HKSAR v. Xu Zhuo and Another

CACC 139/2021 [2024] HKCA 103

On appeal from [2021] HKDC 720

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO 139 OF 2021

(ON APPEAL FROM DCCC NO 149 OF 2019)

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J U D G M E N T

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Hon Zervos JA (giving the Judgment of the Court):

1.The 1^st appellant, 2^nd appellant and Tam Shing Yan Dominic, who were D1, D2 and D3 respectively at trial, appeared before District Court Judge Eddie Yip (the judge)  on the following corruption offences:

(i)  Charge 1 alleged that D1 and D2 conspired, between 4 July 2017 and 19 March 2018, for D2 being an agent, namely an employee of L’Voyage Limited, to, without lawful authority or reasonable excuse, accept advantages, namely gifts, loans, fees, rewards or commissions consisting of HK$292,784.43 and US $95,486.18 from D1 as an inducement to or reward for or otherwise on account of the D2 doing or having done an act in relation to his principal’s affairs or business, namely placing jet flight orders with Joy Fly Jet Limited, contrary to sections 9(1)(a)  and 12(1)  of the Prevention of Bribery Ordinance (POBO), Cap 201, and sections 159A and 159C of the Crimes Ordinance (CO), Cap 200.  

(ii)  Charge 2 alleged that D1, D2 and D3, between 4 July 2017 and 2 February 2018, conspired together for D3, being an agent, namely an employee of L’Voyage Limited, to, without lawful authority or reasonable excuse, accept advantages, namely gifts, loans, fees, rewards or commissions consisting of HK$192,557.60 from D1 as an inducement to or reward for or otherwise on account of D3 doing or having done an act in relation to his principal’s affairs or business, namely placing jet flight orders with Joy Fly Jet Limited, contrary to sections 9(1)(a)  and 12(1)  of the POBO and sections 159A and 159C of the CO.

(iii)  Charges 3 to 6 alleged that D2 as an agent accepted an advantage, contrary to sections 9(1)(a)  and 12(1)  of the POBO. These charges were an alternative to Charge 1, where it was alleged that D2 accepted an advantage, namely US$10,000 on 16 October 2017; US$7,000 on 28 October 2017; US$32,000 on 2 November 2017; and US$10,000 on 15 November 2017.

(iv)  Charge 7 alleged that D3 as an agent accepted an advantage, contrary to sections 9(1)(a)  and 12(1)  of the POBO.  This charge was an alternative to Charge 2, where it was alleged that D3 accepted an advantage, namely HK$38,936.73 on 25 October 2017.

2.Before the trial, D3 absconded, and the case proceeded in his absence against D1 and D2.  At the conclusion of the trial on 15 June 2021, D1 and D2 were convicted of Charge 1 but acquitted of Charge 2, and D3 was acquitted of Charges 2 and 7.  The end result was that the judge only found Charge 1 proven against D1 and D2. 

3.On 30 June 2021, the judge sentenced D1 to 1 year and 10 months’ imprisonment with a compensation order of $128,790; and D2 to 2 years and 6 months’ imprisonment.

4.On 2 and 13 July 2021, D1 and D2, respectively, applied for leave to appeal against conviction.  On 3 March 2022, a Single Judge[1] granted D1 and D2 leave to appeal against conviction on the grounds that they advanced.

The brief facts

5.At the material times, D1 was the sole director and shareholder of a company, Joy Fly Jet Limited (JFJ), which traded in jets and operated a jet charter brokerage business, arranging private jet charters for clients.  D1 was also an employee of a jet management company, Bellawings Limited (Bellawings), which maintained and managed jets for private jet owners.  D2 and D3 were employees of another jet charter brokerage company, L’Voyage Limited (LV), which was owned and controlled by Diana Chou.[2] 

6.The prosecution case was that the conspiracies under Charge 1 and 2 concerned the payment of commissions to D2 and D3, respectively, for LV placing jet flight orders with JFJ for LV’s clients.  Under Charge 1, it was alleged that D2 received 15 payments of commissions, and under Charge 2, it was alleged that D3 received 4 payments of commissions.

7.The prosecution relied on financial records together with text messages and email communications to show payments from D1 to D2 and D3 in relation to jet flight orders placed by LV with JFJ.[3]  On one reading of some of the text messages, it was submitted that they suggested arrangements for the payment of secret commissions.[4]

8.During the trial, it was accepted by the defence that 6 of the 15 payments in Charge 1 were commissions paid by D1 to D2, for which Diana Chou had given permission, while the remaining payments to D2 or D3 were adjudged to be either reimbursements or unrelated to LV’s business.

9.The central issue in this case was whether D2 and D3 had their principal’s permission, Diana Chou, to accept the alleged commissions in Charges 1 and 2.

