Securities and Futures Commission v. Tiger Asia Management Llc and Others
Read the full judgment text of CACV 178/2011 on BabelCite. This Court of Appeal judgment was delivered on 23 February 2012.
1. The Securities and Futures Ordinance (Cap 571) ("SFO") was enacted in 2003,
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CACV 178/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 178 OF 2011 (ON APPEAL FROM HCMP NO. 1502 OF 2009) ____________
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Before: Hon Tang VP, Kwan JA and Fok JA in Court Date of Hearing: 7 February 2012 Date of Judgment: 23 February 2012 _______________ JUDGMENT _______________ Hon Tang VP: Introduction 1.The Securities and Futures Ordinance (Cap 571) ("SFO") was enacted in 2003,
2.Part XIII[1] concerns market misconduct and establishes a Market Misconduct Tribunal ("MMT"). Market misconduct is defined to mean: insider dealing (section 270), false trading (section 274), price rigging (section 275), disclosure of information about prohibited transactions (section 276), disclosure of false or misleading information inducing transactions (section 277), or stock market manipulation (section 278). Under section 251(1), the MMT has "jurisdiction to hear and determine … any question or issue arising out of or in connection with the proceedings instituted under section 252" by the Financial Secretary. The MMT normally consists of a chairman who shall be a judge and 2 other members who shall not be public officers. 3.On a finding of market misconduct by a MMT, it may make[2]:
4.Part XIII also creates a civil liability for market misconduct in favour of a person who has incurred any pecuniary loss as a result of the market misconduct[3]. 5.Under Part XIV, market misconduct was made criminal offences as follows:
6.There are other offences in Division 4 of Part XIV which do not have their equivalents in Part XIII. 7.The penalty for contravention of the offences under Divisions 2 to 4 on indictment is a fine of $ 10,000,000 and imprisonment for 10 years; on summary conviction to a fine of $1,000,000 and to imprisonment for 3 years (section 303(1)). Orders similar to those under section 257(1)(a), (b) and (g) may also be made. 8.Section 305 also creates a civil cause of action in favour of a person who has suffered pecuniary loss as a result of a contravention of any of these offences. 9.Parts XIII and XIV are mutually exclusive[4] and constitute a dual civil and criminal regime to deal with market misconduct. Background 10.The 1st Defendant is a New York-based company. The 2nd to the 4th Defendants (none of whom resides in Hong Kong) work for the 1st Defendant. The Securities and Futures Commission's ("the Commission") case is that between December 2008 and January 2009, the Defendants were involved with insider dealing and/or false trading, contrary to section 291(5) and section 295(1). 11.By originating summons dated 5 August 2009 amended on 23 April 2010, and re-amended 3 June 2011, the Commission sought wide ranging relief against these Defendants, purportedly under section 213(1)[5] on the basis that they have contravened section 291(5) and 295(1) of SFO. 12.By summons dated 20 September 2010, the 2nd Defendant, supported by the other Defendants, applied to strike out the originating summons. By judgment dated 21 June 2011, Harris J struck out the Re-Amended Originating Summons and dismissed the action. Harris J explained why:
The Appeal 13.This is the Commission's appeal. According to Mr Benjamin Yu, SC, for the Commission, the issue on appeal is, whether, where a contravention of a provision which falls within both Parts XIII and XIV of the SFO (as distinct from other relevant provisions) is alleged under section 213(1)(a)(i)(A), the Court of First Instance ("CFI") has jurisdiction to determine that question, or whether that must be determined by either the MMT or a criminal court. 14.The appeal turns on the proper construction[6] of section 213, which, where relevant, reads:
15.We are not concerned with section 213(1)(b), nor with the making of interim orders under section 213(6). 16.This appeal concerns the jurisdiction of the CFI to make final orders, for example, under section 213(2)(b) or (e) on the basis that there has been a contravention of sections 291 or 295. It is common ground that in order to obtain any such order the Commission has to show contravention of sections 291 or 295. What divided the parties is whether the Commission can obtain a final order under section 213(2) otherwise than on the basis of a finding of such market misconduct by the MMT or the criminal court. 17.Mr Sussex, SC, for the Defendants, accepted that following proceedings under Part XIII or Part XIV, the Commission may apply under section 213(1) for an order under section 213(2), and that such orders may be final orders. He called them ancillary final orders. However, he submitted that where contravention of section 291 or section 295 is relied on under section 213(1), it must be shown that the person has been prosecuted and convicted of the offence[8]. 18.Mr Sussex's submissions have been described by the learned judge in the following terms:
19.The learned judge went on to say:
