HKSAR v. Sin Law Yuk Lin, Agnes and Another
Read the full judgment text of CACC 17/2001 on BabelCite. This Court of Appeal judgment was delivered on 27 March 2002.
1. I have had the advantage of reading the draft judgments of Mayo VP and Stock JA. I agree with the conclusion they have reached. I would also give leave to appeal but, having treated the hearing as the appeal, I would dismiss the appeal, having applied the proviso, for the same reasons as those given by Stock JA, pursuant to section 83(1) of the Criminal Procedure Ordinance, Cap. 221.
Cites 5 cases
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CACC000017/2001 CACC 17/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CRIMINAL APPEAL NO. 17 OF 2001 (ON APPEAL FROM DCCC 903 OF 2000) ________________
________________ Coram: Hon Stuart-Moore VP, Mayo VP and Stock JA in Court Date of Hearing: 28 August 2001, 8-9 January 2002 Date of Judgment: 27 March 2002 _______________ J U D G M E N T _______________ Hon Stuart-Moore VP: 1.I have had the advantage of reading the draft judgments of Mayo VP and Stock JA. I agree with the conclusion they have reached. I would also give leave to appeal but, having treated the hearing as the appeal, I would dismiss the appeal, having applied the proviso, for the same reasons as those given by Stock JA, pursuant to section 83(1) of the Criminal Procedure Ordinance, Cap. 221. Hon Mayo VP: 2.After a trial in the District Court before H.H. Judge Pang the 1st applicant was convicted of the offence of being an agent and using a document with intent to deceive her principal contrary to s. 9(3) and s. 12(1) of the Prevention of Bribery Ordinance, Cap. 201. The 2nd applicant was convicted of aiding, abetting, counselling and procuring this offence. 3.Particulars of the 1st charge were:
4.Particulars of the 2nd charge were framed in a similar manner save that the 2nd applicant was charged with aiding, abetting, counselling and procuring the offence. 5.Both applicants seek leave to appeal against their convictions. 6.The applicants are and were at the time of the offences husband and wife. The 1st applicant, the wife, was a Chief Assessor of the Inland Revenue Department at the relevant time. She was subsequently promoted and acted as the Commissioner of the Inland Revenue Department. The 2nd applicant, the husband, is an engineer. At the time of the trial he was a Senior Engineer in the Civil Engineering Department of the Government. 7.This case concerns a Government scheme to pay Government servants of a stated seniority what is described as a Private Tenancy Allowance ("PTA"). Conditions are attached to the payment of PTA. One of them is that the Government servant who is applying to receive PTA has to make a declaration that the property which is being leased is not owned by any member of his or his wife's family and that they have no financial interest in it. If the Government servant or members of his or his wife's family do own the property or have a financial interest in it the PTA is not payable. 8.It is the Declaration that the 1st applicant made when she applied for a PTA in June 1983 which is the document referred to in the particulars of the charges. 9.It is the 2nd applicant's involvement in the scheme which will be referred to which is the subject of the 2nd charge. 10.The admitted facts run to 14 pages and exhibited to them are 82 documents. The prosecution case is largely based upon these facts. 11.The background to the scheme is that the applicants were close friends of another family Mr and Mrs Fan. Mrs Fan also worked in the Inland Revenue Department and was also eligible for a PTA. In the simplest terms possible, the idea was the families would both purchase flats on the same estate and each would let their flat to the other family, thus circumventing the condition that the recipient of a PTA was not permitted to have a financial interest in the property the subject of the allowance. Had the idea been implemented in this way no offence would have been committed. 12.It is the prosecution's case that the scheme was not implemented in this way as the 2nd applicant had a financial interest in the flat in question. The 2nd applicant purchased a shelf company Takestep from Mr Fan who is and was a chartered accountant. Takestep would be the vehicle which would be used to purchase Flat A on the 11th Floor of Block 7 of Provident Centre, Wharf Road, Hong Kong. 13.Takestep was incorporated on 25 March 1983 and on 20 April 1983 the 2nd applicant was appointed a Director together with the 1st applicant's mother Madam Mak Ngor and her sister-in-law Ms Ip Sau Lan. They remained Directors until after Flat A was sold. 14.On 2 June 1983 the 2nd applicant on behalf of Takestep entered into a Sale and Purchase Agreement for the purchase of Flat A for a consideration of $1,126,200.00. On the same day the shares in Takestep were transferred from the nominee shareholders to Mr and Mrs Fan. 15.On 14 July 1983 the 2nd applicant executed the assignment of the flat to Takestep on behalf of the company and simultaneously with this, the 2nd applicant and Madam Mak executed a mortgage in favour of the Bank of East Asia ("BEA") secured on the flat and entered into a guarantee in favour of BEA for $800,000.00. 16.On 22 July the PTA was approved and the allowance was paid to the 1st applicant from August 1983 to August 1986 after which the flat was sold. 17.During this period the total of the allowances received amounted to $335,650.00 less $73,668.75 which was deducted by the Government as rent. 18.The amount of PTA received was insufficient to fund the mortgage in favour of BEA. This being the case the 2nd applicant made up the difference from his funds. 19.It is pertinent to add that the 2nd applicant provided funds for the deposits payable in relation to Flat A and paid items such as stamp duty and legal expenses albeit that it was contended that he did so as a Director of Takestep. The prosecution accepted that the moneys may have been paid by way of cheques drawn on Takestep's account. 