KEEN LLOYD HOLDINGS LTD AND OTHERS v. COMMISSIONER OF CUSTOMS AND EXCISE AND ANOTHER

HCAL 113/2012 and
HCAL 82/2013

(Consolidated)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO 113 OF 2012

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 82 OF 2013

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(Consolidated by order of the Honourable Mr Justice McWalters
dated the 22^nd day of May 2013)

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D E C I S I O N

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Introduction

1.  On 23 December 2014 I handed down my judgment in this case.  In that judgment I declared that certain search warrants, not being executed within a reasonable time from the date of their issue, had lapsed by the date of their execution and I quashed them.

2.  I also declared that section 21(1)(a) of the Import and Export Ordinance, Cap 60 (“IEO”) is inconsistent with Article 29 of the Basic Law and is thus unconstitutional  and that as a consequence any seizures effected subsequent upon an entry and search of premises made pursuant to section 21(1)(a) were effected in the course of a trespassory entry and search and must be returned to the persons from whom they were seized.

3.  Some of the materials seized under the warrants that were quashed for late execution or that were seized subsequent upon an entry and search conducted pursuant to section 21(1)(a) of the IEO, were copied to Mainland Customs.  The legality of the Hong Kong Customs and Excise Department (“C&E”) so doing was also challenged.  Although, in view of my declarations in respect of the validity of the warrants and the constitutionality of section 21(1)(a), it was not necessary for me to resolve this issue I expressed a view on how I would have resolved it in case either of my declarations might be found to be wrong. I was of the view that in providing copies to Mainland Customs C&E had acted unlawfully and I ordered the 1^st respondent to use its best endeavours to recover all the materials it had provided to its Mainland counterpart.

4.  By notice dated 20 January 2015 the respondents indicated an intention to appeal my judgment.

5.  On 16 April 2014 I handed down a supplemental judgment refusing an application by the respondents to vary my original judgment by replacing my declaration of the unconstitutionality of section 21(1)(a) with one of two alternative remedial interpretations proposed by them.

6.  There are now two applications brought before me by way of summons.  One is an application by the applicants for the respondents to:

(i) return all seizures illegally made within 14 days;

(ii) return 10 containers alleged by the applicants to have been seized under the authority of one of the quashed warrants; and

(iii) produce evidence to show that the 1^st respondent has used its best endeavours to retrieve all copies of seizures that its provided to Mainland Customs.

7.  The second application is an application by the respondents for a stay of my orders pending the determination of its appeal of my judgment.   

8.  I shall deal with the stay application summons first.

Principles relating to a stay

9.  The principles relating to a stay application were set out by Ma J, as he then was, in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84.  The starting point is to recognize, as counsel for the applicants emphasizes, that the Rules of the High Court (“RHC”) specifically provide in RHC O 59, r 13(1) that an appeal shall not operate as a stay of execution.  The consequence of this is, as Ma J explained at page 87, paragraph 7 of his judgment:

“In other words unless the defendant can justify a stay of execution, one will not be ordered. The practice of the court is that justification can be demonstrated only if good reasons exist.”

10.  The two points that flow from this comment on which the applicant’s rely is that a stay has to be justified by “good reasons” before it will be granted and the burden is on the party seeking the stay to persuade the court that such “good reasons” exist.  As to what will constitute good reasons Ma J went on to say in the following paragraph:

“Good reason can exist in a variety of forms. It will be wrong to set out any exhaustive definition of what would constitute good reasons, but, commonly, reference is made to factors such as whether the absence (or existence) of a stay would render an appeal nugatory (thus bringing into focus the relative prejudice that may be caused to the appellant and to the respondent by a stay of execution), and the merits of the appeal.”

11.  In the present case the respondents rely on the merits of their appeal and also on an assertion that the absence of a stay would render their appeal nugatory.

12.  On the approach a judge should take to the question of the merits of the appeal Ma J had this to say:

“(5) How relevant then is the court’s consideration of the merits or strength of the appeal? In my view, while it is impractical and even undesirable for the court in dealing with an application for a stay of execution, to go deeply into the merits and strengths of an appeal, it must however form a preliminary view of these aspects. This I believe to be an inevitable consequence of the starting point I have earlier mentioned in referring to Order 59, rule 13(1).

