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Regulator's pursuit of market misconduct in Hong Kong – Top court delivers written judgment

23 May 2013. Published by David Smyth, Senior Consultant

As noted in my blog of 30 April, the Court of Final Appeal in Hong Kong ("the CFA") abruptly dismissed the appeal in Tiger Asia Management LLC & Ors v Securities and Futures Commission ("the SFC"), FACV Nos. 10, 11, 12 and 13 of 2012.

The CFA handed down its written judgment on 10 May. There are no surprises.

Some key points are:

  • The jurisdiction of the High Court of Hong Kong to grant final "remedial orders" under section 213 (Injunctions and other orders) of the Securities and Futures Ordinance ("the SFO") is not dependent on a prior finding of market misconduct (e.g. "insider dealing") by either the Market Misconduct Tribunal ("the MMT") or a criminal court in Hong Kong.
  • Such final remedial orders can include injunctions, declarations and "restorative" orders. According to the judgment, the policy underpinning section 213 is to provide "remedies for the benefit of parties involved in the impugned transactions". In pursuing such civil proceedings, the judgment states that: "the SFC acts not as a prosecutor in the general public interest but as protector of the collective interests of the persons dealing in the market who have been injured by market misconduct".
  • According to the judgment, section 213 proceedings are "plainly civil proceedings" and more analogous to a private action for damages by individuals under section 305 of the SFO; they are not a substitute for criminal prosecution of market misconduct or MMT proceedings.
  • The judgment notes that, in pursuing a defendant under section 213, the SFC is not seeking the equivalent of a declaration that the defendant has committed a "market misconduct" offence; rather, the SFC is seeking a declaration that the defendant has committed "acts" which "found jurisdiction" under section 213 (even if those "acts" happen to be criminal acts, which is a matter for a criminal court). This is an important distinction in the judgment, albeit one that could sound rather legalistic to those being pursued by the SFC.
  • The CFA judgment is final and binding on the courts in Hong Kong. It is important to bear in mind that the judgment decides whether the SFC should be allowed to continue its proceedings; not whether anyone has engaged in market misconduct.


Shares listed on the stock exchange are widely traded by institutional and retail investors all over the world. To date, the SFC has found it hard to prosecute alleged "insider dealers" who are not present in Hong Kong and who show no inclination of passing through. Such defendants are usually careful not to drop their guard; a notable exception, perhaps, being HKSAR v Du Jun [2009] HKCU 2136.

Criminal proceedings in Hong Kong for alleged market misconduct have often proved expensive and slow. Proceedings before the MMT have not fared any better.

As a result of the CFA's judgment the SFC is able to pursue alleged market misconduct "acts" through civil proceedings (subject to a lower standard of proof) without first having to go through the criminal courts or the MMT in order to obtain final remedial orders against defendants. This "third way" should prove useful to the SFC, wherever defendants or their assets may be.  

In this case, the SFC is seeking final remedial orders in civil proceedings against Tiger Asia Management LLC (a New York based hedge fund) and three of its senior personnel. In light of a settlement last year of related "insider dealing" claims brought by the SEC (in the USA), the defendants can expect the SFC to pursue the civil proceedings in Hong Kong through to judgment (or earlier settlement).

That said, and sometimes overlooked, there may be real difficulties in quantifying the compensation due to "other investors" had the alleged impugned transactions not happened (let alone trying to identify such investors). This is unlikely to hold the SFC back in its pursuit of this case.

The CFA's description of section 213 proceedings as "plainly civil proceedings" will require insurers, insureds and their legal representatives to give careful consideration to the coverage position under any available D&O insurance.