盧肖娟 v. 證監會主席：雷主席添良先生

HCAL 1373/2023

[2024] HKCFI 582

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 1373 OF 2023

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D E C I S I O N

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A.  Introduction

1.  By her Form 86, the Applicant seeks leave to apply for judicial review in relation to the alleged inaction of the putative respondent (“Chairman”)  in not exercising, or his decision not to act so as to exercise, his regulatory powers against certain listed companies, leading to and following the Applicant’s failed investment in a real property in Zhuhai, PRC, which was marketed in Hong Kong.

2.  I gave directions for the filing of an Initial Response to the application, and a Reply, and I fixed the matter for an oral leave hearing.  The Initial Response was filed, signed by Mr Norman Nip SC and Mr Byron Chiu of Counsel.  Even prior to that, the Applicant had filed a Reply.

3.  The originally fixed hearing date in November 2023 was vacated in circumstances where the Applicant had applied for legal aid, though that application was subsequently refused.

4.  I re-fixed the oral hearing for 22 February 2024. At that hearing, I exceptionally granted permission for the Applicant to be assisted by her elder brother (Mr Lo)  and for him to address the Court on the Applicant’s application.  As I explained at the time, I did so in the exercise of my relevant discretion relating to what are called ‘McKenzie friends’, on the exceptional circumstances mainly related to the Applicant’s various medical complaints (which need not be rehearsed in this Decision).  As I also explained, the extremely rare acceding to such an application was not intended to set any precedent for any future case.

5.  At the end of the oral hearing, I reserved my decision.  This is my Decision.

B.   Background

6.  The application for leave to apply for judicial review is brought in the following factual context.

7.  Between January and August 2018, the Applicant saw real estate property investment advertisements relating to a development in Zhuhai, PRC known as R&F U Park (“Development”).  The advertisements were placed in various Hong Kong media by the two putative interested parties (“Midland” and “R&F”, together “Companies”), both companies listed on the Exchange in Hong Kong.  The advertisements indicated that the Property was intended for commercial/residential use, so the advertisements led buyers to believe that the properties could be used for commercial and residential purposes.

8.  Attracted by the advertisements, the Applicant’s brother Mr Lo purchased a property (“Premises”)  in the Development for the Applicant.  Only after completing the purchase of the Premises did the Applicant and her brother discover that only security personnel would be allowed to reside in the Premises, which are located in a bonded zone, and that no other persons may reside there.  Essentially, the Applicant says, the Development was later discovered to be one for commercial property only, allowed to be used as offices, but not for either hotel or apartment use (as had been advertised).

9.  The Applicant is one of a number of purchasers/investors in the Development who see themselves as victims of false advertising.  They have attempted by various means to seek redress, including by pressing the SFC to exercise its regulatory powers.

10.  I note that at least one of the SFC’s replies to the ‘public complaint’ made in relation to these matters emphasised that the SFC was considering the complaint in accordance with its complaint handling procedures, where the focus would be on whether the subject of the complaint has complied with the laws and regulations enforced by the SFC, but the SFC would not order compensation to the complainant, nor could it settle for the complainant any commercial dispute with the subject of the complaint or third parties.

11.  Lastly, I also note that on 25 April 2022, Mr Lo and another person claiming to be a similar victim, each issued a writ against R&F in District Court proceedings.  But the Applicant and Mr Lo explained that, because of high legal fees, those claimants had no alternative but to withdraw the writs. There are also copies of letters written by solicitors acting for a group of purchasers/investors including the Applicant to R&F and some of the Hong Kong personalities involved in the advertising.

C.   The Application and Applicant’s Submissions

12.  In the Form 86, the Applicant identifies the judgment, order, decision or other proceeding in respect of relief is sought as follows (in English translation):

Request for the Court to make an order that it is unlawful for [the putative respondent] to fail to discharge his duties as required by the SFC (allowing listed companies [Midland] and [R&F] to post fraudulent advertisements in Hong Kong in respect of the sale of real estate properties, resulting in the applicant not being able to acquire the interest in the property purchased after paying for it).

