XCHRX SECRETARY FOR JUSTICE v. CHEUNG KWOK KUEN AND ANOTHER

HCMP 55/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT MISCELLANEOUS PROCEEDINGS NO. 55 OF 2000

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J U D G M E N T

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The subject matter of the application

1. The Respondents, a son and mother respectively, apply to set aside or vary the order of Jackson J made on 21 January 2000 ('the Order') under ss.15 & 16 of the Organized and Serious Crimes Ordinance, Cap. 455 (OSCO).

2. The Order restrained the 1st Respondent from dealing with property, imposed charging orders on real property held by him and the 2nd Respondent and required both of them to disclose information.

3. The Respondents ask that I set aside the Order. If that application fails then they ask for an extension of time to comply with the requirement that they should disclose information incidental to the Order.

4. In the event that I do not set aside the Order, in whole or in part, the Respondents ask that it be varied under O. 116 r. 6 (3). I deal with this as a separate issue at the end of my judgement.

5. According to the affirmations of SIP Leung Chin Keung ('the SIP') dated 7 January 2000 and 18 January 2000 the 1st Respondent has been charged with conspiracy to defraud. The vehicle for the fraud is said to be a company, Million Profit Far East Limited, ('Million') that was used to hoodwink employees selected for their gullibility who would be encouraged to trade silver bullion on margin using facilities provided by Million. This fraud is colloquially known as a 'Loco-London Gold Scam'.

6. The affirmations say that the 1st Respondent will be charged with an offence under s. 25 of OSCO - Dealing with property known or believed to represent proceeds of an indictable offence. Subsequent to the making of the affirmations the 1st Respondent was charged with that offence on 29 March 2000.

7. The purpose of the Order is to freeze property in the event of a conviction and a finding that the property is liable to confiscation.

Should the Order have been made?

8. It is common ground between the Secretary for Justice and the Respondents that decisions of the English courts applying analogous English legislation to OSCO are strongly persuasive in Hong Kong. It is also common ground between the Secretary for Justice and the Respondents that a court should not make an order unless satisfied that there is a real risk that assets will be dissipated. See Re AJ and DJ (CJA/75/92 England) (unrep.) per Laws J.

The Respondents' case

9. Mr Philip Dykes SC (Mr Philip Wong with him) for the Respondents argues that the evidence relied upon by the Secretary for Justice does not disclose the existence of a real risk. Paragraph 30 of the SIP's affirmation of 5 January 2000 asserts that property will be dissipated, but does not identify the grounds for that statement. Mr Dykes says that a mere statement of fact or belief will not do, he relies on Laws J's observations to this effect in Re AJ & DJ, at pages 3 & 4 of the transcript.

'I recognise of course that in the nature of things it may be very easy in various classes of case for a prosecutor to show a risk of dissipation. Often the facts will speak for themselves. And, just as plainly, it would be quite wrong for the court to entertain, even tacitly, any general reluctance to act under section 77 (of the Criminal Justice Act 1988) by virtue of any perception that the jurisdiction which it confers is unduly harsh. I entertain no such perception; but even if I did, the court's duty is to administer the Act, not to pass judgment upon it. The existence of the section 77 power must be presumed to be salutary; any other approach engages the court in a judgment as to the merits of the legislature's policy, which it is not the court's duty to carry out.

In my judgment there would have to be some positive justification for the court to take a stance whereby it chose in the section 77 context not to apply in broad terms the three principles which I have described. But I perceive no such justification. There is no trace in the legislation of any statutory purpose which any of them would frustrate, or with which any of them is inconsistent.

I have to say that in the course of Mr Gregory's submissions I detected something of an unspoken assumption that, generally at least, the Crown Prosecution Service felt that once they could show that the pre-conditions in section 76 for the exercise of the section 77 power were met, no further question necessarily arose either as to the propriety of an application being made ex parte, or as to the need or desirability for a section 77 order. If that view is held, the sooner it is dispelled the better.'

10. In that case the prosecution was required to provide a supplementary affirmation giving particulars at the ex-parte stage. Mr Dykes says that I should set the Order aside on the grounds that although the SIP's affirmation discloses that the 1st Respondent has been charged with a serious offence there are insufficient grounds for supposing that a restraint order needs to be made, at least at this stage.

