Andrew Left v Securities & Futures Commission & Market Misconduct Tribunal
A Tale of Expansive Interpretation & Criminal Law in Financial Market Misconduct
In Andrew Left v Securities & Futures Commission & Market Misconduct Tribunal  HKCA 224, the Hong Kong Court of Appeal dismissed an appeal by Mr Andrew Left against the determination of the Market Misconduct Tribunal (“MMT”) on points of law under the Securities and Futures Ordinance (“SFO”).
The judgment provides a useful indication on the court’s expansive reach on questions of MMT jurisdiction and the tests for recklessness and negligence adopted in financial matters.
In June 2012, Mr Left published a report on Evergrande Real Estate Group Limited (“Evergrande”). It alleged that Evergrande was an insolvent company that had “presented fraudulent information to the investing public”. Amongst others, the report alleged that the company was either overstating assets or understating its liabilities, using ‘off balance sheet’ vehicles to under-report debt. In August 2012, the MMT found that Mr Left was culpable of disclosing false or misleading information inducing transactions. The MMT imposed several orders including: a “cold shoulder” order banning him from trading securities in Hong Kong for five years; a ‘cease and desist’ order to refrain from such misconduct; and a disgorgement of profit in the sum of HK$1,596,240.
Grounds of Challenge
The appeal was based on three grounds – that the MMT:
(1) exceeded its jurisdiction;
(2) erred in failing to apply the correct test for recklessness; and
(3) erred with the test of negligence.
Court of Appeal decision
Mr Left argued that procedurally, the Securities and Futures Commission’s (“SFC”) original statement specifying the effective charge against him (required pursuant to Section 252(2) of the SFO), was brought on the basis that the report was false and misleading because Evergrande had not engaged in fraud and was solvent. However, the SFC subsequently clarified its position stating that “the SFC case is limited to the assertion that Mr Left created false or misleading information out of what was publicly known about the corporation at the time”. The SFC statement was not amended, but the MMT decided the matters based on the SFC’s ‘clarified’ stance.
The court ruled that Mr Left had not raised this question in the lower court, and importantly, section 16 of schedule 9 to the SFO, which confines the MMT’s jurisdiction to the charges laid in the SFC’s statement, does not necessarily restrict the MMT’s jurisdiction “only to matters contained in the statement before any amendment”; it is an “enabling provision”.
The court’s expansive interpretation of section 16 indicates that so long as the substance of the charge against the subject of a notice is laid out by the SFC, flexibility will be granted in the MMT’s jurisdiction, even where perhaps, procedurally, the amendment procedure has not been complied with.
Here, it was argued that the criminal law recklessness test (as enunciated in Sin Kam Wah v HKSAR  8 HKCFAR 192) adopted by the MMT was incorrect. The correct test should have been the “indifference test” for fraudulent misrepresentation in civil cases because market misconduct in section 277 of the SFO is not a criminal offence and that there is always an inherent risk that a commentary may turn out to be wrong and therefore the criminal test is unsuitable.
The court recounted development of the test of recklessness adopted, citing the House of Lords decision in R v G & Another  1 AC 1034, which Sin Kam Wah followed. It was acknowledged that the three-question test of recklessness the MMT formulated did incorporate the common law concept of indifferent to the truth.
However, although the Sin Kam Wah test was devised in respect of a culpable state of mind in criminal law, the court cited equivalent market misconduct offences in the SFO relating to criminal offences (false trading, price rigging and disclosure of false or misleading inducing transactions) which also provide for recklessness as a culpable state of mind. The court said “we think it is entirely appropriate that the same test should apply for recklessness in respect of the same prohibited act, whether this be a market misconduct in section 277(1) or a criminal offence in section 298(1)”.
Accordingly, the criminal law test of recklessness was adopted. Whilst the court was not prepared to be drawn on whether the criminal recklessness test was a higher or lower standard to the Sin Kam Wah test, it does indicate, again, a flexible approach, not hesitating to impute criminal tests in respect of non-criminal financial misconduct offences.
Mr Left argued that in finding that he was also negligent, the MMT did not apply the standard of care correctly.
The MMT adopted the following test: “Whether Mr Left exercised the level of care…realistically required of a reasonably prudent person carrying out the function of a market commentator and/or analyst”. As the court summarises at paragraph 63, Mr Left argued that “the correct test of negligence should be that as long as a commentator makes clear his commentary is based on public information and cites those sources, he has exercised reasonable care and contributing commentary to the marketplace is a net positive.” It is an argument for a lower standard of care, “in respect for and protection of the fundamental right of freedom of speech of an unlicensed market commentator.”
The court agreed with the lower court in construing a ‘purposive’ construction to section 277 of the SFO, holding that the statute creates a duty of care on any and all persons who choose to disseminate information likely to impact on the market. The public policy objective to maintain integrity of the markets and to protect the public from false or misleading information necessitates the proportionate limit in the freedom of expression.
Thus, section 277 applies to all persons irrespective of position and standing; the underlying public policy of protecting the markets and investors was fundamental.
This judgment is a useful reminder of the extent to which the courts will go in upholding the integrity of the financial markets. The court was prepared to:
(i) look beyond a procedural defect in the SFC notice to find against Mr Left;
(ii) adopt a criminal law definition to recklessness to a non-criminal offence; and
(iii) cast a wide net in interpreting the duty of care imposed on all those reporting on financial matters.
Andrew Radcliffe QC & Kawsar Zaman
2 Hare Court
 SFC Notice: https://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/doc?refNo=19PR14
 To access the case: https://legalref.judiciary.hk/lrs/common/search/ncn.jsp, search “ HKCA 224”.