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Defendant charged that "he stole land". This by his mortgaging land held by him as trustee on behalf of his nephew.
Held that a trustee may appropriate property in the form of land by selling or mortgaging such property. Section 5(2) of the Theft Ordinance applied and that such appropriate was with an intention to permanently deprive the b8neficiary of it and in the circumstances defendant was dishonest within the ambit of R.v. Ghosh 1982
IN THE DISTRICT COURT OF HONG KONG
HOLDEN AT VICTORIA
CRIMINAL JURISDICTION
CASE NO. 264 OF 1985
____________________
The Queen
against
Li Kwai
_____________________
Coram: H. H. Judge Caird in Court.
Date: 11 March, 1986.
REASONS FOR VERDICT
1. Defendant is charged with theft. The particulars are that “on or about the 6th day of October 1982 he stole land namely Lot No. 817 in Demarcation District No. 215 known as 2nd Floor, 63 Yi Chun Street, Sai Kung, New Territories, when he was a trustee authorized to sell or dispose of the said land by dealing with it in breach of the confidence reposed in him, the said land belonging to Li William as beneficial proprietor thereof.”
2. This case is of particular interest in that Counsel have advised me that this is the first such case brought in Hong Kong and further that their researches have failed to unearth my decision where theft of land in circumstances such as pertain here has been the subject of a report.
3. The facts are as described by Mr. Polson Counsel for Defendant simple, and commenced with Hong Kong Government in 1974 eliquating to the family of L1 Yam-sang, Defendant's brother, various properties including the property subject of the charge to L1 W111iam, eldest son of L1 Yam-sang.
4. As Li William was an infant at the time and indeed still is, L1 Yam-sang was originally registered as trustee.
5. In 1979 L1 Yam-sang separated from his wife WU Kwok-chun and arising from that separation he was concerned in that he wanted to preserve property from the ravages of matrimonial litigation. The Defendant L1 Kwai was appointed as new trustee in the stead of LI Yam-sang. This was effected by deed of appointment of substituted trustee dated the 27th of November, 1979. L1 Yam-sang in giving evidence claimed that this was at the suggestion of LI Kwai whereas Defendant asserted the contrary. L1 Yam-sang further went on to assert that Defendant then stated that as trustee he "would not sell or mortgage the property."
6.The Deed of Appointment contained a provision :-
" …. and that the now trustee from the time of this deed should have full power to mortgagor charge, assign, underlet or otherwise dispose of all or any part of the said premises with all the powers on that behalf of an absolute owner."
7.Defendant encountered financial difficulties in 1982 and by
a deed of mortgage dated the 6th of October that year, between himself as trustee for Li William, and Welset Investment and Mortgage Co. Ltd. mortgaged the property thereby obtaining an advance of $180,000 from Welset to L1 Kwai. He received this amount by 4 cheques. There has been some criticism raised by Mr. Polson in that monies were advanced prior to execution of the mortgage on the strength of a promissory note. As I indicated at the time this may not represent satisfactory practice on the part of the solicitor, as an agreement to mortgage would have been far more suitable in the circumstances then pertaining, nevertheless in my view it does not in any way invalidate the mortgage or more particularly the receipt appearing on the mortgage document and I reject Mr. Polson's arguments in this regard. The sum of $180,000 was, the Crown claims, obtained for L1 Kwai' s own personal use although he claimed that he gave cash to his younger brother LI Yam-sang. In his statement given to police, which has been admitted in evidence without challenge he explained how he paid Welset some monies owed to them and how these monies together with other monies were used. “A portion of it was used to run a business to settle payments to pay off interest etc. A portion was cashed by me and I had spent all of it." Defendant when giving evidence gave the reasons he wanted the money “At time I wanted to make profit from business so as I can pay for nephew to receive education in England and both I and brother in need of money”. He alleged that he paid the brother $3,000 cash. In addition L1 Kwai claims that he went with his brother to buy a gold Rolex watch. This for $6,800 L1 Yam-sang paying $3,000 and LI Kwai Defendant paying the balance $3,800. He further claims he paid $3,000 for a Hi-Fi set for his nephew and that he also "paid some money”.
8.There were only 6 monthly payments made to Welset in respect of the loan and payments ceased thereafter. This was common ground. Subsequently, I was informed from the Bar table civil proceedings were instituted as a result of which the mortgage was set aside and in the final event, repayment was made of both principal and interest. Again I was told this was effected either by Solicitors or their Insurers.