The Applicant's case

11. Mr John Reading SC (Mr Issac Tam with him) for the Secretary for Justice argues that s. 19(2) of OSCO, that deals with the Court's exercise of its powers in such applications, does not require the prosecution to prove that there is a real risk of dissipation of the assets before an order can be made. Neither is there any such provision in section 82(2) of the Criminal Justice Act 1988, the analogous English provision with which Laws J was concerned. He argues that there was sufficient information in the SIP's affirmations to justify Jackson J being satisfied that there was indeed a real risk of assets being dissipated, thus enabling him to make the Order.

12. In support of his argument, Mr Reading relies on Laws J's comment in Re AJ & DJ that -

'I recognise of course that in the nature of things it may be very easy in various c/asses of case for a prosecutor to show a risk of dissipation. Often the facts will speak for themselves.'

13. He argues, as the crimes alleged against the 1st Respondent and his associates involve huge sums of money, then, in the same way as there is an obvious risk of a person charged with a serious offence absconding (that is why, despite the presumption of innocence, bail is sometimes refused where the proceeds of crime are large) there is an obvious risk in this case that the proceeds will be moved out of the jurisdiction, or laundered in such a way that they cannot be easily found.

14. In Re AJ & DJ Laws J was critical of the reliance by the Counsel for the Crown Prosecution Service on comments of Lord Donaldson MR in Re O [1991] 2 WLR 475 [1991] 1 All ER 330 referring to the 'legislative contemplation'. Lord Donaldson had observed in his judgment that restraint and confiscation proceeds are 'wholly collateral to the criminal regime [but are]... civil in character'. Mr Reading argues that, although civil procedures may be of some relevance, because of the character of the proceedings under OSCO, regard must be had for the legislature's intention - Lord Donaldson's 'legislative contemplation'. If it had been the intention of the legislature to impose on the prosecution an onus of proving a real risk of dissipation, then such an element would have been included in OSCO. He suggests that the reason that requirement has not been imposed is because the legislature's intent is to ensure that criminals are deprived of the fruits of their crimes. In many cases this can only be achieved by freezing what are believed to be the proceeds of their crimes and maintaining the status quo, until the determination of the criminal proceedings, whose institution formed the basis for the making of a restraint order.

15. Mr Reading says that s. 14 of OSCO sets out the situations in which restraint and charging orders may be made in Hong Kong. At the time that Jackson J made the Order, there was sufficient evidence before him to establish that the 1st Respondent was to be charged with a specified offence - conspiracy to defraud and dealing with the proceeds of an indictable offence. Those proceedings have now been instituted against him. The only other matter Jackson J had be satisfied before he made the Order was that there was reasonable cause to believe that the 1st Respondent had benefited from that specified offence and there was sufficient evidence in the SIP's affirmations to satisfy that element as well.

Determination

16. Here I am with Mr Reading, in view of the large amounts of money involved there is an obvious risk of dissipation. I am satisfied that Jackson J was justified in making the order and I decline to revoke it.

The legality of the Charging Order against the 2nd Respondent

17. Paragraph 2 of the Order imposes a charging order against the 2nd Respondent under s. 16 of OSCO in respect of her interests in the real property that she owns jointly with the 1st Respondent.

The Respondents' case

18. Mr Dykes argues that a precondition for making such an order against the 2nd Respondent is that she is a defendant - she is not - or that the property has been gifted to her. See s. 16(4) of OSCO, which provides -

'(4) Subject to subsection (6), a charge may be imposed by a charging order only on-

(a) any interest in realisable property, being an interest held beneficially by the defendant or by a person to whom the defendant has directly or indirectly made a gift caught by this Ordinance-

(i) in any asset of a kind specified in Schedule 3; or

(ii) under any trust; or

(b) any interest in realisable property held by a person as trustee of a trust if the interest is in such an asset or is an interest under another trust and a charge may by virtue of paragraph, (a) be imposed by a charging order on the whole beneficial interest under the first mentioned trust.'

Real property - land-is property of a kind specified in the 3rd schedule.

19. Mr Dykes says that there is no evidence that the 1st Respondent gifted the properties to the 2nd Respondent. The only evidence relating to the matter is at paragraph 21 of SIP's affirmation of 7 January 2000, where he says that the 2nd Respondent has said that 1st Respondent has been (quote) '... responsible for all the finance of both properties.' That, he says, is insufficient to establish a condition precedent under s. 16(4).

The Applicant's case

20. Mr Reading says that Jackson J was entitled to infer from the SIP's affirmation, where reference is made to the 2nd Respondent's claim that she is a housewife and that the 1st Respondent was responsible 'for all the finance of both properties', that she had no income. And that, although she is named as joint owner, she has no financial interest in the properties, and that her interest had come to her by way of gift from her son, the 1st Respondent. By reason of that her interest is caught by the provisions of s. 16(4)(a).

