LAI CHEE-YING v. SECRETARY FOR SECURITY

HCMP 956/2021

[2021] HKCFI 2804

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 956 OF 2021

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JUDGMENT

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1.  There is before the court an Originating Summons (“OS”) filed by the Plaintiff (“Lai”) against the Defendant (“S for S”) on 7 July 2021. These matters concern a Notice (No l of 2021) (“Notice”) issued by the S for S under s. 3 of Schedule 3 (“Schedule 3”) to the Implementation Rules (“Implementation Rules”) for Art. 43 of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (“NSL”).

2.  In this application, Lai seeks :

(1)   A declaration that for the purposes of Schedule 3 and the Notice, “deal with”, in relation to the Specified Property as stated in the Notice, excludes directly or indirectly exercising any voting rights in relation to any shares in Next Digital Limited (“Company”) (Stock Exchange of Hong Kong Stock Code: 282) (“Shares”);

(2)   Further or alternatively, he be granted a licence under s. 4(2) of Schedule 3 which permits and authorises him to directly or indirectly exercise any voting rights in relation to any Shares.

Issues

3.  With the encouragement of the court, the issues of this application were agreed by the parties at the direction hearing of the OS on 22 July 2021 as follows :

(1)   Whether, on the true and proper interpretation of the NSL including in particular Schedule 3, to “deal with” shares in a company held by a person alleged to be “offence related property” for the purposes of Schedule 3 and made the subject of a notice issued under s. 3 of Schedule 3, includes exercising directly or indirectly voting rights in relation to such shares (“Construction Issue”);

(2)   If the answer to (1) is yes, whether it is reasonable in all the circumstances of this case to grant to Lai a licence, and whether a licence should be granted to him (and if so, whether and what conditions are to be attached to the licence), to exercise directly and indirectly the voting rights in relation to the Shares under s. 4(2) of Schedule 3 (“Licence Application”).

4.  It will be seen below that there has been recent development in the affairs of the Company, and Lai has asked for the Licence Application to be adjourned.  The S for S does not take issue with the adjournment, but argued that the costs incurred on the Licence Application to date be borne by Lai because he is no longer seeking a blanket licence to exercise the voting rights in relation to the Shares. 

Background

5.  Lai is the holder, directly and indirectly, of 71.2% of the shares in the Company.  Lai’s evidence is that the Company is the holding company and the listing vehicle of a group of companies (“Group”).  It holds interest in 95 wholly-owned subsidiary companies, which conduct a range of business from publishing and printing to digital content and online games. Lai was the chairman of the board of directors and an executive director of the Company until he resigned with effect from 29 December 2020. 

6.  Although Lai said that the Company did not and does not carry on any business or operations of its own, he also said that as director of the Company he participated in managing the business and operations of the Company[1].  Probably, like many holding companies the Company was, directly or indirectly, managing the business and operations of the Group.  

7.  Lai was arrested on 10 August 2020 for an offence of collusion with a foreign country or with external elements to endanger national security, contrary to Art. 29(4) of the NSL. 

8.  In addition, Lai had been charged with two other NSL related offences, namely, (a) conspiracy to commit collusion with a foreign country or with external elements to endanger national security, contrary to NSL 29(4) and ss. 159A and 159C of the Crimes Ordinance, Cap 200; and (b) conspiracy to do an act or a series of acts tending and intended to pervert the course of public justice, contrary to Common Law and ss. 159A and 159C of the Crimes Ordinance. Under (b) (the 3^rd Offence), Lai is alleged to have assisted Li Yu-hin to abscond from bail whilst Li was under investigation for offence(s) under the NSL.

9.  Further, Lai is being investigated for one other count of conspiracy to commit collusion with a foreign country or with external elements to endanger national security.

10.  Lai has been detained in custody since 2 December 2020, save for 29 to 31 December 2020 when he was released on bail.

11.  The Notice, dated 14 May 2021, was issued to Lai and referred to specified properties of his, being properties which the S for S had reasonable grounds to suspect were “offence related property” for the purposes of s. 3 of Schedule 3.

12.  The offence related properties included “all shares in [the Company] held by [Lai], and the related physical share certificates registered in the name of [Lai]”.

13.  In the Notice, Lai was directed not to, whether directly or indirectly, “deal with” the Shares.  Para 2 of the Notice referred to five inclusive ways of how the Shares could be said to have been “dealt with” (“Five Acts”) :

(a)    to receive or acquire the Specified Property;

(b)   to conceal or disguise the Specified Property (whether by concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it or otherwise);

(c)    to dispose of or convert the Specified Property;

(d)   to bring into or remove from Hong Kong the Specified Property; or

(e)    to use the Specified Property to borrow money, or as security (whether by way of charge, in mortgage or pledge or otherwise).