The issues at trial

10.The commissions were paid to D2 and D3 in respect of the chartering of jet planes by clients through a charter broker.  A typical transaction involved a client passenger engaging a jet charter broker, such as LV, to charter a private jet for a specific journey.  As LV was not a jet operator, it could not provide a jet for a client in its own right. Instead, it would either engage a jet operator to provide the charter flight, or if LV could not locate an operator with available jets, it would contract with another charter broker, such as JFJ, to find a jet operator that could provide the requested flight for a client.

11.The cost that the client paid to LV was referred to as the “Sell Price”, the cost that LV had to pay, whether to an operator or another broker, in order to obtain the charter jet was the “Buy Price”, which was usually marked up.  The profit margin LV made would be the difference between the “Buy Price” and the “Sell Price”.  The profit that JFJ made would be the difference between the “Buy Price” and the “Operator’s costs”, that is, the costs that JFJ had to pay Bellawings for providing the jet.

12.Depending on the nature of the flight, certain safety and maintenance requirements must be satisfied.  Generally, a Part 91 licence applies to privately owned jets, while a Part 135 licence applies to jets for commercial operations.  It is not permitted to use a Part 91 aircraft for a commercial chartered flight, which requires a Part 135 licence because of the different safety and maintenance requirements.  LV’s policy prohibited using an aircraft without a Part 135 licence.[5]

13.Both D1 and D2 testified at trial. There was no dispute that D1, on behalf of JFJ, paid commissions to D2 and D3, employees of LV, regarding certain flight charters which JFJ had arranged. There was also no dispute that it was D2who approached Dl to solicit such commission in a conversation that took place at the end of August 2017.

D2’s defence case

14.The central issue in D2’s case was whether he, in fact, had permission from his employer to accept the commissions in question.  This issue affected both the conspiracy charges and the alternative substantive charges against him. 

15.D2 testified that it was the practice for LV to pay him and D3 commissions for successful transactions.  If the charter involved an illegal flight, whereby the jet was not licensed to carry out commercial chartering (a Part 91 flight), then an extra commission would be paid that would not be shown in LV’s records.[6] The commission was paid and concealed by a markup to the fee for the charter.  D2 claimed that Diana Chou had agreed to this as the principal of LV.  However, she did not give evidence at the trial.  Instead, another member of LV, Tsang Hon Yu (PW1), the Director of Finance and Operations, gave evidence for the prosecution on the company’s behalf.  He testified that according to his knowledge and based on the available records, D2 had not asked Diana Chou or the management of LV for permission to receive any commissions from JFJ.

16.According to D2, on or about 28 August 2017, he sought Diana Chou’s approval to engage a Part 91 flight to urgently fly a client of the company.  He knew it was a criminal offence to engage in a Part 91 flight for commercial charter, which should be a Part 135 flight.  As this was an illegal flight and he was at risk of committing a criminal offence[7], he requested Diana Chou that he be paid extra commission.  She agreed that the Part 91 flights be arranged for the client and that he and D3 could ask D1 for extra commission. She instructed D2 and D3 to liaise with D1 directly regarding the extra commission and that they were at liberty to markup the “Buy Price” of the transaction.  It was also acknowledged that D2 could only engage JFJ for the Part 91 flight if no other flights were available.  This arrangement only involved the 6 payments, and Diana Chou’s consent was given on each occasion. 

17.D2 admitted that he initially lied to the investigators about the reason for D1’s payments of money to him.  He said his motive for doing so was to protect Diana Chou from being investigated for the illegal flights.[8]

18.On 31 March 2018, D2 left employment with LV and went to work for D1 at JFJ.  A solicitors’ letter was sent to D2, bringing to his attention that he was not to work for a competitor for a period of 6 months.  At about the same time, PW1 lodged a complaint against D2 with the Independent Commission Against Corruption (ICAC)  regarding the payment of the extra commissions. 

19.The judge rejected the evidence of D1 and D2 and found that the relevant regulation that was said would constitute the flights as illegal would not apply to LV as a charter broker.[9]  However, he appeared to leave open the possibility that such illegal flights did take place but found that Diana Chou or the management of LV were not aware of them.[10]  He also found that if there had been a discussion with Diana Chou about the extra commission, she would have followed it up and discussed it with PW1.  These findings were made in the absence of evidence from Diana Chou.  It raised the question as to what the evidential foundation was for the judge to make such a finding.[11]

D1’s defence case 

20.The central issue in D1’s case was different. D1’s defence was that D2 had told her that he had his principal’s permission to accept the commissions and, if he had not, he had lied to her about having such consent.  It was submitted that even if D2 failed to establish he had permission to receive the payment of the commissions, in order to prove the conspiracy charge, the prosecution had to prove that D1 knew D2 did not have his principal’s permission to accept the commissions in question. 

