HKSAR v. PANG HUNG FAI

Press Summary (English)

Press Summary (Chinese)

FACC No. 8 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 8 OF 2013 (CRIMINAL)

(ON APPEAL FROM CACC No. 34 of 2012)

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JUDGMENT

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Chief Justice Ma:

1. I agree with the judgment of Mr Justice Spigelman NPJ.

Mr Justice Ribeiro PJ:

2. I agree with the judgment of Mr Justice Spigelman NPJ.

Mr Justice Tang PJ:

3. I agree with the judgment of Mr Justice Spigelman NPJ.

Mr Justice Fok PJ:

4. I agree with the judgment of Mr Justice Spigelman NPJ.

Mr Justice SpigelmanNPJ:

Procedural History

5. After trial before HH Judge Douglas TH Yau,[1] the Appellant was found guilty of an offence under s 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap 455 (“OSCO”).  He was sentenced to two and a half year’s imprisonment.  The Court of Appeal[2] dismissed the Appellant’s appeal against conviction[3] and refused leave to appeal to this Court.[4]

6. On the same day, 31 May 2013, the Court of Appeal granted bail to the Appellant, on his undertaking to file a Notice of Application for Leave to Appeal to the Court of Final Appeal within 7 days.  The Appellant filed the Notice on the same day.

7. On 5 December 2013, this Court granted leave to the Applicant to appeal, limited to the following questions:

(a)   In relation to offences under section 25(1) of OSCO, when seeking to determine whether a person has reasonable grounds to believe that the property dealt with represents the proceeds of an indictable offence, what facts and matters are the judge or jury entitled to take into account as constituting such reasonable grounds?  In particular, in addition to the objective facts relating to the Appellant's dealing with the property and known by the Appellant to exist, are they entitled to take into account of the Appellant’s perception and evaluation of those facts as constituting or contributing to reasonable grounds for believing that the property does not represent such proceeds?

(b)   In the determination of the objective element of the offence, what is the appropriate standard to be applied in evaluating the content of the reasonable man’s belief?

(c)   On the true construction of section 25(1) of OSCO, is it a defence to a charge under that section, the burden of which is on the Appellant to discharge, to show that notwithstanding the establishment by the prosecution of reasonable grounds to believe that the property dealt with represents the proceeds of an indictable offence, he nonetheless honestly and reasonably did not suspect the property to represent such proceeds?

8. On 11 December 2013, the Appellant filed a Notice of Appeal in this Court.    

The Statutory Scheme

9. The terms of s. 25 and s. 25A, of OSCO are:

“25. Dealing with property known or believed to represent proceeds of indictable offence

(1) Subject to section 25A, a person commits an offence if, knowing or having reasonable grounds to believe that any property in whole or in part directly or indirectly represents any person's proceeds of an indictable offence, he deals with that property.

(2) In proceedings against a person for an offence under subsection (1), it is a defence to prove that-

(a) he intended to disclose to an authorized officer such knowledge, suspicion or matter as is mentioned in section 25A(1) in relation to the act in contravention of subsection (1) concerned; and

(b) there is reasonable excuse for his failure to make disclosure in accordance with section 25A(2).

(3) A person who commits an offence under subsection (1) is liable-

(a) on conviction upon indictment to a fine of $5000000 and to imprisonment for 14 years; or

(b) on summary conviction to a fine of $500000 and to imprisonment for 3 years.

(4) In this section and section 25A, references to an indictable offence include a reference to conduct which would constitute an indictable offence if it had occurred in Hong Kong.

25A. Disclosure of knowledge or suspicion that property represents proceeds, etc. of indictable offence

(1) Where a person knows or suspects that any property-

(a) in whole or in part directly or indirectly represents any person's proceeds of;

(b) was used in connection with; or

(c) is intended to be used in connection with,

an indictable offence, he shall as soon as it is reasonable for him to do so disclose that knowledge or suspicion, together with any matter on which that knowledge or suspicion is based, to an authorized officer.

(2) If a person who has made a disclosure referred to in subsection (1) does any act in contravention of section 25(1) (whether before or after such disclosure), and the disclosure relates to that act, he does not commit an offence under that section if-

(a) that disclosure is made before he does that act and he does that act with the consent of an authorized officer; or

(b) that disclosure is made-

(i) after he does that act;

(ii) on his initiative; and

(iii) as soon as it is reasonable for him to make it.

(3) A disclosure referred to in subsection (1)-

(a) shall not be treated as a breach of any restriction upon the disclosure of information imposed by contract or by any enactment, rule of conduct or other provision;

(b) shall not render the person who made it liable in damages for any loss arising out of-

(i) the disclosure;

(ii) any act done or omitted to be done in relation to the property concerned in consequence of the disclosure.

(4) In the case of a person who was in employment at the relevant time, this section shall have effect in relation to disclosures to the appropriate person in accordance with the procedure established by his employer for the making of such disclosures as it has effect in relation to disclosures to an authorized officer.

(5) A person commits an offence if, knowing or suspecting that a disclosure has been made under subsection (1) or (4), he discloses to any other person any matter which is likely to prejudice any investigation which might be conducted following that first-mentioned disclosure.

(6) In proceedings against a person for an offence under subsection (5), it is a defence to prove-

(a) that he did not know or suspect that the disclosure concerned was likely to be prejudicial in the way referred to in that subsection; or

(b) that he had lawful authority or reasonable excuse for making that disclosure.

(7) A person who contravenes subsection (1) commits an offence and is liable on conviction to a fine at level 5 and to imprisonment for 3 months.

(8) A person who commits an offence under subsection (5) is liable-

(a) on conviction upon indictment to a fine of $500000 and to imprisonment for 3 years; or

(b) on summary conviction to a fine at level 6 and to imprisonment for 1 year.

…”

The persons involved

10. The Appellant came to Hong Kong from the Mainland in 1964 and established a successful garment manufacturing business. At the time of the trial at the end of 2011, he owned two factories on the Mainland, each occupying 40 acre sites, together employing a total of 1,000 workers.  He also had a profitable business in Bangladesh where over 1,000 workers were employed.  In Hong Kong, the Appellant had two premises, each covering more than 10,000 sq ft, in which 50 employees managed his overseas business.  He was aged 66 at the time of the trial and was married, with three grown-up children.  He had a clear record.

