SECRETARY FOR JUSTICE v. WU LIHUI AND OTHERS

CACV 44/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 44 OF 2008

(ON APPEAL FROM HCMP NO. 1486 OF 2007)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Barnes J. given on 31 January 2008 whereby the judge discharged a restraint order which she had made on 8 August 2007 under the Organised and Serious Crimes Ordinance Cap. 455 (“the Ordinance”) in respect of three respondents.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

2.  The first respondent is a student who is apparently still studying in Beijing.  On 30 May 2007 he opened two bank accounts.  The first was with the Development Bank of Singapore (“DBS”) and the other had been at the Wing Lung Bank.  The first respondent was the only signatory of the DBS account whereas his father, Boby Wu, was an authorised signatory of the Wing Lung account.  There was a transfer of HK$100 million to the first respondent’s DBS account on the day it was opened.  On the same day the first respondent gave instructions to transfer HK$95 million of that money into his Wing Lung account.  There was then a transfer of HK$5 million into the second respondent’s bank account and HK$10 million into the third respondent’s bank account, both of which accounts had been newly opened at the Wing Lung Bank.

3.  The transfer of the money from the DBS account was reported by that bank to the authorities.  It now transpires that at the time, the DBS manager had requested the first respondent and his father to leave the money at his bank because if it were to be transferred the matter would have to be reported to his superior.

4.  On 1 June 2007, Boby Wu together with the second respondent and a third person, Jeff Cai, were apprehended by the police at the Wing Lung Bank for the offence of dealing in property known or believed to represent the proceeds of an indictable offence.  At the time Boby Wu was in possession of the passbooks for the first respondent’s DBS and Wing Lung accounts as well as the third respondent’s Wing Lung account.

5.  When he was interviewed by the police Boby Wu said that the HK$100 million was his money and it had been paid as the initial down payment for the sale of his company.  He said at the time that there was no paperwork in relation to the sale and that because of his ill health he wanted to train the first respondent to do business and he thus transferred the money to the first respondent’s account.  His explanation for the transfer of the money from DBS was that the staff had asked too many questions and he transferred the money to the Wing Lung Bank with which he was used to dealing.  His explanation for the transfer of the money to the other respondents was that he was giving interest-free loans to both the second and third respondents in order that they could buy shares.  The second respondent confirmed that and said that he had been Boby Wu’s driver on a salary of some HK$4,000 per month.

6.  Four days later on 5 June 2007 an arrest warrant was issued by a magistrate against the first respondent.  The charge under the warrant was “dealing with property known or believed to represent proceeds of indictable offence” contrary to section 25(1) of the Ordinance.  As the judge pointed out in her judgment of 31 January 2008, that section has certain peculiarities.  It would be possible for a defendant to be guilty of an offence under that section even if the property in question had not been the proceeds of an indictable offence since the question is as to whether there were reasonable grounds for considering that the property in question were such proceeds.  The material part of the section for present purposes reads:

“(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.”

7.  Given those circumstances, it was not surprising that the judge made a restraint order under the provisions of section 15 of the Ordinance. 

8.  After the order had been made evidence was filed both by Boby Wu and a Madam Chu Lam Yiu directed to confirming the fact that the HK$100 million that had been paid into the first respondent’s DBS account represented the initial deposit paid by Madam Chu pursuant to a framework agreement for the sale of Owada Company (“Owada”) which had been Boby Wu’s company and was being purchased by Madam Chu for a total sum of some RMB$800 million.  Boby Wu had said that he had decided to sell his company which had been successful because he had found that he had cancer.

9.  The first respondent said that he had been aware of his father’s intention to sell Owada Company and to put the proceeds of sale into his account so that he could use the money for business under his father’s guidance.  Importantly, the first respondent said that prior to the transfer of the HK$5 million and HK$10 million to the second and third respondents’ accounts respectively, his father had told him that he had promised to lend the money to the second and third respondents.  Boby Wu said that after the second and third respondents had become aware that Owada Company was to be sold they had refused Boby Wu’s offer of severance payment.  It was in those circumstances that he had offered to lend them the money so that they could invest in a thriving stock market and keep the profits and that he would not ask for his money back should they make a loss.