21.D1 testified that in June 2017, D2 approached her urgently, asking her to assist him in arranging a flight for one of LV’s important clients.  The owner of Bellawings had available jets, but did not have any licence to carry out commercial chartering.  D1 consulted the jet owner, who ultimately agreed to provide the jet for the flight.  This was done on the condition that no written contracts would be made regarding the charter since it was illegal.  It was not disputed that, on this occasion, no extra commission was paid.

22.Towards the end of August 2017, Dl was approached again by D2 to arrange a flight for the same LV client.  D2 explained to D1 that due to the illegality of the charters from Bellawings and the lack of a written contract, LV could not pay him the commission for those charters directly.  However, his principal, Diana Chou, had given him permission to obtain commission from JFJ instead, by marking up the “Buy Price” so that JFJ could pay the commission to D2 from the inflated “Buy Price”.  Dl agreed.  Dl’s evidence was supported by the fact that D3 had used a similar arrangement with another operator by asking that operator to pay a commission to D3 from an inflated “Buy Price” (to a company bank account designated by D3, which company did not in fact exist).[12]

The judge’s verdict

23.The prosecution case alleged that D1 made 15 payments into D2’s bank account as secret commissions affecting LV’s business interest without LV’s consent (Charge 1); and 4 payments into D3’s bank account with the aid of D2 as secret commissions affecting LV’s business interest without LV’s content (Charge 2).[13]

24.The prosecution in the presentation of its case grouped the 19 payments made by D1 to D2 or D3 into the following four categories: (1)  “Reimbursement to D2 and as a token of appreciation for D2’s doing a foreigner (‘Do a Foreigner Category’)” - payments 1, 2, 5 and 6; (2)  “Commissions to D2 (‘Commissions Category’)” - payments 3, 4, 7, 9, 10 and 12; (3)  “Money Exchange or Remittance for Apex Air under D1’s Instruction (‘Remittance Category’)” - payments 1, 5, 11 and 15; and (4) “Transactions not upon D1’s Instruction (‘No Knowledge Category’)” - payments 13, 16 and 18.[14]

25.The judge found that the prosecution had not proven that the payments to D2 and D3 from D1 in categories (1), (3)  and (4)  were advantages as alleged.  This finding left to be resolved whether the payments 3, 4, 7, 9, 10 and 12 to D2; and payment 8 to D3 were within the terms and scope of the conspiratorial agreements under Charges 1 and 2.[15]

26.The judge did not find the conspiracy in Charge 2 proven.  However, he found the conspiracy in Charge 1 proven but only with respect to payments 3, 4, 7, 9, 10 and 12, which D1 and D2 did not dispute were extra commissions paid by D1 to D2 for the illegal flights.

The grounds of appeal

27.D1 advanced the following grounds of appeal:

Ground 1:   The judge did not properly assess the central issue in D1’s defence. 

Ground 2:   The judge failed to give reasoned analysis to matters that contradicted an inference of guilt against D1. 

Ground 3:   The judge wrongly relied on the supposed conduct of D2’s employer and her lack of knowledge - when she was not called as a witness.

Ground 4:   There was a material irregularity and/or a breach of natural justice as the defence were not allowed the opportunity to make any oral closing submissions. 

28.D2 advanced the following grounds of appeal:

Ground 1:   The judge erred in failing to: (a)  give adequate reasons for, and (b)  adequately consider contrary evidence before erroneously concluding that Diana Chou was not aware of the alleged secret commissions.  In particular:

(i)  the judge failed to properly assess PW1’s evidence;

(ii)  the judge erroneously inferred that Diana Chou was not aware of the alleged secret commissions;

(iii)  the judge failed to give adequate reasons for rejecting the appellant’s (D2’s)  evidence; and

(iv)  the judge failed to properly address D2’s defence.

Ground 2:   There was a material irregularity at the trial as D2 was deprived of the opportunity to make oral closing submissions.

The submissions of the parties

29.The appellants complained that the judge did not properly consider the evidence in respect of the defence cases before erroneously concluding that Diana Chou was not aware of the extra commissions. It was argued that the judge failed to properly evaluate the evidence and made findings not open to him to make on the admissible evidence. 

30.The appellants did not dispute that 6 of the 19 payments included extra commissions relating to jet charters for LV, while the others were reimbursements or unrelated to LV’s business.  The judge having rejected the prosecution case that all 19 payments were corrupt commissions, the key issue was whether Diana Chou had given her permission to D2 to accept the 6 payments from D1 as extra commissions to be included as a markup in the price for jet charters.

31.D2 testified that the 6 payments concerned jet charters that were illegal and therefore Diana Chou agreed that extra commission be paid to D2 for having arranged them.  This was in addition to the commission that would usually be paid to him for arranging a jet charter.

