SECURITIES AND FUTURES COMMISSION v. "C" AND OTHERS

cacv 319/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 319 of 2008

(on appeal from HCMP NO. 727 of 2008)

________________________

IN THE MATTER of the Application pursuant to Section 213 of the
Securities and Futures Ordinance (Cap. 571) and/or Order 29, Rule 1 of the
Rules of High Court and/or the inherent jurisdiction of the High Court

________________________

BETWEEN

________________________

J U D G M E N T

________________________

Hon Le Pichon JA:

1.  This is an appeal by the Securities and Futures Commission (“SFC”) from an order dated 22 October 2008 of Kwan J discharging injunctions that had been granted, ex parte, freezing the assets of the first, third and fourth defendants who are the respondents to this appeal, setting aside leave to serve the originating summons out of the jurisdiction on the first, third and fourth defendants and dismissing the SFC’s summons for discovery.

2.  The SFC made its ex parte application in the course of ongoing investigations into suspected insider trading in a listed company in Hong Kong (“the Company”).  The order thus contained provisions preserving the anonymity of the defendants.  The appeal was heard in camera.  At its conclusion, judgment was reserved which we now give.

Background

The defendants

3.  The first defendant, an individual resident in the PRC, was the chairman, chief executive officer and substantial shareholder of the Company.  He is the sole shareholder and director of the third defendant, a BVI company.

4.  According to the SFC, the first defendant, together with the father of the financial director of the Company (named “X” in the judgment), had engaged in insider dealing in the shares of the Company contrary to sections 270 and 291 of the Securities and Futures Ordinance, Cap. 571 (“the Ordinance”).  X is married to the second defendant who is a Hong Kong resident.

5.  The fourth defendant is also a BVI company.  It was acquired by a Jersey trust which is a “settlor investment directed trust”, the first defendant being the settlor of that trust.  The trust is revocable during the settlor’s lifetime.  According to information provided by the bank involved in the setting up of the trust and whose personnel are the directors of trust, the first defendant was “the ultimate beneficial owner” of the fourth defendant.  The fourth defendant has no assets within the jurisdiction.

The alleged insider dealing

6.  The SFC’s case is described in §§ 17-27 of the judgment.  In outline, it was said that before certain price sensitive information was disclosed to the public, namely, demands made on the Company for the repayment of some $70 million (inclusive of accrued interest) which the first defendant ought to know the company would be unable to repay, the first defendant and X sold almost 99 million shares in the Company, thereby avoiding losses of more than $43 million.  The SFC believes that X was acting as the first defendant’s nominee.

7.  The first defendant transferred the sum of $25 million (being the proceeds and interest of the shares sold by him) to the fourth defendant.  X transferred a small part of the proceeds from the disposal of his shares to the third defendant’s bank account but the bulk of it, amounting to $37 million, was transferred to the second defendant’s bank account.  The second defendant then channelled $32.4 million of that sum to the fourth defendant.

8.  It would appear that the judge accepted that there was a strong case that insider dealing had been made out.  From what the SFC has been able to ascertain so far, what remains of the proceeds transferred to the fourth defendant is in a bank account in Singapore under the control of the fourth defendant.

The proceedings below

9.  On 16 April 2009, on its ex parte application, the SFC obtained from the judge an order for service out of the jurisdiction on the first, third and fourth defendants and an interim injunction pursuant to section 213(6) of the Ordinance, pending the hearing of the inter partes summons, restraining the defendants from dealing with their assets to the value of about $43 million.  As against the first, second and third defendants, the restraining order related to assets within Hong Kong.  As against the fourth defendant, the restraining order was worldwide.  In applying for leave to serve out of the jurisdiction, the SFC relied on Order 11, rule 1(1)(b) of the Rules of the High Court.

