Source: http://www.ipsofactoj.com/DecidedCases/international/2010/part05/int2010(05)-004.htm
Timestamp: 2019-02-19 19:32:48
Document Index: 86073571

Matched Legal Cases: ['art 5', '§3', '§30', '§31', '§32', '§38', '§40', '§50', '§81', '§34', '§58', '§90', '§53', '§35', '§39', '§47', '§45']

Kayden Ltd v Securities and Futures Commission [CFA]
Civ App No. 1/2010
IpsofactoJ.com: International Cases [2010] Part 5 Case 4 [CFA]
Relying on section 213 of the Securities and Futures Ordinance, Cap 571 (“SFO”), the Securities and Futures Commission (“SFC”) persuaded Kwan J (HCMP 727/2008 (16 April 2008)) (as Kwan JA then was) to make ex parte orders freezing the assets of four defendants and granting leave for three of them to be served outside the jurisdiction. Kwan J subsequently discharged those orders at the inter partes hearing.[1] However, the Court of Appeal[2] overturned her judgment and reinstated the asset-freezing injunctions and granted the SFC leave to amend its originating summons and leave to serve it afresh on the foreign defendants.
Leave to appeal was granted by the Appeal Committee to the three foreign defendants.[3] Two of them have since abandoned their appeal and the only appellant is now the 4th defendant. However, an understanding of the issues makes it necessary to indicate the nature of the SFC’s proceedings against all four defendants. The SFC obtained a direction from Kwan J at the ex parte stage that the defendants should not be named but should be designated as “C”, “D”, “E” and “F”. As the parties accept, there is now no reason to maintain anonymity and in this judgment, the parties are referred to by name.
any of the relevant provisions;
Ms Wong explained that the application was made under section 213(1)(b), that is, on the footing that it appeared to the Commission that the defendants had either contravened or become involved in contravention of the insider dealing provisions in sections 270 and 291 of the SFO (Affirmation §§3 and 5). This was reiterated by counsel then instructed (not Lord Pannick QC) for the SFC in their skeleton argument (at §30-§31).
The SFC’s case, as Counsel explained, was that the interim injunctions to freeze the defendants’ assets being sought came within section 213(2)(c), adding that the Court also had jurisdiction under section 213(6) to grant such injunctions pending the determination of a section 213(1) application (Skeleton §§32-34). They (Skeleton §38) cited Kwan J’s judgment in Securities and Futures Commission v A [2008] 1 HKC 89, as providing guidance on the threshold requirements for such interim orders and submitted:
There is no doubt that the Court has jurisdiction to grant an injunction to freeze a sum equal to the loss avoided by persons suspected of engaging in insider dealing, just as the same section applies to injunctions freezing profits or penalties.
Ms Wong set out the SFC’s calculation of loss allegedly avoided by Mr Lu in the sum of $43,661,568 (Affirmation §40). She stated:
Ms Wong stated in her affirmation (§50) (and counsel confirmed - Skeleton §81) that the SFC was relying on O 11 r 1(1)(b) of the Rules of the High Court as the ground for service out of the jurisdiction. The rule materially states as follows:
C. The defendants’ responses
D. Kwan J’s judgment on the inter partes hearing
The first major problem faced by the SFC, as Kwan J recognized (at §§34-46), is that the application so constituted was plainly for relief which was interim in nature, mirroring pure Mareva relief. It did not involve the institution of any proceedings seeking final or substantive relief for insider dealing or for any other contravention of the SFO. The position could hardly be otherwise since the SFC was not suggesting that it had proven or was seeking to prove a contravention (whether in the Market Misconduct Tribunal (“MMT”) or elsewhere, whether pursuant to the originating summons or some other originating process). Its case rested on section 213(1)(b) as the basis for seeking the relevant orders under section 213(2) asserting suspected contraventions or involvement. The originating summons as issued merely sought orders identical to the interim orders obtained ex parte (and adjectival disclosure orders) and no final relief based on a determination of contraventions under section 213(1).
This entirely undermined its application under O 11 r 1(1)(b). As Lord Mustill pointed out in the Privy Council on appeal from Hong Kong in Mercedes Benz AG v Leiduck [1996] 1 AC 284, “it is not enough simply to say that since a Mareva injunction is an injunction it automatically falls within Ord 11, r 1 (1)(b)”. Emphasising that Order 11 is premised on there being an “action begun by writ” (or by originating summons: O 11 r 9(1)) and that O 11 r 4 requires the affidavit leading the application to state the belief of the deponent that the plaintiff has “a good cause of action”, his Lordship explained (at 301):
Another basic problem faced by the SFC concerned Kayden in particular. The evidence filed by the latter (which was not challenged) was that it had no and had never had any assets in Hong Kong. Accordingly, as Kwan J noted (at §58), any injunction against Kayden restraining the disposal, etc, of its assets would not involve “ordering the defendant to do or refrain from doing anything within the jurisdiction”, taking the case in any event outside O 11 r 1(1)(b). This particular objection was not available to Mr Lu or to Clear Excel since there was evidence that they had bank balances totalling about $3.5 million in Hong Kong at the time of the ex parte orders (Kwan J at §90).
