The Court recognizes SFC’s powers to access personal materials not relevant to SFC’s investigation
On Valentine’s day 14th February 2020, the Court of First Instance of the High Court of Hong Kong handed down judgments in support of magistrates issuing search warrants to authorise the Securities and Futures Commission (“SFC”) to search for, seize and remove records and documents. In handing down these judgments, the Court recognizes the SFC’s unfettered powers in the course of execution of search warrants to access to digital devices (e.g. mobile phones, tablets, desktop and notebook computers) and email accounts belonging to the subject under investigation, require production of passwords for such devices and email accounts, and inspect personal or private materials therein which are not even relevant to the SFC’s investigation (see Judgment reported under HCAL 2132, 2133, 2134, 2136 & 2137/2018).
The applicants in their applications for judicial review argued inter alia that the SFC’s decision to seize and retain the digital devices and the section 183(1) notices issued by the SFC were ultra vires the Securities and Futures Ordinance (Cap. 571) (“SFO”) and/or search warrants; and the search warrants issued by magistrates were unlawful and invalid for want of specificity, and unlawful or unconstitutional on the ground that they disproportionately interfered with the applicants’ right to privacy under Article 30 of the Basic Law and/or Article 14 of the Hong Kong Bill of Rights.
In dismissing these applications, the Court held that the right to privacy is not absolute and the applicants’ right to privacy under the Basic Law and/or the Hong Kong Bill of Rights was not interfered with the SFC’s investigation powers.
As the applicants in these actions were represented by leading counsels prudently, succinctly and persuasively arguing in basis of reason with eloquent submissions to the Court for arriving at the present determination, these judicial review judgments are of great value for reference purpose.
Is it quixotic, realistic or fanciful to challenge SFC’s investigation powers
At times, it is said that the SFC has excessively powerful supervisory and investigation powers; the SFC’s decisions and notices are unlawful or unconstitutional, or can be challenged on the basis of ultra vires the SFO and/or search warrants. Some persons aggrieved by the SFC’s decisions and notices are often agitated to seek redress and natural justice by challenging them through making judicial review applications to the Court as the only recourse. Be that as it may, the author of this article considers this litigation path rather rugged and rough, if not impossible.
It is long-drawn-out that the SFC has long-standing extensive and unfettered supervisory and investigation powers, back to the SFO which came in operation since 2003. For instance, a suspect can have the right to remain silent and refuse to answer questions raised by the police or ICAC in the course of criminal investigation. However, the subject under the SFC’s investigation has no right to silence and must provide documents and attend interview as required by the SFC and must answer questions raised by the SFC, failing which the subject under the SFC’s investigation runs the risk of being prosecuted.
According to the experience of the author, it is not uncommon for the SFC to rely upon search warrants to seize and retain the digital devices such as mobile phones, tablets and computer hard disks, and also require production by the subject under investigation of passwords for instantly accessing the information contained in the devices and email accounts in a search operation, regardless of whether such personal or private materials therein are relevant to the SFC’s investigation or not.
If the subject under investigation or his lawyer ventures to challenge to the SFC’s exercise of such powers, this fight might possibly amount to or create an impression of “uncooperative conduct” in the eyes of the SFC. The author considers that this risky attempt should only be made after careful consideration and ripe deliberation of the subject under investigation. If the SFC takes into account in its cooperation assessment pursuant to the “Guidance Note on Cooperation with the SFC” (Version: December 2017) (“Cooperation Guidance Note”) that a challenge of this kind and nature (whether with or without reasonable legal basis) amounts to an “uncooperative conduct with the intent or effect of impeding the SFC’s investigations or enforcement proceedings”, then the SFC might refuse to grant any benefit of cooperating with the SFC under the Cooperation Guidance Note. If this is the case, the subject under investigation would possibly lose a good ground for his mitigation plea.