14.  In response to the enquiry by the Company’s solicitors whether the Notice prohibited Lai from directly or indirectly exercising his shareholder’s voting rights, the National Security Department (“NSD”) of the Hong Kong Police replied on behalf of the S for S that “dealt with” :

“includes exercising voting rights in relation to the shares constituting the property specified in the Notice, and hence [Lai] must not directly or indirectly exercise the voting rights in relation to any shares in the Company held by him except under the authority of a licence granted by the [S for S].”

15.  By his solicitors’ letter dated 16 June 2021, Lai sought clarification from the S for S over the definition of “dealt with” and, in the alternative, requested for a licence “authorising him to exercise voting rights in relation to the Shares”.  No reply was received from the S for S prior to the issuance of the OS on 7 July 2021. 

16.  On 28 July 2021, the Financial Secretary appointed an investigator to investigate into the affairs of the Company. According to the press release of the Government :

“Circumstances that have particularly given rise to great concern include … Fourth, in end-2020 and mid-2021, the senior officers of [the Company] and the three subsidiaries of [the Company] were charged for various serious criminal offences under [NSL], raising the question of whether the affairs of [the Company] had been conducted by its officers in pursuit of their personal interests to the detriment of the public shareholders.”

17.  S for S’s reply to Lai’s solicitors was eventually given on 27 August 2012.  In fairness, the resources of the NSD and their advisors were likely bogged down by the filing of evidence (on 18 August 2021) in opposition to the OS and the preparation for the hearing.  It is unnecessary to set out the contents of the reply as it is plain that the parties were (and are) in disagreement.

Recent development

18.  After the filing of Lai’s reply evidence on 24 August 2021, it came to the notice of the S for S that on 5 September 2021, the Company announced that all 4 of its remaining directors had tendered their resignation (all with effect from 23:59 on 5 September 2021).  Company search on the Company’s subsidiaries revealed that there had been recent change of directorship in at least 58 of them, taking effect between 6 and 12 August 2021, but the notices of change of director were all filed with the Companies Registry out of time on 2 September 2021.  The same two directors, both giving an address in the USA, became the only members of the board of these subsidiaries. 

19.  The S for S says that these recent developments are material new circumstances, and would likely have significant impacts on the assessment of risks in respect of the Licence Application.

20.  Lai says that he knew not about these developments, which I find surprising giving his controlling shareholding in the Company[2].  However, by reason of the change of circumstances, Lai is no longer seeking a blanket licence to permit him to exercise his voting rights. Instead, he wants a licence for him to exercise such rights to wind up the Company. 

21.  Having considered the additional evidence and submissions on the recent development, the court expressed the preliminary view that the intended licence application should firstly be made to the S for S. The simple reason being that it is not the function of court, nor is it in a position, to carry out national security risks assessment.  If there is disagreement between the parties over a fresh licence application, the court will be in the position to adjudicate on the matter with the benefit of the parties’ evidence and submissions. 

22.  The S for S expressed agreement with the preliminary view of the court, whereas Lai had chosen to keep his powder dry and asked for the Licence Application to be adjourned.  However, he had alluded to the possibility of amending the relief sought in the OS in respect of the Licence Application.

Relevant NSL provisions and extrinsic materials

23.  The first Article under Chapter I, General Principles, of the NSL stated as follows :

“This Law is enacted, in accordance with the Constitution of the People’s Republic of China, the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, and the Decision of the National People’s Congress on Establishing and Improving the Legal System and Enforcement Mechanisms for Safeguarding National Security in the Hong Kong Special Administrative Region, for the purpose of:

• ensuring the resolute, full and faithful implementation of the policy of One Country, Two Systems under which the people of Hong Kong administer Hong Kong with a high degree of autonomy;

• safeguarding national security;

• preventing, suppressing and imposing punishment for the offences of secession, subversion, organisation and perpetration of terrorist activities, and collusion with a foreign country or with external elements to endanger national security in relation to the Hong Kong Special Administrative Region;

• maintaining prosperity and stability of the Hong Kong Special Administrative Region; and

• protecting the lawful rights and interests of the residents of the Hong Kong Special Administrative Region.”

