HKSAR v. LAU KAM YING

CAC C 422/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 422 OF 2010

(ON APPEAL FROM DCCC NO. 1047 OF 2009)

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J U D G M E N T

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Hon Stock VP:

1.  I agree with the judgments of Yeung VP and Kwan JA.

Hon Yeung VP:

Introduction

2.  The applicant (Lau Kam-ying), a solicitor practising in the name of Messrs Peter Lau & Co, together with Yim Tung-hoi (Yim) and Li Wan-fong Vincent (Li) appeared before Judge Geiser in the District Court on a single charge of conspiracy to defraud.

3.  Yung Chun-hung (Yung) was named in the charge as a conspirator, but he was not charged.  Instead he gave evidence for the prosecution under immunity.

4.  The applicant, Yim and Li pleaded not guilty to the charge. All were convicted after trial.  Yim and Li were each sentenced to 3 years’ imprisonment and the applicant was sentenced to 4 years’ imprisonment.

5.  The applicant, represented by Mr Edward Chan SC, Mr Paul Loughran, Mr PK Chan and Mr Matthew Chong, sought leave to appeal against conviction.  Yim and Li had also sought leave to appeal, but later abandoned their applications. This Court is therefore only concerned with the applicant’s application for leave to appeal against conviction.

6.  Mr Russell Coleman SC, Mr Wesley WC Wong and Ms Winnie Ho represent the respondent.

The Facts and the Prosecution Allegations

7.  Under the New Territories Small House Policy introduced by the Government in 1972, a male indigenous villager (the “Ding”) in the New Territories is entitled to a “Ding Right”, a once-in-a-life time right to build a Small House in his village for his own habitation on a piece of land owned by him or assigned to him by the Government at a concessionary rate.

8.  The construction of a Small House, in the exercise of the “Ding Right”, does not have to comply with the provisions of the Buildings Ordinance and the Small House, once completed, could be sold without the payment of premium after five years.

9.  The Small House Policy, a policy that only favours the “Dings”, is often exploited if not abused, and it is common practice for the “Dings” not to exercise the “Ding Rights” by building Small Houses themselves, but to “sell” them to a developer at a price.

10.  The developer acquires some land and allows the “Dings” to become the registered owners of the land to enable them to apply to build Small Houses.  The developer’s interest is usually protected by a Declaration of Trust executed by the “Ding” in its favour.  After the development is completed, the “Ding” will assign the land together with the Small House to the developer or its nominees.

11.  There was no dispute that there was such an arrangement between Howin Industrial Ltd (“Howin”) and a group of “Dings” in Tai Po in the mid 1990s.

12.  In 1994/1995, Howin, having purchased pieces of lands in Lot Nos 82 and 83 in DD7 (the land), asked agents to recruit “Dings” who were willing to sell their “Ding Rights”.

13.  Howin offered $200,000 per “Ding Right” to be paid to the “Ding” by three installments, $60,000 as deposit, $70,000 on the granting of the consent to build the Small House issued by the Lands Department, and $70,000 on the issue of a certificate of compliance by the Lands Department.

14.  The land acquired by Howin was divided into 20 sections and Howin had intended to build 17 Small Houses on 19 of the 20 sections (the development).

15.  Since a “Ding” must be the registered owner of the proposed building site before the application to build a Small House would be considered, Howin conveyed titles of the 19 sections of the land to 17 “Dings” by assigning to each of them one or two sections, ostensibly for $250,000 (the 1994/1995 Assignment).  In fact, none of the “Dings” had to pay any money to Howin.

16.  Li, as a director, executed the 1994/1995 Assignment on behalf of Howin and each “Ding” was asked to execute various documents at Messrs Edmund Cheung & Co, the solicitors acting for Howin.  Those documents included a Joint Venture Agreement, a Small House application form, a Power of Attorney appointing Yim (the other director) to be the attorney to handle matters relating to the building of a Small House, and a Declaration of Trust that the “Ding” was holding the section(s) of land on trust for Howin.

17.  The applications by the 17 “Dings” to build Small Houses were objected to and the development came to a standstill.  However, the 1994/1995 Assignment had been registered with the Land Registry and the “Dings” remained the registered owners of the respective pieces of the land assigned to them.

18.  In the meantime, Howin became insolvent and was wound up by a Court Order in June 2001.  Mr Haughey and Mr Lai of Messrs Deloitte Touche Tohmatsu (Deloitte or the liquidators) were appointed as liquidators of Howin.

19.  In 2003, the Government Drainage Services Department initiated a drainage improvement project which necessitated the resumption of lands under the Roads (Works, Use and Compensation) Ordinance and the Lands Resumption Ordinance (the Ordinances).  The lands to be resumed included the 19 sections of land and the 17 “Dings”, as the registered owners, were ostensibly entitled to the compensation payable under the Ordinances.

20.  Yim and Li wanted to regain titles to the 19 sections of the land assigned to the 17 “Dings” under the 1994/1995 Assignment so that they could collect the compensation from the Government.  However, they lacked the necessary funds to pay off the “Dings” to obtain their co-operation to “re-transfer” the land and they looked for investors.

21.  The applicant was contacted and he invited one of his clients, Yung, to invest in the project.  The idea was to set up a new company to take over the interest in the land registered in the names of the 17 “Dings” in order to collect the compensation payable under the Ordinances.

22.  On 28 July 2006, Yung paid the applicant $400,000 as his initial contribution to the investment and the applicant also contributed $400,000.

23.  China Group Global Ltd (“CGG”), incorporated in August 2006, was intended to be used as the vehicle to acquire titles to the 19 sections of land from the 17 “Dings” for the purpose of collecting the compensation payable under the Ordinances. 

24.  The initial directors and shareholders of “CGG” were Wong Kin-fai (KF Wong), who was the applicant’s nominee, and Yung, each holding 5,000 shares of the 10,000 issued shares.  The applicant became a director in 2006 and in January 2007, he took over Yung’s shares and later became the sole shareholder and the alter ego of “CGG”.

25.  Yim and his son (Wai-hang), together with Li and his associate (Ho Nin-sung) contacted the 17 “Dings” to persuade them to transfer their titles to the 19 sections of land registered under their names to “CGG”.

26.  For one reason or another, 5 of the “Dings” refused to co-operate and only 12 “Dings” agreed.  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.

27.  The 12 “Dings” said they were unaware of the nature of the documents that they had signed.  The 2006/2007 Assignments executed by the 12 “Dings” purported to show that they, as vendors, had sold the 12 sections of the land registered in their names for $30,000 to $70,000 to “CGG”.

28.  In fact two of the 12 “Dings” had received no payment and one had only received a lesser sum than what was suggested in the 2006/2007 Assignment.  In any event, the 12 “Dings” were told and they believed that the money they received only related to the “selling” of their “Ding Rights”.

29.  Documents seized from the applicant’s office showed that each of the “Dings” had signed two Statutory Declarations in another solicitor firm, declaring that he had lost the originals of a Power of Attorney and the title documents including the 1994/1995 Assignment.  Some of the “Dings” said they had been taken to another solicitor firm to sign the documents, but most of them claimed to have no knowledge of the making of the two Statutory Declarations.  They claimed that they never had the Power of Attorney or the 1994/1995 Assignment referred to in the Statutory Declarations.

30.  There were also receipts signed by Yim acknowledging the payment of $300,000 as “village representative fee”.  In the payment record of “CGG”, the $300,000 was entered as “agency fee”.  There were cheque payments to “Li Kit-fat”, “Li Sau” or “Ho Nin-sung” of $10,000 to $40,000, purportedly as agency fee.  Yim signed the receipts for those payments.

31.  In March 2007, “CGG” (represented by the applicant) claimed compensation from the Government under the Ordinances as owner of the 12 sections of lands.  The 2006/2007 Assignment was submitted in support of the claim.

32.  Deloitte, after learning of the land resumption, informed the Government that Howin was the beneficial owner of the 19 sections of land.  At a meeting with Deloitte, Yim and Li claimed not to have any recollection as to whether Howin had received any consideration for “selling” the 19 sections of land to the 17 “Dings” under the 1994/1995 Assignment.  Li also claimed to have no recollection if the “Dings” had signed the Declarations of Trust in favour of Howin.

