HKSAR v. LEE SHING HUNG

HCMA903/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO.903 OF 2005

(ON APPEAL FROM ESCC 4500 OF 2004)

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J U D G M E N T

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1. The appellant was convicted after trial of nine charges of “procuring the making of an entry in the record of a bank by deception” [Charges 1 to 9] contrary to section 18D(1) of the Theft Ordinance (Cap. 210) and six charges of “theft” [Charges 10 to 15] contrary to section 9 of the same.  The appellant was sentenced to 150 hours of community service.  He now appeals against the convictions.

Background

2. This is a Home Financing Allowance-fraud allegedly committed by a structural engineer of the Buildings Department.

3. The charges covered 15 such payments dated 28 September, 28 November, 20 December 2001, 29 January, 28 August, 26 September, 29 October, 28 November and 21 December 2002 [Charges 1 to 9] as well as 28 February, 27 March, 2 May, 31 May, 29 June and 30 July 2002 [Charges 10 to 15].

4. Insofar as this appeal is concerned, it is not important why the charges were brought under two separate offences.

The prosecution's case

5. Much if not the whole of the prosecution's case was unchallenged.

6. A Home Financing Allowance (“HFA”) was first granted the appellant in 1993 for a mortgaged property in Fortress Hill.  Three years later, he applied and changed the HFA to another property in Quarry Bay.  This property he purchased with a government loan and a mortgage taken out from Hong Kong & Shanghai Bank (“HSBC”).  At all material times, his HFA was at a rate of $17,000 per month. 

7. The appellant stopped repaying HSBC for the mortgage in or about December 2001.  Even then, his last repayment was for the period up to 28 September only.  On 21 March 2002, HSBC repossessed the property.  The appellant continued, however, to receive his HFA until December 2002.

8. A month before that, the government had asked the appellant for recent records of mortgage repayment to no avail.  As a result, inquiries were made with HSBC leading to the revelation of all.  On three occasions in March 2003 the appellant was asked but failed to collect an official memo demanding for an explanation.  In April, the matter was reported to the police.

9. The crux of the allegation against the appellant is that, in contravention of the Civil Service Regulations (“CSR”), he had continued to receive his HFA without informing the government that he had ceased using it on his mortgage.

The defence case

10. Both the appellant and his wife gave evidence.

11. According to the appellant, he gave all his money to his wife who handled everything including the mortgage.  He had no idea that she had stopped making repayments for it in December 2001.  He did not even know about the bank's repossession because shortly before that, the family had moved to a rented property.  They moved because the ICAC had, back in December 2001, arrested the appellant for another case and it was unbearable for the family to continue to live in their Quarry Bay home where it took place.  Besides, they had been in debt since mid-2001 (either because of or in conjunction with the sale of two other properties in negative equitable) and there was harassment from the financial institutions.

12. Eventually, the appellant found out about his wife's failure to continue with the mortgage — either in December 2002 or the beginning of January 2003, when the government requested recent repayment records and he asked her for them.  He found out about the bank's repossession even later, from a registered letter from his own department, some time in March the same year.  He did not collect the official memo demanding for an explanation because by January 2002, he had already been charged by the ICAC so he was unhappy and treated other matters with secondary importance.

13. In a word, there was nothing to suggest to the appellant that he was no longer entitled to the HFA in the relevant period.  It was his intention to keep the Quarry Bay property.  Communication with his wife broke down because ever since his suspension from the office for the ICAC matter, he would go home very late and avoid talking to his wife.

14. In addition, he said only 50% of the HFA was required by the regulations to be spent on mortgage repayment.  He thought it meant 50% of what he had received in total (in which case he was in full compliance) and not 50% of what he received every month (in which case he was not, for the relevant period).

15. As regards the live-in requirement for the HFA, it is the appellant's evidence that he thought he had complied with it because every now and then, his wife would go back to sort things out.  It was, according to him, no different from when he went on a vacation.  He could move back to Quarry Bay any time during the tenancy of the rented property.  He was just trying to lessen the stress by living out in that other place.

16. Turning to the appellant's wife, she said she was the one who decided on how to use the household income.  It was her decision to repay the financial institutions as a priority.  Although they were a few instalments late with the mortgage, it was never her intention to give up their Quarry Bay home.  She was unaware of the repossession until the appellant found out from his office in March 2003, there being no letter from the bank.  She only stopped paying the property's management fees in November 2002 (eight months after the repossession) when the management company phoned up and said there was no need for further payment.  She never found out why.  She also claimed to be confused by her husband's problems with the ICAC.

