SECRETARY FOR JUSTICE v. CHEUNG KWOK KUEN AND ANOTHER

HCMP 55/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 55 OF 2000

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J U D G M E N T

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1. The 1st Respondent and the 2nd Respondent apply under O.117 r.(6) of the Rules of the High Court for the variation and discharge of parts of the Restraint Order and the discharge of the Charging Order already made against them under the provisions of the Organized and Serious Crimes Ordinance, Cap. 455.

Background

2. The 2nd Respondent is the mother of the 1st Respondent.

3. On 6 January 2000 the 1st Respondent was charged with one count of conspiracy to defraud. This arose from an investigation by the Commercial Crime Bureau of the Hong Kong Police of a large-scale fraud relating to a gold and silver trading company, Million Profit Far East Limited. The alleged conspiracy lasted from May 1998 to December 1999. On 29 March 2000 he was charged with an additional charge of dealing with the property of an indictable offence, namely, $26,101,670.30, contrary to s.25 of the Organized and Serious Crimes Ordinance.

4. The trial of the 1st Respondent and 12 others (3 other defendants absconded) is now underway in the District Court before Deputy Judge Kevin Browne. The District Court charge sheet contains two counts: (1) conspiracy to defraud (against all defendants) and (2) dealing with the proceeds of an indictable offence (against the 1st Respondent alone). The trial commenced on 8 November 2000 and is estimated to last until the end of March 2001.

The Restraint and Charging Orders in these proceedings

5. On 7 January 2000 Jackson J made ex parte Restraint and Charging Orders against the Respondents, pursuant to sections 15 and 16 of the Ordinance. They restrained the Respondents from dealing with their property within and outside Hong Kong until an inter partes hearing on 21 January 2000.

6. On 21 January 2000, Jackson J made an order continuing the Orders. In addition, he made a Disclosure Order requiring the Respondents to disclose by their salary and assets 8 March 2000.

7. I heard the Respondents' application to discharge the Orders on 7 April 2000. I dismissed the application on 26 April 2000. I made an order varying the Restraint Order to allow for $1,300,000 to meet the 1st Respondent's present and future legal expenses, and for him to have access to $165,866 per month for living expenses. These sums were to be drawn from his bank account no.16-978-xxxxxxxxxx-xxx at the Dao Heng Bank.

8. On 28 June 2000, Deputy Judge Tong (as he then was), upon an application by the Dao Heng Bank as intervenor, made an order that $1,068,743.31, plus accrued interest, be set off from the 1st Respondent 's account no.16-978-xxxxxxxxxx-xxxx, against outstanding amounts that he owed to the bank.

9. On 10 July 2000, the Respondents filed affirmations disclosing their salary and assets in response to the Disclosure Order. The 1st Respondent in his 3rd affirmation, dated 8 July 2000 stated in para.2 that he was unemployed and had no salary or earnings.

10. On 26 July 2000 by Consent Summons, Jackson J varied the Restraint Order to release the real property at Flat B, 9/F, 3 Villa Oceania, No.8 On Chun Street, Shatin, so that it could be sold by the mortgagor. The net proceeds of the sale were paid into an interest bearing account in the name of the 1st Respondent pending the conclusion of the criminal proceedings in the District Court. On 16 August 2000, the Secretary for Justice was informed that the net proceeds of sale of the Villa Oceania property of $1,708,490.63, had been deposited into the 1st Respondent's account no. 0001xxxxx at the Bank of America (Asia) Limited.

11. On 22 September 2000 by Consent Summons, Deputy Judge McMahon ordered that the 1st Respondent could use $165,866 per month for the period between 26 April 2000 and 1 August 2000, and thereafter the sum of $126,802.29 per month for living expenses. These expenses were to be drawn from his account no.0001xxxxx held at the Bank of America (Asia) Limited.

12. On 5 October 2000 by Consent Summons, Deputy Judge McMahon ordered that the 1st Respondent could use a further sum of $476,800 from his account at the Bank of America towards his living expenses for the period between 26 April 2000 and 1 August 2000.

