HKSAR v. WONG KWOK LEE AND OTHERS

HCMA 414/2020

[2021] HKCFI 3008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO 414 OF 2020

(ON APPEAL FROM FLS 732-4 OF 2020)

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REASONS FOR JUDGMENT

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1.  There are occasions when justice is neither done nor seen to be done and this is one of them. A married couple of humble means were provided with the opportunity to own their own flat some 23 years ago. They raised a family of three and diligently repaid their mortgage over a period of 20 years. In 2018, they believed they had achieved their dream. They owned their flat and had no debt. As often happens, approaching old age, their thoughts turned to their children and to the disposal of their assets. Their eldest son was single and living with them. Their two daughters were married with families and homes of their own. They wanted their son to have an interest in the home in which he lived and to which he had contributed for many years. They approached a firm of solicitors to carry out that wish on their behalf. That firm of solicitors let them down so badly that all three of them, father, mother and son have been prosecuted and convicted for something the relevant government department has subsequently approved.

Introduction

2.  The appellants, all members of the same family (father, mother and son respectively), were each charged with one count of ‘Unlawful Alienation of Land’, contrary to s27A of the Housing Ordinance, Cap 283.  They were convicted after trial before Mr Henry Fung, Deputy Magistrate on 30 November 2020, and were each fined $5,000.  By their Notices of Appeal, dated 10 December 2020, the appellants appealed their convictions on the grounds that they were against the weight of the evidence.

Background

3.  These proceedings concern property which had been purchased from the Housing Authority under the Private Sector Participation Scheme (“PSPS”).  The purchase was subject to terms, covenants and conditions (“the conditions”)  contained in the Schedule to the Housing Ordinance, Cap 283.  The land in question is identified as Unit M, 27/F, Block 4, Tsui Lai Garden, No 9 Nam Fung Road, Sheung Shui, New Territories (‘the Flat”).  It had been purchased by the first and second appellants on 25 March 1998.

The Prosecution Case

4.  The details of the purchase of the property are to be found within the Admitted Facts [P6][1]. In essence, the Flat was assigned to D1 and D2 as purchasers in 1998. Thereafter, they assigned it to themselves and their son, D3 on 17 July 2018. This is referred to in trial as Assignment 3.

5.  It was admitted[2] that Assignment 3 did not have the appropriate prior approval from the Housing Authority (“HA”)  although it has been accepted by the HA that if an application had been made it would have been approved.  The HA was only notified of the Assignment on 26 July 2019, when the solicitors acting for the first and second appellants realised their mistake in not seeking permission at the time when the original deeds were retrieved from the bank upon full payment of the mortgage over the property in 2018.  It is the prosecution case that the Assignment was void for being in contravention of s27A of the HO by virtue of s17B.  It was policy at that time not to give consent to an assignment retrospectively.  However, the HA has since done so.

The Defence Case

6.  The first and second appellants purchased the Flat under the PSPS on 25 March 1998.  They had paid down the mortgage in 2018 and were advised by their bank to retrieve the title deeds.  In order to do so they sought legal advice.  They were advised to add their adult son’s name to the ownership of the Flat.  The procedure adopted was entirely at the advice of the solicitors and no issue has been raised on that point.  The first and second appellants accepted that advice and their legal representatives took all necessary steps to carry out that advice but failed to obtain permission from the HA in advance for the transfer of part ownership to the son.  Had such permission been sought, there is no question but that it would have been granted.  Indeed, by letter of 19 November 2019, permission was subsequently given retrospectively.  The appellants maintain they had an honest and reasonable belief and expectation that their legal representatives would carry out their instructions in accordance with the law.

The Statement of Findings

7.  The main issue before the Magistrate was whether the offence was one of absolute liability.  There should never have been any question that the appellants had acted in good faith at all times and that this situation had arisen by reason solely of the negligence of their legal advisers.  There is no need to comment upon the learned Magistrate’s findings in this regard as it is not determinative of this appeal but his approach to the evidence of the second appellant was unfortunate, unexplained and plainly wrong.

8.  As for the issue of mens rea,the learned Magistrate found that the offence attracted absolute liability on the basis that it was conducive to the legislative purpose and therefore the presumption of mens rea had been displaced[3].