11. Kwok Wing (“Kwok”) and the Appellant had been close friends for over 30 years.  Kwok was the chairman and a major shareholder in a Hong Kong listed company called Tack Fat Group International Limited (“Tack Fat”).  He was also in the garments business, operating on a very large scale, with businesses in various countries including Cambodia, where he had a factory employing 20,000 workers.  Among the sites he operated on the Mainland, were two factories with a combined area of 100,000 sq ft which he leased from the Appellant. 

12. They both lived in Mei Foo Sun Chun and their families were close, frequently socialising together over the years.  Kwok and the Appellant had also helped each other with unsecured, interest-free loans on occasion when cash-flow difficulties arose.  Thus, in 1998, Kwok lent the Appellant $2 million and in 2005 or 2006, the Appellant reciprocated twice, lending Kwok $5 million and $2 million respectively.  All the loans were repaid after a short time.

The transaction leading to the money laundering charge

13. At the end of July 2008, Kwok called the Appellant, saying that two of his friends on the Mainland were going to return some money and asked the Appellant to let Kwok have the Appellant’s bank account details so that the money could be remitted to that account and kept for Kwok.  The Appellant agreed without asking any questions about Kwok’s reasons for wishing to use his account, rather than one of his own.  He instructed his bookkeeper to let Kwok have the bank account details of one of his companies called Mickles International Ltd (“Mickles”).

14. A “receipt” dated 29 July 2008, issued by Kwok to the Appellant, stated that Kwok would make payments into the Mickles account and that the sums would be returned to him.

15. On 1 August 2008, remittances of HK$7,582,150 and HK$6,467,230, made upon Kwok’s instructions by Guo Jinsheng (“Guo”) and Pan Duanfeng (“Pan”) respectively, were received in the Mickles account.

16. At Kwok’s request, on 27th August 2008 the Appellant caused the funds so received to be remitted in the total amount of HK$14,049,380.00 to Kwok’s company in Cambodia called Asia World Agricultural Development (Cambodia) Limited.

Kwok’s fraud

17. On the basis of authority, it was unnecessary for the prosecution to prove that these monies were, as a matter of fact, the proceeds of an indictable offence, because the conduct element of the offence is dealing with property (see Oei Hengky Wiryo v HKSAR (No 2) (2007) 10 HKCFAR 98).  Nevertheless, in this case, the prosecution did so.

18. The Appellant’s evidence was that he was unaware of anything amiss in connection with Kwok or Tack Fat until September or October 2008 when he was told that the workers in one of the factories that Kwok had leased from him had not been paid and that the machinery had had to be auctioned off to pay them.  It became obvious that Tack Fat was in dire financial straits.  It was fortunate for the Appellant that the auction proceeds covered the unpaid wages because he would, it seems, otherwise have been liable for the wages as lessor.  The Appellant had not seen Kwok since late July 2008 and attempts to contact him after his failure to pay the wages failed.  Kwok has not been heard from since.

19. It subsequently emerged, as established by the prosecution at the trial, that Kwok had conspired with Guo and Pan to perpetrate a fraud on Tack Fat.  At a board meeting on 4 June 2008, Kwok had caused 20 million Tack Fat share options to be granted to each of Guo and Pan. Then at a board meeting on 6 June 2008, Kwok produced two cheques of HK$13 million each which purported to represent payment by Guo and Pan for the shares purchased by them in exercising those share options.  Forty million Tack Fat shares were duly issued to Guo and Pan, but the company never received any payment for them. The two $13 million cheques produced by Kwok were never presented for payment. 

20. Guo and Pan sold off the shares in the market between 16 June and 29 July 2008, the sales yielding proceeds of HK$9,562,424.00 and HK$10,873,478.53 respectively.  The 1 August 2008 remittances of HK$7,582,150 and HK$6,467,230 received in the Mickles account, and the sum of HK$14,049,380 was transferred on 27 August to Kwok’s company in Cambodia, all derived from the proceeds of those share sales and thus from Kwok’s conspiracy to defraud, an indictable offence.

The Charge

21. The Appellant was charged with dealing with property known or believed to represent proceeds of an indictable offence, contrary to sections 25(1) and 25(3) of OSCO, particularised by reference to the Appellant causing the funds to be remitted to Cambodia, as follows:

“... on or about the 27th day of August 2008, in Hong Kong, knowing or having reasonable grounds to believe that property, namely the sum of $14,049,380.00 Hong Kong currency, in whole or in part directly or indirectly represented any person’s proceeds of an indictable offence, dealt with the said property”.

22. Notwithstanding the terms of the charge, the prosecution did not pursue a case of “knowledge”.  The case was directed only to the alternative basis of liability, namely, “reasonable grounds to believe”. 

The prosecution’s case

23. The prosecution asserted that the Appellant had reasonable grounds to believe that the property represented the proceeds of an indictable offence, relying, in this Court, on the following:

1.   Quantum of the money transferred: $14M+.

2.   Manner and origins of transfer: 2 deposits from 2 HK accounts held by 2 unknown mainlanders.

3.   Transnational dimension of the transfer: mainlanders paying $14M to Appellant’s HK bank account for onward transmission to Cambodian bank account.

4.   $14M transferred to avoid deposit in Kwok’s HK business or personal bank accounts.

5.   Appellant received and held $14M for 26 days in an inactive business bank account in Hong Kong.

6.   Neither the Appellant nor Kwok gave any reason for why it was necessary for the $14M to be deposited into the Appellant’s company account before it was transmitted to Cambodia.

7.   In late July 2008, Kwok told the Appellant to hold money temporarily for him. The next time they would speak was in late August 2008 when Kwok told the Appellant to transfer $14M to Kwok’s business account in Cambodia. The Appellant executed all of Kwok’s instructions without delay, question or report to the authorities.

8.   When the Appellant agreed to hold the money, he heard from Kwok that two mainland friends were returning two payments of several million dollars to Kwok, that the Appellant was to hold it temporarily in the Appellant’s Hong Kong bank account. No mention was made of the names of the mainlanders, the precise amount of the money, the length of time to hold the money, or the nature of the transaction with Kwok. The Appellant made no inquiry of these or any other matter and arranged for his accounting manager to facilitate the transfer.