(6) The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay. It can be put this way : the existence of an arguable appeal (that is, one with reasonable prospects of success) is the minimum requirement before a court would even consider granting a stay. In other words, however exceptional the circumstances may be otherwise justifying a stay of execution, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted.

(7) Conversely, however, the existence of a strong appeal or a strong likelihood that the appeal would succeed, will usually by itself enable a stay to be granted because this would constitute a good reason for a stay …

(8) In most cases, the court will not be dealing with the extreme situations I have referred to.  Often, it will be faced with simply the existence of an arguable appeal.  Here, it becomes necessary for the appellant to provide additional reasons as to why a stay is justified.  The demonstration of an appeal being rendered nugatory is one example, albeit a common one.  Here, where it is demonstrated that an appeal would be rendered nugatory if a stay was not granted, the court may require no more than the existence of an arguable appeal.  Correspondingly, where it cannot be shown that an appeal would be rendered nugatory if a stay were not granted, the court will require, in the absence of any other factors, the appellant to demonstrate strong grounds of appeal or a strong likelihood of success.”

13.  On a claim that not granting a stay would render the appeal nugatory Ma J said:

“(2) That said, whatever the nature of the order or judgment appealed from, the court will still require evidence as to why an appeal will be rendered nugatory in the event of a stay not being granted. The requisite quality of the evidence will, of course, depend on the nature of the order or judgment appealed against.

(3) … A bare assertion is unlikely to meet with much sympathy where more substantial evidence is available …

(4) An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant faces financial ruin or the loss of all his property.  Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough …”

14.  Mr Bell SC for the applicants argues that it is not enough for the party relying on a claim that without a stay the appeal would be rendered nugatory to show merely a risk of this eventuating; rather he has to show by credible evidence that it would eventuate ie a difference between “could” or “would”. I do not agree.  As Ma J noted in his judgment in the Star Play case, what the court is doing with an application for a stay is assessing the relative prejudices that could flow to the parties from a stay being granted or not being granted.  There may well be occasions when the prejudicial impact of the stay being or not being granted can be precisely and definitely known. Other times only the general nature of the prejudice might be ascertainable and of this prejudice it can only be said that there is a risk of it it eventuating.  The greater the risk, the greater the prejudice and vice versa. But just because it is only a risk rather than a certainty does not prevent it from constituting prejudice for the purpose of the application.

15.  Consideration must also be given to the position of the successful litigant and the impact that a stay would have on him as granting a stay has the effect of delaying the successful litigant from immediately enjoying the fruits of his success.  This may cause prejudice to this person.  Ma J said:

“(9) … It is important to stress that the court must not at any stage forget the position of the successful party. It is always relevant to consider the prejudice that would be caused to the successful party (the respondent in the appeal) in the event a stay is granted and if necessary, to impose conditions so as to minimise the prejudice caused to him. A fortiori, the court must consider any contention that the appeal would be rendered nugatory to him (in the event the appeal is dismissed) should a stay of execution be imposed.”

16.  The final step is to stand back and assess the strength of the good reasons advanced for the granting of a stay and balance them against the prejudice that will be caused to the successful party “but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success.”[1]

The merits of the appeal

17.  The applicants submit that there are no merits in certain of the grounds of appeal and that in respect of others the grounds, though arguable, are very weak with little prospect of success.

18.  The respondents submit that their grounds of appeal are all arguable but recognize some may not be as strong as others.

19.  There are four grounds of appeal.  The first concerns whether or not, absent any legislative intention to the contrary, a search warrant has a finite life and must be executed within a reasonable time or whether it remains alive until such time as the circumstances underlying its grant may, in the opinion of the law enforcement officer responsible for it, have materially changed.  Allied with this ground is a further ground that I erred in finding that, given the lapse of time and the nature of the investigation, the warrants had not been executed within a reasonable time and had therefore lapsed.

20.  The third ground of appeal concerns the constitutionality of s 21(1)(a) and whether there was a lawful basis for the entry and search by C&E officers of the premises that were the subject of warrants 3,4 and 9. 

21.  The fourth ground of appeal relates to the provision by C&E to their Mainland counterparts of copies of the materials seized under the warrants. There are two parts to this ground of appeal.