10.  Paragraph 1 of the ex parte restraining order read as follows:

“1.        Pursuant to section 213 of the Securities and Futures Ordinance (Cap. 571), the 1^st, 2^nd and 3^rd Defendants (whether acting by themselves and/or through others, including but not limited to their agents and/or nominees and/or servants) must not:-

            (a)      remove from Hong Kong any of their assets which are within Hong Kong, whether in their own names or not, and whether solely or jointly owned, up to the value of HK$43,661,568; or

            (b)      in any way dispose of, deal with, or diminish the value of any of their assets, which are within Hong Kong, whether in their own names or not, and whether solely or jointly owned, up to the value of HK$43,661,568.  This prohibition includes in particular any money in the accounts listed in Schedule 2 and the assets listed in Schedule 3 to this Order.”

Paragraph 4 contained an order in similar terms against the fourth defendant save that the order applied to its assets worldwide.

11.  The originating summons dated 18 April 2008 sought an order (1) to restrict the disposal of assets in Hong Kong as against the first, second and third defendants; (2) to restrict the disposal of assets worldwide as against the fourth defendant; and (3) for disclosure of information as against all defendants.  The application for restriction on disposal of assets was based on section 213(1)(b) and (2)(c) of the Ordinance and the terms of the restriction reflected those granted by way of interim relief.

12.  The first, third and fourth defendants applied under Order 12 rules 8 and 9 to set aside the leave granted for service outside the jurisdiction and to discharge the restraining orders.

13.  The second defendant did not apply to discharge the ex parte injunction.  Instead, she provided undertakings “during the interim period until further order of the Court or disposal of the entire action herein” in exchange for the discharge of the ex parte order against her.

14.  On 22 October 2008, the judge discharged the injunctions and the orders for service out of the jurisdiction on the first, third and fourth defendants.  Her reasons are summarised in §§ 24-28 of the judgment of Yuen JA dated 18 February 2009 (when this court dismissed the fourth defendant’s appeal from an order of Rogers VP granting a stay of execution pending this appeal).  It would be convenient, at this stage, to set out that summary:

“ 24.     Briefly the learned judge rejected the 1^st, 3^rd and 4^th Defendant’s constitutional arguments but held that as far as the jurisdictional arguments were concerned:

            (1)      an injunction sought under s.213(2)(c) SFO is not substantive relief because a decision on substantive rights would only take place in the [Market Misconduct Tribunal] (para. 44); accordingly, the SFC was not entitled to proceed under Order 11 rule 1(1)(b) RHC as the Privy Council had held in Mercedes Benz AG v Leiduck [1996] 1 AC 284 that that sub-rule was confined to proceedings in which a plaintiff claimed substantive rights in Hong Kong;

            (2)      the SFC had not previously relied on s.213(2)(b) SFO (para. 51); the 4^th Defendant was not the direct recipient of the proceeds and so was not “involved” in the contravention of share dealing rules (para. 52); further, there were no restitutionary proceedings on foot (para. 53);

            (3)      in particular in respect of the 4^th Defendant, there was no act that it could be compelled to do “within the jurisdiction” so as to come within Order 11 r.1(1)(b) RHC as it was a BVI company and it had no assets within the jurisdiction (para. 58); although the SFC applied to amend the originating process to include a claim for an order that the 4^th Defendant return the funds to Hong Kong and keep them in an account here, the learned judge refused the application to amend as it was considered that the amendment was simply a device to bring the proceedings within Order 11 rule 1(1)(b) RHC (para. 62).  It would be noted that the learned judge expressed her regret that the court in her view could not properly give leave to serve the originating summons on the 1^st, 3^rd and 4^th Defendants out of the jurisdiction (para. 63).

25.     As far as the discretionary arguments were concerned, the judge considered that the SFC had raised a serious question to be tried that (1) persons out of the jurisdiction were amenable to the jurisdiction of the [Market Misconduct Tribunal] (paras. 66-7) and (2) the 1^st Defendant had “relevant information” within the meaning of s.245(2) and s.285(2) SFO and that “X” (and others) were acting as his nominees (paras. 73-4).  However the judge had reservations whether an order could be made against the 4^th Defendant under s.213(2)(c) SFO as the 1^st Defendant did not have any legal or beneficial ownership of the assets of the 4^th Defendant (para. 83) and there was no claim under s.213(2)(b) SFO (para. 84).