20.Takestep let the premises to the applicants. The tenancy was for two years and was renewed in 1985 thus necessitating a renewal of the application for the PTA at that time. 21.The flat was sold in November 1986 for $1,340,000.00 thus generating for Takestep a profit of $213,800.00. In July 1988 the 2nd applicant, Madam Mak and Ms Ip all resigned as Directors of Takestep. Takestep was not engaged in any business other than its involvement with Flat A. 22.The arrangements made by the Fans were the mirror image of those described above. Mr Fan used a company Rocksona to purchase Flat B, 12th Floor, Block 6, Provident Centre. Likewise the shares in Rocksona were transferred to the applicants before the lease was signed in favour of the Fans. Mr Fan and his nominees remained as Directors. 23.The only other observation which needs to be made is that it is apparent from the company accounts that the purchase prices of the two flats were not the same nor was the amount secured by the respective mortgages. In addition to this, various incidental payments were different and the 2nd applicant received payment of some remuneration as a Director of Takestep whereas Mr Fan was not in respect of his Directorship of Rocksona. 24.Statements were agreed pursuant to s. 65B of the Criminal Procedure Ordinance, Cap. 221 in respect of four witnesses. They were Madam Mak, Ms Ip, Mr Chan an accountant and partner of Mr Fan who acted as a nominee Director of Rocksona and Mr Lo, an employee of Mr Fan, who eventually purchased Rocksona from Mr Fan. 25.According to the testimony of the two ladies, they had no idea what the scheme was all about. They simply acted as instructed by the 2nd applicant. 26.Mr Chan had some knowledge of what was involved. He said that he had acted on Mr Fan's instructions. In particular, Mr Fan had asked him to sign the tenancy agreement. The reason which Mr Fan had given for this was that if Mr Fan himself signed the agreement as landlord, there might be some conflict of interest. He had however subsequently recollected being under the impression that he had been told by Mr Fan that the flat he was occupying was owned by the applicants and vice versa in respect of the flat occupied by the applicants and that Rocksona was owned by Mr Fan. 27.Only two live witnesses were called by the prosecution. The first was Ms Connie Fung who at the relevant time was the officer in the Secretary for the Civil Services Office charged with the responsibility of administering the PTA scheme. Her evidence-in-chief took the form of a statement and she was tendered for cross-examination. 28.It was her evidence that CSR 852(5) had to be strictly complied with. It was an agreed fact that this regulation was as follows:
She said that Civil Servants were generally aware of this. Indeed some had made inquiries concerning their personal circumstances and sought guidance as to whether they were eligible to receive the allowance. She did not remember the 1st applicant or Mrs Fan ever seeking advice from her in this connection. 29.The other witness who gave viva voce evidence was Mr Fan. He testified under an immunity. 30.He gave evidence that his opinion as an outsider had been sought concerning PTA. He had advised his wife on the proposed cross ownership arrangements and he assumed that his wife had passed on his views to the 1st applicant. It was his opinion that there must be monetary gain for there to be any financial interest. 31.He said that the reason why he had remained a Director of Rocksona was to prevent the situation becoming too complicated. The shareholders had been swapped but not the directors. He had paid the deposit on Flat B and had taken care of the mortgage and entered into the guarantee in relation to it. The 2nd applicant had done likewise in respect of Flat A. There had been no monetary exchange in relation to the swap. 32.It was the prosecution case that the 2nd applicant had clearly had a financial interest in Flat A and that there was evidence that when the 1st applicant had signed the Declaration in the application form for the PTA she had intended to deceive the Quartering Officer. The Declaration was as follows:
It will be noted that the wording of the Declaration was not followed in the charge which is set out in para. 2. I do not consider the differences to be material. 33.The prosecution placed reliance on various other items of evidence which indicated an intention on the part of the applicants to conceal what they were doing. This will be considered later in this judgment. 34.It is an agreed fact that when the tenancy was granted to the 1st applicant, Madam Mak executed the tenancy agreement notwithstanding the fact that the 2nd applicant was the signatory on behalf of Takestep in relation to other important documents. When this is considered in conjunction with correspondence which was exchanged between the 1st applicant and the Quartering Officer, the Judge inferred that the 1st applicant was attempting to conceal the true position from the Quartering Officer. In this connection, the 1st applicant clearly was attempting to create an impression that she was conducting negotiations relating to the tenancy at arm's length. 35.It was the prosecution case that the 2nd applicant's contributions to Takestep amounted to $554,496.70 by 31 December 1985. 36.Neither applicant went into the witness box. However, the 2nd applicant made four voluntary statements which were admitted as evidence without any contest. 37.It has to be said that the most striking aspect of these statements is the extent to which the contents of the statements are contradicted by the unchallenged evidence of the prosecution. 38.The Judge deals with these conflicts in his Reasons for Verdict. He deals with these conflicts at p. 34 in this way:
39.However, the main thrust of the defence case was that the applicants genuinely thought that the scheme which had been devised by Mr Fan was a legitimate scheme which had the effect of circumventing the conditions imposed by CSR 852(5) and that they had had no intention of deceiving the Quartering Officer. 40.For the reasons he gave the Judge was satisfied at the appropriate level that the applicants were guilty as charged. GROUNDS OF APPEAL (1) The Judge erred in fact and in law in concluding that the applicants had ownership of and a financial interest in Flat A. 41.According to Mr Zervos who represented the respondent the financial interest at 30 June 1980 referred to in the charges was the 2nd applicant's interest in the sale and purchase agreement relating to Flat A. He contended that it was necessary to have regard to the reality of the situation. 42.Although it was accepted that at the time when the 1st applicant made the Declaration the Fans were the registered shareholders in Takestep the 2nd applicant was a director of the company. The 2nd applicant had paid the requisite deposit and had taken the necessary steps for the purchase to be proceeded with. 43.Mr Zervos also submitted that the fact that the property had not yet been assigned to Takestep at the time the Declaration was made was immaterial. 44.On the conclusion of a sale and purchase agreement the purchaser derives an interest in the property. Mr Zervos' authority for this proposition was a passage on p. 676 of the 6th Edition of Megarry's 'The Law of Real Property' by Charles Harpum, London, Sweet & Maxwell 2000:
45.If regard was to be had to the reality of the situation the 2nd applicant could validly be said to have had an interest in Flat A at the time when the Declaration was made. 46.In this connection it is germane to add that when Mr Fan gave evidence on this topic he also was of the opinion that at the time when the Declaration was made the 2nd applicant was the beneficial owner of Takestep. This is his testimony at p. 106 of the appeal bundle.
47.Mr McCoy SC for the applicants was faced with some difficulty on this ground of appeal. 48.He made a number of submissions on this subject but recognised that having regard to the recent Determination of the Court of Final Appeal in Hau Kam-chor v HKSAR (unreported) being FAMC 15/2001, he faced some difficulty in making them good. 49.He had argued that a director of a company which owns a flat does not have a financial interest in the flat. He also argued that such a director who loans money to the company or who guarantees a mortgage secured on a flat owned by the company does not have a financial interest in the flat. He produced authorities for these propositions. However, these authorities could not be reconciled with Chan PJ's analysis of the law at p. 4 of the Determination in Hau Kam Chor:
50.It is appreciated that at the time when the Declaration was made A2's interest in Flat A was confined to any interest he may have by virtue of payments he himself had made in relation to the sale and purchase agreement or any payments made by Takestep where it could be established that he had a beneficial interest in the company. There was also of course the evidence of what subsequently transpired in relation to the guarantee and the mortgage which are dealt with later in this judgment. 51.Mr McCoy attempted to surmount this difficulty by arguing that the views expressed by Chan PJ were obiter dicta. 52.If the Determination is read as a whole this argument cannot be sustained. It is apparent both from the final paragraph on p. 3 of the Determination and from the conclusion drawn on p. 5 that the Judge's analysis of the law was not obiter dicta. This being the case this Court is bound by the law as stated. It is accordingly necessary to consider this ground on the basis of the Court of Final Appeal's view of the law. 53.There was ample evidence upon which the Judge was fully entitled to conclude that the reality of the matter was that the 2nd applicant had a financial interest in Flat A. 54.Subsequent to the Declaration made by the 1st applicant the 2nd applicant on behalf of Takestep executed the assignment for the purchase of the flat. He also arranged for a mortgage to be secured on the flat and personally together with Madam Mak guaranteed the due performance of the terms of the mortgage. 55.It is submitted by Mr McCoy that the Judge should have confined himself to considering the position as it obtained on 30 June 1983, the date of the charge. 56.At that date Flat A had not yet been assigned to Takestep nor had the mortgage been entered into or the guarantee executed by the 2nd applicant and Madam Mak. 57.All of this is true. However, prior to 30 June 1983 the 2nd applicant had paid the deposit and entered into the Sale and Purchase Agreement for the purchase of Flat A. Adopting the test of the reality of the matter the 2nd applicant undoubtedly had a financial interest in Flat A on 30 June 1983. 58.It also has to be borne in mind that when the Court is considering what inferences can validly be drawn, it is always open to it to have regard to the subsequent conduct of the parties and in this respect it was entirely open to the Judge to have regard to the additional commitments engaged by the 2nd applicant. 59.This ground cannot succeed. (2) Failure to prove all elements in the offence 60.The complaint which is made is that it was never proved that the applicants did both own and have a financial interest in Flat A. It is argued that proof of a financial interest only is not proof of ownership and since ownership was not proved the offence was not made out. 61.This ground is misconceived. Ownership of the flat was not a necessary element of the offence. What the prosecution was required to prove was that the 1st applicant had used a document with intent to deceive her Principal. It was not incumbent on the prosecution to prove that every statement contained in the document was false or untrue. All that had to be proved in this connection was that the document contained a statement which was false and was calculated to deceive the Quartering Officer. The statement which was relied upon by the prosecution was that no member of her family had a financial interest in Flat A. (3) That the Judge failed to properly analyse and apply the evidence of Ms Connie Fung. 62.The first complaint is that the Judge did not consider her evidence that there were no guidelines as to what constituted a "financial interest". 63.This is what the Judge said at p. 35 of the appeal bundle:
64.The second complaint which is made is that the Judge did not consider her evidence that cross leasing was permissible. 65.The answer to this complaint is that it all depends upon what is meant by "cross leasing". As is clear from the passage above cited from the Reasons for Verdict the Judge did not accept that this was a genuine case of cross leasing. 66.The third complaint is that the Judge overlooked her evidence that a company was permitted to own a flat. 67.The answer to this is that he did nothing of the sort. There is nothing in the Reasons for Verdict taken in its proper context to suggest that the Judge was saying that a company was not permitted to own a flat under the scheme. 68.The fourth complaint is that the Judge failed to consider Ms Fung's evidence to the effect that the subsequent amendments to the Regulations were for the purpose of removing ambiguities in the 1983 Regulations. 69.Ms Fung's evidence was that she had no direct knowledge concerning the amendments. There is no merit in this ground. (4) Piercing the corporate veil - a sham 70.It is the applicants' contention that this was not permissible. Mr McCoy makes the point that other than in the case of HKSAR v Leung Yat Ming [1999] 2 HKLRD 402 no other criminal case could be found where this had been permitted. In Leung Yat Ming this Court gave its reasons why if the Court was satisfied that the veil was a cloak for deception it could be lifted. 71.Mr McCoy contended that the test which had been laid down in this case was incorrectly stated. It was far too wide. 72.In the recent case of Trustor AB v Smallbone and Others (No. 2) [2001] 1 WLR 1177, Sir Andrew Morritt VC considered the circumstances when it was permissible to lift the corporate veil. He had this to say at p. 1184:
However, these observations need to be considered in the context of the passage appearing at the end of p. 1185:
73.For what it is worth it would appear that in the circumstances of the present case the Judge was entitled to pierce the corporate veil. 74.The reason for qualifying this in this manner is that it would not appear to be a matter of critical importance whether the corporate veil is pierced. 75.It would be if it was necessary for the prosecution to prove that the applicants were in fact the owners of Flat A. For the reasons given earlier in this judgment, it would not appear to be necessary as all that was required of the prosecution was to establish that the Declaration made by the 1st applicant was deceptive in one material way. This was the statement that no member of her family had a financial interest in the flat. Once this is established there is no longer any need to pierce the veil because once the evidence becomes available it is admissible to prove the offence. 76.This may be the reason why there does not appear to be an abundance of authorities relating to the lifting of the corporate veil in criminal cases. What is of importance in the present case is that the Judge after considering all of the relevant evidence was satisfied at the appropriate level that the scheme which had been devised constituted a sham. There was sufficient evidence available for the Judge to make this finding. 77.In my view this ground of appeal cannot succeed. (5) The Judge failed to deal with all available defences. 78.What needs to be borne in mind in relation to this ground is that neither applicant gave evidence at their trial. Although the 2nd applicant made four cautioned statements the Judge gave his reasons why he rejected much of the evidence contained in the statements. 79.It was however clear that the defence which was being run was that the scheme which had been devised permissibly circumvented the conditions which were imposed in CSR 852(5). Over and above this it had never been the intention of the applicants to mislead anyone concerning what they had done. These were the only defences which the Judge had to consider. This is subject to the observations which are made later in this judgment in relation to Mr McCoy's submissions on the applicability of a claim of right. 80.The Judge gave reasons why he was satisfied on essentially uncontested evidence that the 2nd applicant had a financial interest in Flat A. He also gave reasons why he came to the conclusion that the arrangement was a sham. In the circumstances of this case in my view that was sufficient. (6) Mens rea: Claim of right 81.Mr McCoy submitted that the scope for a claim of right was broader than appears to have been contemplated by the Judge. There was a useful passage on this at p. 55 of the judgment of White J in the South Australian case of Kastratovic (1985) 19 A Crim R 28:
82.This Court also considered the law on this subject in HKSAR v Chung Chun-lit [2001] 3 HKC 699 and held that there were situations where a claim of right could properly be advanced and be maintained. 83.The contention advanced by Mr McCoy was that the Judge had failed to take cognisance of the low threshold referred to by White J and confined himself to the issue as to whether the conduct of the applicants had been deceptive. The Judge had not gone on to consider whether the applicants had had an honest belief in the scheme however unreasonable this may have been. 84.The first point which has to be made is that there was no credible evidence from the applicants that they had had a belief that the scheme as described by Mr Fan would have circumvented the prohibition contained in CSR 852(5) or that it had been properly implemented. 85.It needs to be borne in mind that the 1st applicant has qualifications in the field of Accountancy and it is reasonable to assume from the senior position she was holding in the Inland Revenue Department that she would herself be able to exercise a measure of judgment concerning the efficacy of the scheme. 86.It is then necessary to have regard to the surrounding circumstances when the Declaration was made. 87.Almost exactly contemporaneously her husband had paid a deposit and entered into a sale and purchase agreement for the purchase of the very flat which was to be the subject of the PTA. There was also the evidence of Mr Fan to the effect that in his opinion the 2nd applicant was the beneficial owner of Takestep. 88.In addition to this Mr Fan gave evidence to the effect that the applicants were aware that if they were in fact the owners of Flat A the scheme would not be a valid one. At p. 62 of the appeal bundle Mr Fan gives this evidence:
89.There was also the evidence relating to the funding of the respective mortgages which had been obtained to finance the purchases of the respective flats at p. 66 of the bundle:
90.Having regard to the fact that this was one composite scheme it would appear to be unlikely that either of the applicants could have had honest belief that the scheme as it was implemented could have been a valid one such as to circumvent the provisions contained in CSB 852(5). 91.It is accepted that no submissions were made to the Judge on the question of a claim of right. Even if they had been they would have had no prospect whatever of success. 92.In my opinion this ground must fail. Ground 7 Breach of the rule in Browne v Dunn Ground 7A Judge's own theory - non disclosure to parties Ground 8 Chan's evidence - Judge misuses and misunderstands 93.Grounds 7, 7A and 8 all concern the way in which the Judge dealt with the evidence of Mr Chan and Mr Fan and the conclusions which he drew from this evidence. 94.What has to be said immediately is that Mr Chan's evidence was admitted in accordance with an agreement struck between the parties pursuant to the provisions contained in s. 65B of the Criminal Procedure Ordinance Cap. 221. It is common ground that this evidence was admitted prior to Mr Fan giving evidence and that no objections were raised in connection with the statement and no request was made to cross-examine Mr Chan. 95.The problem which is complained of is that the Judge preferred the evidence of Mr Chan to that of Mr Fan in some respects. In particular he accepted Mr Chan's evidence that Mr Fan had requested him to sign the lease on behalf of Rocksona to the Fans and that the reason for him doing so was to avoid any "conflict of interest". 96.Question 6 in Mr Chan's statement was:
97.Earlier in the statement question 4 and its answer had been as follows:
98.In his Reasons for Verdict the Judge had referred to question 6 but not to question 4. 99.He had then gone on to surmise that Mr Fan's evidence had been called in question by Mr Chan's and that he had preferred the evidence of Mr Chan. 100.It will be appreciated that Mr Fan's position was somewhat equivocal. As stated earlier he was testifying under an immunity. The importance of his evidence to the prosecution was that he was able to give evidence which provided a background to the voluminous documents which had been agreed and in relation to the numerous agreed facts. 101.This was how the Judge dealt with the matter in his Reasons for Verdict at p. 35 of the appeal bundle:
102.The complaint which is made in Ground 7 is that there was a breach of the rule in Browne v Dunn. 103.The rule in this case can simply be put that it is incumbent upon a counsel who is cross-examining a witness to put to him his client's case. 104.The complaint which is being made in this ground is that the prosecutor should have put to Mr Fan any discrepancies which arose out of the evidence of Mr Chan his partner, who assumed the role of a nominee Director of Rocksona. 105.This ground is misconceived. The prosecutor was not cross-examining Mr Fan. He was examining him in-chief. There was no obligation imposed upon him to put any contrary case to him. 106.It is often the case that prosecution witnesses will give conflicting evidence in a criminal trial. It is then for the jury or in this case the Judge, to make what they can of the conflicting evidence R v Oscar Lai Kar-to and Anor CACC 229/1992. 107.Ground 7A which is an alternative to Ground 7 and Ground 8 are as follows:
108.In my view, these grounds cannot be made good for a number of reasons. 109.The first is that at the conclusion of his Reasons for Verdict the Judge makes it abundantly clear that he would have found the case proven against the applicants notwithstanding Mr Chan's evidence. 110.The Judge also gave a number of compelling reasons why he found that the applicants' conduct had been deceptive and that they had not had an honest belief that the scheme was a valid one. 111.There were a number of indications that it was not. For example, the Judge considered that it was significant that the correspondence exchanged with the Quartering Officer when renewing the lease had deliberately been designed to deceive him. It gave the impression that the applicant was conducting negotiations at arm's length with an independent landlord. 112.Then there is the question of the signing of the original leases. It was significant that when the respective companies were signing the leases as landlords in both cases the signatories for the companies were people with different names. The Judge was entitled to conclude that this was a deliberate ploy to deceive the Quartering Officer. 113.There is then the evidence concerning the respective company accounts and the differing amounts of the purchase price of the flats and the different amounts secured by the mortgages. 114.In this connection it will be appreciated that there was a significant difference in the amount which was receivable by the respective parties. This was mainly on account of the fact that it had been necessary for the Fans to borrow a larger amount by way of mortgage and this in turn meant that the monthly instalments payable were different. There were also other factors which were referred to in the evidence. 115.Mr McCoy placed reliance upon the independently audited accounts of the companies which referred to the payments out which had been made to the respective parties to support Mr Fan's evidence that the parties had accepted the different amounts. This of course was by no means conclusive of the matter as there would have been nothing to prevent the parties from making the necessary adjustments after the payments had been received. Clearly it would be contrary to human nature to simply accept these differences. 