HKSAR v. SZETO LOK KI AND ANOTHER

CACC 191/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. 191 OF 2003

(ON APPEAL FROM DCCC NO. 771 OF 2003)

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J U D G M E N T

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Hon Stock JA (giving the judgment of the Court):

Introduction

1. This is an unusual appeal in that the prime point taken concedes dishonesty on the part of the applicants and seeks to utilize that dishonesty as the answer to the dishonesty charge of which each was convicted.

2. At the material time, namely, May 1994, the first applicant was a Senior Marine Officer of the Marine Department and the second applicant was, and still is, his wife.  He was entitled to apply for a private tenancy allowance (“PTA”), an allowance intended as a contribution to such rent as he might be required to pay for private accommodation.  Governmental regulations are such however that that allowance is not available in respect of accommodation owned by him or by a relative, as defined, or in which he or such a relative has a financial interest.

3. The allegation in this case is that the first applicant, Mr Szeto, applied for a private tenancy allowance in respect of a flat in Tuen Mun and that in his application he declared that neither he nor any relative had a financial interest in the property.  It was said that this declaration was false, in that both he and his wife, Madam Tang, did have a financial interest in the property, and that Mr Szeto knew the declaration to be false.

The charges

4. There were two charges: the first against Mr Szeto alone, that he, being an agent of the Hong Kong Government, on or about 20 May 1994 with intent to deceive his principal used a document, namely, an application for a PTA in relation to the property, which contained a statement which was false in a material particular, namely, that he was eligible to claim the allowance in respect of the property and which, to his knowledge, was intended to mislead the Hong Kong Government.  It was said that because he and his wife had an interest in the property he was, as he well knew, not entitled to the allowance.  The offence charged was one contrary to section 9(3) of the Prevention of the Bribery Ordinance, Cap. 201 which renders it an offence for any agent, with intent to deceive his principal, to use a document in respect of which the principal is interested, and which contains any statement which is false or erroneous or defective in any material particular, and which to the agent’s knowledge is intended to mislead the principal.

5. The second charge was proferred against the second applicant, Madam Tang, alone and was a charge that she aided, abetted, counsel and procured the first applicant to commit the section 9(3) offence.

6. Both the applicants pleaded not guilty and were tried in the District Court by Judge Saunders.  On 21 March 2003, he convicted them both and each was sentenced to perform 200 hours of community service.  The applicants now seek leave to appeal against conviction.

The facts

7. It is unnecessary for the purpose of this application to deal with the facts in great detail.  It is accepted for the purpose of the application that the applicants acquired a shell company, Marca Limited, and utilized that company to purchase the property.  On 17 March 1994, Madam Tang issued a cheque drawn on her own bank account with which to pay the initial deposit of $200,000 for the purchase of the property.  She signed the provisional sale and purchase agreement.  On 24 March 1994, Marca was purchased, and Madam Tang’s two cousins (the Yan sisters) became the sole shareholders and directors of the company.  Further sums were paid by Madam Tang on 28 March 1994 to fulfil the deposit required, and on 29 March 1994 the property was purchased in the name of Marca, and Madam Tang signed as a witness to the formal sale and purchase agreement.  She paid the stamp duty.  On 26 April 1994, a mortgage loan for the purchase of the property was approved by the Belgian Bank and in their records the address of the property itself was given as the mailing address of the company.  On 28 April 1994, Madam Tang transferred $845,000 from her bank account to her solicitors’ account in payment of the balance then required.  She was also authorized to sign Marca’s cheques.  On 30 April 1994, the purchase of the property was completed and Madam Tang witnessed the assignment.  The document which is at the heart of this case, namely, the application for a PTA, was submitted by Mr Szeto on 20 May 1994 and the application was approved on 17 June 1994.

8. Mr Szeto then received a monthly PTA for rent in respect of the premises from the Government of $18,800.  In all, he received a total allowance of $440,039.93.  The applicants occupied the premises and it is accepted for the purpose of this application that they paid no rent, whether to the second applicant’s cousins or to anyone else.  Mortgage payments and monthly management fees were all paid for by the applicants, or at least by the second applicant.  In 1996, Mr Szeto became entitled to government quarters and decided that he and his wife would move there.  In October 1996 the cousins’ shares in Marca were transferred to the applicants for no consideration and in December 1997 the property was sold at a substantial profit.