33.  In January 2008, on realizing that Deloitte had obtained the Declarations of Trust executed by the “Dings” in favour of Howin, the applicant, on behalf of “CGG”, agreed to pay $1.3 million out of the total compensation that “CGG” was likely to receive from the Government under the Ordinances to settle Deloitte’s claim.

34.  Deloitte agreed to the settlement as there was no available fund to take legal action against “CGG”.

35.  The Government had not released any compensation payable to the owner(s) of the land as it was still checking the titles to the land.

36.  The prosecution alleged that the applicant, together with Yim, Li and Yung had conspired to defraud the Government, the liquidators and creditors of Howin by concealing Howin’s interest in the 12 sections of land and by falsely representing that “CGG” had acquired them as a bona fide purchaser for valuable consideration and was therefore entitled to claim and receive the compensation upon the resumption of the land under the Ordinances.

37.  The prosecution further alleged that for the purpose of, and in the course of obtaining the registration of “CGG” as the registered owner and in making the false representations above, they had procured the 2006/2007 Assignments and the Statutory Declarations from the 12 “Dings”, knowing that they were false documents, in order to induce the Government to pay compensation under the Ordinances to “CGG”.

38.  The prosecution case was that the arrangements under the 1994/1995 Assignment were “sham” transactions and in any event, the 12 “Dings”, having sold their “Ding Rights” to Howin to build Small Houses, were only holding the 12 sections of land in trust for Howin and that Howin remained the true owner as its interests were protected by the Declarations of Trust executed by the 12 “Dings” in its favour.

39.  The prosecution suggested that the attempts to convey interests in the 12 sections of land from the 12 “Dings” to “CGG” to enable “CGG” to collect the compensation payable under the Ordinances when Howin was the real owner was a dishonest attempt to defraud the Government, the liquidators and the creditors of Howin.

40.  The prosecution further suggested that there was a conspiracy to defraud and that the applicant, Yim, Li and Yung were parties to the conspiracy.

The Prosecution Evidence

41.  The 12 “Dings” gave similar evidence on how they “sold” their “Ding Rights” to Howin and in so doing, had signed various documents, including a Small House application form, a Joint Venture Agreement with Howin, a Power of Attorney in favour of Yim, a Declaration of Trust and a 1994/1995 Assignment.

42.  They said they were told that the documents related to the building of Small Houses and they were content to sign the documents for the initial payment of $70,000.  They also confirmed that, contrary to what was stated in the 1994/1995 Assignment, they did not pay Howin the $250,000 stated therein or any other amount.  It was their undisputed evidence that they had never received the 1994/1995 Assignment or the Power of Attorney executed by them in favour of Howin.

43.  When they were informed by the Government of the land resumption under the Ordinances, they contacted Yim and were instructed to go to the applicant’s office.  They were told that the section(s) of land registered under their names did not belong to them and that they had to return them to Howin.  They said they signed the documents as instructed without knowing their contents.

44.  In relation to the Statutory Declarations signed in another solicitor’s office (Messrs Robertsons) to the effect that they had lost the 1994/1995 Assignment and the Power of Attorney, the “Dings” said that they had not been given those documents and they therefore could not have lost them.  They confirmed that the contents of the Statutory Declarations were incorrect and they said they only agreed to sign them because they were told to do so even though their contents had not been explained to them.

45.  One of the 12 “Dings” said he was concerned about the $50,000 mentioned in the 2006/2007 Assignment as he was not paid the sum, and that the transferee was “CGG” and not Howin.  Yim told him, in the presence of Bryan Chan, that Howin had been wound up and as he was also a shareholder of “CGG”, there should be no problem and Howin would not raise any objection.

46.  The “Ding” said he then asked Bryan Chan and Yim to sign a declaration indicating that the Small House application had been unsuccessful and that he was acting under the instruction of Howin to transfer his title to the section of land registered in his name to “CGG” unconditionally and that Howin and its shareholders would not make any claim against him.

47.  The “Ding” also said he was concerned about the contents of the Statutory Declaration to the effect that the 1994/1995 Assignment, said to have been kept at his home, had been lost when he never had the document in the first place.  Eventually, the content of his Statutory Declaration was amended to state that the document had been lost by Yim’s staff.

48.  Mr Szeto Wai-sun, a solicitor formerly employed by Messrs Edmund Cheung and Co gave evidence on how Howin acquired the “Ding Rights” in 1994/1995.  He said he prepared the documents, including the Joint Venture Agreements between Howin and the “Dings” for the construction of Small Houses, the 1994/1995 Assignments, the Power of Attorney and the Declarations of Trust executed by the “Dings”.

49.  Mr Szeto confirmed that the “Dings” were registered as owners of the land and the Declarations of Trust were not registered as an encumbrance, and he described it as a “technical nicety”.  He agreed that the Declarations of Trust were not registered because they were executed in escrow and were treated as security documents for the performance of the Joint Venture Agreements.  He said he was not concerned as to whether any money had been paid by the “Dings” to become registered owners of the land.

50.  A Senior Land Executive of the Small House Team confirmed that if the Declarations of Trust executed by the “Dings” were registered and made known, their applications to build Small Houses would be rejected.  Such evidence was consistent with the Small House Policy.  See the judgment of Lam J in Koon Ping Leung v The Director of Lands, unreported, 26 January 2012, HCAL 14/2011 at para 21(d) “that an applicant must be the sole owner of the land and he must state in his statutory declaration that he had not transferred the land to someone else”.

51.  A witness said he had agreed to purchase two sections of the land together with the “Ding Right” from Li for $1.1 million.  The witness said Li claimed to be the owner of the land although they were registered in the name of a “Ding”.  Li also told the witness that the Small House Application was pending approval and agreed to transfer the title to him after a building licence had been obtained.

52.  The witness said he paid Li a deposit of $330,000, but heard nothing further after 3½ years.  He later successfully claimed against Li for the return of $360,000, but Li had been made bankrupt.  In March 2007, Yim contacted the witness and offered him $50,000 and then $100,000 to settle the matter, but the witness refused.  He eventually obtained $320,000 compensation from the Government when the sections of the land sold to him were resumed under the Ordinances.

53.  A Senior Insolvency Officer at the Official Receiver’s Office said after the winding up of Howin, he interviewed Yim and Li on 17 July 2001.  Yim and Li told him that they were just minority shareholders of Howin while the major shareholders were Mainlanders.  They also said they had left the Board of Directors since 1998 as they had disagreements with other board members.

54.  The Senior Insolvency Officer asked Yim and Li to submit a statement of affairs of Howin, but both had failed to do so.  He also confirmed that neither of them had reported Howin’s entitlement to the land.

55.  A manager of Deloitte confirmed that both Yim and Li had claimed to have left the Board of Howin in 1998 and neither of them had submitted any statement of affairs as required, saying that Howin did not keep any books of account.  They had disclosed that Howin had interests in certain landed properties, but claimed to have no detailed information.

56.  The manager examined the financial statements of Howin and discovered that Howin was in possession of land for development and the costs to acquire the land amounted to over $34 million.  He confirmed that the sections of land were ostensibly assigned to the “Dings” for a consideration of $250,000, but no money had been received.  Instead Howin had made payments to the “Dings” for the purchases of their “Ding Rights”.

57.  The manager further found that the 19 sections of land belonged to Howin and were held by the “Dings” on trust for Howin.  However, they were sold by the “Dings” to “CGG” for various amounts between $30,000 and $70,000.  He then wrote to “CGG” saying that the transactions under the 2006/2007 Assignment were fraudulent, and were therefore null and void.  The applicant’s firm, on behalf of “CGG” denied the suggestion.

58.  There was a subsequent meeting between the manager and Li who confirmed that he had signed the 1994/1995 Assignments but claimed that he could not recall if Howin had received the full consideration.  Li also said he could not recall if the Declarations of Trust had been signed.  Li confirmed that Howin had run out of money and therefore the development could not go ahead.

