SECURITIES AND FUTURES COMMISSION v. MANDARIN RESOURCES CORPORATION LTD. and Another

IN THE COURT OF APPEAL

1997, No. 68

(Civil)

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J U D G M E N T

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Godfrey, J.A. :

1. This is an appeal from Rogers, J., who on 7 January 1997 refused to strike out a petition presented to the court by the Securities and Futures Commission ("the petitioner") against Mandarin Resources Corporation Limited ("the company") for the winding-up of the company; alternatively, for other, less drastic, relief which included certain orders against the Honourable Chim Pui Chung ("Mr. Chim"), who is said by the petitioner to be effectively in control of the company. The application with which we are now concerned was an application made by Mr. Chim under O.18 r.19 of the Rules of the Supreme Court, which provides that the court may at any stage of the proceedings order to be struck out or amended any pleading (including any petition) on the ground that it discloses "no reasonable cause of action".

2. The judge held that the objection to the petition raised by Mr. Chim and now renewed before us, i.e., that the petition was based on events which occurred before 1994 and that in these circumstances (for reasons I shall shortly explain) the court had no jurisdiction to entertain the petition, ought not to be decided on a striking-out application.

3. It is said by Mr. John Griffiths, Q.C. for Mr. Chim that the judge was wrong. It is said, first, that the objection went to the jurisdiction of the court to entertain the petition and that therefore it ought to have been dealt with at once; and, it is said, secondly, that in any event, the judge ought to have grasped the nettle, and decided then and there whether or not the objection was well-founded (the authorities cited to us indicate that that is a course which a judge can and should take if satisfied that it will save time and expense to do so).

4. I must now set the scene for the objection to the petition raised on behalf of Mr. Chim.

5. The short title to the Securities and Futures Commission Ordinance, Cap.24 ("the Ordinance") under which the petitioner is constituted reads as follows :

"To establish the Securities and Futures Commission and to amend the law relating to dealing in securities and trading in futures contracts; and to provide for connected or incidental matters."

6. The Ordinance is divided into eight parts. It will be helpful to mention these :

Part I - Preliminary

Part II - Securities and Futures Commission

Part III - Securities and Futures Appeals Panel

Part IV - Additional Registration Requirements

Part V - Regulation of Registered Persons' Business, etc.(emphasis added)

Part VI - Special Provisions relating to Exchange Companies and
Clearing Houses

Part VII - Funding

Part VIII - Miscellaneous

6. Section 2 of the Ordinance, the interpretation section, defines, among other things, the expression "registered person". It provides that "registered person" means:

"a person who is registered under the Securities Ordinance (Cap. 333), the Commodities Trading Ordinance (Cap. 250) (or both those Ordinances) as a dealer, dealing partnership, dealer's representative, investment adviser, commodity trading adviser, investment advisers' partnership, investment representative or a commodity trading adviser's representative".

7. The Ordinance came into force in 1989. It contained in Part V as originally enacted section 45, sub-section (1) of which provides as follows :

"45(1) If, in the case of a company which may be wound up by the High Court under the Companies Ordinance (Cap. 32), it appears to the Commission that it is expedient in the public interest that the company should be wound up, the Commission may, subject to subsection (2), present a petition for it to be wound up under that Ordinance on the ground that it is just and equitable that it should be so wound up.

8. In 1994 the legislature appears to have thought it right to make amendments to the Ordinance in order to confer greater powers on the petitioner than had been conferred on it in 1989. For example, Part V of the Ordinance was amended to include section 29A, which confers on the petitioner a power to require production of records and documents of what is described in section 29A as "a listed company" (as is the company here). The company, although not a "registered person", is both "a listed company" and "a company which may be wound up by the High Court under the Companies Ordinance". However, it is argued by Mr. Griffiths, Q.C. that section 45 as part of Part V must be given a meaning more restrictive than the language used would suggest. He submitted that a petition could be presented under section 45 only for the winding-up of a "registered person".

9. He correctly pointed out that the Ordinance, especially Part V, appears to be concerned only with the regulation of the securities industry. It is not concerned, he said, with companies operating outside that industry; and he argued that in these circumstances, unless the company was a "registered person", it did not fall within the ambit of section 45 at all.

10. I must say at once that I am unable to accept this submission. It may be a curiosity that section 45 should have been expressed to apply to a whole host of companies other than those for the regulation of which the Ordinance appears to have been designed. But the fact is that section 45 is so expressed. It clearly applies, as it seems to me, to the company. The company is not "a registered person", and it may not be the sort of company with which the Ordinance, especially Part V, is primarily concerned. But I have no doubt that the section confers on the petitioner a power to apply to the court for the winding up of any company liable to be wound up by the High Court, if it appears to the petitioner that it is expedient in the public interest that the company should be wound up, even if that company is not a registered person.

11. The 1994 amendments to the Ordinance included section 29A (which I have already mentioned) and also section 37A. This conferred on the petitioner, from the date on which the new section 37A came into force, a remedy, in a case of alleged unfair prejudice, alternative to the section 45 remedy of winding-up. The section reads as follows :

"37A(1) If it appears to the Commission from any information, record or other document obtained under section 29A, or under section 36 in relation to section 29A, that the affairs of a listed company are being or have been conducted in a manner unfairly prejudicial to the interests of its members generally or of some part of the members, the Commission, after consultation with the Financial Secretary, may make an application to the High Court by petition for an order under this section.