9.I was no doubt that L1 Kwai was heavily in debt at the time he executed the mortgage. In evidence he admitted he was indebted in the amount of nearly $3,000,000.
10.There were a number of conflicts in testimony :-
(1) Each of the brothers asserted that it was the other who suggested that there be an appointment of a new trustee.
(2) L1 Yam-sang asserted and Defendant denied that Defendant stated that he would not sell or mortgage the property at the time of the appointment of substituted trustee.
(3) Defendant asserted that he was accompanied by his brother when he went to the Solicitor's office to arrange for the mortgage and that this had been done with his brother's approval. L1 Yam-sang denied approving of the transaction and denied accompanying his brother to the Solicitor's office. There was independent evidence called by defence, a Mr. CHEUNG Chi-wai presently a clerk to Solicitor Brian Tsang formerly best described by Defendant as being a middle man for the loan transaction. He stated he went with Defendant to Solicitor's office and that LI Yam-sang accompanied them, although he went on to say that the brother L1 Yam-sang remained outside the Solicitor's room.
(4) It was asserted by Defendant and denied by L1 Yam-sang that monies had been paid to L1 Yam-sang.
(5) Defendant denied that it had been explained to him that he was holding the property in trust.
11.I accept that LI Yam-sang did accompany his brother to the Solicitor's office when the mortgage was entered into, but that he did not enter the Solicitor's room. It appears somewhat strange that if he had consented to the transaction and was a prospective beneficiary, as asserted by Defendant, that he would not have seen the Solicitor. In all respects where his evidence is in conflict with Defendant, I reject Defendant's evidence and accept the evidence of LI Yam-sang. I believe he was a witness of truth and that he was genuinely upset and surprised at what his brother had done, when this came to his knowledge. Defendant had got himself into financial difficulties and resorted to mortgaging his nephew's property for his own use and benefit. I specifically hold that he did this well knowing that he was a trustee and also knowing that any mortgage properly entered into in respect of this property would have to be for the benefit of the beneficiary; for example as I have said earlier, quoting him, that he wanted monies to assist with his nephew's education. Even from his own evidence it is clear that no monies went towards Li William's education in England.
The Law:
12.I set out the relevant statutory provisions for ease of reference.
13. The Crown in opening first referred me to the definition of property Section 6(1) of the Theft Ordinance Cap. 210 :-
“Property shall be regarded as belonging to any person having possession or control of it, or having in it any proprietary right or interest (not being an equitable interest arising only from an agreement to transfer or grant an interest).
Defendant, of course, held the property having possession or control of it as Section 6(2) provides :-
“Where property is subject to a trust, the person to whom it belongs shall be regarded as including any person having a right to enforce the trust, and an intention to defeat the trust shall be regarded accordingly as an intention to deprive of the property any person having that right."
Appropriation is provided for in Section 4(1) :-
“Any assumption by a person of the rights of an owner amounts to an appropriation, and this includes, where
he has come by the property (innocently or not) without stealing it, any later assumption of a right to it by keeping or dealing with it as owner.”
14. Property is defined in Section 5(1) and Section 5(2). This is of interest and indeed forms the basis of the particulars of the charge:-
“(2) A person cannot steal land, or things forming part of 1and and severed from it by him or by his directions, except in the following cases, that is to say:
(a) When he is a trustee or personal representative, or is authorized by power of attorney, or as liquidator of a company, or otherwise, to sell or dispose of land belonging to another, and he appropriates the land or anything forming part of it by dealing with it in breach of the confidence reposed in him.”
15. The usual provisions as to having an intention to permanently deprive an owner of property and acting dishonestly apply.
16. As I indicated before Mr. Murray appearing for the Crown advises this is the first such case prosecuted in this territory. Despite the absence of Judicial authority directly in point I am indebted to Mr. Murray for referring me to an article entitled "Criminal Trustees” appearing in the Conveyancer(1).
17. It is clear that a trustee may steal land when “…. He appropriates the land …. by dealing with it in breach of the confidence reposed in him ….”. Section 5(2) of Theft Ordinance Cap. 210.
18. As it is made clear from the background to the debate on the Theft Act 1968 "Confidence” was substituted for “Trustee” as contained in the Criminal Law Revision Committees' draft bill the argument being “Trust” might be construed in its technical: meaning. I am in no doubt “confidence" embraces the concept of a “Trust" and is clearly wide enough to cover the circumstances herein.
