Secretary for Justice v. Cai Kang Gang and Another

HCMP 1271/2014

[2021] HKCFI 2159

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1271 OF 2014

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J U D G M E N T

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1.On 14 May 2020, a summons was filed thereby the Intervener applied to vary the Restraint Order[1] made pursuant to section 15 of the Organized and Serious Crimes Ordinance[2] (“the OSCO”). There was no objection from the Secretary for Justice (“the SJ”) for the Intended Intervener, Mr Lin Ken, to be the Intervener.

2.The application for variation of the Order was, however, opposed.

3.Owing to certain matters raised at the first three hearings, the proceedings were adjourned to 13 August 2021. Prior to the adjourned hearing, parties filed further submission. There was also a change of counsel for the Intervener.[3]

4.Submission revealed an apparent shift in the stance. In her submission dated 11 May 2021, Counsel now representing the Intervener, Ms Annie Chan stated that “the intervener is now seeking to discharge or vary the [restraint order]”. In her submission dated 3 June 2021, it was stated that the hearing was for the application for variation of the Order.

5.At the hearing on 13 August 2021, Ms Chan confirmed that the application was for variation of the Order.

A.  THE RESTRAINT ORDER

6.The proceedings originated from a Restraint Order made by Deputy High Court Judge McMahon on 28 May 2014. The Restraint Order (“the RO”) was amended on 30 May 2014 to rectify the name of R2. On 16 July 2014, the amended Restraint Order was ordered to be continued by me (“the Order”).

7.The Order covers two bank accounts held with the Bank of China (“BOC”), namely 01279110202592 which is for Hong Kong dollars and 01279192157676 which is for foreign currencies (“the Account”). The two accounts were held in the name of Respondent 2 (“R2”). R2 was incorporated in Hong Kong on 5 July 2013. Respondent 1 (“R1”) is the only signatory of the accounts. He opened the accounts on 5 August 2013.

8.The RO was made on the basis of alleged activities of money laundering.[4]

9.The case stemmed from an investigation into an investment fraud which SJ alleged to have taken place between July and October 2013 whereby a victim was deceived to remit money to various bank accounts, including the two said accounts.

10.Further investigation revealed that within a few months after it had been incorporated a large number of deposits were made into the said accounts of R2 and it then made mirror-patterned transactions in relation to those monies. It is alleged that R2 had received illegally obtained sums to the total of HK$164,837,230.11 and US$42,401,851.23.[5]

11.At the time the RO was issued, the balance respectively of the accounts was about HK$2.47 million and US$276,000.

12.R1 visited Hong Kong on three occasions between April and August 2013. He last entered Hong Kong on 4 August and left on 5 August. He opened the bank accounts of R2 on the day he left. He has been on the wanted list since 6 December 2013. A warrant of arrest was issued against him on 23 May 2014 for the offence of Money Laundering. It has not been executed as R1 had never returned to Hong Kong.

B.  THE APPLICATION FOR VARIATION

13.The basis of the present application by the Intervener is that the sum had been wrongly deposited into the account. It was not proceeds of illegal activities and the transaction was not for the purpose of money laundering. Indeed, a judgment had been obtained by the Intervener against R2. It is a default judgment obtained on 27 March 2014 in the case HCA 144/2014 for the sum of US$283,988 plus interest and costs. The Intervener was unable to claim the judgment debt in the subsequent Garnishee Proceedings against R2 because the Order was in force. Further, the Intervener also alleged that R2 is no longer in operation. It was struck off pursuant to section 746 of the Companies Ordinance on 10 March 2017. R2 could no longer be sued as it ceased to be a legal entity.

14.It is noted that the civil claim of the Intervener against R2 and the judgment in the proceedings had been made known to the Judge making the RO as this matter was mentioned in the Affirmation in support of the application for the order[6].

C.  ASSERTION OF THE INTERVENER

15.The Intervener’s case presented to this court is that a sum of US$283,988 was remitted into the Account by mistake by his daughter (“the daughter”)[7]. The transaction was meant to be the second part of the repayment of a loan of US$500,000 from the Intervener. The loan comprised two sums: US$23,700 and US$476,300, which the Intervener had transferred to the daughter, for the purpose of helping her to purchase a house in the United States.

16.In the first affirmation the Intervener made in support of this application[8], he stated:

(1)  The daughter borrowed US$500,000 from him to buy a house in California, promising to repay once she sells her old house.

(2)  He paid this loan to the daughter by two bank transactions on 6 September 2013.

(3)  In November 2013, the daughter told him she was ready to repay, he sent her a list of vendor (“vendor list”) of a company incorporated in China and owned by him, Lanzhou Zhenglin Nongken Food Co Ltd (“ZL”), and at the same time asked her not to make any payment but to wait for his further instruction.

(4)  On 26 November 2013, he instructed the daughter to send two payments to repay the loan.

(5)  There was no problem as to the first payment which was of the sum of US$216,012, to a company which I will call the Lotis.