10.  In the judgment of 31 January 2008 the judge referred to the various submissions which had been made and came to the conclusion that, having considered all the evidence before her, she could not say that she was satisfied that there was reasonable cause to believe that the first respondent had benefited from a specified offence as provided for under section 14(1)(c)(ii) of the Ordinance.  She went on to say that the acts of the respondents were unusual but it could not be said, having considered all the evidence and applying the objective and subjective tests, that the respondents had reason to believe that the property they dealt with represented the proceeds of an indictable offence.

This appeal

11.  Two weeks before this appeal was due to be heard the applicant sought leave to file further evidence.  That evidence consisted of the results of investigations that had been carried out sometime earlier.  It seems to me that that evidence could have been filed far earlier but since the respondents were able to prepare their evidence in reply for the hearing all the evidence was admitted de bene esse.

12.  The new evidence showed that in addition to the framework agreement that had been before the judge below there had been a formal contract for the sale and purchase of Owada Company dated 9 June 2007.  I do not propose to traverse the full details of the evidence which is now before this court.  It is fair to say that when Boby Wu was first interviewed in 2007 he did not reveal all the details of the transaction but confined himself to what he thought was relevant to explain the existence of HK$100 million.  Indeed, his denial of the existence of written documentation relating to the sale of Owada Company was clearly not correct.  It is clear, nevertheless that the agreement of 9 June 2007 was referred to specifically in a letter from the respondents’ solicitors of 7 July 2007 (wrongly dated 7 June 2007) to those investigating the matter, albeit those to whom the letter was addressed did not make any request to see the agreement.  Criticism has also been raised about the explanation for the use of the DBS account.  Whether or not it was strictly necessary for the purposes of speed to open an account at DBS is, perhaps, open to conjecture but at the end of the day that, in my view, amounts to very little.  The following points appear to me to be established, at any rate at present, on the basis of the evidence which is before the court:

a.  Boby Wu did sell Owada Company to Madam Chu, or more correctly a company controlled by her, for RMB800 million.

b. There is no ground for concluding that Owada Company had been conducting anything other than a legitimate business and that the capital value of that business represented the fruits of that business.

c. The money paid for Owada Company came from legitimate sources and had been the proceeds of legitimate business.

d. The HK$100 million transferred into the first respondent’s DBS account was the initial deposit paid for Owada Company.

e.  The three respondents were aware that Owada Company had been carrying on a legitimate business and the first respondent knew that the HK$100 million was part of the proceeds of sale of the company.  Likewise, the second and third respondents had similar knowledge in respect of the sums they received.

f.   The respondents had no reason to believe other than that the HK$100 million, HK$5 million and HK$10 million respectively represented proceeds that came from a legitimate source.

g. There is not one scintilla of evidence to show that the HK$100 million or any part thereof represented the proceeds of an indictable offence.

h. Since the commencement of these proceedings no further action has been taken directed towards bringing any criminal charges against the respondents or anybody else in relation to the HK$100 million.

i.    The applicant’s case, in particular that the respondents have benefited from a specified offence, is based entirely on speculation and asking the court to draw inferences which are unwarranted on the evidence.

13.  Given the above I have no doubt that the applicant has failed to make out a case and that this appeal should be dismissed with an order nisi of costs in favour of the respondents.

Hon A Cheung J:

14.  I agree with the judgment of Rogers VP.

15.  Section 15 of the Organised and Serious Crimes Ordinance gives the Court of First Instance the powers to make restraint orders.  Section 14 sets out the circumstances under which those powers are exercisable.

16.  The circumstances include “where … proceedings have been instituted in Hong Kong against the defendant for a specified offence … and … the Court of First Instance is satisfied that there is reasonable cause to believe … that the defendant has benefited from that specified offence”: section 14(1)(a) & (c)(ii).  “Specified offence” is defined in section 2(1) to mean a number of offences and the offence created by section 25 is one of them.

17.  One of the questions raised by Mr Shiu for the appellant is whether the Court of First Instance has to be satisfied that there is reasonable cause to believe that the defendant has committed the specified offence.  He contends that so long as proceedings have been instituted in Hong Kong against him for that offence and the Court is satisfied that there is reasonable cause to believe that he has benefited from that specified offence, that is sufficient.  There is no need for the Court to be satisfied that there is reasonable cause to believe that the defendant has committed the specified offence – that is a matter for trial in the criminal court.

18.  I do not agree.  In my view, the requirement that the Court is satisfied that there is reasonable cause to believe that the defendant has benefited from the specified offence (whatever it may be) which he is accused of committing presupposes that the Court is satisfied that there is reasonable cause to believe that the defendant has committed that offence in the first place.