22.  The first part of ground 4 asserts that I should have held that a law enforcement agent in Hong Kong is empowered to pass information derived from materials acquired under compulsive process to a law enforcement agent outside Hong Kong if such derived information would assist that external law enforcement agency to detect and/or investigate offences in its jurisdiction. The second part of this ground of appeal argues that a Hong Kong law enforcement agent is empowered to pass information derived from materials acquired under compulsive process to a law enforcement agent outside Hong Kong if, in so doing, the external law enforcement agent could assist the Hong Kong law enforcement agent to detect and/or investigate offences in Hong Kong.     

23.  In so far as any of the grounds of appeal rely on asserting that I erred in the findings of fact that I made then I regard such grounds as being weak with little prospect of success.  All the grounds in which there are legal arguments involved I regard as being at least arguable, although I  regard the legal arguments in Grounds 1 and 4 (i)  as being weak with very limited prospects of success.  I do not understand ground 4 (ii)  as I never ruled that, as a matter of law, a law enforcement agent could not provide information derived from materials acquired by compulsive process to third parties if it was necessary to do so in order to advance its investigation.  In fact I specifically found it could do this at paragraphs 160-161 of my judgment.

24.  I make these comments in the knowledge that ultimately it is for the Court of Appeal to determine the merits of the grounds and I only make them for the purposes of the stay application where I have to form a view of the merits of the appeal.  Having formed this view it is clear that the merits of the appeal are not sufficient, without more, for the purpose of providing good reasons to grant the stay application.  The respondents need more.  The only other good reason on which they rely is the strong likelihood of prejudice to the criminal investigation and imminent prosecution, through the destruction of evidence.  The likelihood of this occurring, it is said, would render the appeal nugatory.

Would the appeal be rendered nugatory if a stay was not granted?

25.  The only concern of the respondents is the loss of potential evidence to a future prosecution whose initiation they say is imminent.  Should they be compelled to return to the applicants the evidence that the respondents need to prosecute them, there is a high risk that this crucial evidence will no longer be available to the respondents should they succeed on the appeal.  This high risk would have the effect of rendering the successful appeal nugatory and therefore constitutes good reason for granting the stay.

26.  The applicants assert in reply that they need the originals of the documents for accounting and tax purposes, that they have already suffered prejudice from not having the originals available to them and they will continue to suffer prejudice should they still be denied them.

27.  There is also the question of whether the respondents need a stay in order to preserve the evidence.  A stay is being used simply as a mechanism that will enable the respondents to lawfully remain in possession of the materials they need for a prosecution.  This raises the question of whether there is any other means which would enable the respondents to legitimize their possession of these documents.  I can think of two.  The first is for the 1^st respondent to exercise the power under section 21(2)(a) of the IEO and have his officers reseize the materials. Because the materials are in his own premises he does not need an entry and search power in order to gain access to them.  The second means is to seek the assistance of the police by transforming the investigation into a joint C&E/Police investigation and having the police exercise their own powers to obtain a magistrate’s warrant to enable access to and seizure of the documents from C&E premises.

28.  In respect of the use of the section 21(2)(a) IEO power the respondents are concerned that it would be a rather artificial use of the power to use it to seize documents already in the C&E’s possession and it may give rise to satellite litigation.  Even though my judgment was not concerned with the propriety of the criminal investigation, or the sufficiency of the evidence to ground the issue of the warrants or to trigger the exercise of any warrantless power of entry and search, or the genuineness or reasonableness of any suspicion held by any C&E officer when exercising the section 21(2)(a) power, I can, nevertheless understand the desire of the respondents to avoid unnecessarily complicating this matter further.

29.  These concerns are less valid in respect of the second option of seeking the assistance of the police.  But this is a smuggling investigation on which the 1^st respondent has been working for many years and doing so in conjunction with his Mainland counterpart.  It would be wasteful of law enforcement resources to force, at this late stage, the involvement of the police. Although it may be an option lawfully available to the respondents and it may be an option that the 1^st respondent has to consider using at a future date, I do not see that it is a practical alternative and it is not, in my view, a reason for denying the respondents their application for a stay. 

The prejudice to the applicants

30.  The only prejudice to the applicants is not having available to them the original of those documents that were seized as hard copies as opposed to those printed from digitally stored data.  The applicants maintain that they need the originals but, on the evidence placed before me, I am not satisfied that they do.  Photocopies should suffice and if those photocopies need to be certified or verified in some way then I cannot see why that cannot be done.  I see no meaningful prejudice to the applicants should they be denied the fruits of their successful litigation. 