The subject under the SFC’s investigation must therefore thoroughly understand what constitutes “uncooperative conduct” and all possible effects and consequences of “uncooperative conduct” including losing the benefits of cooperating with the SFC. Paragraph 4.3 of the Cooperation Guidance Note states that “If a person engages in conduct with the intent or effect of impeding our investigations or enforcement proceedings (uncooperative conduct), the SFC may take this into account when considering the appropriate outcome.” Paragraph 4.3 of the Cooperation Guidance Note also provides examples of uncooperative conduct (albeit not an exhaustive list) for reference:-
(a) failing to promptly and fully report a material breach or failing
(b) withholding information relating to a breach or failing
(c) engaging in evasive conduct during the SFC’s investigation
(d) arranging affairs with the intention of unnecessarily prolonging the SFC’s investigation
Up to the date of publishing this article, the SFC’s investigation is still undergoing. It remains unknown whether the subject under investigation challenging to the SFC’s powers by way of judicial review applications would constitute “engaging in evasive conduct during the SFC’s investigation” and/or “arranging affairs with the intention of unnecessarily prolonging the SFC’s investigation” under the Cooperation Guidance Note. Nevertheless, the author suggests that if one considers the SFC’s supervisory and investigation powers excessively wide, one should proactively lobby it with legislative counsellors, the Government and the SFC directly in order to cause the relevant provisions in the SFO to be amended to cut the claws of the SFC appropriately and strike a fine balance to safeguard the right to privacy of the subject under investigation enshrined in the Basic Law and the Hong Kong Bill of Rights.
Extensive supervisory and investigation powers
The SFC has indisputably extensive supervisory and investigation powers under Part VIII of the SFO (see its sections 178 to 192).
Power to supervise intermediaries
Section 180 of the SFO sets out the SFC’s powers to supervise intermediaries and their associated entities, whereby the SFC is empowered to enter the premises of the SFC’s licensed corporation or registered institution, inspect and make copies or otherwise record details of any record or document relating to the business and transactions, etc., conducted by them and their associated entity (as the case may be), and to make inquiries to the intermediary or the associated entity (as the case may be).
Power to require production of records and documents and make inquiries
Division 2 of Part VIII of the SFO stipulates the SFC’s powers to require production of records and documents. Division 3 of Part VIII of the SFO stipulates the SFC’s powers of investigation and to make inquiries.
Section 179(1) of the SFO provides that, in certain specified circumstances, a person authorized by the SFC may give a direction to any person requiring the production, within the time and at the place specified in the direction, of “any record and document” specified in the direction.
Section 182(1) of the SFO provides that, in circumstances specified in sub-paragraphs (a) to (g), the SFC may in writing direct one or more of its employees to investigate any of the matters referred to in those sub-paragraphs.
Section 183(1)(a) of the SFO also provides that the subject under investigation or a person whom the SFC’s investigator has reasonable cause to believe has in his possession any record or document which contain, or which is likely to contain, information relevant to an investigation under section 182 of the SFO, or whom the investigator has reasonable cause to believe otherwise has such information in his possession, shall produce to the investigator, within the time and at the place the investigator reasonably requires in writing, “any record or document” specified by the investigator which is, or may be, relevant to the investigation and which is in his possession.
In the above applications for judicial review, there were heat debates over (a) what constitutes “record and document” as defined in section 1 of Part 1 of the SFO, Part VIII of the SFO, and in the context of search warrants issued by magistrates; (b) whether the digital or electronic devices may contain huge amount of personal and private information; and (c) whether a statutory provision which purportedly authorises a mobile phone to be seized would constitute a very significant intrusion on privacy and thus the provisions must be construed narrowly.
Nevertheless, the Court did not accept these arguments. The Court was satisfied that the SFC did have reasonable cause to believe that the digital devices contained or were likely to contain information relevant to the subject under investigation.
The Court also states that it is trite that the right to privacy is not absolute but may lawfully be restricted provided that the restriction can satisfy the 4-step proportionality test established in Hysan Development Co. Ltd. v. Town Planning Board (2016) 19 HKCFAR 372 (“Hysan”), namely, (i) “legitimate aim”; (ii) “rational connection”; (iii) “no more than reasonably necessary”; and (iv) “fair balance”.
The Court held that the interference with the applicants’ right to privacy occasioned by the SFC’s seizures of the digital devices satisfies the aforesaid 4-step proportionality test established in the Hysan case, and is thus considered lawful and constitutional.
Power to retain and seize digital devices
Since the Court considers that the challenge against the SFC’s decisions to retain the digital devices stands or falls together with the challenge against the SFC’s decisions to seize the digital devices, the Court therefore rejected the applicants’ both challenge against the SFC’s decisions to retain and seize the digital devices.
Whilst, in these applications for judicial review, the Court has not dealt with the possible offences for the subject under investigation failing to provide the SFC with passwords required by the SFC for unlocking the digital devices, it should be carefully noted that a person who, without reasonable excuse, (a) fails to produce any record or document required to be produced under section 183(1)(a); (b) fails to give an explanation or further particulars required under section 183(1)(b); (c) fails to attend before the investigator as required under section 183(1)(c); (d) fails to answer a question raised by the investigator under section 183(1)(c); etc., commits an offence and is liable (i) on conviction on indictment to a fine of $200,000 and to imprisonment for 1 year; or (ii) on summary conviction to a fine at level 5 and to imprisonment for 6 months.
