Lai Chee-ying v. Secretary for Security
Read the full judgment text of HCMP 956/2021 on BabelCite. This High Court CFI judgment was delivered on 17 September 2021.
1. There is before the court an Originating Summons (“OS”) filed by the Plaintiff (“Lai”) against the Defendant (“S for S”) on 7 July 2021. These matters concern a Notice (No l of 2021) (“Notice”) issued by the S for S under s. 3 of Schedule 3 (“Schedule 3”) to the Implementation Rules (“Implementation Rules”) for Art. 43 of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (“NSL”).
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HCMP 956/2021 [2021] HKCFI 2804 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 956 OF 2021 ____________________
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____________________ Before: Hon Anthony Chan J in Chambers Date of Hearing: 15 September 2021 Date of Judgment: 17 September 2021 ________________ JUDGMENT ________________ 1.There is before the court an Originating Summons (“OS”) filed by the Plaintiff (“Lai”) against the Defendant (“S for S”) on 7 July 2021. These matters concern a Notice (No l of 2021) (“Notice”) issued by the S for S under s. 3 of Schedule 3 (“Schedule 3”) to the Implementation Rules (“Implementation Rules”) for Art. 43 of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (“NSL”). 2.In this application, Lai seeks :
Issues 3.With the encouragement of the court, the issues of this application were agreed by the parties at the direction hearing of the OS on 22 July 2021 as follows :
4.It will be seen below that there has been recent development in the affairs of the Company, and Lai has asked for the Licence Application to be adjourned. The S for S does not take issue with the adjournment, but argued that the costs incurred on the Licence Application to date be borne by Lai because he is no longer seeking a blanket licence to exercise the voting rights in relation to the Shares. Background 5.Lai is the holder, directly and indirectly, of 71.2% of the shares in the Company. Lai’s evidence is that the Company is the holding company and the listing vehicle of a group of companies (“Group”). It holds interest in 95 wholly-owned subsidiary companies, which conduct a range of business from publishing and printing to digital content and online games. Lai was the chairman of the board of directors and an executive director of the Company until he resigned with effect from 29 December 2020. 6.Although Lai said that the Company did not and does not carry on any business or operations of its own, he also said that as director of the Company he participated in managing the business and operations of the Company[1]. Probably, like many holding companies the Company was, directly or indirectly, managing the business and operations of the Group. 7.Lai was arrested on 10 August 2020 for an offence of collusion with a foreign country or with external elements to endanger national security, contrary to Art. 29(4) of the NSL. 8.In addition, Lai had been charged with two other NSL related offences, namely, (a) conspiracy to commit collusion with a foreign country or with external elements to endanger national security, contrary to NSL 29(4) and ss. 159A and 159C of the Crimes Ordinance, Cap 200; and (b) conspiracy to do an act or a series of acts tending and intended to pervert the course of public justice, contrary to Common Law and ss. 159A and 159C of the Crimes Ordinance. Under (b) (the 3rd Offence), Lai is alleged to have assisted Li Yu-hin to abscond from bail whilst Li was under investigation for offence(s) under the NSL. 9.Further, Lai is being investigated for one other count of conspiracy to commit collusion with a foreign country or with external elements to endanger national security. 10.Lai has been detained in custody since 2 December 2020, save for 29 to 31 December 2020 when he was released on bail. 11.The Notice, dated 14 May 2021, was issued to Lai and referred to specified properties of his, being properties which the S for S had reasonable grounds to suspect were “offence related property” for the purposes of s. 3 of Schedule 3. 12.The offence related properties included “all shares in [the Company] held by [Lai], and the related physical share certificates registered in the name of [Lai]”. 13.In the Notice, Lai was directed not to, whether directly or indirectly, “deal with” the Shares. Para 2 of the Notice referred to five inclusive ways of how the Shares could be said to have been “dealt with” (“Five Acts”) :
