James Coe and Another v. The Queen
|
CACC000990/1978
----------------- Coram: Cons, J. Date of Judgment: 12 January 1979 ----------------- JUDGMENT ----------------- 1. Mr. James Coe, otherwise known as Hui Lok Kwan, was made a director of the Oceania Finance and Land Corporation Ltd. on the 10th June, 1977. I shall call that company simply "Oceania". It is a registered deposit-taking company. At that time Mr. Coe was interested in purchasing a controlling interest in the San Imperial Corporation Ltd. To do this he needed HK$4,600,000. Apparently he did not have it. He could not borrow that amount from Oceania, section 22 of the Deposit-Taking Companies Ordinance, Cap.328, prohibits lending to one particular person more than 25% of a company's paid up capital and reserves. HK$4,600,000 represented nearly 100% of Oceania's capital and reserves. So Mr. Coe and Oceania's accountant, a Mr. Tsang Chun Tok, otherwise known as Abies Tsang, thought of a way round the law. The money would be lent to five separate individuals who in their turn would make it available to Mr. Coe. Accordingly five persons were found from among the business associates of Mr. Coe and Mr. Tsang. Oceania made loans to each of them, each loan being within the permitted limit. The money was not actually paid to the individual. He signed a receipt for it, but by the self same document authorized Oceania to pay the money to a company known as the Ming Kee Trading Co. Ltd. Oceania did so. Immediately Ming Kee lent the money to Mr. David Ng, the person who was selling the shares in San Imperial to Mr. Coe. At least the documents drafted on the instruction of Mr. Coe say that the money was lent, although there is no indication that Mr. Ng ever repaid. The cheques, which had been conveniently left blank as to the payee when issued by Oceania, were completed in his name and paid into his bank account. Mr. Coe's control of the whole transaction is further emphasized by the fact that the collateral ostensibly put up by the five individual borrowers was all supplied by him; and that Ming Kee was controlled by his mother, together with the wife of Mr. Tsang. It is fair to add that the loans were all repaid in full, by Mr. Coe. 2. On these facts the learned magistrate convicted Mr. Coe that being a director of Oceania he consented to an advance to a company, which advance was in excess of 25% of the paid up capital and reserves of Oceania, contrary to sections 22 and 31. Section 22 provides as follows:
3. The first point taken on appeal for Mr Coe is that the financial arrangements did not amount to an "advance". Reliance was based upon the Concise Oxford Dictionary to argue that to advance means to lend money or to pay money before it is due. Reference was also made to the appropriate heading in the first volume of Words and Phrases Legally Defined. The learned magistrate took the view that to advance had a wider meaning. He relied upon the comments made by Bacon, V.C., in London Financial Association v. Kelk(1), which comments are quoted both in Words and Phrases and in Stroud's Judicial Dictionary, Vo1. I. I would agree with him. The word "advance" is generally used in reference to a present payment made against monies due or likely to become due in the future. It is implicit that the person advancing will be reimbursed if the monies do not in fact materialise. "Advance" is also often used as a straightforward euphemism for a loan. But I do not think its use is necessarily limited to these particular transactions. The judgment referred to by the learned magistrate indicates that it may apply to a variety of other situations. I make no attempt to catalogue them. It is sufficient to say that if the word is to apply the way in which the money proceeded from Oceania to Ming Kee in the present case, then it is necessary to look upon the loan transactions with the individuals as sham or fictitious transactions. For the same money cannot at the same time be both a loan to individuals and an advance to a separate limited company. A sham or fictitious transaction is one which the ostensible parties never intend to be carried out. The learned magistrate took the view that that was the situation here. Whether or not a particular transaction is a sham or genuine transaction is a question that is never easy to decide. In particular care must be taken not to strike down what are in fact genuine transactions merely because the objects achieved by those transactions may be thought to be undesirable or because the motives of those who arrange those transactions are not necessarily approved of. Nevertheless in the circumstances of this case, particularly bearing in mind that Ming Kee made no promise or gave no undertaking of any kind to reimburse the five individuals if necessary, I am not prepared to differ from the learned magistrate's conclusion. 4. That immediately raises a difficulty. Part of the evidence in this case was a statement of facts agreed by all counsel under section 65 of the Criminal Procedure Ordinance, Cap.221, one of those facts was this:
5. I can only assume that by those words all counsel meant "genuine loans". And in that case the magistrate's finding that the loans were sham is not consistent with that agreed fact and cannot therefore be sustained. And without that finding the convictions cannot be sustained. 6. I should add that the statement of facts was agreed by all counsel when the charge stood as it had originally been framed, that is that Mr. Coe as a director of Oceania consented to the grant of a loan in excess of the permitted amount to five persons which persons were under the control of one person, namely, himself. The charge was not amended until half way through the trial when the magistrate did so of his own accord and despite objections by counsel prosecuting for the Crown. With due respect to the magistrate I do not think any thing has been gained by that amendment. 7. Oceania was convicted of two charges upon the same facts. One was for making an advance in excess of the 25% limit and the other was permitting that advance to remain outstanding. These convictions likewise cannot be sustained and the appeals of Mr. Coe and Oceania must succeed. The convictions on all three charges are quashed, the sentences passed and other orders made upon them set aside. Representation: Mr. Martin Lee and Mr. R. Kotewall (Philip K.H. Wong & Co.) for the appellants. Mr. Michael Lunn, Counsel for the Crown, for the respondent. (1) 26 Ch. D. 107 at 136 |