CHEN WENCAN AND ANOTHER v. SECRETARY FOR JUSTICE AND ANOTHER

CACV 101/2023, [2025] HKCA 595

On Appeal From [2023] HKCFI 796

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 101 OF 2023

(ON APPEAL FROM HCAL NO 366 OF 2022)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  This is an appeal against the order of Coleman J refusing to grant leave to apply for judicial review of 2 restriction notices issued by the Securities and Futures Commission (“SFC”) under ss 204 and 205, on the basis of s 207(e), of the Securities and Futures Ordinance, Cap 571 (“SFO”)[1].

2.  The issue which arises for determination is whether the powers of the SFC to impose restrictions under ss 204 and 205 on the basis of s 207(e) do not satisfy the “prescribed by law” and/or “proportionality” requirements, and thus constitute an unlawful interference with the Applicants’ constitutional right to use property under Articles 6 and/or 105 of the Basic Law.

BASIC FACTS

(i)  The Applicants

3.  The Applicants are Mainland residents, and claim to be seasoned investors in securities:

(1)  The 1^st and 2^nd Applicants each holds a trading account (“A1 ESL Account” and “A2 ESL Account” respectively, and “ESL Accounts” collectively) with a securities firm called Enlighten Securities Limited (“ESL”).

(2)  The 2^nd Applicant also holds a trading account (“FSI Account”) with another securities firm called Futu Securities International (Hong Kong) Limited (“FSI”).

The ESL Accounts and FSI Account will collectively be referred to as the “Target Accounts” in this judgment.

4.  ESL and FSI are each a licensed corporation under the SFO.

(ii)  The SFC’s investigation of “ramp-and-dump” (唱高散貨) schemes in respect of Skymission and Wei Yuan shares

5.  Skymission Group Holdings Limited (“Skymission”) is a formwork works subcontractor in Hong Kong, and its shares (with stock code 1429) were listed on the Main Board of The Stock Exchange of Hong Kong Limited on 29 September 2020 at HK$0.35 each.

6.  Wei Yuan Holdings Limited (“Wei Yuan”) is a Singapore-based construction contractor, and its shares (with stock code 1343) were listed on the Main Board of The Stock Exchange of Hong Kong Limited on 12 March 2020 at HK$0.48 each.

7.  On 3 November 2020 and 21 January 2021 respectively, the SFC commenced investigations of suspected large-scale ramp-and-dump schemes in respect of the shares of Skymission and Wei Yuan conducted by a syndicate, whose suspected members included the Applicants.

8.  Briefly stated, a ramp-and-dump scheme is a form of unlawful market manipulation where suspected perpetuators use 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.

9.  The SFC suspected that between (i) 29 September 2020 and 27 October 2020, and (ii) 12 March 2020 and 18 September 2020, the syndicate members ramped up the share prices of Skymission and Wei Yuan 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 shares in the two companies to retail investors at inflated prices.

10.  In respect of Skymission:

(1)  Commencement of trading - on the date of listing (29 September 2020), the shares of Skymission traded between the range of HK$0.58 and HK$1.12, with a daily trading volume of 558,860,002 shares.

(2)  Price rally - the share price of Skymission rallied from HK$1 (closing price on 29 September 2020) to HK$2.39 (at its peak on 27 October 2020), representing a surge of 139% in 16 trading days.

(3)  Offloading - the suspected syndicate members began to offload their shareholding in Skymission during the period between 28 and 30 October 2020.

(4)  Price collapse - the share price of Skymission plunged to HK$0.197 on 30 October 2020, representing a plummet of 92% from the previous close of HK$2.49 on 29 October 2020, with a total trading volume of 552 million shares and a market turnover of HK$227 million.

11.  In respect of Wei Yuan:

(1)  Commencement of trading - on the date of listing (12 March 2020), the shares of Wei Yuan traded between the range of HK$0.53 and HK$0.89, with a daily trading volume of 79,531,000 shares.

(2)  Price rally - the share price of Wei Yuan rallied from HK$0.79 (closing price on 12 March 2020) to HK$3.81 (at its peak on 18 September 2020), representing a surge of 382.3% in 130 trading days.

(3)  Offloading - the suspected syndicate members began to offload their shareholding in Wei Yuan during the period between 21 and 25 September 2020.

(4)  Price collapse - the share price of Wei Yuan plunged to HK$0.236 on 25 September 2020, representing a plummet of 94% from the previous close of HK$4.01 on 24 September 2020, with a total trading volume of 804 million shares and a market turnover of HK$237 million.

12.  The SFC received 31 complaints involving 66 individuals who reported financial losses ranging from HK$18,000 to HK$1.5 million. They claimed that they were induced by their “friends” or “investment teachers” (“the Online Scammers”) from social media platforms (such as WeChat and WhatsApp) to buy Skymission and/or Wei Yuan shares, and the stock prices suddenly collapsed afterwards.

(iii)  The Applicants’ suspected involvement in the ramp-and-dump schemes

13.  During the offloading stage and before the price collapse dates (ie between 28 and 29 October 2020 in respect of Skymission, and between 21 and 24 September 2020 in respect of Wei Yuan), the Applicants were the major sellers of Skymission and Wei Yuan shares. Their combined selling of Skymission and Wei Yuan shares accounted for 47% and 36% of the market turnovers of the Skymission and Wei Yuan shares respectively.

14.  The net proceeds realized by the Applicants from the offloading of Skymission and Wei Yuan shares through the Target Accounts during the aforesaid periods amounted to approximately HK$120 million and HK$129 million respectively.

15.  The SFC considers that it has reasonable cause to believe that the 1^st and 2^nd Applicants might have colluded with the Online Scammers to deceive the aforesaid complainants and/or other investors into acquiring Skymission and/or Wei Yuan shares at inflated prices to their detriment. In particular, the SFC believes that the 1^st and 2^nd Applicants were the ones mainly responsible for offloading the Skymission and Wei Yuan shares before their share prices collapsed, and they appeared to be nominee traders acting for the syndicate who orchestrated the ramp-and-dump schemes. The SFC’s basis for such belief is set out at §23 of the Affirmation of Tong Hon Fai filed on 29 June 2022:

(1)  The money used by the 2^nd Applicant to carry out the suspected market manipulation activities was mainly sourced from cash deposits amounting to HK$3.9 million in her bank account maintained with HSBC. The cash deposits were structured into 34 cash deposits of HK$100,000, 6 cash deposits of HK$50,000 and 1 cash deposit of HK$200,000. The SFC considers the pattern of breaking down the HK$3.9 million deposit into smaller cash deposits to be suspicious, and was done to mask the identities of the fund providers and circumvent relevant anti-money laundering regulations.

(2)  Two weeks before the share price of Wei Yuan collapsed on 25 September 2020, the 1^st and 2^nd Applicants bought 40.925 million and 17.02 million shares of Wei Yuan via off-market transactions and those transactions amounted to HK$135 million and HK$65 million respectively. Notwithstanding that a large sum of money was involved in those transactions, the Applicants did not appear to have paid for the shares bought by them.

(3)  According to the account opening documents kept by ESL, the 1^st and 2^nd Applicants claimed in their respective account opening forms to have an annual income in the range of HK$20,000 to HK$500,000. However, during the relevant period between March and October 2020, the two Applicants often conducted transactions of over HK$1 million through their bank or securities accounts. For instance, on 29 September 2020, after offloading the Wei Yuan shares, the 1^st Applicant withdrew HK$48 million from the A1 ESL Account and transferred that sum to his HSBC account. The amount of transactions going through the Applicants’ accounts was not commensurate with their financial background.

16.  In view of the fact the that Applicants’ intended grounds of review of the restriction notices mentioned below and the relevant provisions of the SFO are not based on the lack of underlying merits of the SFC’s allegations against them, it is not necessary to further consider the merits of the SFC’s case against them in this judgment, although it is fair to point out that the SFC has not thus far laid any charge against either of the Applicants.

