HKSAR v. Leung Yat Ming and Another

CACC000443/1998

CACC 443/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 443 OF 1998

(ON APPEAL FROM DCCC 451/1998)

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Coram: Hon. Nazareth, V.-P., Mayo and Stuart-Moore, JJ.A. in Court

Date of hearing: 10 March 1999

Date of delivery of judgment: 30 March 1999

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J U D G M E N T

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Mayo, J.A. (giving the judgment of the Court):

1. The Applicants (A1 and A2) are husband and wife. A2 the wife was convicted of two offences contrary to s.9(3) of the Prevention of Bribery Ordinance, Cap. 201 (The Ordinance) and A1 was convicted of one offence under the section after a trial in the District Court before H.H. Judge Toh.

2. On the first and second charges A2 received a sentence of 9 months imprisonment which was ordered to be suspended for 2 years. In addition to this the Judge ordered A2 to repay $1,258,000 being the moneys she had received from the Chinese University as a rent allowance for the relevant periods.

3. A1 received a similar sentence on the third charge and was ordered to repay $286,370 being the rent allowance he had received from Hong Kong University.

4. Both Applicants seek leave to appeal out of time against their convictions.

5. In supporting affidavits both Applicants refer to A1's indecision in making up his mind whether or not to lodge an appeal. They also refer to the surrounding circumstances which had occasioned them some stress. In addition to this they had received legal advice which held out some prospect of success on the appeals. None of the reasons given constitutes an acceptable excuse for the failure of the Applicants to lodge their applications timeously. However notwithstanding this we propose considering these applications on their merits.

6. All three charges are framed in a similar manner save for the details as to who was charged, the date of the alleged offence and the particulars of the institution concerned.

7. The first charge reads as follows:

"1st Charge (Against D2 only)
Statement of Offence

"Agent using false document with intent to deceive her principal, contrary to section 9(3) of the Prevention of Bribery Ordinance, Cap 201.

Particulars of Offence

LEUNG Suk-fong, on or about the 12th of April 1986, in Hong Kong, being an agent of the Chinese University of Hong Kong, namely, a Lecturer of the said Chinese University of Hong Kong, with intent to deceive her principal, used a document, namely, the Application for Private Tenancy Allowance.

(a) in respect of which the said Chinese University of Hong Kong was interested;

(b) and which contained a statement which was false in a material particular, namely that the leased accommodation was not owned by herself, her spouse and/or a relation of either herself or her spouse and neither she, her spouse nor any of her spouse's relations had a financial interest in it; and

(c) which to her knowledge was intended to mislead the said Chinese University of Hong Kong."

8. The relevant facts are conveniently and succinctly set out in Mr. Zervos' skeleton argument.

The Facts

9. A1 and A2 are husband and wife. At the relevant time, A1 was a lecturer in the Department of Curriculum Studies at the University of Hong Kong and A2 was a lecturer in the Department of Paediatrics at the Chinese University of Hong Kong.

10. The two Universities offered staff of a certain rank a Private Tenancy Allowance (PTA) which was a financial contribution paid monthly to the employee towards the payment of rent for leased accommodation. Entitlement to the allowance was based on certain conditions. In particular, an applicant had to declare that the proposed leased accommodation was not owned by the employee, his/her spouse and/or a relation of either himself/herself or his/her spouse and that neither the employee his/her spouse nor any of his/her or his/her spouse's relations had a financial interest in it. "Relations" included parents, brothers, sisters and their spouses and children and their spouses.

11. In February 1986 a shelf company, Marble Shine Limited, was purchased by A1 who owned and controlled it through nominee shareholders and nominee directors provided by Michael Secretarial Services which also provided secretarial services to the company. In March 1986 Marble Shine purchased a flat at Scenery Garden, Fo Tan, Shatin which was later sold in October 1990. In November 1990 Marble Shine purchased a flat in Savanna Garden, Tai Po. A1 and A2 were the authorised signatories of the company's bank account and guarantors of the mortgage loan that had been secured over the Savanna Garden property.

