Secretary for Justice v. Pao Wai Hong

CAAR 3/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

APPLICATION FOR REVIEW NO.3 OF 2004

(ON APPEAL FROM dccc 1325 of 2003)

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J U D G M E N T

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Stuart-Moore, VP (giving the judgment of the Court):

Background

1.On 10 May 2004, the respondent was convicted of seven offences of using a document as an agent with intent to deceive his principal, contrary to section 9(3) (and punishable under section 12(1)) of the Prevention of Bribery Ordinance, Cap. 201 ("Cap. 201").  This followed a trial in the District Court before Deputy Judge A. Wong.  Sentencing was adjourned until 22 May 2004 when concurrent terms of twelve months' imprisonment suspended for two years were imposed on each charge.

2.On 12 June 2004, the Chief Judge of the High Court granted leave to the Secretary for Justice (the applicant) to apply to the Court of Appeal for a review of sentence, pursuant to section 81A of the Criminal Procedure Ordinance, Cap. 221, which is why the matter now comes before us.

The facts

3.This case closely resembles others with which this court has become all too familiar over recent years where government servants have applied for, and duly obtained, a Private Tenancy Allowance ("PTA") in respect of their "rental accommodation" by falsely making direct or implicit declarations that they had no financial interest in the leased premises.  The nature of the allegations in this case is encapsulated in the particulars of charge 1 which alleged that the respondent:

"…. on or about 1 August 1991, in Hong Kong, being an agent of the Hong Kong Government, namely a Structural Engineer of the Buildings and Lands Department, with intent to deceive his principal, used a document, namely, an Application for Private Tenancy Allowance (PTA) in relation to the leased property at Flat B, 2/F, Block 3, Cotton Tree Mansion, Whampoa Garden, Hunghom, Kowloon (‘the leased property') in respect of which the Hong Kong Government was interested and which contained a statement which was false or erroneous or defective in a material particular, namely that (he) was eligible to claim and receive Private Tenancy Allowance (PTA) in respect of the leased property, which to his knowledge was intended to mislead the Hong Kong Government."

4.The remaining six charges followed a similar pattern.  The 7^th charge related to a differently worded PTA form in which the respondent declared that he and his relatives "had no financial interest in the leased property" in respect of which he was claiming the allowance.  These further offences were committed when the application for PTA was due for renewal in each successive year between 1992 and 1997.

5.In essence, PTA is available to public servants of a certain rank as a monthly allowance to be paid towards the rent of the premises being leased.  In order to receive this benefit, it is a strict requirement that the public servant must have no interest in the leased premises.  An alternative benefit available to the public servant is the provision of a monthly allowance for the repayment of a mortgage loan in relation to premises which he is required to occupy.  This is known as the Home Financing Scheme ("HFS") for which a Home Finance Allowance ("HFA") is paid.  The allowance available to the public servant under the former benefit, namely PTA, is substantially greater than that which is payable under the HFA.  One further benefit of the PTA scheme is that the public servant preserves his right to move into non-departmental Government quarters should he wish to do so whereas under the acceptance of HFA excludes this option.

6.This case concerns a PTA fraud.  The respondent was a structural engineer employed by the Government.  Between 1991 and 1997 (after which he was promoted and provided with non-departmental quarters) he made seven successful applications for PTA in respect of a flat which was owned by a company known as Grand Touch Development Limited ("Grand Touch").  He falsely declared that he had no financial interest in the flat when in fact he owned or had a beneficial interest in the company.  The purchase price of the flat in 1991 was about $2.71 million.  In 2002, the flat was sold for about $3.07 million.