(iv)  The restriction notices

17.  On 9 February 2021, the SFC issued 2 restriction notices (“ESL Notice” and “FSI Notice” respectively, and “Restriction Notices” collectively) pursuant to ss 204(1) and 205(1) on the basis of s 207(e) to –

(1)  ESL in relation to the ESL Accounts; and

(2)  FSI in relation to the FSI Account,

in order to stop the commission of further suspected illegal activities using the funds in those accounts and to ensure that there would be assets available to satisfy any possible future orders for disgorgement, restitution or fines and to prevent dissipation of the funds and assets in those accounts.

18.  The ESL Notice states that it appears to the SFC, for the reasons set out in the statement of reasons attached thereto (“Statement of Reasons”), that the SFC should exercise the powers conferred by ss 204 and 205, and the SFC gives notice that –

(1)  Under ss 204(1)(a) and 205(1), ESL is, in respect of the ESL Accounts –

(a)  except with the SFC’s consent, prohibited from disposing of or dealing with, or assisting, counselling or procuring another person to dispose of or deal with, any assets in any way in the ESL Accounts up to the maximum value of HK$48,100,820 for the A1 ESL Account and HK$184,788,005 for the A2 ESL Account, including (i) entering into transactions in respect of any securities, (ii) processing any withdrawals or transfers of securities and/or cash or any transfers of moneys arising from the disposal of securities, and (iii) disposing of or dealing with any securities and/or cash on the instructions of any authorized person of the ESL Accounts or any person acting on their behalf; and

(b)  required to deal with any securities and/or cash in the ESL Accounts in a specified manner, namely, ESL is required to notify and consult the SFC immediately upon receipt of any instruction(s) from the authorized person of the ESL Accounts, or by any person(s) acting on his/her behalf, to dispose of or deal with any securities and/or cash in the ESL Accounts.

(2)  Under s 217, an application may be made to the Securities and Futures Appeal Tribunal (“SFAT”) for a review of the SFC’s decision to impose the prohibitions and/or requirements specified in the ESL Notice. Such application must be made within 21 days after the day on which the notice is served. Further, under s 208, ESL may apply to the SFC for the prohibitions and/or requirements specified in the ESL Notice to be withdrawn, substituted or varied.

19.  The Statement of Reasons sets out, inter alia, the following as the SFC’s reasons for the issue of the ESL Notice –

“2. It appears to the Commission that the imposition of the prohibitions and requirements set out in the [Restriction Notices] of this date issued by the Commission under sections 204 and 205 of the SFO is desirable in the interest of the investing public and in the public interest.

3. The Commission has reached this view on the basis of the following matters:

(a) The evidence obtained by the Commission to date suggests that a group of traders (‘Traders’) might have acted in concert in a pre-arranged manner to conduct manipulative trading and/or participated in a deceptive scheme in respect of the dealing in the shares of 2 companies listed on The Stock Exchange of Hong Kong Limited (‘Companies’), by inflating the share price of the Companies to an artificially high level followed by a significant disposal of the shares of the Companies held by the Traders.

(b) The Commission takes the view that the Traders’ trading activities in the shares of the Companies were not in line with those of genuine investors. The clients of the Specified Corporation (‘Clients’) whose accounts are the subject of the [Restriction Notices] of this date issued by the Commission under sections 204 and 205 of the SFO are amongst the Traders.

(c) The Commission has reasons to suspect that false trading, price rigging and/or stock market manipulation within the meaning of sections 274, 275 and/or 278 of the SFO might have taken place and/or persons might have committed market misconduct offences under sections 295, 296, 299 and/or 300 of the SFO.

(d) Where it appears to the Commission that a person has contravened any of the provisions of the SFO specified above, the Court of First Instance (‘CFI’), on the application of the Commission, may make an order requiring the person to take such steps as the CFI may direct, including to take such steps to restore the parties to the transaction to the position in which they were before the transaction was entered into, or to pay damages to another person under section 213(8) of the SFO.

(e) Where it appears to the Commission that market misconduct has taken place, and where the Market Misconduct Tribunal (‘MMT’) has identified a person as having engaged in market misconduct, the MMT may, at the conclusion of the proceedings, make an order to disgorge the profit from the person’s market misconduct under section 257(1)(d) of the SFO.

(f) The Commission believes that it is necessary to prevent the Clients and/or person(s) connected with the Clients from operating and dealing with the accounts specified in the [Restriction Notices] and to preserve the cash and securities in the accounts pending further investigation.

(g) To ensure that there will be funds available to meet any restoration or damages order if so ordered by the court under section 213 of the SFO and any disgorgement orders which may be made by the MMT, and to minimize the risk of dissipation, the Commission considers that it is desirable in the interest of the investing public and in the public interest to impose on the Specified Corporations the prohibitions and requirements set out in the [Restriction Notices] issued by the Commission on this date.”

20.  The FSI Notice is materially the same as the ESL Notice, save in respect of the particulars relating to the account number, name of client, cash balance in the account at as 30 October 2020, securities balance as at 30 October 2020, and value of the assets being restricted. We do not propose to set out the provisions of the FSI Notice. The Statement of Reasons was also relied upon in support of the FSI Notice.

21.  On the same date (ie 9 February 2021), the SFC sent to the 1^st Applicant a letter informing him, inter alia, that:

(1)  pursuant to ss 204 and 205, the SFC had issued to ESL the ESL Notice on 9 February 2021 in relation to the A1 ESL Account; and

(2)  under s 208, any person affected by the prohibition and/or requirement set out in the ESL Notice might apply to the SFC for the prohibition and/or requirement imposed by the ESL Notice to be withdrawn, substituted or varied.

22.  Similar letters dated 9 February 2021 were sent to the 2^nd Applicant in respect of (i) the ESL Notice relating to the A2 ESL Account, and (ii) the FSI Notice relating to the FSI Account.

23.  Pursuant to the Restriction Notices, the Applicants’ monies and securities in the Target Accounts have been frozen since 9 February 2021. In or around July 2021, the 1^st Applicant approached ESL and asked about the possibility to resume trading using the A1 ESL Account. However, ESL informed the 1^st Applicant that it had no power to uplift the restrictions imposed by the SFC.

THE APPLICATION FOR LEAVE TO APPLY FOR JUDICIAL REVIEW

24.  On 19 May 2022, the Applicants filed a Form 86 to apply for leave to apply for judicial review of (i) ss 204, 205 and 207(e), and (ii) the Restriction Notices, contending that they prohibited the Applicants from dealing with or disposing of their private properties, and constituted a clear restriction on their fundamental right to use their properties under Articles 6 and 105 of the Basic Law (“BL 6” and “BL 105” respectively), and such restriction failed to satisfy the (i) “prescribed by law” and (ii) “proportionality” requirements.

25.  In the Form 86, the Applicants seek, inter alia, the following relief: (i) a declaration that ss 204 and 205 insofar as the powers therein are exercised on the basis of s 207(e) are unconstitutional, (ii) an order of certiorari to quash the Restriction Notices, and (iii) a declaration that the Restriction Notices are unconstitutional and/or invalid.

THE DECISION

26.  The issues raised by the Applicants in the Form 86 were materially the same as those raised in a previous application for judicial review, in respect of which the Judge gave a judgment on 26 September 2022 holding that the regime of restriction notices under ss 204 and 205 on the basis of s 207(e) (“the RN (Public Interest) Regime”) satisfied the “prescribed by law” requirement and did not amount to a “disproportionate” interference with property rights: see Tam Sze Leung v Secretary for Justice [2022] 5 HKLRD 44 (“Tam Sze Leung (RN)”).

27.  By agreement of the parties, the application for leave to apply for judicial review in the present case was dealt with by the Judge based on written submissions alone. On 21 March 2023, the Judge gave a decision (“the Decision”) maintaining his view in Tam Sze Leung (RN) that the RN (Public Interest) Regime satisfied the “prescribed by law” and “proportionality” requirements. Accordingly, the Judge made an order dismissing the Applicants’ application for leave to apply for judicial review.

