RE MR JONATHAN MICHAEL CAPLAN Q.C.

HCMP 1084/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1084 OF 2016

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J U D G M E N T

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Introduction

1. In DCCC 698/2015, Mr Martin Joseph Matthews is charged with one count of conspiracy to deal with property known or believed to represent proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap 455 (“OSCO”) and sections 159A and 159C of the Crimes Ordinance, Cap 200 (“the Charge”).  The trial is scheduled to commence on 19 September 2016 with 20 days reserved.

2. Mr Matthews is currently represented by Mr Peter Duncan, SC and Mr Derek Chan, both of whom have substantial experience in money laundering cases.  But he wishes to engage Mr Jonathan Caplan, QC, an eminent silk and specialist in money laundering cases, to lead his legal team at trial.  Mr Caplan is no stranger to this jurisdiction, having previously appeared in some of the major money laundering cases in Hong Kong.  Very recently, he appeared for the prosecution in HKSAR v Yeung Ka Sing, Carson, FACC 5 & 6/2015, in which the Court of Final handed down its judgment on 11 July 2016.

3. Mr Caplan therefore seeks admission as a barrister of the High Court of Hong Kong pursuant to section 27 of the Legal Practitioners Ordinance, Cap 159 for the purposes of advising, preparing and appearing on behalf of Mr Matthews at the trial of DCCC 698/2015, and rendering advice in conferences in Hong Kong.  His application is however opposed by both the Hong Kong Bar Association and the Secretary for Justice.

4. At the hearing before me, Mr Derek Chan appeared for Mr Caplan, Ms Po Wing Kay for the Hong Kong Bar Association and Mr Jonathan Kwan for the Secretary for Justice.

The prosecution case in DCCC 698/2015

5. The particulars of the Charge allege that between 8 August 2011 and 6 November 2013, Mr Matthews in Hong Kong conspired together with persons unknown, knowing or having reasonable grounds to believe that property, namely, a total sum of HKI$696,057,117.34, in whole or in part directly or indirectly represented any person’s proceeds of indictable offence, to deal with the said property.

6. In the Junior Counsel’s Certificate dated 29 March 2016 in support of the application, Mr Chan outlined the prosecution case against Mr Matthews as follows:

“(4)   At the material time Mr Matthews was the sole director of a Hong Kong company called Interush Ltd. Interush Ltd is the Hong Kong arm of a wider Interush Group of companies which operated a similar business model in USA, Taiwan, Hong Kong and Singapore (“Interush Group”).

(5)   At the material time the business of Interush Group (including Interush Ltd) included the development, marketing and support of several cloud based online applications.  The software applications included various web based communication and business tools.  These applications were combined into a “suite” call “IRIS suite” and were sold as a package.

(6)   In order to subscribed for and thereby use the IRIS suite, a user first needed to register as an affiliate, and a one-off joining fee of HK$390 had to be paid.  Thereafter an affiliate would need to pay a monthly fee of HK$800 per month for use of the IRIS Suite for that month.

(7)   Each member, after having subscribed to a set of IRIS Suite, would then be entitled to earn commission bonuses subject to a complex formula.  The broad idea of the formula is that old affiliates (1^st tier) are entitled to bonuses (calculated on a per month basis) upon continuing subscription by new affiliates (2^nd tier) recruited by the old affiliate members.  The “new” affiliate (2^nd tier) are also entitled to commission bonuses from further new affiliates (3^rd tier) recruited by them and who continuously subscribed to the IRIS Suite services.  The old 1^st tier affiliates would be entitled to bonuses arising from the continuing subscription of 2^nd & 3^rd tier affiliates and so on, up to a maximum of 7 tiers.  The maximum amount of bonuses that a single affiliate can earn per month is capped at HK$234,600.

(8)   In short, the commission bonuses amount to a multi-level marketing scheme whereby existing subscribers to the IRIS suite were encouraged by financial incentive to actively market the IRIS suite to others.  The Prosecution stated in its Summary of Facts that the amount particularized in the charge ($696,057,117.34) represents the total amount of subscription ($800 per month one IRIS suite) and joining fees (one-off $390) from around 49,000 members received by Interush Ltd over the charged period of slightly over two years.

(9)   The prosecution allege that the IRIS suite and Interush Ltd’s incentive based marketing scheme was actively promoted in the Mainland.  Multi-level marketing schemes are completely prohibited in the Mainland except where specific and limited licenses had been granted by the Central Government.  It is also alleged that those who joined from the Mainland were motivated by the opportunity for bonuses rather than the use of the IRIS suite.

(10)  The prosecution evidence also reveals that several former IRIS suite subscribers, when attempting to recruit others in the Mainland, were alleged to have made false representations about the scale and type of bonuses to which new affiliates may be entitled.  There will be a factual dispute at trial as to what was said and by whom, but it is not expected that these relatively minor factual disputes about representations made to some prospective members out of 49,000 odd members will have any substantial impact on the legality of the business as a whole.

(11)  To prove the illegality of the multi-level marketing scheme in the Mainland as a whole, the prosecution seeks to rely on the expert opinion of Professional GU Minkang of the Law Department of the City University of Hong Kong, who opined that the activities of Interush Ltd breached Mainland criminal law prohibiting multi-level marketing schemes.”

7. Mr Chan emphasized that it is not a case where the prosecution is unable to identify the underlying conduct that generated the proceeds in question – the prosecution evidence itself more than sufficiently established the underlying business activity, which took place in the Mainland.  This leads me to his principal argument in support of the application.