24.  The Decision of the National People’s Congress (“NPC”) referred to in NSL 1 was the one dated 28 May 2020 (known as “the 5.28 Decision”).  According to the highest court in Hong Kong, “[g]iven the special status of the NSL as a national law applied under Article 18 of the Basic Law … and given the express reference in NSL 1 to that process, regard may properly be had to the Explanations and Decisions made in proceedings of the NPC and the NPC Standing Committee (“NPCSC”) regarding promulgation of the NSL as a law of the HKSAR as extrinsic materials relevant to consideration of the context and purposes of the NSL: HKSAR v Lai Chee Ying [2021] HKCFA 3, [11].

25.  The 5.28 Decision was preceded by an Explanation of a Draft Decision (which subsequently became the 28.5 Decision) presented to the NPC on 22 May 2020.  The Explanation began by identifying the concerns of the Central Authorities :

“At present, the increasingly notable national security risks in the HKSAR have become a prominent problem. In particular, since the onset of Hong Kong’s ‘legislative amendment turmoil’ in 2019, anti-China forces seeking to disrupt Hong Kong have blatantly advocated such notions as ‘Hong Kong independence’, ‘self-determination’ and ‘referendum’, and engaged in activities to undermine national unity and split the country. They have brazenly desecrated and defiled the national flag and emblem, incited Hong Kong people to oppose China and the Communist Party of China (‘CPC’), besiege Central People’s Government (‘CPG’) offices in Hong Kong, and discriminate and ostracize Mainland personnel in Hong Kong. These forces have also wilfully disrupted social order in Hong Kong, violently resisted police enforcement of the law, damaged public facilities and property, and paralyzed governance by the government and operation of the legislature. Moreover in recent years, certain foreign or external forces have flagrantly interfered in Hong Kong’s affairs. They have made intervention and created disturbances in various ways, such as by legislative and administrative means and through non-governmental organizations. In collusion with those anti-China Hong Kong disrupters, these forces of the same ilk backed and cheered on the disrupters and provided a protective umbrella, and utilized Hong Kong to carry out activities endangering national security. These acts and activities have seriously challenged the bottom line of the ‘One Country, Two Systems’ principle, seriously undermined the rule of law, and seriously jeopardized national sovereignty, security and development interests. Vigorous measures must be taken to prevent, suppress and punish such acts and activities in accordance with the law.”

26.  The Explanation went on to note that HKSAR’s failure to enact legislation pursuant to Art. 23 of the Basic Law (“BL”) gave rise to the need at the national level to “establish and improve the legal system and enforcement mechanisms for the HKSAR to safeguard national security, and to change its long-term ‘defenceless’ condition in the field of national security”.

[see HKSAR v Lai Chee Ying, [12] and [13]]

27.  NSL 3 provided that: “… [t]he executive authorities, legislature and judiciary of the [HKSAR] shall effectively prevent, suppress and impose punishment for any act or activity endangering national security in accordance with this Law and other relevant laws.”

28.  Under Chapter IV, Jurisdiction, Applicable Law and Procedure, NSL 43 provided :

“When handling cases concerning offence endangering national security, the department for safeguarding national security of the Police Force of the [HKSAR] may take measures that law enforcement authorities, including the Hong Kong Police Force, are allowed to apply under the laws in force in the [HKSAR] in investigating serious crimes, and may also take the following measures:

…

(3) freezing of, applying for restraint order, charging order and confiscation order in respect of, and forfeiture of property used or intended to be used for the commission of the offence, proceeds of crime, or other property relating to the commission of the offence;

…

The Committee for Safeguarding National Security of the [HKSAR] shall be responsible for supervising the implementation of the measures stipulated in the first paragraph of this Article by law enforcement authorities including the department for safeguarding national security of the Hong Kong Police Force.

The Chief Executive shall be authorised, in conjunction with the Committee for Safeguarding National Security of the [HKSAR], to make relevant implementation rules for the purpose of applying the measures under the first paragraph of this Article.”

29.  It is reasonably clear from the wordings of NSL 43 that the powers granted thereunder are in addition to those existing at the time when the NSL was made.  See also A & B v Commissioner of Police [2021] HKCFI 1801, at [43(1)]. 

30.  The Implementation Rules were made pursuant to NSL 43 and came into force on 7 July 2020.  There is no issue concerning the validity of the Implementation Rules.