The Law

9.  The appellants are charged under s27A of the Housing Ordinance, Cap 283 (“s27A”)  with unlawful alienation of land.  The charges are somewhat clumsily worded but in essence, the first and second appellants were charged with assignment of the land “as the vendors and the purchaser by entering into an assignment dated 17 July 2018 with other persons without the written permission of the Housing Authority”.  The third appellant was charged with purporting “to enter into an Assignment relating to the land with other persons”.  Both those actions being void under s17B of the Housing Ordinance, Cap 283 and thereby in contravention of s27A.

10.  S17B of the Housing Ordinance, Cap 283 states:

“17B. Void alienations, etc

(1)  Where—

(a)(i)  land in an estate[4] is sold under section 17A; or

(ii)  land in respect of which the Authority is authorized to nominate purchasers is sold and the person selling the land acts without the written permission of the Authority; and

(b)  the person to whom the land is sold purports to mortgage or otherwise charge the land to assign or otherwise alienate it; and

(c)  that person acts in breach of—

(i)  any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to the land; or

(ii)  in the case of such a mortgage or other charge, any term authorised under paragraph 4(a)  of the Schedule as regards the mortgage or other charge,

the purported mortgage, other charge, assignment or other alienation, together with any agreement so to mortgage, charge, assign or otherwise alienate, shall be void.” (Emphasis added)

11.  S27A states:

“Where—

(a)  a person whether as lender, borrower or otherwise purports to create a mortgage of or otherwise charge land or to assign or otherwise alienate land or to enter into an agreement which relates to land; and

(b)  the purported mortgage or other charge or the purported assignment or other alienation or the purported agreement is void by virtue of section 17B,

the person commits an offence and is liable to a fine of $500,000 and to imprisonment for 1 year.”

12.  The primary purpose of the Home Ownership Scheme (“the HOS”)  is to provide qualified purchasers with a permanent home at a substantially discounted price.  At the time of its introduction there was considerable concern, and rightly so, that the HOS should not be open to fraudulent manipulation which would undermine the very purpose for its introduction.  This was of paramount importance to the legislature.  It necessarily therefore includes restrictions upon alienation[5] and parting with possession, which are intended to prevent purchasers under the HOS from realising immediate profit by the sale or letting of the property in question[6].  These concerns hold good today but clearly the risks against which the legislature sought to protect against abuse some twenty years ago, have fallen away with the passage of years in respect of purchasers who have fully repaid their loans and seek to pass on an interest to their immediate family.  The law must equally move with the times and should be construed accordingly.

Analysis

13.  The learned magistrate correctly noted that where the offence-creating provisions are silent or ambiguous as to the mental requirements of the offence, the starting point should always be that the statute must be construed adopting the presumption that it is incumbent on the prosecution to prove mens rea in relation to each element of the offence[7].  As Mr Justice Ribeiro PJ in Hin Lin Yee stated:

“thus, if a specified circumstance is required to accompany the defendant’s act or omission as a prescribed ingredient of the offence, the presumption is that the prosecution must prove that the defendant knew of or was reckless as to the existence of that circumstance. And, if it is a necessary element of the offence that the impugned conduct causes certain prohibited consequences, it is presumed that the prosecution must prove that ‘when acting or omitting to act, the defendant intended to cause or was reckless as to his causing those consequences’.”

14.  What is said to be prohibited on the facts of this case was an alienation of land ‘without written authority’ from the HA, which was said to be in breach of the conditions of sale and thereby void for want of it.  Has the presumption of mens rea under s27A been displaced as the learned magistrate found?

15.  Whilst the learned magistrate was taken to both Hin Lin Yee and Kulemesin, with respect to him, I believe he set about a diligent but somewhat unique analysis.  Instead of starting from the stand point of the presumption and then looking to see whether there was an argument for it to be displaced i.e. the balance of the scales being against displacement, it appears that he placed s27A in a neutral ‘balanced’ position and then went about assessing which way the scales should tilt.  First by looking to the principles of statutory interpretation[8]; then assessing the seriousness of the offence in question[9] and lastly by returning to the purposive approach as applied to that offence[10]. By that method of reasoning between paragraphs 77 and 120, he came to the conclusion that s27A was an offence of absolute liability.  In the alternative, and if he was found to be wrong as to that, he relied upon the decision of Wong J in HKSAR v HK Sources Finance Ltd [2016] 3 HKLRD 490 which was an appeal in respect of s27A based on an entirely different footing i.e. whether a loan was an agreement ‘relating to land’.  With respect to the learned magistrate this authority does not assist him in determining the issue at hand and his reasoning was somewhat counterintuitive.