14.In response to the enquiry by the Company’s solicitors whether the Notice prohibited Lai from directly or indirectly exercising his shareholder’s voting rights, the National Security Department (“NSD”) of the Hong Kong Police replied on behalf of the S for S that “dealt with” :
15.By his solicitors’ letter dated 16 June 2021, Lai sought clarification from the S for S over the definition of “dealt with” and, in the alternative, requested for a licence “authorising him to exercise voting rights in relation to the Shares”. No reply was received from the S for S prior to the issuance of the OS on 7 July 2021. 16.On 28 July 2021, the Financial Secretary appointed an investigator to investigate into the affairs of the Company. According to the press release of the Government :
17.S for S’s reply to Lai’s solicitors was eventually given on 27 August 2012. In fairness, the resources of the NSD and their advisors were likely bogged down by the filing of evidence (on 18 August 2021) in opposition to the OS and the preparation for the hearing. It is unnecessary to set out the contents of the reply as it is plain that the parties were (and are) in disagreement. Recent development 18.After the filing of Lai’s reply evidence on 24 August 2021, it came to the notice of the S for S that on 5 September 2021, the Company announced that all 4 of its remaining directors had tendered their resignation (all with effect from 23:59 on 5 September 2021). Company search on the Company’s subsidiaries revealed that there had been recent change of directorship in at least 58 of them, taking effect between 6 and 12 August 2021, but the notices of change of director were all filed with the Companies Registry out of time on 2 September 2021. The same two directors, both giving an address in the USA, became the only members of the board of these subsidiaries. 19.The S for S says that these recent developments are material new circumstances, and would likely have significant impacts on the assessment of risks in respect of the Licence Application. 20.Lai says that he knew not about these developments, which I find surprising giving his controlling shareholding in the Company[2]. However, by reason of the change of circumstances, Lai is no longer seeking a blanket licence to permit him to exercise his voting rights. Instead, he wants a licence for him to exercise such rights to wind up the Company. 21.Having considered the additional evidence and submissions on the recent development, the court expressed the preliminary view that the intended licence application should firstly be made to the S for S. The simple reason being that it is not the function of court, nor is it in a position, to carry out national security risks assessment. If there is disagreement between the parties over a fresh licence application, the court will be in the position to adjudicate on the matter with the benefit of the parties’ evidence and submissions. 22.The S for S expressed agreement with the preliminary view of the court, whereas Lai had chosen to keep his powder dry and asked for the Licence Application to be adjourned. However, he had alluded to the possibility of amending the relief sought in the OS in respect of the Licence Application. Relevant NSL provisions and extrinsic materials 23.The first Article under Chapter I, General Principles, of the NSL stated as follows :
24.The Decision of the National People’s Congress (“NPC”) referred to in NSL 1 was the one dated 28 May 2020 (known as “the 5.28 Decision”). According to the highest court in Hong Kong, “[g]iven the special status of the NSL as a national law applied under Article 18 of the Basic Law … and given the express reference in NSL 1 to that process, regard may properly be had to the Explanations and Decisions made in proceedings of the NPC and the NPC Standing Committee (“NPCSC”) regarding promulgation of the NSL as a law of the HKSAR as extrinsic materials relevant to consideration of the context and purposes of the NSL: HKSAR v Lai Chee Ying [2021] HKCFA 3, [11]. 25.The 5.28 Decision was preceded by an Explanation of a Draft Decision (which subsequently became the 28.5 Decision) presented to the NPC on 22 May 2020. The Explanation began by identifying the concerns of the Central Authorities :
26.The Explanation went on to note that HKSAR’s failure to enact legislation pursuant to Art. 23 of the Basic Law (“BL”) gave rise to the need at the national level to “establish and improve the legal system and enforcement mechanisms for the HKSAR to safeguard national security, and to change its long-term ‘defenceless’ condition in the field of national security”. [see HKSAR v Lai Chee Ying, [12] and [13]] 27.NSL 3 provided that: “… [t]he executive authorities, legislature and judiciary of the [HKSAR] shall effectively prevent, suppress and impose punishment for any act or activity endangering national security in accordance with this Law and other relevant laws.” 28.Under Chapter IV, Jurisdiction, Applicable Law and Procedure, NSL 43 provided :
