HKSAR v. Chan Shu Hung and Another

[English Translation]

CACC 512/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL JURISDICTION

APPLICATION FOR LEAVE TO APPEAL

AGAINST CONVICTION AND SENTENCE

CRIMINAL APPEAL NO. 512 OF 2001

(ON APPEAL FROM DCCC NO. 87 OF 2001)

____________________

BETWEEN

____________________

Before: Hon Leong CJHC, Cheung and Yeung JJA

Date of Hearing: 14 November 2002

Date of Judgment: 28 November 2002

Judgment

Hon Yeung JA (giving the judgment of the Court):

1.The 1^st applicant Chan Shu Hung (A1) and the 2^nd applicant Sze Yuen Nau (A2) are husband and wife.  They appeared before Deputy Judge Law in the District Court on various charges of conspiracy to defraud: A1 on counts 1, 2, 3, 5 and 6, and A2 on counts 3, 4, 5 and 6.

2.Charges 1 and 2 alleged that A1 conspired with Kwok Tai Mei and Ng Kam Fong respectively to defraud the Urban Council (“UC”).  Charge 4 alleged that A2 conspired with Lee Shun and Chan Shu Hung to defraud the Provisional Urban Council (“PUC”).  Charges 3, 5 and 6 alleged that A1 and A2 jointly conspired with Lam Lai Ching, Ngai Ho, Wong Siu Fong and Ip Kwan respectively to defraud the PUC.

3.A1 and A2 pleaded not guilty to all the charges.

4.A1 and A2 were convicted of all the charges after trial, and were sentenced to 15 months’ imprisonment for each count, to be served concurrently.

5.The applicants now seek leave to appeal against both conviction and sentence.

6.This case arose out of certain new policies (“the policies”) implemented by the Urban Services Department (“USD”) in the 1990s.  For present purposes, “USD” shall include the UC as well as the PUC, which was set up in 1997.

7.In a bid to reduce the number of itinerant hawkers so as to improve the general environment, the USD implemented the policies and encouraged holders of itinerant hawker licences to surrender their licences.  The policies provided for compensation to be made to those who were willing to surrender their itinerant hawker licences.  Two of the compensatory measures were as follows: 

(1) to enjoy priority in selecting a vacant fixed hawker pitch through the “Restricted Ballot and Selection Exercise”; or

(2) to enjoy priority in selecting a stall in UC markets through the “Restricted Ballot and Selection Exercise”, and to receive a concession on rent for the first 3 years (the rent could be as low as 4% of the market rent of the relevant stall).

8.Those alleged to have conspired with A1/A2 included Kwok Tai Mei (PW6), Ng Kam Fong (PW7), Lam Lai Ching (PW9), Ngai Ho (PW10), Lee Shun (PW11), Wong Siu Fong (PW12) and Ip Kwan (PW13).  They all used to be holders of itinerant hawker licences.

9.The prosecution’s case was that A1/A2 talked the above witnesses into surrendering their itinerant hawker licences to the USD, in exchange for fixed hawker pitches/market stalls (“stalls”).  However, the witnesses did not use the stalls obtained to carry on business; instead, they assigned/let the stalls to other hawkers through A1/A2 at a high price and let them carry on business there.

10.Although the above witnesses all signed “official tenancy agreements” with the USD and became “registered tenants”, they did not manage the stalls.  The real managers were a group of nominal “registered assistants”.

11.But there was no employment or partnership relationship between the “registered assistants” and the “registered tenants”.  In fact, the “registered assistants” were those who had the stalls assigned/let to them by A1/A2 for carrying on business.

12.The amount that A1/A2 paid the “registered tenants” for acquiring the stalls was much smaller than the rent they collected from the “registered assistants” who rented the stalls from them.  This enabled A1/A2 to gain huge profits that ranged from hundreds of thousands of dollars to over a million dollars.  

13.The prosecution said that the agreements and arrangements reached among A1/A2, the “registered tenants” and the “registered assistants” contravened the relevant terms of the “official tenancy agreement”.  They deceived the USD for their personal gain and this, it is said, constituted conspiracy to defraud.

14.Clause 4 of the “official tenancy agreement” between the “registered tenants” and the USD provided that “The Tenant shall not assign, sublet, transfer or otherwise part with any of the benefits or obligations conferred by this Agreement”.

15.Clause 16 of the “official tenancy agreement” also provided that “The Council may terminate this Agreement in the event of any breach of this Agreement by the Tenant”.

