TAM SZE LEUNG AND OTHERS v. SECRETARY FOR JUSTICE AND ANOTHER

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

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J U D G M E N T

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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 1^st and 2^nd 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:

(1)  The SFC had reasons to suspect that a group of traders – the reference clearly includes the Applicants albeit they are not expressly named – had committed offences or engaged in market misconduct under various sections of the SFO in respect of their dealing with a stock identified by the stock code 8208 listed in the Hong Kong Stock Exchange.

(2)  Some of the traders are clients of specified corporations and their accounts of the subject of the RNs issued under sections 204 and 205 of the SFO.

(3)  Where it appears to the SFC that a person has contravened any of the provisions of the SFO, the Court of First Instance may make an order requiring the person to take such steps as the Court may direct, including steps to restore the parties to the relevant transactions to the position in which they were before these transactions were entered into, or to pay damages under section 213(8). Further action taken may result in the person being ordered to disgorge the profits he/she has made.

(4)  A person who commits market misconduct offences may be liable to pay criminal fines.

(5)  The SFC believes it necessary to prevent the relevant clients and/or persons connected with them from operating and dealing with the relevant accounts, and to preserve the cash and securities in those accounts pending further investigation.

(6)  As there is a risk of dissipation of the cash and securities in the accounts, the SFC considers that it is desirable in the interest of the investing public or in the public interest to impose the prohibitions and requirements set out in the RNs.

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 1^st 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:

(1)  Section 25A(2)(a) of the OSCO does not expressly create an informal freezing regime and I have found in Tam Sze Leung (No.1) that such informal freezing powers could not be implied into the statute as necessary. The scheme as operated there was found to be ultra vires.

(2)  On the contrary, sections 204, 205 and 206 of the SFO expressly authorize the SFC to control and restrict the dealing with assets held in accounts maintained with securities firms.

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:

The regulatory objectives of the Commission are—

(a)  to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry;

(b)  to promote understanding by the public of financial services including the operation and functioning of the securities and futures industry;

(c)  to provide protection for members of the public investing in or holding financial products;

(d)  to minimize crime and misconduct in the securities and futures industry;

(e)  to reduce systemic risks in the securities and futures industry; and

(f)  to assist the Financial Secretary in maintaining the financial stability of Hong Kong by taking appropriate steps in relation to the securities and futures industry.

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:

(1)  The functions of the Commission are, so far as reasonably practicable—

(a)  to take such steps as it considers appropriate to maintain and promote the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry;

(e)  to encourage the provision of sound, balanced and informed advice regarding transactions or activities related to financial products;

(g)  to maintain and promote confidence in the securities and futures industry in such manner as it considers appropriate, including by the exercise of its discretion to disclose to the public any matter relating or incidental to the performance of any of its functions;

(l)  to secure an appropriate degree of protection for members of the public investing in or holding financial products, having regard to their degree of understanding and expertise in respect of investing in or holding financial products

(r)  to perform functions conferred or imposed on it by or under this or any other Ordinance.

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:

204.  Restriction of business

(1)  Subject to section 207, the Commission may by notice in writing—

(a)  prohibit a licensed corporation from—

(i)  entering into transactions of a specified description or other than of a specified description, or entering into transactions in specified circumstances or other than in specified circumstances, or entering into transactions to a specified extent or other than to a specified extent;

(ii)  soliciting business from persons of a specified description or from persons other than of a specified description;

(iii)  carrying on business in a specified manner or other than in a specified manner;

(b)  require a licensed corporation to carry on business in, and only in, a specified manner.

(2)  A prohibition or requirement imposed on a licensed corporation under this section may relate to either or both of the following—

(a)  transactions entered into in connection with the business which constitutes a regulated activity for which the licensed corporation is licensed;

(b)  transactions entered into in connection with any other business which is carried on by the licensed corporation in connection with the business which constitutes a regulated activity for which it is licensed.

205.  Restriction on dealing with property

(1)  Subject to section 207, the Commission may by notice in writing—

(a)  prohibit a licensed corporation—

(i)  from—

(A)  disposing of any relevant property;

(B)  dealing with any relevant property in a specified manner or other than in a specified manner;

(ii)  from assisting, counselling or procuring another person to—

(A)  dispose of any relevant property;

(B)  deal with any relevant property in a specified manner or other than in a specified manner;

(b)  require a licensed corporation to deal with any relevant property in, and only in, a specified manner.

(2)  In this section, relevant property (有關財產), in relation to a licensed corporation, means—

(a)  any property held by the licensed corporation, acting within the capacity for which the licensed corporation is licensed, on behalf of any of the clients of the licensed corporation, or held by any other person on behalf or to the order of the licensed corporation acting within such capacity;

(b)  any other property which the Commission reasonably believes to be owned or controlled by the licensed corporation.

206.  Maintenance of property

(1)  Subject to section 207, the Commission may by notice in writing require a licensed corporation to maintain property in Hong Kong and in any specified place outside Hong Kong such that—

(a)  the property maintained is of the value and of the description that appear to the Commission to be desirable with a view to ensuring that the licensed corporation will be able to meet its liabilities in relation to the business which constitutes a regulated activity for which it is licensed; and

(b)  the property is maintained in a manner that will enable the licensed corporation at any time freely to transfer or otherwise dispose of the property.

(2)  The Commission may in any requirement imposed under this section direct that, for the purposes of the requirement, property of a specified description shall or shall not be taken into account.