31.  Mr Wong SC, who appeared with Ms Wong SC, Mr Wong and Ms Leung for Lai, placed emphasis on NSL 4 and NSL 5 which provided for the protection of basic rights of the people of Hong Kong :

NSL 4

“Human rights shall be respected and protected in safeguarding national security in the Hong Kong Special Administrative Region. The rights and freedoms, including the freedoms of speech, of the press, of publication, of association, of assembly, of procession and of demonstration, which the residents of the Region enjoy under the Basic Law of the Hong Kong Special Administrative Region and the provisions of the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights as applied to Hong Kong, shall be protected in accordance with the law.”

NSL 5

“The principle of the rule of law shall be adhered to in preventing, suppressing, and imposing punishment for offences endangering national security. A person who commits an act which constitutes an offence under the law shall be convicted and punished in accordance with the law. No one shall be convicted and punished for an act which does not constitute an offence under the law.

A person is presumed innocent until convicted by a judicial body. The right to defend himself or herself and other rights in judicial proceedings that a criminal suspect, defendant, and other parties in judicial proceedings are entitled to under the law shall be protected. No one shall be liable to be tried or punished again for an offence for which he or she has already been finally convicted or acquitted in judicial proceedings.”

Schedule 3 to the Implementation Rules

32.  Schedule 3 set out the “Rules Relating to Freezing, Restraint, Confiscation and Forfeiture of Property”. 

33.  Section 3(1) of Schedule 3 is the focus of this application :

“Where the [S for S] has reasonable grounds to suspect that any property held by any person is offence related property, the Secretary may, by notice in writing specifying the property, direct that a person must not, directly or indirectly, deal with the property except under the authority of a licence granted by the Secretary.”

[emphasis added]

34.  There is no dispute that the Shares are “properties”[3].  Further, under s. 1(6) of Schedule 3, “[p]roperty is held by any person if the person holds any interest in it”.

35.  “Offence related property” is a central concept under s. 3.  It was defined under s. 1(1) of Schedule 3 as follows :

“(a) the property of a person–

(i) who commits, or attempts to commit, an offence endangering national security; or

(ii) who participates in or facilitates the commission of an offence endangering national security; or

(b) any property that is intended to be used or was used to finance or otherwise assist the commission of an offence endangering national security;”.

36.  Section 4(2) of Schedule 3 governs licence applications to the court :

“Any person affected by a notice served under section 3 of this Schedule (including a person affected by the operation of that section) may make an application to the Court of First Instance for the grant or variation of a licence mentioned in section 3(1) of this Schedule, … The Court of First Instance must not grant the application unless it is satisfied that it is reasonable in all the circumstances of the case to do so.”

[emphasis added]

Principles of construction

37.  There is no dispute over the well-established principles of construction.  I am happy to modify and adopt the summary provided by Mr Suen SC, who appeared with Ms Cheung and Ms Pang for the S for S :

38.  A purposive and contextual approach should be adopted in the construction of a statute.  The relevant principles may be summarised as follows :

(1)   A purposive approach is to be adopted in statutory construction, and the surer guide to construction is context.  The context and purpose are to be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity may be thought to arise: T v Commissioner of Police (2014) 17 HKCFAR 593 at [4] & [48]; Vallejos v Commissioner of Registration (2013) 16 HKCFAR 45 at [75-77]; HKSAR v Lam Kwong Wai (2006) 9 HKCFAR 574, at [63].

(2)   A purposive approach is to be applied in the construction of a constitutional document such as the BL (like the NSL, it is a national law enacted under the Constitution of the PRC): Ng Ka Ling v Director of Immigration (1999) 2 HKCFAR 4 at 28D-I.  

(3)   A purposive and contextual approach should likewise be adopted in the construction of the NSL: HKSAR v Lai Chee Ying (2021) 24 HKCFAR 33 at [8], [11], [42] & [45] and Tong Ying Kit v Secretary for Justice [2021] HKCA 912 at [31]-[34].

(4)   All of the relevant provisions should be read together and in the context of the whole statute as a purposive unity in its appropriate legal and social setting: Medical Council of Hong Kong v Chow Shiu Shek (2000) 3 HKCFAR 144 at 154B-C.  The context of a statutory provision should be taken in its widest sense: Town Planning Board v Society for the Protection of the Harbour Ltd (2004) 7 HKCFAR 1 at 13I-J.  The court should read the cognate provisions as a “coherent whole”: Comilang Milagros Tecson v Director of Immigration (2019) 22 HKCFAR 59 at [60]-[61].

(5)   Amongst the wider matters to be taken into account as part of the context are the purpose of the legislation, practicalities, common sense, the existing state of the law: per Neuberger NPJ in T v Commissioner of Police, supra, at [281].