(6)  However, for the second payment, the daughter did not follow his instruction but instead sent the balance of the loan, US$283,988 to R2, which was also a company on the vendor list.[9]

(7)  He did not know this until early December 2013, having known this he started to recoup from R2.

(8)  He contacted R2 through his solicitors for a few times but R2 did not respond.

(9)  He then instructed the Solicitors who sent a demand letter to R2 on 24 December 2013 but R2 did not respond.

(10)  He then started legal action against R2 and obtained a default judgment as mentioned.

(11)  He applied for a Garnishee Order and on 27 June 2014 the Master ordered that the hearing be adjourned until discharge or variation of the RO is obtained.

(12)  Negotiation with the Police for this purpose bears no fruit despite he had provided information as requested and attended interview.

17.He stressed:

(1)  Despite the RO was made against R1 and R2 as they are suspects of money laundering, R2 is not a natural person, it was a corporate vehicle and a separate legal entity though it was controlled by R1 at all material times;

(2)  Criminal investigation against R1 and R2 had started since 2014 but no formal charge has yet been laid against either of them; and

(3)  Even if R1 and R2 are prosecuted and found guilty, he as a judgment creditor against R2 should be allowed to get the money back according to the first in time principle.

18.The Intervener said he had read the affirmation of the daughter and believed what she said therein are true and correct.[10] It is unclear which affirmation the Intervener was referring to. No affirmation of the daughter had been filed by that time.

D.  GROUNDS ADVANCED IN SUPPORT OF THE APPLICATION

19.Ms Annie Lai put forward two main grounds in support of the application:

(1)  there has been a long delay without proceedings being instituted; and

(2)  the fund in question is sufficiently accounted for by the Intervener.

20.For the first ground, Ms Lai made the submission that the long delay has resulted in unfairness to the Intervener, as his claim is hanging in the air for an unduly protracted period of time. She set out a chronology of events[11] and pointed out that the case had been initiated for over six years and yet there is no fruitful investigation. She also pointed out that no confiscation order has been applied for.

21.In addition, she prayed in aid the provision of section 14(1A) of the OSCO.

22.Ms Lai also stressed that there is no suggestion that the Intervener was part of the investment fraud under investigation by the police. She cited SJ v Chan Yin Bing[12] in which Deputy Judge Lugar-Mawson[13] held that there must be a settled intention to commence criminal proceedings and a conditional intention depending on the strength of further evidence to be obtained cannot suffice.[14]

23.The second ground is self-explanatory and Ms Lai made submission on the evidence.

E.  OBJECTION FROM THE SECRETARY FOR JUSTICE

24.Counsel representing the SJ, Mr Douglas Lau, Senior Public Prosecutor (Ag), recognized that the court has discretionary power to vary the RO, and argued that such power should not be exercised in the present case stressing the purpose of a restraint order and that it is doubtful as to whether the claim of the Intervener is genuine and bona fide. He asserted that there are significant inconsistencies between the factual basis relied upon in the legal suit and the basis of the present application.

E1.  The alleged discrepancies / irregularities

25.The matters which the SJ asked the court to take into account may be summarized as follows[15]:

(1)  The factual background of the present application has changed entirely from the basis of the legal suit against R2: whereas the basis of the legal claim was for fund claim pursuant to a rescinded verbal agreement, the basis of the present application was changed to sum to be retrieved on the basis of erroneous transfer of fund;

(2)  A reason put up to account for the erroneous transfer of fund is that R2 was listed in the vendor list but the assertion is not plausible as the Intervener seemed to be saying that the list was in existence in early 2013 but R2 was incorporated only after mid-2013; and

(3)  The account for the relationship between the Intervener and R2 (via ZL, the company of the Intervener) is dubious, or at least unclear, in particular as R2 was said to be on the vendor list and the Intervener had said that there was a verbal agreement between them but he had also stated that he did not know R2, nor R1.

E2.  The assertion of rescinded oral agreement

26.As early as on 24 December 2013, prior to the application for the RO, the Solicitor, then acting for the daughter, wrote to R2, with copy to the Police[16], stating:

“Owing to money paid as deposit on an oral agreement entered between you and our client which has been rescinded, our client therefore demanded refund of the said sum of US$283,985.00 from you but in vain. … we are instructed to demand you … to pay …”.

27.In 2014, a writ of summons was issued against R2 and eventually the default judgment was obtained. It was stated in the writ and its indorsed statement of claim[17] that the basis of the claim was a verbal contract between R2 and the Intervener himself. It was said that the Intervener agreed to pay the sum to R2 upon the latter’s request and the Intervener asked the daughter to transfer the sum into the account of R2. Knowing later that the account of R2 had been frozen, the Intervener demanded R2 to repay the sum but in vain.