26.     As for the other discretionary arguments, the learned judge rejected arguments by the 1^st and 3^rd Defendants that there was no real risk of dissipation and that there was material non-disclosure.  However as far as the 4^th Defendant was concerned, the judge held that the SFC should have specifically referred to the trust structure in the body of the affirmation.  Having said that, the learned judge did not proceed to consider whether she should exercise her discretion afresh to grant an interim injunction in view of her decision that the court lacked jurisdiction to serve the 4^th Defendant under Order 11 rule 1(1)(b) RHC.

Application to serve 4^th Defendant under Order 11 rule 1(1)(c) RHC

27.     At the hearing before Kwan J, leading counsel for the SFC sought leave to serve the 4^th Defendant under Order 11 rule 1(1)(c) RHC, on the basis that the relief against the 4^th Defendant was ancillary to the claims against the other defendants.

28.     The learned judge held that since the court had no jurisdiction against the 1^st and 3^rd Defendants, Order 11 rule 1(1)(c) RHC could not apply.  As to the 2^nd Defendant, the judge said: “although the 2^nd defendant had been served within the jurisdiction, there is no live issue between the SFC and this defendant (Dallah Albraka (Ireland) Ltd v Symphony Gems NV & Ors. [2005] 3 HKLRD 703 at 711E to F, paragraph 24)” (emphasis added).  The judge held that it “would be futile to amend the summons to allow reliance on Order 11 rule 1(1)(c)”. ”

15.  The judge granted a stay of setting aside order as regards the first and third defendants but refused a stay as regards the fourth defendant.  As noted above, this court granted a stay pending appeal as regards the fourth defendant.

This appeal

Whether section 213(2)(c) empowers the court to grant a Mareva type injunction

16.  The Ordinance came into force on 1 April 2003.  The first occasion on which the SFC invoked that power for an order to restrain disposition of property in a case of suspected insider dealing was in the recent case of Securities and Futures Commission v A [2008] 1 HKC 89.  The present jurisdictional challenge made in this court relating to the scope and nature of section 213(2)(c) was not one that was made in the earlier case.

17.  Section 213, in pertinent part provides as follows:

“213.    Injunctions and other orders

(1)   Where-

(a)    a person has-

(i)     contravened-

(A)   any of the relevant provisions;

…

(ii)    aided, abetted, or otherwise assisted, counselled or procured a person to commit any such contravention;

(iii)   induced, whether by threats, promises or otherwise, a person to commit any such contravention;

(iv)   directly or indirectly been in any way knowingly involved in, or a party to, any such contravention; or

(v)    attempted, or conspired with others, to commit any such contravention; or

(b)    it appears, whether or not during the course or as a result of the exercise of any power under Part VIII, to the Commission that any of the matters referred to in paragraph (a)(i) to (v) has occurred, is occurring or may occur,

the Court of First Instance, on the application of the Commission, may, subject to subsection (4), make one or more of the orders specified in subsection (2).

(2)    The orders specified for the purposes of subsection (1) are-

(a)    …

(b)    where a person has been, or it appears that a person has been, is or may become, involved in any of the matters referred to in subsection (1)(a)(i) to (v), whether knowingly or otherwise, an order requiring the person to take such steps as the Court of First Instance may direct, including steps to restore the parties to any transaction to the position in which they were before the transaction was entered into;

(c)    an order restraining or prohibiting a person from acquiring, disposing of, or otherwise dealing in, any property specified in the order;

…

(3)    …

(4)    The Court of First Instance shall, before making an order under subsection (1), satisfy itself, so far as it can reasonably do so, that it is desirable that the order be made, and that the order will not unfairly prejudice any person.

(5)    …

(6)    Where the Court of First Instance considers it desirable to do so, it may grant such interim order as it considers appropriate pending the determination of an application made pursuant to subsection (1).

…

(9)    The Court of First Instance may reverse, vary or discharge an order made or granted by it under subsection (1) or (6) or suspend the operation of the order.