19. Further by the terms of Section 6(1) of the Theft Ordinance Li William was a person from whom the property subject of the charge could be stolen if he had possession or control of it.
20. There was no evidence that Li William lived in the flat concerned or was allowed to live in it. Accordingly no assistance can be derived from the decisions of Turner (No. 2) 1971 55 Criminal Appeal Report 336 or R. v. Bonner 1970 1WLR 838.
21. However Li William had at all relevant times and still has a “proprietary” interest as beneficiary, this being an equitable interest which is not excluded by the reservation expressed to Section 6(1) of the Theft Ordinance.
How a trustee appropriates property
22. Section 4(1) provides for an appropriation to be "any assumption by a person of the rights of an owner …".
23. Selling the property by a trustee if it were to be sold as though he were the absolute owner could amount to an assumption of the rights of an owner.
24. The question arises whether mortgaging the property can constitute an appropriation within the ambit of Section 4(1).
25. Mr. Polson devoted the major thrust of his argument as to "appropriation" to the terms of the trust, in particular the express provision "… full power to mortgage … with all the powers on that behalf of an absolute owner.” He argued that Defendant was fully entitled and empowered to do what he did and that he acted upon legal advice.
26. The answer is of course that Defendant was entitled to act as he did, provided he acted in his capacity as trustee. Acting in such capacity imposes the inevitable consequence of applying the monies derived by mortgage in furtherance of trust purposes. It was his obligation as a trustee so to do.
27. I have held that he did not do so. Accordingly by mortgaging the property for his own use and benefit he effected an "appropriation” within the ambit of Section 4(1).
28. I have re read Morris(2) before formulating the views hereinbefore expressed.
Intention to permanently deprive the beneficiary
29. Defendant made six payments before ceasing to conform to his obligations.
30. It was argued in effect that the Defendant as trustee would not be called to account until the beneficiary came of age and the trust terminated. The situation differs little in effect from the borrower who appropriates valuables for pawning intending as he says to return the money when his “turf investments” pay of.
31. Here the monies went to Defendant’s benefit when he was in financial difficulties and I am in no doubt that despite the six repayments he effected there was an intention to permanently deprive Li William of the monies appropriated by way of mortgage.
32. All the elements of the charge I have dealt with todate have been made out on my findings except dishonesty which I now turn to consider. The Crown submits the test is that embodied in the case R.v. Ghosh(3).
33. I am conscious of the views taken by some academic lawyers as to the Ghosh direction of honesty, so aptly described in the preface to the 42nd Edition of Archbold as "rumblings of discontent”.
34. In Ghosh it was held S.1 of the U.K. Theft Act 1969 described the state of mind and not the conduct of the person accused and that according the test was a subjective one, although the standard of honesty to be applied was the standard of a reasonable and honest man and not that of the accused.
35. The test to be applied is two-fold:
(1) Whether Defendant acts dishonesly by the standard of ordinary and honest people; and
(2) If that he was so acted then whether he himself must have realised that what he was doing was by those standards dishonest.
36. I have already adverted to Counsel’s submission that Defendant was acting under legal advice. In my view the legal “advice” consisted of explaining the mortgage and preparing the documents. There was nothing to exculpate Defendant by his having been told that he could act as he did in applying monies for his own use and benefit. I accept the evidence of Mr. Tsang solicitor.
37. He had originally said the property would not be “sold or mortgaged”. In my view his claim to be acting with the consent of Li William’s father was fabricated, his evidence having been rejected, as I said earlier. Li William a minor could not consent and I note as has been pointed out by Mr. Polson that Li William was not called, I being informed that he was at present in the United Kingdom. Monies, on the finding I have already made, were not applied for the beneficiary’s benefit.
38. I am in no doubt that any jury properly directed could not hold other than that Defendant in the instant case has acted dishonestly by the standard of ordinary honest people living in this or any other jurisdiction where the Anglo-Saxon system of jury’s prudence has exercised its influence.
39. I am further of the view that Defendant not only must have realized but fully realized that what he was doing was by those standards completely dishonest.
40. All elements of the charge have been proved and I am certain to the very high standard of proof required by the Crown that guilt has been proven beyond any reasonable doubt.
41. Defendant guilty as charged.
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( B.T. CAIRD )
District Judge.
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(1) Vol. 39(1973)
(2) 1984 AC 320.
(3) (1982) 2 All ER 689
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