CHAN THAO PHOUMY also known as CHAN SUM AND ANOTHER v. SECRETARY FOR JUSTICE

HCMP 1895/2007

[2018] HKCFI 1394

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1895 OF 2007

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JUDGMENT

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1.  The 1st Applicant applies to set aside the registration of an external confiscation order made by Saw J under section 29(1) of the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405 (“the Ordinance”) dated 18 July 2008. The application was originally made by both the 1st and 2nd Applicant. As events unfolded and detailed below, the 2nd Applicant has since dropped out of these proceedings and it is only the 1st Applicant’s application that remains for this Court’s determination.

2.  The Secretary for Justice opposes the 1st Applicant’s application.

Background

3.  In March 2005, following a joint investigation of Hong Kong and Mainland law enforcement authorities into the activities of a drug trafficking syndicate, the 1st and 2nd Applicants along with five others were arrested in Guangzhou.

4.  At the time of the arrest, the 1st and the 2nd Applicants were cohabiting and various assets in Hong Kong were seized as a result of the operation.  The seized assets totaling about HK$50 million included:

(1)  cash of about HK$11 million kept in a safety deposit box inside the house occupied by the 1st and 2nd Applicants and their daughter;

(2)  cash of about HK$17 million kept in two safety deposit boxes in two banks rented under the name of the 1st Applicant;

(3)  11 apartments, purchased in the name of the 2nd Applicant;

(4)  deposits of about HK$7 million kept in bank accounts held in the name of either the 1st Applicant or the 2nd Applicant;

(5)  various sums of different currencies and a total of 156 pieces of jewelleries seized from their home and two safety deposit boxes rented by the 2nd Applicant.

5.  The 1st and 2nd Applicants were prosecuted for smuggling and trafficking 400kg of ketamine in Guangzhou during the period between February and March 2005.  The case was heard by the Intermediate People’s Court of Guangzhou (“the IPC”) and a judgment was delivered on 7 September 2007 (“the IPC Judgment”).  The 1st Applicant was convicted and the 2nd Applicant was acquitted.  The 1st Applicant was sentenced to life imprisonment and an order was made by the IPC to confiscate all of the 1st Applicant’s personal properties (“the IPC Confiscation Order”) pursuant to Article 59 and 64 of the Criminal Law of the People’s Republic of China (“the PRC Criminal Law”).  The 2nd Applicant upon her return to Hong Kong was arrested by the Hong Kong Police for money laundering offences.

6.  In September 2007, the Higher People’s Court of Guangdong Province (“the HPC”) made a request to the Secretary for Justice to seek a restraint order over all the properties and assets subject to the IPC Confiscation Order pending the outcome of the appeal.  On 5 October 2007, upon the application of the Secretary for Justice, Deputy Judge Line (as he then was) made an order that the properties specified be restrained from being removed from Hong Kong, or from being disposed of, charged, diminished or otherwise dealt with by the 1st and 2nd Applicants (“the External Restraint Order”).  On 4 January 2008, Saw J continued the order.

7.  The 1st Applicant appealed to the HPC against both his conviction and sentence.  His appeal was dismissed by the HPC.  The IPC Confiscation Order was affirmed by the HPC in its judgment dated 21 April 2008.  The HPC made a request to the Secretary for Justice for the IPC Judgment to be registered as an external confiscation order.  In order to comply with the requirement of the Ordinance, the HPC also provided a certificate dated 16 May 2008 stating, among others, that the IPC Judgment was final and that “the aim of the judgment ordering the confiscation of property in the said proceedings is to confiscate (the 1st Applicant’s) proceeds of drugs trafficking and deprive him of the proceeds.”

8.  On 18 July 2008, upon the application of the Secretary for Justice, an order was made by Saw J whereby it was ordered, among others, that pursuant to section 29(1) of the Ordinance, the IPC Judgment be registered as an external confiscation order (“the External Confiscation Order”).  It was further ordered that any application to vary or set aside the registration should be made on or before 19 September 2008.

