The "Reasonable Excuse" Defence: High Bar for Non-Compliance with Notices under Section 183 of the Securities and Futures Ordinance

(A) Introduction
 
In Securities and Futures Commission v oOo Securities (HK) Group Limited (formerly known as Orientiert XYZ Securities Ltd and AMTD Global Markets Ltd) and others, HCMP 2027/2023, date of judgment: 6 October 2025, [1]the Securities and Futures Commission (“SFC”) sought a statutory order against the 1^st Defendant (“D1”) under Section 185(1)(a) and (b) of the Securities and Futures Ordinance (Cap.571) (“SFO”) on the ground that D1 failed to comply with notices issued by the SFC under Section 183 of the SFO (“Section 183 Notices”). The Court held that different considerations, burdens and standards of proof apply to Section 185(1)(a) and Section 185(1)(b) of the SFO. By rejecting D1's defences, the Court highlighted the high evidentiary burden for establishing a “reasonable excuse” for non-compliance with Section 183 Notices.
 
(B) Facts
  
Background
 
Between 2018 and 2020, D1 was involved in the initial public offerings (“IPOs”) of several companies (“the Relevant Companies”, including a company called “Company C”) on the Stock Exchange of Hong Kong. [2]
 
Between July 2020 and February 2023, the SFC investigated suspected connections between (a) D1, (b) the Relevant Companies, (c) certain supposedly independent placees in the IPOs, and (d) the issuers/guarantors of investment products subscribed for by the Relevant Companies using the IPO proceeds. [3]
 
The Section 183 Notices and D1's Non-Compliance
 
As part of its investigations, the SFC issued four notices under Section 183 of the SFO requiring the production of records and documents and answers to written questions on 22 July 2021 (“Jul 2021 Notice”), 31 August 2021 (“Aug 2021 Notice”), 2 June 2022 (“Jun 2022 Notice”), and 30 January 2023 (“Jan 2023 Notice”) respectively (collectively, “Relevant Notices”). [4]
 
D1, through its then-solicitors, acknowledged receipt of the Jul 2021, Aug 2021 and Jun 2022 Notices (the “2021/22 Notices”) and provided some responses, which the SFC deemed incomplete. [5] D1 provided no response to the Jan 2023 Notice before the SFC commenced these proceedings. [6]

Procedural History and Main Issue

The proceedings initially commenced by the SFC against D1 and 4 individual defendants (“D2” to “D5”), who are the former directors and/or licensed representatives of D1. The proceedings against D2 to D5 were subsequently resolved as follows: [7]
 
(1) Proceedings against D2 were discontinued by consent on 3 December 2024, after he attended an interview with the Financial Conduct Authority in the UK.

(2) Proceedings against D3 were discontinued by consent on 14 May 2025, following an interview with the SFC.

(3)  Proceedings against D4 were discontinued by a consent order dated 12 August 2024, with no order as to costs, after his interview with the SFC.  

(4) The SFC was unable to effect service on D5 at his last known addresses in Mainland China. Although D5 later attended an SFC interview, the SFC does not seek to proceed against him.
 
As such, the only remaining issue is whether D1 is liable under Section 185(1)(a) and/or Section 185(1)(b) of the SFO. [8]
 
D1’s Defences
 
D1 argued that it had reasonable excuses for non-compliance, citing the following practical difficulties in complying with the Relevant Notices: [9]

(1) Change of Ownership and Management: D1 underwent a complete change in shareholding and management in late December 2022 and early 2023 (“Change of Ownership and Management”). This complete exit of the previous shareholder and management means that the current management was not privy to the dealings with the Relevant Notices, and was unable to verify the accuracy of the SFC’s account of events before December 2022.
 
(2)  The Beijing Incident: A significant portion of D1’s books and records (“Moved Books and Records”) were moved to Beijing between January and August 2023 and were subsequently lost due to the fault of the service provider responsible for storing the Moved Books and Records in Beijing (the “Beijing Incident”).

(3) The Seizure Incident: The SFC seized a significant volume of D1’s books and records during the Seizure Incident on 29 October 2024. D1 argued that the delayed return of these documents (the “Returned Documents”) severely impacted its ability to comply with the Relevant Notices.
 
(C) Legal Framework under Section 185 of SFO
 
The Court outlined the legal framework under Section 185(1) of the SFO, confirming that it needs to consider 3 separate questions, namely: [10]

(1)  whether the defendant has “failed” to do something which he was required to do by an SFC investigator under Section 183;

(2)  whether there is any reasonable excuse for why the defendant should not now comply with the requirement – if the Court is satisfied that there is no reasonable excuse, then it may order the defendant to comply with the requirement in a specified period (Section 185(1)(a)); and

(3)  whether the defendant’s (prior) failure to comply with the requirement was without reasonable excuse – if the Court is satisfied that the defendant had no reasonable excuse, it may punish the defendant as if he had been guilty of contempt (Section 185(1)(b)).