28.As the Intervener signed a Statement of Truth stating that “the facts stated in this Statement of Claim are true”, it can hardly be said that the Intervener was not aware of the content of the documents.[18]

E3.  The assertion of erroneous transfer

29.In July 2015, through the Solicitors, the Intervener provided the Police with an informal witness statement[19] in which he mentioned for the first time the erroneous transaction. In this statement he said:

(1)  he did not know Mr Cai of R2;

(2)  he started to manage ZL in early 2013;

(3)  at that time, the list of suppliers was in existence;

(4)  he did provide the daughter with the list of suppliers;

(5)  she erroneously transferred fund from his “old account” (an account he held with the Bank of America, to the account of R2, without ever telling him;

(6)  his company had never done any business or transaction with R2;

(7)  the transferal was made by the daughter by mistake, which he described as “陰錯陽差，鬼使神差” and

(8)  he discovered the mistake only after 10 odd days as he by chance realized the balance in his “old account” has decreased, he at once contacted the daughter. Confirming the mistake, he tried to contact R2 but in vain. Lawyers were then engaged to recover the sum.

E4.  Concern of the Police

30.What asserted by the Intervener in this statement caused the following concerns of the Police:

(1)  the alleged mistaken transfer was thought to be unexplainable; and

(2)  whether the Intervener had had previous business dealings with R2: the Intervener said when he took over ZL, the list of suppliers was in existence, however, he had also said that he started to manage ZL in early 2013 but R2 was only incorporated on 5 July 2013 with its BOC account opened on 5 August 2013.

31.The Intervener and the daughter were therefore asked to explain the relationship between the Respondents and themselves including ZL.

E5.  Subsequent information provided by the Intervener and the daughter

32.On 20 November 2018, the Intervener and the daughter each provided the Police with a witness statement.

33.The Intervener said in his witness statement[20]:

(1)  Around August and September 2013, he lent a loan of US$500,000 to the daughter for her to buy a house;

(2)  The daughter promised to pay back when her old house was sold;

(3)  Around November 2013, the daughter told him that she was prepared to repay the loan;

(4)  He provided the daughter with a list of suppliers and told her to remit a sum of US$216,012 to one of the suppliers, the Lotis, as he had to pay this company for certain goods;

(5)  The daughter did so accordingly;

(6)  He then asked the daughter to transfer the remaining sum to his “old account” by which both of them had been referring to an account held by the Intervener with the Bank of America;

(7)  On the same day, he received an email from the daughter enclosing a file showing documents of transferring of funds;

(8)  He did not pay heed to the details at that time;

(9)  About a week later, he discovered no funds had been transferred into his “old account” and instead funds had been transferred to the account of R2;

(10)  He learnt from the daughter that she had transferred the fund into a wrong account;

(11)  He said he and his company had never had any business transaction with R2, nor did he know Mr Cai[21]; and

(12)  He left ZL briefly between 2010 and 2012, when he returned to resume his role as the Managing Director, the list of suppliers was in existence.

34.The daughter said in her witness statement[22]:

(1)  In the end of 2013, she borrowed a loan of US$500,000 for purchasing a house;

(2)  After having sold her own house, she repaid the loan;

(3)  On the instruction of the Intervener, she transferred a sum of US$216,012 to the Lotis;

(4)  As regards the remaining sum, what the Intervener intended was for her to transfer to his “old account” with the Bank of America;

(5)  She however was mistaken and thought the instruction was to remit the fund to another company;

(6)  The Intervener had provided her before a list of suppliers which set out 7 ‑ 8 companies including Lotis and R2, which were listed next to each other;

(7)  She forgot at exactly what time was the list of suppliers given to her;

(8)  With misunderstanding she remitted the sum to the account of R2;

(9)  She then informed the Intervener of the transactions by email enclosing the transferring documents;

(10)  About a week later, she received a call from the Intervener saying he had not yet received the fund;

(11)  Realizing the mistake, she approached the Bank of America trying to stop the payment but it was too late;

(12)  She had never worked for the Intervener or his company; and

(13)  She mentioned to the lawyers that the fund was for business transaction as she erroneously believed it would make recovery of the fund quicker.

E6.  Further affirmation by the solicitor

35.At the first hearing of these proceedings on 6 July 2020, in the light of the allegation of inconsistencies, the Intervener was directed to file an affirmation in reply.

36.No affirmation was filed by the Intervener by the time as directed. Instead, Mr Shea Ying Fai of the Solicitors, filed an affirmation which he affirmed on 24 July 2020, stating mainly the followings:

(1)  the proceedings against the Respondents have been placed in a stalemate position for a long time, despite the Intervener’s effort in varying the RO;

(2)  there is no dispute that the sum of US$283,988 was originated from the daughter;

(3)  documents to prove the buying of a house in California by the daughter[23] was filed, thus showing the sum of US$283,988 was a transaction for the purpose of returning the sum by the daughter to the Intervener;

(4)  as regards ZL, the Intervener asserted: he has returned to manage the company, he started it in early 2013;

(5)  he was given a list of supplier in or about April 2013;

(6)  the list was updated and revised from time to time;

(7)  one day in early 2013, R2 through R1 made contact with an officer of ZL by the name of 权維明, who approved R2’s information including that of its account be entered into the company supplier list in about August 2013;

(8)  in November 2013, pursuant to an oral contract between ZL (by another manager) and R2, the transfer in question was made;

(9)  it was because the Intervener did not personally deal with R2 that he said in the witness statement to the Police in 2014 that he had not dealt with that company;

(10)  he did give the bank account number of R2 to his daughter for the transfer in question, the only mistake was that he did not intend the money to be transferred to R2 at that juncture;

(11)  it was a genuine mistake in making deposit to the bank account of R2, R2 was mis-identified[24];

(12)  proficiency of the Intervener in English and Cantonese is minimal, he only received primary education in Taiwan and started as a hawker selling street food.