116.The Judge was fully entitled to be sceptical of the evidence given to the effect that the parties agreed to overlook these differences. 117.All of this called in question the bona fides of the applicants and their contention that it was their honest belief that the scheme was a valid one. 118.None of these grounds can in my opinion succeed. Ground 9 119.This is in general terms and complaint is made that the Judge erred in law and in fact. There is no justification in any of the complaints which are made. The Judge gave the most careful attention to all of the evidence and correctly applied the law. 120.I have formed the view that leave should be granted for the appeal to proceed. I have had the advantage of reading in draft Stock JA's judgment and I agree that this is a case where it is appropriate for the proviso to be applied. In my view the appeal should be dismissed. Hon Stock JA: 121.There were two questions for the judge to ask and answer in this case:
122.Before addressing this central issue, I wish to say something on the question of lifting the corporate veil. This in my judgment is a non-issue. There was no question in this case of seeking to place liability in contract or tort on the shareholders of a company; no question of denying the corporate personality of Takestep. The very issue in the case was: who were the true shareholders? The charge might, in its true effect, be said to allege a representation by the Sins that they were not the shareholders whereas in fact they were. If there was evidence that they were the true shareholders, the only question then was whether that evidence was admissible. If the evidence was relevant, it was admissible, and that, so far as this argument is concerned, is that. 123.As to the first question, little attention seems to have been accorded in the District Court judgment to the question of the interest of the parties in the property as at 30 June. It was an important question. The prosecution had chosen to frame the charge as they did and, as that charge was framed, it seems to me that what the prosecution was asserting was that the application for a tenancy allowance was submitted on or about 30 June and that at the date of that submission the representations in it were false. That is what they had to prove. 124.It seems to me doubtful that a guarantee is a financial interest in the property itself, no matter how widely one draws the boundaries of the term "financial interest in the property". In any event, the guarantee was not executed by 30 June. As for the mortgage repayments, assuming that the contributions were made not as loans to the company but directly, in circumstances giving rise to a resulting trust, they too did not begin until after mid-July. So, it seems to me that the only basis upon which it could properly be said that, on the date the representation was made, the applicants had a financial interest in flat A would be if it were shown that the Fans held the shares in Takestep on behalf of the Sins. If that were so, then, given that by 30 June Takestep had an equitable interest in the property by reason of the sale and purchase agreements already concluded, the shareholders had, at that date, a financial interest in that property. This is, in essence, what the judge found (see 31F: "It rather suggests that the tenants were the genuine owners"; at page 35L "... if the whole thing was a sham as alleged then D2 was really paying for his own flat ...."; and his ultimate conclusion that the whole thing was a sham.). The judge decided that by April 1983 there was in place a scheme by which it was accepted by all four parties that the proceeds would be disposed of according to the occupancy of the respective flats (see page 39P-S). I am satisfied that if this was properly proved to be the case, namely, that the tenants were the shareholders in reality, and that it was understood that the registered shareholders were holding the shares on behalf of the tenants, then financial interest in the property was established. 125.That would not be the end of the matter. It had still, in that event, to be proved that the applicants believed in June 1983, that they had a financial interest in the flat A. 126.So, was the judge entitled to find that the whole thing was a sham; that the Fans were holding the shares for the Sins; and that the Sins did not believe it to be true when they said to the authorities that neither applicant had a financial interest in flat A? 127.The defence case was clear enough from the evidence of Mr Fan, and from the statements made by the second applicant. It was this: that, whether correctly or not, they had a belief in the entitlement in the circumstances arranged by them on paper - that is, where the company owns the property and they hold, on paper, no shares in the company - to the private tenancy allowance. It is clear enough that a number of the parties involved were professionally attuned, or thought themselves to be attuned, to matters financial and, in the case of Mr Fan specifically, to accountancy. Accountants, like lawyers, regularly engage in advice, whether for their clients or themselves, by which they seek to devise entirely lawful schemes to avoid, rather than evade, liabilities, or by which they seek to gain advantages which, but for a scheme, would not be available. Accountants, like lawyers, may sometimes advise incorrectly in relation to such a scheme; but incorrect advice, without more, is not dishonest. Moreover, to the extent that a client relies on the advice given to him by a professional person, whether that professional person is or is not a friend, the client might more readily be heard to say that he, the client, has not acted dishonestly - unless of course it be shown that he and the professional adviser were acting in dishonest collusion; or unless the client has misled the adviser; or unless the client is aware that the advice must be faulty. All this is relevant to the present case, because the 1st applicant was herself a tax expert and therefore might be expected to be versed in financial and accounting matters, and Mr Fan was himself a professional and practicing accountant. 