9.   When told about the incoming money from Kwok, the accounting manager’s first reaction was to ask about the nature of the money.  The Appellant said he did not know.

10.  Kwok and the Appellant knew each other for over 30 years and were very close friends who regularly socialized and played sports together. They would go diving every weekend and play ping-pong on Tuesdays. The last time they saw each other was while playing ping-pong in late July 2008. After Kwok called the Appellant to ask him to hold the money, they stopped seeing each other.

11.  Without having seen Kwok for four weeks, the Appellant in late August received Kwok’s call and request to transfer $14M to Kwok’s designated bank account in Cambodia. By this time, the Appellant knew the names of the mainlanders and the total sum of the amount transferred. Without making any inquiry, the Appellant promptly arranged to have this instruction executed by his accounting manager.

12.  Never before had Kwok asked the Appellant to hold money temporarily for Kwok. Both had loaned money to each other in the past and paid back the loans. 

13.  The Appellant’s mainland manufacturing business had an annual turnover of $400M but a net profit of only $8M. The Appellant had no business in Cambodia.

14.  Kwok was renting two factory premises of about 100,000 square feet on the mainland from the Appellant at the material time.

15.  The Appellant knew that Kwok was the chairman of a Hong Kong publicly-listed company, Kwok had factories in the mainland, and Kwok’s business was 10 times bigger than his own. He also knew that Kwok had a factory building in Cambodia that employed 20,000 workers[5].

The Appellant’s case

24. The Appellant’s case was fundamentally that, on entirely reasonable grounds, he had trusted Kwok implicitly and had had no reason to suspect that the money remitted to his account had anything to do with any criminal offence. 

25. He and Kwok had been close friends for over 30 years.  He knew that Kwok was the chairman of a listed company and had always found him to be scrupulous, never having known him to have done anything dishonest or dishonourable nor having known his integrity or honesty to have been questioned.^[6] They had implicitly trusted each other with unsecured and interest-free loans which had unfailingly been repaid.^[7]

26. He knew that Kwok was in business in a very big way, with factories on the Mainland employing hundreds of thousands of people^[8] and large-scale operations in various different countries, describing Kwok’s business as ten times the size of his own.[9]  Kwok had invited him to meals where he had met some of Kwok’s customers who were very substantial and owned hundreds of stores.[10]  He knew that Kwok had purchased a teenage garment brand at the cost of US$100 million.[11]  He therefore did not consider the sum of HK$14 million a large amount, regarding it as “practically small change”, for someone as wealthy as he believed Kwok to be.[12] 

27. On 29 July 2008, just before the money was transferred to the Mickles account, there had been a public announcement that trading in the shares of Tack Fat was to be suspended pending release of Tack Fat’s results for the year ending 31 March 2008.  However, the Appellant was unaware of that announcement^[13] and had believed throughout, until he heard about the non-payment of wages, that Kwok’s business was in good health, never having heard any suggestion that it was having any problems.^[14] 

28. The Appellant had never previously received a request from Kwok for money to be remitted into his account and, when questioned about this at the trial, the Appellant testified that he did not ask Kwok the reason and that he had agreed to allow his account to be used without giving it a second thought because he trusted Kwok.[15] 

29. He stated that it never crossed his mind to ask Kwok why he did not deal with the money through his own companies.  This piece of evidence was specifically disbelieved by the trial Judge (who had otherwise found the Appellant to be “a mostly ... honest and reliable witness”).^[16]

Interpreting Section 25 (1)

30. The directly relevant words that fall to be interpreted are: “having reasonable grounds to believe”.  This is not a complicated formulation. The words are readily understandable.  Most significantly, they occur in a provision which creates a criminal offence and which, with a maximum penalty of 14 years imprisonment, must be understood to be a serious offence.

31. In the criminal justice system of Hong Kong, the trial of such offences is conducted, pursuant to the exercise of the prosecutorial discretion to choose a court in which proceedings are commenced, either by a judge alone in the District Court, as happened in this case, or by a jury in the High Court.  I will refer below to aspects of the case law, primarily in the Court of Appeal, which appears to me to adopt an unnecessarily elaborate analysis of the words that fall to be interpreted.  In that regard, insufficient attention may have been given to the requirements of instructing a jury, particularly with respect to words that are not, in themselves, complex.

32. The context of the clause under consideration must be taken into account in the first instance and it is unnecessary to identify any verbal or grammatical ambiguity prior to so doing (See e.g. HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568 at [12] – [13]; Vallejos v Commissioner of Registration (2013) 16 HKCFAR 45 at [75] – [77]).  The immediate statutory context is of particular significance in this case.

33. The clause constitutes the mental element of a criminal offence in the alternative to actual knowledge.  No doubt recklessness would be equated to knowledge.  Reasonable grounds for belief are something less than either knowledge or recklessness.  Nevertheless, the maximum penalty is the same for knowledge and for the “reasonable grounds” alternative.  This is of critical significance when determining the nature and strength of the mental element that must be established by the prosecution beyond reasonable doubt.

34. The subsection under consideration also needs to be read in its complete statutory context, including the whole of the provisions of section 25, particularly subsection (2), and the provisions of section 25A, particularly subsections (1), (2) & (5).  Those provisions emphasise the purpose of the legislative scheme to encourage reporting of the possible existence of the principal offence, based on either knowledge or suspicion.

35. The broader context includes the origins of these provisions of OSCO, in the, now, identical provisions in a scheme of longer duration, namely, the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) (“DTROP”).  The very subject matter of these original provisions, as now adopted with respect to organised and serious crime of any kind, highlights the significant public purposes to be served by these parallel regimes.  

36. Two purposes stand out.  First, by the identification of what has come to be called money-laundering, the legislative scheme deprives perpetrators of crime of the proceeds of their conduct.  Secondly, the scheme ensures that, under pain of penalty, those who know, or even suspect that, relevantly, monies constitute such proceeds, will report that knowledge or suspicion to the authorities, to facilitate further investigation.