9.  The 1st and 2nd Applicants applied on 16 September 2008 to vary Saw J’s Order.  On 2 November 2009, the HPC sought the assistance of the Supreme People’s Court (“the SPC”) in its determination regarding the nature of 1st Applicant’s property in Hong Kong.  In its reply, the SPC stated that “there is no evidence to prove that his personal property is lawful, the personal property of the defendant can be inferred to be proceeds of drug trafficking which he had received”.  On 30 November 2009, the HPC issued a further certificate, stating among others that “in the absence of any evidence to prove the lawful sources of his property, his personal property can be inferred to be proceeds of drug trafficking and confiscated.”

10.  Amended Grounds of Objection were filed by both applicants.  They are as follows:

(1)  the Court of the HKSAR has no jurisdiction on the present application by the Secretary for Justice to register the External Confiscation Order under section 28 and 29 of the Ordinance;

(2)  the 1st Applicant’s assets were amassed from his legitimate business income;

(3)  the 1st Applicant’s conviction was wrong, unsafe and unsatisfactory.

11.  The substantive hearing of the present proceedings was originally fixed to be heard on 15 November 2010 (“the Original Hearing”).  At the time, however, domestic criminal proceedings against the 2nd Applicant for various money laundering offences were pending (“the Domestic Criminal Proceedings”).  The hearing on 15 November 2010 was adjourned pending conclusion of the Domestic Criminal Proceedings against the 2nd Applicant.

12.  As the 1st Applicant had been sentenced to life imprisonment in Guangzhou, he did not personally attend the Original Hearing or subsequently at any stage of the proceedings.  He has however been given proper notice of the proceedings and has received all the relevant documents.  As a result, the Court invited the Amici Curiae to comment on the absence of the 1st Applicant in the hearing.  Following submissions made by the Amici Curiae, the Court decided to proceed with the matter in the absence of the 1st Applicant, but with the assistance of Amici Curiae.  One of the roles of the Amici Curiae in this case was to advance legal arguments on behalf of the 1st Applicant.

13.  Subsequently, the 2nd Applicant was convicted of all five money laundering offences in DCCC 767/2009, and the conviction was upheld by the Court of Appeal in CACC 17/2011.  Following the refusal by the Court of Final Appeal to extend time for leave to appeal in FAMC 57/2012, the Domestic Criminal Proceedings against the 2nd Applicant were finally concluded in August 2013.

14.  At a confiscation hearing held after the 2nd Applicant’s conviction at the District Court, His Honour Judge Yiu found that the 2nd Applicant had realisable properties in the total value of HK$35,711,707.  By an order dated 13 May 2011 (“the Domestic Confiscation Order”), it was ordered that a sum in that amount be confiscated from the 2nd Applicant for payment to the Government of HKSAR, which payment was to be made within 6 months after the 2nd Applicant’s appeal against conviction was dismissed by the Court of Appeal.  In default, the 2nd Applicant would serve an additional 7 years’ imprisonment, consecutive to the 4 years imposed.

15.  In determining the value of the realisable assets of the 2nd Applicant, the learned District Judge had taken into account the assets that were registered in the 2nd Applicant’s name which were subject to the External Restraint Order.  Assets held in the name of the 2nd Applicant under the External Restraint Order were subsequently released by various orders to be realised for the the satisfaction of the Domestic Confiscation Order.  The end result is that all the assets which were owned and held in the name of the 2nd Applicant and previously covered by the External Restraint Order had been realised and paid to the Government of HKSAR in satisfaction of the Domestic Confiscation Order.  The remaining assets that are presently subject to the External Restraint Order are all assets or properties owned and held in the name of the 1st Applicant, in the form of cash and bank deposits totaling HK$23,263,685 (see paragraphs 4(2) and (4)).

16.  With the completion of the Domestic Criminal Proceedings, by summons dated 29 July 2014 (which was also served on the 1st Applicant) the Secretary for Justice applied to restore the substantive hearing of the present proceedings in respect of the registration of the IPC Judgment.  Since the 2nd Applicant no longer had any interest in the assets and properties that are the subject matters of the present proceedings, it was ordered by this Court that her application to set aside the External Confiscation Order be dismissed.

Issue

17.  The issues for this Court are:

(1)  whether the IPC Confiscation Order is an external confiscation order as defined in the Ordinance;

(2)  whether the allegation that the assets under the IPC Confiscation Order were amassed by the 1st Applicant from legitimate wealth would affect the legitimacy of the External Confiscation Order;

(3)  whether the allegation that the conviction was wrong, unsafe and unsatisfactory would affect the legitimacy of the External Confiscation Order.