The magistrate's findings

17. In the end, the magistrate accepted the prosecution evidence (which was almost unchallenged) and rejected the appellant's and his wife's (which she found unimpressive).

18. Quoting from her Statement of Findings :

“23. Clearly by the end of 2001, the Appellant and his family were in financial difficulties – the monthly mortgage instalments were in arrears.  He and his wife had had to sell their other two properties because they were unable to meet the payments and they were not able to find tenants for the properties.  The proceeds from the sale of the properties was insufficient to cover what was still outstanding to the bank, and there was a shortfall which the Appellant still had to pay to the bank.  The Appellant clearly was aware of the financial difficulties of the family.  It was the testimony of both the Defendant and his wife that he left all financial matters to his wife – clearly that was not so – he participated in the decision to sell the other two properties of the family – he knew that they were unable to meet the monthly payments for these properties and he knew after they were sold that there was a shortfall that they still had to pay to the bank.  He knew too of their indebtedness to financial institutions for their credit cards.  He said he knew approximately what the outgoings were and he thought that his income could just barely cover them – when asked if that meant he could meet the mortgage payment, he did not reply directly – he said that they would just cover the money here and there.  He said he did suspect that his income could not cover all his financial commitments, but he just hoped that the ICAC case that he was facing would conclude so that his wife's income from her business would resume.  When asked if he suspected that they could not meet the mortgage repayment, he said initially that he did so suspect, and then when he was asked again, he changed his answer.  His testimony as to why they moved out of the said property in the same month as the said property was repossessed by the bank I just did not believe – the family was in grave financial straits, yet they took up the additional financial burden of another tenancy because they were not happy living in the property – I did not believe him.  He was questioned about the requirement to reside in the said property – he did not think that by renting alternative premises, he was not complying with the live-in requirement.  His evidence in regard to this was inherently incredible.  He thought that his wife returning now and then to the property to check up on it would amount to complying with the live-in requirement.  Of course, his wife testified that she did not go back to the property save in the initial month.  His wife also testified that the Appellant was aware of the financial problems of the family.  I did not accept her evidence that it was she alone who decided what bills had to be paid and the priority of payments to be made each month.  Her testimony was that she paid their other debts first because of the higher interest rates, and because debt collectors were sent to their home.  She never discussed with the bank about her non-payment of the mortgage – she denied knowledge of the bank's intention to repossess.  Her evidence just did not ring true.

24. I was satisfied beyond all reasonable doubt that the Appellant was aware at all material times of the financial straits of his family and that his income could not meet all his outgoings each month.  He was well aware at all material times that the monthly mortgage payment for the said property was not being paid, and that the mortgage instalments from 28 September 2001 had not been paid.  He and his wife were both aware that the bank would repossess the property in March 2001, and that was why he and his family moved to alternative premises.

25. Defence Counsel had referred to the decision of His Honour Judge Line in HKSAR v Li Kwok Wah, DCCC789/2004.  In my view, this case is clearly distinguishable from the present case before me.  The charge faced there by the Defendant was one charge of fraud, which is different from the charge faced by the Defendant herein.  The defendant Li Kwok Wah, hereinafter referred to as Li, was a government servant and sought to buy a property using the HFA from the government.  He followed the usual procedures and obtained a down payment loan from the government as well as a monthly HFA.  He was in arrears in the payment of his monthly mortgage payments from the outset, and was able only to pay 4 instalments between the time the HFA was approved, namely August 2001, and 29 March 2003, when he wrote to the relevant department of his desire to withdraw from the scheme, when the bank he had obtained the mortgage from had told him of their intention to repossess.  In his verdict, HH Judge Line found that he could not be satisfied beyond all reasonable doubt that Li had acted deceitfully.  As HH Judge Line saw it, whilst having the hope of keeping the mortgage alive and keeping his home, Li might well have thought that he was entitled to receive his HFA under the scheme – when he was interviewed under caution, Li had said that he hoped to be able to settle the amount.  The situation of the Appellant herein differed substantially.  Firstly, the matter came to light not because the Appellant informed the relevant authorities but because of inquiries made from the bank when the defendant failed to produce the recent mortgage payment receipts when asked to produce them.  He never wrote that he wanted to withdraw from the scheme.  He failed to respond to memos from the Director of Accounting Services.  No mortgage payments were made after December 2001.  The property had been repossessed by the bank.  Yet the Appellant continued to receive the HFA.  Three records of interview under caution, Exhibits P2, P3 and P4, were produced by agreement.  These were mixed statements and before me for all purposes.  When interviewed under caution in Exhibit P3, in question 12 when he was asked if he knew the bank had repossessed the property because of non-payment of the mortgage instalment, his response was that he had nothing to say, not that he did not know, as he testified in court.  That was his response to most of the questions when he was interviewed under caution – that he did not remember or he did not have anything to say.  The Appellant had been using money that he received as his HFA for a purpose other than to repay his monthly mortgage payment. It had been used to pay other debts. Pursuant to the Civil Services Regulations, CSR 1630(c)(i), the accountable part, at least 50% of the monthly HFA had to be used towards the repayment of the monthly mortgage. CSR 1637(b) provides that in the event that an officer's entitlement to the allowance is decreased for whatever reason, he shall within 14 days report and refund any overpayment of the allowance to the Director of Accounting Services.  PW1 testified under re-examination that if the Appellant ceased mortgage repayments for his property, such cessation would have affected his entitlement to the HFA within the meaning of CSR 1637(b) and should have been reported.