Mr Chan’s principal argument

8. Mr Chan submitted that the scope of the law in the Mainland relating to pyramid selling is wider in scope than the Hong Kong statue, namely, the Pyramid Schemes Prohibition Ordinance, Cap 617 (“PSPO”). Briefly, under the Mainland law, all multi-level marketing activities without the requisite licence are completely prohibited; whereas under the PSPO, legitimate multi-level marketing schemes involving genuine selling activities are not prohibited.

9. Mr Chan referred to the fact that Mr Matthews was first arrested on suspicion of contravention of the PSPO.  That allegation was however not pursued when the Charge was laid against Mr Matthews.  On 11 May 2015, Messrs Haldanes, solicitors acting for Mr Matthews, sought particularization of the Charge.  On 28 May 2015, the prosecution replied :

“…the underlying ‘indictable offence’ in the [Charge] involved illegal pyramid selling activities of Interush in the Mainland.”

10. Mr Chan further referred to the fact that at present, the prosecution has not alleged (other than at the initial arrest stage) that the business activities of Intersuh violated the law in Hong Kong relating to pyramid activities, that is, the PSPO, or would so violate had the relevant conduct occurred in Hong Kong.  He also referred to the pre-trial review on 14 March 2016 where the prosecution confirmed to the court that there were actual services provided by Interush to its members and the members genuinely received the product that they paid for.  Mr Chan submitted that this probably explained why the prosecution has consistently refrained from alleging that the activities of Interush contravened the PSPO in Hong Kong.

11. In the circumstances, Mr Chan submitted that the prosecution is deliberately attempting to use the wider Mainland prohibition against all multi-level marketing activities to form the basis of the Charge.  It gives rise to an important issue, viz :

“Can a person be guilty of dealing with proceeds of an indictable offence contrary to section 25(1) of OSCO on the basis that the underlying activity which generated the proceeds contravened foreign criminal law but not the corresponding Hong Kong provisions?”  (“the Issue”)

12. Mr Chan submitted that the Issue engages a different aspect of the money laundering offence that courts have touched upon but never analyzed in detail.  In this connection, he referred to section 25(4) of OSCO and three authorities, that is, Lok Kar Wing Kevin & Ors v HKSAR [1999] 4 HKC 796, HKSAR v Tam Hung, CACC 127/2010, unreported, 27 July 2011 and HKSAR v Chan Wai Ming, CACC 208/2012, unreported, 6 August 2013, which he said are inconsistent.

13. Mr Chan further submitted that the Issue also raises a significant constitution dimension because if the prosecution is correct, section 25(1) of OSCO could then be used to “import” Mainland criminal law into Hong Kong by capturing the “dealing with” of proceeds in Hong Kong of activities that the Mainland law characterizes as criminal.  The prosecution’s position, if upheld, would have profound consequences on whether Mainland criminal law can indirectly be “enforced” in Hong Kong through section 25(1) of OSCO in contravention of Articles 18 and 84 of the Basic Law.

Discussion

14. The ultimate test for admission of overseas counsel is that of public interest.  It is a multi-faceted question to be determined by the specific circumstances of the particular application before the court.  The principles guiding the court in applying the test are well settled : see the summary in Re Perry QC [2016] 2 HKLRD 647, per McWalters JA at [24].  I shall respectfully adopt his Lordship’s very useful and succinct summary without repetition here.  Applying the principles here, I am not persuaded by Mr Chan’s argument.

15. Assuming that the prosecution is going to prosecute the Charge in the way as outlined by Mr Chan, the Issue is to answered by section 25(4) of OSCO, which reads :

“In this section…, references to an indictable offence include a reference to conduct which would constitute an indictable offence if it had occurred in Hong Kong.”

16. As recently explained by the Court of Appeal in HKSAR v Yang Sigai [2015] 5 HKLRD 230 (of which I was a member), per Pang J (as Pang JA then was) at [74] :

“[Section 25(4) of OSCO] points out that what constitutes an ‘indictable offence’ is to be determined by reference to Hong Kong law. This is very easy to understand. Law enforcement in Hong Kong should not be subject to the standards adopted by foreign countries/territories in defining violation of the law; that is a matter of principle…”

For my part, that is a complete answer to the Issue.

17. Mr Chan’s reference to the three authorities which he described as inconsistent does not assist him.  Without going into the details of the cases, even assuming that they are inconsistent as contended, I think Mr Duncan leading Mr Chan will have no difficulty in providing valuable assistance to the trial judge in the District Court to resolve the inconsistencies meaningfully, especially in light of HKSAR v Yang Sigai.

18. Since our courts will apply Hong Kong law and Hong Kong law only when section 25(4) of the OSCO is engaged, as is the case for the Charge, the so called constitutional importance postulated by Mr Chan simply does not arise.

19. With Mr Chan’s principal argument dismantled, the circumstances of the present application point overwhelmingly to disallowing admission of overseas counsel, however eminent he might be.  They include the need to maintain a strong and independent local Bar; the need to further develop the expertise of the local Bar in this area of the law; the fact that very experienced local senior and junior counsel have already been engaged; the fact that the application is made in respect of a District Court trial; and the fact that it is always open to Mr Matthews to engage Mr Caplan on an advisory basis if he so wishes.  It is clearly not in the public interest to allow the application.

Dispositions

20. For the above reasons, I dismiss the application with costs.

21. Ms Po asked for indemnity costs on the basis that as the application is wholly lacking in merits it should never have been made.  No applicant could reasonably view the application as having a reasonable prospect of success, she submitted.  Having considered the matter in the round, I disagree with Ms Po.  I think a normal costs order would suffice.  I therefore order the applicant to pay the Hong Kong Bar Association and the Secretary for Justice their costs on a party and party basis if not agreed.