37. The Court was taken at some length to the legislative history.  As is often the case, that proved of little value.  The Respondent sought to put the legislative history to two principal uses.  First, to emphasise the public purpose to ensure reporting.  As I have noted, this appears on the face of the legislative provisions.  Secondly, to highlight that the original proposal, to make the formulation “reasonable grounds to suspect”, was not pursued.  The difference between “belief” and “suspicion” is well-known and, in any event, the distinction appears clearly in the text, by the use of “suspects” in section 25A.

38. The judgment from which this appeal is brought contains a detailed analysis of prior case law, primarily in the Court of Appeal. As the judgment notes, the principles consistently applied in that case law are derived from the judgment of Mayo JA in HKSAR v Shing Siu Ming [1999] 2 HKC 818. In the present case the trial judge applied that approach, as he was bound to do.

39. Subject only to the sequence in which questions are to be asked, a matter to which I will return below, the Court of Appeal adopted this approach, consistently with a long line of authority in that Court. The relevant passages from Shing Siu Ming are:

40. At page 825 H-I:

“Knowledge if proved would simply resolve the matter. Difficulty, however, arises from the use of the words ‘having reasonable grounds to believe’. This phrase, we are satisfied, contains subjective and objective elements. In our view it requires proof that there were grounds that a common sense, right-thinking member of the community would consider were sufficient to lead a person to believe that the person being assisted was a drug trafficker or had benefited therefrom. That is the objective element. It must also be proved that those grounds were known to the defendant. That is the subjective element.”

41. And at page 829 A-B and H-I:

“The prosecution is not called upon to prove actual belief. It would be sufficient to prove reasonable grounds for such a belief and that the defendant knew of those grounds …

He (the judge) has similarly placed too high a burden on the prosecution as regards the objective element, i.e. the belief of the reasonable man. The jury did not have to be satisfied that a reasonable person would have held such a belief but only that such a person would be satisfied that there were grounds sufficient to sustain such a belief.”

42. As McWalters J, who delivered the principal judgment in the Court of Appeal, noted, this reasoning did not require that the two “elements” – “objective” and “subjective” be considered in the order in which they were stated at page 825 quoted.  However, that had become the practice.  The trial judge followed that practice in the present case.

43. The Court of Appeal concluded that the order should be reversed.  The judgment of McWalters J said:

“107. … [I]t seems to me that the risk that might be encountered by employing this order is that the first question, the objective question, might be answered by reference to what the prosecution has proven rather than by what the prosecution has proven was known by the defendant. By reversing the order this risk is eliminated.”

“110. The first step in determining whether a defendant had reasonable grounds to believe is to identify all the facts known to the defendant that relate to the dealing with property that is the subject of the charge. These facts may, depending on the circumstances of each case, extend beyond those relating to just the dealing with the property and include facts known to the defendant about other persons or circumstances linked in some way to the dealing.”

“112. The second step is to process these facts through the mind of the common sense, right-thinking member of the community and determine whether this person, possessed of these facts, objectively would consider them sufficient to lead a person to believe that the property in question constitutes the proceeds of an indictable offence. When this reasonable person considers these facts objectively it means he does so uninfluenced by the personal beliefs, perceptions or prejudices of the defendant.”

(See also at [195] per Lunn JA and [218] per Stock VP).

44. There are four aspects of the approach derived from Shing Siu Ming which distract the decision maker -- whether a judge or jury -- from the terminology of the offence.

45. First, the test replaces the statutory word “grounds” with the word “facts”.  The latter term is narrower.  While all “facts” may be “grounds”, not all “grounds” are “facts”.  Accordingly, the range of relevant circumstances is restricted.

46. Secondly, the introduction of a distinction between “objective” and “subjective” elements diverts attention away from the purpose of the statutory words to create the mental element of a criminal offence, as an alternative to a state of “knowledge”.  

47. Thirdly, the personification of the “objective” element, in terms of a “reasonable person” or “right-thinking member of the community”, is a distinction that diverts attention away from the fact that it is the accused, rather than an abstract legal concept of a person, who must ‘have’ reasonable grounds for the requisite ‘belief’. 

48. Fourthly, the language of “first step” and “second step”, in whatever order, directs the decision maker – whether judge or jury – as to how s/he or they must think.  This is something which an appellate court should rarely do, if at all.  Furthermore, these “steps” combine the two distractions referred to in the second and third points.

49. As I have said above, the statutory words “reasonable grounds” are perfectly understandable.  There is no need for an abstract personification for purposes of their application.  Similarly, these words can be applied directly and do not need further characterisation as “objective”.  

50. Furthermore, by the use of the word “having”, the decision-maker’s attention is directed expressly, by the terms of the section, to the grounds available to the accused.  There is no need to further characterise this element as “subjective”.  Indeed, such language is apt to create confusion, particularly in a jury so instructed, as to why the mental element of the offence, created by the entire clause, is only in one part “subjective”.

51. The importance of maintaining the focus of inquiry upon the accused is emphasised in this Court’s reasoning in HKSAR v Yan Suiling (2012) 15 HKCFAR 146.  Chan PJ, who delivered the judgment of the Court, accepted the trial judge’s opinion about the risks involved in the underground banking operation revealed in that case, namely, that no ordinary reasonable person who is law abiding would have taken part in such underground activities.  (At [28])  However, his Lordship added at [29], referring to the trial judge:

“But the real question he had to resolve in this case was whether it was true or might be true that the appellant was prepared to and did take these risks in engaging such services.” (Emphasis added)

52. As the Appellant submitted in this Court, the better and, I add, less complicated test was propounded in the Appeal Committee of this Court in Seng Yuet Fong v HKSAR [1999] 2 HKC 833at 836E-F:

“To convict, the jury had to find that the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: That is, that anyone looking at those grounds objectively would so believe.”