THE GROUNDS OF APPEAL

28.  Two grounds of appeal against the Decision are raised in the Applicants’ Supplementary Notice of Appeal dated 24 August 2023:

(1)  Ground 1 contends that the Judge should have held that the RN (Public Interest) Regime does not satisfy the “prescribed by law” requirement and are incompatible with BLs 6 and 105, for the reasons set out at §§2 to 8 of the Supplemental Notice of Appeal.

(2)  Ground 2 contends that the Judge should have held that the RN (Public Interest) Regime amounts to a disproportionate interference with the Applicants’ right to property for the reasons set out at §9 of the Supplemental Notice of Appeal.

THE STATUTORY FRAMEWORK

(A)  The RN (Public Interest) Regime

29.  In order to properly assess the competing arguments of the Applicants on the one side and those of the Secretary for Justice (“SJ”) and the SFC on the other, we shall first set out the statutory framework in respect of the RN (Public Interest) Regime.

30.  The RN (Public Interest) Regime appears in Division 1 of Part X of the SFO. Part X is under the hearing “Powers of Intervention and Proceedings”, and Division 1 is under the sub-heading “Powers of intervention”.

(i)  Objects of SFO, and regulatory objectives and functions of the SFC

31.  The long title to the SFO states that it is an Ordinance “to consolidate and amend the law relating to financial products, the securities and futures market and the securities and futures industry, the regulation of activities and other matters connected with financial products, the securities and futures market and the securities and futures industry, the protection of investors, and other matters incidental thereto or connected therewith, and for connected purposes”.

32.  The regulatory objectives of the SFC are set out at s 4. They include, amongst other things:

(1)  the maintenance and promotion of the fairness, efficiency, competitiveness, transparency and orderliness of the securities and futures industry (sub-paragraph (a));

(2)  the promotion of understanding by the public of financial services including the operation and functioning of the securities and futures industry (sub-paragraph (b));

(3)  the protection of members of the public investing in or holding financial products (sub-paragraph (c)); and

(4)  the minimization of crime and misconduct in the securities and futures industry (sub-paragraph (d)).

33.  The functions of the SFC are set out at s 5(1). They include, amongst other things:

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

(2)  the taking of such steps as it considers appropriate to ensure that the relevant provisions of the SFO are complied with (sub-paragraph (f));

(3)  the maintenance and promotion of confidence in the securities and futures industry in such manner as it considers appropriate (sub-paragraph (g));

(4)  the enhancement of the understanding and knowledge of members of the public of financial services including – (i) the operation and functioning of the securities and futures industry; and (ii) the benefits, risks and liabilities associated with purchasing financial services including investing in financial products (sub-paragraph (i));

(5)  the encouragement of the public to appreciate the relative benefits of purchasing different types of financial services including investing in financial products through persons carrying on activities regulated by the SFC under any of the relevant provisions (sub-paragraph (j));

(6)  the promotion of understanding by the public of the importance of – (i) making informed decisions regarding the purchasing of financial services and transactions and activities related to financial products; and (ii) taking responsibility for those decisions (sub-paragraph (k));

(7)  the securing of 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 (sub-paragraph (l));

(8)  the suppression of illegal, dishonourable and improper practices in the securities and futures industry (sub-paragraph (n));

(9)  the recommendation of reforms of the law relating to the securities and futures industry (sub-paragraph (p)); and

(10)  the performance of functions conferred or imposed on it by or under the SFO or any other Ordinance (sub-paragraph (r)).

(ii)  Notice of restriction of business of a licensed corporation

34.  Section 204(1), under the sub-heading “Restriction of business”, provides that, subject to s 207, the SFC may by notice in writing prohibit a licensed corporation from 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 (sub-paragraph (a)(i)), or require a licensed corporation to carry on business in, and only in, a specified manner (sub-paragraph (b)).

35.  Section 205(1), under the sub-heading “Restriction on dealing with property”, provides that, subject to s 207, the SFC may by notice in writing prohibit a licensed corporation from disposing of any relevant property or dealing with any relevant property in a specified manner or other than in a specified manner (sub-paragraph (a)(i)); or from assisting, counselling or procuring another person to dispose of any relevant property or deal with any relevant property in a specified manner or other than in a specified manner (sub-paragraph (a)(ii)), or require a licensed corporation to deal with any relevant property in, and only in, a specified manner (sub-paragraph (b)). For the purpose of this provision, “relevant property”, in relation to a licensed corporation, is defined to include 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 (s 205(2)(a)).

(iii)  Grounds for imposition of prohibition or requirement

36.  Section 207 sets out the circumstances in which the SFC may impose a prohibition or requirement on a licensed corporation under ss 204 or 205. Relevantly for the present purpose, the SFC may do so if it appears to the SFC that, amongst other grounds, “the imposition of the prohibition or requirement is desirable in the interest of the investing public or in the public interest” (sub-paragraph (e)).

(iv)  Withdrawal, substitution or variation of restriction notice

37.  By s 208(1), where a prohibition or requirement imposed under ss 204 or 205 is in force, the SFC 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.

(v)  Giving reasons for imposing, or withdrawal, substitution or variation of, a prohibition or requirement

38.  Under s 209(2), where the SFC imposes under ss 204 or 205 a prohibition or requirement, the notice given in respect thereof shall be accompanied by a statement specifying the reasons for the imposition of the prohibition or requirement.

39.  Under s 209(3)(b), where any request is made by any person to the SFC pursuant to s 208(1) for the withdrawal, substitution or variation of a prohibition or requirement, the SFC shall serve on the person, 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.

40.  Under s 209(6), the SFC shall publish in the Gazette, and may publish by such additional means as it may consider appropriate, a notice regarding the imposition under ss 204 or 205, or the withdrawal, substitution or variation under s 208, of a prohibition or requirement. Further, under s 209(7), a notice published under subsection (6) may, if the SFC 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.

(vi)  Notification to person(s) affected by restriction notice

41.  By s 209(4), where the SFC imposes under ss 204 or 205 a prohibition or requirement, and the reasons for the imposition as specified in the statement accompanying the notice given in respect thereof in accordance with subsection (2) relate specifically to matters which 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 are, in the opinion of the SFC, prejudicial to the person in any respect, the SFC shall, as soon as reasonably practicable after the imposition, take all reasonable steps to serve on the person a copy of the notice given in respect of the imposition and of the statement accompanying it in accordance with subsection (2).

(vii)  Enforcement of restriction notice

42.  Section 211 contains provisions enabling the SFC to apply to the Court of First Instance for the enforcement of a prohibition or requirement in force in respect of a person in the event of non-compliance by such person, and the Court may inquire into the case and:

(1)  if the Court is satisfied that there is no reasonable excuse for the person not to comply with the prohibition or requirement, order the person to comply with the prohibition or requirement within the period specified by the Court; and

(2)  if the Court is satisfied that the failure was without reasonable excuse, punish the person, and any other person knowingly involved in the failure, in the same manner as if he and, where applicable, that other person had been guilty of contempt of court.

(viii)  Exercise of powers by independent board

43.  By virtue of s 10(2) and s 2 of Part 2 of Schedule 2 to the SFO, the functions of the SFC to impose a prohibition or requirement under ss 204 or 205, or withdraw, substitute or vary a prohibition or requirement under s 208(1), are “non-delegable” functions, and thus such functions can only be exercised by the SFC’s board of directors, which consists of a chairman, a chief executive officer, 4 executive directors, and 8 non-executive directors who are independent of the SFC. In Mr Tong’s affirmation (at §36), it is stated that the non-executive directors currently sitting on the board of the SFC include a senior counsel, partners of law firms and experienced members of the accounting profession.

(ix)  Review by SFAT

44.  Under s 217(1), a person aggrieved by a “specified decision” of the SFC made in respect of him may, within the time limit as prescribed by s 271(3) (subject to the power of the SFAT to extend such time limit), by notice in writing given to the SFAT, apply to the SFAT for a review of the decision. For the purpose of this provision, a specified decision includes a decision to impose a prohibition or requirement under ss 204 or 205, and a decision refusing to withdraw, substitute or vary a prohibition or requirement under s 208(1) (see s 215 of, and column 2 of Division 1 of Part 2 of Schedule 8 to, the SFO).