13.  The relief sought by the Applicant includes (1) a declaration that the SFC or its Chairman has failed to discharge his duties by allowing listed companies to promote their real estate properties which were not built in accordance with the national regulations, by fraudulent conduct, and (2) an order for compensation of the losses suffered by the Applicant as a result of the asserted misconduct on the part of the SFC in failing to discharge those duties.

14.  In her affirmation in support, the Applicant also states similar complaints.

15.  At the hearing, on behalf of the Applicant, her brother Mr Lo made submissions, which might be summarised as follows:

(1)  According to Article 35 of the Basic Law, Hong Kong citizens have the right to sue public or government bodies for their wrongdoings.  The SFC has the power and responsibility to monitor and supervise the conduct of listed entities, and has a comprehensive monitoring/supervisory system in respect of sales and acquisitions by listed entities.  However, in this case the SFC and its Chairman have decided not to act so as to employ their powers under sections 103 and 107 of the Securities and Futures Ordinance Cap 571 (“SFO”).

(2)  According to that law, the SFC has to regulate the operation of the market.  Regarding the two sections 103 and 107, when listed companies put out advertisements or invitations to the public, they have to obtain the approval of the SFC and things have to be filed to the SFC.  This rule is strict and serious, and breaches of it can lead to significant fines and even imprisonment.  The rule is intended to protect Hong Kong citizens and investors.

(3)  In this case, the SFC ignored its regulatory powers, and permitted Midland and/or R&F to lure people into investing into the Development on a false basis.  Their advertisements ought to have been approved by and filed with the SFC pursuant to the statutory provisions, before they could be published.  The advertisement suggested that there would be an 8% guaranteed earning, and that the premises purchased could be leased as a hotel room, or the purchaser could choose to reside there.  However, it was only in 2021 that the Applicant (Mr Lo)  realised the property could only be used as an office, could not be used as an apartment, and they could not live there, nor could it be a hotel room.  The city government of Zhuhai issued a public announcement saying that the piece of land could not be used as a residential area.

(4)  Even after complaints were lodged to the SFC, including in person, it still decided to take no action.  Attempts to engage the SFC continued for a lengthy period, but the SFC continued to ignore the seriousness of the matter.

(5)  This is notwithstanding that it can be seen that the advertisements were specifically directed at the Hong Kong investing public, including by the use of well-known Hong Kong personalities and artistes to promote the investment.

(6)  Further, in the four years between 2017 and 2020, R&F consistently stated in its annual reports regarding the Development that it was a project involving “apartment, office & retail”.

16.  Mr Lo also referred to the various street protests, TV and newspaper interviews and YouTube media engaged in by the victims.  But nothing could be done, because the SFC did not respond to or act on the complaints even though made public.  As well as to the SFC, there were also complaints made to the Hong Kong Consumer Council, the Hong Kong Police, the Hong Kong Estate Agents Authority, the Office of the Ombudsman and the Hong Kong Customs and Excise Department.

17.  Mr Lo submits that the matter relating to this Development is, however, different from other examples where the SFC has given public warnings or added developments in China to the Alert List, sometimes within a relatively short time of receiving complaints.  Though the factual circumstances are similar to those other cases, the SFC has not yet dealt with it.  A failure to regulate properly risks harming Hong Kong as an international financial centre.  Hence there is a need to bring these judicial review proceedings to ask the SFC to come to give a proper explanation and protect Hong Kong people.

18.  In so far as it is said that the purchase of property is not an investment, Mr Lo submitted their properties are also financial products as many people invest in property, even if they also wish to use it for their residence.

D.   Basis of Opposition

19.  On behalf of the Chairman/SFC, Mr Norman Nip SC (leading Mr Byron Chiu)  submits in summary that:

(1)  Judicial review is inappropriate in circumstances where the Applicant’s grievances are directed towards the misrepresentations by the Companies.  There is a proper alternative remedy in a civil suit against the Companies for damages, and the failure to exhaust that alternative remedy should lead to dismissal of the application for leave to apply for judicial review.

(2)  There is no proper identification of any specific or proper grounds of review in the identification of the alleged public law wrong.

(3)  Connected to the first two points, neither the Chairman nor the SFC is a proper respondent to the application for leave to apply for judicial review.

