XCHRX SECRETARY FOR JUSTICE v. TAN LAM CHUAN AND OTHERS

HCMP 6503/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6503 OF 2000

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D E C I S I O N

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1. On 19 December 2000, the Applicant obtained a restraint order against the 5 Respondents in effect freezing all their assets pursuant to the provisions of the Organized and Serious Crimes Ordinance, Cap. 455. The "return day" for the order is scheduled to be on 9 January 2001. In relation to R5, the order expressly covers its bank accounts with the Shanghai Commercial Bank, the Hua Chiao Commercial Bank, the Hang Seng Bank and the HSBC respectively.

2. Paragraph 14 of the 19 December 2000 order allows the Respondents to apply to have it varied or discharged. R5 brings this application for variation pursuant to that paragraph of the order as well as RHC O.117 r.5(1). In short, R5's application (by way of the Amended Summons dated 2 January 2001) asks for sums to be released from the respective bank accounts to meet its obligations to pay (1) rents for its business premises (2) salaries for its employees (3) legal expenses and (4) management fees for its business premises.

3. The hearing of R5's application on Friday 29 December 2000 was adjourned to today so as to enable the Applicant to file and serve evidence in opposition. By today's hearing, both parties have filed and served evidence (or additional evidence, as the case may be) in relation to the present application.

4. At today's hearing, Mr Lee for the Applicant indicates that (subject to proper proof) he has no objection to a variation of the 19 December 2000 order to enable R5 to pay for its legal expenses or the salaries of its employees. However, he objects to any variation to enable R5 to pay the rents of its business premises. Although no express submissions have been put forward regarding the management fees, I assume (and approach the matter on the basis) that Mr Lee also objects to this item and the grounds of objection are the same as regards rents.

5. Mr Lee's objections can be summarized as follows:-

(1) R5's business is a sham and a means by which the Respondents practised fraud (the "illegality" argument);

(2) rents are not a type of "preferential debts" within the meaning of s.12(8), Cap. 455 (the "preferential debts" argument).

6. Mr Lee also argues that the expenses involved in this application are recurrent in nature and a variation allowing their payment would deplete and may even extinguish the sums restrained. Mr Lunn for R5 points out that this application only asks for a one-off payment (for the month of January, 2001) and is made for the purpose of dealing with the situation between the time of the ex parte order and the "return day" on 9 January 2001 only.

7. At one stage, Mr Lee also argued that there are "hidden" assets belonging to R5 but later he indicated that this point is irrelevant to my consideration of this application. In fact, I asked Mr Lee if he would make submissions as to whether any variation permitting payment out (if granted) should be limited to the so-called "hidden" assets and Mr Lee said in effect that he would not do so. I will therefore not consider this point further save to mention it as stated above.

8. In short, I do not agree with Mr Lee's grounds of objection. In relation to his "illegality" argument,

(a) his reasoning is that payment for rents should not be permitted because to do so would allow R5 to continue with the fraud. However, the same argument should apply to the payment of salaries to R5's employees. Mr Lee, as stated above, expressly accepts that the payment of salaries should be permitted. I find his stance to be inconsistent because no valid distinction can be made between the 2 payments sought by R5;

(b) more importantly, the "illegality" argument has to rest on the assumption that R5 is guilty of whatever criminal charge(s) may be brought against it later (there is as yet no charge laid against any of the 5 Respondents). As stated in the Court of Appeal judgment in The Commissioner of Customs and Excise v. Golden Science Technology Limited and others, CACV 104/1999, before a suspect has been convicted, the court has to approach the matter in accordance with the "due process of law......... [which] involves an even handed approach and proper proof of guilt". I would have to approach the matter bearing in mind at common law R5 is presumed to be innocent unless proven guilty.

For the above reasons, I do not accept Mr Lee's "illegality" argument.

9. As regards his "preferential debts" argument, Mr Lunn relies on O.117 r.5(1) which provides for an exception in relation to the "reasonable living expenses" of a respondent. In the case of a natural person, (as Mr Lee appears to accept) the rent payable for his residence is usually part of his "reasonable living expenses". I do not consider that any valid distinction can be made between that and the rent payable by a corporate respondent in connection with its business. Furthermore, the authorities relied upon by Mr Lee, such as In re Petes [1988] 1 QB 871 (at 879 E-F and 880 G-H), show that the court's jurisdiction in relation to restraint orders is closely analogous to that relating to Mareva injunctions. In the context of a restraint order, a balance ought to be struck between preserving the assets to satisfy any confiscation order which may be made after conviction (if any) and meeting the reasonable requirements of the suspect (or defendant) in the meantime. For these reasons, I also reject Mr Lee's "preferential debts" argument.

10. By reason of the matters aforesaid, I find it appropriate (subject to proper safeguards as regards the precise sums to be paid out) to make the variations sought in the present application.