…”

18.  The restriction orders made had the effect of freezing the relevant assets of the defendants.  The form and terms of those orders are akin to those for Mareva injunctions.  In the court below, Mr Sussex SC who appeared for the first and third defendants, did not argue, but reserved the right to argue in this court, that section 213(2)(c) does not confer a power on the court to make such an order.  The ostensible reason for the reservation was the decision of Kwan J in Securities and Futures Commission v A.  However, the argument Mr Sussex now seeks to make was never advanced in that case and, consequently, has never been considered by Kwan J, much less ruled on by her.

19.  Be that as it may, the first matter to be considered on this appeal is whether, as a matter of statutory construction, the court has power under section 213(2)(c) to make Mareva type orders.  If Mr Sussex is right, and there is no such power, that would dispose of this appeal and it would not be necessary to consider any of the other issues.

20.  Mr Sussex’s argument focused on the phrase “dealing in” used in the section.  He pointed out that the usual form of words in Mareva injunctions is to restrain a person from “disposing of or dealing with” his property.  It was said that as a matter of English the phrase “dealing in” is not synonymous with “dealing with”, that “dealing in” necessarily involves some kind of commercial transaction and that the use of the word “otherwise” immediately before it had some over-arching effect, such that the phrase “or otherwise dealing in” governed the meaning of the words preceding it, viz. “acquiring”, “disposing of” in the section.

21.  Mr Sussex relied on the distinction drawn between “dealing with” and “dealing in” by the courts in the context of the Dangerous Drugs Ordinance and cited cases such as The Queen v Chan Kan (1963) DCLR 26 and The Queen v Hui Shu-Tan [1965] HKLRD 341 which endorsed the distinction and held that “dealing in” necessarily involves some kind of commercial transaction.  It was said that the Chinese text of section 213(2)(c) for “dealing in”, viz. (交易), supported the construction advanced and that the expression in Chinese normally connoted some kind of trading or commercial transaction.  Mr Sussex also drew attention to the use of the expression “dealing with” elsewhere in the Ordinance (for example, in section 205) and suggested that when the expression “dealing in” is used instead, it must mean something different.

22.  Mr Scott SC who appeared for the SFC invited this court to have regard to the legislative intention behind the Ordinance and to note that, for example, the Securities Ordinance, Cap. 333 and the Leverage Foreign Exchange Trading Ordinance, Cap. 451 (“the old ordinances”) replaced by the Ordinance on 1 April 2003 contained provisions empowering the SFC to obtain Mareva type injunctions.  Section 144 of the Securities Ordinance provided that:

“144.    Court may make certain orders

(1)      Where, on the application of the Commission, it appears to the Court that a person has contravened this Ordinance or any conditions of registration thereunder, or is about to do an act with respect to dealing in securities or to securities margin financing that, if done, would be such a contravention, the Court may, without prejudice to any orders it would be entitled to make otherwise than pursuant to this section, make one or more of the following orders-

(a)      an order restraining a person from acquiring, disposing of, or otherwise dealing with any securities specified in the order;

…”

23.  In this connection, I should mention that Mr Sussex asserted that the provisions under the old ordinances have never been employed for Mareva relief.  When questioned as to the basis for the assertion, he accepted that all he meant was the absence of any cases on the subject.  There is nothing before this court to suggest that the SFC has never sought Mareva type injunctions prior to the judge’s decision in the Securities and Futures Commission v A.

24.  The effect of an order under section 144 would be to freeze the securities specified.  Mr Scott submitted that where the legislative intention was to expand rather than to cut down the powers of the SFC, it makes no sense to construe section 213(2) as having the effect of cutting down the powers of the SFC.

25.  Mr Scott’s submissions is amply supported by the consultation document which accompanied the White Bill (which became the Ordinance).  The executive summary stated that the primary purpose of the reform of the securities and futures market was “to create a modern regulatory and legal framework [that] promotes market confidence; secures appropriate investor protection; and reduces market malpractice and financial crimes; and to facilitate innovation and competition”.  Then in § 8.10-11, after referring to existing powers (e.g. section 144 of the Securities Ordinance and corresponding provisions in the Leverage Foreign Exchange Trading Ordinance) to obtain orders including restraining orders, it explained that Part X (being a reference to, inter alia, section 213 of the Ordinance as enacted) “preserves each of the existing powers …and, where appropriate, expands them to allow for a more effective discharge of the SFC’s functions.”