Determination

21. I have no doubt that the queried phrase used by the 2nd Respondent is an acknowledgement by her that the 1st Respondent was responsible for finding the money used to purchase the two properties and that her interest in them was by way of gift from him. I am satisfied that Jackson J had jurisdiction under s. 16(4) of OSCO to make the charging order against her.

Jurisdiction to require the 2nd Respondent to make disclosure

22. In relation to restraint orders in Re O, Lord Donaldson, at page 479, concluded that:

'... notice of the order has to be given to persons affected by it: see section 77(5)(c) (of the Criminal Justice Act 1988). In addition there is power to appoint a receiver and manager of any realisable property: see section 77(8). Finally there is an obvious necessity to be able to police compliance with the order. All these features dictate that there should be some means of identifying and ascertaining the whereabouts and the value of assets affected by the restraint order and this need is reinforced when it is realised that, whatever may be the position in an individual case, the legislative contemplation is that restraint orders will be made in circumstances in which it is thought that some of those having interests in the property may well be of a dishonest disposition. I therefore have no doubt that there is jurisdiction to make an order for disclosure ...'

23. Although Re O was a decision under the provisions of the Criminal Justice Act 1988, Lord Donaldson made reference to the then extant drug legislation, the Drug Trafficking Offences Act 1986, and the similarity of the provisions in relation to restraint orders, saying:

'The jurisdiction to make restraint orders under the Drug Trafficking Offences Act 1986 is mirrored by that under the Criminal Justice Act 1988 and a decision in relation to one Act will apply equally to the other.'

24. In Re T (Restraint Order: Disclosure of Assets) [1992] 1 WRL 949 [1993] 96 CrAppR 194, the appellant, having failed at first instance, sought on appeal to distinguish the power to order disclosure in Criminal Justice Act cases from those in the drug trafficking legislation. Parker LJ stated that any differences between the two sets of legislation were without substance and that ... 'it is in my judgment clearer under the Act of 1986 than under the Act of 1988 that the jurisdiction to make a disclosure order in support of a restraint order exists.'

25. So far as third parties and restraint orders are concerned, Turner J in Re D (The Times January 26, 1995) in dismissing a third party's application to set aside a disclosure order made against him, held that:

'Ever since Norwich Pharmacal Co. v Customs & Excise Commissoners [1974] AC 133 it has been recognised that the Court, by means of resurrecting the 'bill of discovery' procedure was enabled to in an appropriate case to require a non-party to give discovery.'

Later in his judgment Turner J stated that:

'...it would be absurd that, by the simple device of passing money to a third party, a person could simply defeat one of the main purposes of the Act.'

26. Turner J concluded that there was power to order 'discovery' against a third party as the Crown prosecutors had by virtue of the restraint proceedings a legal interest in the realisable property of the defendant '... in the hands of whatever person they may be found.' Accordingly, he held that the power to order a third party to disclose the whereabouts of the realisable property of the defendant is also inherent in the legislation.

27. Turner J may not have been correct to hold that the Crown's right to a confiscation order was in the nature of a proprietary interest. In Re Barretto [1994] 1 All ER 453, the English Court of Appeal in a different context held that there was no such proprietary interest in the realisable property of the defendant. The Master of the Rolls stated that:

'...whilst it is also true that the Act of 1986 provides for drug traffickers to be stripped of their gains, it does not treat them as having forfeited their property rights. It puts them in much the same position as a defendant subject to a monetary judgment, but with a penalty for non-payment.'

28. It was, however, unnecessary for Turner J to come to the conclusion he arrived at in Re D, relying on proprietary interest. In Re O the court held that there was an inherent jurisdiction for the court to make an order for disclosure if it is 'just and convenient'. Thus, if a third party has information that will assist the prosecution in the identification and location of realisable property, and it is just and convenient for the third party to be ordered to disclose that information, the court has jurisdiction to order the third party to do so.

29. Obviously there can be no jurisdiction to require disclosure where a relevant statutory power is not engaged.

The Respondents' case

30. Mr Dykes argues that as a charging order and not a restraint order has been made against the 2nd Respondent then there is no jurisdiction to require her to make disclosure. He also argues that as the jurisdiction is discretionary, it does not follow that because a restraint order has been made against the 1st Respondent that an order for disclosure should also be made.

The Applicant's case

31. Mr Reading argues that the position should be no different in relation to charging orders than it is to restraint orders. Section 16(3)(d) provides that an order '...may be made subject to such conditions as the Court of First Instance thinks fit.'