E7.  Further affirmations of and on behalf of the Intervener

37.Prior to the hearing on 13 August 2021, further affirmations were filed by and on behalf of the Intervener.

E8.  Affirmation of the Solicitor

38.The Solicitor filed “affirmations” respectively of the Intervener and the daughter which were at that stage not yet affirmed. Eventually, the affirmations were filed.

E9.  Affirmation of the Intervener

39.The affirmation which the Intervener purportedly affirmed on 27 May 2021 contains the following main points:

(1)  He owned ZL since 1992, the primary business was growing, processing, importing and trading of various nut snacks.

(2)  He had business with Lotis.

(3)  He did not personally know R2, he wrongly provided its account number to the daughter for depositing money to him.

(4)  In September 2013, upon the daughter’s request for a loan to buy property, he arranged two payments totalling US$500,000, the first was of the sum of US$23,700 for a down payment made to Old Republic Title Company, the estate agent. The second was of the sum of US$476,300, to the daughter’s account.

(5)  On 26 November 2013, as the daughter indicated that she was ready to repay the loan, he instructed her through MSN to make transfers in two payments, one was to Lotis, of a sum of US$216,012, to settle certain trade debt. For the other payment, the daughter was supposed to remit the remaining sum of US$283,988 to his account with the Bank of America, she mistakenly transferred the sum to the account of R2.

(6)  For this matter, he came to Hong Kong and assisted in the investigation in August 2017, December 2017, November 2018 and November 2019 and had given two witness statements to the police. He would not dare to submit himself to the jurisdiction if he was a part of the fraudulent scam.

(7)  As regards the judgment he obtained against R2, as it had been struck off from the company registry as a defunct company, he could not restore it in the company registry. Besides, he has to apply to set aside the default judgment before he can make any amendment to the statement of claim. It is neither practicable nor feasible.

E10. Affirmation of the daughter

40.The affirmation which the daughter affirmed on 4 June 2021 and filed on 19 July 2021 contains the following main points:

(1)  She completed university studies in Australia and has been working in California in the field of computer and internet;

(2)  She has never worked in the Intervener’s company nor held any position in it. She has little knowledge about its business;

(3)  She confirmed her loan from the Intervener and the two payments as described by him;

(4)  A copy of the land transaction in relation to the house is enclosed[25];

(5)  In November 2013, she sold her old house and was ready to repay the money, a land transaction record of the sale is enclosed[26];

(6)  The Intervener sent her the vendor list through MSN and told her to wait for his further instruction of payment;

(7)  On 26 November 2013, the Intervener instructed her by MSN to send two payments to repay the loan;

(8)  For the first payment, on 26 November 2013 she sent US$216,012 to the bank account of Lotis, in accordance with the instruction of the Intervener, bank transfer record is enclosed[27];

(9)  On the same day, she also transferred US$283,988 to the Account of R2[28], also for the purpose of repayment of balance of the loan;

(10)  For the last mentioned transfer, she did so under a misunderstanding of the instruction of the Intervener, she thought he wanted her to send two payments to his suppliers in Hong Kong and she found out later that it should be sent to the account of the Intervener instead;

(11)  The mistake was not discovered until December 2013, she tried to contact the bank at once to stop payment to R2 but was told by the bank that it was too late, the transfer had long completed;

(12)  The transfer was made for the purpose of repaying the bridging loan from the Intervener for her to buy a house;

(13)  She has no connection and relationship with R2, she had no reason to send the amount to it, it was only a wrong transfer;

(14)  She had not been informed by the Police of the status of the Order;

(15)  She and the Intervener came to Hong Kong in November 2018 and attended an interview with the Commercial Crime Bureau;

(16)   There was no progress on the part of the Police.

F.  SUBMISSION MADE ON BEHALF OF THE INTERVENER

41.At the first two hearings, the Intervener was represented by another counsel, Mr George Chu. Mr Chu made the following main points in his submission, which was adopted by Ms Lai now representing the Intervener:

(1)  It is indisputable that the Intervener is the judgment creditor against R2 in HCA 144/2014.

(2)  R2 is a defunct company pursuant to section 746 of the Companies Ordinance. It is no longer a legal entity which can be sued.

(3)  There are no ascertainable ordinary creditors of R2.

