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The High Court has confirmed that Hong Kong’s Securities and Futures Commission (SFC) may obtain leave to serve Hong Kong enforcement actions on defendants abroad, SFC v Subotic [2021] HKCFI 2172. Edward Alder instructed by Minter Ellison acted for the defendants.

The High Court has confirmed that Hong Kong’s Securities and Futures Commission (SFC) may obtain leave to serve Hong Kong enforcement actions on defendants abroad, SFC v Subotic [2021] HKCFI 2172. Edward Alder instructed by Minter Ellison acted for the defendants. The SFC alleges the defendants organised a “pump and dump” scheme concerning certain Hong Kong listed shares, including borrowing from Hong Kong lenders secured over the shares, in contravention of Securities and Futures Ordinance (Cap. 571) (SFO) s.274 and s.295. This is said to have been conducted largely from the US, although some individuals had visited Hong Kong.
Under the SFO enforcement model, the SFC issues ordinary Court proceedings to exercise its powers under SFO s.213. The SFC issued a writ seeking restoration of profits, damages and an injunction to restrain repeat conduct. There is no specific SFO or court rule allowing the SFC to seek to serve actions abroad, unlike that of the Competition Commission under its newer statute. The SFC obtained leave to serve the writ in the US under Order 11 via Gateway B (claim for injunction to restrain acts in Hong Kong) and Gateway F (claim in tort and acts committed or loss suffered in Hong Kong).The defendants argued the claims together with the collective remedies sought by the SFC (rather than alleged victims) did not constitute a “tort”, a category of legal wrongs leading to private remedies.

Au-Yeung J adopted the modern approach to Order 11 which is not restrictive but pragmatic. She considered the traditional characteristics of “torts” and case law under Australia’s Competition and Consumer Act (a similar model) and concluded, despite the defendants’ “persuasive” arguments, that the claims were in tort and the SFC could utilise Gateway F. It was sufficient that there was a good arguable case of a conspiracy in Hong Kong and that the overseas defendants were joint tortfeasors with Hong Kong based conspirators. The defendants’ basis of opposition under Gateway B was that the injunction claimed restrained any contravention of the SFO of any kind anywhere forever and there was no need and little chance of such an injunction at trial, even if a more focussed injunction was arguably in prospect. The judge considered the scope of any injunction was a matter for trial and Gateway B was also available, although it added little as the SFC could invoke Gateway F. The defendants successfully opposed a belated application for leave under Gateway C (overseas party necessary or proper party to claim against local defendants) on the basis that the SFO had allowed the writ to expire before seeking leave under that Gateway. The SFC will doubtless welcome this clarification of its enforcement avenues in respect of schemes said to be orchestrated wholly or partly outside Hong Kong but targeting Hong Kong investors.
The case raised again the question of reform of Hong Kong’s century-old “service out” regime.
England & Wales, Singapore and the common law Caribbean have updated their equivalents in recent years to avoid difficult arguments over fitting modern claims through old-fashioned Gateways.