29.It is reasonably clear from the wordings of NSL 43 that the powers granted thereunder are in addition to those existing at the time when the NSL was made. See also A & B v Commissioner of Police [2021] HKCFI 1801, at [43(1)]. 30.The Implementation Rules were made pursuant to NSL 43 and came into force on 7 July 2020. There is no issue concerning the validity of the Implementation Rules. 31.Mr Wong SC, who appeared with Ms Wong SC, Mr Wong and Ms Leung for Lai, placed emphasis on NSL 4 and NSL 5 which provided for the protection of basic rights of the people of Hong Kong :
Schedule 3 to the Implementation Rules 32.Schedule 3 set out the “Rules Relating to Freezing, Restraint, Confiscation and Forfeiture of Property”. 33.Section 3(1) of Schedule 3 is the focus of this application :
34.There is no dispute that the Shares are “properties”[3]. Further, under s. 1(6) of Schedule 3, “[p]roperty is held by any person if the person holds any interest in it”. 35.“Offence related property” is a central concept under s. 3. It was defined under s. 1(1) of Schedule 3 as follows :
36.Section 4(2) of Schedule 3 governs licence applications to the court :
Principles of construction 37.There is no dispute over the well-established principles of construction. I am happy to modify and adopt the summary provided by Mr Suen SC, who appeared with Ms Cheung and Ms Pang for the S for S : 38.A purposive and contextual approach should be adopted in the construction of a statute. The relevant principles may be summarised as follows :
39.Further guidance on the principles of the purposive approach can be found in the judgment of the Court of Appeal in Comilang Milagros Tecson v Director of Immigration [2018] 2 HKLRD 534 at [66] :
Construction Issue Context and purpose 40.The NSL came to be made at a critical moment in the history of Hong Kong. This place was engulfed in violent protests. Few living in Hong Kong could escape the oppression represented by the street violence. Many did not feel safe to venture around as they used to. There was a genuine fear that if the state of affairs remained unchecked it would spell the end of Hong Kong as this place was known. It was in these circumstances that the Central Authorities acted to protect Hong Kong and plug the legal loophole in the lack of national security law. 41.These matters were reflected in the 22 May 2020 Explanation (see paras 25 and 26 above). The purpose of the NSL was stated explicitly in NSL 1, amongst which were the prevention, suppression and punishment of NSL offences (“Stated Purposes”). 42.Echoing NSL 1, pursuant to NSL 3 the executive, legislature and judiciary are to effectively prevent, suppress and impose punishment for any act or activity endangering national security in accordance with the NSL and other relevant laws. 43.The construction of the relevant provisions of the NSL and Schedule 3 should be made in the context and purpose stated above (see also Tong Ying Kit v Secretary for Justice [2021] HKCA 912, [31]-[34]). NSL 43 and s. 3 of Schedule 3 44.It is plain that NSL 43 covered matters of principle without particularity or definition of terms. The latter were dealt with by the Implementation Rules. 45.Pursuant to NSL 43(3), a property may be subject to different measures taken by the authority, namely, freezing of, applying for restraint order, charging order, confiscation order and forfeiture. 46.The property which may be subject to such actions is one which was (a) used or intended to be used for the commission of offence; or (b) proceeds of crime; or (c) other property relating to the commission of offence. I believe it is implicit that the offence or crime referred to was intended to be NSL offence or crime. 47.It can readily be seen that these measures and the properties targeted were aimed at fulfilling the Stated Purposes. 48.Turning to the specific provisions for the freezing of a property, at the heart of s. 3 of Schedule 3 is the concept of “offence related property” (“ORP”). Under the definition provisions, ORP means (a) the property of a person who commits or attempts to commit or participates in or facilitates the commission of a NSL offence or (b) any property that is intended to be used or was used to finance or otherwise assist the commission of a NSL offence. The freezing power may only be invoked in respect of such a property. 