45.  The SFAT is a tribunal independent of the SFC. It consists of a chairman who shall be a “judge” (defined to mean a judge or deputy judge of the Court of First Instance, or a former Justice of Appeal of the Court of Appeal, or a former judge or a former deputy judge of the Court of First Instance), and 2 other members who shall not be public officers (ss 215 and 216).

46.  An application for review to the SFAT takes the form of a full merits de novo review. The SFAT applies the court’s civil standard of proof in an adversarial setting. It 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 give evidence. It can receive evidence which may not strictly be admissible in civil or criminal proceedings in a court of law, and is required to give the parties to a review a reasonable opportunity of being heard before making a determination (s 219(1)). It is not limited to examining the legality or rationality of the SFC’s decision, but is entitled to come to its own decision on whether the prohibition or requirement imposed by the SFC under ss 204 or 205 ought to be maintained, or whether such prohibition or requirement ought to be withdrawn, substituted or varied under s 208(1). Following a review, the SFAT may confirm, vary or set aside the SFC’s decision, and, where the decision is set aside, substitute for the decision any other decision which the Tribunal considers appropriate, or remit the matter in question to the SFC with the directions it considers appropriate, which may include a direction to the SFC to make a decision afresh in respect of any matter specified by the SFAT (s 218(2)).

47.  Under s 229(1), a party to a review who is dissatisfied with a decision of the SFAT may appeal to the Court of Appeal against the decision on a point of law.

(B)  The Section 213 Regime

48.  At this juncture, we should also mention that there is another power available to the SFC to take preventive action for the protection of the interests of investors, licensed persons and their clients and creditors under s 213, which is contained in Division 2 (“Other powers and proceedings”) of Part X of the SFO. Section 213 provides, relevantly, as follows:

“(1) Where—

(a) a person has—

(i) contravened—

(A) any of the relevant provisions;

…

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

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

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

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

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

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

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

(a) 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);

…

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

…

(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.

…

(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) …”

GROUND 1 – “PRESCRIBED BY LAW”

49.  It is not in dispute that, prima facie, the Restriction Notices interfere with the Applicants’ right to use property under BLs 6 and 105. The question is whether such interference can be justified. To do so, it is necessary to show that the interference satisfies the “prescribed by law” and “proportionality” requirements.

50.  There are two basic elements of the prescribed by law requirement: adequate accessibility and reasonable certainty.

51.  On behalf of the Applicants, Mr Pao, SC submits that:

(1)  Under BLs 6 and 105, property rights are to be guaranteed by clear and accessible laws, and not, for instance, left to uncharted administrative discretion. A law which confers discretionary powers on public officials, the existence of which may interfere with property rights, must give an adequate indication of the scope of discretion (Leung Kwok Hung & Ors v HKSAR (2005) 8 HKCFAR 229, at §29).

(2)  The law must provide “adequate effective safeguards against abuse” (Chee Fei Ming v Director of Food and Environmental Hygiene [2020] 1 HKLRD 373, at §36; Beghal v Director of Public Prosecutions [2016] AC 88, at §§30 and 32), especially where the power is to be exercised secretly and the risks of arbitrariness are evident (Malone v UK (1984) 7 EHRR 14, at §§67-68; Elloy de Freitas v Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69, at 78D-79A).

(3)  The level of precision and safeguards required depends, amongst other things, on the extent of interference of the right in question (Chee Fei Ming, at §66).

There is, we understand, no serious dispute of these general principles.

52.  Mr Pao submits that the RN (Public Interest) Regime is plainly deficient, for the following reasons:

(1)  The SFC’s freezing power is impermissibly wide and lacks the requisite degree of legal certainty. Section 207(e) gives no meaningful indication as to the circumstances in which the intrusive power may be deployed. “Public interest” is too broad a concept to delineate the area of risk in a meaningful manner. The relevant provisions do not identify the factors that the SFC ought to consider when deciding to freeze property. Further, the SFC has not published any accessible policy guidance to delineate the scope of its discretion. No evidential threshold for the existence of misconduct is stipulated. The triggering thresholder (if it “appears” to be “desirable” to the SFC) is so low that the SFAT expressed the view that “it is difficult to imagine a lower threshold for the trigger of powers of such magnitude” in Leung Yuk Kit v SFC, SFAT App 4/2021 (25 April 2022), at §68. The lack of certainty is further underlined by the fact that the SFC was unsure about the scope of s 207(e) in SFC v A [2008] 1 HKC 89, at §45, where the SFC expressed a doubt as to the propriety of invoking the regime in relation to the conduct of clients of licensed individuals, as opposed to the conduct of licensed individuals.

(2)  Despite the width of the regime and the drastic effect it may have, safeguards against abuse of power are minimal: (i) no temporal limits on the duration of any freeze, (ii) no upper limit as to the assets which may be frozen, (iii) no requirement of periodic review, and (iv) no provision for prior scrutiny by an independent and impartial tribunal.

53.  The above complaints were considered by the Judge in Tam Sze Leung (RN), at §§70-167, and in the Decision, at §15. We do not propose to set out the Judge’s detailed reasons in this judgment, with which we are in general agreement, and are of the view that the Judge has come to the correct conclusion that the RN (Public Interest) Regime satisfies the prescribed by law requirement. We shall briefly state our reasons for this conclusion.

54.  In respect of the width of the freezing power, it is important to bear in mind that the degree of precision required is context dependent (Hong Kong Television Network Ltd v Chief Executive in Council [2016] 2 HKLRD 1005). That case concerned a challenge to the exercise of a discretion vested in the CE in Council under s 10(1) of the Broadcasting Ordinance, Cap 562, which empowered the CE in Council to grant (or refuse to grant) a TV licence subject to such conditions as he thought fit. It was not in dispute that “public interest” was a relevant consideration which the CE in Council was entitled to take into account when exercising the said discretion. The applicant, whose application for a domestic TV licence was unsuccessful, argued that the unfettered discretion given to the CE in Council under s 10(1) of the Broadcasting Ordinance was too uncertain to satisfy the prescribed by law requirement, because the rubric of “public interest” was legally uncertain. That argument was rejected by the Court of Appeal. At §90 of the judgment of Cheung CJHC (as he then was), with whom the other members of the Court of Appeal agreed, it was pointed out that whether a norm or legal concept is sufficiently legally certain to pass the prescribed by law requirement depends to a considerable degree on the content of the law in question, the field it is designed to cover and the number and status of those to whom it is addressed. A norm is “foreseeable” when it affords a measure of protection against arbitrary interference by the public authorities. The degree of precision required would vary according to the context or subject matter of the law. At §92, Cheung CJHC pointed out that the understanding of the concept “public interest” must be guided by the context. At §§95-97, Cheung CJHC further emphasized that the common law requirement of fairness (including the requirement to give an applicant a fair opportunity to be heard), along with all relevant requirements and characteristics of the common law, must be fully taken into account when deciding whether a concept such as public interest is legally certain enough. The requirement of fairness would, in particular, be useful in avoiding uncertainty by requiring a licence applicant to be given an opportunity to be heard on any particular policy consideration that was not reasonably foreseeable at the time of making an application. Cheung CJHC went on to make the following pertinent observations:

“[98] Quite inevitably, there will be marginal or fringe cases where there are doubts. But as Ribeiro PJ emphasised in Winnie Lo, what is important is whether there is ‘a settled core’ of meaning of the norm in question. If the answer is in the affirmative, the mere existence of debatable issues surrounding the settled core does not make the norm legally uncertain (para 84). What this means is that in our common law system, the courts develop the law over time, clarifying it and modifying it to meet new circumstances and conditions.

[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.”

