SECURITIES AND FUTURES COMMISSION v. X LTD

HCMP 171/2018

[2018] HKCFI 2877

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 171 OF 2018

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D E C I S I O N

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1.  On 6 February 2018 the Securities and Futures Commission (“the Commission”) issued an originating summons seeking an order that the defendant X Limited comply with the direction of the Commission dated 27 November 2017 (“the Direction”) issued pursuant to section 179(1)(e) of the Securities and Futures Ordinance (Cap 571). The relevant parts of section 179 provide as follows:

“179. Power to require production of records and documents concerning listed corporations, etc.

(1) Where, in relation to a corporation which is or was listed—

…

(e) it appears to the Commission that there are circumstances suggesting that at any relevant time members of the corporation or any part of its members have not been given all the information with respect to its affairs that they might reasonably expect; or

…

an authorized person may, subject to subsections (5) to (10), give a direction to—

(i) the corporation;

…

(v) any other person,

requiring the production, within the time and at the place specified in the direction, of any record and document specified in the direction.

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(8) An authorized person shall not give any direction to a person under subsection (1)(v) to require the production of any record or document unless the authorized person has reasonable cause to believe, and the Commission certifies in writing that the authorized person has reasonable cause to believe, that—

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(b) the record or document required to be produced under the direction—

…

(ii) is relevant to the consideration of whether there has been the occurrence of—

(A) where subsection (1)(a), (b), (c), (d) or (e) applies, the matter described in such subsection as being suggested by the circumstances referred to in such subsection; or

…”

2.  The Direction states in its material paragraphs that the records or documents required to be produced—

“a. relate to the affairs of Y Limited;

b. are relevant to the consideration of whether members of Y Limited or any part of its members may have been given all the information with respect to its affairs that they might reasonably be expect; and

c.  cannot be obtained by giving a direction to any other person under subsection (1)(i), (ii), (iii) or (iv) of section 179 of the Ordinance.”

The Direction then goes on to set out in more detail what is required, [REDACTED].

3.  When the originating summons first came on before me, I had some concerns about the Commission’s evidence as it was not clear how it was suggested that the documents sought were relevant to Y Limited (“ListCo”), or in what respect it was suggested that information provided to ListCo’s members was incomplete.  The originating summons was adjourned to give the Commission the opportunity to file further evidence. 

4.  Having done so, the defendant accepts that the documents sought would contain information relevant to ListCo.  The defendant continues to take the position that the Direction is objectionable because it remains unclear how it is said the matters, which the Commission appears to be concerned to investigate, concern information which members of ListCo might reasonably expect to receive.  The reason for this is as follows.

5.  [REDACTED]. 

6.  [REDACTED].  It is the defendant’s position that it is unclear how this is information that a member of ListCo could reasonably expect to obtain from ListCo.

7.  During the argument before me, Mr Li clarified the Commission’s case.  First, the Commission seeks the documents and the information contained in them not because it is thought that this itself would be information that should have been provided to members of ListCo, but because it would throw light on whether there is other information that should have been provided, but has not been.  Secondly, the type of information that the Commission thinks might have been withheld from members concerns [REDACTED].  Mr Li invited me not to go into detail in my reasons about the precise nature of the Commission’s concern as its investigations are ongoing.  [REDACTED]. 

8.  Before me Mr Chan SC accepted that the Commission is entitled under section 179(8)(b) to seek documents relevant to a consideration of whether or not there had been an occurrence of a matter described in subsection 1(e).  He also accepted that the Commission only needs to show reasonable cause that the documents sought are relevant to its enquiry and that this is a low threshold:  See Yeung May Wan & Ors v HKSAR (2005) 8 HKCFAR 137, at [70], [83], [88] and [94]; Yoo Soon Nam v AG [1976] HKLR 702, at 714–715.

9.  This does not, however, dispose of the submission that the Mr Chan continued to advance, namely, it is unclear from the evidence filed, as opposed to Mr Li’s explanation of the Commission’s case, how it is said that the Commission thinks a matter falling within subsection 1(e) had occurred, and that this has to be established before the question of whether the Commission has demonstrated further that it has reasonable cause to believe the documents sought are relevant to its enquiry into whether subsection 1(e) had occurred.  With this I agree. Thus, the issue becomes: has the Commission shown reasonable cause for believing a subsection 1(e) matter may have occurred?

10.  I accept, indeed this is apparent from the Commission seeking an adjournment of the original hearing in order to file further evidence concerning matters raised by me with Mr Li in the first hearing, that the Commission’s evidence is not clear about what matters may cause subsection 1(e) to apply.  However, it seems to me that the Commission’s evidence in its totality has demonstrated reason to believe that the information provided to members, [REDACTED], may not accurately describe [REDACTED], and that this is sufficient to justify the Direction.

11.  In my view, it is not necessary, and in many cases it might not be possible, for the Commission to identify with precision what objectionable act or omission has taken place.  Having said that, as I have already observed, it does seem to me that the Commission’s evidence had left it unclear until Mr Li explained what its principal concern is, and how it is suggested that subsection 1(e) might be engaged. 

12.  I will, therefore, make an order in the terms of paragraph 1 of the originating summons. 

13.  So far as costs are concerned, I will make a cost order nisi that there be no order as to costs.