In my view, the attempt to rely on section 213(2)(b) was rightly rejected, even if one assumes that a claim under that section was properly before Kwan J. In the first place, as with injunctive orders under section 213(2)(c), orders under section 213(2)(b) may be sought on an “appearance” or “suspicion” basis. The SFC’s case as then advanced was undoubtedly such a case, seeking purely interim relief pursuant to section 213(1)(b). Even if one assumes (without deciding) that it is possible to institute a claim under section 213(2)(b) as a claim for final or substantive relief, that is not the type of claim being asserted by the SFC before Kwan J. It therefore would have fallen foul of Mercedes Benz AG v Leiduck [1996] 1 AC 284 by lacking any substantive claim within Order 11, as discussed in Section D.1 above in relation to Mareva type relief. [Kwan J was inclined to this view at §53.]
Secondly, the SFC’s attempted reliance on section 213(2)(b) runs counter to the principles developed in the line of cases commencing with Parker v Schuller (1901) 17 TLR 299.[4] There, the plaintiff had obtained leave to serve a foreign defendant alleging breach of a contract within the jurisdiction consisting of a failure to deliver goods at Liverpool. It later sought to allege instead that the breach was of an obligation to deliver the documents required under the CIF contract. The English Court of Appeal refused to entertain the new basis for establishing jurisdiction. Romer LJ stated (at 300):
The need for a strict approach is dictated by at least three related considerations. First, it is grounded on recognition of the need for special care given the extraordinary nature of the long-arm jurisdiction asserted under Order 11. As Lord Mustill pointed out, it involves seeking to compel a foreign defendant to submit to adjudication by the court or suffer judgment and execution in default: Mercedes Benz AG v Leiduck [1996] 1 AC 284 at 301.[5]
Applying those principles to the present case, Kwan J was entirely justified in refusing to allow the SFC to rely on section 213(2)(b) as an alternative basis for upholding leave to effect foreign service. The SFC had a duty to make clear to the Court exactly what the basis of its invocation of the Order 11 jurisdiction was. A mere reference to the section in the margin of the originating summons could not possibly be sufficient. As we have seen (in Section B.2 above), the body of the originating summons sought nothing other than Mareva type relief. The affirmation leading the application and counsel’s skeleton argument both clearly confined themselves to justifying Mareva type relief. It was on that representation that Kwan J granted leave and the possible exception referred to by Slade LJ does not arise.
In holding that the relief claimed was substantive, her Ladyship stated (at §35):
Section 213(1) empowers the court to make a range of substantive orders on the application of the SFC if the SFC is satisfied that the contravention of any of the relevant provisions .... ‘has occurred, is occurring or may occur’
[The same applies to §39.]
Nevertheless, to enable the SFC to serve Kayden as a necessary or proper party, the Court of Appeal granted the SFC leave to amend the originating summons “to demonstrate its claim under section 213(2)(b)”, with the observation that there was no prejudice to Kayden (at §47):
As noted above, Kwan J had exercised her discretion against permitting the SFC to rely on a claim pursuant to section 213(2)(b) as the basis for service out on Kayden as a necessary or proper party. She did so on the basis that it was a new case not sufficiently put forward by means of the marginal reference to that sub-paragraph and that such reliance ought to be disallowed adopting the strict approach prescribed by the Parker v Schuller line of authorities. However, the Court of Appeal overrode that discretion, seeking to distinguish “the authorities relied on, such as Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc,” ([1990] 1 QB 391) on the basis that they “were cases where the amendment was made to introduce a cause of action not previously specified” and that (at §45): “That is not the present case”.
The SFC’s amended originating summons[6] purportedly served pursuant to the leave granted in fact made far-reaching modifications to its case which, in my view, went significantly beyond the scope of such leave. Some of its principal features are as follows:
In a re-amendment effected pursuant to leave granted by Master Levy on 22 September 2010, the SFC added a claim for an order requiring the defendants “to take such steps as the Court may direct including to restore the parties to the transactions in the dealing referred to [in relation to Mr Lu’s alleged insider dealing] to the position in which they were before the transactions entered into”, tracking section 213(2)(b). However, the amendment proceeded to seek “alternatively .... financial compensation or restitution in such sums and to such persons as the court may direct, being persons who entered into the transactions in the dealings pleaded ....”
[1] HCMP 727/2008 (22 October 2008).
[2] CACV 319/2008 (22 May 2009), Le Pichon JA and A Cheung J.
[3] FAMV 47/2009 (11 December 2009), Bokhary, Chan and Ribeiro PJJ.
[4] It was applied in Hong Kong by the Court of Appeal in The “Artemis” [1983] HKLR 364; although Huggins VP and Barker JA disagreed as to the result on the facts.
[5] And see Siskina (Cargo Owners) v Distos [1979] AC 210 per Lord Diplock at 254-255.
[6] There was subsequently an order that the matter proceed as if commenced by writ. The prayer of the statement of claim served is in the same terms as the amended originating summons.
Abraham Chan (instructed by Messrs Wilkinson & Grist) for the appellant
Lord Pannick QC and Mr Roger Beresford (instructed by Securities & Futures Commission) for the respondent