32.The respondent pointed out that the only evidence that Diana Chou had approved the extra commissions came from D2.  It was, therefore, essential that the judge considered the credibility of D2. Among the reasons the judge gave for rejecting D2’s evidence was that Diana Chou would not have allowed D2 to earn such large sums of commission without any control by her.  If she had approved the commission, she would not have allowed the matter to be reported to the ICAC.  Diana Chou did not testify at the trial, so the issue before us is on what basis the judge could make findings in respect of her knowledge and conduct, and how her reporting the matter to the ICAC, if that was the case, is relevant to her state of mind and the act of not giving permission to D2 and D3 to receive the extra commissions. 

33.The respondent also referred to an exchange of text messages between D1 and D2 in relation to certain flights in which they indicated their concern that Diana Chou would investigate the matter.  It was explained by appellants that these messages related to cancelled flights and the repercussions that would follow because the client was upset.

34.In rejecting D2’s version, the judge reasoned that if there had been a discussion between Diana Chou and D2 about the extra commission, she would have discussed it with PW1.  On this point, the judge relied on PW1’s evidence. 

35.The respondent noted that PW1 confirmed in his evidence that he had never heard Diana Chou suggest that extra commissions were to be paid to D2 by D1 as a markup of the Buy Price.  It was submitted that the evidence of PW1 was one of the bases on which the judge found that D2 had not raised the subject of extra commissions with Diana Chou and did not have her permission to receive them.[16]  It was contended that D2’s principal was not Diana Chou but the company, which did not give its permission for him to accept extra commissions from D1.[17] 

36.The appellants also raised questions about the judge’s findings and acceptance of PW1’s evidence.  The respondent accepted that the judge made an error in his reasons for verdict that PW1 had disagreed with the defence suggestion that certain contracts had not been made when his evidence was that the contracts in relation to the transactions in question could not be found.[18] The respondent put this down to the judge having made a “clerical error”.[19]  The appellants argued that this error and other matters led the judge to wrongly accept the credibility and reliability of PW1 as a witness.  We agree.  As we will discuss later, it was a material issue that strongly supported the defence case that the flights in question were illegal.  Hence, the lack of documentation reflected on the reliability of PW1’s evidence on this issue.

37.It was argued on behalf of D1 that the judge, having rejected D2’s evidence that he had his principal’s permission to receive the extra commissions, was wrong to have found that D2 would not have told D1 that he had his principal’s permission.  The respondent submitted that the judge had separately considered the issue and reasoned that D2 would not have had such “unfettered commission” and that D1 knew LV was not aware that the sums refunded included the extra commissions paid to D2.  The question arises as to whether the judge could make such findings based on the evidence.  The respondent further submitted that the judge relied on certain text messages between D1 and D2, but it was pointed out by the appellants that these messages related to the refund for cancelled flights, which had to be read in context.

38.It was further argued on behalf of D1 that the judge did not properly address D1’s further defence that if no permission had been given to D2, she had been lied to by D2.  In his evidence, D2 admitted he had lied in his video recorded interview and that this and other factors had not been properly taken into account by the judge, which supported D1’s case that D2 had kept things from her.  It was also submitted that the prosecution did not put forward any positive case regarding how D1 acquired knowledge that D2 lacked the authority to accept commissions from the commencement of the conspiracy period.  Nor did the judge make any findings on this issue.

39.The prosecution case was that the 15 payments were all bribes paid by D1 to D2.  Both D1 and D2 testified that 6 of these payments were commissions paid by D1 and D2 because the flights involved were illegal as they did not have the necessary licence (Part 91 flights).  The flights had been arranged for a valued client of LV who required urgent flights.  Consequently, Diana Chou allowed D2 to receive and fix an extra commission from D1 for himself by inflating the price that JFJ charged LV.  The judge did not accept the prosecution case as he found that only the 6 payments as admitted by the appellants, were bribes.

40.The respondent pointed out that the judge did not accept the evidence of D1 and D2 and rejected the defence that Diana Chou had given D2 and D3 permission to accept the extra commissions. 

41.The appellants argued that the fundamental flaw with the judge’s reasons in finding D1 and D2 guilty was the lack of evidence from Diana Chou, the judge’s finding that 6 out of 15 payments were commissions, and the non-existence of contracts for the 6 payments.  The absence of evidence from Diana Chou as to whether she gave her permission to receive the extra commissions was a critical issue at trial.  Even though the judge held that there was “no need to deal with this issue”[20], he made findings on this issue without sufficient or any evidential foundation to do so.  They were conveniently listed by the appellants as follows:

(1)  Diana Chou would not have allowed D2 to have such high commissions;[21]

(2)  Diana Chou would have asked D2 the amount of commission he was receiving;[22]

(3)  “Had Diana known” that the client was willing to pay a higher price, she would have still paid D2 the same fixed commission and not allowed D2 to earn more than the company;[23]

(4)  Diana Chou was able to sell a private jet to the client after a cancelled flight, therefore did not have to please the client by arranging illegal flights from D1 or Bellawings;[24]

(5)  if Diana Chou authorised D2 to solicit the extra commissions, she “would certainly have followed up and discussed it with PW1”[25], and it was “inconceivable” she did not do so;[26]

