14 June 2012
The ability of the Securities & Futures Commission (SFC) to obtain relief from the Courts for market misconduct, particularly against foreign entities, has returned to the spotlight as a result of Tiger Asia's appeal of the Court of Appeal's decision and a recent decision regarding service out of the jurisdiction in insider dealing proceedings.
The ability of the Securities & Futures Commission (SFC) to obtain relief from the Courts for market misconduct, particularly against foreign entities, has returned to the spotlight as a result of two recent events:
- Tiger Asia has been granted leave to appeal to the Court of Final Appeal the decision that the SFC can obtain wide-ranging relief under section 213 of the Securities & Futures Ordinance (SFO) (Cap 571), including Mareva injunctions, before and independent of any Market Misconduct Tribunal or criminal proceedings against a defendant who was resident out of the jurisdiction. For more information about the Tiger Asia case and the Court of Appeal's decision, please refer to our earlier update Tiger Asia: Court of Appeal Gives the SFC Sharper Claws to Fight Market Misconduct.
- The Court of First Instance (CFI) has set aside an order which allowed the SFC to serve a Writ on a foreign entity the subject of an earlier injunction because of its involvement in alleged insider dealing. This case is summarised below.
SFC v STM Corporation & Others
On 20 December 2011, the SFC obtained mareva injunctions against STM and the other defendants in respect of the SFC's claim the Defendants had been involved in insider dealing. The SFC's claim against STM was not that it had contravened the insider dealing provisions of section 213(1) of the SFO, but it had (knowingly or otherwise) become involved in the insider dealing by receiving a substantial portion of the sale proceeds of the alleged insider dealing.
Accordingly the only relief sought against STM was "an order requiring the Defendants to take such steps as [the CFI] may direct, including steps to restore the parties to any transaction to the position in which they were before the transaction was entered into" pursuant to section 213(2)(b) of the SFO. STM challenged the Court's jurisdiction to grant leave to serve the writ out of jurisdiction on STM in the circumstances.
The CFI held the order was to be set aside because the relief sought against STM was not an injunction requiring STM to do or refrain from doing an act within the jurisdiction, rather what was really being sought was an order that would require STM to take steps outside the jurisdiction to transfer monies to Hong Kong. Such relief did not fall within the scope of the Rules of the High Court with regard to service out.
In reaching this conclusion, Justice Barma held that even if an order for payment of money should be regarded as an injunction for the purposes of the Rules of the High Court, having regard to the fact that injunctions are not usually granted where they cannot be made effective, there was not a good arguable case to grant such relief. Given that STM is a foreign corporation with no presence or assets in Hong Kong, there would be no way in which the court could grant an effective injunction against it. The Court held there was no sufficient arguable case made out to justify the granting of leave to serve the writ on STM out of the jurisdiction in the circumstances.
The CFI also held the SFC's claim against STM constituted a valid cause of action for final relief under section 213 of the SFO. Although it was not found in this case, such claim could form the basis of an application for leave to serve out of the jurisdiction.
The decision in STM provides some further clarification on the scope and application of SFC claims under section 213 of the SFO. More light will be shed on the subject when the CFA determines the Tiger Asia case.
For inquiries related to this Legal Update, please contact Nick Hunsworth, Susanne Harris, or your usual contacts with our firm.