HKSAR v. Lau Kam Ying

FAMC No 18 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 18 OF 2013 (CRIMINAL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM CACC NO 422 OF 2010)

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Between:

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REASONS FOR DETERMINATION

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Mr Justice Tang PJ:

1.This application concerns 12 sections of land in Lot No 83 in DD7.  They were acquired by Howin Industrial Ltd (“Howin”) in October 1994 when the 1^st  (“Yim”)and2^nd (“Li”) defendants[1] were directors and shareholders.  By assignments made on 5 October 1995, Howin assigned one section to each of the 12 indigenous villagers.[2]  We will refer to them as Dings.  The assignments to them formed part of a transaction[3] to take advantage of the Small House Policy in the New Territories under which a male indigenous villager (known as a Ding) is entitled to what is called a Ding Right, namely an once-in-a-lifetime right to build a small house in his village for his own use on a piece of land owned by him or assigned to him by the Government at a concessionary rate.  Although each assignment stated that $250,000 had been paid by the Ding, no consideration was paid, or intended to be paid.

2.At the time of these assignments, Howin and each of the Dings also executed the following documents:

(i)   a Declaration of Trust that the Dings were holding their respective section as trustee of Howin;

(ii)  a Joint Venture Agreement which provided that each Ding would be paid $200,000 for his Ding right; $70,000 as deposit on the signing of the joint venture agreement, the balance to be paid in 2 stages depending on the progress of the small house development.

(iii)  a Small House Application Form; and

(iv)  a Power of Attorney appointing Yim to handle matters relating to the building of a small house.

3.None of these documents was registered.  Nor were they meant to be.  It is accepted that had they been, the small house application would not be approved.   However, although applications to build the houses were submitted, no permission was ever granted.

4.On 13 June 2001, Howin was ordered to be wound up and, on 15 October 2001, liquidators were appointed. 

5.In 2003, it became known that the 12 sections of land would be resumed under the Roads (Works, Use and Compensation) Ordinance and the Lands Resumption Ordinance for a drainage improvement project.  Yim and Li then set about to contact the 17 Dings with a view to procure them to transfer their respective sections of land to a company to be set up so that the new company could collect compensation under the Ordinances.  But because they had no money, they looked for investors and as a result they contacted the applicant.

6.The applicant (Lau Kam-ying) is a solicitor and the 3^rd defendant at trial.  He, together with the 1^stand 2^nddefendants, were convicted of one count of conspiracy to defraud.  We set out the particulars of offence in full:

“ Particulars of Offence

YIM Tung-hoi, LI Wan-fong, Vincent and LAU Kam-ying, between the 10^th day of December 2004 and the 31^st day of October 2007, in Hong Kong, conspired together and with YUNG Chun-hung to defraud the Government of the HKSAR (‘HKSAR Government’) and the liquidators and creditors of Howin Industrial Limited (in liquidation) (‘HIL’) by:

(1) dishonestly and falsely representing to the District Lands Office, Tai Po and the Lands Department of the HKSAR Government that:

(a) China Group Global Limited (‘CGG’), being the registered owner of 12 sections of land situated at Sections B, E, F, G, H, J, K, L, M, P, R and S of Lot No. 83 in D.D.7 (‘The Sections’), had acquired The Sections as a bona fide purchaser for valuable consideration thereby concealing from the said Lands Department that HIL had a beneficial interest in The Sections; and

(b) CGG was thereby entitled to claim and receive compensation payments due in respect of the resumption of The Sections by the HKSAR Government which was published in Government Gazette Nos. 7742 and 7881 under the Lands Resumption Ordinance, Cap. 124 and the Roads (Works, Use and Compensation) Ordinance, Cap. 370 (‘Land Resumption Project’), and

(2) for the purpose of, and in the course of, obtaining the registration of CGG as the registered owner and in making the representations in (1)(a) and (b) above,

(a) procuring or causing to be procured the execution of assignments and statutory declarations (‘the Documents’) between September 2006 and March 2007 by the former registered owners of The Sections; and

(b)  knowing or believing the said Documents to be false, dishonestly tendering them in support of the said representations, thereby inducing the said Lands Department to arrange for compensation payments payable under the Land Resumption Project to be made to CGG.”