26.  Section 207 identifies when the SFC can act under sections 204, 205 and 206, as follows:

207.  Imposition of prohibition or requirement under section 204, 205 or 206

The Commission may impose a prohibition or requirement under section 204, 205 or 206 in respect of or with reference to any licensed corporation if it appears to the Commission that—

(a)  any property of the licensed corporation or its clients, or any property connected with the business which constitutes a regulated activity for which it is licensed, might be dissipated, transferred or otherwise dealt with in a manner prejudicial to the interest of any of its clients or creditors;

(b)  the licensed corporation is not a fit and proper person to remain licensed or is not a fit and proper person to carry on any regulated activity for which it is licensed (having regard, among other matters, to the matters specified in section 129);

(c)  the licensed corporation has failed to comply with the requirement specified in section 180(2) or, in purported compliance with such requirement, has furnished the Commission with information which was at the time when it was furnished false or misleading in a material particular;

(d)  the licence of the licensed corporation may be revoked or suspended on any of the grounds specified in section 194(1) or 195(1) or (2); or

(e)  the imposition of the prohibition or requirement is desirable in the interest of the investing public or in the public interest.

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:

(1)  if it “appears to” the SFC

(2)  that the imposition of the prohibition or requirement “is desirable” in “the interest of the investing public” or in “the public interest”.

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:

8.  References to interest of investing public

In this Ordinance, a reference to the interest of the investing public does not include any interest the taking into consideration of which is or is likely to be contrary to the public interest.

30.  Section 208 of the SFO provides as follows:

208.  Withdrawal, substitution or variation of prohibitions or requirements under section 204, 205 or 206

(1)  Where a prohibition or requirement imposed under section 204, 205 or 206 is in force, the Commission may, where it considers appropriate to do so (whether of its own volition or upon the request of the person on whom the prohibition or requirement is imposed or any other person affected by the prohibition or requirement), by notice in writing given to the person on whom the prohibition or requirement is imposed—

(a)  withdraw the prohibition or requirement; or

(b)  substitute another prohibition or requirement for, or vary, the prohibition or requirement.

(2)  A prohibition or requirement imposed under section 204, 205 or 206, or a prohibition or requirement substituting for another prohibition or requirement under subsection (1)(b), or a prohibition or requirement as varied under subsection (1)(b), shall, unless it provides otherwise, remain in force in accordance with the terms thereof until it is—

(a)  withdrawn; or

(b)  substituted by another prohibition or requirement, or varied, by the Commission under this section.

(3)  The provisions of this section apply, with necessary modifications, to a prohibition or requirement substituting for another prohibition or requirement under subsection (1)(b), or a prohibition or requirement as varied under subsection (1)(b), as they apply to a prohibition or requirement imposed under section 204, 205 or 206, and the provisions of this Division shall be construed accordingly.

31.  Section 209 has certain general provisions relating to the earlier sections in terms (as material for present purposes) as follows:

209.  General provisions relating to sections 204, 205, 206 and 208

(1)  Where the Commission imposes under section 204, 205 or 206, or withdraws, substitutes or varies under section 208, a prohibition or requirement, the imposition, withdrawal, substitution or variation (as the case may be) of the prohibition or requirement takes effect at the time of the service of the notice given in respect thereof or at the time specified in the notice, whichever is the later.

(2)  Where the Commission imposes under section 204, 205 or 206, or withdraws, substitutes or varies under section 208, a prohibition or requirement, the notice given in respect thereof shall be accompanied by a statement specifying the reasons for the imposition, withdrawal, substitution or variation (as the case may be) of the prohibition or requirement.

(3)  Where any request is made by any person to the Commission pursuant to section 208(1) for the withdrawal, substitution or variation of a prohibition or requirement, the Commission shall serve on the person—

(a)  where it withdraws, substitutes or varies the prohibition or requirement in accordance with the request, a copy of the notice given in respect thereof and of the statement accompanying it in accordance with subsection (2); or

(b)  where it refuses to withdraw, substitute or vary the prohibition or requirement notwithstanding the request, a notice of its refusal, together with a statement specifying the reasons for the refusal.

(4)  Where—

(a)  the Commission imposes under section 204, 205 or 206, or withdraws, substitutes or varies under section 208, a prohibition or requirement; and

(b)  the reasons for the imposition, withdrawal, substitution or variation (as the case may be) as specified in the statement accompanying the notice given in respect thereof in accordance with subsection (2) relate specifically to matters which—

(i)  refer to any person who is identified in the statement but who is not the person on whom the prohibition or requirement was imposed; and

(ii)  are, in the opinion of the Commission, prejudicial to the person in any respect,

the Commission shall, as soon as reasonably practicable after the imposition, withdrawal, substitution or variation (as the case may be), take all reasonable steps to serve on the person a copy of the notice given in respect of the imposition, withdrawal, substitution or variation (as the case may be) and of the statement accompanying it in accordance with subsection (2).

(5)  Nothing in subsections (3) and (4) requires a copy of any notice given in respect of the imposition, withdrawal, substitution or variation of a prohibition or requirement, or of a statement accompanying it in accordance with subsection (2), to be served on any person if the notice or statement or a copy of the notice or statement (as the case may be) has been served on the person under any other provision of this Part.

(6)  The Commission shall publish in the Gazette, and may publish by such additional means as it may consider appropriate, a notice regarding the imposition under section 204, 205 or 206, or the withdrawal, substitution or variation under section 208, of a prohibition or requirement.

(7)  A notice published under subsection (6) may, if the Commission considers appropriate, include a statement specifying the reasons for the imposition, withdrawal, substitution or variation (as the case may be) to which the notice relates.

(8)  The Commission shall—

(a)  before imposing under section 204, 205 or 206, or withdrawing, substituting or varying under section 208, a prohibition or requirement in respect of or with reference to a corporation that is an exchange participant or a clearing participant, use its best endeavours to inform the recognized exchange company or the recognized clearing house (as the case may be) of the proposed imposition, withdrawal, substitution or variation (as the case may be) by notice in writing; and

(b)  where before the imposition, withdrawal, substitution or variation of a prohibition or requirement it has not informed the recognized exchange company or the recognized clearing house (as the case may be) of the proposed imposition, withdrawal, substitution or variation (as the case may be) by notice in writing, forthwith after the imposition, withdrawal, substitution or variation (as the case may be) inform the recognized exchange company or the recognized clearing house (as the case may be) thereof by notice in writing.

