought in this case, but if pressed I would grant leave on both limbs. 189.However, on the substantive application, the answer to the question posed in the first paragraph of this Judgment: ‘no, it is not’. The ‘prescribed by law’ challenge and the proportionality challenge to constitutionality of the RN Regime both fail. The application is, therefore, dismissed. 190.I see no reason why costs should not follow the event. Therefore, the Applicants will pay the costs of the SFC and the SJ, to be taxed if not agreed.
Mr Jin Pao SC, Mr Timothy Parker and Mr Geoffrey Yeung, instructed by O Tse & Co., for the applicants Ms Leona Cheung, Principal Government Counsel (Ag.), of the Department of Justice and Mr Peter Dong and Mr Brian Yu, instructed by the Department of Justice, for the 1st putative respondent Mr Benjamin Yu SC, Mr Norman Nip SC and Mr Byron Chiu, instructed by Securities and Futures Commission, for the 2nd putative respondent | |||||||||||||||||||||||
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