HKSAR v. LUNG WAI HUNG

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No.264
(Criminal)

HEADNOTE

Criminal Procedure - confiscation order - implementation of section 8 of Organized and Serious Crimes Ordinance, Cap.455 - order is mandatory where proper procedure has been followed and conditions set by the Ordinance are fulfilled - court has no discretion even when there are genuine third party claims to money being confiscated emanating from victims of the crime - inappropriate case for orders of compensation or restitution due to complexity of civil claims - solution only provided on appeal by responsible attitude taken on behalf of Secretary for Justice.

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No.264
(Criminal)

----------------------

J U D G M E N T

----------------------

Stuart-Moore, J.A. (giving the judgment of the Court):

1. On 23rd March 1998, the Applicant pleaded guilty in the District Court before Deputy Judge Fung to three counts of theft. On 24th April 1998, the judge sentenced her to 14 months' imprisonment to run concurrently on each count.

2. The matter now comes before this court as an application for leave to appeal against a subsequent confiscation order, made by the judge on 27th April 1998 under the terms of section 8 of the Organized and Serious Crimes Ordinance, Cap.455 (The Ordinance). He ordered confiscation in the sum of $1,249,000 and, under the terms of section 13 of the Ordinance, made a further order that the Applicant should serve 26 months' imprisonment consecutive to the sentence she was serving, in the event of default of payment by 30th June 1998.

3. This was a straightforward theft case based on the simplest and clearest facts which are summarised by the judge in his Reasons for Sentence at p.9 in the appeal bundle as follows:

"The Defendant was employed as the clerk at Speedy Godown Co. Ltd. ("the Godown"). She worked alone unsupervised.

On 18.9.97, the Defendant, without the authority of her employer, sold 182 bales (97,400 yards) of grey cloth belonging to Wide Wade Textile Ltd. and Tat Shing Cotton Co., Ltd. stored at the Godown. The proceeds of $487,000 were credited to her own bank account.

On 19.9.97, the Defendant, without the authority of her employer, sold 74 bales (79,000 yards) of grey cloth belonging to Wide Wade. The proceeds of $395,000 were credited to her own bank account.

On 19.9.97, the Defendant, without the authority of her employer, sold 1344 bales (78,392 yards) of grey cloth belonging to Wide Wade. The proceeds of $367,000 were credited to her own bank account.

The offences came to light when one of the purchasers saw the cloth bore labels of Wide Way and Tat Shing, which owners he knew and he alerted the owner of the Godown. Under caution, the Defendant said she made the unauthorized sales because she wanted to help her husband pay off his debt in China."

4. The proceeds of these offences, amounting to $1,249,000, were found to be in the Applicant's bank accounts. In view of this background, an ex parte Restraint Order, pursuant to section 15 of the Ordinance, was made in the Court of First Instance by Deputy Judge Lugar-Mawson on 23rd September 1997 which was ordered to continue until further notice at an inter partes hearing on 7th October 1997.

5. On 24th April 1998, counsel on behalf of the Secretary for Justice made an application prior to sentence for a confiscation order pursuant to section 8 of the Ordinance. There was no objection of any kind from the defence and Mr. Kwok who also appeared in the court below, expressed his consent on behalf of the defence to the making of such an order. However, it is only fair to say that Mr. Kwok was not required to attend the court on the day when the confiscation order itself was made, by which time a turn of events had occurred.

6. Remaining for the moment with the events of 24th April 1998, solicitors representing Speedy Godown Co. Ltd. and Tat Shing Cotton Co. Ltd., the original victims of these thefts, sought to intervene but the Deputy Judge found, having reviewed such authority as then existed on the matter, and supported also by counsel for the Secretary for Justice and by counsel for the defence, that they had no locus under the provisions of the Ordinance. Whether or not that is so, these civil claimants had every right to be heard as to matters related to restitution and compensation, about which we shall say more at a later stage. In any event, the solicitors then asked to be given time to consult Senior Counsel and the confiscation hearing was adjourned until Monday 27th April 1998.

7. On Saturday 25th April 1998, a Mareva injunction was applied for and granted by Stone J. in the Court of First Instance on the ex parte application of Speedy Godown Co., Ltd. and Tat Shing Cotton Co., Ltd. against the Applicant's assets. This was brought to the judge's attention when the confiscation hearing resumed on 27th April 1998, and before the order was made.