16.Further, under Clause 2 of the fixed pitch hawker licence issued to the “registered tenants”, “the licensee shall not assign or re-sell his licence to any person, or sublet or part with possession of the stall, without prior approval in writing from the Urban Council.”

17.The arrangements made between the “registered tenants” and the “registered assistants” through A1/A2 were not only in breach of Clause 4 of the “official tenancy agreement”, thus entitling the UC to terminate the tenancy agreements and re-possess the stalls, but were also in breach of Clause 2 of the fixed pitch hawker licence.

18.At trial, a number of prosecution witnesses were called to testify against A1/A2.

19.Among the witnesses was Mr Lee Kwok Kuen, Assistant Director of the former USD (PW1).  PW1 elaborated on the relevant policies and their background.  He specifically pointed out that if a tenant acted in breach of the tenancy agreement by assigning/letting his stall to others, the USD would issue a verbal warning.  If the tenant failed to rectify the breach, the USD would issue a warning letter, which was commonly known as a “letter of breach”.  Where three “letters of breach” were issued to the same tenant within a period of 12 months, the USD would refer the case to a Delegated Member of the UC, who would then decide whether to terminate the tenancy agreement or to cancel the relevant fixed pitch hawker licence.

20.PW1 agreed that when tenants assigned/let their stalls, they were merely acting in breach of contract and were not committing a criminal offence.  The relevant legislation, however, provided that hawker licences were not to be transferred without prior approval.

21.PW1 said that they had never come across a case where, before a tenancy agreement was signed or a licence issued, they actually knew that the hawker concerned intended to contravene the provisions against assignment/letting of stalls.  Moreover, the USD had never required tenants to declare that their stalls were not assigned/let.

22.The other prosecution witnesses who worked in the USD also said that stalls were not to be assigned/let.  Unless the tenant passed away and an application was made by his family, the holder of the hawker licence could not be changed.  Should a tenant be found to be in breach of the rules, his stall would be repossessed.  The relevant provisions would also be explained to the tenants when they signed the tenancy agreements.  But none of them gave very clear evidence.

23.The USD officers all emphasized that if a tenant had declared before signing the tenancy agreement that he would assign/let the stall after signing the agreement, then the USD would not sign the agreement with him; and that if it had been known before issuing a licence that the applicant for the licence would assign/let the stall, then he would not be issued a licence.  This notwithstanding, the officers’ evidence also showed that the USD did not take the matter of assigning/letting of stalls by “registered tenants” very seriously.

24.PW1 conceded that when the USD publicised and promoted the policies, they did not stress that stalls could not be assigned/let.  Nor did the USD require “registered tenants” to declare at the time of execution of the tenancy agreements that they would not assign/let the stalls.  The USD’s objective was to revoke all itinerant hawker licences as quickly as possible.

25.The USD had never cancelled any tenancy agreement with a tenant by reason of his assigning/letting his stall.  As a matter of fact, tenants were free to manage the stalls with others and share the profits among themselves.

26.The USD also allowed one person to enter into tenancy agreements in respect of a number of stalls.  The existence of these ‘multiple licences’ shows that there were in fact assignments of itinerant hawker licences.

27.The USD had never formulated any specific measures to prevent or eradicate the practice of assigning/letting stalls.

28.PW2 agreed that he knew there were newspaper advertisements offering to assign/let stalls, but the USD had never instigated any actions, nor had it ever issued any “letter of breach”.  Although he had heard of verbal warnings being issued, those cases in the end simply went unsolved.  He said tenants could “legally get away from it”.

29.PW2 admitted that the existence of “multiple licences” meant that there were people who held a number of itinerant hawker licences when they selected a stall.  This showed that the itinerant hawker licences concerned were bought from someone else.  PW3 admitted that he often heard of instances of stalls being assigned/let, but he had never “formally” reported them to his superior, nor had he ever taken any action.  He also admitted that the tolerant attitude adopted by the USD might have misled the tenants into thinking that assigning/letting stalls was a lawful “private matter”.  He explained that in order to avoid “getting into trouble”, he had told the ICAC that if a tenant’s intention to assign/let the stall was known, definitely no tenancy agreement would be signed with him.

30.We do not wish to go into too much detail about the evidence of the USD officers.  Suffice it to say that, viewed as a whole, their evidence showed that the USD was well aware that there were stalls being assigned/let and that such practice was quite prevalent.  All along, however, the USD had just “turned a blind eye” to the problem and had never taken any robust measure to eradicate it.

