Our trainee solicitor Sharon Chung assisted with this article.
Overview
In early July 2025, the Hong Kong Court of Appeal (CA) dismissed an appeal by Chen Wencan and Su Jiaqi (Applicants) against an order of the Court of First Instance refusing leave to judicial review against the decisions of the Securities and Futures Commission (SFC) to issue restriction notices (RNs) (i.e. notices to impose a prohibition and/or requirement on a licensed corporation’s transactions and dealing of properties), on the basis they were desirable in the interest of the investing public or in the public interest (RN (Public Interest) Regime) (Chen Wencan & Su Jiaqi v Secretary for Justice & The Securities and Futures Commission [2025] HKCA 595; [2023] HKCFI 796).
The Applicants argued that the RN (Public Interest) Regime is an unlawful interference with their constitutional right to use property under the Basic Law.
The challenge is not the first of its kind. In 2022, the Honourable Mr Justice Coleman (who also made the first instance decision of the current case (CFI Decision)) refused leave to judicial review of this Regime in Tam Sze Leung v Secretary for Justice [2022] HKCFI 2330 (Tam Sze Leung (RN)). Citing Tam Sze Leung (RN) with approval, the CA affirmed the CFI Decision and dismissed the appeal.
Background
The Applicants claimed to be seasoned investors in securities. They hold trading accounts in Enlighten Securities Limited (Enlighten) and Futu Securities International (Hong Kong) Limited (Futu), which are both licensed corporations under the Securities and Futures Ordinance (Cap. 571) (SFO). The SFC’s investigations revealed that the Applicants were allegedly involved in large-scale “ramp-and-dump” schemes in respect of shares of two listed companies.
The Applicants’ combined offloading of shares in the “ramp-and-dump” schemes generated proceeds of approximately HK$249 million in total, and the SFC received complaints from a number of individual shareholders, claiming that they suffered financial losses ranging from HK$18,000 to HK$1.5 million.
Suspecting the commission of market misconduct offences, the SFC issued two RNs to Enlighten and Futu under sections 204(1) (regarding notice to restrict entering into transactions) and 205(1) (regarding notice to restrict dealing with properties), on the basis of section 207(e) of the SFO[1], namely where desirable in the interest of the investing public and in the public interest. The Applicants’ assets in the trading accounts were effectively frozen. Under the RNs, Enlighten and Futu were, among other things:
- prohibited from disposing of or dealing with assets in the accounts; and
- required to notify the SFC immediately upon receipt of any instructions to dispose of or deal with any assets in the accounts.
The Applicants sought leave for judicial review. Applying Tam Sze Leung (RN), in which issues were materially the same as those as the current case, Coleman J refused leave.
By the time the CA heard the appeal, 4 years had passed since the initial issuance of the RNs but the SFC had not laid any charges against the Applicants.
CA’s decision
The Applicants appealed on the grounds that the RN (Public Interest) Regime does not satisfy two requirements, namely (1) the “prescribed by law” requirement and (2) the “proportionality” requirement.
The CA is in general agreement with Tam Sze Leung (RN), and held that the Applicants failed to succeed in both grounds. Accordingly the CA dismissed the appeal.
Ground 1: Prescribed by law
The CA considered that the RN (Public Interest) Regime is adequately accessible and has reasonable certainty. This is so despite “public interest” is a broad concept, and the RN (Public Interest) Regime does not have any temporal limit on the duration of the freeze, nor upper limit as to the assets that can be frozen.
In particular, the SFC’s powers to issue RNs are circumscribed by the fact that they can only be exercised for the purpose of the SFC’s statutory functions in furtherance of the statutory objectives (including protection of investors, creditors of the licensed corporation and the public interest), and RNs can only be imposed on licensed corporations.
Whether the SFC’s exercise of power to issue an RN is justified is not determined purely by the SFC’s subjective thinking; the SFC must provide some proper objective basis to justify that its decision is in the interest of the public.
