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Securities And Futures Commission v Lu Ruifeng And Others

Judgment Cited authorities 16 Cited in 1 Precedent Map Related
Vincent
Judgment Date24 February 2022
Neutral Citation[2022] HKCA 326
Judgement NumberCAMP346/2021
Citation[2022] 1 HKLRD 1349
Year2021
Subject MatterMiscellaneous Proceedings
CourtCourt of Appeal (Hong Kong)
CAMP346/2021 SECURITIES AND FUTURES COMMISSION v. LU RUIFENG AND OTHERS

CAMP 346/2021 & CACV 50/2022
(Heard together)

[2022] HKCA 326

CAMP 346/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 346 OF 2021

(ON INTENDED APPEAL FROM HCMP 727 OF 2008)

and

CACV 50/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 50 OF 2022

(ON APPEAL FROM HCMP 727 OF 2008)

____________
BETWEEN
SECURITIES AND FUTURES COMMISSION Plaintiff

and
LU RUIFENG 1st Defendant
TIN YIN KWAN 2nd Defendant
CLEAR EXCEL LIMITED 3rd Defendant
KAYDEN LIMITED 4th Defendant
YAO WEN PEI 5th Defendant
CHINA UNITED TELECOM LTD 6th Defendant
____________
(Heard together)

Before: Hon Au and G Lam JJA in Court

Date of Hearing: 20 January 2022

Date of Judgment: 24 February 2022

_________________

J U D G M E N T

_________________

Hon G Lam JA (giving the Judgment of the Court):

Introduction

1. The issue in this appeal is whether the plaintiff, the Securities and Futures Commission (“Commission”), should be permitted to amend its originating summons and statement of claim by joining the 6th defendant, China United Telecom Ltd (“China United”), and raising a claim against it under section 213 of the Securities and Futures Ordinance (Cap 571) (“SFO”). China United contends that the claim is time-barred and that for that reason the amendments should be rejected. The judge below, Deputy High Court Judge Rachel Lam SC (“Judge”), allowed the amendments. China United seeks to appeal to this court.

2. An ancillary question has arisen as to whether the Judge’s order determined China United’s substantive rights in a summary way so that pursuant to Order 59 rule 21(1)(a) of the Rules of the High Court (Cap 4A), it does not need leave to appeal.

Background

3. The action below (“Action”) has a long history and the underlying matters have generated a multitude of legal proceedings.[1] It is unnecessary to refer to all the details here. The facts relevant for present purposes may be stated as follows.

4. Asia TeleMedia Ltd (“ATML”) was a Bermudan company listed on the Hong Kong Stock Exchange. Mr Lu Ruifeng (“Lu”), the 1st defendant in the Action, was its Chairman, Executive Director and CEO at the material times. Lu was also the sole shareholder of Asia TeleMedia Holdings Ltd, which held 35% of the issued shares of China United, a BVI company, which together with a subsidiary in turn held 711.5 million shares in ATML as at December 2007. Lu was the sole director of China United until January 2012 when an additional director was appointed, and resigned as a director in September 2014.

5. The Commission’s case is that in the period from 27 April to 30 May 2007, Lu counselled or procured China United to sell 50.25 million ATML shares in the market, based on insider information, soon after a statutory demand had been served on ATML on 26 April 2007 by an assignee of a debt owed by ATML called Goodpine, demanding payment of over $70 million (comprising the debt of over $58 million and interest). The insider information is said to be that ATML was informed of the assignment of the debt to Goodpine and was subject to the statutory demand which it could not satisfy and that it was in consequence liable to face a winding-up petition. The proceeds of the sale of shares amounted to approximately $37.56 million, of which $23.1 million was transferred to Lu’s personal bank account on 8 June 2007.

6. In addition, the Commission says that on 14 and 23 May 2007 Lu had sold a total of 1 million ATML shares by himself, and that he further counselled or procured one Mr Yao Wen Pei (“Yao”), the father of the finance director of ATML, to sell, through a company (TeleMedia Capital Inc), another 48,610,192 ATML shares, resulting in proceeds of sale of about $39.03 million. The Commission says that in these dealings Yao was acting as Lu’s nominee.

7. On 5 June 2007, Goodpine actually presented a petition for winding up ATML. Two days later, trading in ATML shares was suspended. When trading resumed on 18 October 2007, its share price dropped by 62%.

8. The Commission says that Lu had contravened provisions of the SFO by engaging in insider dealing in ATML shares and that others were involved in his contraventions and that they, as a result, avoided a loss estimated at $43,661,568 in the sale of a total of 99,860,192 ATML shares. Within this, the alleged loss avoided in relation to the sale of shares by China United amounted to $20,649,420.