(4)  The RO was made on the basis of the information provided in the Affirmation of Inspector Yuen, which was, in breach of Order 117, rule 5(3) of the Rules of the High Court[29] (“the RHC”), not served on the Intervener who had been an affected body until 30 June 2020.

(5)  The Intervener shows sufficient nexus being a judgment creditor and there appears to be no other claimant on the dormant accounts of R2 with a balance well above the amount sought by the Intervener.

(6)  Legislative intent of the provisions governing restraint of properties under the OSCO[30] is not to suppress innocent bona fide third party and preventing him from reaping his fruit of litigation due to a restraint order.

(7)  There has been no prosecution against R1 or R2. The Order has been sleeping for over six years, the Department of Justice fails to inform the Court about the lack of progress. Pursuant to the provisions in the OSCO, in particular section 14(1B)(c) which provides that restraint order may extend but in any case should not last for more than six months for the purpose of investigation.[31]

(8)  If the Order is not to be discharged, it has to be varied for the sake of the Intervener.

42.Ms Lai made the following additional points in her submission:

(1)  Immediately after the Intervener discovered the mistake, he asked his daughter on 24 December 2013 to recover the sum from R2;

(2)  The Intervener and the daughter had travelled to Hong Kong to provide statements to the Police and had on many occasions attended CCB for assistance;

(3)  The actions demonstrated that they were not involved in any criminal activities and the claim of the Intervener is genuine;

(4)  The loan of the Intervener to his daughter for her purchase of the apartment is well supported by the deed of grant and respective receipts of the transfers of fund;

(5)  The daughter had made repayments to his father’s designated accounts;

(6)  The amounts tallied with the loan of US$500,000; and

(7)  The Intervener did not try to hide anything from the court, he is the judgment creditor in the High Court action.

G.  INDICATION OF THE INTERVENER TO APPLY FOR AMENDMENT IN RELATION TO THE CIVIL CLAIM

43.Apart from the submission quoted in paragraph 41 above, Mr Chu pointed out that the Intervener has the right to apply for amendment in relation to the civil claim and consideration would be given to take this course of action.

44.In the circumstances, an adjournment was granted mainly on the basis that if it is not granted the SJ could have at any time applied for confiscation, as it was indicated that such action has been withheld only because of the present application. As it might be unfair to shut the door to the Intervener, the hearing was adjourned for the him to deal with the indicated amendment of the claim.

45.To date, no such amendment has been made. The explanation provided is that as R2 had been struck off from the company registry as a defunct company it cannot be restored in the Company Registry. Besides, as it was the direction of the Master that the Intervener has to apply to set aside the default judgment prior to making of any amendment to the statement of claim, such action is considered by the Intervener as neither practicable nor feasible.[32]

H.  DISCUSSION

H1.  Justification for making the Order

46.By virtue of section 15(1) of the OSCO, the Court of First Instance may order a Restraint Order, prohibiting any person from dealing with any realizable property, subject to such conditions and exceptions as may be specified in the order.

47.Section 19(2) provides:

“Subject to subsections (3), (4), (5) and (6), the powers shall be exercised with a view to making available for satisfying the confiscation order or, as the case may be, any confiscation order that may be made in the defendant’s case the value for the time being of realizable property held by any person by the realization of such property.”

48.Pursuant to section 8 of the OSCO, the court can confiscate property of a person:

(1)  who is convicted of a specified offence and benefited from the offence; or

(2)  against whom a specified offence has been instituted but has not concluded because he has absconded.

49.Money laundering, which is the offence alleged against R1, is a specified offence. It was alleged that R2 was the vehicle by which R1 committed the offence.

50.Section 14 of the OSCO provides for the conditions to be met before a restraint order can be made. In the present case, the Order was made as the court was satisfied the following relevant requirements as stipulated in section 14 had been met:

(1)  Proceedings have been instituted in Hong Kong against the Respondents for a specified offence[33], as a warrant of arrest has been duly issued on 23 May 2014 against R1 for the offence of money laundering[34];

(2)  The proceedings have not been concluded[35]: R1 was last seen in Hong Kong on 5 August 2013 and is still at large; and

(3)  There is reasonable cause to believe that the Respondents have benefitted from that specified offence[36].

51.As regards the third requirement just mentioned, the court was satisfied that the Respondents had received proceeds of the fraud mentioned in paragraph 10 above which was the fund transferred by the alleged victims to the bank account held in the name of R2, which was under the effective control of R1. The transactions of the bank accounts bear the obvious mark of money laundering activities.

52.As defined in section 2(8) of the OSCO, “benefit” in this context includes receiving of a payment or other reward in connection with the commission of an offence. Under section 2(6)(a) of the OSCO, a person’s proceeds of an offence are any payments or other reward received by him at any time in connection with the commission of that offence.

53.The total amount of money received by R1 through the abovementioned means was HK$164,837,230.11 in account 01279110202592 and US$42,401,851.23 in the Account. The sum exceeds the threshold required for making of a confiscation order which is HK$100,000.