(6)  it was “inconceivable” that Diana Chou would have decided that the extra commission not be paid within her company without discussing it with PW1;[27]

(7)  it was “inconceivable” that Diana Chou “would think that her company could not deal with the extra commission;[28]

(8)  there was no reason for Diana Chou to have instructed PW1 to report the matter to the ICAC had she known about the illegality of the Bellawings flights, and the “only reasonable inference” was that she did not know about them or the extra commissions.[29]

42.These findings bring into question how they could be properly made without the evidence of Diana Chou.  The judge acknowledged that anything said by Diana Chou to PW1 was hearsay[30], and yet he seems to have relied on such evidence from PW1 or made assumptions regarding Diana Chou without a proper evidential basis. 

Defences if the principal’s act was illegal

43.The appellants were convicted of Charge 1, which alleged that they were party to a conspiratorial agreement for D2, as an agent of LV, to accept advantages, contrary to section 9(1)(a)  of the POBO.  This section provides that an agent who, “without lawful authority or reasonable excuse”, solicits or accepts an advantage as an inducement to or reward for or otherwise on account of his doing or forbearing to do, or having done or forborne to do, any act in relation to his principal’s affairs or business shall be guilty of an offence.

44.In addition to the defences of “lawful authority” and “reasonable excuse”, there is the defence of the “permission” of the principal as provided by subsections 9 (4)  and (5), which reads:

“(4)  If an agent solicits or accepts an advantage with the permission of his principal, being permission which complies with subsection (5), neither he nor the person who offered the advantage shall be guilty of an offence under subsection (1)  or (2).

(5)  For the purposes of subsection (4)  permission shall—

(a)  be given before the advantage is offered, solicited or accepted; or

(b)  in any case where an advantage has been offered or accepted without prior permission, be applied for and given as soon as reasonably possible after such offer or acceptance,

and for such permission to be effective for the purposes of subsection (4), the principal shall, before giving such permission, have regard to the circumstances in which it is sought.”

45.In the present case, the defence at trial was that the extra commissions paid to D2 and D3 were as a result of an underlying criminal act, namely chartering Part 91 flights for commercial purposes.  This raised the question as to whether there could be “lawful authority”, “reasonable excuse” or “permission” under section 9, if the “act in relation to the principal’s affairs or business” was illegal.  At our instigation, we asked the parties to address us on this matter.

46.To answer this question, it is necessary first to examine the object and purpose of the section.  In an early examination of section 9, Huggins J in Ngan Lun Yan v R [31], explained that the legislative intention was to proscribe the offering, demanding, giving and receiving of secret commissions given without the permission of the principal.  More recently, Ribeiro PJ in Secretary for Justice v Chan Chi Wan Stephen [32], described the purpose of section 9 is to prohibit “conduct which subverts the integrity of the agency relationship to the detriment of the principal’s interests.”[33]  He analysed the structure and elements of the section and identified the gravamen of the offence as follows:

“59. …The structure and elements of the s.9 offence give a strong indication of the legislative intent. Thus, the section concerns transactions between third persons and agents who have been entrusted with power to act on their principals’ behalf. It focuses on an advantage solicited or accepted by, or offered to, the agent as an inducement for him to act or forbear to act in some way in relation to his principal’s affairs or business. If the agent were duly acting in the ordinary course of his principal’s business, one would expect no such inducement to enter the picture. The situation targeted by s.9 is thus evidently one where the agent is being offered or solicits without permission, lawful authority or reasonable excuse, an inducement to do (or forbear from doing)  something “in relation to his principal’s affairs or business”. It is a situation which is implicitly likely to involve some deviation from his normal duties and is likely to undermine the integrity of the agency relationship. …”[34] (Emphasis added).

47.When summarising the elements of a section 9 offence, Ribeiro PJ succinctly described the actus reus as follows:

“68.  The reference in s.9 to the agents act or forbearance being “in relation to his principal’s affairs or business” is properly construed to mean that the agent’s act or forbearance must be aimed at and intended to influence or affect the principal’s affairs or business in a manner that undermines the integrity of the agency relationship by injuring the bond of trust and loyalty between principal and agent.”

48.With this overview of a framework of a section 9 offence, it is appropriate to briefly examine the defences under the section of “lawful authority”, “reasonable excuse” and “permission” to determine whether they apply when the underlying act is illegal. 

49.We will first address “reasonable excuse”.[35]  In Chan Chi Wan Stephen[36], Ribeiro PJ cited with approval Fok PJ’s remarks in HKSAR v Ho Loy [37] that a defence of reasonable excuse involves: (a)  identifying the matters relied on as constituting the excuse; (b)  determining the genuineness of the excuse; and (c)  assessing whether the excuse is reasonable, on an objective standard depending on the particular facts of the case.  To these remarks, Fok PJ added, “In determining whether an excuse is reasonable or not, it will be relevant to have regard to the context in which the defence of reasonable excuse arises, since that context may suggest either a narrow or wide range of circumstances that might constitute a reasonable excuse.”[38] Clearly, context is an important consideration because what constitutes a reasonable excuse depends not only on the circumstances of the individual case but also on the purpose of the provision to which the defence is an exception: Taikato v R [39].  