31.We understand that, when they were giving evidence, the USD officers might have tried to play down the matter and present themselves as responsible officers in order to protect their personal interests.  Nevertheless, the trial judge’s findings that the USD would definitely not allow stalls to be assigned/let, and that the USD had not lifted the restrictions on the assignment/letting of stalls, were inconsistent with the USD officers’ evidence.  These findings were not beyond reproach.

32.Indeed, it is also clear from the evidence of Legislative Councillor Mr Fung Kin Kee Fredrick, who was one of the defence witnesses, the practice of tenants assigning/letting their stalls had always existed.

33.The Hon. Mr Fung, being an experienced Urban Councillor, had a thorough understanding of the policies.  He said that cases of assignment/letting of stalls happened time and again, and that the problem had been discussed in UC meetings in the past.  The lack of any policy by the USD to tackle the problem was, in Mr Fung’s words, a “loophole”.  Mr Fung also clearly pointed out that some tenants had, after receiving warning letters as a result of subletting their stalls, approached Councillors and asked them to negotiate with the USD.   Further, even where a stall had been assigned/let, the Councillor on duty would, instead of revoking the relevant licence, take into account “human” factors and allow the licence to be renewed.

34.The USD’s attitude towards the practice of assigning/letting stalls is also apparent from their approach in dealing with the tenants involved in the present case.

35.These tenants had, in breach of their respective tenancy agreements, assigned/let their stalls, and had pleaded guilty to conspiracy to defraud.  However, the USD did not cancel their agreements, so they were still “registered tenants”.  Recently, the USD even invited Ms Ip Kwan (PW13) to sign a document regarding reduction in rent.  The USD neither asked her whether the stall was still being managed by her, nor issued any warning letter to her regarding the assignment of her stall. 

36.Apart from the USD officers, a number of “registered tenants” involved in the “conspiracy” also gave evidence at trial.  They had all been granted immunity from prosecution and therefore testified under immunity.

37.These witnesses who were granted immunity all used to be holders of itinerant hawker licences.  A1/A2 talked them into surrendering their licences to the USD “in exchange for” stalls.  They became “registered tenants” and then allowed A1/A2 to handle their stalls.

38.The “registered tenants” all alleged that, before they became “registered tenants”, they had already agreed with A1/A2 that after they have been assigned stalls, they would let them to A1/A2, and A1/A2 would pay them an amount they had agreed on as consideration.

39.After a “registered tenant” selected his stall, he would sign a declaration of lease of the stall and assign the stall to A1/A2, who would then manage it.  None of the “registered tenants” had any knowledge of the “registered assistants”, who actually ran business at the stalls and who had nothing to do with the tenants’ business.  The tenants applied for assistant licences for the “registered assistants” only because A1/A2 requested them to do so.

40.Some of the “registered tenants” claimed that they did not know what the consequences would be if they assigned/let the stalls instead of doing business themselves at the stalls, and that they had no idea whether the USD permitted them to do what they had done.  However, they had not disclosed the truth to the USD, nor had the USD ever made any enquiry with them.

41.At the same time, some “registered tenants” said that they did know that they could not assign/let the stalls in question.  Some “registered tenants” even said that the transaction that they had with A1/A2 was illegal, but they alleged that it was a common practice to assign/let the stalls.

42.The practice of assigning/letting through A1/A2 the stalls allocated to the “registered tenants” was obviously in breach of the relevant conditions in the tenancy agreements and the licences.

43.A1/A2 required the “registered tenants” to declare in the declarations of assignment/sale/letting of the stalls that they would fulfil their obligations and that if they could not fulfil the obligations themselves, their successors would be obliged to do so.  This shows they were aware that what they did was contrary to the conditions in the tenancy agreements and the licensing conditions.

44.Nevertheless, in the particular context of the present case, the fact that the acts in question contravened the conditions in the tenancy agreements and the licensing conditions did not necessarily mean that the USD did not permit such acts, much less did it mean that the “registered tenants” and A1/A2 knew that the USD did not permit such acts.

45.Mr Eric Kwok, counsel for A1/A2, submits that in order to establish “fraud”, there must be a false representation, but the “registered tenants” had no duty to disclose to the USD that they would not carry on their business at the stalls that they acquired, and therefore their conduct did not amount to a false representation.