13. Other orders were made from time to time by the Court of First Instance to correct clerical errors.

14. On 13 November 2000, the Respondents filed a summons seeking an order for the variation of Deputy Judge McMahon's Order of 5 October 2000. The Summons was supported by the 1st Respondent 5th affirmation, made on 8 November 2000. The Summons was fixed for hearing on 24 November 2000. The Secretary for Justice objected to the lack of information in support of the summons and the hearing was vacated by a consent order made by Jackson J on 23 November 2000.

15. Another Summons was taken out, returnable on 18 December 2000. However, the 1st Respondent was out of Hong Kong and could not make his affirmation. Consequently, by consent, on 13 December 2000 Jackson J made an order vacating the hearing on 18 December 2000 and the Summons was adjourned.

16. A new Summons, dated 20 December 2000, and a recent Summons, dated 3 March 2001, filed and served on 5 March 2001, and fixed for hearing on Thursday, 6 March 2001, asks for variations to and discharge of parts of the Restraint Order and discharge of the Charging Order by:

1. Varying the Restraint Order of 21 January 2000 and discharging the Charging Order in respect of the Vista Paradiso property and carpark space to permit their sale. Discharging the Restraint Order in respect of the Mercedes-Benz car (registration no. JAxxxx) to permit its sale. The 1st Respondent undertakes to provide an accounting of the sales and proceeds, which will be deposited in his account no. 031-xxxxxx-xxx at the HSBC.

2. Varying the Restraint Order to permit the 1st Respondent to withdraw $1,558,312 from the HSBC bank account for living expenses of $1,104,953 for the period between 26 April 2000 - 28 February 2001, and until further order in an undisclosed sum.

3. Varying the Restraint Order for legal expenses (present and future) in the amount of $ 870,624.

4. Varying the Restraint Order to permit the 1st Respondent to instruct Citic Ka Wah Bank to set off or combine his fixed deposit on account no. 727-4-xxxxx-x-xx-xx against the outstanding amount he owes to that bank in respect of his current account no. 727-2-xxxxx-x-xx.

5. Varying the Restraint Order to permit the 1st Respondent to instruct Hang Seng Bank to set off or combine his time deposits in account no. 289-xxx-xxx-xxx (0003) against the outstanding amount he owes to that bank for the sum in relation to his 'Bank Smart' account no. 289-xxx-xxx-xxx.

17. Filed in support of the Summons, dated 20 December 2000, is the 1st Respondent's 6th affirmation, dated 8 February 2001.

18. The recent Summons, dated 3 March 2001, and filed with the Court of First Instance on 5 March 2001, is supported by the affirmation of Mr. Kong Tak-yuen, the 1st Respondent's solicitor, dated 5 March 2001. They do not comply with Order 117, r.6 (2) of the Rules of the High Court, in that they were filed and served not less than 2 clear days before the hearing. The Secretary for Justice did not object to this Summons being heard on 6 March 2001.

The purpose of a Restraint & Charging Orders

19. The purpose of a Restraint Order and a Charging order is set out in s.19 (2) of the Ordinance, I paraphrase:

"(the)...making available for satisfying the confiscation order...that may be made in the defendant's case the value...of realizable property held by any person by the realization of such property."

20. The nature of Restraint and Charging Orders is akin to that of Mareva Orders, but with a very significant difference: in respect of a Restraint Order made under s.15 of the Ordinance the public has an interest in its efficacy, with a Mareva order only a private litigant has such an interest.

Variation of restraint and charging orders

21. Section 15(5) and (6) and Section 16(6) and (7) of the Ordinance provide that any person who is affected by such an Order may apply for a variation of its provisions in respect of any property that is affected by it. The Court of First Instance has a discretion whether or not to order their variation.

22. Order 117 r.5 (1) of the Rules of the High Court gives the Court of First Instance a discretion to allow a restraint order to be subject to conditions and exemptions, including the reasonable living and legal expenses of a defendant. And Order 117 r.6 (1) of the Rules provides that:

(a) Any person or body on whom a restraint order or charging order is served or who is notified of such an order may apply by summons to discharge or vary the order.

Objection

23. Mr Michael Blanchflower, who appears for the Secretary for Justice, argues that the Restraint Order should not be varied (or discharged in part), neither should the Charging Order be discharged, for these reasons.