26. Counsel argued as to the interpretation of CSR 1630 – that it did not specify whether the accountable part should be 50% of every monthly allowance or the total of all the allowance paid.  Clearly, if one looks at the regulations, it is that 50% of each month's HFA has to be used towards payment of the monthly mortgage instalment.  I found no merit in this argument.  The HFA was paid to the Appellant for payment of a mortgage, and it had to be used for such.  The Appellant had failed to use the HFA payment he had received, or at least 50% of it, to pay the monthly mortgage instalment as he was required to do and used it for other purposes.  I am satisfied beyond all reasonable doubt that he acted dishonestly in so doing.  He falsely represented that he was using the HFA he received to repay the mortgage loan for the said property when in fact he was not.  I am therefore satisfied that the prosecution has proven all the elements of the 9 charges of procuring entry in the record of a bank by deception beyond all reasonable doubt, and the Appellant is convicted as charged on those charges.  In respect of the 6 counts of theft, pursuant to the Admitted Facts, Exhibit P12, the Appellant admitted to having received the 6 cheques from the Director of Accounting Services, paid to him as his HFA, as set out in Exhibit P11, and he deposited these into his various bank accounts.  According to the test for dishonesty as set out in Ghosh, he was clearly dishonest when he appropriated these, as these were not used for mortgage repayment as they were supposed to be.  The property had already been repossessed by the bank by March 2002.  I am satisfied that the Prosecution has proven all the elements of these offences beyond all reasonable doubt and he is convicted of them.”

The present appeal

19. The appellant has advanced seven grounds.

20. Ground 1 :

“In rejecting the appellant's evidence and convicting the appellant, the magistrate erred in relying on the appellant's failure to advance his defence and his remaining silent prior to trial…”

21. The offending passage is said to be in paragraph 25 of the Statement of Findings (see above).

22. I find there is force in this complaint.

23. Admittedly, it was the defence who cited DCCC789/04, Li Kwok-wah.  They had wanted to show why someone hoping to keep a mortgage alive amid financial difficulties might honestly think he was still entitled to HFA, the thrust of the court's reasoning in that case being a man must be given time to straighten his affairs and not be regarded lightly as a fraud. 

24. Quite rightly, the magistrate took the view that every case turned on its own merits.  She pointed out that in DCCC789/04, it was Li who asked the HFA to be stopped and that under caution, Li had explained how he thought he was able to settle the arrears.  These are factors that could sway a court on the question of dishonesty.  The magistrate cannot be criticized for referring to them as distinguishing features for the Li case.

25. What the magistrate was not entitled to do, however, was to comment on the absence of these features in the present matter, in particular the appellant's failure to explain his action under caution, in a way that implied he was dishonest.  Whether that was the magistrate's true intention, anyone reading the following passage must be forgiven to think that the answer is affirmative :

“The situation of the appellant herein differed substantially.  Firstly, the matter came to light not because the appellant informed the relevant authorities … He never wrote that he wanted to withdraw from the scheme.  He failed to respond to memos … When interviewed under caution in Exhibit P3, in question 12 when he was asked if he knew the bank had repossessed the property because of non-payment of the mortgage instalment, his response was that he had nothing to say, not that his did not know, as he testified in court.  That was his response to most of the questions when he was interviewed under caution – that he did not remember or he did not have anything to say.”

