Hong Kong’s Court of Final Appeal has held that the securities regulator, SFC, can serve investor class relief proceedings under Securities and Futures Ordinance (SFO) s.213 out of Hong Kong without permission under RHC O.11, r.1(2), SFC v Subotic [2023] HKCFA 32. The decision is a surprise because the SFC had not argued in any of level of court that it could serve without O.11 permission.
The case arises from an alleged “pump and dump” scheme for Hong Kong listed shares said to have been orchestrated by local and US individuals in 2016, contrary to SFO false trading provisions ss. 274 and 295.
The SFC obtained permission to serve the writ in the US under the “tort” gateway that would allow the SFC to seek damages at trial. The US defendants unsuccessfully challenged permission on the basis that the flexible s.213 procedure is not “founded on a tort” [2021] 3 HKLRD 777 (CFI) and [2023] 1 HKLRD 983 (CA). The defendants further appealed this point to the CFA.
The CFA decided the SFC had never needed permission because s.213 proceedings may be served under r.1(2), Hong Kong’s equivalent of England’s CPR 6.33(3).
These service provisions have been construed very narrowly to apply only to claims under rare statutes that explicitly allow proceedings against defendants out of the jurisdiction in terms. The fact that substantive statutory causes of action are extra-territorial, ie may concern events or things straddling the jurisdiction’s borders, has not been enough. In England, there exists a specific “with permission” gateway under PD 6B 3.1(20) for ordinary extra-territorial statutory claims. There is no Hong Kong equivalent.
Claims relying on ss.274 and 295 are explicitly extra-territorial in that the market-affecting acts may take place in Hong Kong “or elsewhere”. Neither those nor s.213 itself explicitly provide that proceedings may be served out of Hong Kong without permission. Until now, even the SFC assumed that while the market acts may straddle the border, either s.213 defendants must be served in Hong Kong (if possible), or permission to serve out must be obtained if any gateway applies, eg residence or necessary and proper party. The CFA cited relevant English case law construing r.1(2) and r.6.33(3) restrictively, but nonetheless concluded that the extra-territoriality aspects of ss.274 and 295 are sufficient for r.1(2) purposes for s.213 proceedings.
Going forward, the court will not exercise an O.11 “gatekeeping” role over service of s.213 actions abroad. By contrast, the explicitly extra-territorial claims available under the Competition Ordinance require leave to serve out under Competition Rule 16.
If followed in England, Subotic would mean that gateway (20) is redundant.
SFC v Subotic [2023] HKCFA 32 hklii.hk/en/cases/hkcfa/2023/32
Order 11 hklii.hk/en/legis/reg/4A/s11
Charles Sussex SC and Edward Alder acted for the US defendants.
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