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DCCC 325/2014
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CRIMINAL CASE NO 325 OF 2014
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HKSAR |
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YU LIK WAI WILLIAM (D1) |
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CHEUNG ALBERT (D2) |
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| Date of Verdict: 30 June 2015 |
| Date of Reasons for Verdict: 30 June 2015 |
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REASONS FOR VERDICT
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1. Following an information received by the Independent Commission Against Corruption (ICAC) on 16 November 2012, an undercover operation was conducted with 3 ICAC officers deployed as undercover agents (UCs).
2. Mr Yu Lik Wai, William, the First Defendant (D1) was the Chairman and CEO of a hotel known as the Gloucester Hotel (the Hotel).
Through Mr Albert Cheung, the Second Defendant (D2), D1 was looking for a caterer to operate the restaurant of the Hotel. The allegation is that they solicited a payment of HK$1,080,000 which was subsequently reduced to HK$980,000 as a secret kickback to be paid by the selected caterer in return for the contract for the operation of the restaurant.
3. Ah Chi (UC1), Ray (UC2) and Tony (UC3) pretended to be middlemen and investor respectively. Arrangement was made for a person, known by a codename as X, to introduce Ah Chi to D2. X is not a witness in this case. Ray and Tony were later introduced to the defendants.
4. Altogether 8 meetings were conducted for the UCs to meet D1 and D2. At the last meeting on 16 April 2013, UCs passed an envelop containing HK$250,000 to D1. D1 and D2 were then arrested.
5. Five of the meetings were recorded by an audio recording device carried by the UCs secretly. The recordings were approved by Authorizations issued under the Interception of Communications and Surveillance Ordinance, Cap 589 (ICSO).
The Charges
6. D1 and D2 are facing the following charges:-
1st Charge (against D1 and D2)
Statement of Offence
Conspiracy for an agent to solicit an advantage, contrary to section 9(1)(a) of the Prevention of Bribery Ordinance, Cap 201 and section 159A of the Crimes Ordinance, Cap 200.
Particulars of Offence
Yu Lik Wai, William and Cheung Albert, between the 8th day of December 2012 and the 16th day of April 2013, in Hong Kong, conspired together for the said Yu Lik Wai, William, being an agent, namely an employee and director of Big Faith Management Limited and Million Success Management Limited to, without lawful authority or reasonable excuse, solicit an advantage, namely, gift, loan, fee, reward or commission consisting of approximately $980,000 Hong Kong currency, from three businessmen named Ah Chi, Ray and Tony (who were in fact undercover officers of the Independent Commission Against Corruption codenamed Ah Chi, Ray and Tony respectively) as an inducement to or reward for or otherwise on account of the said Yu Lik Wai, William doing or having done an act in relation to his principal’s affairs or business, namely, operating and managing a restaurant on the Ground Floor and First Floor of a building at No 217-218, Gloucester Road, Wan Chai, Hong Kong.
2nd Charge (against D1 and D2)
Statement of Offence
Dealing 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.
Particulars of Offence
Yu Lik Wai, William and Cheung Albert, on the 16th day of April 2013, knowing or having reasonable grounds to believe that $250,000 Hong Kong currency in whole or in part, directly or indirectly represented proceeds of an indictable offence, dealt with the said property.
3rd Charge (against D1 only)
Statement of Offence
Attempted fraud, contrary to section 16A of the Theft Ordinance, Cap 210 and sections 159G and 159J of the Crimes Ordinance, Cap 200.
Particulars of Offence
Yu Lik Wai, William, between the 17th day of December 2012 and the 16th day of April 2013, in Hong Kong, did by deceit, namely by falsely representing through himself or Cheung Albert, to two businessmen named Ray and Tony (who were in fact undercover officers of the Independent Commission Against Corruption codenamed Ray and Tony respectively), firstly, that Ray and Tony were required to pay the set up costs for a restaurant on the Ground Floor and First Floor of a building at No 217-218, Gloucester Road, Wan Chai, Hong Kong, and secondly, that a total of approximately $1,600,000 Hong Kong currency was genuinely required for the said set up costs, with intent to defraud, namely to cause prejudice or a substantial risk of prejudice to the said Ray and Tony, attempted to induce the said Ray and Tony to provide $1,600,000 Hong Kong currency to the said Yu Lik Wai, William, resulting in a substantial risk of prejudice to the said Ray and Tony.
7. At the trial, these issues have been discussed: -
(i) Prosecution’s duty of disclosure, in the context of ICSO;
(ii) Whether the evidence obtained during the communication between the defendants and UCs should be excluded on grounds of entrapment/unfairness/breach of constitutional rights?
(iii) Whether the co-conspirators rule applies?
(iv) Credibility of prosecution witnesses, in particular, the ICAC officers, Mr Chung Siu Pang and X;
(v) Whether D1 has lawful authority/reasonable excuse in relation to the 1st Charge?
(vi) Whether the conspiracy particularized in the 1st Charge can be inferred?
(vii) Whether receiving corruption money can amount to money laundering in the 2nd Charge?
(viii) Whether the alleged deceit in the 3rd Charge can be proved?
8. In due course at the trial, it became apparent that the crux of the case is whether D1 and D2 believed what they were doing was lawful.
Undisputed Background
9. Wideland International Limited (WIL) was the owner of a building situated at No 217-218 Gloucester Road, Wanchai (the Building) at the relevant time. PW1, Mr Lai Wing To (Lai) and his wife owned the company. Lai wanted to let the Building to people who would operate a hotel in the Building.
10. Around mid 2011, D1 learnt about it and co-operated with PW2, Mr Chung Siu Pang (Chung) for the operation of a hotel (the hotel project) in the Building. D1 was well experienced in the management of hotels. The co-operation in their verbal agreement was that D1 would provide his expertise in the management of the Hotel, while Chung would provide the funding of the hotel project. D1 did not provide any money. If the capital could be recouped in 3 years, each of D1 and Chung would get 15% of the hotel’s profit as their share.
11. To facilitate the operation of the hotel project, Chung set up 2 companies - Million Success Management Limited (MS) and Big Faith Management Limited (BF). Each of the 2 companies had 2 shares of $1 each owned by Chung and D1 respectively. They were both appointed as directors of the 2 companies. Chung was the company secretary.
12. On 12 April 2012, a lease (Exhibit P1)[1]of the Building (except a few floors) was signed by Lai (as director representing WIL) and D1 (as director representing BF) to commence on 1 April 2012 for 20 years (the Lease). Among the clauses in the Lease, Clause (r) provides:-
“Save and except to its subsidiary or affiliated companies and subject to production of sufficient documentary evidence not to assign, underlet, part with the possession of, or transfer the Premises or any part thereof or any interest therein,……”
13. MS was responsible for the operation and management of the Hotel. D1 was appointed as the Chairman and CEO of the Hotel receiving from MS a monthly payment of HK$50,000, which was later reduced to HK$30,000. Chung was mainly involved in the construction work of the Hotel by converting it from a commercial building to a hotel. He was responsible for all the funding of the hotel project. He has injected more than $40,000,000 into the account of MS for the expenditure of the hotel project. He was not the only person providing the fund. He had some investors behind him.
14. D2 was a friend of D1. D2 had no position in BF or MS. He was not known to Chung at all.
The Prosecution case
15. In a nutshell, the Prosecution case is that D1 was an employee and an agent of MS and BP. Without the knowledge and consent of his principal, he sought the assistance of D2 to find people to operate the restaurant of the Hotel. Through D2, he asked for a kick back of $1.08M (later reduced to $0.98M) to be paid by the UCs in return for the catering contract. He had no permission or authority to do so. (1st Charge)
16. At the last monitored meeting with D1 and D2, UC3 Tony provided D1 with $250,000 marked cash, which was part payment of the $0.98M. The money represented the proceeds of the conspiracy between D1 and D2 to solicit advantage. (2nd Charge)
17. During the meetings they also asked the UCs to pay $1.6M as the set up costs of the restaurant, which would include the renovation of the restaurant premises (located on the ground floor and first floor) and necessary licences for the operation of the restaurant. This was a false representation as Chung had told D1 that the restaurant had to be run by MS and the set-up costs would be borne by MS. (3rd Charge)
18. The Prosecution mainly relies on the evidence of the meetings between the UCs and the defendants. The 3rd, 4th, 5th, 7th and 8th meetings were recorded by an audio recording device secretly hidden by UCs.
19. X is not an officer of the ICAC. By agreement of all parties, his true name is concealed in the proceedings.
1st Meeting
20. In a restaurant on 8 December 2012, X introduced Ah Chi to D2. X left shortly after the introduction. D2 said to Ah Chi that his friend, D1, was looking for a caterer to run a restaurant in a hotel where D1 was the person in charge. The caterer needed to pay a licence fee of $1.08M which was rent for 4 years, out of which D1 could get $400,000. Ah Chi told D2 he had friend who would be interested in it.
2nd Meeting
21. The 2nd meeting was held in a restaurant on 10 December 2012. UC2 Ray, supposed to meet D2, did not turn up. Ah Chi told D2 Ray had a diarrhea.
3rd Meeting
22. A meeting was held on the afternoon of 17 December 2012 among D2, Ah Chi and Ray in a restaurant.
23. Ray introduced himself as a commercial agent knowing many investors. D2 said D1 was the person in charge of Gloucester Hotel, but he was not the boss. The boss was a person related to one Fung Shing who was in columbarium business. The hotel building was purchased by Lai (a well known property investor) who gave some advantages to D1 in the hotel project due to their previous co-operation. D1 needed not pay the rent for the restaurant. D1 would charge the selected caterer $1.08M which was calculated by reference to the market rent for 4 years. The $1.08M was an “under-the-table figure”. It would be taken by D1 personally and D2 would get a share from it. The sum would not be entered into the account book and would not be stated in the catering agreement. Only a nominal rent at $1 would be stated in the contract. The $1.08M could be accounted as the renovation fee.[2]
24. D2 also suggested to provide as a one-stop-service for the decoration work of the restaurant at the set-up costs of about $1.5M.
4th Meeting
25. In the meeting held on 19 December 2012, D2 said to Ah Chi and Ray that D1’s boss was Fung Shing. The $1.08M was to be dealt with privately and half of it had to be paid before signing of the catering contract as earnest money.
5th Meeting
26. D1, D2 and Ray attended this meeting on 16 January 2013. In the meeting, D1 said Ray needed to tell people outside that the restaurant was D1 and D2’s. He could sign a document privately as personal guarantee for Ray’s side. D1 said MS was the management company of the Hotel and he was a 50% shareholder and the Chairman of the company. The catering contract would be signed by MS. D2 said Ray’s side should give $400,000 first and then the catering contract would be prepared. When Ray referred to the $400,000 as “under-the-table money”, D1 immediately said “call it consultation fees”.[3]
27. When Ray asked how to pay the “under-the-table money”, D2 said he could enter it in the account of renovation by inflating the renovation fees.[4]
28. As regards the set-up costs, D1 said $1.6M or $1.7M would be sufficient for the renovation and operational fund.
6th Meeting
29. At a meeting held at a Café on 25 February 2013 between D2 and Ray, D2 showed a lease document relating to the Building (P35)[5]to Ray to prove that D1 had authority to sign the catering contract with Ray’s side. D2 told Ray D1 wanted to add a new term to the agreement, ie the Hotel had the right to push out the operator of the restaurant after operation for 1 year. In that event, D1 would make a compensation of $2.2M. Moreover, D1 was willing to reduce his share from $400,000 to $300,000, reducing the under-the-table money to $980,000 only. The set-up costs would remain as $1.6M.