In addition, the CA considered that the following safeguards, when viewed collectively, offer a system of reasonable protection against the abuse of power by the SFC:
- The SFC’s powers to impose, as well as withdraw, substitute or vary RNs are ‘non-delegable’, i.e. such powers can only be exercised by the SFC’s board of directors, the majority of which are non-executive directors independent of the SFC.
- The SFC has an internal periodic review system to consider the progress of the investigations and whether the RNs should be maintained or withdrawn.
- The SFC has to give reasons for their decision to impose, withdraw, substitute or vary an RN.
- RN decisions must be published in the Gazette.
- Any person affected by an RN may apply to the SFC to withdraw, substitute or vary the RN under section 208(1). The SFC must give reasons for refusal to change its decision.
- There is no statutory limit to the number of applications which a person may make for the withdrawal, substitution or variation of a prohibition or requirement.
- Any person aggrieved by the decision of the SFC refusing to withdraw, substitute or vary a prohibition or requirement may apply to the Securities and Futures Appeals Tribunal (SFAT) for a review of the decision.
- Any person dissatisfied with the SFAT’s decision may appeal to the CA.
- SFC’s exercise of powers may be challenged by way of judicial review.
Ground 2: Proportionality
The CA also held that the extent of interference with a person’s right to use property under the RN (Public Interest) Regime is proportionate to the legitimate aims of protecting investors, creditors of the licensed corporation and the public interest.
Of note:
- The right to use property under Articles 6 and 105 of the Basic Law does not concern fundamental rights, nor do they impact on core values such as race or gender as defined under the Hong Kong Bill of Rights. The issuance of RNs is meant to operate as a temporary measure only.
- In light of this, when determining whether the RN (Public Interest) Regime is “no more than necessary” to achieve the above legitimate aims, the CA applied a less stringent standard and specifically considered whether the measure to issue the RNs was manifestly without reasonable foundation (rather than whether the measure was strictly necessary). The CA agreed the RN (Public Interest) Regime is no more than necessary to achieve the legitimate aims, even though there are alternatives which may achieve the legitimate aims (such as the SFC’s right to apply to the Court for interim injunctions under section 213).
- The CA did not consider that the SFC’s powers to issue RNs operated on particular individuals with such oppressive unfairness that it cannot be regarded as a proportionate means of achieving the legitimate aims.
Key takeaways
This is the first time that the CA considered the legality of the RN (Public Interest) Regime. In recent years, the SFC has taken various enforcement actions to combat “ramp-and-dump” schemes and actively alerted the public of the increasing exploitation of social media platforms to deceive investors. The CA’s judgment has further affirmed the position that the SFC has the powers under the SFO to issue RNs which control or restrict the dealing of assets (including securities or funds) held in accounts maintained with licensed corporations – which has a similar effect to freezing such assets. The judgment has also made it clear that the SFC’s powers to issue RNs and apply for interim injunction orders supplement each other, with the SFC being able to choose which route is more appropriate under the particular circumstances of a case.
For individuals and entities whose assets kept with licensed corporations have been frozen for a significant period of time (especially where the SFC has not laid charges), they should consider applying to the SFC for variation of the RNs at suitable junctures (for example, where circumstances have changed since the initial issuance of the RNs, or where there is evidence which suggest the SFC’s original suspicion may well be incorrect). Further, the clarification which the Court of First Instance made in Tam Sze Leung (RN) – that the SFC cannot maintain an RN for as long as it wishes, and that the SFC needs to bear in mind the intrusion and prejudice that may be caused to the relevant parties by maintaining an RN for a long period of time – still applies.
To the extent necessary and where good reasons can be shown, affected individuals and entities should consider bringing an appeal to the SFAT (or even a challenge through judiciary review) against a refusal by the SFC to vary or lift an RN.
[1] Other references to sections are to sections in the SFO.