Further, the Court clarified that different legal considerations apply to Section 185(1)(a) and Section 185(1)(b), particularly regarding the burdens and standards of proof: [11]

Section 185(1)(a)

Section 185(1)(b)

(1)  The SFC bears the legal burden to prove, on the balance of probabilities, that the defendant has failed to do something which it was required to do by an SFC investigator under Section 183. (2)  The burden of showing a reasonable excuse is on the defendant. The standard of proof is on the balance of probabilities. (3)  As to reasonable excuse: (a)  The Court will (i) identify the matters said to constitute reasonable excuse, (ii) examine whether the excuse is genuine and (iii) assess whether the excuse is reasonable. (b)  A “reasonable excuse” is given its ordinary meaning and includes any justification a reasonable person would accept for non-compliance. (c)  Physical or practical difficulties in producing documents, or a claim of legal right or privilege, are illustrative examples of potential reasonable excuses. However, reasonable excuse is not confined to these cases. (4)  In exercising its discretion under Section 185(1)(a), the Court will consider what best advances the public interest. An order will be refused only if it would be oppressive to the recipient, which is a high test.

(1)  The SFC bears the legal burden to prove, beyond reasonable doubt, that the defendant has failed to do something which he was required to do by an SFC investigator under Section 183. (2) The SFC should also prove that the documents requested under the relevant notice issued under Section 183 existed and were in the defendant’s possession or under his control at the time of the Section 183 notice. If the documents requested existed and were in the defendant’s possession at the time of the Section 183 notice, but the documents now no longer exist or are no longer in the defendant’s possession or control, unless there is a reasonable excuse, the defendant would still be liable under Section 185(1)(b). (3)  As to “reasonable excuse”, the defendant bears the evidential burden to raise a reasonable excuse by introducing evidence on the matter. Once the matter is raised by evidence, the burden of disproving the matter is on the SFC. At the end, if the Court is of the view that taking all the evidence into account, the matter raised by the defendant is believable (ie the defendant’s case may be true) and would constitute a reasonable excuse if believed, the Court cannot hold the defendant liable under Section 185(1)(b). (4)  Subject to the aforesaid, the matters set out in those concerning Section 185(1)(a) would also be applicable to Section 185(1)(b).

(D) Decision
 
Company C
 
The Court disallowed the SFC from relying on any matters relating to Company C in its application for orders under Section 185(1)(a) or (b) against D1 in these proceedings on the following grounds: [12]

(1) The SFC's 13 October 2022 Letter [13] was a clear and unambiguous commitment not to pursue further action based on the known facts.

(2) By seeking an order under Section 185(1)(a) and/or Section 185(1)(b) against D1 without presenting any different facts or circumstances, the SFC was reneging on that commitment, which the Court found impermissible.
 
Service of the Jan 2023 Notice
 
The Court held that valid service of a Section 183 notice is a prerequisite for a Section 185 order. [14] 

The Court also found that the SFC failed to prove valid service of the Jan 2023 Notice for the following grounds:

(1) Email to a Director: Sending the Jan 2023 Notice via email to William Fung (who was one of D1’s responsible officers and one of D1’s directors at that time) did not constitute valid service on D1. [15] The accompanying “Secrecy Warning” [16] pursuant to Section 378 of the SFO legally prohibited the director from disclosing the notice to others without SFC consent. As there was no evidence such consent was given, the Court could not presume the Jan 2023 Notice was communicated to D1. [17]

(2) The 6 July 2023 Letter: On 6 July 2023, the SFC attempted to give a copy of the Jan 2023 Notice by sending it with a covering letter to D1’s new registered office (the “6.7.2023 Letter”). In the Affirmation of Kwan Hoi Ying Catherine (“Ms. Kwan”) filed on 3 November 2023, [18] Ms. Kwan did not state that she personally went to a post office to send out the 6.7.2023 Letter, or she personally put the letter into a mailbox to send out the letter. Pursuant to Order 38, rule 2(3) and Order 41, rule 5 of the Rules of the High Court, Ms Kwan’s affirmation may contain only such facts as Ms Kwan is able of her personal knowledge to prove. [19]  As such, the Court found her affirmation failed to establish she had personal knowledge of the letter's dispatch [20] and hence the evidence in Ms Kwan’s affirmation concerning the sending out of the 6.7.2023 Letter by post cannot be regarded as admissible evidence in these proceedings. [21]

 
In light of the above, the Court held that the SFC’s application for an order under Section 185(1)(a) and/or Section 185(1)(b) against D1 based upon failure to comply with the Jan 2023 Notice must be refused. [22]
 
Change of Ownership and Management
 
The Court found that although the new management may have no knowledge of the matters or events to which the 2021/22 Notices relate, Section 378 of the SFO was not a barrier to seeking information from the former management as they could ask the direct questions which SFC asked D1 in the 2021/22 Notices. However, the new management never sought such consent from the SFC. As such, the Change of Ownership and Management was not a reasonable excuse. [23]

 
The Beijing Incident and Moved Books and Records
 
The Court found that on a balance of probabilities, some records were moved to Beijing and lost. However, D1 failed to provide sufficient evidence that the lost documents specifically included those requested by the SFC in the outstanding requests in the Relevant Notices. Therefore, the Beijing Incident did not constitute a reasonable excuse for non-compliance. [24]
 
SFC's Application under Section 185(1)(a) of the SFO
 
The Court held that D1 was liable under Section 185(1)(a) of the SFO on the following grounds: [25]

(1) The Change of Ownership and Management as well as the Beijing Incident were not a reasonable excuse.