12. A2 applied for PTA in relation to the Scenery Garden property on 12 April 1986 (Charge 1 - exhibit 6) and in relation to the Savanna Garden property on 6 November 1990 (Charge 2 - exhibit 9). A2 submitted in each instance a lease agreement signed by Marble Shine and A2 and subsequently rental receipts for reimbursement. She received PTA totalling $588,600 in relation to the Scenery Garden property and $669,400 in relation to the Savanna Garden property. The PTA for the Savanna Garden property ceased when she joined the Hospital Authority and was therefore no longer eligible for it.

13. A1 applied for PTA in relation to the Savanna Garden property on 21 June 1993 (Charge 3 - exhibit 23). A1 submitted a lease agreement signed by Marble Shine and A1 and subsequently rental receipts for reimbursements. He received PTA totalling $286,370 in relation to the Savanna Garden property.

14. The Judge found there was an irresistible inference that Marble Shine was bought by A1 as a "vehicle to buy and rent these properties to himself and his wife". She was satisfied for all the reasons she gave that she was entitled to lift the corporate veil of Marble Shine. Having done so the Judge accepted that there was sufficient evidence from which she was satisfied that A1 had a financial interest in the properties owned by the company and was aware of that fact. Also A2 knew of A1's interest in the properties.

15. The Judge also accepted that both Applicants had the necessary intention to deceive their principals.

16. On this basis the Judge convicted the Applicants of their respective charges.

17. The first perfected ground of appeal contains a complaint that the Judge erred in going behind the corporate identity of Marble Shine.

18. Mr. Dennis Chang, S.C. for the Applicants placed reliance upon China Ocean Shipping Company v. Mitrans Shipping Company Ltd. [1995] 3 HKC 123, Adams v. Cape Industries Plc. [1990] I Ch 443, Creasey v. Breachwood Motors Ltd. [1993] BCLC 480 and Macaura v. Northern Assurance Company Ltd. [1925] AC 619 in support of his contention that it was impermissible for the Judge to lift Marble Shine's corporate veil.

19. None of these cases were concerned with criminal proceedings. They were all concerned with matters arising in civil litigation. It is apparent from Creasey that where the justice of the case requires it, it is permissible to go behind the veil particularly where as in the present case it is a cloak for a deception.

20. However the main thrust of Mr. Chang's submission was that his clients had not done anything illegal. They were simply attempting to order their affairs in such a manner as to enable them to receive the benefits to which they considered themselves entitled.

21. We cannot accept this submission. What is clear is that there was a deliberate concealment of the truth. Nominees were appointed so that the identity of the Applicants would not be known.

22. The statement to the effect that neither of them nor their respective spouses had a financial interest in the property equally militates against a suggestion that the Applicants were innocently arranging their affairs to their best advantage. The statement made by A2 was in this form.

"I apply for a Private Tenancy Allowance in respect of my proposed leased accommodation and confirm that the proposed leased accommodation is not owned by myself, my spouse and/or a relation of either myself or my spouse and that neither I, my spouse nor any of my spouse's relations has a financial interest in it ('Relations' here include (a) parents, (b) brothers, sisters and their spouses, and (c) children and their spouses. I undertake to abide by the conditions set out in document BURM 65 (Revised 10/85). I understand that any false information supplied in respect of this application will make me liable to disqualification from receiving other housing benefits."

23. A1 signed a similar Declaration (Exhibit P5).

24. It is clear that the only assets owned by Marble Shine were the interests it had in the two successive flats which were the subject of the claims for rent and also that both Applicants were guarantors of the mortgages which were secured on the flats.

25. In reality the Applicants did have a financial interest in the flats in question albeit the interest was in the shares in Marble Shine which was the owner of the flats.

26. This approach is in conformity with the view expressed by Lord Denning M.R. in his judgment at p.1254 of Littlewoods Mail Order Stores Ltd. v. Inland Revenue Commissioners [1969] 1 WLR 1241.