(6)   Where interpretative considerations conflict, the court has to weigh and balance them: Medical Council of Hong Kong v Chow Siu Shek at 154C.  

(7)   Extrinsic materials which cast light on the context or purpose may generally be used.  In relation to a national law, such materials include the explanations given at the NPC or the NPCSC on the draft law: Director of Immigration v Chong Fung Yuen (2001) 4 HKCFAR 211 at 224E-G; HKSAR v Lai Chee Ying at [11].

39.  Further guidance on the principles of the purposive approach can be found in the judgment of the Court of Appeal in Comilang Milagros Tecson v Director of Immigration [2018] 2 HKLRD 534 at [66] :

“In adopting the purposive approach, the court must have regard to the language of the text in the light of the relevant context and purpose with, where necessary, the assistance of internal and external aids to interpretation. As Li CJ explained in his seminal judgment on the common law approach to interpretation of the BL in Director of Immigration v Chong Fung Yuen (2001) 4 HKCFAR 211 at pp 223-225:

(1) Subject to any binding interpretation by the [NPCSC], in interpreting a particular provision of the BL, the court construes the language of the text to ascertain the legislative intent as expressed in the language objectively.

(2) The court does not construe the language in isolation. It considers the language used in the text in the light of its context and purpose. Put another way, the court ascertains the meaning borne by the language when considered in light of its context and purpose.

(3) Whilst in interpreting the provisions in question, the court must avoid a literal, technical, narrow or rigid approach, it cannot give the language a meaning which the language cannot bear.

(4)   There are two kinds of aids to interpretation: internal and external aids.  As its name suggest, the internal aids are derived from what it is found within the BL, including provisions in the BL other than the one in question and the Preamble.  External aids are external materials which throw light on the context or purpose of the BL or its particular provisions.  …”

Construction Issue

Context and purpose

40.  The NSL came to be made at a critical moment in the history of Hong Kong.  This place was engulfed in violent protests.  Few living in Hong Kong could escape the oppression represented by the street violence.  Many did not feel safe to venture around as they used to.  There was a genuine fear that if the state of affairs remained unchecked it would spell the end of Hong Kong as this place was known.  It was in these circumstances that the Central Authorities acted to protect Hong Kong and plug the legal loophole in the lack of national security law. 

41.  These matters were reflected in the 22 May 2020 Explanation (see paras 25 and 26 above).  The purpose of the NSL was stated explicitly in NSL 1, amongst which were the prevention, suppression and punishment of NSL offences (“Stated Purposes”). 

42.  Echoing NSL 1, pursuant to NSL 3 the executive, legislature and judiciary are to effectively prevent, suppress and impose punishment for any act or activity endangering national security in accordance with the NSL and other relevant laws.

43.  The construction of the relevant provisions of the NSL and Schedule 3 should be made in the context and purpose stated above (see also Tong Ying Kit v Secretary for Justice [2021] HKCA 912, [31]-[34]). 

NSL 43 and s. 3 of Schedule 3

44.  It is plain that NSL 43 covered matters of principle without particularity or definition of terms.  The latter were dealt with by the Implementation Rules. 

45.  Pursuant to NSL 43(3), a property may be subject to different measures taken by the authority, namely, freezing of, applying for restraint order, charging order, confiscation order and forfeiture. 

46.  The property which may be subject to such actions is one which was (a) used or intended to be used for the commission of offence; or (b) proceeds of crime; or (c) other property relating to the commission of offence.  I believe it is implicit that the offence or crime referred to was intended to be NSL offence or crime.

47.  It can readily be seen that these measures and the properties targeted were aimed at fulfilling the Stated Purposes.

48.  Turning to the specific provisions for the freezing of a property, at the heart of s. 3 of Schedule 3 is the concept of “offence related property” (“ORP”).  Under the definition provisions, ORP means (a) the property of a person who commits or attempts to commit or participates in or facilitates the commission of a NSL offence or (b) any property that is intended to be used or was used to finance or otherwise assist the commission of a NSL offence.  The freezing power may only be invoked in respect of such a property. 

49.  As implementation rules, these provisions aimed to put into effect the provisions of NSL 43 and for the Stated Purposes. 

50.  It is reasonably clear that the provisions for the freezing, restraint, confiscation and forfeiture of property were embodied collective under Schedule 3 because they were related. 