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:

213.  Injunctions and other orders

(1)  Where—

(a)  a person has—

(i)  contravened—

(A)  any of the relevant provisions;

(B)  any notice or requirement given or made under or pursuant to any of the relevant provisions;

(C)  any of the terms and conditions of any licence or registration under this Ordinance; or

(D)  any other condition imposed under or pursuant to any provision of this Ordinance;

(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)  an order restraining or prohibiting the occurrence or the continued occurrence of any of the matters referred to in subsection (1)(a)(i) to (v);

(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;

(d)  an order appointing a person to administer the property of another person;

(e)  an order declaring a contract relating to any securities, structured product, futures contract, leveraged foreign exchange contract, or an interest in any securities, structured product, futures contract, leveraged foreign exchange contract or collective investment scheme to be void or voidable to the extent specified in the order;

(f)  for the purpose of securing compliance with any other order made under this section, an order directing a person to do or refrain from doing any act specified in the order;

(g)  any ancillary order which the Court of First Instance considers necessary in consequence of the making of any of the orders referred to in paragraphs (a) to (f).

(3)  The Commission shall—

(a)  before making an application pursuant to subsection (1) for an order affecting any person that is an exchange participant or a clearing participant, use its best endeavours to inform the recognized exchange company or the recognized clearing house (as the case may be) of the proposed application by notice in writing; and

(b)  where before the making of the application it has not informed the recognized exchange company or the recognized clearing house (as the case may be) of the proposed application by notice in writing, forthwith after the making of the application inform the recognized exchange company or the recognized clearing house (as the case may be) thereof by notice in writing.

…

(4)  The Court of First Instance shall, before making an order under subsection (1) or (3A), 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)  The Court of First Instance may, before making an order under subsection (1) or (3A), direct that a notice of the application made in respect thereof be given to the persons it considers appropriate, or be published in the manner it considers appropriate, or both.

(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) or (3A).

(7)  An order may be made under subsection (1) or (3A) whether or not it appears to the Court of First Instance that—

(a)  the person against whom the order is made intends to engage again, or to continue to engage, in any of the matters referred to in subsection (1)(a)(i) to (v);

(b)  the person against whom the order is made has previously engaged in any of such matters;

(c)  there is an imminent danger of damage to any person in the event of the order not being made.

…

(9)  The Court of First Instance may reverse, vary or discharge an order made or granted by it under subsection (1), (3A) or (6) or suspend the operation of the order.

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:

(1)  the Court may make an order if either:

(a)  there has been a contravention (or assistance, procurement, involvement or attempt, etc); or

(b)  it “appears to” the SFC that any of those matters has occurred, is occurring or may occur;

(2)  the types of order which may be made include an order restraining or prohibiting a person from acquiring, disposing of, or otherwise dealing in, any property specified in the order;

(3)  before making an order, the Court should satisfy itself, so far is it can reasonably do so, that:

(a)  it “is desirable” that the order be made; and that

(b)  the order will not “unfairly prejudice” any person;

(4)  the Court may make an interim order (pending the determination of an application) if it considers it “desirable” to do so;

(5)  the Court may reverse, vary or discharge an order made, or suspend the operation of the order.

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:

217.  Applications for review of specified decisions

(1)  Subject to subsections (2) and (3), a person aggrieved by a specified decision of the relevant authority made in respect of him may, by notice in writing given to the Tribunal, apply to the Tribunal for a review of the decision.

(2)  A notice given to the Tribunal under subsection (1) shall set out the grounds for the application to which the notice relates.

(3)  An application for review of a specified decision of the relevant authority shall be made within 21 days after—

(a)  subject to paragraph (b)—

(i)  where there is any requirement in this or any other Ordinance for notice in writing in respect of the decision to be served, the notice has been served in accordance with such requirement; or

(ii)  where there is no such requirement, a notice in writing in respect of the decision has been served on the person in respect of whom it is made;

(b)  where the decision is a specified decision which is described in column 2 of Division 1 of Part 3 of Schedule 8 and to which the provision set out, opposite such description of the specified decision, in column 3 of that Division applies, a notice in respect of the decision has been given to the person in respect of whom it is made.

(4)  Notwithstanding subsection (3), the Tribunal, upon application in writing by any person, may, subject to subsection (5), by order extend the time within which an application for review of a specified decision of the relevant authority shall be made under subsection (3), whereupon the time within which such an application shall be made under subsection (3) shall be extended accordingly.

(5)  The Tribunal shall not grant an extension under subsection (4) unless—

(a)  the person who has applied for the grant of the extension pursuant to that subsection and the relevant authority have been given a reasonable opportunity of being heard; and

(b)  it is satisfied that there is a good cause for granting the extension.

(6)  Where the Tribunal receives a notice under subsection (1), it shall as soon as reasonably practicable thereafter serve a copy of the notice on the relevant authority.

40.  Section 218 provides as follows:

218.  Proceedings before Tribunal

(1)  After an application for review has been made, the Tribunal shall review the specified decision to which the application relates.

(2)  Following the review of a specified decision under subsection (1), the Tribunal may—

(a)  confirm, vary or set aside the decision, and, where the decision is set aside, substitute for the decision any other decision which the Tribunal considers appropriate;

(b)  remit the matter in question to the relevant authority with the directions it considers appropriate, which may include a direction to the relevant authority to make a decision afresh in respect of any matter specified by the Tribunal.

(3)  Where the Tribunal varies, or substitutes any decision for, a specified decision under subsection (2)(a), the decision as varied or the decision substituting for the specified decision (as the case may be) may be any decision (whether more or less onerous) that the relevant authority had power to make in respect of the person making the application for review in question, whether or not under the same provision as that under which the specified decision has been made.