7th Meeting
30. A meeting was held among D1, D2, Ray and UC3 (Tony) on 9 April 2013. Tony played the role of the investor. D2 gave the UCs a draft catering agreement “Food and Beverage Service Cooperation Agreement (Exhibit P39).[6] D2 said the $1M (referring to the $980,000) was actually the rent for 5 years, “something under-the-table”. D2 further said the $1M could be entered as the renovation costs by exaggerating the costs. When Tony said he could give part of the $1M to show his sincerity, D2 said Tony should give half of it first.[7]
31. As regards the renovation of the restaurant, D2 said they could let Tony’s side to do the renovation but it must be under the supervision of D1’s side.
8th Meeting
32. The last meeting was held at the coffee shop of City Garden Hotel. D1, D2, Ray and Tony attended the meeting. It was captured by CCTV of the hotel.
33. Tony said, in respect of the set up cost issue (ie whether the renovation work would be done by D1’s side or Tony’s side), he could only confirm in a couple of days. In respect of the $1M issue, Tony said he would give half of it first. He had actually withdrawn $500,000, but half of it was spent on other expenses. He had $250,000 with him. D2 teased him whether it was spent on Jockey Club, while D1 said “went to Macau”.
34. Tony passed an envelop containing $250,000 cash to D1 who received and placed it on the dining table. D2 said he needed not count it. When Tony asked how D1 would give a receipt for it, D1 said he had to discuss with D2 first.[8]
35. D2 suggested either to issue as renovation payment or a receipt to be issued in the name of company. D1 said he got to ask the boss. D2 then said it could be issued as “consultant fee” or “design fee” or anything. D1 added a remark that they could contact D2 as to how to issue the receipt.[9]
36. D1 and D2 were then arrested by ICAC officers on the spot and the bait money was seized from the dining table.
37. A summary of the conversation in the 5 monitored meetings is prepared by the Prosecution.[10]
38. In between the meetings, there were contacts by telephone, SMS and emails between D2 and the UCs (mainly with Ray)[11]. The SMS and emails are documented while the telephone conversations were not recorded.
39. In a telephone conversation on 2 January 2013, D2 told Ray not to mention the under-the-table money of $1.08M when he met D1. His explanation was that if D1 found out the amount of $1.08M but he could only get $400,000, D1 might ask for a bigger share.
40. There is also undisputed record of telephone calls, SMS and whatsapp records between D1 and D2 in the relevant period showing their contacts around the time of the 8 meetings.
PW1 Mr Lai Wing To
41. Around 2006, he came to know D1 when he bought a property from a company where D1 worked. One day he bumped into D1 in the street and he told D1 he wanted to let the building to be operated as a hotel.
42. Lai knew D1 had a vision to operate a high end hotel and he believed D1 was a suitable person to operate the hotel. He took into account of D1’s experience when he leased the building on terms which were quite favourable to the tenant.
43. Under the Lease, a structural alteration of the building could not be made without his consent. Lai did not know Chung was a business partner of D1 until the construction works to convert the commercial building into a hotel had started. Later when there were quality problems in the construction work of the Hotel, he had contacts with Chung and found him a difficult person.
PW2 Mr Chung Siu Pang
44. He had known D1 for more than 10 years. They had business together prior to the hotel project. He knew D1 was experienced in hotel business.
45. In late 2011, D1 asked him if he was interested in operating a hotel. Having discussed with his business partners, Chung agreed to co-operate with D1 to run the hotel project. The tentative agreement was that when the Hotel obtained its licences to operate, the shares they had in MS/BP would be released to the investors. If within 3 years the invested capital could be recouped, each of D1 and Chung would be given 15% of the profit of the hotel. D1 was given a monthly salary as CEO and Chairman of the Hotel of $50,000 which was later reduced to $30,000.
46. Chung was to provide funding of the Hotel project while D1 provided his expertise. Chung had final say in important matters. He had injected about $40,000,000 into the hotel project, out of which $2M was his own investment. The remaining was comprised of loan and investment of investors behind him.
47. Chung agreed that D1 mentioned he would find people to operate the restaurant. Chung said he could go ahead. However these people could only be staff to be employed by MS, as the Lease provided that the restaurant premises could not be sub-let.
48. Chung did not know D2. He did not know D2 was involved in finding investor to operate the restaurant. Nor did he know the negotiations between D1 and UCs.
49. Chung confirmed he would not allow D1 to collect advantage from contractor running the restaurant.
50. In cross-examination, when asked whether he would accept if D1 were able to find a suitable caterer to run and operate the restaurant with a “sensible arrangement”, he said he would consider it. Asked further whether he would object to a consultation fee being charged by D1 in such arrangement, Chung replied he could not decide himself as he was accountable to other investors. If they agreed, Chung would also agree.
51. The idea of bringing in outside caterer had been known to him. Chung’s response to D1 was he could go ahead to have negotiation if the caterers were famous.
52. He agreed that he fell out with D1 as a result of the delay in construction work and the conflict with Lai over the construction work.
PW 3 Miss Poon Shuk Yee Angel
53. She was the Administrative Officer of MS at the material time. She sent for D1 a “Barter Agreement”[12]to Carmen Shia and later received a draft “Licence Agreement”[13]from the lawyer of Carmen Shia by email dated 19 September 2012. Carmen Shia was an investor negotiating with D1 about the operation of the restaurant. She referred the document to Gabriel Kwok and D1. Later Kwok instructed that no part of Building could be sub-let and there was no need for her to follow up the agreement. She agreed D1 had asked her to send layout plan of the restaurant premises to one Albert Cheung who she had never seen.
PW4 Miss Chung Cheuk Yin
54. She was requested for cross-examination by the Defence. She is daughter of Chung. At the request of her father, for a short period of time, she acted as a director of MS and BF. She knew nothing about the business of the companies.
PW5 Gabriel Kwok
55. He was the Senior Project Manager of MS. His responsibilities included the selection of contractor for the construction work, keeping and preparation of cheques for signatures of Chung and D1. He also approved the Monthly Operation Costs of MS[14]prepared by Angel Poon. He denied the defence suggestion that it was prepared deliberately to prove D1 was only a salaried employee of MS. He said he prepared it for perusal of Mr Li. His understanding was that Mr Li was the boss of MS and BF, a major investor in the hotel project.
56. When Angel Poon informed him of the draft Licence Agreement, he reported to Chung who instructed that the agreement could not be approved.
D1’s case
57. Mr Harris SC, counsel for D1, puts D1’s case very succinctly in his submission: D1 was doing no more than what he thought he was entitled to do. He was setting in place a restaurant in the Hotel through a reasonable, sensible and lawful means.
58. It is an admitted fact that D1 has a clear record. I give myself the good character direction.
59. In giving his evidence, D1 broke into tears several times saying that Chung had “stolen” everything from him.
60. He told the court his experience in hotel and food and beverage business. He had known Lai for 10 years. He developed friendship with Lai who frequently came to him for advice. In 2011, when he bumped into Lai on the street, Lai asked him whether he was interested in the investment in the project to manage the entire hotel all by himself with full authority. As D1 was not in a financial position to do so, he decided to cooperate with Chung.
61. Before the signing of the Lease, he made it clear to Chung that the ground floor and first floor of the building would not be included in the revenue of the Hotel. Chung begged him to have that included in the revenue of the Hotel. D1 agreed to it. Chung gave him an undertaking “You would go first.” His understanding was that he could deal with the restaurant premises in his way so long as it was to the benefit of the hotel.
62. His plan at that time was to set up and operate a restaurant on these 2 floors and find some famous people to do it together with him. His role would be a “chief general supervisor” doing everything.
63. He had discussed with Lai and Chung about his plan to find an outside caterer to operate the restaurant. At the beginning they were very happy. However, after signing the Lease, whenever he discussed his restaurant plan with Chung, all Chung said was he had to take care of the interests of the investors behind him. But Chung still promised that D1 would be given priority to do it.
64. Their relationship deteriorated when there were delay in construction work, Chung’s conflicts with Lai, and over budget of the construction work.
65. D1 approached some famous people to operate the restaurant, such as Carman Shia. He said the issue of conflict of interest did occur to him. However he believed that if he managed to find a solution that was favourable to all parties, he did not think there would be any reasons Lai and Chung would object.
66. D1 agreed he asked D2 to look for investors to operate the restaurant. He said the investor had to give a global sum of $2.2M. He gave that figure taking into account the operation cost of $1.6M or $1.7M, and a sum of $500,000 to $600,000 as “consultation fee”.
67. D1 said he was entitled to the consultation fee for his work done for the design, recruitment, quality control of renovation works, and management of the entire operation of the restaurant. The caterer also needed to provide 1200 to 1500 sets of breakfast to the hotel guests. D1 would make a compensation of $2.2M to the investor when the investor is required to leave the restaurant in 1 or 2 years.
68. He had repeatedly instructed D2 to do it in a “sensible, reasonable and legal” manner. He told D2 at the end an agreement would be signed with the investor at a lawyer’s firm.
69. D1 knew X but they had no business dealings at all. He had not tricked X before. He was not told and unaware of the involvement of X in this case.
70. D1 said, “under-the-table money” to him means something illegal. He had told D2 not to accept any illegal payment.
71. D2 did report back to him about the progress of the negotiations but D2 never told him the investors used the term “under-the-table money”. He was quite surprised in the meeting in January 2013 when he first heard of this term being used by Ray and D2. He therefore immediately spelt out that the money was not “under-the-table money”, but a “consultation fee”.
72. D1 did not inform Chung of the negotiations with Ray and Tony. D1 explained according to his 30 years’ experience, more often than not “people just talk but they don’t do the work”. He believed if he could pull this deal off, Chung definitely would not object to it.
73. At the last meeting on 16 April 2013, he expected that he would receive some earnest money from the investor. What he intended to do was:- (1) to give a receipt for it; (2) to find a lawyer to draft an agreement; (3) then to have meeting with Lai and Chung for approval. He had no intention to hide the money he received. He believed Chung would agree with his proposal. He further explained if he received cash, he could be more persuasive when he talked to Lai and Chung.
74. D1 did not agree that D2 had carried out his instructions dutifully. He agreed that the restaurant would be operated by a licence agreement. However he did not ask for a rental for $1.2M or that $400,000 out of it would be pocketed by him. He only mentioned to D2 that a global sum of $2.2M had to be given by investor. He did not instruct D2 to collect the money as a lump sum. He did not give instruction that the rent would be stated as $1 in the catering agreement.