51.  Under the provisions of s. 9 of Schedule 3, the court must make a confiscation order against a defendant who has benefited from the NSL offence of which he is convicted.  The value of the defendant’s proceeds of the NSL offence as assessed by the court would be the amount to be recovered from him under the confiscation order.  Such an order is to be treated as a judgment debt (see s. 9(4)-(6) and (11)). 

52.  Under s. 13 of Schedule 3, the court may make a forfeiture order against an ORP.  In simple terms, where the property in question represents any proceeds arising from a NSL offence or is intended to be used to finance or otherwise assist the commission of a NSL offence or was so used, it may be made the subject of a forfeiture order. 

53.  A notice to freeze a property is not an end in itself.  It has an initial validity not exceeding 2 years (s. 3(3)), unless an application for, eg, a confiscation order is pending.  An extension of the validity of the notice must not be granted by the court unless the investigation of the NSL offence to which the notice relates could not reasonably have been completed before its expiry.  An extension must not exceed the time reasonably necessary for the conduct of the investigation (s. 3(4)). 

54.  It is reasonably clear from the provisions of s. 3, read with the other provisions of Schedule 3, especially ss. 9 and 13, that one of the purposes of a freezing notice is to preserve the property in question so that a confiscation or forfeiture order may be obtained in the future. 

55.  In addition, I accept Mr Suen’s submissions (which are supported by the reading of the relevant provisions and common sense) that a freezing notice may also serve the purposes of :

(1)   Preventing the use of the property in financing or assisting any NSL offence; and

(2)   Preventing any dealing with the property in a manner which may prejudice on-going investigation or proceedings concerning NSL offence.

“Deal with”

56.  In respect of the restriction imposed by prohibiting, directly or indirectly, the dealing with a property subject to a freezing order, it can be seen that the provisions of s. 3 were drafted in wide and embracing terms :

(1)   The natural and ordinary meaning of “deal with”[4] has a wide ambit.  According to the Oxford English Dictionary, “to deal with” means “to act in regard to, administer, handle, dispose in any way of (a thing) … to handle effectively; to grapple with; to take successful action in regard to.”

(2)   The use of the words “directly or indirectly” is consistent with an intention that the ambit of prohibition imposed by a freezing notice is a wide one.

(3)   Read in light of the context and purpose of the NSL (in particular, the Stated Purposes), that intention is fortified.

(4)   The opportunity to obtain a licence to allow a property to be dealt with in a particular manner (Lai says that such a licence can be blanket one or one without having the intended act stated) is an important constituent of s. 3.  It is necessary when it is at least impractical, if at all impossible, to state in advance what action is or is not permitted without derogating from the Stated Purposes, and it mitigates the harshness of the freezing regime[5]. Thus, the built-in licence regime further fortifies the intention that “deal with” should be construed widely.

NSL 4 and 5

57.  In respect of Mr Wong’s reliance on NSL 4 and 5, there is guidance provided by the CFA in HKSAR v Lai Chee Ying, which concerned Lai’s bail application :

“41. NSL 4 and NSL 5, reflecting presentations to the NPC and NPCSC set out above, which emphasise protection and respect for human rights and adherence to rule of law values while safeguarding national security, are also centrally important to the interpretation of the NSL generally and NSL 42(2) in particular.

42. We have decided that there is no power to hold any provision of the NSL to be unconstitutional or invalid as incompatible with the Basic Law and Bill of Rights.  However, that is not at all to say that human rights and freedoms and rule of law values are inapplicable.  On the contrary, NSL 4 and NSL 5 expressly stipulate that those rights, freedoms and values are to be protected and adhered to in applying the NSL.  They provide the context in which NSL 42(2) must be construed and applied.  As far as possible, NSL 42(2) is to be given a meaning and effect compatible with those rights, freedoms and values. Save insofar as NSL 42(2) constitutes a specific exception thereto, that corpus of law, comprising not only the human rights and rule of law principles but also the generally applicable HKSAR rules governing the grant or refusal of bail is intended to have continued effect in NSL cases.  As it was put by this Court in a comparable situation, the specific exception is intended to operate in tandem with constitutional rights and freedoms and other applicable statutory norms as part of a coherent whole.”

[emphasis added]

58.  Mr Wong submitted that Lai’s right to property, namely, the Shares and, inter alia, the voting rights thereunder is constitutionally protected by BL 6[6] and BL 105[7] and preserved by the NSL.  It is therefore a principle which must be given real and substantial weight in the interpretation of the NSL. 