(4)  Without limiting the generality of subsections (2)(a) and (3) but subject to subsection (6)—

(a)  where the specified decision in question is a specified decision described in column 2 of Division 2 of Part 3 of Schedule 8, the decision that the Tribunal may substitute under subsection (2)(a) for the specified decision may also include (whether or not in addition to the decision that the Tribunal may, apart from this subsection, substitute under subsection (2)(a) for the specified decision) any decision that the Monetary Authority had power to make in respect of the person making the application for review in question under or pursuant to any of the provisions set out, opposite such description of the specified decision, in column 3 of that Division; and

(b)  where the specified decision in question is a specified decision described in column 2 of Division 3 of Part 3 of Schedule 8, the decision that the Tribunal may substitute under subsection (2)(a) for the specified decision may also include (whether or not in addition to the decision that the Tribunal may, apart from this subsection, substitute under subsection (2)(a) for the specified decision) any decision that the Commission had power to make in respect of the person making the application for review in question under or pursuant to any of the provisions set out, opposite such description of the specified decision, in column 3 of that Division.

(5)  Notwithstanding anything in this section, the Tribunal shall not determine a review without first giving the parties to the review a reasonable opportunity of being heard.

(6)  Without limiting the generality of subsection (5), the Tribunal shall not exercise any power pursuant to subsection (4)(a) or (b) without first giving a reasonable opportunity of being heard to—

(a)  in the case of subsection (4)(a), the Monetary Authority; or

(b)  in the case of subsection (4)(b), the Commission.

(7)  Subject to section 221(3), the standard of proof required to determine any question or issue before the Tribunal shall be the standard of proof applicable to civil proceedings in a court of law.

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:

219.  Powers of Tribunal

(1)  Subject to the provisions of Part 1 of Schedule 8 and any rules made by the Chief Justice under section 233, the Tribunal, for the purposes of a review, may, on its own motion or on the application of any of the parties to the review—

(a)  receive and consider any material by way of oral evidence, written statements or documents, even if the material would not be admissible in evidence in civil or criminal proceedings in a court of law;

(b)  by notice in writing signed by the chairman of the Tribunal require a person to attend before it at any sitting and to give evidence and produce any article, record or document in his possession relating to the subject matter of the review;

(c)  administer oaths;

(d)  examine or cause to be examined on oath or otherwise a person attending before it and require the person to answer truthfully any question which the Tribunal considers appropriate for the purposes of the review;

(e)  order a witness to provide evidence in a truthful manner for the purposes of the review by affidavit;

(f)  order a person not to publish or otherwise disclose any material the Tribunal receives;

(g)  prohibit the publication or disclosure of any material the Tribunal receives at any sitting, or any part of a sitting, which is held in private;

(h)  determine the manner in which any material referred to in paragraph (a) is received;

(i)  stay any of the proceedings in the review on such grounds and on such terms and conditions as it considers appropriate having regard to the interests of justice;

(j)  determine the procedure to be followed in the review;

(k)  exercise such other powers or make such other orders as may be necessary for or ancillary to the conduct of the review or the carrying out of its functions.

(2)  A person commits an offence if he, without reasonable excuse—

(a)  fails to comply with an order, notice, prohibition or requirement of the Tribunal made or given under or pursuant to subsection (1);

(b)  disrupts or otherwise misbehaves during any sitting of the Tribunal;

(c)  having been required by the Tribunal under subsection (1) to attend before the Tribunal, leaves the place where his attendance is so required without the permission of the Tribunal;

(d)  hinders or deters any person from attending before the Tribunal, giving evidence or producing any article, record or document, for the purposes of a review;

(e)  threatens, insults or causes any loss to be suffered by any person who has attended before the Tribunal, on account of such attendance; or

(f)  threatens, insults or causes any loss to be suffered by any member of the Tribunal at any time on account of the performance of his functions in that capacity.

(3)  A person who commits an offence under subsection (2) is liable—

(a)  on conviction on indictment to a fine of $1,000,000 and to imprisonment for 2 years; or

(b)  on summary conviction to a fine at level 6 and to imprisonment for 6 months.

(4)  A person is not excused from complying with an order, notice, prohibition or requirement of the Tribunal made or given under or pursuant to subsection (1) only on the ground that to do so might tend to incriminate the person.

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:

(1)  The non-delegable powers under sections 204 and 205 must be exercised by the Board.

(2)  The SFC’s decision to impose restrictions under sections 204 and 205 must be accompanied by a statement specifying the reasons for such decisions.

(3)  The apparent targets of sections 204(1)(a) and 205(1) are licensed corporations, since it is them on whom the restrictions and prohibitions are to be imposed.

(4)  The triggering provisions in section 207(a) to (d) also concern misconduct or some other aspects of activity by the licensed corporations.

(5)  But section 207(e) is wider, in that the powers could be used with the purpose of targeting LC Clients rather than just the licensed corporations themselves.

(6)  There are two statutory avenues of review: one to the SFC under section 208, and the other one to the SFAT under section 217.

(7)  Under section 208, licensed corporations or individuals affected by the RNs can write to the SFC to seek its consent to deal with the restricted assets in a certain specific way, or for the withdrawal, substitution or variation of the prohibitions or requirements imposed in the RNs.

(8)  The SFAT is a further avenue of review. It is a full merits review on a de novo basis.

(9)  Licensed corporations in respect of which an RN is imposed can directly apply to the SFAT for review under section 217.

(10)  But LC Clients who are affected by the RNs must first apply to the SFC for a withdrawal, substitution or variation of the RNs under section 208. If such a request to withdraw, substitute or vary the impositions is not acceded to, the SFC is required by section 209(3)(b) to serve a notice of its refusal, together with a statement specifying the reasons for its refusal, which reasons will necessarily provide more details of the SFC’s reasoning than was likely provided in the Statement of Reasons given with the original RN.

(11)  Further, the LC Client can then apply to the SFAT for a review of those decisions under section 217.