8. On 1st May 1998, in an inter partes hearing, Sears J. ordered that the Mareva injunction should continue and, having taken the view that the provisions of s.11 of the Ordinance could not be satisfied because all monies had been frozen, Sears J. directed that the matter should be brought to the attention of the Department of Justice.

9. On that same day, the Applicant having heard what had been said, not unnaturally filed her Notice of Appeal. The right to appeal against the confiscation order is pursuant to section 8(8A) of the Ordinance. The Perfected Grounds of Appeal, now prepared on the Applicant's behalf by Mr. Kwok, are that:

"(1) the making of the confiscation order was wrong in principle; and

(2) the order to pay $1,249,000 to the Government was wrong in law in view of the injunction and the terms of sections 11 and 12 of the Ordinance."

Mr. Kwok's principal concern, to put no finer point on it, is that the Mareva injunction made the District Court Judge's order of confiscation impossible to fulfil by 30th June 1998 in which event the Applicant would find herself having to serve a further 26 months' imprisonment at the conclusion of her sentence of 14 months' imprisonment which we are given to understand will be on 2nd August, 1998.

10. As Mr. Blanchflower for the Respondent, to whom we are indebted for the careful research he has conducted into all aspects of this application, points out, the provisions in Part III of the Ordinance relating to the restraint and confiscation of the proceeds of crime are modelled to a large extent upon the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap.405. The preamble to the Ordinance reads that it is "to create new powers of investigation into organised crimes and certain other offences and into the proceeds of crime of certain offenders; provide for the confiscation of proceeds of crime; ....." The laudable purpose of the Ordinance is to uphold public policy in ensuring that a criminal does not retain any of the profit which has been derived from the crimes committed by him.

11. Before a confiscation order is made, the Court of First Instance may make a restraint order prohibiting any person from dealing with any "realisable property" (defined in section 12(1)) held by a specified person. Mr. Blanchflower tells us that, for obvious reasons, applications for restraint orders are generally made at or near the time of arrest for any of the specified offences listed in the First and Second Schedules to the Ordinance. In this case, whilst there were likely to be a number of civil claims, the step taken by the Department of Justice to obtain the restraint order was wholly justified and appropriate. This had the effect of immediately preventing the Applicant from distributing her criminal gains at a time when there was no other court order in existence which could have prevented this from occurring.

12. The procedure for obtaining a confiscation order is laid down in section 8 of the Ordinance. Before sentence has been passed, an application is made under section 8(1) for such an order. The court will then deal with sentence and any other ancillary orders other than the confiscation order (section 8(3)). (In this case the provisions of section 8(3) are not relevant as no such orders were made.) After sentence has been passed, the court will proceed to hear the prosecutor's application for a confiscation order and, under the terms of section 8(4), the court "shall then determine" whether the person "benefited", as defined in section 2(8) from the specified offence and, if he or she has, whether his or her proceeds are in total at least $100,000. If the Court has determined that the proceeds of the offences are at least in that sum, then the court, under section 8(5) of the Ordinance, "shall determine in accordance with section 11 the amount to be recovered in his case by virtue of this section". In order to assist the court in "assessing the value of the defendant's proceeds of a specified offence or an organized crime", the prosecutor under section 10 of the Ordinance may tender a statement of relevant matters. The amount to be recovered under section 11(1) is the amount assessed by the court to have been the value of the defendant's proceeds. However, in section 11(3）：

"If the court is satisfied that the amount that might be realised at the time the confiscation order is made is less than the amount the court assesses to be the value of the defendant's proceeds for the purpose of subsection (1), the amount to be recovered in the defendant's case under the confiscation order shall be -

(a) the amount appearing to the court to be so realised; or

(b) a nominal amount, where it appears to the court (on the information available at the time) that the amount that might be so realised is nil."

13. Section 8(7) of the Ordinance specifies that:

"The court shall then, in respect of the offence or offences concerned, order the person to pay -

(a) that amount; or

(b) without prejudice to the generality of paragraph (a) such proportion of that amount as it thinks fit after taking into account any order or orders provided for or referred to in subsection (3)(a)(ii)(B)(I), (II) or (III) which has or have been made in respect of that person." (i.e. fine, compensation or restitution, none of which were ordered in the Applicant's case.)

14. From the combination of these provisions it can be seen that it is in the nature of the legislation that the provisions are mandatory, once the necessary requirements have been established for the making of a confiscation order.

