Extent of SFC's disclosure obligations

In an important decision reported earlier this year,(1) the Court of First Instance decided that the Securities and Futures Commission (SFC) should adopt a generous test of relevance when giving disclosure of materials in director disqualification proceedings – an approach to disclosure that was more commensurate with the duty of a prosecutor in criminal proceedings.


The SFC commenced disqualification proceedings pursuant to Section 214 of the Securities and Futures Ordinance (Cap 571) against various former directors of a Hong Kong listed company, alleging breach of various duties in relation to the company's acquisitions and disposals of a gold mine and hotels in China.

The former directors made an application for disclosure of documents by the SFC. The main category of documents sought was written requests issued by the SFC to third parties during its investigation of the acquisitions under Sections 179 and 183 of the Securities and Futures Ordinance and the documents gathered in response.

The SFC's position appears to have been that the disqualification proceedings were civil-type proceedings, the purpose of which was primarily protective rather than punitive. On this basis, the SFC argued that the test for disclosure was the same as that in civil proceedings in Hong Kong – namely, the regulator should produce any documents relevant to the issues or which could lead to a train of inquiry that could produce relevant information (a reasonably wide test of itself).

In contrast, the former directors argued that the appropriate test for disclosure was a broader one adopted in criminal proceedings, which included the disclosure of all relevant unused material obtained by the SFC during its investigation (and not, for example, limited by reference to the pleaded issues in the SFC's petition proceedings).

Extent of SFC's disclosure obligations

The court noted that directors' disqualification proceedings are brought by a regulator pursuant to a statute for the public's benefit. Such proceedings could substantially interfere with the freedom of an individual (eg, his or her right to practise as a director). Therefore, the proceedings were different in nature compared with ordinary civil proceedings.

Given the nature of disqualification proceedings, the court also considered that the principle of 'equality of arms' (at common law and under Article 11(2)(b) of the Hong Kong Bill of Rights Ordinance) applied. This principle suggests (among other things) that someone in the position of an accused should have access to all relevant information collected by a prosecuting authority.

The court then referred to the test for disclosure by the prosecution in criminal proceedings and the underlying principle of a defendant's right to a fair trial. This required the prosecution to disclose relevant information which may undermine or advance its case.

The court noted that in various common law jurisdictions (including the United Kingdom, Canada and New Zealand), disciplinary proceedings are not normally criminal in nature. However, the duty of disclosure imposed on a prosecuting authority in disciplinary proceedings involving serious charges approached the prosecution's obligations in criminal proceedings.

In circumstances where the SFC had powers similar to a criminal enforcement authority (eg, with wide powers to obtain information), and given that an interviewee did not have the right against self-incrimination, the court considered that the SFC should provide all relevant information to a respondent in these types of proceeding. The court placed an emphasis on the SFC's role as a fair-minded regulator; for example, its role was not that of a prosecutor bent on securing disqualification.

The court held that the SFC's disclosure obligations should ordinarily include disclosure of information and documents that it had obtained in the investigation of the transactions that are relied on in the disqualification proceedings, unless those materials were obviously irrelevant. In effect, this was a generous test for disclosure.

As a result, the court ordered the SFC to produce a list of relevant documents to the former directors, while giving it an opportunity to exclude documents which were entirely irrelevant.


The time for appealing the court's decision has expired and no appeal is pending. While an appeal was expected in some quarters (given the importance of the decision), it appears that the SFC has perhaps taken a more pragmatic view of the outcome. It may be that the further material to be disclosed by the SFC in the case is such that an appeal is not worthwhile.

That said, the decision is likely to be a blow to the SFC's strategy in director disqualification proceedings and some of the comments in the judgment may give the SFC's lawyers pause for thought – particularly coming as they do from a judge known for his even-handedness in procedural matters. This is also not the first time in the past six or so months that the SFC has lost on an important issue before a court or tribunal, but has moved on without appealing.(2)

It remains to be seen whether the broader test for disclosure will affect the SFC's general approach in obtaining information during its investigations which may have to be disclosed to respondents in subsequent proceedings.(3)

Conversely, directors and officers of companies in Hong Kong (and their lawyers) are generally likely to welcome the imposition of a broader duty of disclosure on the SFC in disqualification proceedings. Injustice may arise if the SFC can withhold some relevant information which it obtains from the company and third parties – in particular, in situations where disqualification proceedings are commenced after directors have resigned from a listed company and have little or no access to the relevant information.

The disqualification proceedings themselves illustrate the SFC's increased tendency to target directors and officers of listed companies for alleged misconduct in overvaluing or undervaluing corporate transactions. The SFC is concerned about instances where directors have apparently executed such transactions without proper valuation or relied on valuations by third parties without being reasonably satisfied that they are accurate.

In fairness, the SFC is not just a lead enforcer – it also has an important role in educating the markets in Hong Kong. For example, in May 2017 it issued a guidance note on directors' duties owed to a company in corporate transactions.(4) Among other things, the note reminds directors to take reasonable steps, including (where appropriate) carrying out independent due diligence on assets, when verifying valuation reports.

Finally, some of the principles in the case about due process apply with equal force where serious charges are made in disciplinary proceedings on behalf of other statutory bodies in Hong Kong.

For further information on this topic please contact Jonathan Cary or Adrian Chang at RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at


(1) Securities and Futures Commission v Wong Yuen Yee, HCMP 241/2015.

(2) For example, see "Report of the Market Misconduct Tribunal into dealings in the shares of CITIC Limited and others on or between 7 and 12 September 2008", dated April 7 2017. Also an example of some well-resourced and good defence-type 'lawyering'.

(3) With respect to the more limited disclosure requirements in judicial review proceedings in Hong Kong, see (for example) AA v Securities and Futures Commission, HCAL 41/2016, January 16 2017 and June 16 2017.

(4) See Note also that the SFC issued guidance to financial advisers and valuers in relation to their duty in corporate transactions – see and