1. The 1st Respondent has provided insufficient evidence to prove he has no other available property which can be used for his living and legal expenses

2. The 1st Respondent has provided insufficient evidence of the details of the proposed sale of the Vista Paradiso property and the Mercedes-Benz car, in order to ensure that the public's interest in the restrained property is protected

3. Some of the claimed living expenses are not reasonable

4. Some of the claimed legal expenses are not reasonable

5. The 1st Respondent has not shown a legal entitlement to set off or combine the bank accounts.

Available Property

24. In applications to vary provisions in Restraint Orders for legal or living expenses the respondent has the burden to satisfy the Court that he has no other assets from which to pay such expenses. This principle is well established and has been applied in the following cases.

25. In England, in A & Another v. C & Others (No. 2) [1981] 1 QB 961, a case involving an application to vary a Mareva Order to pay legal expenses, Robert Goff J said, at p.963 C-F:

"In the present case, I have had to consider the position where the defendant has or may have other assets from which the relevant payment may be made. I have still to apply the basic principle, i.e. that I can only permit a qualification to the injunction if the defendant satisfies the court that the money is required for a purpose underlying the Mareva jurisdiction. I do not consider that in normal circumstances a defendant can discharge that burden of proof simply by saying, "I owe somebody some money..." In my judgment, a defendant has to go further than that; precisely what he has to prove will depend, no doubt, upon the circumstances of the particular case. At all events, in the present case, if the defendants making the application have other assets, freely available...it would be open to counsel for the plaintiffs to submit, on the evidence, that it would be wrong for the court to vary the Mareva injunction. All I can say at present is that, on the evidence before the court the defendants have not discharged the burden of proof which rests upon them"

26. In Hong Kong, A v. C was applied by Power J in M. Corp & B. Inc & Another [1986] HKLR 657, which involved the application to vary a Mareva order for the payment of trade debts. Power J said, at p.660 H-I:

"What the Court is really concerned with are the assets of the defendant and it is for the defendant to place before the Court evidence of those assets. He must place the Court in a position where it can, to paraphrase the words of Robert Goff, J. in A v C, assess whether there are any other assets of the (defendant) were available to pay the (amounts owing) or, if they were so available, why the defendants were seeking to make use of the assets which were subject to the Mareva injunction for this purpose. I have not been placed in a position where I can make any such assessment because there has been no real statement as to the second defendant's assets."

27. A v. C and M Corp & B Inc were applied by Patrick Chan J in CHUN Yeung, HCMP 305/94 (unreported), which involved an application to vary a Restraint Order for legal expenses. Patrick Chan J said, at p.4 of the transcript:

"The burden is on the applicant for a variation to show that he has no other assets from which he can use to pay for those expenses."

28. Relying on these authorities, Mr Blanchflower suggested that, in summary, the court's approach to variation applications should be that:

29. Firstly, there should be no variation if a respondent's purpose in making the application is to avoid bringing unrestrained or unknown assets into the jurisdiction, or to avoid the authorities becoming aware of other assets which would then be subject to the restraint order; and

30. Secondly, that unless a respondent can prove he has no other property from which living or legal expenses can be met, no variation should be made.

31. Mr Blanchflower says that the 1st Respondent is unable to prove that he has no other property to meet his living and legal expenses.

32. In the 1st Respondent's 3rd affirmation of 8 July 2000, filed in compliance with the order to disclose his salary and assets, he deposed, at para.10:

"Apart from the items stated hereinabove, I have no other items of value to be disclosed pursuant to the Order. There is no monies owed to me by other persons or companies."

33. However, the evidence available to the Secretary for Justice leads to a different conclusion.

34. Million Profit Far East Limited, the company which the prosecution allege in the criminal trial was used as the vehicle to perpetrate the fraud, was incorporated in February 1998. A fund flow tracing of one of the 1st Respondent' accounts, Hang Seng Bank account no. 293-x-xxxxxx, shows that before May 1998 there was a low balance in the account. In the year between 2 June 1998 and 8 June 1999, a total of $26,101,670.30 was paid into the account. This is the subject of the s.25 of the Organized and Serious Crimes Ordinance charge that the 1st Respondent faces in the District Court. This money has not been accounted for. By 8 June 1999 the balance in the account had fallen to $519,256.75. These matters were deposed to in the 1st and 2nd affirmations of Senior Inspector Leung Chin-keung, dated 5 January 2000 and 11 January 2000, respectively.