16.  This is an appeal by way of rehearing.  Section 27A is silent as to mens rea.  Both parties agree that it is a serious criminal offence[11] for which a term of imprisonment may be imposed.  Which of the five alternatives set out in Kulemesin Yuriy & Anor v HKSAR (2013)  16 HKCFAR 195, as originally defined in Hin Lin Yee applies?  They are:

“(a)  first, that the mens rea presumption persists and the prosecution must prove knowledge, intention or recklessness as to every element of the offence (“the first alternative”);

(b)  second, that the prosecution need not set out to prove mens rea, but if there is evidence capable of raising a reasonable doubt that the defendant may have acted or omitted to act in the honest and reasonable belief that the circumstances or likely consequences of his conduct were such that, if true, liability would not attach, he must be acquitted unless the prosecution proves beyond reasonable doubt the absence of such exculpatory belief or that there were no reasonable grounds for such belief (“the second alternative”);

(c)  third, that the presumption has been displaced so that the prosecution need not prove mens rea but that the accused has a good defence if he can prove on the balance of probabilities that he acted or omitted to act in the honest and reasonable belief that the circumstances or likely consequences of his conduct were such that, if true, he would not be guilty of the offence (“the third alternative”);

(d)  fourth, that the presumption has been displaced and that the accused is confined to relying on the statutory defences expressly provided for, the existence of such defences being inconsistent with the second and third alternatives mentioned above (“the fourth alternative”); and

(e)  fifth, that the presumption is displaced and the offence is one of absolute liability so that the prosecution succeeds if the prohibited act or omission is proved against the accused, regardless of his state of mind regarding the relevant elements of the offence in question (“the fifth alternative”).”

17.  If we start from the presumption that the prosecution must prove the defendant in question intended to cause an alienation of land without prior approval from the HA or that he or she was reckless as to the causing of that consequence, there is no question but that the charge could not have been made out.  They placed the whole exercise into the capable hands of a firm of solicitors and were entitled to expect that all was done as it should be done and in accordance with the law.

18.  The HOS was introduced to serve the social purpose of assisting eligible persons to acquire a home when they could not otherwise afford to do so.  The underlying policy recognises not only the occupation of the property by family members but also the possibility that family members may have to pool resources in order to purchase and meet mortgage payments[12], or by some other means obtain an interest.  What has been made a criminal offence is the type of alienation where the alienation enables the owner to take an unfair advantage of the benefit conferred upon him under the scheme to make a quick profit.  S27A was never intended to extend to a situation such as the one at hand.  The question is whether the failure to obtain prior approval should render someone criminally culpable in the circumstances of this case.

Conclusion

19.  There is no issue over the original assignment by D1 and D2 of the property.  There is no issue that D3, as their son, would reside in the property and there is no issue that, in due course he would inherit his parents interest in the property.  There is also no issue that, if approval had been sought, it would have been granted.  Indeed, it has since been granted.  There is no suggestion that the defendants have sort in any way to be fraudulent, to obtain a benefit to which they are not entitled, or have set out to take advantage of the Scheme.  The entire prosecution is premised upon the suggestion that s27A attracts absolute liability.  The circumstances of this case highlight the very reason why absolute liability should only adhere to the most limited of circumstances.  I see no advantage in going to a lengthy treatise upon an analysis of Kulemesin.  Both parties find this prosecution, in the unique circumstances of this case, to be unfortunate. Save it to say, that after much consideration and with the assistance of submissions, I find that the second alternative to Kulemesin to be the correct test and that accordingly this appeal succeeds.

20.  The appeal will be allowed.  The sentence of the Magistrate set aside and the fines repaid to the appellants.  The costs of this application here and below be to the appellants.