59.  The manager also had a meeting with the applicant and a representative of “CGG”.  The applicant claimed not to have any knowledge of the trust arrangement or that Howin was the beneficial owner of the 12 sections of the land.  The applicant also said “CGG” was a bona fide purchaser of the 12 sections of land for valuable consideration, but he was willing to consider a settlement proposal.

60.  In the end, the applicant agreed to pay the liquidators $1.3 million out of the resumption compensation of $3.38 million and a Deed of Settlement was signed on 24 April 2008.

61.  A Senior Land Executive confirmed that the applicant’s firm had written to the District Lands Office, saying that their client, “CGG” were the owners of the 12 sections of land in question and that the Government’s offer of compensation on the resumption of the land was acceptable.  In the letter from the applicant’s firm, copies of the letters of compensation and the acceptance letters signed by KF Wong on behalf of “CGG” were enclosed.

62.  Ho Nin-sung confirmed that Yim had asked him to locate a number of “Dings” who were prepared to sell their “Ding Rights” and that the price would be $150,000 to $180,000.  Ho Nin-sung was paid $30,000 transportation fee, $20,000 by way of a cheque drawn on the account of the applicant’s firm and $10,000 in cash.

63.  A Valuation Surveyor testified that the valuations of the 12 sections of land, the subject matter of the charge, were significantly higher than the price allegedly paid to the “Dings” by “CGG” under the 2006/2007 Assignments.

64.  KF Wong, a qualified cost engineer and quantity surveyor, had known the applicant since 1992 when they were students at Warwick University.  They became good friends after returning to Hong Kong and had had business deals.

65.  According to KF Wong, the applicant asked him to set up a company with Yung and he then signed some documents relating to “CGG”. He and Yung became equal shareholders of “CGG”.

66.  The applicant subsequently said, in the presence of Yung, that there was a project for the development of the land and that the project would be carried out through “CGG”.  The applicant also said that he and Yung would invest several hundred thousand dollars, but KF Wong said he was not interested and he withdrew from the meeting.

67.  In mid-August 2006, KF Wong had another meeting with the applicant in his office together with Bryan Chan when the applicant said that the project had reached the stage where Assignment would be prepared for the transfer of the land, and that Bryan Chan would prepare the Assignment and KF Wong would sign for “CGG”.

68.  KF Wong said he was happy to sign the 2006/2007 Assignments on the instruction of Bryan Chan as the applicant was his good friend and he thought they were just common sale and purchase transactions.

69.  KF Wong confirmed that the applicant became a director of “CGG” on 30 November 2006 and that Yung resigned on 11 January 2007 after transferring his shares to the applicant.  KF Wong said the applicant told him that he took up the shares because Yung was unable to contribute capital to the project.  KF Wong confirmed the meeting on 24 April 2008 with the applicant at the office of Deloitte where he signed a Deed of Settlement as the Director of “CGG”.  KF Wong said it was the applicant who subsequently asked him to resign as a director and cease to be a shareholder of “CGG”.

70.  Yung gave evidence under immunity.  Yung said he was the applicant’s client and he had also met KF Wong in the course of his dealings with the applicant.

71.  According to Yung, the applicant talked to him about an investment in “Ding” land and told him that the company that had purchased the land had been wound up.  The applicant suggested that the title of the land could be transferred to another company if they decided to invest.

72.  The applicant further said that the Government was resuming the land at the rate of about $200 per square foot and suggested that they could each invest $700,000, and after paying off the “Dings” with several tens of thousands of dollars, they would be able to share the profit.  Yung said he was agreeable to the suggestion as there was money to be earned.

73.  Yung said at a meeting arranged by the applicant at a Chinese restaurant in Tai Po when the applicant, Yim, Li and Yung, and a lady and a gentleman whom Yung had not met before were present, the applicant said Yim and Li had no money to invest in the project.  Li then said the land was owned by their company but they did not have any money, so they were looking for people to contribute funds in order to pay off the “Dings”.

74.  Li further said $1.4 million was required and that each of the “Dings” would be paid $40,000 to $50,000 to transfer the pieces of land registered under their names to another company to be set up.  Yung was adamant that the applicant was present at the meeting and that the applicant drove them to inspect the land after the meeting.

75.  According to Yung, there was a further meeting at the applicant’s office when the applicant told him that Yim and Li’s company had been wound-up and that a total of $1.4 million was required to transfer the land to a new company, namely $200,000 as legal fees, $40,000 to $50,000 to each of the “Dings” and $300,000 as entertainment fees for the village representative who would delay the matter to enable a new company to be set up.

76.  Yung said according to the applicant, his firm would be used to do the legal work.  The applicant also told Yung that he did not want any problem to arise in the future and he would appoint KF Wong to represent him.  Yung further said that an agreement was reached whereby each party would invest $400,000 initially and after it was exhausted, he had to put up the balance of $300,000 on notice from the applicant.  Yung said he then gave a $400,000 cheque to the applicant.  Yung confirmed that there was no written agreement as he trusted the applicant who was then looking after his civil actions.

77.  In August 2006, Yung went to an accountant firm to sign some company registration documents and he and KF Wong became the directors and shareholders of “CGG”.

78.  In December 2006, Yung obtained a $100,000 loan from the applicant with a monthly interest of $10,000.  Yung agreed to repay the loan, secured by his 50% shareholding in “CGG”, in January 2007.  However, he was late in the repayment by one day and the applicant told him that his shares in “CGG” had been forfeited.  The applicant further told Yung that his $400,000 had also been used to repay the $100,000 loan and the outstanding legal fees owed to the applicant’s firm.  Feeling cheated, Yung reported the matter to the ICAC.

79.  Yung said he decided to make a report to the ICAC because he had lost money and after he saw the cost estimates for the project on Bryan Chan’s desk, he believed that corruption money might be involved.  He denied the suggestion that he was making use of the ICAC to enforce a civil debt against the applicant.

80.  Yung rejected the suggestion that he approached the applicant to ask him if there was any construction project for him to invest.  He also denied the suggestion that the applicant only told him that his friend, who was involved in Small House development, was a bankrupt.

81.  Yung denied that he was the one who suggested starting a company for the project at the meeting in the restaurant.  Yung was adamant that the applicant had told him that Yim and Li were directors of a company that had gone into liquidation and that they were also bankrupts.

82.  After his arrest, the applicant gave two interviews to the ICAC.  In the 1^st interview, the applicant denied having conspired with Yim, Li and Yung to defraud the liquidators and creditors of Howin of compensation payable under the Ordinances.  He claimed to be a bona fide purchaser of the 12 sections of land and he denied any knowledge that the “Dings” were trustees of Howin.

83.  The applicant said he came to know Li and then Yim, and they told him that they were looking for investors in land that was soon to be resumed by the Government.  They suggested that the budget for acquiring the land was $1.6 million and it was believed that the Government would pay a total compensation of $3 to $4 million.  He then introduced Yung to Yim and Li and the idea was to have Yung investing 50% of the capital and KF Wong taking up the other 50%.  However, as KF Wong had no money to invest, he took up the 50% himself.

84.  According to the applicant, “CGG” was set up in 2006 with KF Wong and Yung as the only directors and shareholders.  He said KF Wong was just a nominee shareholder and that he and Yung had each raised the initial capital of $400,000.  However, Yung did not have sufficient funds to carry on with the project, so the applicant took over his shares and became the sole shareholder of “CGG”.

85.  The applicant further said that he had assigned Bryan Chan to handle the conveyance matters for the project and that it was Yim who decided the amount of the purchase price of the sections of the land to be paid to each of the “Dings”.  The applicant claimed to be unconcerned about the agency fees recorded in the files as long as the total costs of the land purchase did not exceed $1.6 million.

86.  The applicant claimed to have made a land search, but did not notice the previous prices of the sections of the land.  He denied knowing that the land was held in trust for Howin.  He emphasized that the trusts had not been registered and it was not possible for him to know that the “Dings” were trustees.  He said he only came to know that the “Dings” were not the true owners when the liquidators showed him the Declarations of Trust executed by the “Dings”.