53. Unlike the Shing Siu Ming line of authority, this test:

1.  Retains the statutory word “grounds”;

2.  Avoids “subjective” terminology and any contrast with “objective” terminology;

3.  Focuses attention on the accused, rather than on an abstract legal construct;

4.  Avoids the language of “steps” and, like the section itself, propounds a compound test.

54. The unnecessary complications in the line of authority in the Court of Appeal have led to the somewhat convoluted submissions which the parties have been driven to make in the present appeal.  Considerable attention was directed to the implications of the sequence in which the two elements needed to be addressed by the trial judge.  Much ink was also spilt over whether there was any room in the relevant discourse for more than one “reasonable person” and, if so, what a number of “reasonable persons” would think.  Such debates are not helpful and are too far removed from the language of the statute.

55. Although it is usually undesirable to substitute the words of a statute with an equivalent formulation, it is sometimes appropriate to do so, for purposes of clarification.  For example, when an alternative formulation may assist a jury in its deliberations.  On most such occasions, the Seng Yuet Fong formulation will be all that is required.

56. However, another formulation may sometimes assist.  In s 25(1), the word “believe” is used in the sense of “know”.  The two mental elements in the subsection should be understood as if they read: “knew or ought to have known”.

57. On the above analysis, there is a significant mens rea element in the second limb of the offence under s 25(1).  This requirement disposes of the various scenarios put to this Court on behalf of the Appellant in which a morally blameless person could be convicted of an offence.  Such submissions concerned Stock VP in the Court of Appeal.  (See at [211] – [214]).  On the above analysis, there is a strong element of moral blame.

58. Furthermore, on this basis, the “halfway house” defence does not arise.  (See Hin Lin Yee v HKSAR (2010) 13 HKCFAR 142).  It is, accordingly, unnecessary to consider the third ground on which leave to appeal was granted.

The Applicable Standard

59. I find it convenient to deal first with the second ground on which leave to appeal was granted.  The ground concerns the standard to be applied when evaluating the content of a “reasonable person’s belief”.  The Appellant contends that the Court of Appeal applied an inappropriately low standard by adopting the word “could”, rather than “would”, when determining the causal link between the facts and the requisite belief.

60. This issue arises from the following passage in the judgment of the Court of Appeal:

“130. …. As I have said the mens rea is not concerned with what the reasonable man might or would believe but rather with what he could believe.”

61. The reference to a prior statement, which commences this sentence, appears to me to be a reference to the analysis and application of Shing Siu Ming earlier in the judgment.  Although Mayo JA in the earlier case had used the word “would” he had done so in a particular way.  To repeat part of the relevant sentence from Page 825, fully set out in paragraph 40 above: “... there were grounds that a commonsense, right-thinking member of the community would consider were sufficient to lead a person to believe ...”  (Emphasis added).  It appears that it was because the reference to “would” was qualified by a reference to sufficiency, that the Court of Appeal in this case adopted the word “could”.

62. This occurred in the context of dealing with a submission by counsel appearing in the Court of Appeal for the Appellant, Ms Clare Montgomery QC, which referred to the judgment of the Court of Appeal in HKSAR v Lung Yun Ngan CACC 482/2010; unreported, 24 May 2011 at 52.  In that passage to the Court had repeated the Shing Siu Ming formulation with the references to both “would” and “sufficient”. The Court of Appeal in the judgment under appeal had similarly adopted this formulation (at [112]).

63. When rejecting Ms Montgomery’s QC’s submission, the Court said:

“125……this test focuses, and, with respect, rightly so, on the sufficiency of the grounds to form the requisite belief and not, as Ms Montgomery contends, on whether the grounds must inevitably lead to the formation of that belief. What the court there said was that the grounds had to be such that a commonsense, right-thinking member of the community ‘would consider sufficient’ and not ‘would lead a person to believe’. The two are quite separate issues and should not be confused.”

64. This reasoning is consistent with the Court’s earlier reference (at [70]) to the following statement from the judgment of the High Court of Australia in George v Rockett (1990) 170 CLR 104 at 112:

“When a statute prescribes that there must be ‘reasonable grounds’ for a state of mind-including suspicion and belief-it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person”.

65. McWalters J went on to say at [70]:

“For an accurate and succinct expression of the legal position it is, in my view, difficult to improve upon this statement”.

66. Indeed, in this Court on appeal, the Respondent submitted that this formulation of the High Court of Australia should be adopted as the determinative test for the “reasonable grounds” alternative in section 25(1) of OSCO.  

67. In my opinion, this submission suffers from a fundamental defect. George v Rockett involved a statutory test for the issue of a search warrant. Indeed, most of the case law on the concept of “reasonable grounds”, and cognate statutory formulations, is similarly concerned with the exercise of executive authority pursuant to statutes e.g. as grounds for arrest.  Case law of this character, even if it deploys the same terminology, provides little, if any, guidance when the same words fall to be construed as an element of a criminal offence.

68. This differentiation is a manifestation of the principle of statutory interpretation which focuses on the significance of context, rather than adopting a “natural and ordinary meaning” of particular words.  The formulation used to state the mental element of a criminal offence will not necessarily have the same meaning as the same formulation expressed as a description of the state of mind required for the exercise of an executive power.  Case law of the latter character, where no issue of mens rea or proof beyond reasonable doubt arises, must be used with considerable circumspection in proceedings of the former character.

69. That is so in this case.  The language of “sufficiency” – as found in Shing Siu Ming and George v Rockett – is inappropriate when determining the mental element of a criminal offence.  In my opinion, the Court of Appeal erred in applying that language, admittedly based on a long line of earlier authority in that Court, to conclude that a test of “could believe” was applicable to section 25 (1), rather than a test of “would believe”.

70. In my opinion, the Court of Appeal has overlooked the significance of the formulation in the first judgment on this issue in this Court.  I refer again to the judgment of the Appeal Committee of this Court, albeit a judgment of three judges on a leave application, in Seng Yuet Fong v HKSAR [1999] 2 HKC 833 at 836 E-F, where Litton PJ said:

“To convict, the jury had to find that the accused had grounds for believing; and there was the additional requirement that the grounds must be reasonable: That is, that anyone looking at those grounds objectively would so believe.” (Emphasis added).

71. In Seng, Litton PJ relied on a passage from the judgment of Lord Woolf in the Privy Council case of Attorney General of Hong Kong v Lee Kwong Kut [1993] AC 951 at 964 D-E.  It is noteworthy that this passage referred, at two places, to an actual rather than a probable state of affairs:

“Once a person has knowledge or has reasonable grounds to believe that a relevant person carries on or has carried on drug trafficking….” (At D) (Emphasis added).