46.Mr Kwok argues that, if “concealment of facts” is to be transformed into a false representation, the precondition is that the concealing party has a duty to disclose the relevant facts to the party from whom the facts are concealed.

47.In support of his argument, Mr Kwok cited a short extract from the judgment of Slade LJ in an English Court of Appeal case Johnson v Nobbs (unreported, 9 March 1983).  The extract is as follows:

“… the mere concealment of these facts could, by itself, amount to a false representation only if there was a duty on the concealing party to disclose the facts to the other party.”

48.Mr Kwok submits that the “registered tenants” in question had no duty to disclose to the USD that they would not carry on their business at the stalls and therefore their words and conduct could not possibly constitute a false representation.  In the absence of any such representation, there was nothing that could amount to fraudulent conduct. 

49.Mr Chan Kwong Chi, Senior Assistant Director of Public Prosecutions and counsel for the prosecution, emphasized that, taking into account the background and the special circumstances of the present case, the concealment of facts per se constituted a positive false representation.  Mr Chan points out that, before a “registered tenant” signed the tenancy agreement, the parties had been in negotiation for quite a long period of time, and the “registered tenants” must have known that the tenancy agreements which they signed did not permit them to assign/let the stalls concerned.  They were able to enter into the tenancy agreements with the USD solely because of their special status.  First, they had to surrender their itinerant hawker licences.  Then, through the arrangements made by the USD, they could enjoy priority in selecting the stalls they liked.  The tenancy agreements were signed only at the final stage.

50.Mr Chan submits that, under these circumstances, the concealment of facts by a “registered tenant” at the time of signing the agreement had in fact constituted a false representation.

51.We understand the above arguments and have considered the transaction which took place between the “registered tenants” and the USD as a whole.  In our view, the words and conduct of the “registered tenants”, including the concealment of facts in question, could constitute a false representation.

52.Apart from procedures prior to the execution of the tenancy agreements, the “registered tenants” were entitled to exercise certain rights and also bound to perform certain obligations when the agreements were executed and thereafter.

53.The “registered tenants” gave up their itinerant hawker licences in exchange for the right to rent the stalls, and they rented the stalls at a concessionary rent which was very favourable to them.  When they signed the tenancy agreements, they must have known that the conditions in the tenancy agreements and also the licensing conditions did not permit the assigning/letting of the stalls.  However, they had already made arrangements long before that to assign/let the stalls through A1/A2. 

54.The “registered tenants” even promised A1/A2 that they would renew the tenancy agreements with the USD in their own names at the expiry of the agreements.  They also guaranteed that they would not surrender the tenancy.  Some “registered tenants” did in fact keep their promise upon the expiry of the tenancy agreements by renewing the agreements with the USD.  On the face of it, they continued to rent the stalls for their use, but in reality they helped the lessees continue to run the stalls, thereby obtaining reward for renewing the tenancy agreements. 

55.Needless to say, during the term of the tenancy agreements, the “registered tenants” had to perform, whether by themselves or through others, the terms and conditions of the agreements, including the payment of rent to the USD every month.

56.All the abovementioned words and conduct could constitute positive representations that the tenants would carry on their business at the stalls and would not assign/let the stalls.

57.In Director of Public Prosecutions v Ray [1974] AC 370, the defendant and four friends went to a Chinese restaurant intending to have a meal there and pay for it.  After eating the main course, however, they decided not to pay for the meal and fled from the restaurant when the waiter went out of the room.  The defendant was convicted of dishonestly obtaining a pecuniary advantage by deception.

58.The Privy Council affirmed the conviction.  The majority view of the Council was that the transaction had to be regarded as a whole.  The defendant’s conduct amounted to a continuing representation of his intention to pay, the effect of which was that he was treated as an honest customer whose conduct did not call for alert.  His change of mind, therefore, in itself constituted deception.

59.Lord Pearson made the following comment at p.390:

“The essential feature of this case … is that there was a continuing representation to be implied from the conduct of the respondent and his companions.  By ‘continuing representation’ I mean in this case not a continuing effect of an initial representation, but a representation which is being made by conduct at every moment throughout the course of conduct.”

60.The same comment can apply to the present case.  The “registered tenants” gave up their itinerant hawker licences in exchange for the right to rent stalls at a concessionary rent.  They also paid rents each month pursuant to the tenancy agreements and, upon expiry of the term of tenancy, even applied for renewal of the agreements.  They very well knew that they were prohibited by the tenancy agreements and the licences from assigning/letting the stalls.  At no time did they intend to carry on business at the stalls.  What they did was to assign/let the stalls immediately through A1/A2.