7.The other named conspirator, Yung Chun-hung, gave evidence under immunity at trial as PW28.

8.The applicant’s appeal[4] to the Court of Appeal was dismissed on 26 March 2013.  On 10 May 2013,the Court of Appeal refused to certify that any point of law of great and general importance was involved in its decision.  The applicant applied to us for leave to appeal, first, on the ground that points of law of great and general importance are involved, secondly, on the ground of substantial and grave injustice. 

9.Yung’s evidence, which was accepted by the trial judge, formed the foundation of the prosecution case against the applicant.  In gist, the learned judge accepted that  :  

“71. … the 3^rd defendant did tell him( Yung) that the 1^st and 2^nd defendants were directors of a company that had gone into liquidation and he also said that he, D3, told him about the personal bankruptcy of D1 and D2.”[5]

……

96.       I scrutinised the evidence of these two witnesses[6] most carefully and I found that I believed them.  In particular with regard to the evidence of PW28, I accept that D3 had told him that D1 and D2’s company which had been wound-up had Ding land and that $1.4 million would be required to transfer the land to a new company.  As the land was due to be resumed to the Government compensation could be claimed.  I also accept from him inter alia that at the meeting at the Chinese restaurant D2 had told him that the land was owned by their, i.e. D1 and D2’s company, that they did not have any money and were looking for people to join in order to pay off the Dings and transfer the land to another company to be set up.

……

105.     From the evidence of Yung, whose evidence I have accepted and who lest there be any doubt I find was a co-conspirator in this enterprise albeit he backed out of the deal, the 3^rd defendant quite clearly had actual knowledge that the Lots in question were held by D1 and D2’s company which had been wound-up.  He nevertheless set up CGG for the sole purpose of attempting to obtain compensation from the Land Resumption for himself, D1 and D2 and arranged for Bryan Chan[7]  to prepare the necessary Assignments and Declarations for the signature of the Dings...”

10.CGG was the corporate vehicle set up by the applicant to acquire from the Dings their respective sections of land.  CGG was initially owned as to half by Yung[8], the other half was owned beneficially by Wong Kin Fai as nominee of the applicant.  It appeared that Yung’s interest in CGG became forfeited to the applicant when Yung was late in repaying a loan to the applicant.  The forfeiture led to a complaint to the ICAC by Yung which resulted in the prosecution.

11.Although the applicant did not give evidence, Yung’s evidence was supported by the applicant’s first video-recorded interview, where he said the 2^nddefendant introduced him to the 1^stdefendant and “They told him, he said, that they were looking for investors for a project regarding land which they possessed and was soon to be resumed by the Government.  The budget for acquiring the land was $1.6 million and it was believed the Government would pay the land owner total compensation of between $3 million and $4 million.  He introduced Yung to D1 and D2 who were willing to invest”[9].  The applicant also said that he made a land search “but did not notice the previous land assignment price.[10]  He denied any knowledge of the property being held in trust for [Howin].  As the trusts had not been registered, he said it was impossible for him to discover that the Dings were trustees of [Howin]. He said he only came to know that the Dings were not the genuine owners when the liquidators produced the Declarations of Trust to him.”[11]

12.The 1^stand 2^nd defendants, directly or indirectly approached the 17 Dings to persuade them to transfer their title to CGG, but only 12 agreed. 