87.  In the 2^nd interview, the applicant confirmed that “CGG” agreed to surrender $1.3 million to the liquidators from the $3.3 million compensation to be received from the Government under the Ordinances.  The applicant further said he had no knowledge that Yim and Li were former directors of Howin and he only knew them to be undischarged bankrupts.

88.  The applicant said there was no written agreement for the investment project as the amount involved was small.  He also said it was reasonable to purchase the 12 sections of land at the low prices set out in the 2006/2007 Assignment.

89.  The applicant also said he left it to Bryan Chan to deal with the conveyance matters although he accepted that Bryan Chan would seek instructions from him and would report to him about the progress.

The Defence Case

90.  Yim, Li and the applicant all chose not to give evidence.  The applicant called his office manager (Mona Lau Nung-lam) to say that Bryan Chan joined his firm in 2005 to handle litigation and conveyance matters.  Mona Lau Nung-lam said in January 2007, Bryan Chan told her to arrange a bearer cheque payable to one of the “Dings” as the latter had requested cash.  She also said she first heard of the Declarations of Trust executed by the “Dings” in favour of Howin in 2007 or 2008 when the firm received a fax from the liquidators.

91.  The applicant suggested that Yung had lied against him, but only in one aspect, namely that the applicant did not tell Yung that the company that had purchased the land had been wound up.  It was not suggested that any of the other prosecution witnesses were untruthful.

92.  It appeared to be the applicant’s case that he was unaware of the 1994/1995 transaction between Howin and the “Dings” and therefore he did not know that the beneficial interest of the land belonged to Howin and not the “Dings”.

93.  The applicant relied on what he said during the two interviews to the ICAC.  The suggestion was that the title of “CGG” over the 12 sections of the land was not defective as it was a bona fide purchaser for valuable consideration and its interest was protected by s 3(2) of the Land Registration Ordinance, but if the title of “CGG” was defective, the applicant was unaware of it.  In the circumstances, the applicant was not acting dishonestly in claiming compensation upon the resumption of the 12 sections of the land under the Ordinances.

The Judge’s Findings

94.  The judge found that despite the Assignment of the section(s) of land to each of the 12 “Dings” by Howin under 1994/1995 Assignment for $250,000 which was in fact not paid, the “Dings” were not the true owners as they were only holding the land in trust for Howin and that Howin remained the beneficial owner. 

95.  The judge noted that the Declarations of Trust executed by the “Dings” in favour of Howin were not registered, but concluded that it was because if the Lands Department were aware of the true position, namely that the “Dings” had in fact sold their “Ding Rights” to Howin, their applications to build Small Houses would not be approved.

96.  The judge further found that the 1994/1995 Assignments were not genuine transactions and that the purported transfers of the title in the 12 sections of land to “CGG” under 2006/2007 Assignments were not genuine transactions and could not be effective to pass any interest to “CGG” as the “Dings” were not the true owners.

97.  On the evidence of the “Dings”, which he accepted, the judge found that the contents of Statutory Declarations executed by them in the office of Messrs Robertsons were false as the “Dings” never had possession of the 1994/1995 Assignment or the Power of Attorney.  The judge pointed out that any proper enquiries of the “Dings” would have revealed that they were holding the land in trust for Howin.

98.  The judge rejected the applicant’s case, premised on section 3(2) of the Land Registration Ordinance, that the Declarations of Trust executed by the “Dings” in favour of Howin were null and void as they had not been registered.  The judge pointed out that “CGG” was not a bona fide purchaser for valuable consideration and in any event, “registration confers priority and not validity”.

99.  On the evidence of Yung, the judge found that the applicant had told Yung that as the company that had purchased the land had been wound up, the title of the land would be transferred to another company and that after paying off the “Dings” with several tens of thousands of dollars, they could share the profit from the compensation payable under the Ordinances.

100.  The judge accepted the evidence of Yung, that at the subsequent meeting at a Chinese restaurant, Li had said, in the presence of the applicant, that the land was owned by their company but they did not have money and had to look for people to join in to pay off the “Dings”.

101.  On the evidence of Yung, the judge drew the only reasonable inference that the applicant must have known that, despite the 1994/1995 Assignment, the title of and the interest in the land were not with the “Dings”, but with Howin that had been wound up.

102.  The judge accepted the evidence of KF Wong and concluded that the applicant had not been truthful and did not tell him that “CGG” was set up for the sole purpose of getting compensation from the Government under the Ordinances.

103.  The judge also accepted the evidence of the “Dings” that they were told the 2006/2007 Assignment related to the “sale” of their “Ding Rights” in 1994/1995, that some of them did not receive the sums as stated in the 2006/2007 Assignment.

104.  The judge rejected the applicant’s explanation given at the interviews with the ICAC that he had no knowledge that the “Dings” were holding the land in trust for Howin and that he only knew that they were not the true owners when the liquidators produced the Declarations of Trust.

105.  The judge took the view that the applicant must have been aware that something was seriously wrong when all 12 “Dings” claimed to have lost their original title documents, including the 1994/1995 Assignment.  The judge emphasized the substantial differences between the value of the sections of land and the “prices” paid by “CGG” to the 12 “Dings” under the 2006/2007 Assignment.

106.  The judge found that the applicant must have known that the 1994/1995 Assignment were not in the hands of the “Dings”, but in a company, originally controlled by Yim and Li, but now wound up.

107.  The judge took the view that the applicant, in his dealings with Yung and in his handling of the transactions involving “CGG” and the “Dings”, was in breach of the professional code of conduct and the rules of the Law Society.

108.  The judge concluded that there was a conspiracy to defraud the Government, the liquidators and creditors of Howin, by causing the transfers of the 12 sections of the land from the 12 “Dings” to “CGG” to enable “CGG” to claim compensation under the Ordinances and that the applicant, acting dishonestly, was a party to the conspiracy.

109.  The judge therefore found the applicant guilty as charged.

Grounds of Appeal

110.  The grounds of appeal put forward on behalf of the applicant relate both to issues of fact and matters of law.

111.  The applicant’s complaints relating to facts concern only Yung’s evidence although it is also suggested that the judge had not given adequate reasons for accepting the evidence of other prosecution witnesses and rejecting the applicant’s explanations given during the interviews by the ICAC.  However, there was no suggestion as to why the evidence of the other prosecution witnesses should not be accepted when their evidence was not in dispute.

112.  Mr Loughran, who argued the issues of fact for the applicant, suggests that Yung was not a truthful or reliable witness as he had motive to lie against the applicant.  He points out the unsatisfactory aspects of Yung’s evidence and complains that the judge had not properly evaluated his evidence and had not given sufficient reasons for accepting his evidence.

113.  It is emphasized that the judge had failed to warn himself of the danger of relying on Yung’s evidence without corroboration.  Mr Loughran seeks reliance on a passage in HKSAR v Poon Chun Kit [2007] 4 HKLRD 12 at para 44, namely: “So, PW1 was not just an accomplice.  He was a person who obviously had a grudge against the 1^st defendant.  In such circumstances, we believe it was incumbent upon the Deputy Judge to demonstrate that he had properly considered and evaluated the evidence of PW1”.

114.  In support of his contention that the judge had failed to properly evaluate Yung’s evidence before accepting it, Mr Loughran refers us to paras 22 and 23 in the judgment in HKSAR v Syed Rashid Aslam (unreported, 27 January 2011, CACC 170/2010):

“Later in the same judgment (referring to the judgment of the Court of Final Appeal in HKSAR v Kevin Egan and Others FACC Nos 3, 4 and 5 of 2009), Litton NPJ (at para 304) observed that to ‘evaluate’ means just that; it means to ‘measure, to weigh’. On that basis, as he said –

‘When a tribunal in giving judgment recites the testimony of a witness and says “I accept him as a truthful witness”, this is not evaluation: it is a conclusion which might be reached at the end, after weighing the relevant evidence.’

In the present case, in our judgment, the judge, apart from dealing with matters specific to the circumstances of Butt’s identification of the applicant, fell into the error identified by the Court of Final Appeal, that is, of concluding that Butt was a generally honest and reliable witness after reciting the evidence but failing to articulate in any way how he had weighed that evidence, that is, how he had evaluated it.”

