THE SECURITIES AND FUTURES COMMISSION v. TSOI BUN

HCMP1377/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1377 OF 2009

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BETWEEN

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J U D G M E N T

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Background

1.  In these miscellaneous proceedings, the plaintiff, SFC, alleged that the defendant is guilty of what is commonly called “false trading”, under section 295 of the Securities and Futures Ordinance, Cap. 571 (“the Ordinance”) and “price rigging” under section 296.

2.  As a consequence of the aforesaid allegations, SFC relied on section 213 of the Ordinance which provides that :

“Injunction and other orders

(1)  Where—

(a)  a person has—

(i)  contravened—

(A)  any of the relevant provisions;

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

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

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

… 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).

…”  [Emphasis added]

We are concerned with paragraph (a) of subsection (2) :

“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);”

and paragraph (f) :

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

3.  Mr Anderson Chow SC, counsel for SFC, referred me also to paragraph (b) :

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

and paragraph (e) reads :

“an order declaring a contract relating to any securities, futures contract, leveraged foreign exchange contract, or an interest in any securities, futures contract, leveraged foreign exchange contract or collective investment scheme to be void or voidable to the extent specified in the order”

4.  The originating summons taken out by the SFC is seeking for :

(1)  a declaration under section 213(2) that the defendant contravened section 295(1)(b) and/or section 296(1)(b) of the Ordinance on 11 days between September 2007 and April 2009;

(2)  a permanent injunction prohibiting or restraining the defendant from trading or placing orders on the futures market during the time from 9:15 a.m. to 9:45 a.m. and from 2:00 p.m. to 2:30 p.m. on any day, through any trading account held in his name or in the name of another person.

5.  In the meantime they are seeking for an interim injunction under section 213(6) to the same effect until trial or further order of the court.

6.  The defendant, through negotiation, agreed to undertake not to trade as aforesaid in his name or in the name of another person for the period of time from 9:41:00 a.m. to 9:42:59 a.m. and from 2:26:00 p.m. to 2:27:59 p.m.

The dispute

7.  The bone of the contention this morning is whether the injunction should continue on only up to the criminal prosecution under the two said sections, i.e. 295 and 296 which will take place in December this year. Mr William Wong, counsel for the defendant, submitted that that should be good enough. If the defendant is acquitted, by then, the originating summons in the CFI cannot continue because there will no longer be any cause of action on the part of the Commission. To this contention Mr Chow for the Commission submitted otherwise.

8.  I shall first of all explore and discuss the submissions of Mr Wong first.

9.  Basically, Mr Wong is submitting that section 213(2) gives the Commission the power to apply to the CFI and the CFI may make any one or more of the orders specified in subsection (2) on the ground that it appears to the Commission that any of the matters referred to in paragraph (1)(i) to (v) has occurred, is occurring or may occur. Such a power would only be exercisable by the Commission for an interim injunction but not for a permanent injunction. For a permanent injunction, Mr Wong submitted that the Commission must either prove in a civil court beyond reasonable doubt that that very person had contravened one or more, of subparagraph (i) to (v) of subsection (1)(a). Thus he also submitted if his client, the defendant, is acquitted in December 2009, the Commission has no cause of action whatsoever to continue on with the originating summons.

10.  Mr. Wong derived his support by various subsections. He relied on section 283 under the heading of “No further proceedings after Part XIV criminal proceedings” which says :

“Notwithstanding anything in this Part, no proceedings may be instituted against any person under section 252 in respect of any conduct if—

(a)  criminal proceedings have previously been instituted against the person under Part XIV in respect of the same conduct; and

(b)     (i)  those criminal proceedings remain pending; or

(ii)  by reason of the previous institution of those criminal proceedings, no criminal proceedings may again be lawfully instituted against that person under Part XIV in respect of the same conduct.”

11.  In reply Mr Chow submitted that that section has nothing to do with the civil proceedings in section 213. It was only concerned with no double jeopardy in a criminal court if the Commission has already instituted misconduct proceedings in the Market Misconduct Tribunal (“MMT”). In other words, if the Commission has instituted criminal proceedings or proceedings in the MMT, and the defendant is cleared in that proceeding, then no subsequent proceedings could be brought either in the MMT or in the criminal court respectively. It does not mean that no civil proceedings should be brought or any civil proceedings on foot must discontinue or cease.