61.The words and conduct of the “registered tenants” throughout the transaction might not merely be “concealment of facts”, but might constitute “false representation”.

62.The prosecution case against A1/A2, however, was not built upon the above basis.  The conduct of the “registered tenants” after they signed the tenancy agreements had not been relied upon in support of the charges.

63.The alleged deception set out in the particulars of charges against A1/A2 was restricted to the fact that, at the time of the signing of the tenancy agreements, the “registered tenants” failed to disclose to the USD the assigning/letting of the stalls.

64.Nor did the particulars of charges specified any special circumstances which showed that the “registered tenants” had said other words or did other acts before or after the signing of the tenancy agreements which produced the effect that their concealment of facts at the time of signing the agreements constituted an operative false representation.

65.In the circumstances, the prosecution is not entitled to rely on other special circumstances or other words or conduct of the “registered tenants”.  We can only consider the act of concealment of facts set out in the particulars of charges.

66.We accept Mr Kwok’s submission that, unless a special relationship exists between the parties to the contract or the contract is of a special nature so that the concealing party has a duty to disclose the relevant facts to the other party, the concealment of such facts does not constitute a false representation.

67.There is nothing in this case which shows that the “registered tenants” were under a duty at the time they signed the tenancy agreements to disclose to the USD that they had already assigned/let the stalls.  Therefore, the fact that they concealed those facts from the USD did not constitute a false representation.

68.It is apparent that the USD “turned a blind eye” and was tolerant towards the assignment/letting of the stalls by the “registered tenants”.  We harbour doubts about the assertion made by the USD officers that if they knew that the “registered tenants” would assign/let the stalls, they would definitely not have signed the tenancy agreements.  Up to this moment, the tenancy agreements of the “registered tenants” in question are still valid and have not been cancelled.  The USD has even asked some of the “registered tenants” involved in the present case to sign documents relating to the reduction of rent.  These are inconsistent with the USD officers’ assertion.

69.The practice of “registered tenants” assigning/letting their stalls was clearly prevalent.  The USD had all along adopted a tolerant attitude towards such practice and had never referred the matter to the police.

70.Further, the existence of “multiple licences” would certainly lead those concerned to think that it was not illegal to assign/let their itinerant hawker licences or the stalls in return for which they gave up their itinerant hawker licences.

71.The fact that those concerned made arrangements for assigning/letting the stalls in order to avoid direct conflict with the tenancy agreements or licences does not mean that their words or conduct must have been dishonest.

72.We have carefully considered all the facts of the case as well as the arguments put forward by the prosecution and the defence.  Applying the Ghosh test, we are not satisfied beyond reasonable doubt, whether on an objective or subjective view, that the conduct of the “registered tenants” in assigning/letting the stalls was dishonest.  Nor can we say with certainty that they had done any fraudulent act.

73.The assigning/letting of the stalls by the “registered tenants” was a violation of the tenancy agreements which they signed and was not to be encouraged.  A1/A2 colluded with them to exploit the “loophole” in the USD policy for their personal gains, thereby indirectly causing loss to our public revenue.  Such conduct is immoral and condemnable.  Whether civil proceedings can be instituted against the “registered tenants” and/or A1/A2 to claim damages for breach of contract or tort is not something we have to consider in the present appeal.

74.The criminal law, however, is not to be used for dealing with breach of contract/tort or moral issues arising from such matters.

75.The Court cannot impose criminal sanctions on an accused on the ground that he has acted in breach of contract or has done a tortious or other immoral act.

76.In the present case, we take the view that, no matter how immoral and condemnable A1/A2’s conduct was and how such conduct should be discouraged, such conduct was not sufficient to render A1/A2 criminally liable.

77.The conviction of A1/A2 for conspiracy to defraud is unsafe.

78.Leave to appeal is granted to A1/A2, and the hearing of the application is treated as the hearing of the appeal.

79.The appeal is allowed.  The conviction of A1/A2 is quashed and the sentences are set aside.

Mr Chan Kwong Chi, Senior Assistant Director of Public Prosecutions and Mr Lam Kar Yan Gary, Government Counsel, for the Respondent

Mr Eric Kwok, instructed by Johnson, Stokes & Master, for the 1^st and 2^nd Applicants

Translated by the Judgment Translation Unit of the Judiciary and approved by Mr. Edmund Cham, Solicitor.