On 14 July 2011, the Court of First Instance ("CFI") struck out the SFC's proceedings against New York-based asset management company, Tiger Asia Management LLC, and three of its officers (together "Tiger Asia") on alleged contravention of Hong Kong's insider dealing and market manipulation laws.
The CFI had earlier in June ruled that it had no jurisdiction to determine whether or not Tiger Asia had contravened Hong Kong’s insider dealing and market manipulation laws.
The SFC had commenced its action in the CFI directly, under section 213 of the SFO, which empowers the court to make remedial orders where a contravention of a market misconduct provision "has occurred, is occurring or may occur". The SFC sought orders to freeze Tiger Asia's assets and ban Tiger Asia from dealing in any listed securities and derivatives in Hong Kong, pending a final decision on the alleged contraventions. The SFC argued that the relief sought was free-standing and not contingent upon a prior determination of contravention, and that the court could assess whether there was a prima facie case of a contravention. However, the CFI disagreed with the SFC's arguments and held that only a court exercising criminal jurisdiction or the Market Misconduct Tribunal ("MMT") has jurisdiction to determine whether a contravention of Hong Kong’s insider dealing laws and market manipulation laws has occurred; the CFI did not have jurisdiction to make orders like this on the basis of prima facie evidence of a contravention. In order to pursue relief in the CFI, a contravention must be established by the appropriate proceedings.
The SFC also explained its reasoning for choosing to pursue an application in the CFI under section 213 in place of civil proceedings in the MMT: the commencement of proceedings in the MMT has the effect of preventing criminal proceedings being instituted. By applying directly to the CFI for relief and not commencing proceedings in the MMT, the SFC left open the possibility of criminal prosecution, in the event that the Tiger Asia parties were to enter Hong Kong. However, the Judge dismissed this reasoning as weak, implausible and an attempt to avoid "what it perceives as the slow and cumbersome procedure [in the MMT], which can result in many years passing before a determination of a contravention is reached".
The SFC has announced that it will be appealing against the CFI's ruling.
In view of the CFI's ruling on Tiger Asia, the CFI adjourned the SFC's proceedings against Hontex International Holdings Company Limited ("Hontex"), which were also commenced under section 213 of the SFO. The SFC had brought various allegations under section 213 of the SFO against Hontex relating to disclosure of information in its IPO prospectus in 2009. The CFI considered that the issue of its jurisdiction to make findings in proceedings under section 213 of the SFO must also be determined in this case. The Hontex hearing has been scheduled for 22 July 2011.
Remarks - The CFI's ruling on the Tiger Asia case has a significant impact on the SFC's use of its powers under section 213 of the SFO to bring actions on insider dealing cases. The findings of the higher Hong Kong courts on their interpretation of this section of the SFO will determine the SFC's future treatment of alleged insider dealing cases. Details of both the Tiger Asia and the Hontex proceedings were covered in Issue 13 of this Newsletter.