15. In the District Court, the trial judge was considerably troubled by this aspect, having learned at the hearing on 24th April 1998 that civil proceedings were likely to be pursued by at least Speedy Godown Co., Ltd. and Tat Shing Cotton Co. Ltd. He was, nevertheless, prevailed upon by both prosecution and defence to accept that he had no discretion in the matter and that the order in the present circumstances was mandatory. By the stage when the order was made, on 27th April 1998, the judge had also been made aware that a Mareva injunction had been granted prohibiting the Applicant from dealing with her assets, thus reinforcing the view that civil proceedings had in fact been commenced. Indeed, the whole account given in court about the sales of stolen cloth almost inevitably would have led to the conclusion that a large number of "innocent purchasers" of the cloth would eventually be seeking civil compensation for the losses they had incurred.

16. We have considerable sympathy for the judge in the dilemma which he faced. The concern which he expressed was that if he made a confiscation order in favour of the Government, any assets which might presently be available for the settlement of any civil claims would simply evaporate. If this could then have been anticipated, the position has now developed with even greater clarity. Mr. Blanchflower has provided us with a highly complex chart setting out the numerous hands through which the bales of cloth have passed since the time of the thefts.

17. In view of this complex situation, there can be no criticism that the trial judge, for whatever reason, did not make any order for restitution under section 30 of the Theft Ordinance, Cap.210, or for compensation. Mr. Kwok's present submission in this regard namely, that orders of both kinds should have been made, is misconceived. The matter was too speculative and the extent of the competing claims was then not fully known.

18. Clearly, and here we are in agreement with Mr. Kwok, the justice of the case must be that any innocent third parties should have their claims met from the Applicant's ill-gotten gains. However, with this in mind, Mr. Blanchflower has drawn our attention to the comparison that can be made with legislation in England relating to confiscation orders. Under section 71(1C) of the Criminal Justice Act 1988, if:

"..... the court is satisfied that a victim of any relevant criminal conduct has instituted, or intends to institute, civil proceedings against the defendant in respect of loss, injury or damage sustained in connection with that conduct -

(a) the court shall have a power, instead of a duty, to make an order under this section." (Emphasis supplied.)

19. There is no such provision under the Ordinance we are presently considering.

20. Nevertheless, Mr. Blanchflower did at one stage tentatively put forward a way in which the court might deal with this case short of dismissing the application altogether, in order to serve the overall interests of justice. He submitted that the court might substitute a nominal amount to be confiscated with a nominal period of imprisonment in default of payment. In these circumstances, he informed us that the Secretary for Justice would take immediate steps to discharge the Restraint Order. This would then have the result that the property which is the subject of the injunction would be available to satisfy civil claims. In the remote chance that civil proceedings did not proceed, then the Secretary for Justice could apply to vary the confiscation order under s.20(1A) of the Ordinance which provides for such applications to be entertained by the Court of First Instance within a period of six years.

21. The question we have asked ourselves is how this apparently just result could be achieved in the light of the far-reaching provisions of the Ordinance?

22. We have considered the power given to the Court of First Instance under s.17(2) to appoint a receiver. Mr. Blanchflower submitted that at this point the rights of third parties are protected. He does so on the basis that before the court empowers the receiver to enforce a charge, realise property or receive another person's interest in property, it must give an opportunity under s.17(8) to "persons holding any interest in the property to make representations to the court". He further gave this court an undertaking in this regard that, if the confiscation order was upheld by the court, the Secretary for Justice would make application for the appointment of a receiver.

23. We have concluded that the clear intention of the legislation is that where the Secretary for Justice has taken all proper steps to apply for an order for confiscation, and all other requirements of the legislation have been met, the making of an order in what the court determines to be an appropriate sum is mandatory. In this case, the proper procedures had been followed with precision.

24. No doubt in a large number of cases, justice is best served when orders are made of the kind contemplated by this Ordinance. In the present example, however, where civil proceedings have been put in motion, it has seemed to us unfortunate that the courts in Hong Kong do not possess the discretion given to the English courts under section 71(1C) of the Criminal Justice Act 1988 (see: 1988 ed. Archbold para. 5-475) to decide whether or not to make the order. It is, after all, no way to treat the innocent victims of crime, by effectively preventing them from seeking their remedy, by rendering a defendant penniless to pay back what is owed to them. The public perception, furthermore, will be an unhealthy one if orders for confiscation to the Government are going to be made behind the backs of some victims and in the face of others. Confiscation orders can rightly be described as draconian so that, directed at appropriate offenders and in appropriate circumstances, they can and will achieve their important objective.