115.  Mr Loughran suggests that the judge had simply concluded that Yung was an honest and reliable witness without properly evaluating his evidence.

116.  Mr Chan SC complains that the judge had relied on irrelevant matters to find dishonesty on the part of the applicant.  Mr Chan SC emphasizes that the loss of the 1994/1995 Assignment by all 12 “Dings”, the substantial price difference between the value of the land and the prices paid to the “Dings” by “CGG”, and the other matters relied on by the judge only related to the applicant’s knowledge of the prior unregistered interest of Howin.

117.  Mr Chan SC suggests that despite such knowledge, the applicant was nevertheless entitled to take the position that the interest of Howin in the 12 sections of land had been defeated by the statutory rights of “CGG” derived from ss 3(2) and 4 of the Land Registration Ordinance.

118.  The statutory rights of “CGG” emphasized by Mr Chan SC arise out of the operation of law, premised on the suggestion that the Assignment by Howin to the “Dings” under the 1994/1995 Assignment, registered with the Land Registry, was an effective transfer of title to the “Dings”, by reason of s 17 of the Conveyancing and Property Ordinance (“Cap 219”) and the doctrine of estoppel by deed.

119.  Mr Chan SC, relying on Midland Bank Trust Co Ltd v Green [1981] AC 513, Markfaith Investment Ltd v Chiap Hua Flashing Ltd [1991] 2 AC 43 and Wellmake Investment Ltd v Chan Yiu Tong [1996] 2 HKLRD 44, puts forward the following propositions:

“   (1) The lack of registration renders the instrument (the Declaration of Trust) void against a subsequent purchaser [of land in Hong Kong];

     (2) A subsequent purchaser may make use of a legal provision i.e. the requirement for registration without committing a fraud; and

     (3) So long as consideration is furnished, the adequacy of the consideration is not relevant.”

120.  Mr Chan SC emphasizes that “a purchaser who takes advantage of his statutory rights by relying on the necessary registration is not to be regarded as using the relevant statutory provisions as an instrument of fraud”: see Wellmake Investment Ltd v Chan Yiu Tong (supra) at 47G and that “merely…taking advantage of a situation, which the law has provided… could not create an absence of good faith” and “it is not ‘fraud’ to rely on legal rights conferred by Act of Parliament”: see Midland Bank Trust Co Ltd v Green (supra) at 530-531.

121.  Mr Chan SC suggests that as the Declarations of Trust executed by the “Dings” in favour of Howin had not been registered, they were null and void, and Howin’s right under those Declarations of Trust could be ignored.  Mr Chan SC also suggests that the court should ignore the fact that the “Dings” were paid much lesser sums for executing the 2006/2007 Assignment in favour of “CGG” as the “adequacy of the consideration is not relevant.”

122.  Mr Chan SC emphasizes that the title of the land had to be transferred to the “Dings” to serve Howin’s purpose and therefore the transactions could not be a “sham” or a “pretence”.

123.  Mr Chan SC further argues that the 2006/2007 Assignment executed by the “Dings” in favour of “CGG”, being effective and properly registered, had the effect of properly conveying full title to the 12 sections of land to “CGG” regardless of whether “CGG” or the applicant had any actual or constructive notice of the “trusts” between the “Dings” and Howin when the “trusts” had not been registered.

124.  Mr Chan SC suggests that after the execution of the 2006/2007 Assignments, “CGG” had complete and good title to the 12 sections of land as a bona fide purchaser for valuable consideration and was therefore entitled to claim and receive compensation from the Government under the Ordinances, and that being the case, there was no fraud or agreement to deceive the Government or the liquidators or the creditors of Howin.

125.  Mr Chan SC submits that the judge was wrong to conclude as he did that the 1994/1995 Assignment did not operate to transfer title of the sections of land to the “Dings” and that the legal title remained with Howin.  Mr Chan SC further submits that the judge was also wrong to have concluded that the 2006/2007 Assignments executed by the “Dings” could not lawfully or effectively transfer title to the 12 sections of land to “CGG”, and “CGG” was not entitled to receive the compensation under the Ordinances.

126.  Mr Chan SC reiterates that both the 1994/1995 and 2006/2007 Assignments were subsisting and effective to transfer title to the 12 sections of land and they were genuine documents and had a purpose to serve.

127.  Mr Chan SC accepts that Howin had beneficial interest in the 12 sections of land, but argues that such interest could not be enforced against “CGG” as “CGG” had acquired good title of the 12 sections of land by the 2006/2007 Assignments and had therefore completely defeated whatever interest that Howin might have, including the interest arising out of the Declarations of Trust executed by the “Dings” as those documents had not been registered.

128.  Mr Chan SC further suggests that the misrepresentations set out in the charge against the applicant had not been established.  Mr Chan SC suggests that “CGG” was a bona fide purchaser for valuable consideration in the sense that it was a genuine purchaser and was entitled to receive compensation under the Ordinances.  Mr Chan SC further argues that, as any beneficial interest that Howin might have, had become null and void, there could not be any concealment of such interest.

129.  On the allegation that false Statutory Declarations by the “Dings” in 2006/2007 were used to obtain the registration of “CGG” as the registered owner, Mr Chan SC argues that the 2006/2007 Assignments were not false, and the Statutory Declarations executed by the “Dings” to the effect that they had lost the 1994/1995 Deeds of Assignment, whilst being false, were not tendered for the purpose of registering “CGG” as the owner.  Therefore, it is argued that the particulars of the charge had not been proved.

130.  In any event, Mr Chan SC submits that there was insufficient evidence to prove that the applicant was aware of the falsity, if any, of the 1994/1995 Assignment or the falsity of the Statutory Declarations executed by the “Dings” when he was not the one who dealt with those documents.

Discussion

131.  Yung frankly admitted that he reported the matter to the ICAC because he was unhappy with the way in which the applicant “forfeited” his $400,000 and deprived him of his shares in “CGG”.  The judge was fully aware of the background and he had reminded himself that Yung was a co-conspirator, giving evidence under immunity.

132.  Yung gave detailed evidence on the meetings that he had with the applicant concerning the investment in the land.  There was no dispute that the applicant had mentioned the setting up of a company and the payment of $40,000 to $50,000 to each of the “Dings” so that the sections of land assigned to them by Howin under the 1994/1995 Assignment could be transferred back to the new company.  The applicant further accepted that he had mentioned the capital required for the “investment” and how it could be raised.

133.  Mr Loughran takes us to the cross-examination of Yung and accepts that the applicant’s challenge to his evidence related only to one aspect, namely that the applicant had told Yung that the company that had purchased the land had been wound up.

134.  The transcript shows that counsel for the applicant suggested to Yung that the applicant “had never told him that the land had previously been owned by a company now in liquidation and the land was held by the ‘Dings’ for the company”.  It was suggested that the applicant only said that “both Yim and Li were previously directors of a company, but they…had gone bankrupt.”

135.  Yung was adamant that the applicant did mention that the land was owned by a company that had been liquidated which was factually true.  There was no suggestion as to how else Yung would be able to obtain such a piece of information.

136.  Yung’s evidence was consistent with the evidence of KF Wong and the “Dings” whose evidence had not been seriously challenged.

137.  A judge hearing criminal cases must give adequate reasons for the decisions he makes.  What are adequate reasons will depend on the circumstances of each case as decided by the former Chief Justice in Oriental Daily Publisher Ltd v Commissioner for Television & Entertainment Licensing Authority (1997-98) 1 HKCFAR 279 at p 290J:

“Where there is a duty to give reasons, it must be discharged by giving adequate reasons. What would amount to adequate reasons for a decision would depend on the context in which the decision maker is operating and the circumstances of the case in question.”

138.  It must be remembered that the 12 “Dings” had given similar, if not identical evidence against the applicant relating to the arrangement they had with Howin in 1994/1995 and how they were invited to assign the section(s) of land to “CGG” in 2006/2007 for a few ten thousand dollars, which they thought were part of the consideration for relinquishing their “Ding Rights” as they had agreed to in 1994/1995.  Their evidence was supported by undisputed documentary evidence, some of which were prepared by another firm of solicitors.  Some of the “Dings” said the sums they received did not match what was stated in the 2006/2007 Assignment.