20.On the other hand, Mr Yu submitted that, on the plain and natural meaning of section 213(1)(a), what must be established is the fact that a person has contravened a relevant provision, not that any such contravention has been determined in other prior proceedings under Parts XIII or XIV; and that the nature and purpose of section 213 is different from proceedings for market misconduct under Parts XIII or XIV. Section 213 proceedings under Part X are remedial in nature and not punitive, whereas proceedings under Parts XIII and XIV are essentially punitive in nature. Their differences are obvious when one compares the orders which may be made under section 257(1) on a finding of market misconduct by the MMT, on a criminal conviction under section 303(1), and under section 213(2) on application under section 213(1). The natural and ordinary meaning of the words "where a person has contravened any of the relevant provisions", denotes the fact of contravention, not a finding or opinion of contravention by another tribunal, since the jurisdiction to make orders under section 213(2) is conferred on the CFI, the CFI must have the jurisdiction to determine whether the precedent fact of contravention has occurred. With respect, I agree with Mr Yu. 21.I also agree with Mr Yu that had the legislature intended to make the finding of contravention by another tribunal, for example, the MMT or the criminal court, a condition precedent to the exercise of the jurisdiction by the CFI under section 213, it would have said so. 22.Section 213 is a broadly drafted provision under which the Court may make orders which are essentially remedial, such as the grant of injunction to restrain recurrence (subsection (2)(a)), declaring contracts to be void or voidable (subsection (2)(e)) and requiring a person to pay damages (subsection (8)). Nor is section 213 concerned solely with contraventions of Part XIII or Part XIV, it also applies to contraventions of notices or requirements given or made under the relevant provisions (section 213(1)(a)(i)(B)), licence terms and conditions (section 213(1)(a)(i)(C)), other conditions imposed under any provision of the Ordinance (section 213(1)(a)(i)(D)), and accessory and inchoate conduct and "knowing involvement" associated with such contraventions (section 213(1)(a)(ii) to (v)). 23.The extract from the speech of the Secretary for Financial Services quoted by the learned judge[9] merely shows that the Bill was intended to create an alternative "non criminal" route for dealing with market misconduct; the disgorgement order under section 257(1)(d) being the Part XIII alternative to a fine and imprisonment under section 303(1) under Part XIV. On the other hand, the transcript of the Bills Committee meeting on 24 April 2001, quoted by the learned judge in para. 17 of the judgment, makes it quite clear that section 213 was meant to augment the Commission's ability to protect the investing public and provide remedies for contraventions for the protection of investors. 24.Notwithstanding the availability of civil remedies to individual investors, there may be cases where investors cannot be expected to take proceedings individually to enforce their legal rights. For example, in cases where there are executory contracts involving a large number of small investors, (depending on whether or not they could be set aside or declared void under, say, section 213(2)(e) such investors may or may not suffer loss), it may be unreasonable to expect small investors to take proceedings. There may be circumstances when it would be eminently reasonable for proceedings to be taken by the Commission under section 213 for the investors' benefit. 25.The learned judge seemed to have accepted Mr Sussex's submission that the legislature had intended a specialist tribunal to determine market misconduct. The learned judge said:
26.But the MMT is only concerned with proceedings under Part XIII. In the event of a prosecution, a criminal court would be involved. In the event of civil claims under Part XIII or Part XIV, a civil court would be involved. 27.As noted, Parts XIII and XIV create a civil liability[10]. 28.Mr Sussex rightly accepted that the court[11] has jurisdiction to determine whether or not there has been such market misconduct in the event of a civil claim brought under either Part XIII (section 281) or Part XIV (section 305). Mr Sussex has also rightly accepted that such actions might be brought whether or not there had been proceedings under Part XIII or Part XIV. Indeed, the learned judge also acknowledged the fact that in civil proceedings brought under Part XIII or Part XIV, a civil court may determine whether there has been any relevant contravention[12]. 29.When the learned judge said that section 213 was not intended to be a third route for determination whether there has been market misconduct, it may be that he was influenced by the fact that in the Re-Amended Originating Summons[13], the Commission asked for declarations that the Defendants had contravened sections 291(1) and 291(5) of the SFO. However, this appeal is not concerned with whether on an application under section 213(1), the court may make any such declaration. Section 213(1) enables the CFI "to make one or more of the orders specified in subsection (2)". Whether that would enable the CFI to make such declarations as opposed to merely deciding whether there has been a relevant contravention does not require determination in this appeal. We are concerned with jurisdiction only, namely, whether under section 213, the CFI has jurisdiction to determine whether there has been the contravention of a market misconduct provision. We are not required to decide whether any of the reliefs claimed should be granted. 30.The learned judge also acknowledged that:
31.But he went on to say in the same paragraph:
32.With respect, such a conclusion flies in the face of the language of section 213. As Mr Yu has pointed out the construction advanced by the Defendants effectively meant that although the CFI would have jurisdiction to determine whether there has been a contravention of provisions other than those which are regulated in both Parts XIII and XIV, and any breach of terms of conditions, it would not have jurisdiction to determine whether there has been a contravention of provisions which appear in both Parts XIII and XIV. 33.The learned judge also favoured Mr Sussex's so-called gatekeeper point, namely, that since proceedings under Part XIII or Part XIV are controlled by the Financial Secretary or the Secretary for Justice respectively[14], the Commission's interpretation of section 213 bypassed the gatekeepers, and permits it to take action unilaterally[15]. 34.With respect, I agree with Mr Yu that this ignores the difference in nature between criminal proceedings and the non criminal proceedings before the MMT on the one hand and section 213 or sections 281 and 305 proceedings on the other hand. Criminal proceedings are concerned with stigma, penalty and punishment. MMT proceedings provide an alternative to criminal proceedings in that a disgorgement order deprives the wrongdoer of the benefit of the wrongdoing. They are concerned with the conduct of the wrongdoer and not with the consequences of the wrongdoing. Section 213 is concerned with remedial actions and sections 281 and 305 create civil liabilities enforceable in civil courts. It does not follow from the fact that proceedings under Part XIII or Part XIV have gate keepers that there should also be gatekeepers for the remedial or compensatory proceedings. 35.The judge also expressed the concern[16] that the commencement of section 213 proceedings does not bar criminal proceedings, whereas section 307 does so where proceedings before the MMT are instituted. This is the so-called double jeopardy point. Part XIII and Part XIV which serve a common objective are rightly made mutually exclusive. But, as I have endeavoured to explain, section 213 serves a different purpose. I regard section 213 as complementary to the civil liabilities created by section 281 and section 305. Section 213 provides valuable tools to the Commission to protect the investing public which is an important objective of the SFO. Section 213 is focused primarily upon remedial consequences and the orders specified in subsection (2), including injunctions, restitution, orders protecting property and avoiding contracts (so as to restrain, reverse or compensate for the mischief in question), are by their nature designed to ensure that the relevant provisions are complied with (section 5(1)(d)), maintain and promote confidence in the industry (section 5(1)(g)), protect investors (section 5(1)(l)) and suppress illegal practices (section 5(1)(n)). 36.In the present case the alleged contraveners are outside the jurisdiction. Criminal prosecution may be difficult or impossible. Mr Sussex submitted that proceedings under Part XIII are possible, and that in the event of proceedings under Part XIII, the Commission would be able to apply for interim relief under section 213 in the meantime. And in the event of a finding of market misconduct by the MMT, ancillary final reliefs could be obtained under section 213. Mr Sussex's complaint seems to be that the Administration is not willing to give up on criminal prosecution. 37.With respect, I am not persuaded that these proceedings are an abuse of section 213. Rather, they support my view that section 213 provides much needed ammunition to the Commission to protect investors. I do not agree that it is reasonable or desirable that investor protection under section 213 should come at the price of forgoing criminal prosecution. 38.Lastly, Mr Sussex submitted that any analysis of section 213 must properly start with the decision of the Court of Final Appeal in Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696. He relied in particular on para 73:
39.Mr Sussex submitted that the Court of Final Appeal's comments in Kayden show that, notwithstanding the apparent width of the language of section 213, section 213 is to be interpreted narrowly. 40.With respect, I do not agree. The quotation from the judgment of Ribeiro PJ shows quite clearly that the Court of Final Appeal had refrained from expressing any view which is relevant to this appeal. 41.For the above reasons, I would allow the appeal and set aside the order of the learned judge, and make a cost order nisi in favour of the Commission here and below. Hon Kwan JA: 42.I agree with the judgment of the Vice-President. Hon Fok JA: 43.I also agree with the judgment of Tang VP.