Discussion

18.  In the IPC Judgment of which the IPC Confiscation Order formed part, two provisions of the PRC Criminal Law were cited for the purpose of making the IPC Confiscation Order.

19.  Articles 59 of the PRC Criminal Law, which provides:

“Confiscation of property refers to the confiscation of part or all of the property personally owned by a criminal. Where confiscation of all the property of a criminal is imposed, the amount necessary for the daily expenses of the criminal himself and the family members supported by him shall be taken out.

When a sentence of confiscation of property is imposed, property that the criminal’s family members own or should own shall not be subject to confiscation.”

20.  Article 64 of the PRC Criminal Law, which provides:

“All money and property illegally obtained by a criminal shall be recovered, or compensation shall be ordered; the lawful property of the victim shall be returned without delay; and contrabands and possessions of the criminal that are used in the commission of the crime shall be confiscated. All the confiscated money and property and fines shall be turned over to the State treasury, and no one may misappropriate or privately dispose of them.”

21.  One can see immediately that the only qualification for confiscation under Article 59 is ownership of the property rather than the source of the property.  According to experts appointed by the Court and the Secretary for Justice, the purpose of Article 59 is to impose a criminal penalty without the need to prove either the illegal nature of the assets or that the assets are related to the crimes committed by the criminals.  In contrast, the assets to be confiscated under Article 64 must be related to the crimes committed.  Article 59 therefore gives the IPC a much wider power.  This wider power becomes the focal point in this application.

22.  It was argued that given the much broader scope of properties being subject to confiscation, both lawful and unlawful properties, the IPC Confiscation Order did not fall within the definition of an external confiscation order of the Ordinance.

23.  External confiscation order is defined in section 28(4) of the Ordinance with reference to the purpose of the order:

“‘external confiscation order’ (外地沒收令) means an order made by a court in a designated country for the purpose of —

(a) recovering (including forfeiting and confiscating) —

(i) payments or other rewards received in connection with drug trafficking or their value;

(ii) property derived or realised, directly or indirectly, from payments or other rewards received in connection with drug trafficking or the value of such property; or

(iii) property used or intended to be used in connection with drug trafficking or the value of such property; or

(b) depriving a person of a pecuniary advantage obtained in connection with drug trafficking,

  and whether the proceedings which gave rise to that order are criminal or civil in nature, and whether those proceedings are in the form of proceedings against a person or property;”

24.  Section 29(1) of the Ordinance provides for the basis of its registration and enforcement:

“(1) On an application made by or on behalf of the government of a designated country, the Court of First Instance may register an external confiscation order made there if –

(a) It is satisfied that at the time of registration the order is in force and not subject to appeal;

(b) It is satisfied, where any person against whom, or in relation to whose property, the order is made does not appear in the proceedings, that he received notice of the proceedings, in accordance with the law of the designated country, in sufficient time to enable him to defend them; and

(c) It is of the opinion that enforcing the order in Hong Kong would not be contrary to the interests of justice.

....

(3) The Court of First Instance shall cancel the registration of an external confiscation order if it appears to the Court of First Instance that the order has been satisfied by payment of the amount due under it or by the person against whom it was made serving imprisonment in default of payment or by any other means.”

25.  Property includes both movable and immovable property within the meaning of section 3 of the Interpretation and General Clauses Ordinance.  Hence, money and choses in action are included.  From the language of the legislation, section 28 aims not only at confiscating property received but also property used or intended to be used in connection with drug trafficking.  The effect of the order includes deterrent, prevention as well as punishment.  In default of payment, it is envisaged by section 29(3) of the Ordinance that a defendant may be ordered to serve additional imprisonment term, similar to the Domestic Confiscation Order which the 2nd Applicant had received.  However, section 29 makes it clear, with the use of the words “may register” that the Court’s power to register an external confiscation order is discretionary.

26.  It was held in Re Lau Koon Chiu [1990] 1 HKC 377 that in inquiring into a person’s proceeds of drug trafficking, the Hong Kong Court is not limited to payments or rewards directly connected with the charges upon which the person has been convicted.  That is in line with the international consensus that for confiscation proceedings, the assets confiscated are not confined to the very crime that the relevant defendant was convicted.  It was held in McIntosh v Lord Advocate [2003] 1 AC 1078 that for confiscating proceedings in relation to drug trafficking, the sum confiscated needed not be the same from the drug trafficking offence of which the accused had been convicted.