D2’s case
75. D2’s case is that he only acted according to instructions of D1. He knew nothing about Chung and his interest in the Hotel. He believed D1 was the person in charge having the final say in everything in the hotel project. D1 had the authority to grant a licence agreement for the investor to operate the restaurant. He also had the authority to receive $1.08M from investors as consideration for their using the premises to operate a restaurant.
76. Put simply, D2 believed what he was doing was lawful.
77. In giving his evidence, he disclosed some traffic conviction records. For the purpose of considering his credibility and propensity, I treat him as a person of good character.
78. In his evidence on the general issue and the special issue, which was adopted generally, D2 said he came to know D1 in 2002. In about April 2012, D1 told him he had a project about the operation of a hotel. He wanted to find someone to operate the restaurant of the Hotel.
79. D1 said he was the boss of the hotel project having the final say in everything. The premises for the restaurant could be let to the investor by a licence agreement at a licence fee of $1.2M for 4 years. D1 would keep the money for himself privately, as it was a favour given to him by Lai (the owner of the hotel building) for D1’s previous contribution to Lai. D2 believed it was lawful as the company belonged to D1.
80. D2 could earn a commission from the successful introduction of investor. However the calculation method of his share was not yet agreed upon.
81. X had been a friend of D2 for more than 20 years. After X learned of the restaurant plan, X introduced D2 to Ah Chi. X said the licence fee was in effect a rent for 4 years to be collected in one single payment and should more properly be called “rent”. In a telephone conversation in November 2012, X suggested to reduce the licence fee to $1.08M and to give a share of $400,000 to D1 out of the licence fee. D2 agreed.
82. At the 1st meeting on 8 December (an unrecorded meeting), Ah Chi suggested to call the licence fee “under-the-table money” as such a term was easier to remember. He suggested to pay the $1.08M by cash. He would add up another sum upon it when he promoted the restaurant plan to investors. D2 agreed to the suggestion.
83. To D2, the term “under-the-table money” is not problematic. It only refers to the favour given by Lai to D1. It is something one would not like a lot of people to know. It did not occur to him that it was related to something illegal. He was told by D1 that the final agreement would be prepared by a lawyer.
84. In further negotiations, D2 used the same terminology in order to please people of Ah Chi’s side. X also advised D2 to comply with them to use whatever terms they used.
85. On 24 December 2012, X met D2. X said again that $400,000 should be given to D1. X, Ah Chi and Ray would get $140,000 each, while D2 would get $260,000. D2 agreed.
86. At a telephone conversation on 2 January 2013, Ray told him not to tell D1 about the distribution of the licence fee as D1 might ask for a bigger share. D2 agreed.
87. D2 said he only realized D1 was a 50% shareholder of MS which ran the hotel in the meeting on 16 January 2013.
88. D2 referred to his emails with Angel Poon about the restaurant to prove that his looking for investors for D1 was not a secret.
89. D2 said D1 gave him instruction about the $1.2M licence fee for 4 years and $1.6M as set up cost. He had not heard of the figure of $2.2M from D1. He was not aware of the existence of Chung until Chung came to the court to give evidence. It was instruction of D1 that the licence fee had to be collected as a lump sum which would be shared by them.
Disclosure application
90. Before the opening of the Prosecution case, Miss Lee, counsel for D2, made an application to the court for an order to direct the Prosecution to disclose information which related to the Authorizations authorizing the secret recording of the 5 monitored meetings.
91. There was no application from D1. However Mr Harris SC said he supported D2’s application.
92. In this part of judgment concerning the disclosure issue, all sections of Ordinance, unless stated otherwise, refer to ICSO.
93. It might be helpful to give a very brief outline of the ICSO first. The Ordinance was enacted to regulate the interception of certain communications and surveillance by law enforcement agencies of Hong Kong. Authorizations must be obtained for interception and covert surveillance. There are two kinds of warrants, depending on the nature of the surveillance. Executive Authorization (Type 2 surveillance) can be obtained from a senior officer of law enforcement agency, whereas Judge’s Authorization (Type 1 surveillance) must be authorised by a Judge.
94. The Prosecution served on the Defence as unused material three Statements in Writing and two Affirmations (the Supporting Documents)[15], which were documents in support of the applications for 3 Executive Authorizations and 2 Judge’s Authorizations under ICSO for the approval of the secret audio recording of the 5 monitored meetings. The reasons why only 5 meetings were recorded are not relevant at this stage and will be explained later. Certain parts of the Supporting Documents served on the Defence were blackened. D2 requested for the disclosure of the redacted material (the protected information) in the 5 Supporting Documents.
95. The Prosecution sought to withhold it on ground that S 61 is applicable. S 61 relates to admissibility and disclosure of information obtained by telecommunication interception. Telephone tapping is one kind of telecommunication interception. Covert surveillance by audio recording device of the conversations in the 5 monitored meetings is not telecommunication interception. Mr Yuen, counsel for the Prosecution, confirmed that the requested protected information went beyond mere covert surveillance.
96. S 61 provides:-
“(1) Any telecommunications interception product shall not be admissible in evidence in any proceedings before any court other than to prove that a relevant offence has been committed.
(2) Any telecommunications interception product, and any particulars as to a telecommunications interception carried out pursuant to a relevant prescribed authorization, shall not be made available to any party to any proceedings before any court (other than any such proceedings instituted for a relevant offence).
(3) In any proceedings before any court (other than any such proceedings instituted for a relevant offence), any evidence or question which tends to suggest any of the following matters shall not be adduced or asked—
(a) that an application has been made for the issue or renewal of a relevant prescribed authorization, or the issue of a relevant device retrieval warrant, under this Ordinance;
(b) that a relevant prescribed authorization has been issued or renewed, or a relevant device retrieval warrant has been issued, under this Ordinance;
(c) that any requirement has been imposed on any person to provide assistance for the execution of a relevant prescribed authorization or a relevant device retrieval warrant;
(d) that any information has been obtained pursuant to a relevant prescribed authorization.
(4) Notwithstanding subsection (2) or any other provision of this Ordinance, where, for the purposes of any criminal proceedings (whether being criminal proceedings instituted for an offence or any related proceedings), any information obtained pursuant to a relevant prescribed authorization and continuing to be available to the department concerned might reasonably be considered capable of undermining the case for the prosecution against the defence or of assisting the case for the defence—
(a) the department shall disclose the information to the prosecution; and
(b) the prosecution shall then disclose the information to the judge in an ex parte hearing that is held in private.
(5) The judge may, further to the disclosure to him of the information under subsection (4)(b), make such orders as he thinks fit for the purpose of securing the fairness of the proceedings.
(6) Where any order is made under subsection (5) in any criminal proceedings, the prosecution shall disclose to the judge for any related proceedings the terms of the order and the information concerned in an ex parte hearing that is held in private.
(7) Notwithstanding subsection (5), no order made under that subsection authorizes or requires anything to be done in contravention of subsections (1), (2) and (3).
(8) In this section—
"judge" (法官), in relation to any proceedings, means the judge or magistrate before whom those proceedings are or are to be heard, or any other judge or magistrate having jurisdiction to deal with the matter concerned;
"party" (一方), in relation to any criminal proceedings, includes the prosecution;
"related proceedings" (有關法律程序), in relation to any criminal proceedings, means any further proceedings (including appeal proceedings) arising from, or any proceedings preliminary or incidental to, those proceedings;
"relevant device retrieval warrant" (有關器材取出手令) means a device retrieval warrant for the retrieval of any of the devices authorized to be used under a relevant prescribed authorization;
"relevant offence" (有關罪行) means any offence constituted by the disclosure of any telecommunications interception product or of any information relating to the obtaining of any telecommunications interception product (whether or not there are other constituent elements of the offence);
"relevant prescribed authorization" (有關訂明授權) means a prescribed authorization for a telecommunications interception;
"telecommunications interception product" (電訊截取成果) means any interception product to the extent that it is—
(a) any contents of a communication that have been obtained pursuant to a relevant prescribed authorization; or
(b) a copy of such contents.”
97. Mr Yuen confirmed that S 61 was applicable in the present case. The requested protected information is therefore not disclosable to the defendants by virtue of S 61(2).
98. Appreciating the concern of Miss Lee, Mr Yuen applied for an ex-parte hearing as a “practical way out” under S 61(4) for the protected information to be disclosed to the court.
99. Under S 61(4), if there is evidence in the possession of the Prosecution covered by S61which is relevant to the case, the Prosecution is obliged to disclose the material to the court in an ex parte hearing, so that orders can be made by the court to ensure a fair trial. It is a safeguard procedure to ensure that a defendant can receive a fair trial.
100. Miss Lee opposed to the ex-parte hearing.
101. I granted the application for ex-parte hearing under S 61(4). I indicated I would give reasons in due course. However as a result of the subsequent withdrawal of this application by the Prosecution, I do not think it is necessary or appropriate to discuss on the argument in any detail. Suffice it to say that it was granted on the assumption that concession had been made by Mr Yuen of the conditions for the procedure being satisfied. It now appears that the concession to adopt the procedure was wrongly made and the Prosecution’s position was rectified at the ex parte hearing.
102. When the ex-parte hearing just began, the Prosecution immediately withdrew the application and abandoned the ex-parte hearing, putting their position clear that the “relevance criteria” under S 61(4) was not met.
103. Following the Prosecution’s withdrawal of the ex-parte hearing, Miss Lee continued with her application for disclosure. She asked the court to view the protected material, so that the court could rule whether the protected information was relevant to an issue of the case.
104. Mr Yuen objected to such a hearing on ground that the Prosecution is not obliged to disclose information covered by S 61 to the court. I therefore also raised a preliminary issue for argument: whether the Prosecution’s discretion not to disclose is reviewable by the court?
Whether the Prosecution’s discretion not to disclose is reviewable?
105. Miss Lee submitted that the final determination on disclosure is for the court. Mr Yuen put it as a battle between the common law principles of disclosure and the statutory provisions prohibiting disclosure. He argued that S61, unless it is repealed, prevails.
Discussion
106. The Prosecution is under a duty to disclose to a defendant all information in its possession which is relevant to the case, in the interest of fair trial. The scope of duty imposed on the Prosecution to disclose is outlined in HKSAR v Lee Ming Tee[16]as follows :-
“The prosecution’s duty is to disclose to the defence relevant material (including information) which may undermine its case or advance the defence case. The duty is not limited to the disclosure of admissible evidence. Information not itself admissible may lead by a train of inquiry to evidence which is admissible….And material which is not admissible may be relevant and useful for cross-examination of a prosecution witness on credit.”
107. However, in some cases, it might be necessary to withhold certain information so as to preserve the right of other individuals such as an informer, or to safeguard an important public interest, such as national secret and investigation tactics of law enforcement agency so that the investigatory capability can be protected. Telecommunication interception is one such valuable investigation tactic against serious crime.