(12)  If the applicant is still not satisfied with the SFAT’s decision, he or she can further appeal to the Court of Appeal (“CA”) under section 229, but only on the limited ground of a point of law.

46.  In the evidence filed on behalf of the SFC, it was asserted that:

(1)  the RN Regime provides necessary and important powers that allow the SFC to intervene in a timely manner in a myriad of circumstances where LC Clients are suspected of being involved in a variety of misconduct;

(2)  it also gives the SFC a certain degree of flexibility to deal effectively with and address any need to protect the interest of the investing public and the general public interest which may arise from different circumstances;

(3)  the flexibility is crucial because trading activities and the markets which the SFC is tasked to regulate our dynamic and fluid, meaning the factual circumstances which give rise to misconduct are constantly evolving (as demonstrated in Ramp and Dump Schemes);

(4)  the availability and exercise of powers under the RN Regime in the category of cases where LC Clients are suspected of being involved the misconduct are also necessary to further the SFC’s regulatory objectives and discharge its statutory functions as set out in sections 4 and 5 of the SFO.

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:

(1)  the Enforcement Division would assign a case officer/manager within the division to be in charge of the case, who would regularly monitor and review the merits and progress of it;

(2)  Senior Directors and Directors within the Enforcement Division (ranked officers, and not members of the Board) will review the progress of cases on a regular basis;

(3)  there are internal committees comprising senior management within the Enforcement Division, which will review progress and the merits of each case on a quarterly basis; and

(4)  if there is a point in time where, upon review of the progress or prospect of the case, there appears to be no realistic prospect of enforcement, the SFC would seek to withdraw the relevant RN.

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:

(1)  Ground 1 (“Prescribed by Law Ground”):

The relevant provisions fail to meet the ‘prescribed by law’ requirement. The provisions are extremely broad. They can be deployed whenever it “appears” to the SFC that it is merely “desirable” (not even “necessary”) in pursuit of highly vague and undefined objectives such as the broad and open-ended concept of “the public interest”. There is no guidance as to the factors which would be taken into consideration in the SFC’s decision making process. The scope of powers and the manner of their exercise lack sufficient clarity and the regime lacks proper safeguards against abuses and misuses.

(2)  Ground 2 (“Proportionality Ground”):

Even if the provisions are thought to be sufficiently certain, the interference with an individual’s property rights guaranteed by BL6 and BL105 goes further than is reasonably necessary and fails step 3 and step 4 of the proportionality test. The required evidential threshold is too low, “in the public interest” as a basis for intervention is too broad, and there is an absence of sufficient safeguards.

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’:

(1)  the law must be adequately accessible, meaning the citizen must be able to have an indication that is adequate in the circumstances of the legal rules applicable to a given case; and

(2)  a norm cannot be regarded as a ‘law’ unless it is formulated with sufficient precision to enable the citizen to regulate his conduct.

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:

(1)  To intervene in someone’s business and impose restrictions on the conduct of their business is a very serious infringement of their civil and Basic Law Rights.

(2)  There must be a justification for it, and this is where section 207 becomes relevant.

(3)  Despite the substantial nature of the powers, the trigger for their exercise has a low threshold, namely that one of the paragraphs in section 207 “appears to the Commission” to be fulfilled.

(4)  Indeed, in respect of section 207(a), what has to “appear” is only that the specified circumstances “might” occur. It is difficult to imagine a lower threshold for the trigger of powers of such magnitude as those contained in Part X.

(5)  Nowhere in section 207 is there a requirement that it appears to the SFC that the licensed corporation must have been involved in criminal conduct, and paragraphs (a), (b) and (e) do not even require misconduct of a non-criminal nature.

(6)  Having gone to great lengths to define “misconduct” in section 193(1), the legislature has eschewed any reference to it in section 207.

(7)  The drafting identifies that it was envisaged that the powers would be used at an early stage of investigation when the outcome of that investigation could not be known, but where it could be foreseen there was a real possibility of an outcome unfavourable to the licensed corporation or it could be foreseen there was a need to act in order to safeguard the rights of others and to protect the public interest.

(8)  The fact that powers are to be deployed at an early stage, with a low threshold trigger, explains why the powers are administrative measures rather than by judicial authorisation.

(9)  This is the context in which section 207(e) falls to be construed.

(10)  The absence of any guideline or other form of assistance relating to the phrase “in the interest of the investing public or in the public interest” points to the legislator not intending to impose any limitation on the scope of its operation.

(11)  The SFO’s distinction between “the public interest” and “the interest of the investing public” indicates that what is encompassed by the public interest is far more than the interests involved in section 207(a)-(d).

(12)  Section 207(e) has not limited the scope of “public interest” to the type of things in section 207(a) to (d) by the ejudem generis principle.

(13)  The phrase “desirable…in the public interest” is a very broad expression and section 207(e) was deliberately drafted to provide the SFC with a further very broad basis for intervention.

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:

(1)  The administrative powers directly interfere with individuals’ fundamental property rights under BL6 and BL105.

(2)  A substantial part of the population in Hong Kong trade in securities and have part of their wealth and assets held in accounts maintained with licensed corporations.

(3)  There is no limit on the amount of assets that could be made subject to the RN.

(4)  There is no temporal limit on the duration the RN can remain in force.

(5)  Prior scrutiny before the SFC issues the RN either by the Court or by an independent and impartial tribunal is not required.

(6)  Even after the issuance of the RN, there is no legal requirement of periodic review, carried by either the SFC, or an independent and impartial tribunal or by the Court.

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:

(1)  Mr Yu says the RN does not directly interfere with the investors’ ownership over their assets in the account, but only the “use of them”. But I agree with Mr Pao that BL105 expressly protects the “use” of property, and it could not be argued that the intervention powers do not directly restrict the investors’ fundamental property rights.