(4)  As a matter of both fact and law, there is no ex ante (prior)  decision made by the SFC in respect of the issuance of the allegedly fraudulent or deceptive advertisements.  There is accordingly no decision capable of being reviewed.

(5)  There is undue delay in bringing these proceedings contrary to RHC Order 53 rule 4.

20.  It is convenient to consider the merits of the Applicant’s application against these particular objections, each in turn.

E.   Whether Alternative Remedy

21.  The Form 86 and the Applicant’s affirmations, as well as the submissions made on her behalf by Mr Lo, identify her grievances to be in respect of the monetary loss suffered by her as a result of (1) her making an investment decision “blindly”, and (2) the misrepresentations allegedly made by Midland and/or R&F.  This explains why one of the items of relief claimed by the Applicant is monetary compensation.

22.  As noted above, persons in a similar position to the Applicant – including her brother, Mr Lo – in fact commenced private law proceedings in relation to the alleged misrepresentations/deception.  Therefore it seems clear that, at least in so far as the Applicant seeks relief in the form of monetary compensation, there was an available alternative remedy in the form of private law civil claims.

23.  I acknowledge that the claims as were commenced are said to have been withdrawn because of the legal costs involved.  But the claimants – and the Applicant – need not have been represented by lawyers and could have acted in person (though they might fear facing an adverse costs order if their claims were to fail).  I do not think the concern about legal costs means that the remedy of a civil claim was not an available alternative.

24.  It is well-settled that judicial review is a remedy of last resort, but the Applicant’s failure to obtain redress from her complaints made to other persons or bodies (see as listed above)  does not mean that it is necessarily appropriate to launch an application for leave to apply for judicial review against the SFC.

25.  For the reason that there is an available alternative remedy (at least in relation to the Applicant’s compensation claim), itself likely much better suited to achieving the compensatory aims of the Applicant, that is sufficient basis to refuse the application for leave to apply for judicial review.

26.  I accept, however, that it can be said that there is no alternative remedy available for achieving the exercise of regulatory powers which have to be exercised by the SFC.  In that regard, I think the Applicant’s application would not necessarily fail for the reason that there is an alternative remedy, and it will be necessary to consider the merits of the application – namely whether there is any reasonably arguable ground of review with any realistic prospect of success which might lead to the grant of a discretionary relief along the lines sought by the Applicant.

F.   Whether Proper Identification of Grounds

27.  It is trite that in an application for leave to apply for judicial review, the applicant needs properly to identify a specific and proper ground of review, namely by the identification of an alleged public law wrong.  This is a mandatory requirement of RHC Order 53 rule 3(2)(a), and a failure to comply with that rule is itself a reason to refuse leave to apply for judicial review.  As has been stated on many previous occasions, it is not for the Court to seek to identify or devise potential grounds of review when none are identified by the applicant.

28.  In Mr Nip’s Initial Response, he suggested that the Applicant had only made bare allegation is that the Chairman/SFC had failed to discharge (unspecified)  duties under the SFO, and the bare reference to sections 103 and 107 of the SFO is not sufficient.

29.  To be fair, in his submissions, Mr Lo on behalf of the Applicant explained to me what he understood those sections to entail.  However, his submissions were advanced on a mistaken basis.

30.  Sections 103 and 107 of the SFO are in Part IV of the SFO, which is headed ‘Offers of Investments’, in Division 2 headed ‘Regulation of offers of investments, etc.’.  Those two sections have to be read in context, which includes the context provided by section 105.

31.  I can set out some of the material provisions – and not the complete sections – as follows:

103.  Offence to issue advertisements, invitations or documents relating to investments in certain cases

(1)  Subject to subsections (2), (3)  and (5)  to (9), a person commits an offence if he issues, or has in his possession for the purposes of issue, whether in Hong Kong or elsewhere, an advertisement, invitation or document which to his knowledge is or contains an invitation to the public—

(a)  to enter into or offer to enter into—

(i)  an agreement to acquire, dispose of, subscribe for or underwrite securities; or

(ii)  a regulated investment agreement or an agreement to acquire, dispose of, subscribe for or underwrite any other structured product; or

(b)  to acquire an interest in or participate in, or offer to acquire an interest in or participate in, a collective investment scheme,

unless the issue is authorized by the Commission under section 105(1).