50.As acknowledged by the majority of the Australian High Court in Taikato v R,[40] because of the general terms of a defence such as “reasonable excuse”, it will require the courts to give the defence content:[41]

“However, the reality is that when legislatures enact offences such as ‘reasonable excuse’ they effectively give, and intend to give, to the courts the power to determine the content of such defences. Defences in this form are categories of indeterminate reference that have no content until a court makes its decision. They effectively require the courts to prescribe the relevant rule of conduct after the fact of its occurrence. That being so, the courts must give effect to the will of Parliament and give effect to their own ideas of what is a ‘reasonable excuse’ … even when it requires the courts to make judgements that are probably better left to the representatives of the people in Parliament to make. …”

51.When enacting the defences of “lawful authority or reasonable excuse” in the offence provisions under the POBO, the legislature left for the courts to decide, if and when, the defences were established.  In the Explanatory Memorandum to the POBO, when addressing a section 4 offence, the phrase “lawful authority or reasonable excuse” was discussed.  The following comments are also relevant to the phrase in a section 9 offence:[42]

“9.  No attempt has been made to define “lawful authority or reasonable excuse” since this must depend on the particular facts and circumstances of each case.  It will be for the courts to decide whether, in the circumstances of each case, this defence has been established; the phrase is to be found in other legislation.” 

52.In giving the defence content, it will also involve assessing the reasonableness of the excuse according to community standards in order to determine whether the conduct is acceptable to the community: Securities and Futures Commission v Lam Fai Man[43].

53.Similarly, the legislative context is important when construing the term “lawful authority” as an exception to conduct that would otherwise be a criminal offence.[44] The High Court in Taikato v R, in construing the limb of “lawful purpose”, gave it a narrow interpretation to give effect to the legislative purpose of the enactment that the “purpose” had to be positively authorised by the law, rejecting the wider interpretation of any “purpose” not forbidden by the law. 

54.The majority of the High Court held that “the purpose, context or subject matter of a legislative provision may indicate that Parliament has used the term ‘lawful purpose’ to mean a purpose that is positively authorised by law.”  The majority was of the view that “lawful purpose” in the section under consideration was one “whose achievement was expressly or impliedly authorised by law.”  The majority added that whatever the form of authorisation, it must be sourced in a positive rule of law which empowers a defendant to conduct himself or herself in a way that would otherwise be a breach of the law.[45] A similar view was expressed by the other judges.[46] 

55.While the judgments of the High Court give useful guidance when examining the term “lawful purpose”, it was noted by the majority that “lawful purpose” was not synonymous with “lawful authority”.[47]  We agree there is a clear distinction between “lawful purpose” and “lawful authority”, primarily based on the difference in meaning between the words “purpose” and “authority”. However, the High Court’s interpretation of the word “lawful” is instructive when construing the phrase “lawful authority” in its legislative context. 

56.The concept of “authority” includes circumstances where someone is empowered or has the discretion to pursue certain conduct.  In the context of section 9, “lawful authority” would be authority that is expressly or impliedly authorised by law which empowers or authorises a defendant to conduct himself or herself in a way that would otherwise be a breach of the offence.  See the interpretation of “lawful authority” in HKSAR v Yan Pak Cheung[48].

57.We next address the defence of “permission”, which is of particular relevance to the present case because it essentially turned on whether Diana Chou gave her “permission” to D2 and D3 for them to accept the extra commissions from D1 in relation to the illegal flights. 

58.A principal can, by virtue of section 9(4), give permission to an agent to solicit or accept an advantage pursuant to their agency relationship.  In order to rely on the defence under section 9(4), the only requirement is that such permission has to comply with section 9(5).  Section 9(5)  requires that (a)  the permission be given before the advantage is offered, solicited or accepted; or (b)  in the case where an advantage has been offered or accepted without prior permission, it should be applied for and given as soon as reasonably possible after such offer or acceptance.  It is also stipulated that for such permission to be effective, the principal shall, before giving such permission, have regard to the circumstances in which it is sought.  Section 9(4), therefore, excludes from liability an agent who obtains the informed and timely permission of his or her principal for conduct which would otherwise constitute a section 9 offence.  It would also excuse the offeror of the advantage from liability under this section.

59.Accordingly, section 9 targets transactions tending to undermine the integrity of the agency relationship and is not concerned with regulating the underlying act giving rise to the offending conduct under the section.  The defences under section 9 of “lawful authority”, “reasonable excuse” and “permission” are directed to the offering and accepting of an advantage, not the legality or otherwise of “the act in relation to the principal’s affairs or business.”  If the underlying act is illegal, this would not render the application of any of the available defences under section 9 inoperative as long as the requirements of the relevant defence are satisfied.