“…[S]omeone whom you know or have reasonable grounds to believe is a person who carries on or has carried on…. drug trafficking”. (At F) (Emphasis added).

72. The application before the Appeal Committee in Seng was an appeal from the judgment of the Court of Appeal in the Shing Siu Ming case. The Appeal Committee had quoted that judgment -- with its reference to both “would” and “sufficient” -- without express disapproval.  Nevertheless, after noting at page 837 F, that the Court of Appeal had not applied the analysis of the Privy Council, Litton PJ added at 837 H that “We see no real variance therefrom”.  That was enough for the purpose of refusing leave.  It was not however an express endorsement.  It appears likely that, in a leave context, the possibility that the word “sufficient” constituted a significant qualification of the word “would” was not argued or readily apparent.

73. Finally, the test propounded by the Court of Appeal cannot, in my opinion, stand with the reasoning of this Court in HKSAR v Yan Suiling earlier referred to[17].  In the judgment of Chan PJ, he referred to the accused’s explanation that the payment, said to the constitute the “dealing”, contrary to s 25(1), was part of an underground banking operation.  His Lordship further observed that, on the evidence:

“…her explanation…at least might be true and that would have created a reasonable doubt” [44] (Emphasis added).

Chan PJ went on to say of the trial judge:

“It follows that he could not have concluded that there was an irresistible inference that she had reasonable ground to believe the cheque was the proceeds of an indictable offence” [44]. (Emphasis added)

74. The Court repeated the “irresistible inference” formulation and, significantly for the point presently under consideration, combined it with the words “must have had” in describing the link to “reasonable grounds to believe”.  The passage is:

“48. In this case, even if the appellant's evidence were properly rejected, what was left in the prosecution case was the mere fact that a large sum of money was deposited into the appellant's bank account by someone unknown to her and that she did not make any enquiry. The situation was certainly unusual but there could be a number of explanations and possible consequences of her inaction. The money might have come to her by mistake and she might be held answerable in a civil action for its return. She might even be liable for prosecution in respect of some other offence(s). However, we do not think that without more, an unexplained receipt points irresistibly to money laundering. We are not satisfied that on the facts as proved, there is sufficient evidence to draw the irresistible inference that she must have had reasonable grounds to believe the money represented the proceeds of crime.” (Emphasis added)

75. The terminology of “irresistible inference” is often deployed in the context of circumstantial evidence. (See e.g. Lee Chun Tat v HKSAR unrep. FAMC 52/2006, 14 December 2006 at [7]).  The idea that an inference must be “irresistible” is an application of the principle that crime must be proven beyond reasonable doubt.  This reinforces my above conclusion that cases on statutes which use the phrase “reasonable grounds to believe” as a statutory precondition for the exercise of executive power are inapplicable in a criminal offence context.

76. In my opinion, the use of the word “would” or equivalent terminology in this line of authority is inconsistent with the adoption by the Court of Appeal in this case of language of possibility, such as “could”.

77. These authorities reinforce the conclusion I have reached, based on the analysis of the words of the statute in their context and of the purpose of the legislative scheme.  By the imposition of the same penalty, the mental element of the “reasonable grounds” alternative is regarded as being at the same level of moral obloquy as actual knowledge.  A test that propounds a relationship between the existence of “grounds” and a state of ‘belief’ in terms of possibility does not do that.  Only a test which states that those “grounds” would lead to the ‘belief’ does so.

78. It is of significance in this case that the trial judge, although purporting to apply Shing Siu Ming, did not adopt a ‘could believe’ formulation.  He twice referred to “would believe”:

“86. The prosecution has firstly to prove all the circumstances that they consider would lead a ‘common sense, right-thinking member of the community’ to have reasonable grounds to believe that the property was the proceeds of an indictable offence. If the prosecution fails to prove the circumstances or that the court finds that the circumstances would not so lead, then the defendant must be acquitted.

87. If the circumstances are proved and that the court finds that they would so lead, it is then for the prosecution to prove that those circumstances were known to the defendant at the time of the offence. The prosecution however do not have to prove that the defendant did in fact hold such a belief, all that is required is that the defendant knew of the circumstances.” (Emphasis added)

79. This Court would not interfere with the order of the Court of Appeal to dismiss the appeal, if it adopted an inappropriate test, if the trial judge committed no legal error.  I will return to this issue below.

The perception and evaluation issue

80. With respect to the first ground on which leave to appeal was granted, the submissions in this Court focused entirely on the second sentence: Whether a Defendant’s “perception and evaluation” of relevant facts “constituting or contributing to reasonable grounds for” the requisite belief can be taken into account.  In the Court of Appeal, McWalters J concluded that, if it was permissible to take into account facts “as processed and assessed by the defendant”, it would turn an objective test into a subjective one. (At [99]).

81. His Lordship’s extended analysis on this issue was:

“102. Identifying the relevant facts, however, is quite distinct from processing them. The applicant and the reasonable person may process them quite differently because the reasonable person though possessed of all of the relevant facts, is not, in processing them, influenced by the personal beliefs, perceptions or prejudices of the applicant.

103. Here, because the applicant is also a personal friend of Kwok and regularly socialized with him the applicant would, quite naturally, not want to think ill of him and not want to suspect him of being involved in anything dishonest or improper. A desire not to think ill of a friend or a wish to view his conduct through rose-coloured glasses may operate as blinkers on the applicant’s assessment of the conduct or facts known to him. But these blinkers are not worn by the reasonable man who, unconstrained by emotion, stands back from the facts and considers them dispassionately. This does not involve him in removing the facts from their context and analysing them in a meaningless isolation which inevitably and unfairly skews his assessment of them. It simply means that the personal beliefs, perceptions or prejudices of the applicant are removed from the assessment process.

104.  Thus, in respect of the HK$14 million the applicant said that, in his perception of Kwok, such an amount would have been of no consequence to him.  As I have already said the facts that Kwok was believed to be a successful and honourable businessman of many years standing who would be accustomed to dealing in large amounts of money would be relevant facts to take into account.  But the applicant’s own perception of this amount or his belief of its significance to Kwok would not.  Those subjective elements are removed so that they do not adulterate what has to be an objective assessment.”