139.  Ho Nin-sung also gave evidence on how he was asked to locate a number of “Dings” to sell their “Ding Rights”.

140.  The judge found the evidence of Yung compelling. The judge said it could not be a coincidence that the 12 “Dings” all made Statutory Declarations indicating that they had lost the 1994/1995 Assignment and that they all thought that the 2006/2007 Assignments related to the selling of their “Ding Rights”.  The judge was clearly suggesting that the evidence of the “Dings” was consistent with, if not directly in support of Yung’s evidence.

141.  In the light of the nature of the challenge to the prosecution evidence and the absence of evidence from the applicant to challenge, contradict and explain such evidence, it was hardly necessarily for the judge to say much more, other than that he found the evidence of Yung compelling.  There was no suggested reason not to accept the evidence of the other prosecution witnesses.  Indeed the evidence of the “Dings”, KF Wong and other prosecution witnesses was not challenged.

142.  In my view, the judge was perfectly entitled to accept the evidence of Yung, KF Wong and the “Dings” and act on their evidence.  The applicant’s complaints on the factual issues fail.

143.  I turn to the arguments of Mr Chan SC relating to the respective interests and rights of the “Dings” and Howin as well as the effect of the 1994/1995 and 2006/2007 Assignments on their respective legal title and beneficial interest.

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.

146.  I wish to repeat what was said by Lord Judge CJ in R v Smith, Plummer and Haines [2011] 1 Cr App R 379 at page 382 (para 9 of the judgment):

“In Smith’s Law of Theft, 9^th Edn (2007), p.80, it is suggested that ‘public policy which prevents the wrongdoer from enforcing a property right should have no application to criminal proceedings brought in the name of the Crown. The criminal law is concerned with keeping the Queen’s peace, not vindicating individual property rights.’ That observation articulates the principle to be applied in the present appeal.”

147.  I do not find the submission of Mr Chan SC in relation to s 17 of the Conveyancing and Property Ordinance or ss 3 and 4 of the Land Registration Ordinance to be helpful.  With respect, I do not find them to the point.

148.  Mr Chan SC accepts that his arguments are premised on the assumption that the transactions between Howin and the “Dings” under the 1994/1995 Assignment were genuine and that the applicant, representing “CGG”, was a bona fide purchaser for valuable consideration in the 2006/2007 Assignments.

149.  In advancing his argument, Mr Chan SC appears to be oblivious to the evidence of the “Dings” and the findings of the judge that Howin never intended to pass title to the sections of land to the “Dings” by the 1994/1995 Assignment.

150.  When suggesting that “CGG” was a bona fide purchaser for valuable consideration, Mr Chan SC ignores the evidence of Yung and of the “Dings” and the incriminating circumstantial evidence against the applicant.

151.  The undisputed or undisputable evidence was that the “Dings” never intended to acquire the sections of land from Howin and they had never paid the price of $250,000 as mentioned in the 1994/1995 Assignment. Instead, their agreements with Howin were to “sell” their “Ding Rights” for $200,000 each payable by 3 installments so that the rights to build Small Houses could be exercised by Howin.

152.  The “Dings” were never given the 1994/1995 Assignment.  Instead, the “Dings” had to execute various documents to protect Howin’s interest, including a Small House application form, a Joint Venture Agreement, a Power of Attorney in favour of Howin’s director and a Declaration of Trust to the effect that they were holding the land in trust for Howin.

153.  The Joint Venture Agreement executed between the “Dings” and Howin contained the following clauses:

“3. Party A (the “Ding”) and Party B (“Howin”) agree to cooperate in a joint venture for the development of the said lot. An application for one ‘ding” house will be made in the name of Party A, and Party B agrees to pay HK$200,000 in Hong Kong currency to Party A in that regard. However, when Party A is granted a house in the future, no matter whether it is in the form of a new grant or a building licence or in any other forms {hereinafter called ‘the new grant’}, the rights to the said ‘ding’ house in the new grant together with the said lot shall be held by Party B. Hereinafter ‘the said lot’ shall cover all the land in the new grant and all its rights.

Both parties hereby agree as follows:

1.     Owned by Party B: The said lot and all its rights, including the new grant received in the name of Party A in the future.  In order to ensure that Party A will fulfill this term, Party A shall, at anytime, at the request of Party B, sign all relevant contracts, deeds, letters of trust, deed of assignment, conveyances, etc. to unconditionally transfer the said lot to Party B or a person designated by him.  The plan and layout of the said lot as well as the site construction shall be decided by Party B, and Party A shall have no right to bother about it.

2.     Party A’s title deed: Party B should transfer ownership of the said lot to Party A as soon as possible so that Party A may make the ‘ding’ house application concerned.  Party A agrees to hand the title deed of the said lot to Party B, and the title deed of the said lot shall be placed in the custody of Party B hereinafter…

….

5.     Legal Procedures: Party A shall sign an undertaking, a letter of trust, a letter of authorization, a will, a deed of assignment and a  mortgage (deed) in respect of the said lot and all legal documents recognized by Party B in a law firm designated by Party B.  All fees …shall be borne by Party B.  Party A agrees that Party B may raise a construction mortgage on the said lot from a bank in his name… Party A also agrees that Party B may take out life insurance for Party A with Party B as the beneficiary, …

6.     Land premium and transfer of ownership:…Party B shall have the right to request Party A to directly transfer title to his buyer or a person designated by him.

7.     Documents for land premium: Party A agrees to sign unconditionally on behalf of Party B at anytime a consent letter of the Government relating to payment of land premium or other documents to be signed in person by Party A when land premium is paid in the future; otherwise, Party B shall request Party A to compensate for all losses.

…

11.   Special statement: Since the said lot cannot be sold or purchased before an approval is obtained from the Lands Department, the spirit of this agreement lies in the mutual trust between the two parties.  If Party A fails to fulfill any terms of this agreement in the future, Party A shall compensate Party B for all losses.  Party A guarantees that the said lot belongs to Party B in the future and that there will not be any incumbrance or mortgage.  If there is, Party A shall be responsible for making repayments; otherwise, Party A shall compensate Party B for all losses.  If Party B executes article 12 of this agreement to terminate this agreement, Party A shall immediately transfer the rights of the said lot back to Party B or a representative designed by him…”

154.  The “Dings” also executed an irrevocable Power of Attorney in favour of Yim in connection with the Joint Venture Agreement and the development.  Each of the “Dings” also undertook not to alienate, dispose of or otherwise deal with the Land or any part of interest thereof, or any land in exchange unless with Howin’s consent which may be given or withheld at Howin’s absolute discretion.

155.  The “Dings”, despite the 1994/1995 Assignment, did not and were never intended to have any interest in the land.  Howin, under the “arrangement” with the “Dings” retained absolute and full control of the land according to the various documents that had been executed by the “Dings”.

156.  As rightly pointed out by counsel for the respondent, the “Dings” were never intended to be “Purchasers” and Howin was never intended to be the “Vendor”, and the stated consideration of $250,000 was not and never intended to be paid.

157.  It is plain that the sole purpose of the 1994/1995 Assignment was to create the illusion- a false presentation- that the “Dings” were both legal and beneficial owners of the sections of land in question, when in fact they were not.

158.  The “arrangement” that Howin had with the “Dings” in 1994/1995 was intended to overcome the difficulty that an application to build a Small House made on behalf of a developer will not be approved because:

“Central to the decision is the holding that in making the application, the villager is representing to the Government that he is the legal and beneficial owner of the land in respect of which the application for a grant under the Small House Policy is made. That holding appears to me to be correct. An indigenous villager who holds the land as a mere nominee would not qualify given the purpose of the Small House Policy which is ‘to allow an indigenous villager to apply for permission to erect for himself during his lifetime a small house within his own village’…It is a once in a life time grant for the villager and the small house is intended for that villager’s own habitation. It is plain that the benefits that accrue from a grant under the Small House Policy such as a free building licence, and the special privileges are intended to benefit the villager personally and not anyone else.” (Per Le Pichon JA in Madam Chung Mui Teck and Others v Hang Tak Buddhist Hall Association Ltd and Another [2001] 2 HKLRD 471 at 478F-H)

159.  Counsel for the respondent refers us to the cases of Snook v London and West Riding Investments Ltd [1967] 2 QB 786 and Re Yates (a bankrupt) [2004] All ER (D) 373 in relation to the term “sham”.