7.While the respondent was claiming PTA, he obtained a benefit of about $2.2 million but he actually received about $1.87 million because he had to pay a monthly rent to the Government which was calculated at 7.5% of his monthly salary.  In this regard, we have observed that in Secretary for Justice v Lin Min-ying & Anor, CAAR 7/2001, this court said that in such circumstances a "far more realistic" view of the dishonest gain was the difference between the amount obtained and any amount to which the respondent would in any event have been entitled under the HFA scheme.  In this case, adopting the approach recommended by the Court of Appeal, the judge accepted that the "true net gain" from the respondent's fraudulent activities, being the difference between the PTA and the HFA, was approximately $380,000.

8.On the day of conviction, counsel then appearing for the respondent applied for an adjournment on the ground that, as the court might as part of the sentencing process make an order under section 12 of Cap. 201 for the payment of the amount of the advantage received, the respondent should be given a chance to avail himself of the opportunity to make a voluntary repayment of the $1.87 million he had received.  In the event, he did so.

9.On 22 May 2004, several matters were raised in mitigation.  It was the cumulative effect of these which seemingly led the judge to suspend a global sentence of twelve months' imprisonment.  In summary, the main factors he took into account were that:

(i) voluntary restitution in the sum of $1.87 million had been made;

(ii) the net value of the gain actually obtained by the respondent was less because the respondent was entitled to an HFS allowance albeit, as the judge acknowledged, if the respondent had applied for such an allowance, he would have forfeited his future right to live in non-departmental quarters;

(iii) the respondent was the sole breadwinner in his family and was effectively supporting three generations;

(iv) the respondent had contributed to the government and to the community and was to be regarded as a person of positive good character as opposed merely to someone who had no previous convictions;

(v) although there had been no delay in the case being brought to court, the respondent had been "under pressure" since the commencement of the investigation;

(vi) the 51-year-old respondent stood to lose his job, his pension and probably his profession;

(vii) the parents of the respondent were both suffering from illness (his father was suffering from dementia while his mother was suffering from breast cancer and other illnesses);

(viii) the respondent's son might have to cease his education in the United Kingdom and return to Hong Kong to continue his studies; and

(ix) the respondent had been detained in custody for two weeks following his conviction and had, therefore, had a taste of prison life.

We pause here merely to observe, with respect, that we do not consider the mitigation in (v) to have carried any weight and that, so far as (viii) was concerned, this did not eventuate as other members of the family have subsidised the respondent's son in the continuance of his overseas education.

The application

10.It was submitted by Mr Zervos, SC, on the applicant's behalf, that the sentence which the judge imposed was manifestly inadequate and wrong in principle.  He contended that it sent out the wrong message, both as a specific and as a general deterrent.  The judge did not, he submitted, have adequate regard to the gravity of the offences.  The fraud involved an elaborate scheme of concealment and deceit over a period of seven years and resulted in the obtaining of an allowance to which the respondent would not otherwise have been entitled, amounting to about $1.87 million.  Mr Zervos complained also that the judge had not properly explained the starting point he had taken or what credit, if any, he had given for the mitigating factors and had not specifically identified the exceptional circumstances which warranted the suspension of the sentences.  Furthermore, he suggested, the manner in which the repayment of the $1.87 million had been made had the hallmark of a person who was attempting to buy his freedom.

11.In passing sentence, the judge made a number of observations which, as Mr Zervos rightly accepted, demonstrated that the judge had made a careful assessment of the respondent's culpability.  In particular, the judge had observed that the respondent was:

"…. knowingly involved in a trust arrangement to conceal from the government the fact that he had a financial interest in the property.  With this trust scheme, the defendant had dishonestly obtained PTA pursuant to his applications.  I also found that when he made the declarations in the PTA applications he knew that the declaration was not true…..

It was one of the major criteria for receiving of this fringe benefit that the claimant of PTA must not have a financial interest in the property in respect of which PTA is claimed.  What the defendant did was to put in place a scheme to cheat the government.  The scheme involved a substantial degree of planning and also other people.  The government was cheated for about 7 years.  Though in a scheme like this, once the vehicle starts it tends to continue running, the defendant did submit seven separate applications, each time repeating the same false declaration.