Similarly, for instance, a person, who in purportedly complying with a requirement imposed by the investigator under section 183(1)(a), produces any record or document which is false or misleading in a material particular; etc., also commits an offence and is liable (i) on conviction on indictment to a fine of $1,000,000 and to imprisonment for 2 years; or (ii) on summary conviction to a fine at level 6 and to imprisonment for 6 months.
However, if a person, who “with intent to defraud” in purportedly complying with a requirement imposed by the investigator, produces any record or document which is false or misleading in a material particular; etc., commits a more serious offence and is liable (i) on conviction on indictment to a fine of $1,000,000 and to imprisonment for 7 years; or (ii) on summary conviction to a fine at level 6 and to imprisonment for 6 months.
Power to make application to the Court relating to non-compliance with SFO
Section 185 of the SFO provides that if a person fails to do anything upon being required to do so by an SFC’s investigator under the SFO, the SFC may make an application to the Court of First Instance in respect of the failure, and the Court may inquire into the case and, (a) if the Court is satisfied that there is no reasonable excuse for the person not to comply with the requirement, the Court may order the person to comply with the requirement within the period specified by the Court; and (b) if the Court is satisfied that the failure was without reasonable excuse, the Court may punish the person, and any other person knowingly involved in the failure, in the same manner as if he and, where applicable, that other person had been “guilty of contempt of court”.
Judgments for judicial review of the SFC’s powers
The applicants under these judicial review applications were Mr. Cyril Cheung Ka Ho, Mr. To Hang Ming, Mr. To Lung Sang, Mr. Jacky To Man Choy and Mr. Wan Wai Lun.
As discussed above, these applicants sought to challenge search warrants issued by magistrates on the basis that they were unlawful or invalid for want of specificity, and unlawful or unconstitutional for privacy intrusion contrary to the Basic Law and the Hong Kong Bill of Rights.
In dismissing these applications, the Court does not accept the applicant’s arguments that seizures of the digital devices pursuant to the search warrants, the SFC’s continued retention of the devices and notices issued by the SFC under the SFO for the production of emails or passwords for the devices or email accounts were unlawful, or interfered with their right to privacy under the Basic Law and the Hong Kong Bill of Rights.
The Court maintains that the search warrants plainly authorized digital devices to be seized by the SFC. The Court also held that the words “document” or “record” in the SFO should not be narrowly construed, having regard to the manner in which information and data are nowadays being created, transmitted and stored in digital devices.
The Court reiterates that the right to privacy is not absolute; and seizures and retention by the SFC of the digital devices in its search operation were rationally connected to a legitimate aim; and they were no more than reasonably necessary in the circumstances of the cases in satisfaction of the underlying proportionality test set out in the Hysan case. After all, the Court does not accept that seizures and retention by the SFC of the digital devices would result in an unacceptably harsh burden on the five applicants on the facts of the present cases.
The Court finally held that the SFC is empowered, under the SFO, to require the applicants to provide means of access to email accounts and digital devices which contain, or are likely to contain, information relevant to its investigations even though the email accounts and digital devices would likely also contain other personal or private materials which are not relevant to the SFC’s investigations. The applicants were also ordered to pay the SFC’s legal costs.
Conclusion
In the above premises, it is undeniable that the SFC has extensive supervisory and investigation powers. However, if one considers such extensive SFC’s powers unacceptable, one should lobby it with the legislative counsellors, the Government and the SFC to cause the relevant provisions of the SFO to be appropriately amended, in order to whittle down the scope of the SFC’s supervisory and investigation powers for striking a fine balance to safeguard the right of the subject under investigation to privacy under Article 30 of the Basic Law and/or Article 14 of the Hong Kong Bill of Rights. If one ventures to challenge the SFC’s supervisory and investigation powers by making applications for judicial review, one should bear in mind such risk that the SFC might possibly deem such an attempt to be an uncooperative conduct, resulting in the SFC’s refusal to grant any benefit of cooperating with the SFC under the Cooperation Guidance Note to the detriment of the subject under investigation.
Caution: Nothing herein shall constitute or can be deemed a substitute for specific legal advice. If in doubt please seek independent legal advice.
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