108. Miss Lee does not take issue as to the constitutionality of any part of S61. She seems to accept the ruling of Wright J in HKSAR v Ying Jim Ming, Jimmy[17]. In that case, Wright J discussed on the constitutionality of S 61(3)(d) and 61(4). At paragraph 47 of his judgment, he had this to say:-
“I am satisfied that, insofar as those provisions constitute a derogation from the right to full disclosure, they are rational and proportional and do not conflict with the Basic Law or Article 10 of Hong Kong Bill of Rights…”
109. I do not need to rule whether S 61 is inconsistent with the Basic Law and the Bill of Rights Ordinance. If the common law principles of disclosure are in conflict with S 61, the latter would prevail unless it is repealed.
110. But does it follow that the Prosecution’s discretion not to disclose is unreviewable by the court?
111. At common law, when a dispute as to disclosable material arises, it is for the court, not prosecuting counsel, to decide the question and to rule on the grounds relied upon to justify the withholding of disclosure of relevant material. The discretion of prosecuting counsel is reviewable by the trial judge, subject to the restriction under the common law principles such as privilege and public interest immunity and statutory restrictions.
112. In my judgment, the Prosecution’s discretion not to disclose in this case is reviewable by the court, insofar as the court’s order does not infringe the provisions in S61.
Order for disclosure to defendants?
113. The Prosecution relies on S 61(2) which in effect provides that, telecommunication interception product (TIP) and related information shall not be made available to any party to any proceedings before any court. Even in a procedure under S 61(4) where the Prosecution discloses the information to the judge, S 61(7) provides that the judge cannot make orders which would request anything to be done in contravention of S 61(1), (2) & (3). On literal interpretation of S 61(7), it is clear that any orders made by the court cannot include an order for disclosure of the information to the defendants.
114. I will first quickly dispose of Miss Lee’s argument that S 61 is not applicable in the present case as the defendants are facing proceedings for a “relevant offence”, which is an exception to the application of S 61(1) – (3).
115. S 61(8) defines “relevant offence” as “any offences constituted by the disclosure of any telecommunications interception product or of any information relating to the obtaining of any telecommunications interception product….”.(emphasis added)
116. In my judgment, Miss Lee’s contention was misconceived. She misunderstood the definition of “relevant offence”. A relevant offence is an offence constituted by the unauthorized disclosure of protected information, not a substantive crime committed other than by disclosure of such information. Miss Lee argued that such interpretation is not consistent with the structure of the Ordinance which does not provide for a penalty section in the whole of the Ordinance. It must however be noted that while ICSO does not provide for a penalty section for unauthorized disclosure under ICSO, such unauthorized disclosure offences may be found in other ordinances. When an offence is prosecuted for such unauthorized disclosure, S 61(1)-(3) will be inapplicable.
117. I reject this argument.
118. Prosecution contended that by virtue of S 61(2), TIP related information shall not be disclosed to any party, which includes the accused, whether or not the protected information is relevant or irrelevant, the same applies to S 61(4) procedure.
119. While not a party in the application, Mr Harris SC made the observation that this interpretation did not make sense. He submitted that if the court were persuaded that there was relevant material which might impact on the fairness of the trial, it would be inconceivable that a court could not have the power to order disclosure to the defendants. He posed the rhetorical question: what other orders can the court make?
120. S 61 is indeed a piece of draconian legislation. As constitutionality of the section is not challenged, I shall not go into any depth of the constitutional controversy of this section of the Ordinance. Suffice it for me to say that I do not see any basis to suggest that the section should be regarded as repealed being inconsistent with the Basic Law and the Bill of Rights Ordinance.
121. The wording of S 61(2) is clear and unambiguous that the court cannot make orders to direct the Prosecution to disclose information covered by S61 to the defendants. Then what is the answer to the rhetorical question posed by Mr Harris SC?
122. Reference can be made to S17 and S18 of the Regulation of Investigatory Powers Act 2000 of the UK, which bear strong similarity to S61. In my view, the orders that can be made by the courts might include directing the prosecution to make such admission of facts as the judge thinks essential in the interest of justice.
123. Orders might also be made to prevent the Prosecution from producing certain evidence or directing the Prosecution to drop some charges.
124. It seems to me that in very exceptional cases where a fair trial cannot be ensured, the interest of justice might require an order for stay of proceedings for some or all of the charges.
Disclosable to the court?
125. Objecting to the inspection of the protected information by the court, Prosecution seeks to argue that the word “party” in S 61(2) includes a judge or the court. The Prosecution has cited no authorities to support this interpretation.
126. In my view, it is unarguable that “party” in the context of S 61 would include the judge in the proceedings. The plain meaning of the word cannot include the adjudicator in the proceedings. Such an interpretation is contrary to the ordinary meaning of the word and fair administration of justice.
127. In my judgment, if a judge has no jurisdiction to inspect document for relevance, an accused’s right to a fair trial might be unreasonably and disproportionately infringed. I therefore find that S61(2) does not prohibit an order of disclosure by the judge of the protected information to himself.
128. In conclusion, I rule that the Prosecution’s discretion not to disclose is reviewable by the court.
Disclosure or inspection of the protected information?
129. Disclosure should only be sought on the basis that the material is relevant, or possibly relevant, to an issue in the trial. It must not be asked for on the basis of a fishing expedition. When protection of the information is claimed, the court should not readily order the Prosecution to disclose it to the court without a sufficient basis.
130. I asked Mr Yuen to confirm whether the protected information, in his assessment, was relevant to issues in this case. Mr Yuen at a stage suggested that the relevance test in Lee Ming Tee case in common law is wider than the relevance criteria under S 61(4). It was at a later stage, acknowledging the similarity in the wordings of S 61(4) and the test explained in Lee Ming Tee, that he accepted that it might be the case that the standard is the same. The Defence did not argue otherwise.
131. However, in any event, Mr Yuen confirmed that the protected information was irrelevant to any issue in the case as far as he knew the case of the Prosecution and the Defence, both under the criteria under S61(4) or under the common law, if it is a wider test.
132. Insofar as the requirement of the relevance criteria under S61(4) is concerned, it appears to me that it is not reasonably arguable that the legislature intended a different standard as required under the common law explained in Lee Ming Tee. S 61(4) uses strikingly similar wording as in Lee Ming Tee case. I do not think the Basic Law and the Bill of Rights take the duty of disclosure further than it is taken by the common law.
133. However I do not regard it as necessary to make a finding because in any case, Mr Yuen has confirmed that even if the tests are different, the Prosecution’s position is that the protected information has no relevance to the issues in the case.
134. I have no reason to doubt the Prosecution’s assessment on the relevance of the protected information to the Prosecution case.
135. Insofar as the relevance to the defence case is concerned, Mr Harris SC made the observation that the integrity of the investigation insofar as telephone tapping is concerned, and the integrity of the undercover surveillance are issues at trial.
136. Miss Lee, at paragraph 39 of her written submission, stated her position: “without the benefit of knowing the contents of the covered paragraphs, the defence cannot possibly determine their relevance.” In court, I asked her whether she would disclose the defence case on a voluntary basis for the Prosecution to assess the relevance. She refused.
137. She said she needed the protected information before she could decide whether issue on the admissibility of the taped conversation in the monitored meetings should be taken. She contended at paragraph 15 of her written submission that “most of the covered paragraphs purportedly contain information that supported the applications of respective executive authorizations and later, directly or indirectly, led to the offences presently charged. It follows that it is highly probable that they contain relevant if not significant information…”
138. The party which seeks the disclosure must identify the precise relevance to his case of the material. He should show that there are grounds for the belief of the relevance of the information.
139. In R v Hennessey (1979)[19], the trial judge had not allowed the appellant to ask prosecution witnesses whether or not the appellant’s telephones had been tapped. They claimed on appeal that the answers to these questions might have afforded evidence of their innocence. On appeal, the trial judge’s ruling was upheld on the ground that the questions were fishing and irrelevant to any issues.
140. It must first be noted that the protected information was vetted not only by a directorate officer of the ICAC but also by a panel judge for the Type 1 surveillance application in the subsequent applications. On the face of the documents, I did not see any irregularity. There was no evidence or concrete ground put forward by the Defence to suggest that the protected information could reveal any illegality or impropriety of the whole surveillance operation or any individual ICAC officers. Miss Lee failed to identify the precise relevance to her case of the material she requested. I could not see any basis to support the assertion that the surveillance operation or any part of it was illegal, unauthorized or improper.
141. In my judgment, the asserted relevance was only speculative. I failed to see any potential relevance of the protected information to the issues raised by the Defence. The application for disclosure must be dismissed.
142. The judge should not look at the documents unless he is persuaded that there would be reasonable chance that the documents are relevant. As Lord Wilberforce said at page 439 in Air Canada v Secretary of State for Trade[20], there must be some concrete grounds for belief which takes the case beyond a mere “fishing” expedition. In the absence of sufficient basis to show a reasonable possibility of relevance, I refused to inspect the protected information.
143. However, I would bear in mind this issue throughout the trial.
144. The prosecution has the continuing duty to disclose as the case progresses at trial. It is noted that the Prosecution made further disclosure to the Defence as the case later developed, in particular, material in relation to X. Until the end of trial when the defence has been disclosed, I do not see the relevance of the protected information to the issues in this case or the need to re-visit this issue.
Special issue
145. Both defendants objected to the admissibility of the evidence of meetings and other contacts between the defendants and the 3 UCs. Their grounds can be amalgamated and summarized as follows: -
(i) Entrapment;
(ii) Fair trial being precluded:
(a) evidence obtained unfairly;
(b) breach of defendants’ right to privacy and right against self-incrimination.
146. Having adopted the alternative procedure, I ruled that the evidence was admissible and refused to exercise my discretion to exclude it. I now give my reasons.
147. The Defence criticized the Prosecution for not calling X as a witness who was the informer having an improper motive, and not recording the telephone conversations and some meetings with D2.
148. For the purpose of this trial, I would accept the unchallenged suggestion that X was the person who gave information about this case to the ICAC and he received $5,500 as his reward.
149. Apart from Ah Chi, Ray and Tony, another 2 ICAC officers were called to prove the integrity of the operation.
PW12 Mr Daniel Cheung
150. Daniel Cheung is a Senior Investigator of the ICAC. At the relevant time, he was responsible for intelligence collection and UC operation. One of his duties was to deal with informant. Information in this case was passed to him by his colleague on 28 November 2012. On that day, he had a meeting with X who agreed to introduce a UC to D2.
151. On 4 December 2012, he, together with Ah Chi, met X.
152. On 7 December, he met X who made arrangement for a UC to meet D2 on 8 December.
153. On 8 December, Daniel Cheung met X and Ah Chi first. He gave instruction to X not to take active role in the meeting with D2 and to leave as soon as possible after the introduction. He reminded X not to incite or procure anyone to commit crime.
154. He gave instruction to X to continue his contact with D2. However, after the introduction of the UC, X should not take initiative to contact D2. X should also report to him important matters if he had contact with D2.