"I cannot accept this argument. I decline to treat the Fork Manufacturing Co. Ltd. as a separate and independent entity. The doctrine laid down in Salomon v. Salomon & Co. [1897] A.C. 22, has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can and often do draw aside the veil. They can and often do, pull off the mask. They look to see what really lies behind. The legislature has shown the way with group accounts and the rest. And the courts should follow suit. I think that we should look at the Fork Manufacturing Co. Ltd. and see it as it really is - the wholly-owned subsidiary of Littlewoods. It is the creature, the puppet, of Littlewoods in point of fact: and it should be so regarded in point of law. The basic fact here is that Littlewoods, through their wholly-owned subsidiary, have acquired a capital asset - the freehold of Jubilee House: and they have acquired it by paying an extra ￡19,006 a year. So regarded, the case is indistinguishable from the Land Securities case. Littlewoods are not entitled to deduct this extra ￡19,006 in computing their profits."

27. The Judge was fully entitled to consider the evidence relating to Marble Shine and the Applicants' interests in the properties through the company. Once this is accepted there was ample evidence to demonstrate that the Applicants had a financial interest in the leased accommodation upon which the claim for reimbursement or partial reimbursement of rent was being based.

28. There is no merit in this ground.

29. Grounds two, three and four can conveniently be considered together.

"2. Further or alternatively the learned trial Judge erred in finding that the words in the 2nd Applicant's declaration were false or were to her knowledge false and the particulars above are repeated in support of this Ground of appeal.

3. Further or alternatively the learned trial Judge applied the wrong legal test when she asked herself this question :- 'Would an ordinary person without any legal training like the 1st Applicant - taking the ordinary meaning of the word financial interest - understand that may include his beneficial interest in MSL, or did he only come to realise that in 1997?' The learned trial Judge similarly applied the wrong legal test when she inferred that the 2nd Applicant must have realised that the 1st Applicant had 'financial interest' according to the 'ordinary meaning' of the declaration.

4. Further or alternatively the learned trial Judge erred when she found by 'irresistible inference' an intention to deceive and the Applicants repeat the particulars given above."

30. The Judge considered all of the evidence which was before her. When analysing whether or not A1 had the necessary intention to deceive she said at p. 26L of the appeal bundle:

"Then comes the declaration in clause C bearing the words, 'Neither I nor my spouse has a financial interest in it.' This is not a term of art, these words must be given their ordinary meanings. The only conclusion that the 1st defendant can draw from these words is that he is saying he does not have any financial interest in the leased accommodation. At that time he had full knowledge that he is the sole beneficiary of the shares in MSL, the landlord company. He therefore must realise that what he declared is not true. Therefore, I can only conclude that the 1st defendant did use the document, Exhibit 23, in respect of which Hong Kong University was interested and it contained a statement which he knew was false in the material particular, and he did intend to mislead the university in order to obtain the PTA."

31. The Judge came to a similar conclusion after analysing the evidence relating to A2.

32. It would have been very surprising had the Judge come to any other conclusion. These grounds cannot be sustained.

33. In Ground five it is complained that:

"5. The learned trial Judge erred in ruling that S9(3) of the Prevention of Bribery Ordinance, Cap. 201 covered the subject Applications of Private Tenancy Allowance which were internal documents prepared by the Applicants, the employees, affecting the two Universities, the employers, but not involving dealings with any third party, in that the above mentioned section only covers situations where agents had dealings with a third party."

34. Section 9(1), (2), and (3) of the Ordinance provide:

"9. Corrupt transactions with agents

(1) Any agent who, without lawful authority or reasonable excuse, solicits or accepts any advantage as an inducement to or reward for or otherwise on account of his -

(a) doing or forbearing to do, or having done or forborne to do, any act in relation to his principal's affairs or business; or

(b) showing or forbearing to show, or having shown or forborne to show, favour or disfavour to any person in relation to his principal's affairs or business,

shall be guilty of an offence.