105.  Commission may authorize issue of advertisements, invitations or documents

(1)  On an application to the Commission, the Commission may, where it considers appropriate, authorize the issue of any advertisement, invitation or document which is or contains an invitation to do any act referred to in section 103(1)(a)  or (b), subject to the condition specified in subsection (2)  and to any other conditions it considers appropriate, including conditions on the matter to which the advertisement, invitation or document relates.

107.  Offence to fraudulently or recklessly induce others to invest money

(1)  A person commits an offence if he makes any fraudulent misrepresentation or reckless misrepresentation for the purpose of inducing another person—

(a)  to enter into or offer to enter into—

(i)  an agreement to acquire, dispose of, subscribe for or underwrite securities; or

(ii)  a regulated investment agreement or an agreement to acquire, dispose of, subscribe for or underwrite any other structured product; or

(b)  to acquire an interest in or participate in, or offer to acquire an interest

32.  Section 103 is headed ‘Offence to issue advertisements, invitations or documents relating to investments in certain cases’.  But, as Mr Nip submitted, it does not follow that because the Companies are listed entities, all of their advertisements had to be approved by the SFC, or that the SFC was responsible for the vetting and/or allowance/disallowance of the issue of such advertisements.

33.  First, the onus is on the issue of the relevant kind of advertisement to apply to the SFC under section 105, to seek authorisation for the issue of any advertisement which is or contains an invitation to do any of the acts referred to in section 103(1)(a)  or (b). If the advertisement falls within that section, it is an offence to issue it without authorisation from the SFC.  Further, under section 107, it is an offence to make fraudulent or reckless misrepresentations to induce another person to invest in that relevant kind of investment.

34.  Obviously, these sections are not engaged by every form of advertisement put out by a listed company in its ordinary business operations.  The SFC does not conduct general supervision or oversight of the day-to-day business conducted by listed companies.  Hence, it is not the role of the SFC to vet in advance a listed company’s issuance of advertisements about its business, such as the sale of real estate properties.  Therefore, it would be necessary to identify that the advertisements in this case fell within the specified scope of the type of advertisement which required prior authorisation from the Commission, and which needed to be made with without fraudulent or reckless misrepresentations.

35.  In this case, the advertisements about which the Applicant complains were marketing efforts – certainly directed at the Hong Kong public, but concerned with the sale of real estate property (rather than the sale of financial products, or other regulated activities in the securities and futures market).

36.  Mr Lo pointed to other matters dealt with by the SFC, leading to (a) voluntary unwinding of a sale of hotel units, which the SFC thought might be offered to acquire an interest in or to participate in a Collective Investment Scheme (“CIS”), or (b) placing the relevant project on the Alert List issued by the SFC.  But the SFC has looked into the matter concerning the offer for sale of units in the Development, including the Premises purchased by or for the Applicant, and appears to have taken the view that there was no relevant CIS or other regulated activity involved.

37.  I accept Mr Nip’s submission that the Court does not monitor, regulate or police the performance by the SFC of its statutory functions on a continuing basis.  Even leaving aside that the exercise of the SFC’s powers under section 103 (and section 107)  would be triggered by a prior application by the Companies – which did not happen in this case – the Court will be extremely slow to interfere with the SFC’s apparent decision (at least up to this point)  not to bring prosecutorial action against the Companies when considering the complaints made about those Companies after the event.

38.  Hence, whilst it may be that there has been identification of an alleged public law wrong, the allegation seems to be made on a basis which is not reasonably arguable.

G.   Whether Proper Respondent

39.  I agree that the Chairman is not the correctly named or proper putative respondent to the Applicant’s application.  As shown on the SFC’s website, in the section relating to corporate governance, the Chairman of the SFC has a non-executive role, being primarily: (1) leading the SFC’s Board of Directors and setting policies, strategy and overall direction; (2) monitoring the SFC’s executive team’s performance; and (3) counselling the CEO on how the organisation is run.  The Chairman does not himself have the power, duty or responsibility given by sections 103 and 107.

40.  I also note Mr Nip’s submission that the Chairman is in any event conferred statutory immunity under section 380 of the SFO, relevant at least to where the Applicant is in effect seeking damages against him.