49.As implementation rules, these provisions aimed to put into effect the provisions of NSL 43 and for the Stated Purposes. 50.It is reasonably clear that the provisions for the freezing, restraint, confiscation and forfeiture of property were embodied collective under Schedule 3 because they were related. 51.Under the provisions of s. 9 of Schedule 3, the court must make a confiscation order against a defendant who has benefited from the NSL offence of which he is convicted. The value of the defendant’s proceeds of the NSL offence as assessed by the court would be the amount to be recovered from him under the confiscation order. Such an order is to be treated as a judgment debt (see s. 9(4)-(6) and (11)). 52.Under s. 13 of Schedule 3, the court may make a forfeiture order against an ORP. In simple terms, where the property in question represents any proceeds arising from a NSL offence or is intended to be used to finance or otherwise assist the commission of a NSL offence or was so used, it may be made the subject of a forfeiture order. 53.A notice to freeze a property is not an end in itself. It has an initial validity not exceeding 2 years (s. 3(3)), unless an application for, eg, a confiscation order is pending. An extension of the validity of the notice must not be granted by the court unless the investigation of the NSL offence to which the notice relates could not reasonably have been completed before its expiry. An extension must not exceed the time reasonably necessary for the conduct of the investigation (s. 3(4)). 54.It is reasonably clear from the provisions of s. 3, read with the other provisions of Schedule 3, especially ss. 9 and 13, that one of the purposes of a freezing notice is to preserve the property in question so that a confiscation or forfeiture order may be obtained in the future. 55.In addition, I accept Mr Suen’s submissions (which are supported by the reading of the relevant provisions and common sense) that a freezing notice may also serve the purposes of :
“Deal with” 56.In respect of the restriction imposed by prohibiting, directly or indirectly, the dealing with a property subject to a freezing order, it can be seen that the provisions of s. 3 were drafted in wide and embracing terms :
NSL 4 and 5 57.In respect of Mr Wong’s reliance on NSL 4 and 5, there is guidance provided by the CFA in HKSAR v Lai Chee Ying, which concerned Lai’s bail application :
58.Mr Wong submitted that Lai’s right to property, namely, the Shares and, inter alia, the voting rights thereunder is constitutionally protected by BL 6[6] and BL 105[7] and preserved by the NSL. It is therefore a principle which must be given real and substantial weight in the interpretation of the NSL. Voting right 59.I agree with Mr Wong that the voting right of a shareholder in a company is a property right protected by BL 6 and BL 105. The Shares are, in law, a bundle of intangible rights against the company which had issued them, and the right to vote at the general meetings of the company is an important part of that bundle (see Re CA Pacific Finance Ltd [1999] 2 HKLRD 1 at 18D, per Yuen J (as she then was)). 60.However, there is no escape that a freezing notice restricts the free exercise of the rights represented by the Shares. Protection of property right is not absolute. I fail to see why under the NSL freezing regime the right to vote should somehow be carved out or treated differently. If the Shares are frozen by the Notice, it makes little sense for the prohibition not to apply to an important right attached to the same. 61.There is a degree of imprecision in the phrase “deal with”, but I do not see that as a sound reason to exclude the exercise of voting right from dealing with the Shares. Should the right to receive dividends be excluded due to the imprecision? With the best will in the world, it is doubtful whether a form of words (better than “deal with”) can be devised which would achieve the purposes of the freezing regime with precision and without prolixity. 62.It must not be overlooked that there exists an avenue for Lai to apply for a licence to exercise his voting right if he takes the view that such action will have no adverse bearing on national security. If the S for S disagrees with him, Lai can go before the court for adjudication. 63.The existence of the licence exception provides a balance between the Stated Purposes and the protection of property right. It also mitigates the imprecision of the phrase “deal with”. There is no reason to read down the provisions of s. 3 to exclude the exercise of voting right. Other arguments of Lai 64.I am unable to accept Mr Wong’s submission that the exercise of voting right by Lai would not possibly impact upon the purposes of the freezing regime adversely. Firstly, in matters of national security and related risk assessment, I agree with Mr Suen that there is a need for the court to give due weight to the views of the enforcement agencies: see Secretary of State for the Home Department v Rehman [2003] 1 AC 153, [26F-G] & [31E-G]; Hysan Development Co Ltd v Town Planning Board (2016) 19 HKCFAR 372, [116] & [117]. The S for S had declined to issue a blanket licence to Lai to exercise his voting right. 65.Secondly, the sweeping submission is undermined by the following events :