26.  Further, I agree with Mr Scott that the distinction drawn in the criminal cases between “dealing in” and “dealing with” cannot be applied readily to the Ordinance.  The Dangerous Drugs Ordinance and the Ordinance are directed at very different mischiefs.  The relevant commodity under the first was narcotics and, necessarily, it was the trading in them that was being addressed.  To draw such a distinction when one is dealing with, for example, the proceeds of insider trading is inappropriate because the subject matter is but a fund of money.  Nor does the Chinese text assist Mr Sussex.  In my view, the Chinese expression (交易) means nothing more than a transaction and does not necessarily connote a commercial transaction.  Moreover, there are examples of other legislation using the expression “dealing in” synonymously with “dealing with”.  See, for example, sections 25(b) and 27(1)(b) of the Mutual Legal Assistance in Criminal Matters Ordinance, Cap. 525.

27.  As appears from the long title to the Ordinance, its stated purpose is

“to consolidate and amend the law relating to … the securities and futures market and the securities and futures industry, the regulation of activities … the protection of investors, and other matters incidental thereto …”

Undeniably, the old ordinances contained provisions which enabled the court to grant injunctions to freeze assets on the SFC’s application.  Given that the Ordinance was meant to replace and consolidate “a patchwork of ten ordinances written over the course of the last 25 years” for the regulation of the securities and futures market and the absence of any reason for narrowing or restricting the remedies that had previously been available to the SFC in the event of any contravention of the Ordinance, there is no rational basis for construing section 213(2)(c) in the manner suggested by Mr Sussex.

28.  In my view, adopting a purposive construction, the words “acquiring”, “disposing of” and “otherwise dealing in” should be read disjunctively and “dealing in” should be liberally construed.  Accordingly, I consider that the power so conferred is sufficiently wide to encompass the grant of a Mareva type injunction.

Order 11 rule 1(1)(b) of the Rules of the High Court

29.  The next issue is whether relief sought under sections 213(1)(b) and (2)(c) falls within Order 11 rule 1(1)(b) of the Rules of the High Court which reads as follows:

“1(1)    …service of a writ out of the jurisdiction is permissible with the leave of the court if in the action begun by the writ---

…

(b)  an injunction sought ordering the defendant to do or refrain from doing anything within the jurisdiction …”

30.  In Siskina (Cargo Owners) v Distos Compania Naviera SA [1979] AC 210, Lord Diplock considered (at 254D-E) that the English court’s jurisdiction to grant a Mareva injunction stems from section 45(1) of the Supreme Court of Judicature (Consolidation) Act 1925.  The corresponding provision in Hong Kong is section 21L of the High Court Ordinance.  Such an injunction cannot stand on its own but is dependant on there being a pre-existing cause of action against the defendant arising out of the invasion of a right of the plaintiff.  The right to such an injunction is necessarily ancillary and incidental to the pre-existing cause of action.  Its issuance would be purely in aid of the claim for substantive relief.  See Siskina at 256C-D.

31.  Mercedes-Benz v Leiduck [1996] 1 AC 284 applied the principles stated in Siskina.  Its ratio is that a Mareva injunction does not fall under Order 11 rule 1(1)(b) in the absence of an underlying claim for substantive relief.

32.  The judge considered that proceedings for an order pursuant to section 213(2)(c) do not decide substantive rights and that substantive rights between the parties would only be decided in proceedings in the Market Misconduct Tribunal.  Thus, applying Mercedes-Benz, Order 11 r.1(1)(b) was not applicable since, in her view, there was no claim to substantive rights.

33.  In determining the nature of an order under section 213(2)(c) of the Ordinance, it is necessary to view it in its proper context, that being the statutory scheme to be found within the four corners of the Ordinance for the regulation of the securities and futures industry.  The regulatory objectives and functions and powers of the SFC are to be found in sections 4 and 5 of the Ordinance.  One of its regulatory objectives is “to minimize crime and misconduct in the securities and futures industry” (section 4(d)) and one of its statutory functions is “to suppress illegal, dishonourable and improper practices in the securities and futures industry” (section 5(n)).