The government is entitled to place a significant degree of trust in its staff and the defendant betrayed this general trust reposed in him…..

By the deceptive scheme the defendant had received a total of $1.87 million.  I accept that the defendant was in any case entitled to some sort of housing benefit by virtue of his seniority and therefore the monetary advantage which the defendant had actually obtained was much less than what it appears to be.

I am told today that had the defendant sought to apply for a home finance allowance which the defendant was also entitled at the material time and with which he is free to choose between buying or renting a flat he would have obtained an allowance to a total of $1.49 million for the same period of time.  The net gain from this dishonest scheme was therefore in the region of $380,000.

Learned senior counsel described the act of the defendant as foolish and unnecessary.  I am not going to accept this view readily.  The defendant had much to gain in this dishonest scheme.  Apart from the monetary advantage, the defendant retained his right to live in a non-departmental quarters, whereas if he claimed other form of housing benefit this entitlement would have been forfeited.  In any case, what the defendant tried to do was to obtain the best of both worlds…..

These were offences dated back to 1991.  They were old offences.  On the other hand, the purpose of the scheme which the defendant put in place was to conceal the offence and avoid investigation.

Investigation of the defendant started in (2003).  Though I appreciate the pressure which the defendant had to stand, there is no delay in prosecution.

The defendant is a first offender with unblemished character.  He is an intelligent, hardworking person, and enthusiastic to help others.  With this conviction he stands to lose his job, his pension and everything which he has built through the hard work over the years.  It is a real risk that he might lose his professional qualification as well.  However, this is something which a person in the position of the defendant must stand to face when he embarks on commission of a criminal offence, let alone offences of serious nature."  (Appeal bundle pp. 87-89)

12.No criticism was made of any part of this assessment.  It accurately summarised the respondent's position and the serious nature of the offences committed by him.

13.Where, however, Mr Zervos did criticise the judge, and with respect to the judge we accept the force of leading counsel's submissions, was in relation to some of the later observations of the judge.  In particular, the judge described the offences as "a single fall from grace" which was "different from a case where an adult can generally be said to have foreseen the consequence when he embarked on (the) commission of the offence".  Mr Plowman, SC, who did not represent the respondent in the court below, realistically did not seek to support these findings.  He accepted also that the respondent had strenuously contested the charges at his trial and, while this could not be regarded as a factor which added to the gravity of the offences, this revealed a very clear lack of remorse which, if the respondent had pleaded guilty, might otherwise have been a strong factor (taken with the other mitigating circumstances) towards justifying the clemency which in the event was extended to the respondent.

14.A further important factor which appears to have led the judge to impose a suspended sentence in this case was his reading of the decisions arrived at in a number of other cases of a similar kind.

15.In two cases which came before this court as applications for leave to appeal against conviction, namely, HKSAR v Lau Ming-chu, CACC 225/2004 (unreported) and HKSAR v Sin Law Yuk-lin Agnes & Anor, CACC 17/2001 (unreported), both of which concerned senior personnel who had defrauded the Government of PTA, the judge observed that none of the applicants in those cases had received a term of immediate custody.  The additional significance of this so far as these proceedings are concerned, is that the Secretary for Justice made no attempt to review their sentences.

16.The judge was also referred to HKSAR v Hau Kam-chor & Anor, CACC 254/2000 where, on similar facts, the 1^st applicant in that case received a custodial sentence.  However, the value of that case is limited as the appeal against conviction was allowed in respect of four of the five charges before the court and, in any event, no guidelines were provided for sentence in cases of this kind.

17.More importantly, the judge's attention was drawn to two reviews of sentence in which, as it happens, Mr Zervos again appeared on the applicant's behalf.  Mr Zervos, in the proceedings presently before us, submitted that the judge had inadvertently misinterpreted the message which the Court of Appeal had been attempting to convey in each.