“26. … In 2006/2007 the 12 ‘Dings’ were brought to the applicant’s office where they were told to sign various documents, including Deeds of Assignment (the 2006/2007 Assignment) transferring the sections of land registered in their respective names to ‘CGG’, undated and blank documents, receipts and Statutory Declarations. The solicitor in charge was Bryan Chan of the applicant’s firm.”[12]

13.Each of the Dings made statutory declarations declaring that he had lost the title documents including Howin’s assignment to him and the power of attorney in favour of Yim. The statutory declarations are false.  None of the Dings ever had possession of them, they were kept by Howin for obvious reasons because in any sale of any of the sections the missing documents would have to accounted for. Thestatutory declarations were made to conceal Howin’s beneficial interest. Had the truth been told, namely, that the original documents were with Howin, Howin’s beneficial interest would be revealed.  As the documents show, arising out of the resumption, government offered to pay compensation subject to the production of the necessary documents of title and “3(iii) there being no other persons having any claim, interest or entitlement to compensation upon reversion.”  The offer letter went on to say:

“8. If you do not have the all regional of any of the title deed(s) described in the schedule in your possession, you are required to consult your own legal advisers in order to make a Statutory Declaration to explain the circumstances of loss of the document(s) by you, or otherwise give reasons why you do not possess all the original deed(s). The Statutory Declaration is required to be submitted to LACO, Tai Po & North for consideration as to whether it is acceptable.”

14.Such offers were accepted by CGG and the statutory declarations were tendered to government with a view to inducing government to pay compensation to CGG.

15.It is against such background that we turn to consider the questions of great and general importance relied on by Mr Edward Chan, SC.  These questions run to 3 pages.  In essence, there are two questions: first, since the declarations of trust were not registered, whether they were void as against CGG as a result of s3 and s4 of the Land Registration Ordinance.  Secondly, since the transactions between Howin and the Dings were entered into to mislead the authorities, whether the transaction was taintedwith illegality or against public policy so that:

“the Ding alone would be entitled to the land and unless the developer could rely on the doctrine of locus poenitentiae the developer could not enforce or exercise any of his interest in the land.”[13]

16.Both questions are predicated on Mr Chan’s submission that it was incumbent on the prosecution to prove that Howin had an indefeasible beneficial title to the sections, because the gravamen of the offence is the beneficial interest.

Land Registration Ordinance

17.The relevant provisions of the Land Registration Ordinance are: 

“Section 3

(1) Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and judgments, made, executed, or obtained, and registered in pursuance hereof, shall have priority One over the other according to the priority of their respective dates of registration, which dates shall be determined in accordance with regulations made under this Ordinance.

(2) All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fides purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes … [14]

Section 4

No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered.”

Mr Chan submitted that the effect of these provisions is that where a trust had not been registered,a person could approach a registered owner, who is known to be a trustee, to procure the trustee to sell the trust property to him,paying the trustee, say, half of the value of the trust property and so obtain the trust property at half price.  He submitted the beneficialowner hasno redress against the purchaser provided the purchase was registered before the trust. Whilst Mr Chan was prepared to accept that the beneficiary has a claim for breach of trust against the trustee, vis-a-vis the purchaser, he submitted the beneficiary has no claim.  Or, even if the beneficiary has a claim, that claim would not extend to the property.  In support, he relied on Midland Bank Trust Co Ltd v Green[1981] AC 513.  There, the father (Walter) granted an option to one of his sons (Geoffrey) to buy a farm at £75 per acre for £1 in 1961.  The option was not registered.  In August 1967, the father sold the farm to the mother (Evelyne) for £500.  At that time the value of the farm was about £40,000.  Geoffrey sued the estate of Evelyne for, inter alia, (i) a declaration that the option was binding on the estate; (ii) specific performance of the contract arising by reason of the option and the exercise thereof by Geoffrey; (iii) all necessary accounts etc; and (iv) damages for conspiracy and against the father for damages for conspiracy.  On 21 October 1977, Oliver J(as he then was) dismissed the action as against the estate of the mother and, as against the estate of Walter, ordered an inquiry to damages.  In the Court of Appeal, by a majority the decision of Oliver J was reversed.  On appeal to the House of Lords, the decision of Oliver J was restored.  There, Lord Wilberforce said:

“… The learned judge, in an admirable judgment with which I wholly agree, decided (i) that the sale and conveyance to Evelyne was not a sham and was a genuine sale by the vendor to a ‘purchaser’, as defined by the Land Charges Act 1925 for money or money’s worth, and accordingly that the option was not specifically enforceable; (ii) that Walter’s estate had no answer to a claim for damages, and that an inquiry as to damages must be made; (iii) that any claim for damages against the estate of Evelyne was statute barred by virtue of the Law Reform (miscellaneous provisions) Act 1974.”

18.Lord Wilberforce went on to say that although the purchaser had notice of the option, and decided nevertheless to buy the land, relying on the absence of registration, nobody could contend that she was lacking in good faith.  She would merely be taking advantage of a situation, which the law has provided, and the addition of a profit motive could not create an absence of good faith.  At p 531 he said:

“it is not ‘fraud’ to rely on legal rights conferred by Act of Parliament.”

19.But it is clear from Midland Bank Trustee that the unregistered option was not absolutely null and void to all intent and purpose, thus, for example, the grantee had a claim against the purchaser for damages for procuring a breach of contract.[15]  Midland Bank Trustee was not concerned with breach of trust but we do not doubt that, in the case of a trust,the beneficiary would have a claim for breach of trust against a purchaser who had procured the breach of trust.[16]  we have no doubt that the provisions relied on by Mr Chan concern priorities between registered instruments but do not affect remedies which may be available whether in contract, tort or equity.  

Illegality

20.We turned to Mr Chan’s argument that the beneficial interest might not be enforceable because of public policy.  In Best Sheen development Ltd v Official Receiver[2001] 1 HKLRD 866, Yuen J (as she then was) was concerned with a similar argument where a developer in a similar position to Howin sought a declaration that he was the beneficial owner where a Ding had executed a declaration of trust that the developer was the beneficial owner of the land.  She granted the declaration because she was satisfied that a declaration that the developer was the beneficial owner of the land did not amount to enforcement of an illegal contract,the developerwas not forced to rely on the illegal contract for the declarations sought as to its property interest, even though the legal contract explains why it came about that the “Ding” was registered as the owner of the land. The learned judge relied on Tinsley v Milligan 1994 1 AC 340 in particular where Lord Browne-Wilkinson said:

“… A party to an illegality can recover by virtue of a legal or equitable property interest if, but only if, he can establish his title without relying on his own illegality...”

21.With respect, we agree with Yuen J but,it is unnecessary to come to a concluded view on the matter because wedo not accept Mr Chan’s premise that on the charge the prosecution has to prove that Howin’s beneficial interest was indefeasible.  Nor do we agree with Mr Chan that the gravamen of the offence was Howin’s beneficial interest.  Rather we believe it was the concealment of Howin’s beneficial interest.  The false statutory declarations were critical to the concealment of Howin’s interest and they were tendered to government for the purpose.  Moreover, there is no indication that any of the Dings would contest Howin’s beneficial interest.  It is clear that they accepted and acknowledged the beneficial interest of Howin.  The evidence of PW3 is clearest.  He agreed to assign to CGG only after he was assured in writing that Howin instructed him to assign the section to CGG unconditionally (Exhibit 191A).  Indeed, the statutory declaration made by him made it clear that it was not he who had lost the original title documents.  Nor can the criminality of the applicant depend on whether any of these Dings might wish to challenge Howin’s beneficial interest and, if so, whether any challenge succeeds. In our view there is no warrant to read “beneficial interest” in the particular of offence as referring to an indefeasible beneficial interest.  It is beyond argument that Howin had a sufficient beneficial interest for the purpose of the charge.