55.  In the present case, while the concept of “public interest” on its own is a broad one, the powers to impose relevant restrictions under the RN (Public Interest) Regime are circumscribed by the fact that it may only be imposed on a licensed corporation, and can only be exercised for the purpose of performing the SFC’s statutory functions identified in s 5(1) in furtherance of its statutory objectives set out in s 4 (Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997). We agree with the Judge’s view, at §15(2) of the Decision, that the meaning of “public interest” is “context driven”, and in the present case it encompasses “the situation of market misconduct and other forms of conduct which will be in the public interest for the SFC to regulate (even if not specifically contemplated by the drafter of the SFO)”.

56.  The fact that s 207(e) does not set out a specific evidential threshold for the exercise of the powers to impose relevant restrictions on a licensed corporation under the RN (Public Interest) Regime does not mean that there is no evidential threshold to be satisfied by the SFC before it may properly exercise the powers to freeze property held by a licensed corporation on behalf of its clients. At §103 of Tam Sze Leung (RN), the Judge expressed the view that –

“… 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” [to exercise the freezing powers under the RN (Public Interest) Regime].

57.  The Judge came to this view after considering the following analysis by the SFAT at §71 of Leung Yuk Kit:

“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 that 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 into which it falls to be construed.”

58.  In our view, the Judge correctly identified the evidential threshold for the exercise of the powers under ss 204 and 205 on the basis of s 207(e) (see §103 of Tam Sze Leung (RN), quoted at §56 above).

59.  While it may be said that the evidential threshold for invoking the RN (Public Interest) Regime is a low one, a comment made by the SFAT in Leung Yuk Kit and relied upon by Mr Pao (see §52(1) above), bearing in mind the fact that the powers under ss 204 and 205 are designed to be deployed at an early stage of an investigation by the SFC where expedition may be required, and the restrictions imposed are meant to be temporary measures only, the low evidential threshold required to be satisfied for the exercise of the powers seems to us to be readily explicable and appropriate. This having been said, the exercise of such powers by the SFC is subject to public law challenge, including challenge based on the principle of rationality. Such a challenge is generally assessed by reference to objective facts and matters. The powers cannot be invoked merely on the basis of the subjective thinking of the SFC that it is desirable in the public interest to impose a prohibition or requirement on a licensed corporation. We shall come back to this issue at §84(4) below.

60.  The argument that the SFC had previously expressed, in SFC v A, some doubt as to the appropriateness of invoking the RN (Public Interest) Regime in relation to the conduct of a client of a licensed corporation, as opposed to the conduct of the licensed corporation itself, is nothing to the point. Whether the statutory powers under ss 204 and 205 may be invoked in such circumstances is a question of law, which ultimately is to be resolved by the court. That issue was raised and determined in Leung Yuk Kit by Mr Ian Charles McWalters (sitting as Chairman of the SFAT), who took the view that on a true and proper construction of ss 204 and 205, the SFC’s powers to impose a prohibition and/or requirement on a licensed corporation were exercisable as against the account of a particular client with the licensed corporation on the basis that the client (as opposed to the licensed corporation) was suspected of having committed or been involved in one or more instances of market misconduct (§150). Mr Pao has not suggested that Leung Yuk Kit was wrongly decided. While not strictly necessary for disposing of the present appeal, we agree with the SFAT’s view.

61.  The argument that the SFC has not published any accessible policy guidance to delineate the scope of its discretion does not assist the Applicants either. Although it is open to the SFC to publish some policy guidance on the exercise of its powers under the RN (Public Interest) Regime, there is no requirement on the SFC to do so. In the absence of such policy guidance, the question of whether the RN (Public Interest) Regime satisfies the prescribed by law requirement has to be determined on the basis of the existing statutory scheme in the light of its proper legal and factual context.

62.  On the issue of safeguards against abuse of power, as submitted by Mr Benjamin Yu, SC (for the SFC) and Ms Leona Cheung (for the SJ), there are multiple layers of safeguards in-built or adopted by the SFC, including:

(1)  The SFC’s powers to impose a prohibition or requirement under ss 204 or 205, or withdraw, substitute or vary a prohibition or requirement under s 208(1), are “non-delegable”, meaning that such powers can only be exercised by the SFC’s board of directors, the majority of which are non-executive directors independent of the SFC.

(2)  The SFC itself adopts a system of internal periodic review of cases where restriction notices have been issued and the related investigations are still ongoing to consider the progress of the investigations and whether the restriction notices should be maintained or withdrawn (or substituted or varied) under s 208(1).

(3)  Reason(s) is/are required to be given for any decision by the SFC to impose, or withdraw, substitute or vary, a prohibition or requirement under s 209(2).

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

(5)  Any person affected by a prohibition or requirement imposed under ss 204(1) and 205(1) may apply to the SFC for the withdrawal, substitution or variation of the same under s 208(1). Where the SFC refuses to withdraw, substitute or vary the prohibition or requirement following such a request, reason(s) is/are required to be given for the refusal under s 209(3)(b).

(6)  There is no statutory limit to the number of applications which a person may make for the withdrawal, substitution or variation of a prohibition or requirement.

(7)  Any person aggrieved by a decision of the SFC refusing to withdraw, substitute or vary a prohibition or requirement may apply to the SFAT for a review of the decision under s 217(1). The SFAT is an independent board chaired by a judge sitting with 2 other members who shall not be public officers. A SFAT review is a de novo full merits review, which is conducted on the basis of clearly defined and well established procedures set out in Schedule 8 to the SFO. The SFAT has power to grant a stay of execution of the decision to which the application relates pending the determination of the review under s 227. The SFAT is also required, as soon as reasonably practicable after the conclusion of a review, to deliver its determination in respect of the review, and the reasons for making the determination under s 224(1).

(8)  A party who is dissatisfied with a review decision of the SFAT may appeal to the Court of Appeal against the decision on a point of law under s 229(1).

(9)  Finally, the SFC’s exercise of powers may, subject to well-established public law principles, be challenged by way of judicial review.

63.  In our view, although the safeguards mentioned above, viewed individually, may each have its own limitation, those safeguards, viewed collectively or cumulatively, are sufficient to provide a system of reasonable protection against abuse of power by the SFC.

64.  We do not accept the Applicants’ complaints against the aforesaid safeguards mentioned at §52(2) above:

(1)  No temporal limits on the duration of any freeze – Mr Yu submits, and we agree, that the length of time that a prohibition and/or requirement is required to be maintained would be heavily dependent on the progress of the SFC’s investigation, which in turn would depend on the nature and complexity of the case and the conduct of the parties. A fixed, or maximum, time limit on the duration of the prohibition and/or requirement would neither be practicable nor appropriate. On the other hand, it does not follow from the fact that there is no express temporal limit on a prohibition and/or requirement imposed by the SFC that it can be maintained indefinitely, or for as long as the SFC wishes. The SFC’s decision to maintain a prohibition and/or requirement is subject to control by the SFAT and the court (on appeal from SFAT or by way of judicial review).

(2)  No upper limit as to the assets which may be frozen – the amount of assets which is required to be frozen by a restriction notice must depend on the nature and circumstances of the case. As in relation to the issue of temporal limit, a fixed, or maximum, monetary limit on the assets which may be frozen would not be practicable nor appropriate, and the SFC’s decision regarding the extent of assets to be frozen is subject to control by the SFAT and the court. In passing, it may be noted that the Applicants’ current challenge is to the constitutionality of the RN (Public Interest) Regime. The Applicants are not contending that the Restriction Notices have been maintained for too long, or the values of the assets frozen by the Restriction Notices are too high. Such challenges, if advanced by the Applicants, raise different issues for consideration.

(3)  No periodic review – the SFC has adopted a system of internal periodic review of cases where restriction notices have been issued but the related investigations are still ongoing.

(4)  No prior scrutiny by an independent and impartial tribunal – as mentioned above, the powers under ss 204(1) and 205(1) are designed to be deployed at an early stage of an investigation by the SFC where expedition may be required. Having regard to the nature of the powers (namely, administrative as opposed to judicial), and the purpose of the freeze (namely, interim preservation of property pending further investigation by the SFC), the requirement of a prior scrutiny by an independent and impartial tribunal seems to us to be incompatible with the nature and purpose of the powers. Having regard also to the multiple layers of safeguards against abuse discussed above, we do not consider the absence of prior scrutiny by an independent and impartial tribunal to be fatal to the RN (Public Interest) Regime’s satisfaction of the prescribed by law requirement.