Voting right

59.  I agree with Mr Wong that the voting right of a shareholder in a company is a property right protected by BL 6 and BL 105.  The Shares are, in law, a bundle of intangible rights against the company which had issued them, and the right to vote at the general meetings of the company is an important part of that bundle (see Re CA Pacific Finance Ltd [1999] 2 HKLRD 1 at 18D, per Yuen J (as she then was)). 

60.  However, there is no escape that a freezing notice restricts the free exercise of the rights represented by the Shares. Protection of property right is not absolute.  I fail to see why under the NSL freezing regime the right to vote should somehow be carved out or treated differently.  If the Shares are frozen by the Notice, it makes little sense for the prohibition not to apply to an important right attached to the same.

61.  There is a degree of imprecision in the phrase “deal with”, but I do not see that as a sound reason to exclude the exercise of voting right from dealing with the Shares.  Should the right to receive dividends be excluded due to the imprecision?  With the best will in the world, it is doubtful whether a form of words (better than “deal with”) can be devised which would achieve the purposes of the freezing regime with precision and without prolixity. 

62.  It must not be overlooked that there exists an avenue for Lai to apply for a licence to exercise his voting right if he takes the view that such action will have no adverse bearing on national security. If the S for S disagrees with him, Lai can go before the court for adjudication.

63.  The existence of the licence exception provides a balance between the Stated Purposes and the protection of property right.  It also mitigates the imprecision of the phrase “deal with”.  There is no reason to read down the provisions of s. 3 to exclude the exercise of voting right. 

Other arguments of Lai

64.  I am unable to accept Mr Wong’s submission that the exercise of voting right by Lai would not possibly impact upon the purposes of the freezing regime adversely.  Firstly, in matters of national security and related risk assessment, I agree with Mr Suen that there is a need for the court to give due weight to the views of the enforcement agencies: see Secretary of State for the Home Department v Rehman [2003] 1 AC 153, [26F-G] & [31E-G]; Hysan Development Co Ltd v Town Planning Board (2016) 19 HKCFAR 372, [116] & [117].  The S for S had declined to issue a blanket licence to Lai to exercise his voting right. 

65.  Secondly, the sweeping submission is undermined by the following events :

(1)   On 8 December 2020, Lai by way of written approval authorised the disposal of a building complex located in Taipei and owned by Next Media Broadcasting Ltd, an indirect wholly-owned subsidiary of the Company.  The consideration involved was NT$1,750 million (approximately HK$475.8 million);

(2)   On 1 April 2021, the Company made an early repayment of loan in the sum of HK$150 million to Lai (it was revealed in an announcement made only on 22 July 2021).  The repayment represented nearly one third of the bank and cash balances of the Group as of 31 March 2021;

(3)   On 19 April 2021, a non-legally binding memorandum of understanding was entered into by Database Gateway Ltd, a direct wholly-owned subsidiary of the Company, for the disposal of Amazing Sino International Ltd, which holds various assets including the Group’s business of Taiwan Apple Daily and a property in Taiwan.  On 29 June 2021, the Company accepted another non-legally binding proposal from a potential purchaser for the disposal of Amazing Sino International Ltd;

(4)   On 14 July 2021, Apple Daily Publication Development Ltd, an indirect non wholly-owned subsidiary of the Company, entered into a sale and purchase agreement to dispose of a property in Taiwan at NT$500 million (equivalent to approximately HK$139.2 million).

66.  These transactions involved very substantial assets the disposal of which would likely have impacted on the value of the Company.  The court has not been told as to the whereabouts of the proceeds. In his affidavit, Lai said that, with the exception of transaction (1), he was not involved directly or indirectly with those transactions.  As for transaction (1), Lai said that he overlooked it.  Given that Lai is the controlling shareholder of the Company and that transaction (2) was directly related to him, the court must treat his explanation with a healthy degree of scepticism. 

67.  At the very least, transaction (1) demonstrates that unrestricted exercise of voting right by Lai may result in depletion of the Company’s assets, which will in turn diminish the value of the Shares which may be subject to a confiscation or forfeiture order in the future.

68.  Mr Suen pointed out, rightly, that the Construction Issue does not depend on whether the shares which are frozen are those of a public or private company.  He gave an example where the exercise of voting right by a controlling shareholder may endanger national security, namely, such a shareholder may vote to approve the use of the company’s funds to finance a subversive organisation.  Another example may be the appointment to the board of the company agents of a country hostile to China. 