66.These transactions involved very substantial assets the disposal of which would likely have impacted on the value of the Company. The court has not been told as to the whereabouts of the proceeds. In his affidavit, Lai said that, with the exception of transaction (1), he was not involved directly or indirectly with those transactions. As for transaction (1), Lai said that he overlooked it. Given that Lai is the controlling shareholder of the Company and that transaction (2) was directly related to him, the court must treat his explanation with a healthy degree of scepticism. 67.At the very least, transaction (1) demonstrates that unrestricted exercise of voting right by Lai may result in depletion of the Company’s assets, which will in turn diminish the value of the Shares which may be subject to a confiscation or forfeiture order in the future. 68.Mr Suen pointed out, rightly, that the Construction Issue does not depend on whether the shares which are frozen are those of a public or private company. He gave an example where the exercise of voting right by a controlling shareholder may endanger national security, namely, such a shareholder may vote to approve the use of the company’s funds to finance a subversive organisation. Another example may be the appointment to the board of the company agents of a country hostile to China. 69.Thirdly, it is not right for the court to have to second guess what or how Lai may exercise his voting right, which may or may not be for legitimate purpose. Mr Suen had referred the court to Mo Yuk Ping v HKSAR (2007) 10 HKCFAR 386, [63] where, in discussing the necessity to have a general offence with greater degree of vagueness than that to be expected in the case of a specific offence directed to a particular situation, the CFA observed that “[i]t has been widely recognized that there is no limit to the ingenuity of fraudsters in engineering novel means of defrauding others. This ingenuity leads to the conclusion that the enactment of specific offences is not an adequate safeguard unless they are accompanied by a general offence”. I see no reason why such dicta should not be borne in mind in the protection of national security. 70.Lai has been charged with serious offences for endangering national security, including the collusion with a foreign country. He is also a man of considerable means. In such circumstances, it would be naive for the court to think that with the management vested in a board of directors which membership included independent non-executive directors, the exercise of voting right by a controlling shareholder would not possibly frustrate or hinder the freezing regime (as submitted by Mr Wong). 71.Although Mr Wong’s submission has been overtaken by the recent resignation of the remaining directors of the Company (that state of affairs may change), the argument was advanced to test the ambit of “deal with”, and to support the ancillary argument that “deal with” should be confined to the Five Acts which would be sufficient for purposes of the freezing regime. 72.I am unable to agree with the ancillary argument. Apart from the reason stated in para 80 below, I have considerable reservation whether the issue of adequacy is one for the court to judge in construing a statutory provision. The function of the court is to decide the meaning of a provision read in light of the context and purpose of the legislation. Adequacy of a provision was primarily a matter for the legislature. 73.Also, I am unable to agree with the submission that if a director acted in breach of the NSL after his appointment by the controlling shareholder, it was the action of the director and not the exercise of voting right which caused the beach. The submission ignores the prevention of NSL offence. 