65.  We shall now deal with a few specific complaints which Mr Pao has raised against the Judge’s reasoning in Tam Sze Leung (RN) or the Decision.

66.  First, Mr Pao argues that the Judge erred in finding that the statutory functions of the SFC are sufficient to limit the width of the RN (Public Interest) Regime. He says that the SFC’s statutory functions and objectives are broadly and generally framed. Not only are they incapable of restraining the SFC’s asset-freezing power, they highlight its unacceptable width. He also points to various specific functions of the SFC identified in ss 4 and 5 such as public education and advising legal reform which have no relevance to the prevention and investigation of market misconduct, and suggests that these matters may well be species of “public interest” for which the SFC’s freezing power may be invoked. Mr Pao seeks to draw an analogy between the present case and Leung Kwok Hung and Another v Chief Executive of HKSAR, HCAL 107/2005 (9 February 2006) (“the Covert Surveillance Case”), where the discretion given to the Chief Executive to authorise covert surveillance of messages transmitted or received by telecommunication based on “public interest” was struck down for lack of legal certainty, and argues that the Judge was wrong to distinguish that case.

67.  We have already explained why the statutory regulatory objectives and functions of the SFC set out in ss 4 and 5 provide an important legal context for the consideration of the scope of “public interest” and thus the width of that concept in s 207(e) when considering whether the RN (Public Interest) Regime satisfies the prescribed by law requirement, and shall not repeat our analysis here. The suggestion that the SFC would, or could, use the powers under ss 204 and/or 205 to freeze the properties of a licensed corporation or its clients for purposes such as public education or legal reform seems to us to be far-fetched, bearing in mind that those powers appear in Part X of the SFO, which concern powers of intervention and proceedings by the SFC in respect of the conduct of licensed corporations and/or their clients regulated by the SFO.

68.  Insofar as the Covert Surveillance Case is concerned, the subject matter under consideration in that case was the former s 33 of the Telecommunications Ordinance, Cap 106, which empowered the Chief Executive, whenever “he considers that the public interest so requires”, to order that any message transmitted or received by telecommunication be intercepted or detained or disclosed to the Government or to specified public officer(s). It was held by Hartmann J (as he then was) that s 33 failed to satisfy the prescribed by law requirement because it did not in any detail regulate the scope of the Chief Executive’s discretion or the manner in which it might be exercised, nor was there any measure of legal protection provided to protect against abuse of executive power, or any measure of any independent control (§§127 and 132). The learned judge concluded that s 33 had not been formulated with sufficient precision to enable Hong Kong residents, with legal advice if necessary, to foresee to a degree that was reasonable in the circumstances the consequences of any telecommunication intercourse they might have with others even if those consequences might not be foreseeable with absolute certainty (§133). The Covert Surveillance Case is, in our view, plainly distinguishable in two aspects: the power of the Chief Executive to order an interception of telecommunication in the public interest was, for all intents and purposes, (i) entirely open-ended, and (ii) not subject to any legislative or administrative safeguards, unlike the SFC’s powers to impose a prohibition and/or requirement under the RN (Public Interest) Regime, which are much more confined and circumscribed as discussed at §55 above, and subject to multiple layers of safeguards as discussed at §62 above.

69.  In our view, having regard to the proper context of the RN (Public Interest) Regime, the suggestion that the law is not sufficiently precise to enable a person to regulate his conduct or, with proper legal advice, to foresee the consequences of his conduct is more theoretical than real.

70.  Second, Mr Pao argues that the Judge’s comparison of the RN (Public Interest) Regime with s 213, which concerns the power of the Court of First Instance to grant injunctive and other relief in specified circumstances, is inapt. He criticises the Judge’s reasoning that since both regimes employ the concept of “desirability” in place of a stipulated evidential threshold, if s 213 is sufficiently clear, so must s 207(e). Mr Pao argues that this reasoning is unsound because:

(1)  The Judge overlooked the clear and specific wordings in s 213 that restrict the scope of the court’s power. Notably, s 213(3) confines the court’s power to circumstances in which a specific contravention of the SFO has occurred, is occurring or may occur, whereas the RN (Public Interest) Regime contains no such limitation, and the SFC may freeze assets based on public interest considerations that have no bearing with SFO contraventions.

(2)  Section 213 is a Mareva-type of power, and the standard and criteria to be applied for the grant of such relief are well-established at common law with a built-in objective evidential threshold, namely, that the SFC must show a prima facie case that market misconduct has occurred, is occurring or may occur, and the court has to be satisfied that there is “an appreciable, not fanciful, risk that without the injunction, proper compliance under the statute would be frustrated”, and the order will not unfairly prejudice any person (SFC v A, at §§26 & 28), whereas s 207(e) leaves the SFC entirely to its own devices on the necessary factors and threshold to trigger its intrusive power.

(3)  There is a fundamental difference between a court deciding how its discretion under the s 213 regime should be exercised and a public authority being left to decide the remits of its own power. The former is an independent and impartial institution designed to balance competing interests and adjudicate objectively after assessing all available materials before it, while the latter, in the context of the RN (Public Interest) Regime, is at once the investigator, prosecutor and the judge as to whether the subjects of its investigation shall have their fundamental rights restricted.

71.  Leaving aside Mr Yu’s submission (which we consider to be justified) that this argument of the Applicants is not contained in the Applicants’ Supplementary Notice of Appeal and thus should not be entertained, the argument has no merit. In Tam Sze Leung (RN), at §§92, 95, 97, 98 and 103, the Judge mentioned that the same word “desirable” appeared in both s 213 and s 207(e), and in those sections, the word simply meant that the decision-maker should consider whether the grant of an order or the issue of a restriction notice was the right or just thing to do. The Judge was plainly aware of the conditions which had to be met before the court would consider granting an order under s 213(4) & (6), as well as the difference in the decision-making process between the court under s 213 and the SFC under s 207 (see §§94 and 96). Nevertheless, as pointed out by the Judge, the difference in the decision-making process did not hinge on the word “desirable”, which was used in both s 207(e) and s 213(4) & (6), and in each instance, the word merely referred to that which the court or the SFC considered it right to invoke the powers granted to them by the SFO, and the use of the word “desirable” did not signal a low, or a lack of any, evidential threshold for the grant of an order (§§95 and 97). In short, the Judge’s discussion of the use of the word “desirable” in s 207(e) and s 213(4) & (6) was not to advance the proposition that because “both regimes employ the concept of ‘desirability’ in place of a stipulated evidential threshold. If s 213 is sufficiently clear, s 207(e) must also be prescribed by law”, as suggested by Mr Pao[2].

72.  Third, Mr Pao complains that although the Judge construed s 207(e) as requiring “some proper objective basis” (§91), and even laid down a few factors which were relevant to the SFC’s exercise of discretion (§103), the Judge failed to identify the precise evidential threshold that the SFC must attain to exercise its power. Mr Pao asks how, in such circumstances, “can it be said that there is adequate legal certainty for the SFC and the public?” There is nothing in this complaint. Mr Pao does not suggest that the Judge’s observations at §§91 and 103 are wrong or incorrect in principle. The relevant evidential threshold is embedded within s 207(e) itself, namely, that the SFC may impose a prohibition or requirement under ss 204 or 205 “if it appears to the SFC that - the imposition of the prohibition or requirement is desirable in the interest of the investing public or in the public interest”. The Judge adequately explained the evidential threshold for the exercise of the powers under ss 204 and 205 at §103 of Tam Sze Leung (RN).