18.Firstly, in Secretary for Justice v Leung Yat-ming & Anor, CAAR 9/1998 (unreported), two university lecturers who were husband and wife were convicted after trial of the same type of offences as in the present case.  The total PTA received as a result of their dishonest scheme amounted to $1.25 million (spread over approximately seven years) for the 2^nd respondent and $286,370 for the 1^st respondent.  Each respondent in that case received a sentence of nine months' imprisonment suspended for two years and an order was made by the sentencing judge for the repayment of the full amount of the PTA obtained.  By the time of the review, this had been paid.  When delivering judgment, this court accepted (at p. 11) the submission advanced by Mr Zervos on behalf of the Secretary for Justice that:

"…. however constructively these respondents had contributed to society it was still nonetheless the case that they had to be sentenced for the offences they had committed rather than simply on the basis of their previous character.  It was essential that everyone should be equal before the law."

The court also stated that it was unacceptable that:

"…. there should be wide disparity in sentence for offences of this kind.  There had to be a limit to the extent to which it was justifiable not to pass an immediate term of imprisonment which would normally be imposed for the type of offence in question ….

…. we also accept that while the discretion reposed in a sentencing judge is wide the sentences imposed in this case having regard to all the circumstances were lenient."  (Emphasis added)

19.It was plainly the intention of this court to state that a custodial sentence should normally be imposed.  In all cases of this kind, it is to be expected that such offenders, who are invariably to be regarded as having exemplary character by virtue of their position as senior Government servants, will normally go to prison for fraudulent behaviour on this scale.  They are people who will have had every advantage in life and who, motivated by reasons of sheer greed, have acted not only in breach of the general trust reposed in them to act honestly towards the Government which has employed them but also fraudulently towards the public whose taxes are utilised in the payment of such benefits as these.

20.We can accept, however, the criticism which can be made of the judgment in Secretary for Justice v Leung Yat-ming & Anor, to which I was myself a party, that the message may not sufficiently have been conveyed that a prison sentence, following a conviction after trial, will normally be the inevitable result.  Perhaps the message was further diluted by what the court effectively found in that case, namely, that as the sentence had been imposed almost a year before the review of sentence was heard, it was too late to convert the suspended sentences into terms of immediate imprisonment.  The court observed (at pp. 11-12) that:

"…. The Judge imposed the suspended sentences on 21^st July 1998 almost a year ago.  For most of the time since then they have lived in the shadow of this review.  It would be a severe punishment for them to be now sent to prison, little short of devastating.

Both respondents have lost their positions and we have been advised by Mr. Lok, S.C. that they have also had to forfeit valuable pension rights as a consequence of this.  They have also repaid all the moneys they were ordered to pay.

We have also to say that we would have found it considerably easier to have imposed a custodial sentence immediately after trial than we do now, following a review of the sentence, and the substantial period following the trial during which the respondents have been at liberty.

In the very exceptional circumstances of this case we have come to the conclusion that it would be unduly harsh at this late stage to order that immediate custodial sentences should now be imposed. We would however emphasise that we do not in any way reject the submissions which were so ably advanced by Mr. Zervos. We consider though that the interests of justice will be served if we decline to accede to this application.  This is the order we make."

21.In the second very similar review decision to which the judge in the court below was referred, namely, Secretary for Justice v Lin Min-ying & Anor [2002] 2 HKLRD 823, this also concerned two university lecturers who were again husband and wife who had been convicted of a PTA fraud after trial.  They were each sentenced to 240 hours of community service on charges of furnishing false information, contrary to section 19(1)(b) of the Theft Ordinance, Cap. 210.  Although such a charge carries a higher maximum sentence than the charges brought in the present case, we do not consider that this provides any distinction of any materiality.  The total PTA received by the respondents in Lin Min-ying amounted to about $1 million and the "true gain", being the difference between the PTA and the HFA, was accepted by the sentencing judge to have been approximately $280,000.  The respondents, during their remand in custody for two weeks for the preparation of reports, had voluntarily repaid the PTA they had received plus interest, a total of $1.4 million.  The court in that case went on (at p. 831) to observe:

"Having weighed the various factors to which we have already referred, we consider that whilst the sentence imposed on each respondent by this very experienced judge was undoubtedly a merciful one, and that the respondents would have had no valid complaint if they had been sentenced to an immediate term of imprisonment, the interests of justice are not such as to require this court to allow this application."