34.  It is noteworthy that the Ordinance conferred on the SFC an array of powers and provided the SFC with a range of remedies, no doubt, to facilitate the attainment of the SFC’s regulatory objectives and render more effective the discharge of its statutory functions.  Of its nature, proceedings involving the SFC are necessarily different from actions between private individuals because the SFC is a public body with statutory duties to discharge and there can be no private rights between the SFC and the defendants.

35.  It is against that backdrop that the range of remedies contained in section 213(2) has to be considered.  Indisputably, those remedies were created by statute and are intended or designed to provide substantive relief to address specific types of wrongdoing (identified in section 213(1)) the regulator may encounter in the course of discharging its statutory functions.  Section 213(1) empowers the court to make a range of substantive orders on the application of the SFC if the SFC is satisfied that the contravention of any of the relevant provisions (defined to mean the provisions of the Ordinance and certain provisions of the Companies Ordinance) “has occurred, is occurring or may occur”.

36.  For the purposes of this appeal, in addition to section 213(2)(c) the effect of which has already been considered, the relief afforded by section 213(2)(b) is also relevant.  It was indorsed in the margin to the originating summons issued by the SFC.  Section 213(2)(b) enables an order to be made that would restore all the parties to the transaction to their respective former positions.  In other words, it is restitutionary in nature and, in conjunction with an order under section 213(2)(c), would provide compensation to those who have sustained losses through the wrongdoing in question, in the present case, insider dealing.

37.  As the judge recognised, an order granting an injunction under section 213 does not require an underlying claim “as the jurisdictional basis is all found in section 213”.  It is sui generis.  Nevertheless, the wrongdoing which founds the relief would invariably have taken place in Hong Kong since that is the relevant market regulated by the SFC and within which the acts constituting such wrongdoing “has occurred, is occurring or may occur”.  It is in respect of such wrongdoing within the jurisdiction that the relief would be sought.

38.  Another relevant consideration is the fact that relief under section 213(2) is entirely free-standing and is not contingent or conditional on there being proceedings in the Market Misconduct Tribunal.  Further, while an order under section 213(2)(c) is not an end in itself in that, sooner or later, the assets frozen will have to be dealt with, subsection (9) enables the court “to reverse, vary or discharge” such an order.  Thus the relief sought in section 213 proceedings is entirely self-contained.

39.  It will have become apparent that the juristic nature of an order made under section 213(2)(c) is intrinsically very different from that of a Mareva injunction although the form of the order may be similar.  Jurisprudentially, relief by way of a free-standing injunction is a creature of statute and available only in respect of a certain type of wrongdoing.  In proceedings for an order under section 213(2)(c), the substantive relief to be decided can only ever be whether an order should be granted and that would depend entirely on whether the SFC can establish its statutory entitlement to the relief sought by showing that the conditions set out in section 213(1) are satisfied.  In my view, the Mercedes-Benz case is distinguishable and its reasoning does not apply to injunctions specifically created by statute.

40.  In this regard, I should mention that Mr Scott made reference to the Irish case of McKenna v EH [2002] 1 IR 72 where Finnegan J held that service out of the jurisdiction under the Irish equivalent to Order 11 r.1(1) (b) was permissible for an originating process for a statutory injunction to freeze assets pursuant to the Proceeds of Crime Act 1996, distinguishing Siskina.

41.  So far as the first and third defendants are concerned, since the acts constituting the alleged wrongdoing in respect of which redress is sought occurred in Hong Kong and there are proceeds of that wrongdoing that are within the jurisdiction, Order 11 rule 1(1)(b) plainly applies.

42.  As regards the fourth defendant, it was said that it is in a different position in that it has no assets within the jurisdiction, it has no connection whatsoever with Hong Kong and it was not involved in any act within the jurisdiction that constituted the alleged wrongdoing.  It is accepted that the fourth defendant may not be served out of the jurisdiction under Order 11 r.1(1)(b).  But whether it is a “necessary or proper party” for the purposes of Order 11 rule 1(1)(c) is the question to which I now turn.