73.  In addition to the major complaints raised by Mr Pao against the safeguards in-built or adopted by the SFC to prevent abuse of power which we have dealt with at §64 above, Mr Pao has raised a host of other detailed points about those safeguards[3]. We do not propose to comment on them individually. They have mostly been dealt with in the above discussion. In any event, as earlier mentioned, although the safeguards viewed individually may each have its own limitation, the position should be looked at holistically. The safeguards as a whole offer, in our view, a system of reasonable protection against abuse of power by the SFC.

74.  Mr Pao submits that Gillan and Quinton v UK (2010) 50 EHRR 45 is a compelling authority for the point that the effectiveness of any subsequent scrutiny would be undercut if the substantive law is too vague and wide. Gillan concerned a challenge to the power of the police to stop and search under the Terrorism Act 2000, the relevant provisions of which provided that if a senior police officer considered it “expedient for the prevention of acts of terrorism”, he could issue an authorization permitting any uniformed police officer to stop any individual within a detailed geographical area and physically search that person and anything carried by him/her for articles of a kind which could be used in connection with terrorism. One of the matters which the UK Government relied upon to contend that the stop and search power under the 2000 Act satisfied the prescribed by law requirement was the right of an individual to challenge a decision by the police to exercise the power of stop and search by way of judicial review or an action in damages. The European Court of Human Rights considered such judicial remedies to be insufficient because of the limitations of both actions, in particular, the absence of any obligation on the part of the police officer to show a reasonable suspicion made it likely to be difficult if not impossible to prove that the power was improperly exercised (§86). Gillan is, in our view, distinguishable because, amongst other things, the exercise of the power to stop and search under the 2000 Act was held by the House of Lords to be based exclusively on the “hunch” or “professional intuition” of the officer concerned, and the officer was not required even subjectively to suspect anything about the person stopped and searched, or have grounds to suspect the presence of articles which could be used in connection with terrorism (§83). The European Court of Human Rights also considered that there was a clear risk of arbitrariness or discrimination in the grant of such a broad discretion to the police officer after consideration of relevant statistics which showed that black and Asian persons were disproportionately affected by the power (§85). The position in the present case is different because, as discussed above, the exercise of the powers under ss 204 and 205 based on s 207(e) by the SFC is sufficiently circumscribed, and there are multiple layers of safeguards against abuse of power in addition to judicial remedies.

75.  Mr Pao also argues that the Judge erred in omitting to consider an important principle in public law, namely, that the court accords significant “deference” to the decision of an investigator once investigation has started, because it is not institutionally equipped to second guess decisions of an investigator and therefore it is only in most exceptional cases that the court would intervene in those decisions (relying on R(C) v Chief Constable of “A” Police [2006] EWHC 2352). He submits that the degree of deference given to the investigator further undermines the safeguard offered by judicial review, especially when a restriction notice might have been disproportionate due to the effluxion of time. We do not consider that it is apt to suggest that the court accords “deference”, or significant “deference”, to the decision of an investigator such as the SFC. In an application for judicial review of a decision made by an investigator, the court does not conduct a merits review of the decision, but is confined to examining its legality, rationality and procedural propriety. While it is obvious that the court is not institutionally equipped to perform the investigator’s functions, and it is correct to say that a high threshold has to be crossed before the court would come to the conclusion that an investigative decision is irrational in the public law sense, that is only a proper reflection of the different roles played by the decision-maker and the court, and cannot be said to “undermine” the safeguard offered by judicial review once the functions of the court’s supervisory jurisdiction in judicial review are probably understood. In any event, the remedy of judicial view is only one of many safeguards against abuse of the SFC’s powers under ss 204 and 205 (see §62 above).

GROUND 2 – “PROPORTIONALITY”

76.  This ground can be dealt with shortly. The 4-step proportionality test set out in Hysan Development Co Ltd v Town Planning Board (2016) 19 HKCFAR 372, at §§134-135, is well established. It requires the court to ask:

(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

(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 individual, asking in particular whether the pursuit of societal interest results in an unacceptably harsh burden on the individual.

77.  In the present case, the first and second steps are not in issue[4]. Nevertheless, as pointed out by the Judge, it is still necessary to identify the relevant legitimate aim(s) when considering the third and fourth steps of the proportionality test (§176 of Tam Sze Leung (RN)). At §185, the Judge accepted the SFAT’s analysis in Leung Yuk Kit as regards the legitimate aims of Part X of the SFO (“the Protective Aims”), namely:

“(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.”

78.  Since there is no challenge to this aspect of the Judge’s decision, we shall proceed on the basis of the Protective Aims as being the legitimate aims of the RN (Public Interest) Regime, and consider the third and fourth steps of the proportionality test accordingly.

79.  In respect of the third step, the words “no more than necessary” do not lay down a strict, bright line test. They lay down a test of reasonable, not strict, necessity. The yardstick of reasonable necessity occupies a continuous spectrum of reasonableness on a sliding scale (ranging from “no more than necessary” to “manifestly without reasonable foundation”), in which the cogency of the justification required for interfering with a right will be proportionate to its perceived importance and the extent of the interference. In the present case, the right that we are concerned with is the right to use property under BLs 6 and 105. While the right to use property is undoubtedly an important right protected by the Basic Law, it does not concern fundamental rights protected by the Hong Kong Bill of Rights (such as the liberty and security of the person, freedom of opinion and expression, freedom of thought, conscience and religion, etc), and the intrusive measure does not impact on “core” values such as race, colour, gender, sexual orientation, religion, politics, or social origin referred to in Fok Chun Wa v Hospital Authority (2012) 15 HKCFAR 409 (at §77). It is also relevant that the subject matter of the intended challenge concerns primary legislation, the nature of the legislation concerns the regulation of the securities and futures industry by a specialist regulator, and the interference is meant to operate as a temporary measure only. Taking all these factors into account, we consider that the Judge was right to place the standard of review “closer to the ‘manifestly without reasonable foundation’ end of the spectrum” (§174 of Tam Sze Leung (RN)).

80.  Two complaints are raised in the Applicants’ Supplementary Notice of Appeal in respect of the Judge’s proportionality analysis:

(1)  The Judge’s proportionality analysis hinges on the adequacy of the SFAT mechanism as a means of securing an independent review of decisions made by the SFC to impose a property freeze. However, the SFAT mechanism does not provide sufficient safeguards (§9.1).

(2)  The Judge failed to take into account the breadth and vagueness of the RN (Public Interest) Regime in conducting the proportionality analysis. Although the Judge said at §183 of Tam Sze Leung (RN) that the lack of temporal limits and periodic review should be taken into account, the Judge did not follow them through in his eventual analysis, and made no mention of those critical features when conducting the proportionality analysis.

Accordingly, say the Applicants, the Judge failed to answer the question posed by the proportionality challenge, namely, whether giving the SFC a power to freeze property which is couched in expansive and uncertain terms and without prior scrutiny is a proportionate interference with the right to use property.

81.  Neither complaint has merit. The Judge took into account not just the SFAT mechanism, but also other features of the RN (Public Interest) Regime complained of by the Applicants in his proportionality analysis. The Judge set out the Applicants’ complaints in respect of the RN (Public Interest) Regime at §178 of Tam Sze Leung (RN), and went on to state the following at §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.”

82.  At §185, the Judge expressed the view that the “SFAT analysis” (at §§138-146 of Leung Yuk Kit), although not binding on him, was helpful and persuasive, and then went through the 4-step proportionality test based on the SFAT’s analysis. Although the Judge did not refer to his comments on the Applicants’ complaints in respect of the RN (Public Interest) Regime in that paragraph, we do not believe that the Judge would have lost sight of those complaints when he reached the conclusion that the proportionality requirement was satisfied in the present case. This is borne out by what the Judge said at §§186-187:

“[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.”

83.  At §9.4 of the Supplementary Notice of Appeal, the Applicants contend that RN (Public Interest) Regime amounts to a disproportionate interference with the right to property because: (i) there is no justifiable reason why the SFC’s power to freeze assets must be as widely framed and unrestricted as it is under ss 204, 205 and 207(e), and (ii) there are a myriad of alternatives to empower the SFC to act quickly, eg, s 213.