Determination

32. There appears to have been no other case in which the question of whether or not there is an inherent power to order a person subject to a charging order to make disclosure has arisen. The decided cases drawn to my attention all deal with restraint orders. However as a matter of principle I see no reason why power to order disclosure should not be a necessary inherent, ancillary power to the statutory power to make a charging order. As a matter of logic, the person subject to the order must know source of the funds used to acquire the charged property, just as much as a person subject to a restraint order must be in a position to speak as to the circumstances of acquisition of restrained property. I am satisfied that Jackson J had power to require the 2nd Respondent to make disclosure and decline to vary the Order by removing this provision.

Privilege against self-incrimination

33. From Re O and Re T it is clear that the purpose of the provision for the disclosure of assets in support of restraint orders is limited to:

1. enabling the prosecutor to identify restraint of the defendant's assets;

2. enabling a receiver to be appointed;

3. ensuring police compliance with the order;

4. assisting the prosecutor in the preparation of the statement that it is necessary to serve under the provisions of the Acts in the criminal court to assist in the confiscation process.

34. Unless it was checked in some way, the use of a disclosure affidavit would not protect the deponent from a use being made of the affidavit other than those identified above. If there were no check, it would necessarily offend the deponent's right against self-incrimination and give an unfair investigative tool to the prosecution. Neither Hong Kong's nor England's legislation expressly or impliedly excludes the common law right.

35. It was argued in both Re O and Re T that the potential abuse of the defendant's right against self-incrimination was a fundamental reason why the court should decline to find that the power to order disclosure was inherent in the jurisdiction of the court dealing with restraint orders.

36. In Re a Defendant (The Times April 7, 1987), Webster J accepted the logic of that submission. He ordered that the disclosure order was not to be effective until the prosecutor had given an undertaking not to use the '...information obtained as a result of compliance...in connection with any criminal proceedings taken or contemplated against the defendant or for any purpose other than a purpose arising under the Drug Trafficking Offences Act 1986.'

37. In Re O the Court of Appeal held that an undertaking was not sufficient in the circumstances and stated, at page 481, that there should be a proviso in restraint orders where a disclosure order is made, in the following terms:

'No disclosure made in compliance with this order shall be used as evidence in the prosecution of an offence alleged to have been committed by the person required to make that disclosure or by any spouse of that person'.

38. In Re C (The Times April 21, 1995), Ognall J held, in a Criminal Justice Act case, that evidence obtained as a result of a disclosure affidavit should also be expressly protected in the proviso to a disclosure order and added the following phrase to the Re O proviso:

'and no use shall be made in any such prosecution against the defendant of evidence obtained as a direct result of such disclosure.'

Clauses 4 and 5 of the Order provide:

"(4) No disclosure made in compliance with [the disclosure order] shall be used as evidence against the Respondents in any criminal prosecution, except in proceedings under section 31 of the Crimes Ordinance (Cap. 200).

(5) The information disclosed in compliance with this order shall not be used for any purpose, other than these proceedings and confiscation proceedings, and shall not be disclosed or otherwise divulged to any third party without the leave of the Court."

The clauses are clearly modeled on the Re O and Re C provisos.

The Respondents' case

39. Mr Dykes argues that these clauses provide only a limited protection. For example, they do not stop the police using that information to identify and use other evidence that, but for the disclosure, it may not discover. The fact that the SIP is both the deponent in these proceedings and the investigator into the alleged offence, suggests that he has a dual interest in the information that may be disclosed under the Order. It is not fanciful to suspect that the information disclosed may be used to further an investigation. These factors, says Mr Dykes, militate against making a disclosure order in this case and I should set aside the disclosure order unless the Secretary for Justice agrees to a variation of clause offering further protection. The extra protection should be that no use whatever is made of the material disclosed and of any evidence obtained as a direct result of such disclosure. In this context, he referred me to AT & T Istel Ltd v. Tully [1993] AC 345 and the assurance given by the prosecutor in that case, which was to the effect that disclosure would not be used to "derive" evidence for use at trial.

40. Mr Dykes reminds me that in Hong Kong, unlike in England where the provisions of the Police & Criminal Evidence Act 1984 apply, the reception of evidence in a criminal trial is still largely governed by the common law principles identified in R v. Sang [1980] A.C. 402 and the 1st Respondent cannot appeal the exercise of a statutory discretion to exclude. As the 1st Respondent was charged with an offence under s. 25 of OSCO on the 29 March 2000, no workable clause in the order respecting the use to which the material may be put could be framed that would protect the 1st Respondent's right against self-incrimination.