155. This was not the first occasion that Daniel Cheung dealt with X. It is admitted that X had been an agent of ICAC before this case for matters unconnected with the present case.
PW 11 Mr Ken Ho
156. At the relevant time, Ken Ho was Principal Investigator of the ICAC. He was the overall in charge of this undercover operation. He was the person making the decision not to use audio-recording device in the telephone contacts between D2 and UCs, and in 1st, 2nd and 6th meetings.
157. He explained that in respect of the non-recording of the telephone conversations, he had worries with the difficulties to comply with the condition of Executive Authorization (restricting the recording to conversation of UC and D2 only) because it was difficult to verify identity of the other party answering the call. Another reason was that he wanted the UCs to focus on the recording of the meetings.
158. The 1st meeting was not recorded as the reliability of the information had yet to be verified. Having evaluated the information gathered by Ah Chi in the 1st meeting, he was satisfied of the conditions for an Executive Authorization and therefore applied for it for the 2nd meeting.
159. On the day for the 2nd meeting, he had been waiting for the approval of his application until 6.42 pm when he decided to abandon the application and instructed Ah Chi to proceed with the meeting without audio-recording. Ken Ho made this decision as the meeting with D2 was scheduled at 6 pm and D2 would leave Hong Kong at 7.30 pm. He also instructed Ray not to attend this meeting. He did not want to cancel the meeting for the fear that it might arouse suspicion of D2. Without the warrant, the meeting could not be recorded.
160. After the 5th meeting was held, Ken Ho was of the view that Legal Professional Privilege might come up in the future meetings. In that situation, Type 1 application had to be made to a Panel Judge for the Authorization of the recording. The application had to be made to a judge by another section. When he was informed by Ray on 21 February 2013 that there would be a meeting with D2 on 25 February, the Judge’s Authorization had not yet been approved. He was told that the application would not be ready. In order not to arouse suspicion of D2 and not to delay the operation, he decided to proceed with the meeting without recording.
161. It should be noted here that Ah Chi was not asked, either in examination in chief or cross-examination, whether he met X on 4 December 2012. He denied Miss Lee’s allegations that he initiated the term “under-the-table money” and to pay the licence fee by cash. He disagreed ever making the suggestion to add up a sum on top of the $1.08M.
162. Ray denied Miss Lee’s allegation that he initiated the term “earnest money”.
D2’s evidence on the special issue
163. He testified that he treated X as a very good friend. X once mentioned that D1 had tricked him before. In about May 2012, D2 told X about the hotel restaurant plan. X said he was interested in it and later introduced one Kelvin Mau who subsequently sent a 3-D rendering to D2. The negotiation between Kelvin Mau and D2 fell through.
164. When D2 explained the concept of the hotel restaurant project, X said the $1.2M licence fee was the same as collecting 4 years’ rent in one lump sum payment. X suggested that the licence fee should be called the “rent” in order to avoid confusion.
165. On a day in November 2012, X told him the rent was too expensive and suggested to reduce it to $1.08M as an auspicious figure. D2 agreed. X also suggested that out of the $1.08M, D1 should take $400,000, the remainder would be shared by the middlemen making the deal successful. D2 agreed.
166. When X introduced Ah Chi to him, X said Ah Chi was a very trustworthy person and a very good friend of his.
167. In the course of negotiation with Ah Chi on 8 December, Ah Chi initiated to use the term “under-the-table money” to refer to the licence fee of $1.08M. Ah Chi also said it would be “neat, tidy and trouble-free”. He would add a sum on top of it to sell to the investors.
168. In a subsequent telephone conversation with X on that day, D2 told X about the term “under-the-table money” used by Ah Chi. X told him just to comply in order to please Ah Chi. D2 therefore used the same term trying to go along with the language of Ah Chi.
169. D2 emphasized that he told Ah Chi everything without reservation as X said Ah Chi was his people.
Discussion
170. There is no dispute on the legal principles on the court’s discretionary power to exclude evidence which was unfairly obtained. A judge has the overriding duty to ensure a fair trial for the accused. The protection of the accused’s right of silence is a principle of fair trial. In HKSAR v Chan Kau Tai[21], the court recognized a new basis for excluding evidence which was obtained in breach of rights in Basic Law. A balancing exercise must be done to see whether the evidence ought to be excluded.
171. The Court of Final Appeal sets down a three-part test to decide when evidence obtained in breach of a constitutional right can be admitted in HKSAR v Mohammad Riaz Khan[22]:-
“The test can be stated thus. Evidence obtained in breach of a defendant’s constitutional rights can nevertheless be received if, upon a careful examination of the circumstances, its reception (i) is conducive to a fair trial, (ii) is reconcilable with the respect due to the right or rights concerned (iii) appears unlikely to encourage any future breaches of that, those or other rights. The risk-assessment called for under the third element will always be made by the courts, vigilantly of course, in the light of their up-to-date experience. Thus is achieved, consistently with the constitution, a proper balance between the interests of individual defendants and those of society as a whole. It cannot have been the framers’ intention – and is not the constitution’s effect – to stand in the way of such of balance being struck. Just as rationality and proportionality can justify an impact on a non-absolute constitutional right, so can they justify a discretion to receive evidence obtained in breach of a constitutional right. Under the test stated above, the discretion concerned is rational and proportionate. The factors to be taken into account in applying this test and the weight to be accorded to each such factor will depend on the circumstances of each case.”
Entrapment?
172. I will first quickly dispose of the argument on entrapment. Mr Harris SC did not plead entrapment as a defence or as a ground to stay the proceedings. It was only relied upon as a factor to exclude the evidence. I accept that entrapment may be considered as an abuse of court process resulting in exclusion of evidence by court.
173. The leading case on entrapment is House of Lords case in R v Loosely[23]. Lord Nicholls identified that a useful guide when considering whether the conduct of the police amounted to inciting or instigating crime is to ascertain whether the police did more than present the defendant with an unexceptional opportunity to commit the crime – the “opportunity test”. The logic is simple, if the defendant has already formed a generic intent to commit the offence, the investigating officers are not inciting or creating a crime.
174. It should first be noted that the case of both defendants is that they were not committing any crime. They were not asking for secret kickback. The UCs were only giving money which could be lawfully asked for and received by the defendants. The defendants cannot logically argue that they were incited to commit a crime when their conduct, as they claim, was not criminal activity.
175. Secondly, the idea of paying $1.08M was not initiated by X or ICAC officers.
176. The ideas of finding investor to operate the restaurant and receiving a lump sum payment from the investor were not the suggestion of X and ICAC officers. Before ICAC officers got involved in the case, D1 and D2 had approached other people, including Felix Tsang, Kelvin Mau, Carmen Shia, Sherman Tong and Harlan Goldstein, about the operation of the restaurant.
177. Neither X nor ICAC officers initiated or incited the solicitation. The UCs only provided an unexceptional opportunity to the defendants to do what they had planned and agreed to do.
178. I find the contention of entrapment unsound.
Breach of defendants’ rights/unfairness
179. Mr Harris SC submitted that the defendants were tricked into believing that the UCs were bona fide investors. Their rights against self-discrimination and rights to privacy were infringed. The 3 UCs focused upon procuring an acknowledgement of the defendants on the term “under-the-table money”. Their measures overstepped the line of what is permitted in law.
180. It is true that tactics were used and both defendants were led to believe that the UCs were genuine middlemen and investors.
181. The law however recognises that the use of undercover operation is an essential weapon in the armoury of law enforcement agencies, particularly when the criminal activities are on-going: Secretary for Justice v Lam Tat Ming[24]. The law accepts that law enforcement agencies may find it necessary to resort to tactics involving elements of subterfuge, deceit and trickery. It will very often be a question of proportionality. Nature and seriousness of the suspected crime must be considered. Corruption offences are serious crimes. The public interest in combating and preventing the offences is very high: HKSAR v Wong Kwok Hung[25].
182. In the present case, information was received that D1 and D2 were looking for caterers to pay a kickback in return for the catering contract as a reward. There were on-going activities of the defendants. Given the serious nature of the crime and the difficulty to detect such crime, the ICAC surveillance and undercover operation to gather evidence confirming veracity of the information and to uncover the on-going criminal activities was entirely proper.
183. Before the right of silence of a suspect can be breached, there must be something which prompted the suspect to talk. Interrogation is generally not allowed. Interrogation may happen where the UC does not allow the conversation to continue naturally but persist on the subject matter of the offence being discussed. Mr Harris submitted D1 was persistently incited to acquiesce to the term “under-the-table money”.
184. As can be seen from the transcripts of all the meetings, far from interrogation by any UCs, D2 actively made reference to the payment of licence fee and that it would go to the pocket of D1 personally. He even suggested that the payment could be concealed by inflating the renovation costs. He suggested to pay cash and that half of it should be paid before signing of the catering contract. D2 was active, willing and enthusiastic in the meetings.
185. In the meetings when D1 was present, D2 remained active and enthusiastic proposing how the money should be paid. D1 never made objection or correction to the suggestions of D2. It is noted that the term “under-the-table money” was used by UCs a few times. However they did not prompt D1 or D2 to comment or explain on the meanings of this term.
186. I do not see any questioning by the UCs that interrupted the natural flowing of the conversation.
187. Upon careful examination of the transcript of the meetings, I did not find interrogation, prompting or any kind of improper means by any of the UCs.
188. There is complaint that D2 was betrayed by a good friend. On the evidence of D2, I cannot see any special relationship whereby D2 was placed under compulsion to speak.
189. Insofar as the right to privacy is concerned, Article 30 of the Basic Law provides:-
“The freedom and privacy of communication of Hong Kong residents shall be protected by law. No department or individual may, on any grounds, infringe upon the freedom and privacy of communication of residents except that the relevant authorities may inspect communication in accordance with legal procedures to meet the needs of public security or of investigation into criminal offences.”
190. It is clear that it creates an exception allowing officials to inspect communications for the purpose of protecting public security or investigating crime, in a manner prescribed by law. The ICSO has provided the machinery and framework for striking the balance of public interest and interest of individuals.
191. Corruption offences are serious offences which are difficult to detect. Covert surveillance is permitted so far as it complies with the requirement of the law.
192. The UCs surveillance operation was approved by directorate officers of the ICAC and at a later stage by a Panel Judge for the secret recording in the meetings. The defendants’ right to privacy was infringed only after the two vetting and approval criteria of proportionality and necessity were met. The infringement was in accordance with legal procedures to meet the needs of investigation into serious crimes.
193. It is alleged that X had an ill motive. D2 said X told him he had been tricked by D1.Miss Lee submitted that X used the hotel project to trap D1 using D2 as a scapegoat.
194. I noted that X received $5,500 from ICAC in respect of this case. He had been an agent (not being an ICAC officer) of the ICAC before July 2009. When he followed instructions of ICAC to contact D2, X became an agent of ICAC in this case.
195. Though D2 said X told him he had been tricked by D1, this hearsay allegation is rebutted by evidence of D1.
196. It is apparent that because of S 30A of the Prevention of Bribery Ordinance (POBO), the Prosecution would not call X as a witness. According to the defendants, however, X is known to them.