84.  We have already dealt with the Applicants’ complaints about the width of the SFC’s freezing power under ss 204 and 205 above, and shall not repeat our analysis here. We shall, however, briefly deal with a few specific points raised by Mr Pao:

(1)  Mr Pao argues that if the power is designed to facilitate the SFC’s early investigation of misconduct, there is no reason why the provisions could not have expressly confined the power to that situation. However, as correctly pointed out by Mr Yu, such an argument ignores the fact that, apart from combating and curbing misconduct in the securities and futures industry, the SFC is also tasked with performing other statutory functions, such as to provide protection for members of the public investing in or holding financial products. Having regard to the scope of the regulatory objectives and functions of the SFC set out in ss 4 and 5 of the SFO, it would not be appropriate to confine the SFC’s freezing power only to the facilitation of early investigation of misconduct as suggested by Mr Pao.

(2)  Mr Pao argues that the excessively broad and undefined phase “public interest” permits the SFC to restrict the constitutionally protected rights of private property in circumstances and ways that may not be justifiable, and is unnecessary to achieve the objectives of the legislation, relying upon the following observation of McLachlin J giving the majority judgment of the Supreme Court of Canada in R v Zundel [1992] 2 SCR 731, at 769I-770F: “It is difficult to see how a broad, undefined phrase such as ‘public interest’ can on its face constitute a restrained, appropriately limited measure which impairs the right infringed to the minimum degree consistent with securing the legislation’s objectives”. We do not accept this argument, which is based on a reading of the words “public interest” without regard to their proper context. For this reason, the above-quoted general observation of McLachlin J in Zundel cannot assist the Applicants’ argument. We also consider that, in view of the width of the regulatory objectives and statutory functions of the SFC, the criterion of “public interest” (as understood in its proper context) for the exercise of the intrusive power under ss 204 and 205 is not objectionable, even though the concept of “public interest” on its own can encompass a broad range of matters, and its meaning is not further defined in the legislation.

(3)  Mr Pao argues that the RN (Public Interest) Regime imposes no requirement for urgency and no time limit on a restriction notice. In other words, the SFC may invoke the power whenever and for however long as it desires, even if the relevant charges are not brought for a prolonged period. He repeats the complaint about (i) lack of temporal limit, (ii) lack of urgency requirement for the exercise of the power, (iii) absence of requirement for periodic reviews by an independent and impartial tribunal, and (iv) lack of a requirement that the SFC shall take out a proper application for a freezing order under s 213 within a set period of time. All these matters have already been dealt with above, save in respect of the argument based on the s 213 regime which we shall further consider below.

(4)  Lastly, Mr Pao submits that there is no justifiable reason why the RN (Public Interest) Regime “must” provide no set objective evidential threshold, even if it is accepted that a low trigger threshold is required for effective early intervention on the part of the SFC. We do not accept this submission. Section 207(e) does, in our view, set an evidential threshold for the exercise of the SFC’s powers under ss 204 and 205 (see §56 above). It is not helpful to debate whether the evidential threshold is objective or subjective. The evidential threshold under s 207(e) is not objective in the sense that the powers under ss 204 and 205 may be exercised if the SFC, not the court (representing a hypothetical reasonable person), is satisfied that it is desirable in the interest of the investing public or in the public interest to exercise the powers. However, whether this threshold is satisfied is not to be determined purely by the subjective thinking, or say-so, of the SFC. The SFC’s decision in any given case is open to challenge on well-established public law grounds. To justify its decision in any such challenge, the SFC must, in seems to us, be able to point to some proper objective basis to support its view that that it is desirable in the interest of the investing public or in the public interest to exercise the powers under ss 204 and 205.

85.  The argument that there are other alternatives such as s 213 to empower the SFC to act quickly is nothing to the point. The question is not whether the measure chosen by the legislature is strictly necessary to achieve the legitimate aim. As mentioned at §79 above, the appropriate standard of review in this case should be towards the “manifestly without reasonable foundation” end of the reasonableness spectrum. The mere fact that there are other possible alternatives which may be effective to achieve the legitimate aims of the legislation is no proof that the measure chosen by the legislature is more than necessary applying the appropriate standard of review.

86.  We also do not accept that it is appropriate to compare the RB (Public Interest) Regime with the s 213 regime. The nature and purpose of the two regimes are different, even though they may supplement each other and there may be some overlap in their applications. As pointed out by the SFAT in Leung Yuk Kit:

“[116] However, I do derive assistance from the legislative materials that have been provided to me. The Consultation Document on the Securities and Futures Bill, which was published by the Government in respect of its proposed legislation, makes clear that section 213 was intended to supplement the Part X Division 1 powers in order to cater for circumstances where the Division 1 powers were likely to be either inadequate or inappropriate. At paragraph 8.2 of the document, the purpose of the different provisions in Part X was explained as follows:

‘8.2 The two categories of powers supplement one another. The SFC’s powers to intervene enable it to take immediate action to protect the interests of the investing public generally as well as those of a licensed person’s clients and, to a limited extent, its creditors. However, where –

(a) more drastic measures are called for (for instance, an injunction is required to enjoin any breach of the relevant Ordinance); or

(b) the SFC encounters resistance or obstruction in exercising its powers of intervention; or

(c) it is appropriate or necessary to take steps which have a more permanent or long lasting effect (for instance, where for the preservation of a licensed person’s assets for the protection of its clients and creditors, a winding up order should be made),

the SFC‘s power to intervene may not suffice and recourse to the Courts provides a critical means of protecting the interest of investors and creditors. The SFC’s ability to apply to the Court for a range of orders and other relief in such circumstances is therefore crucial.’

[117] … the description of the powers is of each of them serving different purposes and addressing different needs and not of them targeting different persons. It is in this complementary sense that they are said to supplement the Division 1 powers.

[118] As to that different purpose and different need, I have already indicated that the nature of the Part X Division 1 powers and the low threshold which triggers their deployment, suggest that they are ideally suited for use at an early stage of an investigation when the SFC may not yet have gathered all its evidence but, in the public interest, cannot afford to delay further in intervening in the business of a licensed corporation.

…

[121] … I am of the view that section 213 is complementary to the Division 1 powers and that it was intended that it would be left to the discretion of the SFC to decide in the particular circumstances of any specific case which power would best advance the public interest of the SFC most effectively and efficiently performing its statutory duties. The fact that section 213 could be used in the same circumstances does not mean that it should be used in preference to the Division 1 powers. Where overlapping powers are to be exercised by a public body in the public interest it will be for that public body to decide which power, in the circumstances before it, best advances the public interest.”

87.  In all, we are of the view that the measures adopted by the legislature under ss 204 and 205 are no more than necessary to achieve the legitimate aims of the RN (Public Interest) Regime (ie the Protective Aims), applying the appropriate standard of review mentioned in §79 above. For the sake of completeness, we should mention that we would have reached the same conclusion even if a stricter standard of review closer to the other end of the reasonableness spectrum should be adopted.

88.  The fourth step of the proportionality analysis requires the court to make a value judgment as to whether the impugned measure operates on particular individuals with such oppressive unfairness that it cannot be regarded as a proportionate means of achieving the legitimate aim in question. Having regard to the discussion above, we have no difficulty in coming to the conclusion that the extent of interference with a person’s right to use property under the RN (Public Interest) Regime is proportionate to the Protective Aims.

CONCLUSION

89.  The RN (Public Interest) Regime satisfies both the prescribed by law and proportionality requirements, and is constitutionally compliant. The Applicants’ intended challenge to the RN (Public Interest) Regime on constitutional grounds is not reasonably arguable, and has no realistic prospects of success. It follows that the Judge was correct to refuse to grant leave to apply for judicial review in the present case.

DISPOSITION

90.  The Applicants’ appeal is dismissed with costs to the 1^st and 2^nd Putative Respondents, with certificate for two counsel, to be taxed if not agreed. This costs order is an order nisi, and shall become absolute unless an application is made to vary the same within 14 days from the date of this judgment.