160.  At p 802 of the judgment in Snook(supra), Diplock LJ said at C-F:

“…a ‘sham’, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co v Maclure (1882) 21 Ch D 309 CA and Stoneleigh Finance Ltd v Phillips [1965] 2 QB 537), that for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.”

161.  In Re Yates (supra), Charles J referred to the judgment of Neuberger J in National Westminster Bank plc v Jones and other [2001] 1 BCCL 98 when he stated in para 219 of his judgment:

“……

(c) a sham, or pretence, involves the parties entering into documents or provisions in documents as ‘dressing up’ and not as documents or provisions to which any effect would be given and thus as Neuberger J says at paragraphs 45 and 59:

‘…the whole point of a sham provision or agreement is that the parties intend to give the impression that they are agreeing that which is stated in the provision or agreement, while in fact they have no intention of honouring with their respective obligations, or enjoying with their respective rights under the provision or agreement’

‘… a sham provision or agreement is simply a provision or agreement which the parties do not really intent to be effective, but have merely entered into for the purpose of leading the court or a third party to believing that it is effective.’

(d) there is a strong presumption that parties intend to be bound by the provisions of agreements and transactions they enter into, the court is thus slow to find that there is a sham and must be satisfied that the purported agreement which the parties have signed is no more than a piece of paper which the parties have signed with no intention of it having any effect, save that of deceiving a third party and/or the court into believing that the purported agreement is genuine.

…

(f) a conclusion that a document, agreement or provision is a sham or pretence does not make it void, or of no effect, for all purposes. Rather if there is a sham or pretence:

(i) the parties will not be able to rely on it as representing the true position as to the rights and obligations they have created and the court can ignore it in determining what those rights are, and

(ii)  as against an innocent third party it cannot lie in the mouths of the pretenders to assert to the disadvantage of that innocent third party that the transaction is a sham, or pretence, and thus of no effect.”

162.  There can be no doubt that the arrangement under the 1994/1995 Assignment was a sham transaction and the judge was right in having so ruled.  The judge was right in finding that the “Dings” were never legal or beneficial owners of the sections of land in question.

163.  In so far the “sham” transaction between Howin and the “Dings” might affect the interest of the Government, the liquidators and creditors of Howin upon its winding up, the “sham” transactions, as far as the interest of the “Dings” are concerned, can be completely ignored and therefore the ownership of the sections of land remained throughout with Howin, and upon its winding up, with the liquidators and its creditors, with or without the Declarations of Trust executed by the “Dings” in favour of Howin.

164.  I accept that if “CGG”, represented by the applicant, was a bona fide purchaser for valuable consideration without notice, Howin’s interest under the Declarations of Trust executed by the “Dings” could be defeated by reason of s 3(2) of the Land Registration Ordinance.  However, “CGG” could not be regarded as a bona fide purchaser for valuable consideration without notice as the 2006/2007 Assignments were “sham” transactions and the applicant could not be allowed to use statutory provisions as an instrument of fraud.   

165.  When the 12 “Dings” executed the 2006/2007 Assignment in favour of “CGG”, they were told that the transactions related to the selling of their “Ding Rights”.  They were told that the sections of land did not belong to them and they had to return them to Howin.

166.  When one of the “Dings” raised concern, he was assured by Yim that Howin had been wound up and as he was also a shareholder of “CGG” that there would be “no problem and Howin would not raise any objection”.

167.  All of the 12 “Dings” were asked to execute false Statutory Declarations to the effect that documents of titles had been lost.  What ostensibly was the consideration under the 2006/2007 Assignment was said to be related to the “selling” of the “Ding Rights”.

168.  The applicant was the sole shareholder of “CGG” and in so doing, had misled KF Wong, a trusted friend.  “CGG” was intended to be used as the vehicle to obtain the compensation from the Government.  The applicant was the only beneficiary if “CGG” were to be successful in obtaining the compensation from the Government.

169.  The applicant’s firm was involved in the preparation of the documentations to divert “the interest” of Howin to “CGG”. The 12 “Dings” were misled into executing the 2006/2007 Assignments and the false Statutory Declarations.  The applicant accepted that, in connection with the 2006/2007 Assignments, Bryan Chan would seek instructions from him and would report to him.

170.  There was no way the applicant could have overlooked the unusual feature that all the 12 “Dings” claimed in the Statutory Declarations, executed in another nearby solicitors’ firm, that they had lost the 1994/1995 Assignment when the applicant was in overall charge of the matter.

171.  As the judge quite rightly pointed out, any proper enquiries of the “Dings” would have revealed that they could not be the true owners of the sections of land as they were holding the land in trust for Howin.

172.  The payments of a few ten thousand dollars to some of the “Dings” to persuade them to execute the 2006/2007 Assignments were much less than the true value of the 12 sections of land and the compensation payable by the Government under the Ordinances.

173.  The applicant said the costs for acquiring the land was $1.6 million, of which only about $600,000 would be paid to the vendors (the “Dings”) when the compensation payable under the Ordinances amounted to $3 to $4 million.  There was no conceivable reason for the applicant to believe that the “vendors” were prepared to sell the land at less than 20% of their market value.

174.  Yung, of course, gave direct incriminating evidence against the applicant.  According to Yung, the applicant invited him to join an investment and mentioned to him that the company that had purchased “the ‘Ding’ land” had been wound up. The applicant told Yung that the title of the land could be transferred to another company for the purpose of obtaining compensation from the Government upon the resumption of the land.

175.  The applicant further told Yung that Yim and Li had no money to invest and Li then said, in the presence of the applicant, that the land was owned by their company that had been wound up but as they did not have any money, they had to look for other people to pay off the “Dings”.  Li also expressly mentioned that $1.4 million was required to pay each of the “Dings” $40,000 to $50,000 so that they would transfer their titles in the land to a company to be set up.

176.  The applicant expressly mentioned that the company of Yim and Li had been wound up and a total of $1.4 million was required to transfer the land to a new company. The applicant also mentioned the break-up of the fees required and that KF Wong would represent him as shareholder of “CGG” to avoid any problem.

177.  There was evidence that Yim had been paid $300,000 “village representative fee” and the payment record of “CGG” registered the payment as “agency fee”.  There were also records of payments to Yim.  There was never any proper explanation for those payments.

178.  The evidence clearly established that both Yim and Li intended and knew that Howin was the “owner’ of or at least had interest in the 12 sections of land in question despite the execution of the 1994/1995 Assignment.  They must know that the compensation payable upon the resumption of the 12 sections of land under the Ordinances should go to Howin.

179.  By the time the resumption of the land began, Howin was already wound up and any compensation payable under the Ordinance in respect of the 12 sections of land had to be paid to its liquidators.

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.

184.  There was clearly a conspiracy to defraud the liquidators and creditors of Howin as well as the Government.  On the evidence, the inference that the applicant was a party to the conspiracy to defraud and that he was acting dishonestly was inescapable particularly when the applicant did not give evidence to explain, challenge or undermine the prosecution evidence against him.

Conclusion

185.  I did not find the conviction against the applicant on conspiracy to defraud unsafe or unsatisfactory.  I would dismiss the application for leave to appeal against conviction.

Hon Kwan JA:

186.  I have had the advantage of reading in draft the judgment of Yeung VP.  I agree with it and for the reasons he gives I would dismiss the application for leave to appeal against conviction.  I wish to add a few words to address the arguments made by Mr Chan, SC that the conviction was wrong in that the course of conduct agreed to be pursued and was pursued did not amount to the commission of any offence.

187.  In short, Mr Chan’s argument was that the 1994/1995 assignments from Howin Industrial Ltd (“Howin”) to the indigenous villagers (“the Dings”) did transfer title of the lands to the Dings, and the 2006/2007 assignments from the Dings to China Group Global Ltd (“CGG”) did operate to transfer title of the lands to CGG, free from the beneficial interest of Howin, as the declarations of trust executed by the Dings in favour of Howin in respect of the lands were not registered.  Hence, CGG was in a position to warrant that it had good title to the lands and was entitled to receive compensation for the resumption of the lands from the government.