128.So the question which the court had to address was this: Did the applicants (and each had to be addressed separately) believe, or may they have believed, that - whatever ultimate personal inter-reckoning there might be if and when the properties were sold - nonetheless, as a matter of law, the properties belonged only to the companies and, possibly, through the companies to the registered shareholders; that as a matter of law or right the financial interest therefore reposed only in the companies and, perhaps, in the registered shareholders; and that accordingly they could properly say that they had no financial interest in Flat A. Was it possible that their minds were concentrated for the purpose of entitlement upon what we understand to be a legal interest (as opposed to some equitable interest - a concept of which they may or may not have been aware)? 129.If they genuinely believed that, by virtue of this arrangement, they had no "financial interest", as they thought, rightly or wrongly, that that term was understood or defined, there could have been no intent to deceive as to their entitlement to the allowance. Before taking the important step or attaching criminality to conduct, the courts recognize that there are those who might engage in schemes that they think are clever, legitimately to avoid a liability and that, although the scheme may not in the event be clever at all, and might not in fact be effective to avoid the liability, the originator of the scheme, and those who have accepted his advice and acted upon it, might nonetheless not have acted with criminal intent. This was the key question which the judge had to and did address. 130.What concerns me in this case is that this was one of the routes by which he came to his conclusion, albeit as we shall see, not the only route. 131.The prosecution called Mr Fan to testify. It is true that the court was not obliged to accept or reject his evidence as a whole. It could accept some of his evidence and reject other parts. That is trite. But his evidence was very important for the applicants, for they relied heavily on the fact that he was an accountant to whom they had turned for advice; and who had advised them that if they organized the acquisition of flat A in a particular way, then no breach of the regulations would be effected. Mr Fan explained that there was devised a scheme - deliberately so; and he explained that he genuinely thought it to be acceptable. Neither he nor the Sins would have dreamt of effecting a dishonest plan. Cross-leasing was well recognized as legitimate, and was a common practice. The scheme he devised was, he thought, a form of cross-leasing. 132.The matter was decided in this way: not only was the judge not prepared to accept his evidence in so far as it may have assisted the applicants, but he made a positive finding that Mr Fan did not believe the scheme to be a legitimate one. He held that there was cogent evidence that Mr Fan did not have a clear conscience. He then transposed that finding to the applicants. In other words, because he found as a fact, based on a specific piece of evidence to which I shall shortly turn, that Mr Fan did not have a clear conscience about the scheme, it followed that the applicants also could not have had a clear conscience about it. He said so in terms: "... the rejection of any innocent belief on his part must mean the rejection of the same to the others." (page 37H-I). Therefore, when the application for the allowance was submitted, they, the applicants, knowingly made a false representation. 133.It therefore becomes important to examine the evidence which the judge said (see page 36I; page 36R; and 36F, in particular) showed that Mr Fan did not have a clear conscience. 134.Evidence heavily relied upon by the judge was a written statement made by a Mr Chan on 26 July 2000, that is, 17 years after the events to which the statement speaks. It was made by Mr Chan, who was at all material times the accountant partner of Mr Fan. The statement came before the trial court as evidence under section 65B of the Criminal Evidence Ordinance, Cap 221. The statement traversed a number of matters. He said, for example (and each emphasis is mine), that "as far as I remember Rocksona was owned by Mr Fan..." He spoke of Fan's intention to buy a flat. "As to who the shareholder of Rocksona was, I am under the impression that Fan Sai Yee wholly owned it." He spoke of the invitation to him to become a director. As for the purchase of Flat B "I am under the impression that Fan Sai Yee purchased the ... flat in the name of Rocksona for personal occupation. In respect of the details of the process and mortgage for the purchase ... my impression is very vague and I cannot recall the details." He then addressed the question of the tenancy agreement and that Mrs Fan was the tenant and that he, Chan, signed the agreement on behalf of Rocksona. After Mr Chan had completed the narrative, the investigating officer asked him a number of questions each of which is recorded. In question 3 he was asked about the accounts of Rocksona and again he spoke of impressions. Two questions and their answers are of particular significance:
It is here important to pause and note that had it not been for Chan at that point in the interview seeing the documents, his answer that Fan alone was the shareholder would have stood unchallenged save by documents available to the court, which documents showed his memory to be faulty.
135.It is the answer to question 6 to which the judge has given great prominence. What he has done is to use that answer as signifying an admission by Fan that he, Fan, knew full well that what he was doing in relation to Flat B was unconscionable. What the judge said in this regard should here be rehearsed in full.
136.It is my opinion that the judge's approach to Mr Chan's Answers 4 and 6 was flawed, and materially so.