35. In addition, evidence will be adduced in the District Court trial of a further fund flow analysis carried out by the Treasury Accountant relating to Million Profit's bank account and the 1st Respondent's 5 personal bank accounts (including two jointly held with the 2nd Respondent). This shows deposits into these accounts of over $97,000,000. After subtracting the $26,101,670 deposited into the Hang Seng Bank account no. 293-1-261560, which I have just referred to, this leaves, in round figures, about $71,000,000 deposited into and withdrawn from the 1st Respondent's other 4 bank accounts. The source and destination of these deposits and withdrawals are unknown. These matters were deposed to in Senior Inspector Leung Chin-keung's 3rd affirmation of 13 February 2001, at paras. 5 and 6. I am told that the Treasury Accountant's analysis was served upon the 1st Respondent in November 2000.

36. Further, in his 3rd affirmation the 1st Respondent claims, in para. 7, to have a 50% interest in a company called Fitto Development Ltd., and that at the time of making the affirmation there was a pending sale of land belonging to this company. A sale and purchase agreement was exhibited with the affirmation. No particulars have been provided about the sale of this land and the disposal of the proceeds received for it. All I was told at the hearing by Mr. Philip Dykes SC, the 1st Respondent's counsel, was that the sale had fallen through.

37. In relation to the Mercedes-Benz car, the solicitor, Mr. Kong Tak-yuen, in his affirmation of 5 March 2001, deposes that Hop Shing Motor & Trading Company of To Kwa Wan have offered to purchase it for $300,000. He further deposes that the loan which the 1st Respondent took out to purchase this car has already been paid off. However, in the 1st Respondent's 1st affirmation of 4 March 2000, he deposed that $14,250 per month was required to pay the installments on this loan and in his 3rd affirmation, that of 8 July 2000, he deposed that about $600,000 was still outstanding on the loan. At the rate of $14,250 per month over the intervening 6 months only $85,500 would have been paid off the loan, which begs the question: where did the balance of $515,000 come from? The only answer I received again came from Mr Dykes, who informed me that his instructions were that a friend of the 1st Respondent's had paid-off the loan for him.

Conclusion

38. Relying on the above matters I am drawn, inexorably, to the conclusion that the 1st Respondent has been less than frank in his affirmations made in these proceedings. That he is trying to pull the wool over the eyes of both the Secretary for Justice and this court, and that he has considerable unknown assets, kept where only he knows they are, which he can use to fund his living and legal expenses.

39. When Mr Blanchflower adverted to these matters in the course of his argument on Tuesday, Mr. Dykes objected, arguing that as the Secretary for Justice had not made application under O.117 r.(7) for a variation of the amounts for living and legal expenses allowed the 1st Respondent in the Restraint Order, she was debarred from raising them in opposition to an application by the 1st Respondent for a variation of those amounts. As he put it the Secretary for Justice should have been 'proactive rather than reactive.'

40. I do not agree. I have already stated what the purpose of a Restraint Order is. It has to be remembered that the 1st Respondent is presumed to be innocent of the offences charged against him until the prosecution, by evidence, has proved him guilty. He may be acquitted in the criminal trial in the District Court and no Compensation Order may ever be made against him. The power to restrain and charge his property is an exceptional one, done for a limited purpose and he is not to be treated as a judgment debtor.

41. So far as I can see, there is no requirement that the Secretary for Justice be proactive and conduct an exhaustive investigation into what property the 1st Respondent has and where it is situated. The Restraint and Charging Orders will operate against the property that the Secretary for Justice knows he owns. It is for him to be frank in disclosing what property he has, because doing so will lead to a fair and equitable provision for the release from that property, once restrained, of reasonable living and legal expenses. If he chooses to be disingenuous in making disclosure he runs the risk that no provision for living and legal expenses will be made, or, if made, will be at a very conservative rate.

42. I see no reason why the Secretary for Justice cannot take a reactive stance and use the information in her possession to counter either an original application for provision for expenses, or, as here, a subsequent application for the variation of such provision.

43. As I am satisfied that the 1st Respondent has access to assets, that he can use to fund his living and legal expenses, I do not propose to deal with the variations to the Restraint Order requested in the summons.

44. The two Respondents' application for the variation and discharge of parts of the Restraint Order and the discharge of the Charging Order is refused.