In the recent case of Chen Wencan and Another v. Secretary For Justice and Another[1], the Court of First Instance (CFI) has dismissed a judicial review application against the Securities and Futures Commission (SFC) relating to restriction notices issued in an ongoing investigation into a suspected “ramp-and-dump” scheme. The Applicants contended that the restriction notices issued by the SFC under sections 204(1)(a) and 205(1) of the Securities and Futures Ordinance (SFO) to freeze their assets in various trading accounts held with certain licensed corporations on the basis of section 207(e) of the SFO was unconstitutional as it (i) was not prescribed by law and (i) was a disproportionate interference with their property rights.

The CFI noted in this judicial review that similar issues had been dealt with earlier in the case of Tam Sze Leung and Others v Secretary for Justice and Another[2]. The CFI is not persuaded that there are any significant differences raised by the Applicants which point to any reason why a different view should be taken. The below is the summary of the court’s reasoning in Tam Sze Leung:

• Whilst the court agreed that the relevant administrative intervention powers granted to the SFC are highly intrusive to the individual’s property rights under articles 6 and 105 of the Basic Law, the court came to the overall conclusion that sections 204 and 205 when invoked on the basis of section 207(e) of the SFO satisfy the “prescribed by law” requirement as there is (i) sufficient clarity as to the scope and manner to exercise these powers and (ii) sufficient legislative safeguards (e.g. review mechanism in the Securities and Futures Appeals Tribunal and judicial review) to prevent abuses.
• The restriction or limitation from the exercise of powers under sections 204 and 205 is on balance no more than is necessary to accomplish the legitimate aim of the protection of investors and the public interest and strikes a reasonable balance between the societal benefits of the encroachment and inroads made with the constitutionally protected rights of the individual and does not result in an unacceptably harsh burden on the individual.

To conclude, albeit restriction notices are (i) issued against the licensed corporation (as the subject of the restriction) which is not accused of any wrongdoing and (ii) highly intrusive to the individual’s property rights, the recent judgment reaffirms the SFC statutory powers to issue restriction notices, in allowing the SFC to serve the important function of protecting the investors and the public interest.

[1] [2023] HKCFI 796; See https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=151339&currpage=T.

[2] [2022] HKCFI 2330; See https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=147488&currpage=T.