54.Evidence indicates that R2 had never conducted genuine business and its registered office was only that of a secretarial company. Between August and December 2013, there were 216 deposits (over HK$164 million) and 494 withdrawals (over HK$162 million) in the Hong Kong Dollar Account. In the same period, there were 350 deposits (over US$42.4 million) and 270 withdrawals (over US$42.1 million). A lot of mirror transactions are identified.[37] R1 only came to Hong Kong three times between April and August 2013. He was in Hong Kong on 5 August 2013 and opened the bank accounts in question on the same day. He then left and has since then been out of reach.[38]

55.Risk of dissipation of the realizable property, which is the balance of the accounts held by R2, was and still is obvious. Making of the Order is justified.

56.Although there is justification in the making of the Order, the main issue in the present application, as analysed below, is whether or not the Order should be varied so that the judgment obtained by the Intervener can be satisfied.

H2.  Irregularity in applying for the RO

57.The RO was made in 2014. There is a criticism that the application for the RO was made in breach of Order 117, rule 5(3) of the RHC in that the affirmation in support of the application had not been served on the Intervener who was obviously an affected body. The RO was later extended.

58.I do not think, in the context of the present case, there is a need to go deep into this point. Even if there may be merit in the criticism, the Order is a valid one. The issue before me, as can be seen from analysis below, is whether in the light of the whole of the circumstances, the discretion to vary the Order should be exercised in favour of the Intervener. As a peripheral observation, had the Intervener been present at the hearing for the application for the RO, I wonder what would have been presented to the Deputy Judge if the Intervener was to make representation. As said[39], the police was informed of the assertion of the erroneous transaction for the first time in July 2015, more than one year after the RO was made. It appears to me that the Intervener would have been in the same situation at that hearing as he is in the present proceedings.

H3.  Delay

59.There is also criticism from the Intervener that there has been no progress in the criminal case against the Respondents, and also that there has been no application for confiscation.

60.In the said Affirmation of Senior Inspector Law, it was stated that the prosecution will apply for a confiscation order against the Respondents upon the conviction of R1 or by way of absconder’s proceedings.[40] The latter proceedings are governed by section 8(1)(b) of the OSCO.

61.There has been a lapse of six years. As R1 has been at large understandably there is no conviction of him. No absconder’s proceedings, however, have been taken out.

62.The reason for not doing so is readily appreciated. The fact that the Intervener had obtained a judgment against R2 is known all along. As stated, it was known at the time the RO was first applied for. There had been discussion on the matter between the Intervener and the Police and the Police was not satisfied with the bona fide of the claim of the Intervener. In the circumstances, it would not be just and fair to apply for a Confiscation Order before the matter had been resolved. The matter is now before this court and the SJ cannot be blamed for not applying for a Confiscation Order prior to the decision of this court.

63.Even if there has been delay, in all the circumstances, I do not consider it by itself is in the circumstances of the case a matter which justifies the variation of the Order as applied for by the Intervener.

H4.  Statutory provisions cited by the Intervener

64.The Intervener has also pointed out that there are statutory provisions as to how long a restraint order can be extended.

65.Mr Chu referred to the provision in section 14(1B)(c) of the OSCO which limits the court’s power to extend a restraint order for not more than six months.

66.The provision, however, is only applicable to a restraint order mentioned in subsection (1A), which in turn relates to the power exercisable only on the ground mentioned in subsection (1)(ba) which provides:

“subject to subsection (1A), if section 2(15)(aa) is applicable to an offence, the Court of First Instance is satisfied that, in all the circumstances of the case, there is reasonable cause to believe that the defendant may be charged with the offence after further investigation is carried out”,

67.Section 2(15)(aa) refers to one of the conditions where proceedings for an offence are regarded to have been instituted: when a person has been arrested for the offence. In the present case, the application for the RO was based on another condition: a warrant was issued by a magistrate in respect of an offence[41].

68.Ms Lai referred to section 14(1A) of the OSCO, which provides:

“Subject to subsection (1B), where a power conferred on the Court of First Instance by section 15(1) or 16(1) is exercisable only on the ground mentioned in subsection (1)(ba), then the Court of First Instance shall specify a date on which any restraint order or charging order arising from that ground shall expire, being a date—

(a) subject to paragraph (b), not later than is reasonably necessary for the purposes of the investigation concerned mentioned in subsection (1)(ba); and

(b) in any case, not later than 6 months after the date on which that order is made.”

69.The provision is subject to subsection (1B) which provides:

“The Court of First Instance may extend a restraint order or charging order mentioned in subsection (1A)—

(a) on the ground only that the Court of First Instance is satisfied that the defendant will be charged with the offence concerned after further investigation is carried out;

(b) subject to paragraph (c), not longer than is reasonably necessary for the purposes of that investigation; and

(c) in any case, for not more than 6 months.”