27.  Having said that, I accept that it is not intended to serve as a mechanism for the confiscation of property which is not connected to drug trafficking.  In my view, the purposes of section 28 of the Ordinance are clear and there is no need to engage into any unduly complicated and extensive arguments in discerning what are the main or dominant purposes of the relevant section.

28.  Given the clear wordings of section 28, an external confiscation order can be made by a court in a designated country for confiscating money (both in cash or deposits kept in bank accounts) received, obtained or intended to be used, in connection with drug trafficking.

29.  As observed by Barnett J, in Re Law Kin Man [1994] 2 HKC, the proceedings are meant to be a simple and expedient one:

“The legislature plainly had in mind and introduced the new and simple procedure set out in section 29. Provided the judge hearing the application is satisfied that the order sought to be registered is one which is aimed at the proceeds of drug trafficking; that where the order is against a person, that person had notice; and that generally registration is in the interests of justice, the order should be registered.”

30.  It was also mentioned by Barnett J that:

“.... the legislature wished to facilitate enforcement of foreign orders aimed at the proceeds of drug trafficking so that the drug trafficker would have as little room as possible for using Hong Kong as a haven for his benefits. Absent words restricting foreign orders to those of like nature to orders available in Hong Kong, it is implicit or inherent in section 28 that orders of a different or wider nature are contemplated.”

31.  Paragraph 5(1) of the Drug Trafficking (Recovery of Proceeds) (Designated Countries as Territories) Order, Cap 405A provides for the admission of certificate issued by the appropriate authority of a designated country.  A certificate stating an order made by a court in the designated country shall in any proceedings in the Court of First Instance be admissible as evidence of the facts so stated.

32.  In the present proceedings, three certificates have been issued by the HPC to certify evidence given in Guangzhou.  These certificates are admissible as evidence of the facts stated therein.

33.  Attached to the first certificate issued by the HPC was a copy of the IPC judgment in which the following was stated:

“Chan is convicted of the crimes of smuggling and trafficking in narcotic drugs and sentenced to life imprisonment and confiscation of all personal property.”

34.  The IPC judgment set out all the factual and circumstantial evidence which led to the conviction and the confiscation order.  In particular, the IPC took into account of the fact that the 1st and the 2nd Applicant did not have any legitimate income 6 years prior to their arrest in Hong Kong and yet over 10 apartments were held under the name of the 2nd Applicant who admitted in the IPC trial that they were funded by the 1st Applicant.  In the course of the IPC trial, it was argued by the 1st Applicant’s lawyer that the assets seized had originated from legitimate businesses.  That argument was rejected by the IPC implicitly.

35.  All three certificates essentially stated that the purpose of the IPC Confiscation Order was to deprive the 1st Applicant of the proceeds of drug trafficking and to forfeit the property that could be used in trafficking drugs.  Before the issuance of the third certificate, a request was made to the SPC to seek instruction as to the appropriateness and correctness in drawing the inference.  In its Reply, the SPC mentioned:

“Given that the conduct of the defendant has already constituted the offences of smuggling and trafficking in narcotic drugs stipulated in Articles 347(2) of the Criminal Law of Our Country and there is no evidence to prove that his personal property is lawful, the personal property of the defendant can be inferred to be the proceeds of trafficking which he received.”

36.  As to the nature of the Reply, the following was noted:

“.... It represents the opinion of the Supreme People’s Court on the application of the law in the case in question. The ‘Reply’ represents one form of the exercise of its power of interpretation by the Supreme People’s Court in accordance with the law. Such practice is of great significance in ensuring an accurate and consistent approach in the application of the laws by the courts at various level.”

37.  Both experts agreed that:

(1)  the SPC has the power to give interpretation to laws and that the interpretation is legally binding on all levels of courts in the Mainland;

(2)  the fact that the SPC has confirmed that the confiscation is in the nature of confiscation of proceeds of drug trafficking has the legal effect of finally settling the issue under the People’s Republic of China’s law;

(3)  the issue is treated as finally settled.