22.It is worthwhile repeating Judge Sweeney's remarks in that case, cited by this court with approval (at p. 827), which were as follows:

"If there are such people out there, they can expect ‘the greatest clemency' (to borrow a phrase I have read a lot of recently) if they immediately put their hands up and admit their guilt and offer to repay all monies improperly obtained as soon as possible.  In that way they will not only be showing remorse, but also saving the prosecution authorities a great deal of time and effort as these can be complicated and troublesome cases to prosecute.  That is what I would term ‘the honourable approach'.

By stark contrast, what we have had in this case is ‘the dishonourable approach'.  This is where a defendant hopes to brazen it out by not only forcing the prosecution to prove its case, but also allowing evidence to be called to try to support the original deceit.  Then, and only then, if that fails, come forward with page after page of good character reference and offer to pay back all monies improperly obtained in order to avoid full punishment for their crime.

Just as (D1 and D2) chose the best of both worlds when deciding what finance to apply for, so also they have chosen the best of both worlds in deciding how to approach this prosecution.  They have allowed Mr Yau Koon-ting to go through the agony of spending three days in the witness-box telling lies on their behalf."

23.The particular difficulty confronted by this court in Lin Min-ying's case when deciding that it would be inappropriate to impose a custodial sentence at the stage of the review was that the respondents had already completed the 240 hours of community service they had been ordered to undergo.  An additional factor of considerable significance was that the prosecution had been hanging over the heads of the respondents for about two and a half years.  Mr Zervos in those proceedings responsibly accepted (at p. 830) that "this was too long and that the investigation could have been conducted more efficiently".

24.Having observed that the real message the Court of Appeal had intended to convey in Leung Yat-ming may have been lost, and perhaps the same can be said of Lin Min-ying's case, we do not criticise the judge in the present case for having wrongly utilised both these cases as support for the conclusion that a lenient sentence could properly be imposed.  Having said this, in the absence of any demonstration of remorse on the part of the respondent, there was in our view no real basis for suspending the overall sentence imposed upon him despite compelling mitigation which justified a reduction from what might otherwise have been taken as the starting point to the level of sentence (twelve months' imprisonment) which the judge ultimately considered was appropriate.  In this context, it is plain that the prosecution had proceeded without delay and the facts which were proved demonstrated a sizeable and sophisticated fraud on the Government which should not, in our judgment, have been dealt with by any other course than a term of immediate imprisonment.

25.It is right to add, for the purposes of completion, that since the imposition of the suspended sentences on the respondent, he has (apparently with the permission of the Buildings Department) been working as a full-time structural engineer for a private company earning a monthly salary of $30,000.  Furthermore, in addition to the $1.8 million he had paid prior to being sentenced, the respondent has made a further payment to the Government of $1.588 million which represented the interest he owed on the sums fraudulently obtained by him.

Conclusion

26.In all the circumstances, not without considerable hesitation, we shall accede to Mr Plowman's submission that we should not exercise our discretionary power to substitute an immediate term of imprisonment under section 81B of the Criminal Procedure Ordinance, Cap. 221 (see also: Attorney-General's Reference No. 4 of 1989, [1989] 11 Cr.App.R(S) 517 at 521).  This should not be read as undermining our opinion that this application for a review was fully justified.

Mr Kevin P. Zervos, SC, DDPP (Ag.) and Mr Simon Tam, SGC, of the Department of Justice, for the Applicant.

Mr Gary Plowman, SC and Mr Derek Chan, instructed by Messrs Poon Yeung & Li, for the Respondent.