(2) If on a petition under this section the court is of the opinion that the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of its members generally or of some part of the members, whether or not the conduct consists of an isolated act or a series of acts, the court may, with a view to bringing to an end the matters complained of -

(a) make an order restraining the commission of the act or conduct;

(b) order that such proceedings as it may think fit shall be brought in the name of the company against the persons, and on the terms, that it orders;

(c) appoint a receiver or manager of the whole or a part of the company's property or business and may specify the powers and duties of the receiver or manager and fix his remuneration;

(d) make any other order it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise."

12. The petition in the present case discloses that all, or most, of the matters complained of by the petitioner relate to events which took place before the coming into force in 1994 of the amendment to the Ordinance which provided the petitioner in a suitable case with the alternative remedy mentioned in section 37A. Mr. Griffiths argues that the provisions of section 37A, providing this alternative remedy, must not be treated as having "retrospective" effect. Otherwise, he says, injustice may be done to the company or those concerned in its affairs; for no such complaint could have been made before the amendment came into force. It is generally to be presumed, says Mr. Griffiths, that legislation is not intended to have "retrospective" effect.

13. He submitted that this point went to the jurisdiction of the court, and that it was the duty of the court to deal with it, irrespective of the court's limited powers under O.18 r.19.

14. Mr. Griffiths was able to demonstrate that there may have been some misunderstanding below as to whether the judge was ever asked to determine the point as one going to the jurisdiction of the court to entertain the petition. At the end of the argument before him the judge appears to have taken the view that he ought to confine himself within the limits of O.18 r.19. I think he was right to do so, for I do not for my part think the point is a point going to the jurisdiction of the court to entertain the petition. Even so, Mr. Griffiths submitted, the point ought to have been dealt with as a point to be disposed of at an early stage of the proceedings, so as to save time and expense.

15. But again I agree with the judge. This petition contains many allegations not exclusively limited, as it seems to me, to events which took place before the amendments to the Ordinance came into force. It is concerned with those events as the background to a state of affairs which continues, so the petitioner alleges, to this day.

16. This court cannot sensibly hack at this petition, cutting out large chunks here and there, because they refer to pre-1994 events, without any informed understanding of what the consequences of such editing may be. Mr. Chim's objection to the petition is a matter upon which I think this court should at this stage express no opinion whatever. I am not satisfied that the judge was plainly wrong to refuse, in his discretion, to entertain Mr. Chim's application. I think each side should be allowed to present its whole case, without interference from this court, at the hearing of the petition, lengthy and costly though that hearing may turn out to be.

17. I would dismiss this appeal.

Liu, J.A. :

18. In a proper case, a preliminary point of law may be taken to its conclusion under Order 18 rule 19 Rules of Supreme Court, and that would not be regarded as an inherently defective procedure. But the Securities and Futures Commission (SFC) does not accept that the respective alleged conduct of the affairs of the listed company, culminating in unfair prejudices to the interests of its members or in effects adverse to public interest, had been completed prior to the 1994 amendments for the purposes of the relevant provisions of the Securities and Futures Commission Ordinance. SFC further maintains that such conduct and/or its consequences are both of a continuing nature. In addition, some of SFC's complaints are grounded on post-1994, in fact post-petition allegations. So we have been told and there is no negative response coming from the appellant. As a matter of statutory construction in this case, the issue raised before the judge, which may be loosely termed "the jurisdiction issue", cannot be decided in isolation from these factual disputes.

19. Before the judge, counsel for SFC was not prepared to embark on "the jurisdiction issue" other than on the basis of a striking out application under Order 18 rule 19 RSC.

20. If it were a question of jurisdiction for pure statutory construction, we would be obliged to deal with it, but it is not. In essence, what stands before us today is not a question of pure statutory construction but of whether the allegations in SFC's petition disclose good causes of action against the appellant. What allegations they are and how they relate, in time, to the 1994 amendments appear to be pertinent. Therefore, construction of sections 37A and 45 of the Ordinance must be attempted by reference to the true nature of these allegations, not by way of a discrete question of law in terms of jurisdiction.

21. In conclusion, the so-called "the jurisdiction issue" has not been shown to be plainly unmaintainable. In my view, the judge rightly dismissed the application of the appellant to strike out the petition on "the jurisdiction issue". I, too, would dismiss this appeal.

Cheung, J. :

22. I also agree that the appeal should be dismissed. Although the retrospective nature of s.37A was said to be a matter concerning jurisdiction, it seems to me that the point is really whether the SFC has any reasonable cause of action against the company and Mr Chim if s.37A has no retrospective effect. In my view, and I adopt the words of Sir Thomas Bingham M.R. in E (A Minor) v. Dorset County Council [1995] 2 A.C.633, the legal viability of the cause of action is unclear. This is not because the law on retrospectivity is not clear or is in a state of transition, but because of the wording of s.37A which refers to the affairs of the company as "are being or have been conducted in a manner unfairly prejudicial to the interests of its members". Although the facts of the four complaints, upon which the petition was grounded, occurred before the amendment to the Ordinance in 1994, the state of affairs is that, on the facts as pleaded, the interest of the members is still being unfairly prejudiced and this state of affairs is still not at an end. I agree with the learned judge that the position of the SFC is clearly arguable and the petition should not be struck out at this stage.