(2) Any person who, without lawful authority or reasonable excuse, offers any advantage to any agent as an inducement to or reward for or otherwise on account of the agent's -

(a) doing or forbearing to do, or having done or forborne to do, any act in relation to his principal's affairs or business; or

(b) showing or forbearing to show, or having shown or forborne to show, favour or disfavour to any person in relation to his principal's affairs or business,

shall be guilty of an offence.

(3) Any agent who, with intent to deceive his principal, uses any receipt, account or other document -

(a) in respect of which the principal is interested; and

(b) which contains any statement which is false or erroneous or defective in any material particular; and

(c) which to his knowledge is intended to mislead the principal,

shall be guilty of an offence."

35. For the purposes of s.9 an agent is defined as including an employee.

36. Mr. Chang submitted that it was clear from the judgment of Lawton, L.J. in R. v. Tweedie [1984] 1 QB 729 that where reference was made in the Prevention of Corruption Act 1906 to the dishonest conduct of an employee with a third party affecting the employer, documents must pass inter partes. He went on to argue that as the applications for the rent allowances were entirely internal documents an offence could not have been committed under s.9(3) of the Ordinance.

37. He accepted that s.9(3) is not couched in the same form as the Prevention of Corruption Act 1906. In this Act the equivalent provision is introduced by the following words "If any person knowingly gives to any agent, or ..."

38. These words were also included in the Prevention of Corruption Ordinance, Cap. 215 which was the predecessor of the Ordinance.

39. Mr. Chang submitted that the deletion of these words was immaterial. He placed reliance upon the reasoning of Lawton, L.J. at p. 734 D in R. v. Tweedie to make good this submission.

"If this paragraph had stood by itself as a separate section creating an offence, the argument might have had more force; but it does not. It is part of one subsection which deals in the first two paragraphs with dishonest conduct, either as a fact or in contemplation, between an employee and a third party. It would be odd drafting for the last part of this subsection to create an offence which made an employee criminally liable for using a document which did not have any connection with a third party or was not intended to go to a third party. As Hobhouse J. pointed out in the course of argument, the words 'receipt' and 'account' in the third paragraph, as a matter of the ordinary use of English, refer to documents inter partes either in creation or use. A receipt is made out to someone who has paid a debt. An account is rendered by one person to another. The words 'or other document' should, in our judgment, be construed as meaning a document which would pass inter partes. Such documents are capable of being given by a third party and then used by an employee. Both or one or other can be guilty of the offence created by the third paragraph if there is proof of the knowledge and intent specified. All the words following 'intent to deceive his principal' are words common to the definition of an offence by a third party or an employee. In this case the document relied upon by the prosecution was one which was to be used for accounting purposes by the employers. It was never intended to go to a third party. It had none of the characteristics of an inter partes document. It did not acquire these characteristics merely because its existence started the procedure by which later inter partes documents would come into existence. If the prosecution's contention were right, the third paragraph would apply to any false document knowingly used by an employee with intent to deceive or mislead his employers. An employee who put a false entry on his time sheet would be guilty of an offence under the Act of 1906. Parliament could not have intended that this should be so. We adjudge that the third paragraph did not apply to the facts of this case."

40. It was also significant that Tweedie had been considered in the Court of Appeal in HKSAR v. Lau Shiu-kong and Ki Yat-hiu, unreported being CACC 274/1998.

41. In that case the Court of Appeal had accepted the rationale of Lawton, L.J. although it has to be said that the transaction in question did involve what Lawton, L.J. described as an inter partes transaction.

42. Mr. Chang gave three reasons why we should adopt Tweedie in the present case.

1. The context remains the same.

2. The references to "receipts" and "accounts" are similar i.e. would appear to contemplate the existence of the third party.

3. The overall mischief of extending the subsection unduly is equally applicable.

43. Mr. Chang submitted that if s.9(3) can apply to internal documents there are far reaching implications. In effect whenever an employee attempts to mislead his employer by making a false statement in any of the company's documents in order to deceive the employer he is of guilty an offence under the Ordinance. As can be appreciated this type of deception may be totally removed from a situation involving any bribery or corruption.