25. Reluctantly, we arrived at the conclusion for the reasons given that the court was unable to accede to the course suggested by Mr. Blanchflower, that we might substitute for the present confiscation amount a nominal sum with a nominal period of imprisonment in default. Whilst this may have been expedient, there was, so far as we could see, no power to do so. With this in mind, and in order to ensure that no avenue had been overlooked, following the hearing on 25th June 1998 when judgment was reserved, we invited Mr. Blanchflower to indicate under which provision of the Ordinance an order in the terms he had suggested might properly be made. That is, bearing in mind that the "realisable property" held by the Applicant was at least in a sum that was equal to the amount ordered by the District Court to be confiscated.

26. Before dealing with his reply, which we heard on 3rd July 1998, it should be said that the order related to the "realisable property" which was the subject of the Restraint Order. In section 12(1) of the Ordinance, realisable property, subject to subsection (2) which is of no relevance in the present application, means:

"(a) any property 'held' by the defendant;

(b) ...........

(c) any property that is subject to the effective control of the defendant."

27. By section 3(11):

"Property is held by any person if he holds an interest in it."

28. Under section 2(1) "interest" in relation to property, includes right.

29. Section 12(3) provides that:

"For the purposes of this Ordinance the amount that might be realised at the time a confiscation order is made against the defendant is -

(a) the total of the values at that time of all the realisable property held by the defendant, less

(b) where there are obligations having priority at that time, the total amounts payable in pursuance of such obligations, ....."

30. Section 12(7) narrowly defines "obligations having priority" to refer to orders made by the convicting court or amounts which would be considered preferential debts under the Bankruptcy Ordinance, Cap.6, or the Companies Ordinance, Cap.32. More precisely, section 12(7) provides:

"For the purposes of subsection (3), an obligation has priority at any time if it is an obligation of the defendant to -

(a) pay an amount due in respect of a fine, or other order of a court, imposed or made on conviction of an offence, where the fine was imposed or order made before the confiscation order; or

(b) pay any sum which, if the defendant had been adjudged bankrupt or was being wound up, would be among the preferential debts."

31. The definition of "preferential debts" is to be found in section 12(8).

32. It follows, therefore, that except in the limited circumstances defined in section 12, a defendant's obligation to satisfy the confiscation order takes priority over any other claims to the property. It is in these circumstances, after the court has determined the amount of the confiscation order, that the court must order payment of that amount under section 8(7) with which we have dealt earlier in this judgment. It is unnecessary for this court to pass any judgment on what effect, if any, the Mareva injunction would have upon the confiscation order.

33. Clearly, if the mere existence of a Mareva injunction could frustrate the execution of a confiscation order, this might lead in certain circumstances to injustice if it enabled the wrongdoer eventually to retain some or all of the criminal proceeds. It suffices to say that, mindful of the rights of innocent third parties who are presently to some extent protected by the existing Mareva injunction, Mr. Blanchflower in his final response very responsibly indicated that the Secretary for Justice would ask for the confiscation order to be discharged. For these purposes, it would be treated, therefore, as if no application had been made for one. Mr. Blanchflower candidly accepted that he was in error in having suggested that an order in a 'nil amount' could be made because, under the terms of section 83(B) of the Criminal Procedure Ordinance, Cap.221, this court is unable to make any order which the court below could not have made. The trial judge was bound on proper application, as this was, to make the order that he did.

34. Accordingly, we acceded to the application made by Mr. Blanchflower. We express the profound hope, following the most responsible and sensible attitude already displayed by the Secretary for Justice, that the other parties who are known to have an interest in the proceeds of this crime will be informed of this latest development in order that they may be formally joined in the civil proceedings if they so desire. It may also be that, in view of the difficulties which have arisen in the present circumstances, and mindful that similar situations are likely to recur, that the Secretary for Justice may wish to bring to the attention of the Legislators the absence of a provision reflecting the terms of section 71(1C) of the Criminal Justice Act, 1988, discussed earlier in this judgment. It seems to us that the absence of a discretion in making an order for confiscation could lead to injustice arising from the same causes that have led to so much difficulty in this case.

35. For the reasons we have now given, we gave leave to appeal. Treating the hearing as the appeal, we quashed, without making any criticism of any kind, the order for confiscation and the term of imprisonment that was imposed in default of its payment. To that extent, the appeal was allowed.