60.When a principal authorises an agent to engage in an illegal act and permits the agent to receive an advantage in relation to such act, the principal has given his or her consent (i)  to engage in an illegal act (for example, breaching aviation regulations); and (ii)  to receive an advantage in relation to the illegal act (for example, receive commissions for the Part 91 flights).

61.In such circumstances, the principal and agent will be liable for any breach of the law and subject to criminal sanctions for their conduct upon conviction.  However, if it is established that the principal has given his or her imprimatur to receive an advantage in relation to the principal’s illegal act, this will invoke the relevant defence under section 9.  The fact that the principal’s act is illegal will not invalidate a defence under section 9 that has satisfied the relevant requirements. 

62.Accordingly, in the present case, if it was true or might be true that Diana Chou gave her consent to D2 to receive the extra commissions in relation to the illegal flights (the Part 91 flights), D1 and D2 would not be guilty of Charge 1.

Principal’s permission to accept extra commissions

63.The main focus of the appellants’ appeals is that the judge failed to give a reasoned analysis to their respective cases, in which both contended that D2 had Diana Chou’s permission to receive the extra commissions and alternatively, in D1’s appeal that D2 had lied to her about having such permission.  They complained that the judge erred in his reasoning in finding that Diana Chou had not, and would not, have given her permission or consent to D2 to solicit and accept the extra commissions.  They contended that the judge wrongly permitted inadmissible evidence of Diana Chou’s actual and likely attitude and knowledge regarding the extra commissions from which he made his finding.

64.It was D2’s case that Diana Chou had given her approval to D2 and D3 to use illegal Part 91 charter jets to fly a valued customer of LV, and receive direct commissions from D1 for JFJ as compensation for transgressing the law for the benefit of LV.  As they were illegal flights, there would be no records of the transactions within LV, and D2 and D3 were at liberty to arrange extra commission from D1 as a markup in the “Buy Price” of the transaction.

65.The prosecution submitted that D2’s principal was the corporate entity, LV, but in reality, Diana Chou owned and controlled the company and was his principal.  LV was a relatively small company.  According to PW1, the financial controller of the company, no permission was given to D2 to solicit and accept the extra commissions.  In normal circumstances, an officer of the company testifying that no permission was given to solicit or accept an advantage may suffice as evidence to prove a lack of permission. 

66.However, the circumstances of the structure and affairs of LV were highly relevant and raised a legitimate issue as to whether Diana Chou gave D2 permission to solicit and accept the extra commissions.  The judge had to be satisfied to the requisite standard that Diana Chou had not given permission to D2.  In this context, the prosecution did not call Diana Chou to give evidence.  In fact, rather surprisingly, we were informed that no statement had been taken from her, notwithstanding her control and management of the company and involvement in the case, and that prosecuting counsel decided it was not necessary to call her as a witness.[49]

67.Whether Diana Chou gave her permission to D2 was a key issue at trial, and her failure to testify on this issue was sought to be resolved by the prosecution relying on PW1’s evidence.  He gave impermissible evidence about Diana Chou’s state of mind and likely conduct regarding her giving permission to D2 to solicit and accept the extra commissions. 

68.Diana Chou’s nephew, William Chou, was also a person who could give permission to an employee to accept commissions, but he also was not called to give evidence.

69.According to what PW1 knew, no permission had been obtained by D2 from Diana Chou (or her nephew)  to solicit and accept the extra commissions.[50] He stated that it was company policy that an employee had to have permission to receive a “gift” in excess of US$80, and “normally it would be for the boss, Diana Chou, or the executive director to determine whether the employee would be able to receive it.”[51]

70.One of several areas of PW1’s evidence that was questionable concerned whether there was any record of D2 and D3 asking for permission to receive a gift in excess of US$80.  Putting aside what was meant by a “gift”, PW1 initially said there was no such record but later acknowledged that the company did not have a system in place for keeping such a record.[52]

71.As we have said, a critical finding by the judge was premised upon a flawed understanding of the evidence that there were contracts for the Part 91 flights.[53] PW1 had been cross-examined on whether there were contracts in relation to the JFJ flights (using a Bellawings private jet without a Part 135 licence).  He initially testified there were about 15 concluded contracts between LV and JFJ, but when asked to return the next day with the contracts, he could not find any.  Nor could he find any invoices in relation to those flights.[54]  It was accepted by PW1 that “possibly” the documents in question never actually existed.[55]  The defence submitted that these documents did not exist because the transactions concerned “illegal charter flights” on private jets.[56]

72.Defence counsel made significant and legitimate points in their closing submissions that were not, with respect, given their importance, appropriately addressed in the reasons for verdict.  The difficulty faced by the judge was a gap in the evidence regarding whether Diana Chou was aware of the jet charter flights in question and the extra commissions paid by D1 to D2 and D3.