197. The important parts of the allegations against X are: (i) he initiated to reduce the $1.2M to $1.08M; (ii) advising D2 to go along with the term “under-the-table money”; and (iii) suggested payment of $400,000 to D1. For reasons I will explain later, I do not believe these allegations.
198. In my judgment, X not being called as a witness will not preclude a fair trial.
199. Criticism was made about Ken Ho’s decision not to record the telephone conversations and some meetings. Ken Ho gave his explanations. I do not find his decision unreasonable or this course of action unfair to the defendants.
200. Secret recording is an interference of an individual’s right to privacy which must not be breached arbitrarily. While ICSO may authorize covert surveillance, an application under the Ordinance must not be made without sufficient grounds. I find that it was a reasonable decision that no covert surveillance application should be made for the 1st meeting before the information had been verified with some degree of reliability.
201. The non-recording of the 2nd and 6th meeting were only inevitable decisions of Ken Ho. He had made application for the secret recording of the 2nd meeting and was still waiting for the approval at 6:42 pm on that day when the meeting was scheduled at 6 pm. Application for a judge’s authorization by another team responsible for this kind of application had also been made before the 6th meeting. However it was just that both applications were not approved in time. In order not to arouse D2’s suspicions, decisions to proceed with the meetings without the Authorizations and hence the recording are in my view reasonable.
202. With consciousness of the likelihood of non-compliance with an authorization for recording the telephone conversation, Ken Ho was not unreasonable in deciding not to apply for the warrants for recording the telephone conversations.
203. Miss Lee criticized the credibility of Ah Chi, in particular, his failure to mention a meeting with X on 4 December. There is no point in this criticism for reasons I will tell later.
204. A small point made by Mr Harris SC was that quality of a small part of the recordings was poor. This cannot advance the argument of unfair trial as there is no evidence at all as to what was missing and how it was relevant to the issue.
205. The fact that Chung’s wife, listed as a prosecution witness, cannot be called is neither here nor there.
206. Having considered all the circumstances of the case and submissions of counsel, I find that the overall behavior of the ICAC was not unfair.
207. In my view, the evidence was not unfair to the defendants in the light of their defence. The accuracy of the transcript of the meetings is not challenged. The defendants have the opportunity to cross examine the ICAC officers and they gave evidence to explain about what they said in the meetings. The surveillance had been approved under the ICSO by a panel judge. Authorizations can only be granted subject to stringent requirement of necessity and proportionality. Admission of these evidence would unlikely encourage future breaches. The tests in Mohammad Riaz Khan are met. I refused to exercise my discretion to exclude the evidence.
Co-conspirators rule applies
208. It is clear that Prosecution relies on the evidence of meetings and contacts between D2 and UCs, when D1 was not present, as evidence against both of them. Mr Harris SC took issue with the applicability of the co-conspirators rule and challenged the admissibility of these evidence. He submitted that to rely on these evidence, the court had to be satisfied that there was prima facie evidence of the existence of an agreement between them to solicit corrupt advantage.
209. By operation of the co-conspirators rule, evidence of the acts and declarations of one or more conspirators in furtherance of a conspiracy may be adduced to prove the extent and degree of participation of another or others in the conspiracy and the nature of and extent of the conspiracy. Before the rule can be applied, there must be reasonable independent evidence linking the defendant concerned to the conspiracy charged. The foundation evidence must be “independent” in the sense of being evidence other than the evidence which would be admissible only pursuant to the co-conspirators rule itself. It must amount to at least reasonable evidence: HKSAR v Vivian Fan[26].
210. In my judgment, there is plenty of evidence for the rule to apply.
211. Agreement between the defendants for D2 to find an investor to operate the restaurant and their contacts for this purpose are not disputed. There is undisputed evidence of telephone calls, SMS and whatsapp messages between the defendants soon before and/or after the meetings between D2 and UCs. One such call was made by D2 to D1 during the 4th meeting when D2 needed to take instruction from D1 about the amount of management fee. During the meetings when D1 was present, as the transcripts show, the contents and undertone of the discussions were consistent with what D2 said in the previous meetings when D1 was absent. The topics discussed in previous meetings were picked up and continued in the meetings when D1 was present.
212. I am satisfied that the co-conspirators rule applies in this case. The evidence of contacts between D2 and UCs in the absence of D1 is also evidence admissible against D1.
Evaluation of evidence/witnesses
Civilian witnesses
213. Lai’s evidence was not challenged. I accept his evidence. There is no evidence from him that he was giving any personal favour or benefit to D1 in respect of the use of the ground floor and first floor of the Hotel, or that the operation of the restaurant needed his approval. His evidence can support that D1 had a vision to run a high-end hotel with a restaurant operated by famous caterer. He gave a slightly more favourable term in terms of rent because of his trust of D1’s experience. However it was not meant to be a personal favour given to D1.
214. I also accept the evidence of Angel Poon. Chung’s daughter’s evidence has no relevance in this case.
215. Gabriel Kwok’s evidence was challenged in regard to the motive of his preparing the Monthly Operation Cost which recorded salary of D1 by payment of cheques. He denied that he prepared it to support the Prosecution case that D1 was only a salaried director. I notice that his father running Tung Sang Construction Ltd was one of the contractors in the construction work having received a fee for $200,000. However I find nothing suspicious of Gabriel Kwok’s evidence. He would not have appreciated the importance of D1’s status as a salaried director. Indeed I do not find it important whether D1 was receiving the monthly payment as salary or director’s remuneration as Mr Harris SC suggested.
Chung
216. Chung is alleged by D1 to have “stolen everything” from him. Mr Harris SC comments that Chung is not a satisfactory witness. However his evidence was not much challenged.
217. There is no dispute that these two persons had good business relationship before. In the hotel project, there was an agreement between them that if the capital could be recouped in 3 years, he and D1 could each share 15% of the profit of the Hotel.
218. Chung agreed that the idea of getting a third party to operate the restaurant had been raised to him. D1 was not making it a secret of his approaches to outside caterers. What Chung required was that the restaurant had to be run by their companies, not being contracted out to the caterer. His worry was that sub-letting of the premises would amount to a breach of the Lease resulting in re-possession of the Hotel building. He accepted that he gave indication to D1 that he could go ahead for negotiation as it would do no harm.
219. He did not present to the court a suggestion that D1 was no more than an employee. He accepted that D1 was his partner in the Hotel project. D1 could make decisions for the Hotel, Chung had the final say though.
220. Chung agreed that D1 had procured a lease for the Hotel with favourable terms. He agreed that they fell out as he found D1 sided with Lai in disputes over the construction work.
221. In response to the hypothetical questions put by Mr Harris SC whether he would object to D1’s negotiating a payment, sort of a consultancy fee, for himself in relation to the operation of the restaurant, he even accepted that he would agree, if the investors agreed.
222. I noted the potential conflict of interest between Chung and D1. However looking at the totality of his evidence, I do not see any hostility or bias of Chung against D1 or any inherent improbabilities in his evidence.
223. I find Chung a credible witness.
ICAC Officers and X
224. There is no dispute as to the accuracy of the transcript of the recordings in the monitored meetings. The major factual dispute in the case is whether X, Ah Chi and Ray said things as alleged by D2 in their contacts and meetings not having been recorded.
225. It is alleged by D2:-
(i) X suggested to D2 not to use the term licence fee, instead the term “rent” be used;
(ii) X proposed the reduction from $1.2M to $1.08M, and giving a share of $400,000 to D1;
(iii) X said Ah Chi had been his good friend for years;
(iv) Ah Chi initiated to use the term “under-the-table money” for the licence fee, and to pay by cash, so that he could add up a sum on top to sell to investor;
(v) X advised him to go along with Ah Chi by adopting whatever terms they wanted to use in order to please them;
(vi) Ray initiated the term “earnest money” over the phone.
226. Mr Yuen accepts that after the information was received, X followed ICAC’s instruction to contact D2 and became an agent of ICAC. Miss Lee relied on Leung Wing Ning v The Queen[27]. She argued that there was no evidence from X to rebut the allegations against him. It must however be noted the Court of Appeal in that case said although it is always highly desirable to call a particular officer being accused of wrongful behavior, there is no principle preventing the onus from being discharged by evidence aliunde.
227. X was not called as a witness to rebut the allegations. I accept that he might have said Ah Chi was his good friend and a reliable person. He might have suggested to use the term “rent” to avoid the difficult concept of licence fee. However I find all the other allegations unreasonable and inherently improbable.
228. The licence fee of $1.2M was a sum asked for by D1. It is entirely illogical that D2, as an agent only, would agree to reduce the sum without prior approval of D1. The suggestion that X proposed to give D1 only $400,000 is absurd. D1 was supposed to be the person who was entitled to the whole sum. It was for him to decide who should get how much commission as a middleman. Again, D2 would not have agreed before getting approval of D1.
229. It was only in the evidence on the general issue that D2 first mentioned about a subsequent meeting with D1 on 26 December 2012 in a French restaurant where he talked about the reduced licence fee and that a share of $400,000 would be given to D1.
230. “Under-the-table money” involves connotation of something unlawful. If such a derogatory term was proposed to describe the payment in the nature of rent, a strong objection to the use of such term would be expected. It is outrageous that he would adopt such a term to describe the rent that he was lawfully negotiating for his principal.
231. The allegation that X suggested to pay by cash is against what is recorded in the meetings. The transcript clearly shows the enthusiasm instead of passive acceptance by D2 in the payment by cash. There is also no reason why he should accept such a suspicious mode of payment for such a large amount of money.
232. I find all these allegations absurd.
233. Miss Lee strongly made a point on the “discrepancy” between Ah Chi and Daniel Cheung concerning their meeting with X on 4 December 2012. In his evidence, Ah Chi did not mention about this meeting.
234. In his evidence in chief, Ah Chi was led to start his evidence from 7 December. He did not refer to the name of X in the meeting on 8 December. It is understandable in the light of the sensitivity of X’s status. However when he was cross-examined, he disclosed the introduction by X without hesitation. In the cross examination, he was not asked about the meeting on 4 December.
235. In my judgment, Ah Chi did not deliberately conceal his participation in the meeting on 4 December. I cannot see any necessity, motive or reason that he had to do that. If there is any ambiguity about the meeting on 4 December, it can easily be clarified by recalling Ah Chi, to which however Miss Lee objected. I find no substance in this complaint.
236. I find the evidence of Ah Chi and Ray clear, consistent, and reasonable. Their evidence is supported by the transcript and documentary evidence.
237. Tony’s participation in the case is recorded in transcript. His evidence was not challenged.
238. Having considered all the evidence of the case, I find Ah Chi, Ray and Tony credible witnesses and I accept all their evidence.
