Section 300(1) of the Securities and Futures Ordinance (Cap. 571)
“A person shall not, directly or indirectly, in a transaction involving securities, futures contracts or leveraged foreign exchange trading -
(a) employ any device, scheme or artifice with intent to defraud or deceive; or
(b) engage in any act, practice or course of business which is fraudulent or deceptive, or would operate as a fraud or deception.”
In Securities and Futures Commission v. Lee Kwok Wa & Ors,  HKCA 108, the Court of Appeal gave permission to three appellants to pursue their appeal to the Court of Final Appeal (‘CFA’). Background to the case is set out in Industry Insights for March 2016 and December 2017.
The question in the appeal stated by the Court of Appeal to be of “great general or public importance” (s. 22(1)(b) of the Court of Final Appeal Ordinance) turns on the proper meaning of the phrase “in a transaction involving securities” in s. 300 of the Ordinance (note emphasis above).
While a person who contravenes s.300(1) is stated to commit “an offence” it is important to note that in this case the proceedings arise out of the SFC’s use of s. 213 of the Ordinance. “Section 213” proceedings are civil in nature. As readers will recall, following the ruling of the CFA in SFC v. Tiger Asia Management LLC & Ors, (2013) 16 HKCFAR 324, s. 213 has been put to good use by the SFC to obtain (for example) declarations that parties have committed acts that contravene a relevant provision of the Ordinance without the need for a prior finding of market misconduct by a criminal court or the Market Misconduct Tribunal.
Section 213 has become known as the “third way” and, on the back of it, the SFC can obtain (among other things) orders for restoration and ancillary relief (s. 213(2)).
SFC v. Lee Kwok Wa & Ors arises out of civil proceedings. It is thought to be the first case to test the parameters of s. 300. The judgment of the Court of Appeal granting permission to appeal to the CFA directed that the exact question for determination be reformulated but, in essence, the issue for determination is likely to turn on what is the conduct (the actus reus) caught by the meaning of the words “in a transaction involving securities”.
The final appeal is very important because s. 300 is not limited to transactions involving listed securities in Hong Kong (unlike s. 291 of the Ordinance – “Insider Dealing”). In this case, it is alleged that the impugned transactions involved securities listed on the Stock Exchange of Taiwan.
Thus far, in matters of s. 213 proceedings, the courts in Hong Kong have adopted a liberal and purposive approach and, in the event that the appeal fails, one suspects that the SFC will be looking to put s. 300 to more use (through proceedings pursuant to s. 213). The Tiger Asia case really was a landmark one.
* Editorial Note: Subject to final appeal – FAMV 18/2018.