9. In the court below, neither applicant gave evidence but they called on their behalf one of the two cousins.  Her evidence was that the purchase money was provided by her, the property was hers and neither applicants had a beneficial interest in it.  The account which she gave was convoluted and as, the judge found, bogus in every particular.  The judge rejected the evidence and found that on 24 March 1994, Madam Tang had a beneficial interest in the property under a constructive trust and that at the date of the application “she was entitled to call upon Marca to transfer the property to her”.  He was not satisfied beyond reasonable doubt that the first applicant himself provided funds for the purchase and could not therefore be satisfied that he had an interest in the property.  He was in no doubt however that the first applicant knew of his wife’s interest in the property.  Accordingly, he convicted both applicants of the offences with which each was charged.

Ground 1: the illegality point

10. The first ground of appeal reads as follows:

“After the learned District Judge made the finding that the second applicant did have a beneficial interest under a constructive trust and she was at the material time, including 24 March 1994, entitled to call upon Marca to transfer the property to her, he failed to consider further that the said constructive trust was created for deceiving the first applicant’s principal, i.e. the Hong Kong Government into paying him the private tenancy allowance and therefore the said trust was both illegal and unenforceable and thus the second applicant was not entitled to call upon Marca to transfer the property to her and hence could not be said to have a financial interest in the property.”

11. The essence of the argument advanced by Mr Westbrook SC on behalf of the applicants is that the transfer of the property to the Yan sisters was a transfer for an illicit purpose: that the courts will not enforce an illegal transaction; and that where a property is transferred to another in pursuance of an unlawful conspiracy, then the property thus transferred remains vested in the transferee and the transferor is precluded from overthrowing the transfer and asserting the beneficial interest which the transfer was intended to hide.  He takes us to a number of authorities in suggested support of this proposition.  His case is that since such a beneficial interest as was intended to be created in this case was not enforceable at law, it could not qualify as a “financial interest” for the purpose of the relevant civil service regulation and, accordingly, the statement made in the first applicant’s application for a PTA, that neither he nor any relative had a financial interest in the property, was not false.

12. The answer to this proposition can, in our judgment, be shortly stated.  This case is not concerned with rights to enforce a beneficial interest.  The case is concerned with the contextual meaning of “financial interest” and in the present context the term does not lend itself to the fine points of trust law and enforceability upon which Mr Westbrook proceeds.  The phrase “financial interest” must be given its ordinary, commonsense meaning.  See Hau Kam Chor v HKSAR, FAMC 15 of 2001, Court of Final Appeal, 18 July 2001, unreported.  No doubt the regulation was drawn so as to preclude the very type of artificiality to which the current argument gives rise.  The private tenancy allowance was and is clearly the only financial benefit which its recipient is intended to secure by its conferment.  The allowance is not intended to provide the recipient with a vehicle by which to secure another, or further, financial advantage.  That is the contextual spirit in which the regulatory phrase was drawn.  In this case, however, what the first applicant enjoyed as a result of the purchase of the property, albeit in the name of another, was a settled expectation of a financial benefit based upon an agreed scheme whereby the property would in due course be conveyed to him and to his wife.  He envisaged, as did his wife, that as a result of the understanding concluded with the cousins, the money to be injected into the property would in due course, upon any sale, find its way, not to the cousins, but to the two applicants; that any increase in property values would enure to his benefit and to that of his wife, and not to the cousins; and it would never have entered his head, nor was it intended by any of the parties, that the cousins had, or would at any stage assert, any financial interest in this property.  It is difficult in these circumstances, indeed impossible in our view, realistically to argue that upon the date of the application the second applicant, if not the first as well, enjoyed no financial interest in this property.