239. I also find Ken Ho a credible witness. The reasons he gave for non-recording are reasonable.
240. I do not find any good reason or motive why the ICAC should deliberately decide not to record some of the meetings. Audio recording is strong evidence which can avoid unnecessary argument. The logic that non-recording can give room for ICAC to fabricate or manipulate evidence is unsound. If there was such a motive behind, one would expect more incriminating evidence from the mouths of the UCs about the 3 unrecorded meetings. In fact the 3 unrecorded meetings add nothing much to the strength of evidence of the 5 monitored meetings.
241. Daniel Cheung’s evidence was not much in dispute. I find his evidence direct, clear and reasonable. He is a credible witness.
242. Miss To was the person in charge of the arrest operation. Her evidence is not challenged and accepted.
D1
243. D1 was emotional in giving the evidence. He broke down in tears several times. Yet I did not see why he should be so upset in the context of his evidence. I was not impressed by him. I also find that he was not a direct witness and at times evasive in answering questions in cross-examination.
244. Just to name one or two examples to give a flavor of it.
245. Right at the start of cross examination, he was asked in what capacity that Lai could ask him to manage the hotel with full authority. He did not answer the question directly despite the same question was asked for 4 times. Eventually he agreed that Lai did not have the authority to ask him to manage the hotel but there was a verbal moral agreement that he would manage the hotel well.
246. He was asked another simple question whether the monthly payment he received from MS was reduced from $50,000 to $35,000 and then to $30,000. Questions and answers flowed in this way:-
A. It’s not the case.
Q. You mean there was no such reduction?
A. That’s not the case either.
Q. What do you say?
A. Mr Chung, my partner, sometimes gave me cash and I didn’t really mind in what way he paid me….Should I continue?
Q. Yes please.
A. It was until the time when he told me to sign the document to engage this contractor…….
247. He did not answer directly until the court asked him whether he agreed with the prosecutor, he eventually answered “that was my request”.
248. Of course I do not reject his case because of his demeanor in giving evidence.
249. His case is very simple: he honestly believed that he was entitled to do what he was doing. The court has to consider what were the matters in his belief and whether these beliefs in the circumstances of the case amount to lawful authority or reasonable excuse.
250. I agree with Mr Harris SC that D1 was more than a mere employee. He was a 50% shareholder and director of MS and BF. He was an investor in the hotel project by his input of expertise in management of hotel. He was one of the decision makers.
251. It cannot, however, be disputed that he owed a fiduciary duty to the two companies and the investors in the hotel project. He needed permission to receive a personal benefit, in particular, when the consultation fee he was receiving, according to his version, was as much as $500,000. He did not seek prior permission.
252. D1 did not inform Chung of his negotiations with the UCs and that he was about to receive some money from investor who was interested in operating the restaurant. He said when he received the money from Tony, he was thinking that he would go to a solicitor’s firm to draft an agreement. Then he would have meetings with Chung and Lai for their permission.
253. D1 had extensive experience both in operational and management levels in various hotels and F&B business for many years. He was previously the personal assistant to the CEO of a listed company for 3 years responsible for the management of the hotels run by the company. Though he had a share of $1 representing 50% shares of the two companies, he would not have been so ignorant to believe that he could receive a sum as much as $0.5M without the consent of the companies. This is particularly when he did not make any financial contribution knowing that tens of millions of dollars had been invested by Chung and the investors he represented in the hotel project.
254. D1 seems to be relying on the promise or permission allegedly given by Chung that D1 had all the say in respect of the Hotel and the restaurant premises. He gave vague evidence that he had told Chung on two or three occasions that the premises on the ground floor and first floor “should be mine”. He said that means, morally speaking, he should be given the priority to operate the restaurant premises. D1 said, “from his point of view, he (Chung) said ‘yes’ very reluctantly.” This allegation was not put to Chung for comment.
255. In my view, it is against commonsense and commercial reality that Chung would have agreed to let D1 have the restaurant premises as his own. Moreover, if there was such an agreement, Chung would not say, in the evidence of D1, that when D1 discussed about his restaurant plan, Chung only mentioned he had to favour the investors behind him by allowing them to do the restaurant.
256. I find that there was no promise made by Chung that the restaurant premises belonged to D1 or that it was “his”. All that Chung agreed in respect of the operation of the restaurant was that D1 could proceed to look for caterers and have negotiations.
257. Even if there were such “promises”, it could not have given D1 a ground for the belief that he could treat the restaurant premises as his own property and to get advantage from the caterer of the restaurant without permission of the companies. In cross-examination, D1 agreed it was only a “moral agreement”.
258. Any permission by the principal, for the purposes of S 9(5) of the Prevention of Bribery Ordinance (POBO), must be given having regard to all the circumstances in which it is sought. If there had been no full disclosure by D1 including the charge of commission, the permission was not a true permission.
259. It was only under cross examination that D1 first said he told Chung he would charge the investor with consultation fee and set up cost. That was not put to Chung. Chung said he would not give permission to D1 to solicit advantage from caterer.
260. When D1 was further questioned what exactly he told Chung, D1 retracted by saying that during that period of time, he believed no matter what he said it would not be accepted by Chung.
261. I find that D1 did not tell Chung he would charge investor a consultation fee.
262. Mr Harris SC submits that an unusual feature in the case is the absence of any secrecy of the restaurant plan. I agree. But the secret in the case is the fee D1 was going to charge the investor. Chung was not aware of the commission charged by D1. If it is argued that permission had been given by Chung, the permission was not an “informed” permission, as required under S 9(5) of POBO.
263. With extensive experience in management level and as a CEO and director of a company, D1 no doubt had the issue of conflict of interest in mind. He must know that permission was required for him to solicit and accept any advantage from the caterer. Otherwise he would not say in evidence that when he received the money at the last meeting, he intended to have meeting with Chung for permission.
264. If he had the intention to report about the negotiation and the money he received, there is no reason why he did not inform Chung throughout the negotiations and, in particular, prior to the last meeting when he expected to receive some money.
265. There is also clear evidence that D1 did not intend to disclose the fee he was charging the caterer.
266. D1 had negotiation with Carmen Shia. In the Barter Agreement [12] , consultation fee was not mentioned. In the draft agreement [13] sent by lawyer of Carmen Shia to D1, there was only a licence fee of $1 per month for 5 years. If the charging of consultation fee was a part of the restaurant plan and to be disclosed to the companies, it is highly improbable that these documents mentioned nothing about the consultation fee or any fee to be paid by the investor to D1.
267. There were draft agreements being discussed between D1 and Chung as to their cooperation in the management of the Hotel[28]. While they were yet to be finalized, nowhere in these draft agreements indicate that D1 would charge investor in the operation of the restaurant a consultation fee.
268. D2 had not heard of charging of consultation fee. The instruction by D1 was that the investor had to give a licence fee of $1.2M in the nature of rent of the premises for 4 years. D2 said in re-examination that he provided a copy of P39[6] to D1who had asked for it on a number of occasions. The evidence was not challenged.
269. D1 said P39 could reflect 70-80% of the agreement of both sides. When cross-examined why the consultation fee and set up cost were not referred to in the document, D1 only gave vague answers that because he had no idea if $1.6M or $1.7M was sufficient for the set up cost. Only a global figure was provided in the document because the consultation fee or the commission or the agent’s fee to be given to D2 might range from $50,000 to $100,000. He further explained that it was not mentioned because D2 had not yet managed to find a lawyer to make relevant amendments and that his English was not good. The last reason he gave was that the decision as to how to break down the $2.2M was yet to be decided. All these evasive explanations failed to reasonably explain the absence of the reference to a consultation fee.
270. In his first meeting with the UCs, when the term “under-the -table money” was mentioned by the UCs, D1 immediately said “call it consultation fee”. Mr Harris SC submits that his reaction by disowning the term immediately demonstrated his innocent involvement.
271. It is D1’s evidence that this term refers to something unlawful. In my view, for anyone facing allegation or suggestion that he was receiving unlawful money, the reasonable reaction should be putting up strong objection instead of merely changing the name for the money.
272. Moreover in the next meeting he participated on 9 April, D2 and Tony used this term repeatedly. D1 took no objection but continued with the discussion.
273. At the 5th, 7th and last meetings, D2 suggested to cover up the licence fee by inflating the renovation costs. D1 never raised objection to the suggestion.
274. It is clear that throughout the meetings attended by D1, only 2 sums of money were asked for: (i) 1M (referring to $0.98M), (ii) about $1.6M or 1.7M as set up cost. There was no mentioning of a sum of about $500,000 to $600,000. It contradicts the evidence of D1 that he was asking investor to pay a global sum of $2.2M.
275. There is no reasonable explanation why D1 should take cash as much as $250,000 from a potential investor who would obtain a catering contract from D1. The explanation that having cash with him would put him in a more persuasive position in discussion with Chung is incredulous.
276. I find D1 an incredible and unreliable witness.
Lawful authority or reasonable excuse
277. It is submitted by Mr Harris SC that there is no evidence to prove D1 lacked lawful authority or reasonable excuse. He emphasizes again the absence of any secrecy about the plan to bring in a third party caterer, that breakfast were to be supplied by the restaurant benefitting the hotel, and that D1 was the person responsible for seeing to the setting up of the restaurant.
278. S 24 of the POBO places the burden of proving the defence of “lawful authority or reasonable excuse” on the defendants. The standard of proof is the balance of probabilities. The Court of Final Appeal in HKSAR v Ng Po On[29] ruled that “lawful authority or reasonable excuse” in S 14(4) of the POBO created a reverse burden offence, and to remedy the contravention with the Basic Law and Bill of Rights, S 24 has to be read down in conjunction with S 14(4) so that they imposed an evidential burden instead of a persuasive burden.
279. The Court of Final Appeal’s decision was confined to the offence in S 14(4).
280. There was no discussion in the present proceedings as to the standard of proof of lawful authority or reasonable excuse. Mr Harris SC accepts that the burden of proving lawful authority and reasonable excuse rests on the defendant on the balance of probabilities. The Prosecution takes the same position.
281. Given the severity of the penalty of S 9 which distinguishes the S 14(4) offence, I agree that there is a persuasive burden on the defendant to prove on the balance of probabilities.
282. Whether this interpretation of burden and standard of proof is correct is unimportant in this case. On the facts I find, I do not believe that D1 was under the honest belief that he was entitled to do what he was doing. I find that he knew he needed to get permission. I find that he had no intention to disclose the payment he asked UCs to pay. He did not believe that permission would be given. I find that the Prosecution has proved that D1 has no lawful authority or reasonable excuse.
D2
283. The essence of D2’s case is that he believed D1 had authority to pocket the licence fee of $1.08M which D1 would share with the middlemen introducing the investor. D2 believed that he was acting lawfully.
284. I find his evidence contradictory to documentary evidence and transcript of the meetings with UCs. His evidence is full of absurdities.
285. To any ordinary people, the term “under-the-table-money” is common and has only one sensible meaning. It relates to something unlawful, and usually means an illegal or corrupt kickback.
286. D2 received university education and had 20 years’ experience in commercial field. It is ridiculous of him to say that he seldom came across the term of “under-the-table-money”. It is ludicrous of him to draw an analogy with the examples of his giving pocket money to his son, not wanting his wife to know about it, and not wanting his wife to know the bonus he received from his employer.