12.  Mr Wong then relied on section 387. In fact it is Mr Chow who relied on section 387 first which provided that :

“Where it is necessary for the Commission to establish or to be satisfied, for the purposes of any of the relevant provisions (other than provisions relating to criminal proceedings or to an offence), that—

(a)  a person has contravened—

(i)  any provision of any Ordinance;

(ii)  any notice or requirement given or made under or pursuant to any provision of any Ordinance;

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

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

(b)  a person has been responsible for an unlawful act or omission;

(c)  a person has assisted, counselled, procured or induced any other person to do anything which results in the occurrence of any of the matters referred to in paragraph (a) or (b);

(d)  a person has been concerned in, or a party to, anything which results in the occurrence of any of the matters referred to in paragraph (a) or (b);

(e)  a person has attempted, or conspired with any other person, to commit anything which results in the occurrence of any of the matters referred to in paragraph (a) or (b); or

(f)  any of the matters referred to in paragraphs (a) to (e) might occur,

it is sufficient for the Commission to establish, or to be satisfied as to, the matter referred to in paragraph (a), (b), (c), (d), (e) or (f) (as the case may be) on the standard of proof applicable to civil proceedings in a court of law.”

Mr Chow submitted that in any civil proceedings the standard of proof is still the civil standard of proof.

13.  In response Mr Wong submitted that this section only covers civil proceedings envisaged like section 214 which concerned with remedies in cases of unfair prejudice, etc. to interests of members of listed corporations. In other words, Mr Wong boldly submitted that it is only applicable to a petition whereby the Commission applies to the court for an order under that section. Clearly as submitted by Mr Chow, section 387 does not restrict itself to situation like section 214. It is a section of general application.

14.  Further, to my mind, if Mr Wong is right, section 213 must have to be redrafted in saying specifically that subsection (1)(b) is only applicable for interim injunction but the Ordinance did not say so. The Ordinance further provided those orders to be made by the Court of First Instance included a lot of what Mr Wong has labelled as draconian measures, including reopening a contract and declaring certain contract to be void or voidable. In subsection (6), it specifically provided that :

“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).”

Subsection (1) must include (a) and (b), and (a) and (b) was put as (a) or (b) in the Ordinance, it did not say (a) and (b) in the Ordinance.  So either limb is open to the Commission.  The reason why we have subsection (6) as submitted by Mr Chow was that it specifically provided that an interim injunction can go on until the determination, and that must be the final determination of an application, say, in our case, made under subsection (1)(b).  It cannot mean that subsection (b) is only good enough for interim injunction.  It simply does not say so.

15.  Further I have posed the question to Mr Wong in a so-called “debt‑collector’s harassment case”. Harassment is a criminal offence and it is also a cause of action in a civil court. Just this morning (the Return Summons Day), we have an alleged debt‑collector’s action. It is commonly known to all legal practitioners that in a civil harassment case, the plaintiff is only required to prove, on a balance of probability, that he was harassed by the defendant unduly albeit he has certain debt owed to another creditor. The court, being satisfied on a balance of probability, will grant an injunction against the culprit who had made the harassment. Of course the police, on the advice of the Department of Justice and in the name of the Hong Kong Government, can prosecute the culprit in the criminal court which may result in an acquittal. The consequence of an acquittal does not mean that the civil case will have to cease immediately because we have different standard of proof. In a civil court, the plaintiff can still continue on to prove harassment on a balance of probability and obtain a permanent injunction against the defendant.

16.  In response Mr Wong replied that offences and civil remedies under Cap. 571 are two different matters and we have to read through the Ordinance carefully and see whether that cause of action is still cause of action after an acquittal of the criminal case as submitted and discussed earlier. He was submitting that section 213(1)(b) cannot stand alone. The Commission has no cause of action after the appearance test if in a criminal court a defendant is acquitted.