(2)  Mr Yu says that the powers granted to the SFC only extend to assets held in a securities account and such assets are products of or connected with the individual’s trading activities, and the powers under sections 204(1)(a), 205(1) and 207(e) do not extend to a person’s general wealth such as the assets in a savings bank account which is used to receive a monthly salary. But, in my view, the fact that the interference may (in certain particular circumstances) be to only part of a person’s wealth does not mean that there is no interference with that person’s property rights.

(3)  Indeed, Mr Yu’s argument that the assets used for trading are not as indispensable for individuals as, for example, money they would keep in a savings account (even if true) does not detract from the fact that the individual’s constitutionally protected property rights in those assets placed with a securities’ firm are directly restricted by the RN. Anyway, the Court cannot jump from the fact an individual has put assets with a security firm to the conclusion that those assets must be less or not important to him.

(4)  Mr Yu also says that the individual, by putting assets into a securities accounts, has become a ‘player’ in the financial market and has willingly with open eyes subjected himself to the powers of the SFC. But, even ignoring the points that individual investors and the sole regulator are not equal players on the field, and that the reality is that individual investors have no real choice except not to invest in the stock market at all, that does not mean that the exercise of the powers is not an interference with property rights.

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:

(1)  Ms Cheung says that the RN concerns only the specific asset in the specified account, and is so not as wide as a Mareva injunction. But, that seems to me to avoid the real point which is that the specific asset is the subject of actual interference (and that a Mareva injunction has a limit, which may be lower than the person’s total assets).

(2)  Ms Cheung says that the RN must be reasonable and issued only for the stated statutory objectives. That is, of course, correct, but it does not mean that the effect of the intrusion is somehow less.

(3)  Ms Cheung refers to the requirement for reasons and possible applications for stays, together with periodic internal reviews. But, that does not seem to me of itself directly to address the intrusion into property rights.

(4)  Lastly, Ms Cheung refers to the ability to seek the consent of the SFC to deal with the assets subject to the RN, so as to minimise loss. Whilst noting that possibility, I do not think that significantly reduces the intrusion (where, if the RN is maintained, the consent would likely be conditional on the assets in whatever new form remaining in the account).

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:

(1)  The concepts of “appearance” and “desirability” entail no objective standards on the strength of evidence required. Nor do they import concepts such as necessity or reasonableness.

(2)  The concept of “public interest” in section 207(e) is amorphous, extremely broad, and incapable of subjective assessment. There is no indicator as to the factors or circumstances which would be considered under the rubric of public interest.

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:

(1)  Division 1 is headed ‘Powers of Intervention’ and provides for administrative powers which the SFC can access (without prior Court approval). The provisions for the RN Regime are located in Division 1.

(2)  Division 2 is headed ‘Other powers and proceedings’ and provides for powers which the SFC can only access by applying to Court. Section 213 is in Division 2.

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:

What this drafting tells me is that it was envisaged that the powers would be used at an early stage of investigation when the outcome of that investigation could not be known but it could be foreseen there was a real possibility of an outcome unfavourable to the licensed corporation or it could be foreseen there was a need to act in order to safeguard the rights of others and to protect the public interest. The fact that the powers are to be deployed at an early stage of an investigation, and with a low threshold trigger, also explain why the powers are granted by way of administrative measure rather than by judicial authorization. The administrative basis reflects a recognition of a need for expedition in circumstances where no final rights to property are being determined and the SFC is trying to do no more than preserve the property until more can be known from the investigation. This is the purpose of section 207 and this is the context in which section 207(e) is intended to operate and in which it falls to be construed.

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:

(1)  In considering whether it is desirable that an order be made, the Court should ask if the injunction would have some utility or serve some purpose within the contemplation of the statute.

(2)  Although the statutory powers under section 213 are not limited by principles governing the granting of general interlocutory injunctions, questions such as whether there is a serious issue to be tried, the risk of dissipation of assets to defeat a judgment, and where the balance of convenience lies would provide a sound basis for a preliminary assessment under section 213.

(3)  Before any interim injunction could be granted, it must be established that there is a prima facie case of contravention under the SFO and there is an appreciable, not a fanciful, risk that, without the injunction, proper compliance under the statute would be frustrated.

(4)  What evidence is necessary before an order should be made will depend on the circumstances. In the case of an application made shortly after an investigation has begun, the evidence may be regarded as sufficient if it establishes the 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.

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:

the SFC has doubts if it would be appropriate to issue a restriction notice in this instance against the Bank, which is, strictly speaking, a ‘non-party’, taking the view that it should resort to the express statutory mechanism for interim relief against the person suspected of insider dealing.

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:

Indeed many concepts that the courts employ and work with day in and day out, concepts such as “in the interest of justice”, “good reasons”, “good cause”, “where the court considers it is just or convenient”, or even “fairness”, are broad, general norms, the meaning of which would depend heavily on the context in which they are used. They are well established rubrics which we, at common law, are used to work with. They are valuable and useful concepts providing reasonable guidance to lawyers and laymen alike as to how a particular law would be applied, as well as providing the necessary degree of flexibility for the courts to deal with ever different and changing circumstances, to develop the law and to move with the times. I do not believe the requirement of prescribed by law has the effect of outlawing all these well established and highly useful norms in our system.

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:

(1)  whether the relevant persons involved in misconduct or other activities or concern or there may be circumstances which is/are prejudicial to the interest of the investing public or public interest (though this in part seems a repetition of section 207(e) rather than an attempt to illuminate when and under what circumstances the SFC could or would use its powers);

(2)  whether there is risk of dissipation of the relevant assets and there is a need to preserve the integrity of those assets to ensure that any subsequent legal/enforcement action would not be frustrated or rendered meaningless; and/or

(3)  whether the SFC’s intervention would stop further illegal activities using the relevant funds.