41. Mr Dykes impressed upon me the decision of the High Court of Australia in Reid v. Howard [1995] 69 AJLR 863. In that case R, a chartered accountant, who had allegedly used clients' funds for his own purposes, was under investigation by the police. In the meantime his clients commenced civil proceedings, seeking several orders, including a Mareva injunction and a disclosure order. A judge of the New South Wales Supreme Court made the orders, holding that the privilege against self-incrimination did not apply, because the appellant had made some admissions to the police in the course of their investigation. The appellant challenged this decision in the Court of Appeal. His appeal was dismissed. The Court held that the orders could be made under the inherent jurisdiction of the court or under s. 23 of the Supreme Court Act 1970 (NSW). R was given leave to appeal to the High Court of Australia.

In a joint decision of four of the judges, the High Court held, at page 871, that:

'Moreover and of more importance, the inherent power and the jurisdiction conferred by s 23 of the Supreme Court Act are to be exercised only as necessary for the administration of justice. Quite apart from the difficulties which the orders of the Supreme Court present for the administration of justice, to which reference has already been made, it is inimical to the administration of justice for a civil court to compel self-incriminatory disclosures, while fashioning orders to prevent the use of the information thus obtained in a court vested with criminal jurisdiction with respect to the matters disclosed. Nor is justice served by the ad hoc modification or abrogation of a right of general application; particularly not one as fundamental and as important as the privilege against self-incrimination'.

The Applicant's case

42. Mr Reading argued that the clauses afford the Respondents sufficient protection against self-incrimination. Their use has been sanctioned in England and they follow the wording approved by the courts in England. As to the decision in Reid v Howard, this was given in civil proceedings brought under the court's original jurisdiction and not under Australian provisions analogous to OSCO, or the English legislation. The English authorities were not referred to as, in the context of the case, there was no need for them to be. The decision was peculiar to the facts of the case and the terms of the particular statute under which the New South Wales Court of Appeal found it had jurisdiction.

Determination

43. The point appears well settled by authority; clauses 4 and 5 of the Order protect the 1st Respondent's right against self-incrimination. I am not persuaded that Reid v Howard has any application to proceedings under OSCO. And even if it did, I prefer to follow the line of authority established in England in decisions under analogous legislation to OSCO.

Legal Professional Privilege

44. Mr Wong, not Mr Dykes, argued that the disclosure order infringes the 1st Respondent's legal professional privilege. His argument, if I understand it correctly, is that the information that the 1st Respondent gives his solicitor in order that the solicitor may prepare the disclosure affirmation is privileged because it was given in the course of the 1st Respondent seeking and receiving legal advice. With respect, this is a specious argument, what is privileged is the advice given, the information itself is not subject to legal professional privilege.

Decision and time for compliance with the disclosure order

45. There is to be no revocation or variation of the terms of the Order. I will hear from counsel on the additional time to be given to the Respondents in which they are to make disclosure.

Variation of the order to permit access to assets to meet expenses

46. The Order froze all of the 1st Respondent's assets, he is entitled to ask for a variation of the Order under 0.117 r. 5(1) for the release of some of the assets to cover living and legal expenses.

47. The 1st Respondent has set out details of his expenditure at paragraphs 14-16 of his affirmation. He has outgoings of $165,866.29 per calendar month. Payments on two mortgages make up $62,762.61. He has disclosed legal bills showing sums spent as at 4 March 2000 of $101,800. He estimates that the legal fees of this application will amount to $200,000 and that the fees for his defence at trial will be about $1,000,000.

48. Mr Reading comments that these amounts appear high, but concedes that without full disclosure of the assets and expenditure of the two Respondents the Secretary for Justice is not in a position to say if the amount claimed for living expenses is reasonable. He accepts that it is in the interests of the Applicant for the payments under the two mortgages and the loan installments on the Mercedes Benz car to be kept up in order to preserve these assets for future confiscation proceedings should the 1st Respondent be convicted. He accepts that the figures for legal fees are not widely divergent from current market rates for competent legal advice and representation.

49. In the light of Mr Reading's concessions, I see no reason to question the figures given to me. I make a variation order under 0.116 r. 6(3) permitting the 1st Respondent to have immediate access to $1,301,800 to meet his present and future legal fees and to have access to the sum of $165,866 per calendar month to meet his expenses. No doubt if on further disclosure these figures appear excessive, the Applicant will make an application for the amounts to be reduced.

Costs

50. I will hear from counsel on whether or not a costs order in respect of this application should be made against the Respondents.