17.  On the contrary, I accept the submissions of Mr Chow in total. I consider that it is quite clear from the Ordinance that the Commission is provided with all these powers including to commence a civil proceedings against a defendant when it appears to the Commission that any of the matters referred to in paragraph (a)(i) to (v) has occurred, is occurring or may occur, and he can apply to the Court of First Instance for those orders specified in subsection (2). Whether the Commission has to commence a criminal proceedings or a market misconduct tribunal enquiry is a matter for the Commission. I am not deciding on whether the Commission at the same time, has an obligation to commence those criminal or criminally tainted proceedings. Suffice it for this case to say that if there is a criminal prosecution and a civil proceeding, the civil proceeding will not stop after an acquittal of a defendant. It is not a case of blowing hot and cold; it is a case where the Commission has the right to blow hot and hotter.

18.  I do understand that any injunction is a very severe order, and in this case it will restrict the defendant who had said under oath that this is his livelihood on which his family including his wife, his children in tender age and both parents all depend. But I am satisfied in this case an injunction should be granted on the evidence of appearance to the Commission and on the proper interpretation of Cap. 571.

The decision on undertaking

19.  After full argument and before my decision, Mr Wong then informed me that if the court is against his client on the interpretation of the Ordinance, then his client is willing to give that undertaking as required by the Commission, and Mr Chow for the Commission stated clearly that the Commission is still open to accept that undertaking from the defendant.

20.  Accordingly I order in terms of the draft order before me. I have already stated at the outset that the formula of “until judgment or further order” means that at any time, on change of circumstances, a defendant can apply on notice to the other side to vary or discharge the undertaking. But for the avoidance of doubt, I suggest to put in five words in respect of paragraph 3, and that is “for the avoidance of doubt” there be general liberty to the parties to apply for variation or discharge of the aforesaid undertaking. A defendant in any case can always apply to vary or discharge either an undertaking or an injunction on the ground of change of circumstances.

Discovery

21.  The next question to be decided in this case is in respect of another summons for discovery of the defendant for an order that the plaintiff should provide the defendant within 7 days in respect of Log B Audit Reports in an electronic form in respect of HSI Futures, HHI Futures and MHI Futures for the trading days falling within the period from 1 April 2009 to 31 July 2009. The Commission’s reply to this summons is they are willing and have already furnished to the other side in respect of those 29 days during which the defendant allegedly has committed the two offences as aforesaid. But it is the Commission’s submission that those 29 days’ date would be sufficient to enable the defendant’s expert to give a report to assist the defendant. Mr Wong for the defendant submitted that, mainly from the strength of the expert’s report, 29 days are not enough. It has to be for a longer period, from April to August this year in order to see whether there are traders who have traded in the way as the defendant. He submitted that in any experiment you need a control sample.

22.  To my mind, the other days, which they called normal days, there were no such kind of trading or trading strategy adopted by the defendant. There may be other days in which some other traders traded like the defendant. But to my mind they are irrelevant and they cannot be taken as a control sample in the scientific sense.

23.  The main question is whether the defendant, as alleged by the Commission, has committed the two offences. If the defendant traded in the way he traded is an offence, it cannot assist the defendant at all by saying that other people also traded like that. If the defendant complained of : “why have you not taken action against other people”, then the short answer is : it is a perverse argument to say that “I have done something wrong but other people have done something wrong, so in the end you can’t say that I am wrong.” Put it in another way : two wrongs or any number of wrongs do not make a wrong right. Thus I cannot see how other dates would assist the expert except that a longer period of course will have a better picture of the trading pattern from April to August 2009. If a number of people were trading in the way as the defendant, it will only mean that the SFC will have to work much harder, or to increase their manpower to fulfil their statutory responsibility. It does not mean that other people’s pattern of trading will assist the defendant at all.

24.  Further in respect of a better picture of a trading pattern in a longer period of time, it has to be balanced against the question of confidentiality. I do not consider that an undertaking from the expert not to divulge the data is an enough measure to ensure the confidentiality. These data, although they are data in possession of the Commission, are data which various other traders have the right to keep to themselves.

25.  In the end I consider that the extension of these 29 days to 5 months is rightly described by Mr Chow a fishing expedition. Therefore in respect of the summons for discovery before me, I order that the trading days should be restricted to the said 29 days as stated in pages 465 to 466 of Bundle E2 (a total of 14 days) and page 2 of the enclosure to the letter dated 25 August 2009 (a total of 15 days).

26.  Costs of the hearing today be to the plaintiff in any event, otherwise the costs of the 2 summonses be costs in the cause.