Securities and Futures Commission v Sun Min
Court of First Instance
Miscellaneous Proceedings No. 2236 of 2015
Harris J in Chambers
17 July 2017

Insider dealing – whether s.213(2)(b) engaged – whether consent order to be made under s. 213(2)(b) restoring counterparties to pre-transaction position and/or compensating counterparties – reservations expressed about how s. 213(2)(b) operated, including exact nature of sums to be paid to counterparty – Securities and Futures Ordinance (Cap. 571)

The Market Misconduct Tribunal (“MMT”) found D had engaged in insider dealing contrary to s. 270(1)(e) of the Securities and Futures Ordinance (Cap. 571) (the “SFO”). The Securities and the Futures Commission (the “SFC”) and D sought by consent inter alia an ancillary order for payments by D to counterparties to the share trades in question to restore all counterparties to their pre-transaction positions and/or compensate them under s. 213(2)(b) of the SFO. The SFC argued that: (a) provided the consent order sought fell within s. 213, the Court should approve it regardless of whether or not it was considered appropriate; and (b) under s. 213(2)(b), in order to calculate the amount to be paid by way of restitution the Court should assume the counterparty had retained the shares and could have sold them when the share price rose.

Held, granting the order sought by consent, that:

  • Before making an order under s.213(2)(b) of the SFO, the court must be satisfied that a person had contravened any of s. 213(1)(a)(i) to (v), including where there was no dispute that there had been such contravention. The application should comply with Practice Direction 3.5 (Applications in Writing in the Companies Court). The parties must adduce supporting evidence in the most easily and efficiently assessed form possible. In practice, this would comprise a set of agreed facts identifying those parts of the appended report in which such facts had been found by the MMT to be proved. The defendant would file a short affidavit confirming he or she agreed the agreed facts.
  • Here, a contravention of the relevant provisions of the SFO had been established and s. 213(2)(b) was engaged. However, the Court harboured reservations as to how s. 213(2)(b) operated and whether an order that D pay a counterparty who sold her shares the difference between the sale price and a valuation of the shares at the market price once the inside information became known, was a windfall to the seller rather than restitution as s.213(2)(b) envisaged. If it applied as submitted by the SFC, the sum D had to pay seemed to fall into a separate category. Notwithstanding, the Court did not have the benefit of full argument on this issue and given the parties’ agreement and that the order sought was one that the Court could make, such order would accordingly be made.
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