19.  If, in fact, the defendant has not committed the specified offence which he is accused of committing, he cannot possibly have benefited from “that specified offence”.

20.  In any event, even if Mr Shiu’s construction of section 14 were correct, it would not follow that a restraint order must be granted.  The Court still retains a discretion under section 15 whether to grant or refuse a restraint order (“The Court of First Instance may by order … prohibit …”): cf P v Commissioner of Independent Commission Against Corruption (2007) 10 HKCFAR 293, 307, para 28, a case on section 14(1)(d) of the Prevention of Bribery Ordinance (Cap 201).  And in the scenario under discussion, where the Court is not satisfied that there is reasonable cause to believe that the defendant has committed the specified offence which he is accused of committing, it is difficult to imagine how it would be proper to exercise the Court’s discretion under section 15 to grant a restraint order.

21.  Viewed in that light, Mr Shiu’s construction of section 14 is, with respect, rather unreal and I do not accept it.

22.  For those reasons, the Judge was quite correct to ask herself whether, on the entire evidence before the Court, she was satisfied that there was reasonable cause to believe that the respondents had reasonable grounds to believe that the monies they dealt with represented the proceeds of an indictable offence (in other words, she was asking herself whether there was reasonable cause to believe that the respondents had committed a section 25 offence – the specified offence in question), apart from asking herself whether she was satisfied that there was reasonable cause to believe that the respondents had benefited from the section 25 offences.

23.  For the reasons given by the Vice President, the Judge had come to the right conclusions on those questions and her decision to discharge the restraint order could not be faulted.

Hon Lunn J:

24.  I agree with the reasons given by the Vice-President for dismissing the applicant’s appeal.

25.  I wish to make a few observations about the fact that the monies the subject of the restraint have been frozen for over one year.  Although none of the accounts, either at DBS or Wing Lung bank, into which all or part of the $100 million was received or transferred was in the name of Bobby Wu clearly he was the primary beneficiary.  Following his arrest on 1 June 2007, in a video record of interview made under caution, Bobby Wu asserted that the $100 hundred million was his money and represented a down payment for his sale of a company, although he claimed that the transaction was not evidenced by paperwork.  The latter assertion was a barefaced lie.  On 28 May 2007, he had signed a ‘Framework Agreement, under which he was to transfer his share holding in Owada to Excel On for 800 million renminbi, 100 million renminbi of which was payable as a deposit within two days of the signing of the agreement.  On 30 May 2007, he signed a payment authorisation letter requesting Excel On to deposit the one hundred million renminbi into the 1^st respondent’s account at DBS, following which deposit he signed a receipt on the same date.  In his affirmation, dated 21 November 2007, he acknowledged that those events had occurred and exhibited those documents.

26.  On its face the ‘Framework Agreement’ called for the signing of a “…formal agreement for transfer of shares…” between the parties.  As the Vice President has noted, in a letter to the Financial Investigation Group of the Narcotics Bureau of 7 July 2007 (wrongly dated 7 June 2007) solicitors acting for Bobby Wu detailed an explanation of the circumstances in which the $100 million deposit had been made into the DBS account, which monies were described as ‘earnest money’, and asserted that a formal agreement for the acquisition of the company had been made between the parties on 9 June 2007.  Surprisingly, it appears that no request was made by the Hong Kong police to see that agreement.

27.  The agreement dated 9 June 2007 was not placed before Barnes J at the discharge hearing.  It was produced to this court as an exhibit to the affirmation of Bobby Wu dated 29 August 2007, in response to material obtained by the Hong Kong police following the hearing before Barnes J and prior to this hearing.  The tenor of that evidence was to seek to cast doubt on the credibility of the account of Bobby Wu placed before Barnes J in light of the discovery of other payments of monies and the existence of documentation filed with the authorities on the Mainland.  In accepting that he had made no disclosure in his affirmation of 21 November 2007 of the involvement of Rich Universal in the sale of Owada, Bobby Wu contended that he was concerned that other payments made under the formal agreement of sale might have been restrained if he had disclosed more detailed terms of the agreement In other words, a deliberate decision had been made to make partial disclosure to the court of relevant facts.  No doubt, Bobby Wu’s conduct acted as an encouragement to the Respondent to seek to sustain the restraint order.