82. This passage reflects the difficulties I have already mentioned that arise when words of the statute have labels such as “objective” attached to them for purposes of categorisation.  The principal difficulty is that it is the label, rather than the words of the statute, that are then applied.  In the present case, this effect is magnified by the artificiality of personification, which directs attention away from the person whose conduct needs to be assessed, namely, the accused.  As I have emphasised above, it is the accused who must be shown to “have had reasonable grounds to believe”.

83. I can see no reason why, when applying the words of the statutory formulation, what McWalters J called: “the personal beliefs, perceptions and prejudices” of the accused should be entirely omitted from consideration.  That does not mean that any such “perception or evaluation”, to use the words of the ground of appeal, is entitled to weight, let alone determinative weight.

84. The error, I believe, is in the reasoning process by which the statutory word “grounds” has been replaced by the word “facts”.  As I have said above, “facts” is a narrower concept than “grounds”.  It may be that a “belief, perception or prejudice” is not a “fact”.  However, such matters fit quite readily within the concept of a “ground”, which a particular person can be said to have ‘had’.

85. When assessing the whole of the evidence, the judge or jury can give such weight to an accused’s belief, perception or prejudice as s/he believes is warranted.  No doubt, in many cases, that decision maker will entirely discount such evidence of the accused.  Nevertheless, they are “grounds” which stand or fall by the test of reasonableness.

86. The Respondent contended that taking into account the “perceptions and evaluations” of an accused was contrary to authorities which rejected, in various contexts, the importation into the standard of a reasonable person, the personal characteristics of a particular defendant.  (Relying on R v B [2013] 1 Cr App R 36 at [28], Jersey v Holley [2005] AC 580 at [12], [22]; HKSAR v Siu Kam Lin CACC 186/2009, 15 Dec 2012; Cheung Kam Sing v HKSAR CACC 380/2010, 9 Dec 2011; Oblach v Regina [2005] NSWCCA 440; (2005) 195 FLR 212 at[57] – [59]).

87. However, statements made in the context of different statutory offences, even where “reasonable belief” is an element of the offence, cannot be transposed to another context.  For example, some of these cases are concerned with “characteristics” rather than “grounds”.  Others did not use a cognate formulation, as an alternative to “knowingly” with an identical maximum penalty.  I do not find these authorities helpful.  The two Court of Appeal cases in the list, however, involve s 25(1) of OSCO. They stand in the line of authority in that Court which is under review in this appeal.

88. For present purposes, Lord Sumption JSC put it precisely in Hayes v Willoughby [2013] UKSC 17; (2013) WLR 935 at [14]: “Reasonableness is an external objective standard applied to the outcome of a person’s thoughts or intentions”.

89. In my opinion, contrary to the conclusion of the Court of Appeal, this approach does not convert an objective test into a subjective test.  That Court was in error in its analysis in this respect.  In the District Court, the trial judge did not expressly exclude matters of “belief, perception and prejudice”.  It is not entirely clear how he dealt with such matters.

90. When applying the reasoning in Shing Siu Ming, the judge pointed out that the “subjective belief” of the Appellant, about whether the money was the proceeds of an indictable offence, was “not the issue”. ([90]).  He went on to explicitly reject the Appellant’s evidence that “he did not give any thought” to whether it was.  His Honour said: “it is impossible for anyone to not give any thought to the matter given the huge amount of money.  Not even for someone as well off as the defendant.” ([91]).

91. He further held:

“[92].... Kwok never told the defendant how the money came about and why Kwok needed the defendant to receive it for him, I find that it is impossible that the defendant did not give any thought as to the propriety of the money when he was told the amount.

[93] Even if we suppose the defendant was not lying about it, for the same reasons, I find that the defendant was deliberately turning a blind eye as to the question of propriety latest when he was informed that the amount received from Kwok’s friends was $14 million.”

92. His Honour went on to quote from the judgement in HKSAR v Wan Yet Kwai CACC 372/2008, a case concerned with an accused who turned a blind eye to a “reasonably held belief” that certain property did represent the proceeds of an indictable offence. ([94]).  His Honour concluded with the observation:

“[95] Therefore, whether the defendant was lying or turning a blind eye, the question is still whether a commonsense, right-thinking member of the community with the facts available would have reasonable grounds to believe that the money represented proceeds of an indictable offence.”

93. It appears to me that this analysis differs from that propounded in the Court of Appeal.  The trial judge did take into account mental processes of the Appellant, but rejected his evidence in relevant respects and drew contrary inferences.

94. Nevertheless, when making his ultimate findings, in accordance with the test in Shing Siu Ming, his Honour first asked the question, identified as the first step: “Would a commonsense right-thinking member of the community have reasonable grounds to believe?”  With respect to the list of relevant facts, set out in his Reasons for Verdict, the trial judge drew the conclusions that a “reasonable person” would have been “put on immediate alert”, or words to similar effect, such as “would be really worried” or “definitely be very doubtful”. ([101]-[108]).

95. It is not clear to me what role the findings of fact about the mental state of the Appellant played in the ultimate conclusion.  His Honour dealt with the Shing Siu Ming second step in short form.  He simply stated that the “facts” set out in the first step were known to the accused.

96. In this Court, the Appellant’s submissions focused on the effects of following the two stage test in the sequence set down in Shing Siu Ming.  The trial judge himself said: “there is a subtle but real difference between the two approaches”. ([100]).  The Court of Appeal expressed a preference for reversing the two stages, but concluded that there was no prejudice caused by proceeding in the established sequence. ([105], [218]).

97. Lord MacDonald QC, who appeared in this Court for the Appellant, submitted that a failure to consider relevant circumstances in the mind of the Appellant was inherent in the adoption by the trial judge of the Shing Siu Ming sequence of steps^[18].  By first asking whether there were facts which would give rise to the requisite belief, from the perspective of a reasonable person, the scope of the matters considered was necessarily narrower than they would be if the questions were asked in the reverse order.  Relevantly, they excluded from the scope of consideration any grounds in the “perception and evaluation” of the Appellant.  He submitted that the wrong order must make a difference to the outcome, because it directly impacts, in the sense of narrowing, the circumstances to which the test of reasonableness is applied.