(2) The SFC had returned the seized documents to D1, and the requested documents were, on the balance of probabilities, in D1's possession.
 
SFC's Application under Section 185(1)(b) of the SFO
 
The Court held that D1 was liable under Section 185(1)(b) of the SFO on the following grounds: [26]
 
(1) The Court was satisfied beyond reasonable doubt that D1 had not fully complied with the requests in the 2021/22 Notices and that at the time of the 2021/22 Notices, the documents requested by the SFC in the 2021/22 Notices existed and were in D1’s possession, as the Moved Books and Records were only carried to Beijing in 2023.

(2) The Court found that D1 had no reasonable excuse for not complying with the 2021/22 Notices before the Seizure Incident as the Change of Ownership and Management, the Beijing Incident and the Seizure Incident occurred after the deadlines for the 2021/22 Notices had passed.
 
(E) Key Takeaways
 
In conclusion, this case provides the following key guidelines for applications under Section 185(1)(a) and (b) of the SFO:

(1) Strict Service Requirements: For the Court to make an order under Section 185 of the SFO for non-compliance with a Section 183 notice, the SFC must prove that a Section 183 notice was validly served on the recipient. For service by post, SFC must file an affirmation of service, which demonstrates the deponent’s personal knowledge, in particular, explicitly stating that the deponent personally went to a post office to send out a Section 183 notice and/or letter enclosing the Section 183 notice, or he personally put the letter into a mailbox to send out the said document(s).

(2) “No Further Action” Statements: If the SFC formally informs a party that it will take "no further action" on a specific matter, it cannot later use that same matter as a basis for enforcement action unless different facts or circumstances have subsequently come to light.

(3) “Reasonable Excuse” is a High Bar: Practical difficulties, such as a change in management or loss of records, may be raised as a "reasonable excuse". However, the Court will examine whether such excuse is genuine and reasonable. 

(4) Different Burdens and Standards of Proof: The burdens and standards of proof for Section 185(1)(a) and (b) of the SFO are different:

(a) Section 185(1)(a): The SFC must prove, on the balance of probabilities, that the defendant has failed to do something which it was required to do by an SFC investigator under Section 183. The burden then shifts to the defendant to prove a reasonable excuse, also on the balance of probabilities.

(b) Section 185(1)(b): The SFC must prove all elements, including the absence of a reasonable excuse, beyond a reasonable doubt. The defendant only bears an evidential burden to raise a reasonable excuse, after which the SFC must disprove it.
 
 

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[1] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=172932

[2] Securities and Futures Commission v oOo Securities (HK) Group Limited (formerly known as Orientiert XYZ Securities Ltd and AMTD Global Markets Ltd) and others, HCMP 2027/2023, date of judgment: 6 October 2025, §6

[3] Ibid, §7

[4] Ibid, §8

[5] Ibid, §9

[6] Ibid, §12

[7] Ibid, §2

[8] Ibid, §3

[9] Ibid, §29-35

[10] Ibid, §19

[11] Ibid, §20-22

[12] Ibid, §40-42

[13] In the 13.10.2022 Letter, the SFC said: “We write to inform you that [the investigation concerning Company C] has been recently concluded and [the SFC] does not propose to take any further action against you about this matter on the information now known to it. This letter is not intended nor should it be construed as a bar to any enforcement action by the SFC in the future if different facts or circumstances come to the SFC’s attention.” (Emphasis added)

[14] Ibid, §49

[15] Ibid, §51

[16]  In the letter from the SFC to D1 dated 30 January 2023, the SFC said: “You are a person assisting [the SFC] in the performance of its functions. Section 378 of the Ordinance imposes obligations of secrecy upon you. You must not disclose anything about this investigation to anyone. It is a criminal offence to fail to comply with section 378.” (“the Secrecy Warning”)

[17] Ibid, §53

[18] “19. Despite being duly served with the 30 Jan Notice by email to its responsible officer, [D1] never responded to [the SFC]. On 6 July 2023, I issued a letter to [D1] addressed to its board of directors, sent by post, to [the Lippo Centre Office]. ……20. …… The letter was not returned to [the SFC] as being undelivered. ……” (Emphasis added)

[19] Ibid, §56

[20] Ibid, §55

[21] Ibid, §57

[22] Ibid, §61

[23] Ibid, §66

[24] Ibid, §78

[25] Ibid, §81-86

[26] Ibid, §89-93