188.  The main thrust of Mr Chan’s submission was what the applicant had caused his company CGG to do was not fraud, but was merely taking advantage of legal rights by virtue of sections 3(2) and 4 of the Land Registration Ordinance, Cap 128, which provide that all instruments in writing registrable under the Ordinance but are not registered shall, “as against any subsequent bona fide purchaser … for valuable considerable … be absolutely null and void to all intents and purposes” and that “no notice whatsoever, either actual or constructive” of any prior unregistered instrument shall affect the priority of any instrument that is duly registered.  In support of this, he cited Midland Bank Trust Co Ltd v Green [1981] AC 513 and Wellmake Investments Ltd v Chan Yiu Tong [1996] 2 HKLR 44.  So even if the applicant knew about the beneficial interest of Howin in the lands, as found by His Honour Judge Geiser, it did not amount to fraud for the applicant to procure CGG to acquire the lands from the Dings with the intention of defeating the interest of Howin to claim compensation for resumption of land.

189.  The first question I ask is whether the 1994/1995 assignments did pass title to the Dings.  Mr Chan contended they did, because it was intended by both Howin and the Dings that the Dings should become the legal owners of the lands in order for them to make use of their “Ding rights” to apply to the government to build small houses on the lands under the Small House Policy.  They should be regarded as “bare legal owners”.

190.  I do not agree with this.  The 1994/1995 assignments only gave the appearance of vesting legal title of the lands in the Dings in purported transactions for sale and purchase.  In actual fact, there was no sale of the lands by Howin to the Dings.  The purchase price of $250,000 stated in each of the assignments was not paid by any of the Dings and was not meant to be paid.  Instead, Howin agreed to pay each of the Dings $200,000 (and did pay some instalments before it became insolvent) for the sale of their “Ding rights” to apply to government to build on the lands.  Quite clearly, it was the common intention of all parties that the 1994/1995 assignments were not “to create the legal rights and obligations which they give the appearance of creating” (Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802E to F).  In other words, these assignments were a sham.  As Mr Coleman, SC had submitted, the only purpose of these assignments was to create the illusion that the Dings were the legal and beneficial owners of the lands.

191.  What then is the legal consequence of these assignments being a sham? “The parties [to the assignments] will not be able to rely on [them] as representing the true position as to the rights and obligations they have created and the court can ignore [them] in determining what those rights are”, and “as against an innocent third party it cannot lie in the mouths of the pretenders to assert to the disadvantage of that innocent third party that the transaction is a sham, or pretence, and thus of no effect.” (Re Yates (a bankrupt) [2004] All ER (D) 373 at para 219(f)).

192.  Thus, the Dings, as parties to the sham transactions, could not rely on the 1994/1995 assignments as vesting in them the title of the lands in what purported to be transactions for sale and purchase.  The court can ignore these assignments in determining in which person or entity the title of the lands was vested.  As between the Dings and Howin, there is no reason why the court should give effect to these assignments which all parties knew and accepted were a sham.  And the applicant and CGG were not innocent third parties, as it was found by the judge that the applicant knew Howin had “Ding land” for which compensation could be claimed for land resumption and that the former directors of Howin, Yim Tung Hoi and Li Wan Fong, were looking for an investor to pay off the Dings and transfer the land to another entity (Reasons for Verdict, paras 96, 104 and 105).

193.  Mr Chan relied on Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866 in which the court granted relief to the developer by making a declaration that it was the beneficial owner of property held by an indigenous villager in a sham assignment, in support of his contention that legal title would have passed to the Dings notwithstanding that the 1994/1995 assignments were a sham.  This case was decided before Re Yates and National Westminster Bank plc v Jones [2001] 1 BCLC 98, which was discussed in Re Yates at para 219, was not apparently cited to the court in Best Sheen Development Ltd, so the attention of the court was not drawn to the line of authorities dealing with the legal consequence of a sham transaction. 

194.  As the 1994/1995 assignments were sham transactions and did not vest the title of the lands in the Dings, the 2006/2007 assignments could not operate to transfer the title from the Dings to CGG. 

195.  If, contrary to my views, the 1994/1995 assignments did transfer legal title of the lands to the Dings, I do not think CGG had acquired good title under the 2006/2007 assignments unencumbered by the beneficial interest of Howin.  The present situation was very different from the cases cited by Mr Chan where a subsequent purchaser may make use of the legal requirement for registration of an instrument affecting land without committing a fraud (Kwok Siu Lau v Kan Yang Che (1913) 8 HKLR 52; Chu Yam On v Li Tam Toi Hing (1956) 40 HKLR 250; Midland Bank Trust Co Ltd v Green; Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1991] 2 AC 43; Wellmake Investments Ltd v Chan Yiu Tong).  

196.  In those cases, the courts had made clear the mere fact that the subsequent purchaser had notice of the prior unregistered instrument did not make him mala fide or otherwise not a bona fide purchaser.  In the present case, there was much more than mere notice.  And it was very different from the situation when property was expressed to be assigned subject to an option to renew a lease.

197.  Here, the Dings acquired title to the lands (if contrary to my views they did not do so) by assuming various positive obligations to Howin under the joint venture agreements – they agreed the rights to the “Ding” house in the new grant together with the land shall be held by Howin; they agreed at any time at the request of Howin to sign all relevant instruments to unconditionally transfer the land to Howin or a person designated by it; the title deeds of the land were to be placed in Howin’s custody notwithstanding the 1994/1995 assignments; they agreed to sign such legal documents in respect of the land as required by Howin.  Pursuant to these obligations, the Dings executed declarations of trust in favour of Howin and signed authorisations and irrevocable undertakings by which they undertook they shall not alienate, dispose of or otherwise deal with the lands unless with Howin’s consent.

198.  In divesting their title to the lands in favour of CGG free from Howin’s interest, the Dings had not just committed a breach of contract, they had reneged on positive stipulations in favour of Howin in the bargain under which they acquired the lands.  This is akin to the kind of special situation in Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044 as discussed and analysed by Godfrey JA in Wellmake Investments Ltd v Chan Yiu Tong at 45J to 47J.  In causing the Dings to renege on the positive stipulations in favour of Howin in the bargain by entering into the 2006/2007 assignments with CGG, the applicant, Yim Tung Hoi and Li Wan Fong, had committed a fraud on Howin.  They were taking advantage of a situation which they had created and relying on the gullibility of the Dings.  And as the statutory provisions relating to registration of interests in land cannot be used as an instrument of fraud, the applicant and CGG could not rely on sections 3(2) and 4 of the Land Registration Ordinance to defeat the interests of Howin in the lands and its entitlement to claim compensation.  The principles of equity can be used to “to prevent those provisions from being misused as an instrument of fraud” (Wellmake Investments Ltd, at 47J).

199.  So for this reason as well, the 2006/2007 assignments could not operate to transfer the title from the Dings to CGG. 

200.  CGG did not acquire good title to the lands and was not entitled to receive compensation for the resumption of land.  Hence, the representation to the government that CGG had acquired the lands as a bona fide purchaser for value and was entitled to claim compensation was false.  The execution of the 2006/2007 assignments, which were false, was procured by the applicant for the purpose of and in the course of obtaining the registration of CGG as the registered owner and in making the aforesaid representation to the government.  The statutory declarations made by the Dings that they had mislaid and lost the 1994/1995 assignments and the deed of grant were false.  The false declarations were procured by the applicant in the course of obtaining the registration of CGG as the registered owner and for the purpose of and in the course of making the representation to the government.  They were not required for the purpose of obtaining the registration of CGG as owner.  But this is not an essential ingredient that made up the charge of conspiracy to defraud.  The essential ingredients of the charge as mentioned above, and the allegations of dishonesty, have been established as found by the judge.

Hon Stock VP:

201.  Accordingly, the application for leave to appeal against conviction is dismissed.  There will be an order nisi that the costs of the application be to the respondent, to be taxed if not agreed.