74.Mr Wong also submitted that the freezing regime under s. 3 was copied and adapted from the corresponding regime under the United Nations (Anti-Terrorism Measures) Ordinance, Cap 575 (“UNATMO”). The objectives for enacting UNATMO were to give effect to various international obligations including, inter alia, the freezing of terrorist property. 75.Section 6(12) of UNATMO referred to the Five Acts in an exhaustive definition for “deal with” in the context of the freezing regime thereunder[8]. Mr Wong submitted that there was no legal basis for the S for S to have turned the Five Acts into an inclusive definition. The exhaustive definition in the UNATMO reflects the proper scope and limit of the words “deal with” as a matter of plain and ordinary meaning and which is considered, in the context of anti-terrorism (which has the closest connection with the NSL), to be sufficient. 76.I am inclined to agree with Mr Suen that it is unhelpful to refer to the definition in UNATMO. Firstly, as the Court of Appeal held in Cheermark Investment Ltd v Director of Lands [2018] 1 HKLRD 79 at [40], a definition for a particular statutory purpose does not really help one to determine the meaning of the word one has to construe in a different document, even when they involve the same or a similar expression, as the same word in different documents may take on different meanings because of the textual or factual context. 77.The NSL is a national law with a wider purpose than UNATMO. 78.Secondly, NSL 28 specifically provided that the provisions in Part 3, Terrorist Activities, “shall not affect the prosecution of terrorist offences committed in other forms or the imposition of other measures such as freezing of property in accordance with the laws of the [HKSAR]”. It is therefore palpably clear that the NSL regime was intended to operate as a separate regime. 79.Thirdly, assuming that s. 3 was adopted from s. 6 of UNATMO[9], the definition of “deal with” under s. 6(12) was deliberately left out. This suggests an intention to depart from the restrictive definition in UNATMO. 80.Fourthly, the Five Acts only prohibit a person from disposing of or diminishing the value of the property in question. They would not prevent a person from utilising the property to facilitate the commission of a NSL offence or to carry out acts which may prejudice the investigation of a NSL offence (see para 55 above). Conclusion and Disposition 81.For these reasons, the Construction Issue is answered in the affirmative. It follows that the declaration sought in the OS (see para 2(1) above) should be dismissed. 82.I accede to the adjournment application of Lai and the hearing of the OS is adjourned sine die with liberty to restore. The costs of the OS are reserved. 83.The court had considered the additional evidence adduced by the parties. Therefore, in respect of the Summons of the S for S filed on 9 September 2021, I make an order in terms of para 1. Paragraphs 2 to 4 have been overtaken by events. The costs of the Summons be reserved. 84.As regards Lai’s Summons filed on 13 September 2021, I make an order in terms thereof. 85.I am grateful to both legal teams for their assistance.
Mr Stewart Wong SC, Ms Maggie Wong SC, Mr Albert NB Wong and Ms Lydia Leung, instructed by Robertsons, for the Plaintiff Mr Jenkin Suen SC, Ms Leona Cheung PGC (Ag) and Ms Ellen Pang, instructed by Secretary for Justice, for the Defendant [1] Lai’s 1st affidavit, [23] and [27]. [2] Plainly, Lai’s detention would not bar him from communication. [3] See the definition of “property” under s. 1 of Schedule 3. [4] There is no suggestion by the parties that the Chinese version of “deal with”, ie, “處理” bears a different meaning. [5] No doubt in considering whether to grant a licence, the S for S would consider the relevant circumstances, in particular he would assess the risk to national security, if any, which the proposed action may generate. [6] “The [HKSAR] shall protect the right of private ownership of property in accordance with law.” [7] “The [HKSAR] shall, in accordance with law, protect the right of individual and legal persons to the acquisition, use, disposal and inheritance of property …”. [8] As pointed out by Mr Suen, in no less than 3 criminal legislations, dealing with property was defined in a non-exhaustive manner which included the Five Acts: (a) Organized and Serious Crimes Ordinance, Cap 455; (b) Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405; and (c) Mutual Legal Assistance in Criminal Matters Ordinance, Cap 525. [9] The evidence adduced by the S for S is that the Implementation Rules were formulated having regard to the existing provisions under the Organized and Serious Crimes Ordinance, Cap 455 and the UNATMO. |
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