69.  Thirdly, it is not right for the court to have to second guess what or how Lai may exercise his voting right, which may or may not be for legitimate purpose.  Mr Suen had referred the court to Mo Yuk Ping v HKSAR (2007) 10 HKCFAR 386, [63] where, in discussing the necessity to have a general offence with greater degree of vagueness than that to be expected in the case of a specific offence directed to a particular situation, the CFA observed that “[i]t has been widely recognized that there is no limit to the ingenuity of fraudsters in engineering novel means of defrauding others. This ingenuity leads to the conclusion that the enactment of specific offences is not an adequate safeguard unless they are accompanied by a general offence”.  I see no reason why such dicta should not be borne in mind in the protection of national security.

70.  Lai has been charged with serious offences for endangering national security, including the collusion with a foreign country. He is also a man of considerable means.  In such circumstances, it would be naive for the court to think that with the management vested in a board of directors which membership included independent non-executive directors, the exercise of voting right by a controlling shareholder would not possibly frustrate or hinder the freezing regime (as submitted by Mr Wong).   

71.  Although Mr Wong’s submission has been overtaken by the recent resignation of the remaining directors of the Company (that state of affairs may change), the argument was advanced to test the ambit of “deal with”, and to support the ancillary argument that “deal with” should be confined to the Five Acts which would be sufficient for purposes of the freezing regime. 

72.  I am unable to agree with the ancillary argument.  Apart from the reason stated in para 80 below, I have considerable reservation whether the issue of adequacy is one for the court to judge in construing a statutory provision.  The function of the court is to decide the meaning of a provision read in light of the context and purpose of the legislation.  Adequacy of a provision was primarily a matter for the legislature. 

73.  Also, I am unable to agree with the submission that if a director acted in breach of the NSL after his appointment by the controlling shareholder, it was the action of the director and not the exercise of voting right which caused the beach.  The submission ignores the prevention of NSL offence.

74.  Mr Wong also submitted that the freezing regime under s. 3 was copied and adapted from the corresponding regime under the United Nations (Anti-Terrorism Measures) Ordinance, Cap 575 (“UNATMO”).  The objectives for enacting UNATMO were to give effect to various international obligations including, inter alia, the freezing of terrorist property.

75.  Section 6(12) of UNATMO referred to the Five Acts in an exhaustive definition for “deal with” in the context of the freezing regime thereunder[8].  Mr Wong submitted that there was no legal basis for the S for S to have turned the Five Acts into an inclusive definition.  The exhaustive definition in the UNATMO reflects the proper scope and limit of the words “deal with” as a matter of plain and ordinary meaning and which is considered, in the context of anti-terrorism (which has the closest connection with the NSL), to be sufficient.

76.  I am inclined to agree with Mr Suen that it is unhelpful to refer to the definition in UNATMO.  Firstly, as the Court of Appeal held in Cheermark Investment Ltd v Director of Lands [2018] 1 HKLRD 79 at [40], a definition for a particular statutory purpose does not really help one to determine the meaning of the word one has to construe in a different document, even when they involve the same or a similar expression, as the same word in different documents may take on different meanings because of the textual or factual context.

77.  The NSL is a national law with a wider purpose than UNATMO.

78.  Secondly, NSL 28 specifically provided that the provisions in Part 3, Terrorist Activities, “shall not affect the prosecution of terrorist offences committed in other forms or the imposition of other measures such as freezing of property in accordance with the laws of the [HKSAR]”.  It is therefore palpably clear that the NSL regime was intended to operate as a separate regime.

79.  Thirdly, assuming that s. 3 was adopted from s. 6 of UNATMO[9], the definition of “deal with” under s. 6(12) was deliberately left out.  This suggests an intention to depart from the restrictive definition in UNATMO. 

80.  Fourthly, the Five Acts only prohibit a person from disposing of or diminishing the value of the property in question.  They would not prevent a person from utilising the property to facilitate the commission of a NSL offence or to carry out acts which may prejudice the investigation of a NSL offence (see para 55 above). 

Conclusion and Disposition

81.  For these reasons, the Construction Issue is answered in the affirmative.  It follows that the declaration sought in the OS (see para 2(1) above) should be dismissed.

82.  I accede to the adjournment application of Lai and the hearing of the OS is adjourned sine die with liberty to restore.  The costs of the OS are reserved.

83.  The court had considered the additional evidence adduced by the parties.  Therefore, in respect of the Summons of the S for S filed on 9 September 2021, I make an order in terms of para 1.  Paragraphs 2 to 4 have been overtaken by events.  The costs of the Summons be reserved.

84.  As regards Lai’s Summons filed on 13 September 2021, I make an order in terms thereof.

85.  I am grateful to both legal teams for their assistance.