9. Following investigation, on 16 April 2008, the Commission obtained an ex parte Mareva injunction from the court up to the amount of $43,661,568 against (i) Lu; (ii) Madam Tin, the 2nd defendant herein, who is Yao’s wife; (iii) Clear Excel Ltd, the 3rd defendant herein; and (iv) Kayden Ltd, the 4th defendant herein. The 3rd and 4th defendants were BVI companies allegedly involved in the insider dealing by receiving proceeds of sales. The injunction covered 675,950,000 ATML shares held in China United’s name, which thereby became frozen (“Frozen Shares”). The Action was commenced by originating summons two days later against these four defendants. Yao was joined as the 5th defendant in September 2010.

10. The ex parte injunction was discharged by Kwan J in October 2008 on jurisdictional grounds, but reinstated by the Court of Appeal in May 2009, though it was discharged again as against the 4th defendant by the Court of Final Appeal in December 2010.

11. A winding up order was made against ATML in March 2008, but it was subsequently taken out of liquidation and renamed Reorient Group Ltd (“Reorient”). Its issued shares were consolidated and, as a result, the Frozen Shares became 13,519,000 shares in Reorient. The new share price remained low for a long time but shot up in April 2015. Taking the opportunity to benefit from the enhanced share price, China United obtained from the court an order for its frozen Reorient shares to be sold. Out of the proceeds, the sum of $43,661,568 was paid into court in June 2015.

12. Meanwhile, the Commission had also initiated proceedings in the Market Misconduct Tribunal (“MMT”) against four individuals, including Lu, alleging insider dealing in the shares of ATML. In November 2015, the MMT published its report, in which it made no findings of insider dealing against Lu, on the ground that because of acute illness, he had not had an opportunity of being heard during the proceedings. There was no appeal by the Commission against this conclusion.[2]

13. In June 2016, China United applied to intervene in the Action seeking a variation of the injunction to allow it to obtain the funds paid into court. This was opposed by the Commission, who cross-applied by summons dated 26 August 2016 for joinder of China United as the 6th defendant and for leave to amend its originating summons and statement of claim to add claims against China United. In his decision dated 4 May 2017, Lok J dismissed China United’s summons and adjourned the Commission’s summons, which eventually came to be heard before the Judge.

The Commission’s claims

14. The Commission had already pleaded previously that Lu contravened provisions of the SFO by counselling or procuring China United to deal in the 50.25 million ATML shares (“Subject Shares”). What the Commission seeks to do by the amendments is to add China United as the 6th defendant, and to add a plea that China United has been involved in Lu’s contravention of the relevant statutory provisions by reason of its sale of the Subject Shares and transmission of part of the sale proceeds to Lu, and is accordingly a person within section 213(2)(b) of the SFO (the terms of which quoted in §52 below).

15. The effect of the proposed amendments would be to extend to China United the claim for reliefs pursuant to section 213(2)(b) of the SFO already made against the other defendants. As amended, the reliefs claimed in the re-amended statement of claim are as follows:

“ (1) There be declarations that:

…

(f) The 6th Defendant has been involved in the contravention [by Lu of section 291(1)(b) and (8) of the SFO in counselling or procuring another person, namely China United, to deal, in the listed securities of ATML between 27 April and 30 May 2007 having information he knew was relevant information to ATML], whether knowingly or otherwise, and is a person within section 213(2)(b) of the Securities and Futures Ordinance.

(g) The Defendants are not entitled to receive for their own benefit or retain any profits for or in respect of the dealings pleaded in paragraphs 1A(1), (2)(a) and (2)(b) of the Re-Re-Re-Amended Originating Summons herein.

(1A) The defendants be required to take such steps as the court may direct including to restore the parties to the transactions in the dealings referred to in paragraphs 16 to 21 above to the position in which they were before the transactions were entered into alternatively to order financial compensation or restitution in such sums and to such persons as the court may direct being persons who entered into the transactions in the dealings pleaded in paragraphs 16 to 21.

(2) Further or alternatively, the Defendants do account for the profit gained or loss avoided by the Defendants or any of them or by any persons on their behalf as trustee or agent as a result of the dealings pleaded in paragraphs 1A(1), (2)(a) and (2)(b) of the Re-Re-Re-Amended Originating Summons herein or any part thereof.

(3) The Defendants do pay to the receiver appointed under paragraph 1AD of the Re-Re-Re-Amended Originating Summons herein the amount of profits or loss that it is found that they have gained or avoided...

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  • Securities And Futures Commission v Lu Ruifeng And Others
    • Hong Kong
    • Court of Appeal (Hong Kong)
    • 24 February 2022
    ...SECURITIES AND FUTURES COMMISSION v. LU RUIFENG AND OTHERS CAMP 346/2021 & CACV 50/2022 (Heard together) [2022] HKCA 326 CAMP 346/2021 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL MISCELLANEOUS PROCEEDINGS NO 346 OF 2021 (ON INTENDED APPEAL FROM HCMP 727 ......

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