26. Ground 2 :

“The magistrate failed to deal with the appellant's evidence of his genuine belief that the relevant CSR did not require him to use 50% of the monthly HFA to pay for the mortgage, provided that he had used 50% of the total HFA that he had received over the years to pay for the mortgage.”

27. I am afraid I find merit in this complaint as well.

28. It has not escaped my attention that the appellant's main defence was he had no knowledge of the true position of his mortgage. 

29. However, he did say, at the end of his examination-in-chief, that he believed he had complied with the CSR because more than 50% of his HFA must gone into the mortgage over the years.

30. Though almost as an aside (and in that way counsel was unhelpful) this is an alternative defence which the first one failing, the magistrate was duty-bound to deal with.

31. If that was not clear during evidence (there being no cross-examination on the point by the prosecutor) it certainly was made plain during counsel's final address.  Paragraph 3 of his written submissions reads as follows :

“3. The defence is as follows –

i) …

…

viii) …The defendant's evidence was that he thought the 50% meant 50% of the total amount of the financial assistance that he had received.  He said no one had told him otherwise.  There is simply no evidence to contradict his belief.  The defendant is entitled to the benefit of the doubt and be acquitted of all the charges even on this point above.  (Note:  this defence was not available to the defendant in DCCC789/2004 because the defendant had repaid for only 4 instalments out of 19…)”

32. As it is, the matter is untouched and unresolved.  The correct approach, in my judgment, would have been to re-open the matter once it became clear that that was an alternative defence.

33. Ground 3 :

“The magistrate erred in finding that CSR 1630 requires 50% of each monthly allowance to be used for paying mortgage instalments in that CSR 1630 does not specify whether the accountable part should be 50% of each monthly allowance or the total of the allowance paid.  It is submitted that in the absence of a clear definition, the recipient of the HFA is entitled to think that he need only use 50% of the total, instead of the monthly allowance to pay for the mortgage instalments.”

34. This ground is advanced as an adjunct to Ground 2.

35. Having concluded favourably on the merit of Ground 2, I do not see the need to deal with it at all.  I will however mention in passing that I do not agree with its contention.  Given the fact that the HFA is adjustable (the appellant himself had had a number of adjustments according to evidence) it is absurd to read the relevant CSR as permitting an accounting requirement based on the total instead of monthly payment.  It will also render CSR 1637(b) on reporting any decrease in entitlement, such as when there is “a decrease in repaying the mortgage loan”, whereupon the government is “entitled to recover any overpayment”, completely bizarre and meaningless.

36. Ground 4 :

“The magistrate erred in relying on the evidence of PW1 [a government officer who processed HFA applications] of his interpretation of the relevant CSR to make a finding against the appellant.”

37. The real complaint here is that having stopped counsel's cross-examination on PW1's interpretation, on the basis that construction was in the final analysis a matter for the court (p 344B-E, Appeal Bundle), the magistrate ended up placing reliance on PW1's evidence on the same issue (paragraph 25 of the Statement of Findings).

38. As can be seen, the only reference to PW1's evidence in paragraph 25 of the Statement of Findings appears in its last complete sentence :

“PW1 testified under re-examination that if the appellant ceased mortgage repayments for his property, such cessation would have affected his entitlement to the HFA within the meaning of CSR 1673(b) and should have been reported.”

39. Though short, this assertion of PW1 was of considerable importance because its correctness or otherwise would determine whether the appellant had to report the stopping of his mortgage repayment.

40. That said, when stopped, counsel had already had his first general inquiry on CSR 1673(b)  (p 339J-S, Appeal Bundle).  But that is not the end of the matter.  For, whether meritorious, one of the defences at trial was that DCCC789/2004 is correct law in that notwithstanding one's falling behind with his mortgage, there should really be no decrease in one's HFA entitlement hence there was no duty to make any report.  It follows that counsel might well have wanted to return for a further exploration had it not been for the magistrate's intervention.  As it were, counsel had to make his closing address on, amongst other things, CSR 1673(b) without that benefit, whilst the magistrate was, as it turned out, all the time relying on PW1's interpretation.