41.  However, where the Applicant acts in person (assisted by her brother, Mr Lo), I do not think this point would have necessarily been fatal where it would be possible to understand the application has been directed against the SFC.  Of course, as Mr Nip suggests, the regulatory objectives of the SFC are statutorily prescribed to be in connection with the securities and futures industry and the financial stability of Hong Kong.  But if the powers, duties and responsibilities as might arise under section 103 and following were in fact triggered in this case, it seems to me that the SFC would be a logical putative respondent to the application. Therefore, Mr Nip’s submissions in relation to the SFC not being the proper respondent really add little to the prior argument and discussion above.

H.   Whether Reviewable Decision is Identified

42.  It is trite that the Court exists to adjudicate upon specific challenges to discrete decisions, and does not exist to monitor and regulate the performance of public bodies.  Therefore, if there has been a failure to identify any actual decision intended to be challenged, that may well be a reason to dismiss the application for leave to apply for judicial review.

43.  Mr Nip submits that the Applicant has failed to identify in this case any reviewable decision susceptible to judicial review because neither the Chairman nor the SFC has made any decision to approve the sale of the relevant real estate Development or allow the issuance of allegedly fraudulent/deceptive advertisements for that sale.

44.  However, whilst that may be factually correct – that simply means that this point adds little to the points previously discussed.  Further, I think it is fair to note that the Applicant’s complaint is substantially about the SFC’s failure to have taken any steps to pursue prosecutions against the Companies, despite the passage of significant time since complaints were first made to the SFC.  There is force in the point made for the Applicant that, after this lengthy period of time, it is only fair to assume that the SFC has actually made a decision not to act.

45.  Therefore, I would not dismiss the application on this ground alone.

I.   Whether Delay

46.  RHC Order 53 rule 4(1)  provides that an application for leave to apply for judicial review shall be made promptly, and in any event within three months from the date when grounds for the application first arose – unless the Court considers that there is good reason for extending the period within which the application shall be made.

47.  There is force in Mr Nip’s objection on the ground of delay.  It seems that the Applicant’s grievance arose on her discovery that the relevant Development could not be used for residential purposes.  Regulation is dated 11 June 2019, and makes clear the point relied upon by the Applicant that other than security personnel, no person is allowed to reside within the district where the Development is situated.  Reference is also be made to a document dated 2 April 2022, which refers to illegal constructions at the Development site which have been put to a halt, and where the developer has been asked to rectify that issue.

48.  It is also relevant that the District Court proceedings were commenced in April 2022 (see above), and solicitors for the group of individuals including the Applicant continued to correspond with R&F and others in the period between September and November 2022.

49.  Therefore, where these proceedings were commenced only by Form 86 dated 9 August 2023, there does seem to have been significant delay.  On the other hand, I note that the Applicant has made enquiries of or complaints to a number of public bodies, including the SFC.  Further, where part of the complaint is in relation to the SFC’s failure to have acted on the complaints, even after a significant passage of time, it can properly be argued that time did not really begin to run until it was clear (or fair to assume)  that the SFC had decided not to act.

50.  On that basis, were there to have been significant merit in the application, I do not think the question of delay would necessarily have been fatal to this application.

J.   Conclusion and Result

51.  However, overall, the application stands to be dismissed.  This is essentially for the twin reasons that: (1) there is an alternative available remedy, which is probably one in any event better directed at achieving the Applicant’s desire for compensation at least; and (2) there is in any event no reasonably arguable ground of review on which there is any realistic prospect of success.

52.  In the circumstances, I dismiss the application for leave to apply for judicial review.

53.  However, in the broad exercise of my discretion as to costs, I make no order as to costs.

54.  Lastly, whilst the Applicant’s expressions of frustration and feeling deceived may be understandable, I make no comment on the underlying aspect of whether she (and persons in a similar position)  were in fact victims of fraudulent or reckless misrepresentations or deception.  On the face of it, the relevant advertisements relied on by the Applicant (and others)  in choosing to purchase or invest in the Development do seem to offer something which it turns could not have been provided, the Court exercising its judicial review jurisdiction is not the forum in which to resolve any such claim.