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:

The concept of legal certainty recognizes that in a common law system, the common law, declared as it is by the judges, involves an incremental element of judicial lawmaking, whether by way of moulding the law to meet new circumstances and conditions or to correct errors of principle or doctrinal error. In any event, with the common law, as with the interpretation of statute law, it is inevitable that questions continue to arise which require clarification by judicial decision. That is one reason why absolute certainty is unattainable and why some degree of vagueness is inherent in the formulation of laws, especially laws expressed in general terms.

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:

… However, “expedient” means no more than “advantageous” or helpful”. There is no requirement at the authorization stage that the stop-and-search power be considered “necessary” and therefore no requirement of any assessment of the proportionality of the measure. The authorization is subject to confirmation by the Secretary of State within 48 hours. The Secretary of State may not alter the geographical coverage of an authorization and although he or she can refuse confirmation or substitute an earlier time of expiry, it appears that in practice this has never been done. Although the exercise of the powers of authorization and confirmation is subject to judicial review, the width of the statutory powers is such that applicants face formidable obstacles in showing that any authorization and confirmation are ultra vires or an abuse of power.

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:

(1)  The decision must be made by the Board, because it is non-delegable.

(2)  The Board must in advance inform Hong Kong Exchanges and Clearing Limited by notice in writing of the proposed imposition of the RN.

(3)  The RN issued must be accompanied by a statement specifying the reasons for the imposition.

(4)  The RN (and the statement of reasons if the SFC considers appropriate) must be published in the Gazette.

(5)  After the RN is issued, a person can seek consent from the SFC to deal with the assets, or a withdrawal, substitution or variation of the RN.

(6)  He can do so after scrutinising the reasons for the RN, and can make whatever representations he wants. Those representations can include the particular impact on his property rights and how it that should be dealt with.

(7)  Decisions as to such requests are also non-delegable and can only be made by the Board.

(8)  There is no reason to think such requests would not be dealt with timeously (and if they were not, relief including interim relief could be sought in judicial review).

(9)  The SFC’s refusal of such a request must also be accompanied by a statement of reasons.

(10)  There is no limit on the number of times a person can apply to the SFC under section 208.

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:

(1)  The SFAT’s review is a de novo full merits review. As observed in the David Tsien case, the decisions made by the SFC as a regulator could affect a person’s reputation or livelihood seriously and the contention and such a decision is not subject to a genuine full merits review by an independent tribunal would be “abhorrent to our system”.

(2)  The SFAT shall not accord decisions of the SFC with “special respect”. Rather, on the full merits review, the SFAT must exercise its own independent judgment.

(3)  The SFAT has wide powers in disposing of the review, as it may confirm, vary or set aside the SFC’s decision, and substitute the decision with any other decision as it considers appropriate.

(4)  The SFAT has wide procedural powers in receiving evidence, including the ability to control the manner by which the evidence shall be received and to order individuals to attend the hearing and to give evidence. Indeed, it can receive material which would not be admissible in evidence in civil or criminal proceedings in a court of law.

(5)  The SFAT must first give the parties to the review a reasonable opportunity of being heard before making a determination.

(6)  The SFAT can be expected to command the level of respect commensurate to that of the High Court in many aspects.

(7)  The very composition of the SFAT – a sitting or retired judge, with two lay members who must not be public officers, and chosen by the Chief Executive for their impartiality, standing in the community, and expertise in the financial services field – makes it an expert and informed tribunal, which is particularly well placed in any case to assess what measures are required to deal with the relevant persons in that field and so protect the public interest: see David Tsien at §57.

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:

No extant planning restrictions fall to be considered since the Board is to reconsider its decisions. In general terms, where the Board reaches decisions which are not flawed on traditional judicially reviewable grounds, any imposed restrictions which encroach upon a landowners’ property rights should be subject to constitutional review applying the “manifestly without reasonable foundation” standard. It is considered to be highly unlikely that Board decisions imposing planning restrictions arrived at lawfully and in conformity with the principles of traditional judicial review, would be susceptible to constitutional review unless the measures are exceptionally unreasonable.

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:

I have serious reservations regarding this argument. As explained, for reasons of its own, the applicant has chosen not to challenge the licensing regime itself as infringing its constitutional right to freedom of expression. It accepts that the restriction necessarily involved in the licensing system on its (and everyone else’s) freedom of expression is constitutional. This must mean it accepts that the licensing regime, including the discretionary grant of licence under s.10(1), does not constitute a disproportionate restriction on its freedom of expression, or put another way, the regime does no more than is necessary to restrict its freedom. That being the case, it is not easy to see why and how the proportionality test should be applied a second time in reviewing the discretionary decision made under s.10(1) pursuant to and under this licensing regime, which, ex hypothesi, is a constitutional one passing the proportionality test. Rather, it seems to me the correct way to look at the situation is that, given the acceptance of the constitutionality of the licensing regime, the applicant has no right as such to express its views by means of broadcasting television programmes. All it has is a right to be considered in accordance with the licensing regime for a licence to do so. Following from that, in reviewing the decision to grant or refuse its application, all one has to do is to look at whether the decision of the CE in Council was unlawful, or was unreasonable in the public law sense, or was otherwise arbitrary or procedurally improper; in other words, the conventional public law grounds.

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:

As we said, there is no systemic challenge against the TPO before us. Thus, strictly speaking, it is not necessary for us to decide whether the European jurisprudence on fair balance (examined on a systemic level) is inherent in the concept of “law” under our Article 105. We would confine ourselves to the following observations:

(a)  In light of the previous Court of Final Appeal authorities on the concept of “law” on a constitutional level and the absence of discussion of the same in HKSAR v Asaduzzaman, supra and SFC v C, supra, we do not think these two authorities can be regarded as firm support for the proposition that proportionality is required under Article 105;

(b)  There is material difference between the wordings of Article 105 and Art 1 of Protocol No 1;

(c)  Even assuming that Article 105 has a requirement of proportionality, such requirement is only directed towards the relevant law in question as opposed to the actual application of the law. Thus, in deciding whether a fair balance has been struck, the court will consider whether the law itself satisfies the Yau Yuk Lung proportionality test on a systemic level as opposed to take up a micro examination of the actual decision made under that law;

(d)  In any event, the court will accord a wide margin of appreciation to the legislature and only intervene when the relevant law is manifestly without reasonable foundation.