70.Section 14(1A) is applicable only in relation to a restraint order made under section 14(1)(ba) which relates to situation “where there is reasonable cause to believe that the defendant may be charged with the offence after further investigation is carried out”. Again, the application for the RO in the present case was not made on this basis.

71.I am therefore of the view that the provisions which stipulate a limit as to how long a restraint order can be extended, as relied upon by the Intervener, are not applicable in the present case.

H5.  There is no allegation that either the Intervener or the daughter was part of the fraud

72.Mr Lau accepted that neither the Intervener nor the daughter is alleged to be part of the fraud. Back in July 2020, Mr Lau said there was ongoing investigation and now he confirms that there is no further allegation against the Intervener. The submission of Mr Lau is that, as there is sufficient legal and factual basis to restrain the property in question, and the sum claimed by the Intervener is part of the property, the Intervener has to satisfy the court that his claim, or the judgment he obtained, is bona fide, before his application for variation of the Order can be successful.

73.The purpose of a restraint order, as stated in section 19(2) of the OSCO, is to restrain disposal of property with a view to making property available for satisfying the confiscation order.

74.Mr Lau pointed out that section 19(6) of the OSCO provides that priority be given to the prosecutor to satisfy the confiscation order over any obligation of the defendant or the recipient of any gift and he submitted that variation of a restraint order to release funds to meet the claim of an unsecured third party creditor of the defendants is therefore precluded.

75.Section 19(6) of the OSCO which Mr Lau cited stipulates that making of orders such as a confiscation order or restraint order, and exercising of the power to discharge or vary, are subject to the following provisions:

“In exercising those powers, no account shall be taken of any obligation of the defendant or of the recipient of any such gift which conflict with the obligation to satisfy the confiscation order.”

76.However, despite this provision which I have to bear in mind, the interest of the Intervener must be recognized.

77.Section 15(6) of the OSCO allows a person affected by a restraint order to apply for its discharge or variation.

78.In SJ v Ye Zhiqiang[42], an Interested Party applied for variation of a restraint order on the basis that part of the restrained assets constituted debt owed to him by the respondent. Yeung VP observed:

(1)  “… when the Court imposed the Restraint Order, it did not need to take into account the obligation of the 1^st respondent, if any, towards the Interested Party which may conflict with the obligation to satisfy the confiscation order”[43]; and

(2)  Even if the respondent “has the obligation to repay money to the Interested Party, to allow the money … to be released from the Restraint Order will be in conflict with the obligation to satisfy the confiscation order and contrary to the requirement of section 19(6)”[44].

79.The above observations have to be read in the factual context of the case. However, the observations demonstrate the importance of the obligation to satisfy the confiscation order.

80.In International Associated Attorneys Ltd v Eurostock Energy Ltd[45], a case relied heavily on by Mr Lau, Au-Yeung J held that:

(1)  An unsecured creditor had no priority over restrained funds;

(2)  The court has discretion to vary a restraint order to meet a judgment debt; and

(3)  In consideration, the court:

(a)  should be satisfied as to the bona fides of the judgment debt; and

(b)  should not be precluded from examining the circumstances leading to the judgment.

81.I respectfully agree to these views.

82.I find that the court has the discretion to vary the Order. Mr Lau has fairly accepted that the court has the discretion. The submission he made is that in consideration the court has to take into account the provision in section 19(6). I also accept the submission of Mr Lau that the most important factual issue which I have to decide is whether or not the Intervener can satisfy me of the bona fides of the judgment debt, as otherwise there is no basis for the court to exercise the discretion.

H6.  Is the claim of the Intervener, or the judgment he obtained, bona fide?

83.In deciding whether the claim made by the Intervener is bona fide, the civil standard of proof applies.

84.In consideration, I take into account that the Intervener had obtained a judgment against R2. At the same time, I note what the Intervener obtained was a default judgment, R2 had not given any notice of intention to defend. As the Intervener alleged, and is likely to be the case, R2 is a company no longer in operation. The circumstances also entitle me to draw the inference that R1, the sole person in control of R2, has absconded.

85.I accept, as Ms Lai stressed, that taking legal course is not a common way to recover tainted money. The writ of summons had been issued even before the RO was applied for. The application for the RO was made ex parte and there is no indication that the Intervener had been alerted at all of this possible step by the authority. There is nothing to suggest there would have been any indication that the fund was at risk of being frozen, let alone confiscated at the time when the Intervener started the proceedings against R2.

86.It is also out of the ordinary for the Intervener and the daughter to make efforts and have contact with the police if the matter involves tainted money. As Ms Lai suggested, the conduct exposed them to criminal investigation and even prosecution and was inconsistent with what a person dealing with tainted money would have done.

87.Besides, there is objective evidence, and which SJ did not dispute, of transaction of funds from the Intervener to the daughter, the buying and selling of properties by the daughter and her eventual transfer of funds. In this regard, Ms Lai asked the court to note the sum and the timing of the transfers, and submitted that both are consistent with the assertion of the Intervener. She also asked the court to note that there is evidence to show that Lotis was a real business partner of the company of the Intervener and that the sum of the two transactions made by the daughter was exactly the sum of the loan to her.