13. While this suffices to dispose of the first ground of the appeal we nonetheless disagree with the proposition as to enforceability of interests which propositions underpin argument advanced for the applicants.  It is not the law that the transferor is not under any circumstances entitled to enforce his interest in property where such property has been conveyed as part of an overall scheme for illegal objects.  The fact that title has passed to a transferee pursuant to a transfer made in such circumstances does not preclude the transferor from bringing an action for restitution: it is well established that the transferor can in such circumstances recover the property if he is not forced to plead or rely upon the illegality.  See Tinsley v Milligan [1994] 1 AC 340; Tribe v Tribe [1996] Ch 107.

14. Had it in this case been necessary for the applicants to seek to recover the property by recourse to the courts, they would have had no need to plead in support of their case why it was that the property was conveyed in the name of the company, and why it was that the cousins were the shareholders.  They had only to plead those facts that established the creation of the trust: in this case the contributions to the purchase price would have sufficed in themselves.  In so far as Mr Westbrook relies upon statements in Tribe that a transferee is entitled in certain circumstances to pray in aid evidence of illegality in answer to a transferor’s claim, we would point out that the scenario there under discussion was a quite different one from the present.  What was there under discussion was a case in which the transferor had to rely on the illegal purpose in order to rebut a presumption against him, namely, a presumption of advancement, and to pray in aid the doctrine of locus poenitentiae, a doctrine which on certain facts enables the transferor, as an exception to the general rule, to rely on the illegality, but only, it seems, where the illegal purpose has not been carried out.  This is not that situation.  Here there was no need for the applicants to rebut any presumption by recourse to the illicit purpose of the transfer.  The relevant presumption was in their favour.  On and before the date upon which the declaration was made in support of the PTA application, namely, 20 May 1994, the second applicant, if not the first as well, had a beneficial interest in the property which she could then have enforced without recourse to the underlying illegality.  The first applicant knew that.  Had he thought otherwise, he would hardly have lent himself to the elaborate charade which was under way.   One might, in any event, add that the effect of illegality where it does bite against the transferor is not to deny the existence of the beneficial interest but merely to make it unenforceable: see Tinsley v Milligan, above, at page 374A-E.

Ground 2: the suggestion of a gift

15. The second ground is as follows:

“The learned trial judge when concluding that the second applicant held a financial interest in the property as beneficiary under a constructive trust, failed to consider that the transfer to the Yan sisters (via Marca Ltd) could equally well have operated as a gift, whereby the second applicant held no financial interest in the property.”

16. The line taken here is that the facts give rise to the possibility that the second applicant intended to divest herself of any legal and equitable interest in the property, precisely to enable the first applicant to apply for the allowance, so that she treated the transfer as a gift, trusting her cousins to act upon a moral obligation “to gift it back” if and when called upon to do so.  This, it is argued, is a possibility not addressed by the judge and in concluding that there was a resulting trust, he drew a possible, but not the only possible, inference.

17. The point is, in our judgment, weak:

(1)	As a matter of law, on the facts of this case, a resulting trust arose in favour of the second applicant.  The relationship between the second applicant and her cousins is not one that gives rise to any presumption of a gift in their favour.  To the contrary, the facts give rise to a presumption, which was not gainsaid by any acceptable or accepted evidence, that a gift was not intended.
(2)	The argument is noteworthy for its concentration on the suggestion that the second applicant intended to divest herself of all “legal and equitable interest”.  Yet, for reasons which we have already canvassed, that is not the issue in this case.  If, as is suggested in this limb of the argument, there was a settled expectation, an expectation with which all the parties were ad idem, that the very substantial funds invested by the second applicant, as well as the property itself, would in due course find their way back to her, then she would no doubt have said to herself at the time she paid the deposits, signed the documents, and made the mortgage payments, that she had a stake, a financial stake, in that property.  In that thought, she would have been quite correct; and for that reason, even on this alternative scenario, she had a financial interest in the premises.

Conclusion

18. It follows that this application for leave to appeal against conviction is in respect of each applicant dismissed.

[The Court heard an application for costs]

Costs

19. The respondent seeks its costs of this application.  The application for leave was in our judgment entirely without merit, and we see no reason why that order should not be made.  Accordingly, we order that the applicants pay the respondent its costs of this application for leave to appeal, to be taxed if not agreed.