287. His mission, according to him, is very simple – to find an investor to operate a restaurant at a rental or licence fee of $1.2M for a period of 4 years. He would be given a commission for the successful introduction. His role, in his words, was only a conduit or a messenger. He only acted in accordance with the instruction of D1, whom he believed was lawfully entitled to the licence fee.
288. It is unbelievable that in such a simple commercial activity, which is lawful in his perception, he would just go along with the other side of the negotiation to use the term “under-the-table-money” to refer to the rent or licence fee.
289. The consideration of $1.08M is obviously the most important part of the licence agreement. However this is not referred to in the draft catering agreement (P39) [6] drafted by D2’s friend at his request. If the payment of this sum of money is supposed to be lawful and disclosable, it should not have been omitted from the draft agreement.
290. The suggestion of signing an agreement with $1 rent for 4 years by D2 at the meeting is contradictory to his evidence that $1.08M was the rent or licence fee. His explanation in court that he was just casually giving an example is unconvincing.
291. The suggestion of giving a receipt for the licence fee by inflating the renovation fee could not be consistent with an honest belief claimed by D2. His explanation in court that “he was just thinking” without much thought about it is unbelievable.
292. I would not speculate why D2 once told Ray not to mention $1.08M in front of D1.
293. I find D2 a dishonest witness.
Consideration of the respective charges separately
294. I must consider the case of each defendant separately and the charges separately. The burden of proving each and every ingredient of each charge rests all along upon the Prosecution. The defendants have no burden to prove their innocence. Before an inference can be drawn from proven primary facts, the inference must be the only reasonable and irresistable one.
295. Although I do not believe D1 and D2 are credible witnesses, the burden remains on the Prosecution to prove the guilt of the defendants.
Elements of the Charges
Charge 1
296. The Prosecution has to prove: -
(i) The conspiracy between D1 and D2;
(ii) For D1 as an agent;
(iii) To solicit $0.98M;
(iv) As inducement to, reward for or otherwise on account of;
(v) D1 conducting himself in relation to his principal’s affairs or business.
Charge 2
297. It must be proved that the defendants knowing or having reasonable ground to believe that the $250,000 represented proceeds of indictable offence, dealt with the property.
Charge 3
298. The Prosecution has to prove, inter alia, the falsity of the representation that the set up costs at $1.6M was required, with intent to defraud.
Charge1
299. The case against each conspirator must be separately considered.
300. It is undisputed that D1 was in a fiduciary relationship with the two companies. He was an agent.
301. The UCs were solicited to pay a sum of money to D1. It was an advantage. The payment related to granting the operation of the restaurant to Tony and was in relation to the business of the Hotel operated by the two companies. It was as a reward or inducement for D1’s granting the catering contract.
302. On the totality of the evidence, I am satisfied that the only reasonable and irresistible inferences to be drawn are: D1 had the intention to conceal the payment by the UCs. He did not intend to seek permission to receive the payment.
303. I do not believe that D1 had the intention to report the receipt of money to the companies. I find that he was soliciting and receiving payment as secret corrupt commission. He had no lawful authority or reasonable excuse to solicit the advantage.
304. To prove D2’s mens rea, it must be proved that D2 had the knowledge that D1 was an agent, and that he had no permission from his principal to solicit or receive the payment of money.
305. D2 claims that he thought D1 was the boss who could decide everything. Such assertion is blatantly against the totality of the evidence and what he said in the meetings.
306. In the conversation as shown in the transcript, D2 said D1 had boss behind him. When he received a lease document (Exh P35) from D1 to prove to Ray that D1 had authority to sign the catering contract, he would have noticed D1 was acting on behalf of a limited company. He also heard D1 saying he was only a 50% shareholder of the company. He said licence fee would be pocketed by D1 personally. It would not be included in the catering agreement and had to be paid by cash. The payment would be supported by a receipt as payment of renovation cost of the restaurant.
307. In my judgment, the only reasonable and irresistible inferences must be that D2 knew that D1 had to account for and needed to get permission to solicit and accept the $1.08M. He also knew that D1 had no authority to solicit and receive the money.
Evidence of the conspiracy
308. There is no dispute that in about April 2012, D1 instructed D2 to look for investors to operate the hotel restaurant. They maintained regular contacts about the negotiations between D2 and UCs.
309. In the meetings which D1 attended, the topics in previous meetings continued. The reduced licence fee for 0.98M and the cover-up by inflating renovation fee were referred to. While D2 took the active role to talk, D1 never raised objection to what D2 said. They echoed each other in the meetings.
310. Licence fee was only a pretext to ask for payment. I find that the term “consultation fee” was used by D1 as a cautious act to avoid attracting attention of other people in the restaurant. It was not evidence of his dissociation or washing his hands of the crime.
311. In the whole context of the conversations in all the monitored meetings, there could not have been a misunderstanding between the two defendants. There must be a common intention between them to solicit advantage for an agent without permission of the principal.
312. On the totality of the evidence, I am satisfied beyond reasonable doubt that a conspiracy with the necessary intention was reached between D1 and D2 for the solicitation of $0.98M as a secret commission of D1, as particularized in Charge 1.
313. I find that the Prosecution has proved all the elements in Charge 1 against each of the defendants.
Charge 2
314. I find that both D1 and D2 knew the envelop contained cash of $250,000. D2 said he needed not count it. Both defendants talked about the way how a receipt should be prepared. I find that they were receiving the money in joint enterprise. Both of them knew that the money was given as a bribe.
315. Mr Harris SC makes two main points about this charge. First, the money D1 received was not “proceeds of an indictable offence”, as he thought he was doing no more than what he was entitled to do.
316. The second point is there was no “dealing” of the money because the possession of the money was temporary and conditional. The defendants had no control and possession of the money as the ICAC were to arrest the defendants there and then and the money would be seized in a moment.
317. He also makes comments that Charge 2 adds nothing to Charge 1, and the present case is not the typical case of washing of dirty money into clean money.
318. While the term “money laundering” is often used to refer to the offence of S 25 under the Organized and Serious Crimes Ordinance (OSCO), the offence has a wider ambit than the situation where funds are deposited into a bank account and later withdrawn, whereby dirty money is transformed into clean money.
319. The offence is designed to include both the offender who committed the offence and any other person who deals with the proceeds of the offence. A person can deal with property representing the proceeds of his own crime. See HKSAR v Lok Kar Win Kevin[30].
320. Charge 2 may add nothing to Charge 1. However the Prosecution is not barred from laying the charge. This is my duty to return a verdict on the charge before me.
321. “Dealing” in relation to property referred to in S 25, is defined in S 2 of OSCO as including: “(a) receiving or acquiring the property”.
322. In HKSAR v Li Kwok Cheung George[31] , the Court of Final Appeal explained the concept of “proceeds of an indictable offence”:-
“ 18. The concept of dealing with “proceeds of an indictable offence” envisages two separate transactions. First, that an underlying indictable offence (often referred to as “the predicate offence”) has been committed. Secondly, that there has been an act amounting to “dealing” with the proceeds of that predicate offence. It is possible that the predicate offender and the dealer are the same person. …
19. …If property is received as a payment or other reward in connection with the commission of the predicate offence, such property constitutes in law the recipient’s proceeds of that offence. It may be noted that the recipient may, but does not have to be the predicate offender. But in every case where section 2(6)(a)(i) is relied on, the property in question must have the characteristic of a payment or other reward received in connection with commission of the predicate offence.”
323. In my judgment, the defendants “dealt with” the money when he received it. He had control and possession of the envelop containing the money. It does not matter whether the ICAC intended to seize it later.
324. When D1 received the money, the predicate offence of conspiracy had already been committed at the time the agreement to solicit unlawful advantage being reached. The payment was received in the nature of reward subsequently as a result of the crime of conspiracy.
325. It is my finding that both defendants knew that the money was given as bribe money. It was given as a reward of the crime they had committed. The money represented proceeds of the crime and both defendants had knowledge about it. Charge 2 against both defendants is proved.
Charge 3
326. Offer was made by the defendants to UCs that renovation of the restaurant could be provided at a cost of about $1.6M. It was offered as a choice. I find that it cannot be proved beyond reasonable doubt that D1 did not have the intention to provide the renovation or that the figure was a fraudulent one. The falsity of the representation in Charge 3 cannot be proved. D1 is found not guilty of this charge.
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( C P Pang ) |
|
District Judge |
Representation:
Mr Bernard Yuen, Counsel on Fiat, for HKSAR
Mr Graham Harris, SC, leading Ms Kitty Lau, instructed by Eddie Lee & Co, for D1
Miss Lee Shin Man Cindy, instructed by King & Co, assigned by the Director of Legal Aid, for D2
Footnotes:
[1] Exhibit P1; Prosecution Bundle pp 1 – 13
[2] Prosecution Bundle pp 321, 321a, 374-377, 374a-377a; Counters 106, 387-404
[3] Prosecution Bundle pp 962, 987, 962a, 987a; Counters 282-285, 456-8
[4] Prosecution Bundle pp 988, 988a; Counters 464
[5] Prosecution Bundle pp143-146
[6] Exhibit P 39; Prosecution Bundle pp 167-172
[7] Prosecution Bundle p 1375, 1375a; counter 1758
[8] Prosecution Bundle p 1486, 1486a; counter 409
[9] Prosecution Bundle p 1487, 1487a; counters 420,422
[10] MFI-H
[11] MFI-G
[12] Exhibit P3; Prosecution Bundle pp 26-29
[13] Exhibit P4; Prosecution Bundle pp 34-41
[14] Exhibit P10; Prosecution Bundle pp 50-51
[15] MFI-A annexes J-N
[16] HKSAR v Lee Ming Tee, (No 2)(2003) 6 HKCFAR 336
[17] HKSAR v Ying Jim Ming, Jimmy, HCMA 432/2009
[18] S 18(9) Regulation of Investigatory Powers Act 2000
[19] R v Hennessey (1979) 68 Cr App R 419
[20] Air Canada v Secretary of State for Trade [1983] 2 AC 394
[21] HKSAR v Chan Kau Tai [2006] 1 HKLRD 400
[22] HKSAR v Mohammad Riaz Khan (2012)15 HKCFAR 232
[23] R v Loosely [2002] Crim LR301
[24] Secretary for Justice v Lam Tat Ming [2000] 2 HKLRD 431
[25] HKSAR v Wong Kwok Hung, [2007] 2 HKLRD 621
[26] HKSAR v Vivian Fan (2011) 14 HKCFAR 641
[27] Leung Wing Ning v The Queen (1981) HKLR 96
[28] Prosecution Bundle pp 14-25; D1 Bundle pp 23-68
[29] HKSAR v Ng Po On [2008] 4 HKLRD 176
[30] HKSAR v Lok Kar Win Kevin, FAMC No 27 of 1999
[31] HKSAR v Li Kwok Cheung George (2014) 17 HKCFAR 319.
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