22.Mr Chan drew attention to the fact in the Court of Appeal, Yeung VP regarded the transactions between Howin and the Dings as sham such that no interest at all passed from Howin to any of the Dings.  But, it is important to note what Yeung VP also said in his judgment:   

“144. Mr Chan SC may well be right, based on the decision of Yuen JA in Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866, that in a typical transaction for the sale of the ‘Ding right’, the legal title of the land can be effectively passed to the ‘Ding’ although the beneficial interest remains with the developer.

145. However, the issue before us is not, as between the ‘Dings’ and Howin or as between Howin and an innocent third party, who had a better title or a prior beneficial interest to the 12 sections of land in question. The issue before us is whether Howin had any interest in the 12 sections of land and whether there had been a fraudulent scheme to defraud the Government, the liquidators and creditors of Howin, a company in liquidation, by transferring the title and interest in the 12 sections of land to ‘CGG’ from the ‘Dings’ by way of the 2006/2007 Assignments in order to defeat Howin’s interest.

……

180. The prosecution case was that with such a knowledge, the applicant had devised a scheme in the form of an investment with a view to divert the compensation payable under the Ordinances from Howin (in liquidation) to ‘CGG’ on the representation that ‘CGG’ was the registered owner of the 12 sections of land, and with that in mind, obtained the co-operation of the 12 ‘Dings’ to execute the 2006/2007 Assignments and the false Statutory Declarations.

181. The offence of conspiracy to defraud ‘is constituted by becoming a party to an agreement with another or others to use dishonest means: (a) with the purpose of causing economic loss to, or putting at risk the economic interests of, another; or (b) with the realization that the use of those means may cause such loss or put such interests at risk.’ (See the judgment of Sir Anthony Mason NPJ in Mo Yuk Ping v HKSAR (2007) 10 HKCFAR 386 at 404 D-F)

182. Mr Chan SC accepts that Howin at least would have beneficial interest in the 12 sections of the land registered in the names of the 12 ‘Dings’. If the ‘scheme’ were to be successful, the compensation payable under the Ordinances would all go to ‘CGG’ and Howin’s interest would be completely defeated.

183.   The ‘scheme’ orchestrated by the applicant would no doubt cause economic loss to or would put Howin’s economic interests at risk.”

23.Kwan JA also made it clear in her judgment at para 195 that even if Howin’s assignments to the Dings had transferred title to the Dings:

“… I do not think CGG had acquired good title under the 2006/2007 assignments unencumbered by the beneficial interest of Howin…”

Grave miscarriage of Justice

24.The threshold on application for leave to appeal on this ground is high.  Van Weerdenburg v HKSAR (No 2)(2010) 13 HKCFAR 457.  The evidence against the applicant was overwhelming.  Insofar as the applicant also relied on the supposed points of law in support of this ground, we will not deal with them separately.

25.Mr Chan submitted that there was a shift in the prosecution case.  He relied on Yeung VP’s judgment at paras 162 -163 where the learned VP said that Howin’s assignments to the Dings were sham and passed no title at all.  But, as explained above that was not the sole basis of his or KwanJA’sdecision.  Stock VP agreed with both judgments.

26.It was also submitted that the trial judge ought not to have accepted the evidence of PW28. There is nothing in this point.  Analysis of PW 28’s evidence occupied many pages of the applicant’s case followed by 4 pages of submission on the evidence KF Wong.  This is hardly a ground for leave to appeal.  With respect, it is difficult to find fault with the learned trial judge’s reasoning or conclusion. It is true that Yung was a co-conspirator and was disgruntled because he was upset that the applicant had forfeited his $400,000 investment in CGG because he was late in repaying a loan of $100,000 and monthly interest of $10,000 but the learned trial judge had taken such matters into consideration.   The evidence against the applicant was overwhelming.

27.For the above reasons, we would refuse leave to appeal.

Mr Edward Chan, SC and Mr Isaac Chan, instructed by Tsangs for the applicant

Mr Russell Coleman, SC instructed by the Department of Justice and Ms Winnie WM Ho SADPP (Ag) of that Department, for the respondent