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:

Thus, the proportionality analysis has to be applied on two different levels:

(1)  examining the systemic proportionality by reference to the legislation or rules in question;

(2)  examining the operational proportionality by reference to the actual implementation or enforcement of the relevant rule on the facts and specific circumstances of a case at the operational level.

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:

Although we come to the conclusion that the Permission Scheme satisfies the proportionality test, the Director must have regard to the individual circumstances of each case in the actual administration of the scheme and the enforcement of the restriction.

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:

(1)  Penny’s Bay Investment Company Limited v The Chief Executive in Council (unreported, HCAL 98/2002, 17 October 2002), where Hartman J explored whether the Lands Tribunal has jurisdiction to determine a constitutional issue. At §§42-43, he held that the Lands Tribunal has the jurisdiction to determine the constitutionality or vires of statutory provisions relevant to its own jurisdiction, and that if constitutional issues arise in the course of a hearing, no matter the level of the court, it is for that court to determine the issues.

(2)  Ng Ka Ling v Director of Immigration (1999) 2 HKCFAR 4, at §§59-61, where the CFA identified BL19(1) and BL80 as the basis for all level of courts of the HKSAR to act as a constitutional check on the executive and legislative branch of the government in fulfilment of the judiciary’s constitutional role.

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:

All this is not to say that the power given to the CEIC is unrestrained and uncontrolled. The courts control the exercise of the power to make regulations on three bases. First, the CEIC has to consider that an occasion of emergency or public danger has arisen. This must be a bona fide conclusion which is not Wednesbury unreasonable. There can be no arbitrary exercise of the power. Secondly, no matter how desirable the CEIC may consider them to be, the regulations made must be for the proper purpose of dealing with the emergency or public danger in question, and for no other irrelevant purpose. Thirdly, the regulations must be made “in the public interest”, subject to the margin of discretion accorded to the CEIC’s judgment of what is “desirable”. We disagree with the applicants’ contention that these facets do not amount to meaningful judicial control.

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:

(1)  The powers granted by the provisions – in particular in section 207(e) as to whether “it appears” to the SFC to be “desirable in the interest of the investing public or public interest” – are extremely wide and lack clarity in their scope and manner of exercise. What is “desirable” is a lesser standard than what is “necessary”, and the broad concept of “the interests of the investing public” is made even wider by reference to “the public interest”.

(2)  Whilst section 213 requires only a prima facie case of a contravention, section 207(e) either has an even lower threshold or no threshold at all. This gives rise to the paradox that, the weaker the SFC evidence is, the more the SFC can seek to use powers under a section which provides even less protection.

(3)  The effect of a RN is similar to a Mareva injunction. It can apply to any “relevant property” held by a licence corporation and is not limited to what is suspected to be proceeds of crime or property derived through illegal means. This strikes at the core of the right to use or dispose of private property.

(4)  There is no independent judicial scrutiny prior to the issuance of the RN, which is left entirely within the administrative discretion of the SFC.

(5)  There is an available alternative mechanism under section 213, and it has not been shown that it is necessary to have additional recourse to an RN under section 207(e). Mr Pao also says that section 207(e) has created a regime which would discourage the SFC from exercising internal discipline in choosing its regulatory weapons. In essence, he suggests that there is no incentive for the SFC to choose the more difficult route through section 213 when they have at their disposal the RN Regime.

(6)  The protection offered by ex post facto reviews is ineffective, or even illusory. Not least, it places the client in a difficult position because of privilege issues, and requires the client essentially to prove his innocence in order to have the RN withdrawn.

(7)  There is no time limit for a RN, and there is no required periodic review.

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:

(1)  The legitimate aim of Part X of the SFO is the protection of investors, creditors of the licence corporation and the public interest. In respect of the public interest, one aspect is the preservation of monies that might otherwise be dissipated, pending the results being known of an investigation into misconduct within the securities and futures industry.

(2)  If misconduct is revealed through investigation, other aspects of the public interest come into play, including deterrence, prevention of dealing in proceeds of an indictable offence and the confiscation of such proceeds.

(3)  Therefore, it is plain that the restriction or limitation that is the consequence of the SFC’s interpretation of sections 204, 205 and 207(e) pursues a legitimate aim.

(4)  Whilst the restriction or limitation temporarily deprives a LC Client of access to the funds in the account, it also ensures that those funds remain available for orders to be made in respect of them should a case be made out for depriving the LC Client of them, hence preserving the status quo pending the outcome of investigations.

(5)  Therefore, the restriction or limitation is rationally connected to the legitimate aim.

(6)  As to the third step of Hysan, it cannot be said that by granting a person affected by the exercise of powers the two rights of (a) a review and (b) an appeal to an independent tribunal provides that person with remedies which are so inadequate that a significantly less intrusive and equally effective measure must be found.

(7)  Both remedies are very real and not so inadequate as to cause the regime to be transparently disproportionate to the problem it seeks to address.

(8)  Whilst they do not provide an investor with the immediate opportunity to seek redress from an independent tribunal, that does not make the regime disproportionate.

(9)  Further, the threshold for accessing the powers under section 213 is different, and so it cannot be said that section 213 is just as effective for the SFC as the powers under sections 204, 205 and 207(e).

(10)  With the protections provided, the restriction or limitation is no more than necessary to accomplish the legitimate aim.

(11)  Though it is correct that the legislation could have been drafted to ensure that an affected person could obtain a Court hearing within a stipulated period of time, the remedies that the legislation does provide do not produce a result that can be described as extremely unbalanced or extremely unfair or that oppressively imposes an unacceptably harsh or excessive burden on the affected individual.

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.