41. In the circumstances, I agree that there had been a material irregularity.

42. Ground 5 :

“The magistrate erred in accepting PW1's evidence of his interpretation of CSR 1637(b) in that as stated in the judgment in Li Kwok-wah (DCCC789/2004), the CSR are silent as to the timing of the mortgage repayments, and a man must be allowed some scope to sort out his financial difficulties.  The CSR do not say that delay in paying the instalments would disentitle the appellant of the financial assistance.”

43. I do not think there is anything to this ground.

44. DCCC789/2004 is a first instance decision.  It was based on the sympathetic view that the court had of Li, the defendant's claim of a genuine desire to save his mortgage.  It had much more to do with the question of dishonesty than with the proper construction of the CSR.  In fact, no definitive analysis of the regulations was provided in the judgment.

45. In any event, while it may be true that the CSR do not require the payment of one's mortgage on time, CSR 1637(b) does, in effect, require the report of any arrears, because arrears could only mean that there was an improper use of HFA, hence a breach of CSR 1630 which stipulates a minimum of 50% use on the mortgage, hence disentitlement and the duty to report.  That, in my judgment, is the correct position.  To tackle the problem of an officer like Li, assuming the government is satisfied that he had a genuine desire to save his mortgage, the answer lies in treating the matter as purely internal, with all options open.  If the government is not so satisfied then the officer may have to do his explaining in court, as Li did.

46. Ground 6 :

“The magistrate erred in finding that since the property had been repossessed by the bank, the appellant ceased to be entitled to the HFA (p 156G-H & pp 157S-158B of Appeal Bundle) in that before the sale of the property, even after the bank had repossessed the flat, the appellant was still himself liable for repayment of the mortgage instalments and therefore the appellant was still entitled to receive the financial assistance (paragraph 8 of the judgment in DCCC789/2004).

Furthermore, there was no evidence to show and the magistrate did not consider or make any finding of fact that the appellant knew that since the property had been repossessed by the bank, he was no longer entitled to receive the HFA.”

47. There is nothing to this ground either.

48. The point the magistrate made was simple.  There was repossession because the appellant had stopped paying.  His stop paying disentitled him from HFA – CSR 1630.  Whether he was still under any liability to the bank is irrelevant.  It was also not the appellant's defence that he knew about the repossession but thought he was still entitled to HFA.

49. Ground 7 :

“The magistrate erred in missing the crucial issue in this case ie whether it was a fraud from the outset and whether the appellant wanted to buy a flat and pay off the mortgage instalments if he could (paragraph 13 of the judgment in DCCC789/2004).

The appellant gave evidence that he had intended to pay the mortgage instalment and to keep the property (paragraph 16, Statement of Findings), and he was hoping that the ICAC case that he was facing would conclude so that his wife's income would resume (paragraph 23).

The appellant did not say that he would never pay off the outstanding mortgage instalments and the magistrate did not consider or make a finding of fact that the appellant did not intend to pay off the outstanding mortgage instalments later when his financial situation improved.  The magistrate convicted the appellant just because ‘The appellant had been using money that he received as his HFA for a purpose other than to repay his monthly mortgage payment.  It has been used to pay other debts' (paragraph 25, Statement of Findings), and ‘he was clearly dishonest when he appropriated these, as these were not used for mortgage repayment as they were supposed to be' (paragraph 26).

The magistrate convicted the appellant just because the appellant had temporarily suspended payments of the mortgage instalments because of financial difficulty.  It is submitted that the magistrate could not convict the appellant unless she found that the appellant had never intended to pay off the outstanding mortgage instalments even at a later stage, but there was no evidence to support such a finding and the learned magistrate did not make such a finding of fact.”

50. There is nothing to this ground.

51. It is implicit in the magistrate's conclusion that at a certain stage at least, the appellant had made up his mind not to continue with his mortgage but would carry on receiving his HFA.  There was ample evidence for her to draw that inference.

Judgment

52. Not all the grounds are made out.  For reasons I have already explained as regards Grounds 1, 2 and 4, however, I will allow this appeal.  The conviction is hereby quashed, and the sentence set aside.

Retrial

53. The evidence in this case is overwhelming, and its successful appeal purely technical.  The matter itself engages the very important question of whether the appellant should continue to enjoy the trust of the government and the public.  In the circumstances, notwithstanding counsel's submissions, which I have fully considered, I regard this case as one that should be remitted for re-trial.  I so order.