38.  Given the status and authority of the SPC, the issue is settled in the Mainland. But what about Hong Kong?  In my view, the SPC’s position is consistent with the international approach.  The SPC is drawing the logical and irresistible inference given the circumstances of the case, in particular, in light of the 1st Applicant’s conviction.  Similar inference had been drawn by the Hong Kong Court in the 2nd Applicant’s case regarding her money laundering offences.  It is worthwhile to note that there is no need to prove the predicating offence albeit trafficking in dangerous drug is one indicatable offence in Hong Kong.

39.  Further, I would come to the same conclusion based on the evidence as provided for in the first certificate in the 1st Applicant’s case.  The properties subject to the present External Confiscation Order are now HK$17 million cash found in the 1st Applicant’s safety deposit boxes in banks and deposits of HK$6 million in his bank accounts.

40.  In respect of the HK$17 million cash found in the two safety deposit boxes rented under the name of 1st Applicant in banks, I do not see any legitimate explanation for doing that instead of depositing the same into bank accounts given the 1st Applicant had already reached the bank. The purpose in concealing the cash was obvious.

41.  In respect of the remaining HK$6 million bank deposits, although there is no direct evidence to say that they must be proceeds of drug trafficking, I would, after considering all the circumstances, inter alia, the fact that (i) the 1st Applicant had funded the purchase of over 10 apartments using the name of the 2nd Applicant, (ii) the 1st Applicant had no prior legitimate income, (iii) there is no evidence indicating that the 1st Applicant was engaged in any other illegal activities and (iv) there is every indication of him being involved extensively in trafficking in drugs given the scale of the operation and the network in question, in terms of both the quantity of drugs seized and the number of people involved, have no hesitation in coming to the conclusion that the HK$6 million bank deposits were proceeds in connection with drug trafficking.  In order to combat the evil drug trade, as long as there is evidence indicating the necessary connection, that would be sufficient.  Otherwise, the Ordinance would become just a toothless tiger, with its objective defeated.

42.  Such drawing of inference is also permissible and widely adopted in Hong Kong.  The constitutionality of the domestic scheme has been upheld by the Hong Kong Court despite the placing of the burden on the defendant in proving that his properties are not properties in connection with drug trafficking. (See HKSAR v Lee Man Kin [2006] 4 HKLRD 799.)  It was also held that the Court had a discretion to make the assumptions under section 4(3) of the Ordinance where the evidence showed a great discrepancy between the defendant’s assets and the known source of his income.  It was neither unreasonable nor oppressive to require the defendant to explain the source of his income and assets.

43.  Although both experts argued on the exact scope and role of the two provisions of the PRC Criminal Law, they agreed that the purpose of Article 59 was to deprive the criminal of his financial means to recommit offence.  Hence the purpose was to confiscate property intended to be used in connection with drug trafficking within the meaning of s 28(4)(a)(iii) of the Ordinance.  Given the above, it is unnecessary to determine the exact legal relationship or status between Article 59 and Article 64 of the PRC Criminal Law.  In the context of this case, Article 64 is targeted at confiscating property related to the crime committed whereas Article 59 aims at depriving the 1st Applicant of his financial ability in committing drug offences in future.  Both are within the purpose of the Ordinance.

44.  In conclusion, the IPC Judgment comes under the definition of an external confiscation order in the Ordinance.  Its purpose is to confiscate the 1st Applicant’s proceeds of trafficking in drugs and to prevent him from using his financial resources for future operation.  Its registration conforms to the spirit of combating international drug trade.

45.  As stated in paragraph 29 above, the proceedings are meant to be a simple and expedient one, subject to what the Ordinance expressly provides, the Hong Kong Court should not undertake any inquiry into the merits of the conviction in the underlying case.  That task should be left with the court in the designated country and it must be the reason behind section 29(1)(a) which requires the completion of any appeal proceedings in the designated country. The third ground relied on by the 1st Applicant therefore has no merit in this application.

46.  Although the 1st Applicant has been absent throughout these proceedings, his interests have been protected by the appointment of Amicus Curiae to whom this Court is indebted for their assistance.  I am of the view that the enforcement of the External Confiscation Order would neither be contrary to the interests of justice nor cause any unfairness to the 1st Applicant.

47.  Given the above, the challenges raised by the 1st Applicant are devoid of merit and his application must be dismissed with costs nisi to the Respondent, to be taxed, if not agreed.