Order 11 r.1(1)(c) of the Rules of the High Court

43.  This rule provides:

“(c)      the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto;”

44.  A preliminary matter is whether the SFC should be permitted to rely on Order 11 rule 1(1)(c), it being said that an attempt to switch sub-rules in resisting an Order 12 rule 8 application is not permitted.  For the ex parte application, the SFC had relied exclusively on Order 11 rule 1(1)(b).

45.  The same objection had been raised when the SFC applied for a stay pending appeal against the fourth defendant.  Rogers VP clearly was not impressed by the objection and considered that the failure to refer to Order 11 rule 1(1)(c) was something that could be put right very easily.  On appeal from his order, Yuen JA (with whom Burrell J agreed) took a similar view.  She considered that the objection had no merit because the SFC is not relying on a new cause of action, explaining that the authorities relied on, such as Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, were cases where the amendment was made to introduce a cause of action not previously specified.  That is not the present case.  I am in full agreement with those views and see no good reason why the court should not use its curative powers to put right that technical defect.

46.  The second defendant was duly served within the jurisdiction.  She and the third defendant received proceeds from the first defendant’s acts of insider dealing.  The SFC’s case is that the second defendant acted as the first defendant’s nominee and had channelled part of the proceeds into the bank account of the fourth defendant.

47.  It is tolerably clear that the judge did not consider the fourth defendant to be a necessary or proper party to the claim against the second defendant only because she took the view that there was “no live issue” between the SFC and the second defendant.  As Yuen JA noted in § 22 of her judgment, the undertakings given by the second defendant were expressed to be “during the interim period until further order of the court or disposal of the entire action herein”.  I agree with Yuen JA that the action against the second defendant is still extant: there has been no court order made in relation to the second defendant and the action has not yet been disposed of.  While, as earlier explained, the matter to be decided can only ever be whether the SFC is entitled to the order that it seeks, it may nevertheless require determination by the court should the second defendant wish to be released from the undertakings given and the SFC were to refuse.

48.  Given the fact that it was to the fourth defendant that the second defendant had channelled over 87% of the $37 million of the proceeds from the alleged insider dealing, the fourth defendant is plainly a proper party to the claim against the second defendant.  By the same token, the first and third defendants are also proper parties since all were involved in a single scheme.

49.  As regards relief, the provisions of section 213(2)(b) are also relevant.  It has already been explained that the relief, if granted, which is restitutionary in nature could operate (in conjunction with an order under section 213(2)(c)) to provide compensation to those who have sustained losses by the alleged wrongdoing.

50.  The SFC seeks leave under Order 2 rule 1(3) to amend its originating summons to demonstrate its claim under section 213(2)(b).  Mr Sussex submitted that leave should not be granted because it would amount to a new case.  That is not strictly correct since the SFC’s claim under section 213(2)(b) was included in the margin to the originating summons (served before the discharge of the ex parte injunctions) and thus put the defendants on notice of such a claim.  Mr Sussex did not identify any prejudice that would ensue should leave be granted.  In the circumstances, I would grant leave to amend.

Conclusion

51.  I would allow the appeal and order that, pursuant to Order 59 rule 10(1) of the Rules of the High Court, the SFC be permitted to serve these proceedings out of the jurisdiction afresh and that the injunctions previously granted as against the first, second and third defendants be re-imposed.  I would also make an order nisi of costs (here and below) in favour of the SFC.

Hon A Cheung J:

52.  I agree.

Hon Le Pichon JA:

53.  There will accordingly be an order in terms of paragraphs 50 and 51.

Mr John Scott SC & Mr William Wong, instructed by Securities and Futures Commission, the Plaintiff/Appellant

Mr Charles Sussex SC & Mr Douglas Lam, instructed by Messrs Johnny K.K. Leung & Co., for the 1^st, 3^rd & 4^th Defendants/1^st, 2^nd & 3^rd Respondents