137.It may well be that had these matters been explored, the judge would have arrived at the same conclusion. But they were not, and in my judgment, in so far as the conviction rests upon the approach to Mr Chan's statement and its impact upon Mr Fan's credibility, the conviction ought not to be supported. 138.The question then is whether there is provided good reason for the conviction, which stands apart from the Chan evidence and the judge's approach to it; and whether the rejection of Fan's credibility is dependent upon the effect, as seen by the judge, of Chan's evidence. I have come to the conclusion that, despite the error in the judge's approach to Chan's evidence, the verdict can safely be supported, and is indeed supported by logical analysis in the reasons for verdict themselves. 139.Towards the close of his reasons for verdict the judge states that: "I have no doubt whatsoever that the whole thing was a sham. This conclusion is independent of the statement of Mr Fan's partner CHAN. In other words, the circumstantial evidence alone is sufficient to prove the offence." This is not a mere sweep-up formula which the judge has tagged on the tail end of the judgment. It is a statement which concludes a lengthy analysis which begins some pages earlier with the words: "I move to the other evidence." 140.The 'other evidence' which the judge rehearses, and the inferences which he draws from it, tells cogently against the applicants, as well as against Mr Fan's credibility. I do not intend to repeat it here. He rejects, and in my judgment for good reason, the suggestion by Mr Fan that the share swap in June was something decided upon a matter of days before the swap's execution. He rejects the explanation of Mr Fan as to why the mortgage arrangements were never in due course varied so as to reflect the beneficial ownership of the properties. The judge refers at some length to the correspondence between the 1st applicant and the Quartering Office which on its face is damning in the 1st applicant's lack of candour. A day after the memorandum for sale for Flat A had been signed by her husband, the 1st applicant was writing to say that she 'may make appropriate arrangements regarding finding a new tenancy'; and the judge categorises the whole memorandum as 'completely artificial', which indeed it is. In the reasons she gave for the proposed but non-located move, there is no hint that she has decided to buy a flat, and has in fact located one, and intends (if her account were true) to enter upon a cross-leasing arrangement. The same approach was maintained in 1985 when she wrote to the same Office seeking renewal of the allowance at a revised rate, and stating that whilst the Commissioner for Rating and Valuation recommended a market rent of $9000 per month she could only reach agreement with the landlord for a rent of $9200. Given that the landlord was a company of which the directors were her husband, her mother and her sister-in-law, this was nonsense. There was a similar memorandum in July 1986 which suggested arms-length negotiation with the landlord about notice to quit. The judge notes the oddity which attaches to the directorships of both companies, namely, that the directors of the companies owning the properties were not the shareholders but close family of the tenants - in the case of the Sins, the husband, the mother and the sister in law of the 1st applicant, a fact, furthermore never disclosed to the Quartering Officer; and that there was self evidently taken a deliberate decision to ensure that the tenancy agreements were not signed by the respective director husbands. The judge goes to the provision by the landlord of personalized items of furniture to the tenants, in other words of the type of furniture which one would expect to be imported not by a landlord but by a tenant. He adds to this growing body of indicia the fact that the Sins funded the mortgage for Flat A in which they were living; and that the balance of the proceeds of sale, once the properties were sold in 1986, were substantially different, noting the inherent unlikelihood of the assertion that the proceeds went to the registered shareholders. And, finally, there is not to be forgotten, as against the 2nd applicant, a significant body of material lies, which his statements quite clearly contain. In this regard the judge has concluded, as he was bound to conclude, that the lies were not told for some innocent reason and could therefore be used in support of the prosecution case. 141.The judge's conclusion from all this is that that no later than mid-April there was a scheme in place by which each family was to treat the flat which they occupied as their own; meaning that the shares in Takestep were held effectively by the Fans for the applicants. That being so, the applicants had a financial interest in flat A. It is clear from the judgment that the judge has addressed the question of a possible belief that they had no such interest because of the way the registered shareholding was arranged, but has rejected it. His finding, independently of those which attach themselves to the statement of Mr Chan, is that the whole scheme was a sham; and implicit in that label is the finding that the applicants had the intent to deceive which is the gravamen of the charges which they faced. I am satisfied that there was a sufficient basis for that finding. In saying this, I should, in passing, state that :
142.In the result, I would give leave to appeal against the convictions but, treating the hearing of the applications as the appeals, I would dismiss the appeals. In so far as it might be said that the error in the judge's approach to the witness statement of Mr Chan, and its impact on the credibility of Mr Fan, was an error of law, thereby bringing into play section 83(1) of the Criminal Procedure Ordinance, I would, for the reasons stated in paragraphs [137] to [140] above, apply the proviso to that section. Hon Stuart-Moore VP: 143.Leave is granted, but by the application of the proviso, the appeal is unanimously dismissed.
Representation: Mr Kevin P. Zervos, SADPP & Mr Alex Lee, SGC of the Department of Justice for the respondent Mr Gerard McCoy, SC & Mr Alexander Stuart King, instructed by Messrs Haldanes for the applicants |
Cases cited in this judgment
Further hearings and rulings under CACC 17/2001