44. Finally Mr. Chang submitted that it was clear from a reading of the section as a whole that what was in the contemplation of the legislature was a tripartite relationship and this of necessity involved a transaction with a third party.

45. In reply Mr. Zervos for the Respondent emphasised the differences between the 1906 Act and the Ordinance.

46. The relevant parts of the 1906 Act are as follows:

"1. (1) If any agent corruptly accepts or obtains, or agrees to accept or attempts to obtain, from any person, for himself or for any other person, any gift or consideration as an inducement or reward for doing or forbearing to do, or for having after the passing of this Act done or forborne to do, any act in relation to his principal's affairs or business, or for showing or forbearing to show favour or disfavour to any person in relation to his principal's affairs or business; or

If any person corruptly gives or agrees to give or offers any gift or consideration to any agent as an inducement or reward for doing or forbearing to do, or for having after the passing of this Act done or forborne to do, any act in relation to his principal's affairs or business, or for showing or forbearing to show favour or disfavour to any person in relation to his principal's affairs or business; or

If any person knowingly gives to any agent, or if any agent knowingly uses with intent to deceive his principal, any receipt, account, or other document in respect of which the principal is interested, and which contains any statement which is false or erroneous or defective in any material particular, and which to his knowledge is intended to mislead the principal;

he shall guilty of a misdemeanour ..."

47. When this is compared with s.9(1), (2) and (3) of the Ordinance it is immediately apparent that there are two significant differences in the legislation.

48. The first is the difference earlier referred to that the words which are underlined are omitted from s.9(3) of the Ordinance.

49. As has already been indicated s.4(3) of the Prevention of Corruption Ordinance, Cap. 215 also included these words. The question which has to be asked is why the legislature in its wisdom omitted these words when enacting the present Ordinance. It would certainly appear that this was a deliberate omission and that it was the intention of the legislature to provide for offences even in the absence of the inter partes relationship referred to by Lawton, L.J. in Tweedie.

50. The second difference is perhaps even more significant. We refer to the layout of the section. It is to be noted that in the Ordinance separate offences are provided for each of the three subsections. This is in stark contrast to the format of the 1906 Act. Here all the various possibilities are provided for and it is only after the equivalent provisions of s.9(3) are dealt with that the words "he shall be guilty of a misdemeanour" appear.

51. This is important. Mr. Chang placed great emphasis upon the necessity of construing s.9(3) of the Ordinance in its proper context. That is reading the section in conjunction with s.9(1) and (2) which do appear to envisage a tripartite inter partes relationship. There may well be validity in Mr. Chang's contention if all of the subsections formed part of a whole.

52. This is not the case with s.9(1), (2) and (3) of the Ordinance. Each of the subsections is separate and independent.

53. It also has to be said that the words and meaning of s.9(3) of the Ordinance are clear and unambiguous. There can be no warrant for reading into the section a requirement that there must be tripartite relationship subsisting and that the absence of inter partes documents on the facts of this case is fatal.

54. As has already been noted Mr. Chang placed considerable reliance upon the passage earlier cited from the judgment of Lawton, L.J. in R. v. Tweedie. It is however apparent from the first four lines of the passage earlier cited that it is to a large extent predicated upon the premise that the different parts of the section of the 1906 Act are not separate and free-standing. This being the case the passage is of limited assistance to the Applicants.

55. We have come to the conclusion that Tweedie has no application to s.9(3) of the Ordinance and this being the case this ground cannot be sustained.

56. For the reasons we have given these applications for leave to appeal against conviction must be dismissed.

Representation:

Mr. K.P. Zervos, S.A.D.P.P. (Ag.) (D.P.P.) for Respondent

Mr. Dennis Chang, S.C., Mr. Lawrence Lok, S.C. & Mr. Sterling Tsu instructed by M/S Macksion Chan & Co. for Applicants