On 30 October 2023, the Hong Kong Court of Final Appeal (“CFA”) unanimously dismissed the appeal by a group of six foreign defendants (the “Eastmore Defendants”) challenging the jurisdiction of the Hong Kong court to grant leave for the Securities and Futures Commission (“SFC”) to serve out of jurisdiction in the case of the Securities and Futures Commission vs. Isidor Subotic and Others [2023] HKCFA 32.
This case confirms that section 213 of the Securities and Futures Ordinance (“SFO”) empowers the SFC to seek various orders, such as restoration orders, damages and compensation orders, from the Hong Kong court against foreign defendants. This can be done without requiring leave under the Hong Kong civil procedural rules, as long as the relevant provisions of the SFO explicitly allow for proceedings against individuals outside of Hong Kong or when the wrongful act did not occur in Hong Kong. This decision is expected to enhance the SFC’s ability to take decisive enforcement action against foreign defendants involved in market misconduct.
Procedural History
The SFC initiated civil proceedings in July 2019 under section 213 of the SFO in the Court of First Instance (“CFI”). The case was brought against a group of local and overseas traders and investors, referred to as the Syndicate, including the Eastmore Defendants. The Syndicate was suspected of orchestrating a large-scale and highly organized scheme to manipulate the shares of Ching Lee Holdings Limited (a Hong Kong listed company), resulting in approximately $124.9 million in illicit profits.
As the Eastmore Defendants were all overseas nationals or entities incorporated outside Hong Kong, the SFC sought and obtained ex parte Mareva injunctions against the Syndicate and leave for service out of the jurisdiction on the Eastmore Defendants under certain gateways in Order 11, rule 1(1) of the Rules of the High Court. The Eastmore Defendants made several applications challenging the CFI’s decision to allow the SFC to serve them out of the jurisdiction.
The CFI upheld the grant of leave for service out of the jurisdiction on the Eastmore Defendants on 23 July 2021. The Eastmore Defendants subsequently appealed this decision to the Court of Appeal (“CA”), which dismissed their appeal on 30 December 2022. Dissatisfied with the CA’s decision, the Eastmore Defendants further appealed to the CFA.
The CFA’s Decision
The CFA upheld the previous decisions and unanimously dismissed the appeal. The CFA concluded that leave to serve out of the jurisdiction was not required in this case because sections 213 and 274 of the SFO, when read together, explicitly allow proceedings to be initiated against individuals suspected of engaging in false trading, whether occurring in Hong Kong or elsewhere.
Further, the CFA emphasized that the SFO’s policy of asserting jurisdiction over individuals engaged in false trading that affects the Hong Kong market is clear and justified. The court highlighted that trading on the Hong Kong Stock Exchange is a global activity, and it is essential to hold offshore fraudulent parties accountable for any losses caused to investors or market participants.
Implications
This landmark decision by the CFA confirms the SFC’s powers under section 213 of the SFO, reinforcing its commitment to protecting the interests of the investing public. Mr. Christopher Wilson, the SFC’s Executive Director of Enforcement, welcomed the CFA’s judgment sending a strong message that the SFC will relentlessly pursue enforcement actions against wrongdoers involved in cross-border market misconduct, regardless of their location.
By not needing leave to serve out, under section 213 of the SFO the SFC is empowered to take prompt and effective action against foreign defendants involved in market misconduct. This enables the SFC to protect the market in Hong Kong and address instances of market misconduct without unnecessary delays or procedural hurdles.
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