Mr Benjamin Yu, SC & Mr Roger Beresford instructed by Securities and Futures Commission for the Plaintiff Mr Charles Sussex, SC instructed by Sidley Austin, for the 1st Defendant Mr Charles Sussex, SC instructed by Reed Smith Richards Butler, for the 2nd Defendant Mr Charles Sussex, SC instructed by Robertsons, for the 3rd Defendant Mr Charles Sussex, SC instructed by Allen & Overy, for the 4th Defendant [1] All references are to the SFO unless otherwise stated. [2] Section 257(1) [3] Section 281 [4] See, for example, section 283 "No further proceedings after Part XIV criminal proceedings" and section 307 "No further proceedings after Part XIII market misconduct proceedings". [5] Section 213 is contained in Division 2 of Part X (Powers of Intervention and Proceedings). Other provisions in the same Part include e.g. section 204 (Restriction of business), section 212 (Winding up orders and bankruptcy orders), section 214 (Remedies in cases of unfair prejudice). [6] Mr Yu, has submitted, and I agree that we should adopt a contextual and purposive approach in ascertaining and giving effect to the intention of the legislature as expressed in the relevant provision: HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, paras 11 – 14, per Li CJ. And of course, section 213 "… shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit." Section 19 of Interpretation and General Clauses Ordinance (Cap 1). Also, the provision must be considered in its proper context and its legal meaning determined by identifying the interpretive criteria or guides to legislative intention involved and if they conflict, weighing and balancing them: Medical Council of Hong Kong v Chow Siu Shek (2000) 3 HKCFAR 144, 154A to C, per Bokhary PJ. [7] Relevant provisions are defined in Schedule I to the SFO and cover the provisions of the SFO as well as some of the provisions of the Companies Ordinance (Cap 32). Sections 291 and 295 are relevant provisions. [8] Or if their equivalents under Part XIII, namely, section 270 or section 274 were relied on, a finding of market misconduct by the MMT. [9] See para 18 above. [10] Section 281(5) in Part XIII: "(5) A person may bring an action under subsection (1) even though the person against whom the action is brought - (a) is not a person whose conduct has been the subject, whether wholly or in part, of any proceedings instituted under section 252 in respect of the market misconduct from which the pecuniary loss of the person bringing the action is alleged to result; or (b) has not been identified by the Tribunal pursuant to section 252(3)(b) as having engaged in the market misconduct." Section 305(4) in Part XIV: "(4) A person may bring an action under subsection (1) in respect of a contravention of any of the provisions of Divisions 2 to 4 even though the person against whom the action is brought has not been charged with or convicted of an offence by reason of the contravention." [11] Not just the CFI, such actions may, for example, be brought in the District Court. [12] Paras 43 and 44 of judgment. [13] Para 1. [14] The Commission has power under section 388(1) to prosecute summarily. However that would be subject to the Secretary for Justice's right of intervention. [15] Decision, paras 18, 20, 41. [16] Decision, para 22. Please refer to FACV10/2012, FACV11/2012, FACV12/2012, FACV13/2012 for the relevant appeal(s) to the Court of Final Appeal. | |||||||||||||||||||||||||||||
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