98. Lord MacDonald QC referred to the emphasis placed by the Appellant, before the trial judge, on the fact that the Appellant trusted Kwok.  Although the facts which form the foundation of that trust were mentioned in the Reasons for Verdict, the existence of trust was not.  This is a specific example, in this case, of the error that can arise if, as Lord MacDonald put it^[19]: “the accused person only comes into it once the objective man has already made up his mind that there are reasonable grounds to believe”.

99. He submitted that the absence of any reference, to the existence of trust in the trial judge’s reasons, contrasts with his finding on the issue of whether the Appellant ‘turned a blind eye’ to the nature of the transaction.  As I understood the submission, that finding could not be made without dealing with the Appellant's case of trust.

100. Furthermore, he submitted that the trigger for the findings that the appellant was either lying, when he said that he gave the matter no thought, or turned a blind eye to the matter, was the trial judge’s assertion that the amount of money was such that anyone would have been put on notice.  This failed to take into account the Appellant’s evaluation of Kwok as an extremely wealthy and honest man.

101. I agree that the Shing Siu Ming sequence of the two step test can result in impermissibly restricting the range of grounds which an accused ‘had’, to which the test of ‘reasonableness’ must be applied.  I am also of the view that that occurred in this case at trial.

102. It is clear that his Honour, when rejecting the Appellant’s evidence gave significant weight to the amount of $14 million, which he described as “huge…even for someone as well off as the defendant”.  This was the trigger for the rejection of his evidence that he had not turned his mind to the provenance of the funds (at [91]) and, it appears to me, his alternative finding that the Appellant turned a blind eye to that provenance (at [93]).  The focus on the Appellant’s wealth, rather than Kwok’s, was misplaced.

103. Subsequently, at [102] his Honour did refer to the Appellant’s evidence that this amount would be small “in the eyes of Kwok”. However, he immediately dismissed this evidence on the basis that “that ... is not the case with the reasonable person”.  This could be considered a finding that, although this was a “ground” in the mind of the Appellant, it was not a “reasonable ground”.  Even if so, the reasoning takes the Appellant’s evaluation of the amount in the context of Kwok’s wealth alone.  It is disconnected from the rest of the lengthy personal and business relationship, to which there is no reference in this section of the Reasons for Verdict.

104. At paragraphs [101] to [107] of the Reasons for Verdict, the trial judge sets out, as the “first step”, the facts which a “commonsense right-thinking member of the community” would have reasonable grounds to believe.  This is the list of facts which support the conclusion at paragraph [108] that such a person would have reasonable grounds to believe that the money in question represented proceeds of an indictable offence.  The only matters about the Appellant’s attitude to Kwok listed are the reference at [102], to which I have referred in the immediately preceding paragraph, and perhaps references to the appellant’s knowledge that Kwok was “a very successful businessman” (at [103]) and controlled significant assets (at [104]).  These were the paragraphs replied upon by the DPP in his submissions in support of the proposition that the trial judge did not err in this respect[20]. However, there is no reference to other “perceptions and evaluations” of the Appellant in this part of the Reasons.

105. Some of the Appellant’s evidence of this character was, of course, rejected, as I have indicated.  However, as Lord MacDonald submitted in this Court, there was no reference to the Appellant’s case based on the trust that existed between himself and Kwok.  

106. Furthermore, such references as exist in the relevant part of the Reasons, are not put in the broader context, which includes matters that are “facts” on any view.  Although earlier in his judgement, the trial judge sets out the close personal and business relationship between the two men, extending as it did over decades, none of these factors are contained in the list of facts available for consideration by the “commonsense, right-thinking member of the community” at paras [101] to [107].  Accordingly, even the matters referred to in paragraphs [102], [103] and [104] are out of context.  More importantly, none of these other aspects of the relationship are listed as facts which the “reasonable person” took into account.  This error is probably a result of asking the Shing Siu Ming questions in the wrong order.

107. In my opinion the Appellant’s contention that the list of grounds considered by the trial judge was too narrow should be upheld.

A new trial?

108. The appeal should be allowed and the conviction set aside.  

109. In that event counsel for the Appellant submitted that there are a number of factors to be taken into account as to whether a new trial should be awarded. (Relying on James Henry Ting v HKSAR (2007) 10 HKCFAR 632).  He placed reliance on the fact that this was a long and expensive and stressful process for the Appellant.  He noted that the events the subject of the charge occurred in 2008 and a second trial would be held more than six years later.  Further, the Appellant has already served 4.5 months in custody.  Finally, the Appellant is now 69 years old.

110. It was also submitted that he had suffered because his right to travel was restricted, in a context where manufacturing facilities were located abroad.  There were other adverse effects on his business which, the Respondent submits, are not the subject of evidence. Nevertheless an inference that the effects of conviction and a new trial on his business activities have been, and are substantial, can readily be drawn.

111. Counsel also submitted that the prosecution case is at the low end of the scale.  However, the list of factors upon which the Respondent relied in this Court could be sufficient to support the requisite inference, particularly as filled out by the trial judge in his list of objective factors to which I referred.  

112. Indeed, the fact that the Appellant was offered no explanation, and made no enquiry, as to why Kwok could not use one of his own accounts could form the basis of an “irresistible inference” that something untoward was going on, which required Kwok to hide the flow of funds.  However, it is not so apparent that what was untoward involved proceeds of an indictable offence.

113. The prosecution case is not sufficiently strong, when taken into account with the other circumstances referred to at [109] – [110] above, to satisfy me that the interests of justice require that there be a new trial.  I would not so order.

Orders

114.    1.  Appeal allowed.

  2.  Conviction quashed.

  3.  We make an order nisi that the appellant be paid the costs of and occasioned by the appeal to the Court of Appeal and to this Court with liberty to the parties, if so advised, to lodge with the Registrar written submissions as to costs within 14 days from the date of this judgment and direct that in default of such submissions, that the order nisi do stand as an order absolute without further direction.