73.The responsibility of giving permission to D2 to solicit and accept the extra commissions rested with Diana Chou, or her nephew, and yet PW1, who had limited knowledge, testified in their stead on the issue. There was no record system for payments of this type and no documentation in existence concerning the Part 91 flights that were the subject of the extra commissions.  There were significant issues that had not been resolved, and there was material doubt regarding the prosecution case based on the state of the evidence.

74.The judge acknowledged the defence case that the illegality of the Part 91 flights was the reason Diana Chou did not want any records in LV of the charter flights and the commissions to D2 and D3.  He examined whether the relevant regulatory requirements applied to LV.  He concluded that the regulatory requirements applied to Bellawings as the operator of the aircraft, and not LV as a charter broker.  However, he left open the possibility that they did apply to LV, and if they did, he was not convinced that Diana Chou or the management of LV were aware or made aware of the use of Part 91 flights.[57]  The difficulty we have with the judge’s finding is that PW1, in his evidence, acknowledged that flights were arranged for their clients through JFJ.  He even went so far as to say that there were contracts in existence, which was ultimately shown not to be the case. 

75.As pointed out by appellants, PW1 could not say one way or another whether Diana Chou authorised D2 to receive the extra commissions, and yet the judge made the key finding that Diana Chou was not aware of the illegal flights and if there had been discussion with her about the extra commission she would have followed it up and discussed it with PW1.[58]  There was an insufficient evidential basis for the judge to make such a finding, particularly when PW1 had testified there was no system in place to record such payments, and there were no written contracts in the company’s records for the transactions in question. 

76.The 6 payments of extra commission arose in unusual circumstances and were made in the characteristic form by which secret commissions are paid.  However, a key component in this case was whether Diana Chou had given her imprimatur for D2 to receive the extra commissions.  That issue was never resolved satisfactorily and left unanswered.  A glaring absence in this case was the evidence of Diana Chou and the lack of internal documentation at LV recording the flights in question.  In adopting the prosecution closing submissions (which referred to what Diana Chou knew and would have done), the judge made assumptions in respect of the principal’s consent without a proper evidential foundation, which he acknowledged was a fundamental issue in the prosecution case.[59]  In our view, this was a critical and material error that warrants quashing the convictions against D1 and D2.

Opportunity to make an oral closing submission

77.Both D1 and D2 advanced the additional complaint that they were deprived of the opportunity to make oral closing submissions.  We have found it unnecessary to address this ground, although we observe that both D1 and D2 were represented by experienced counsel at trial, who submitted written closing submissions after receiving the prosecution’s written closing submissions.  Furthermore, there are instances in the judge’s reasons for verdict where he referred to arguments in the written closing submissions, which made no difference whether the submissions were in writing or made orally. 

Conclusion

78.It follows from what we have said that we allow D1 and D2’s appeals against conviction, quash their convictions and set aside their sentences (including the compensation order).  Given the nature of the issue on which the appeal was successful, there is no basis to invoke the proviso.  We consider that there was a material flaw in the prosecution case that would not justify a retrial.  The prosecution should not be given the opportunity to patch up its case, having failed to address an obvious and material issue during the course of the trial.  The respondent acknowledged that it would not apply for a retrial if the appeal was allowed.

Costs

79.We turn to consider the question of costs.  Both D1 and D2 apply for their costs at trial and on appeal.  The general rule is that a court should normally award costs to an acquitted defendant unless there are positive reasons for not doing so.  Such a reason has been held to include where the defendant’s own conduct has brought suspicion on himself or herself and has misled the prosecution into thinking that the case against him or her was stronger than it was.  As is apparent from our judgment, the prosecution case was fundamentally flawed because of the absence of Diana Chou, the principal of the company, as a prosecution witness, who allegedly gave her permission to D2 and D3 to accept payment of extra commissions from D1. 

80.The respondent agreed to pay D1’s costs at trial and on appeal (except for the costs of the ground in respect of the oral closing submission and the legal issue raised by the court), to be taxed if not agreed.  There was no application by D2 for the costs at trial, but there was an application for the small financial contribution to the Department of Legal Aid for the provision of legal representation on appeal.  However, there were other issues raised in the appeal for which D2 would not be entitled to his costs, and therefore, there will be no order as to his costs on appeal.

81.We make an order in the terms as agreed by the respondent to pay D1’s costs, and we make no order for costs to D2. 

Mr Michael Wong, SADPP, and Mr Marcus Lee, SPP, of Department of Justice, for the respondent

Mr Benson Tsoi, instructed by Haldanes, for the 1^st appellant

Mr Jonathan Kwan and Ms Kong Siu Ching Cindy, instructed by Cheng & Ng, assigned by Director of Legal Aid, for the 2^nd appellant