88.The above matters cast a favourable light on the case of the Intervener.

89.One of the main bases on which SJ says that the judgment is not bona fide is that the Intervener had provided the Court and the Police with different factual basis of the same claim.

90.This has in fact been the case. The civil claim was based in clear terms on a fund claimed pursuant to a rescinded agreement. The fund transferred was said to be deliberate payment to R2 upon the instruction of the Intervener to the daughter pursuant to a verbal contract between the Intervener and R2. The subsequent assertion, which is what the Intervener is now relying on, is that the sum was innocent money mistakenly transferred into the Account out of misunderstanding between the Intervener and the daughter and / or error on the part of the latter. These are two completely different bases, there can be no room to say it was only a mistake or error in expression.

91.In that civil proceedings, the court relied on the information then provided by the parties (in this case information only came from the Intervener as the Plaintiff) and by implication of the stand which the Intervener now takes, the court had been misled into the decision. This is a serious matter.

92.The explanation given, as affirmed by the daughter, is that she had knowingly given wrong instruction to her lawyer that the fund was for business for the sake of getting the fund quicker. It does not appear to me to be a convincing explanation. If what the Intervener now asserts had been the real reason for the transfer of fund, I cannot see why this reason could not be put up as the basis of the claim against R2, and there is no satisfactory explanation why this had not been done.

93.This matter seriously affects my assessment of the credibility of both the daughter and the Intervener. Despite it was the daughter who said she was the one who gave instruction to the lawyer, the Intervener must be aware of this basis of the claim as he was the one who signed the court documents in relation to the civil suit against R2.

94.I do not accept the inconsistency is minor in the context and can be satisfactorily explained by either the Intervener or the daughter, or the submission made on behalf of the Intervener.

95.Apart from the inconsistency alleged, I have examined the whole circumstances including the undisputable objective facts in relation to the daughter’s purchase and sale of properties and considered the account given by the Intervener in order to make an assessment on the bona fide issue.

96.In consideration, I have taken into account matters including the followings:

(1)  the sum involved was by any standard of substantial amount: US$283,988;

(2)  both the Intervener and the daughter are well educated;

(3)  the Intervener has been engaged in business of substantial scale and the daughter had been working in a professional field for years;

(4)  whilst it was alleged that the transaction was made by mistake, it must be noted that R2 was just one of the companies on the vendor list, I do not find good reasons had been provided for why R2 had been chosen to be the recipient of the sum, the daughter said there were 7 ‑ 8 companies on the list and Lotis and R2 were placed next to each other, I do not find this reason convincing;

(5)  R2 was a company which had not engaged in any business activities;

(6)  the vendor list has not been produced;

(7)  the account provided by the Intervener in relation to the list including when did the list come to his possession and how R2 came to be in the list, is less than satisfactory;

(8)  the Intervener failed to state clearly what exactly was his instruction to the daughter in relation to how she was to make payment to repay the loan, the MSN messages which the Intervener mentioned is not in the evidence; and

(9)  the Intervener did not check who was the recipient when he was notified by the daughter that the transaction had been made, and such non-action is not reasonable.

97.None of these matters goes to the favour of the Intervener in my consideration.

98.I have also taken into account the following matters which Mr Lau drew to the attention of the court:

(1)  Whilst the Intervener had made clear that his present application was based on an erroneous transferral from the daughter to R2, the Solicitor in his Affirmation in July 2020 stated that an oral contract was entered into between ZL and R2 by a manager of the former in November 2013 which resulted in the transfer of the money[46];

(2)  It was also stated in the same affirmation that R2 had made contact through R1 with a staff of ZL in early 2013[47] whilst R2 was only incorporated in July that year; and

(3)  The assertion that the Intervener did not appreciate the content and the effect of the witness statement he gave to the police due to his minimal proficiency in the language is not credible as present with him at the time were his solicitor and an interpreter, in any case the witness statement was written in Chinese.

99.All in all, having considered the whole of the circumstances, bearing in mind the submission by Counsel, I am not satisfied, on the civil standard, that the claim is a bona fide one. I decline to accept that the transaction was an error as asserted. The amount is by any standard a substantial one. The Intervener is a business man and at all times has been running a business of some scale. The daughter must have realized her responsibility in handling this amount of money. Such level of inadvertence by both of them as described is not believable.

100.Based on the matters aforesaid, having particular regard to the purpose of a restraint order, I do not think the circumstances justify a variation of the RO.

I.  DISPOSITION

101.The application of the Intervener is therefore refused.

J.  COST

102.Costs of this application should, on a nisi basis, follow the event and be to the SJ to be borne by the Intervener.

Mr Douglas Lau, Senior Public Prosecutor (Ag) of Department of Justice, for the applicant

Ms Annie Lai, instructed by Damien Shea & Co, for the intervener

APPENDIX A

Chronology of events set out by Ms Annie Lai for the intervener