Conclusion

31.  In terms of the balancing exercise that I must perform vis‑à‑vis the parties, namely balancing the good reasons advanced by the respondents against the prejudice suffered by the applicants I conclude that the balance comes down firmly on the side of the respondents and for that reason alone I would grant the stay application.  But I think there is another factor which I can quite properly take into account and that is that this litigation involves matters of public law impacting upon the public interest.  The particular public interest at stake here is the public interest in ensuring that criminal conduct is properly investigated and those complicit in it are prosecuted and brought to justice.  It is not just the respondents who have an interest in the outcome of this investigation – the whole community has an interest in combating crime and seeing offenders prosecuted.  The public interest in the effective administration of the criminal justice system provides further reason for tilting the balance in favour of granting a stay.

32.  The respondents have identified the documents from all of those seized that they wish to retain for their future prosecution.  The stay order that I make therefore is a stay of my orders only insofar as they affect the seized materials as set out in the schedule prepared by the respondents which is Exhibit “LCWB-A11” to the 7^th affirmation of Lai Chi Wing Barry.

The applicants’ summons

33.  There are 3 matters sought by the applicants.  They all relate in one way or another to the return of the seized materials.  I shall deal firstly with the return of the 10 containers which is the second matter sought by the summons.

34.  The applicants maintain that the 10 containers were seized pursuant to the search warrant numbered 9 which was issued by a magistrate under section 22(2) of the IEO.  This warrant was conceded to be unlawfully issued as it related to commercial rather than domestic premises.  However, the entry and search could have been lawful under section 21(1)(a) had I not declared that provision unconstitutional.

35.  This issue is resolved by firstly addressing some factual matters.  The applicants assert that the containers were seized from the applicants’ berth by which they mean that the containers were on the dock.  The applicants further assert that entry to the berth in order to search it was achieved by the unlawfully issued warrant.

36.  The respondents submit that by looking at the face of the warrant it is clear that it is directed at the applicants’ office premises located on the dock.  The respondents further say that the 1^st respondent maintains his own office premises on the dock and that his officers have a lawful right to come and go from the dock, and enter upon any part of the dock, for the purpose of performing their duties.  They do not need any warrant to do so. Finally, the respondents assert, by evidence, that the 10 containers were seized from the applicants’ vessel and not from the dock in the area of their vessel’s berth.  Hence, the respondents say the 10 containers were not seized consequent upon an entry and search effected under any of the warrants and so they are outside of the ambit of the judicial review. 

37.  The only evidence adduced by the applicants is that there were a number of containers stored at or near their berths numbered 6 and 7 but they do not go so far as saying that the 10 seized containers were these or amongst these containers.

38.  On the other hand the respondents assert through the affirmations of Acting Superintendent Lai that search warrant number 9 was used to effect the entry and search of only the container office of Yinggao at berth 6 and 7 of the River Trade Terminal.  The 7^th applicant witnessed this search and acknowledged the seizure of a number of documents from the container office.  On the same day C&E officers boarded Yinggao 331 and Yinggao 332.  The 10 containers were seized from both these vessels pursuant to the power in section 21(2)(a) of the IEO.

39.  I find as a fact that the containers were seized from the vessels Yinggao 331 and Yinggao 332 and I further find that their seizure was quite unrelated to search warrant number 9 and that the officers who boarded the vessels did not access their berths by relying upon the right of entry and search granted to them by search warrant number 9.  I therefore refuse the order sought by the applicants’ summons in respect of the 10 containers.

40.  The other orders sought concern the return of the seizures and the retrieval of the materials copied to C&E’s Mainland counterparts.

41.  In respect of these issues the following dates set the scene:

12 January 2012			Dates of seizures
19 January 2012
31 August 2012			Leave granted in HCAL113/2012
22 May 2013			Leave granted in HCAL82/2013
26 August 2013			Hearing of the applications commence
23 January 2014			Hearing of the applications conclude
23 December 2014			Judgment handed down

42.  The 1^st respondent has been in possession of the seizures for over three years.  That is more than ample time to sort out what is relevant to his investigation and that has now been done.  But it is worth noting that prior to my judgment being delivered nothing had been returned to any of the applicants notwithstanding that well before then much of the seizures must have been known to have no relevance or value to the investigation.  The common law allows a law enforcement agency executing a search warrant against a large volume of material to take away the whole with a view to subsequently conducting a filtering exercise of it.[2] But the corollary of this is that as soon as the law enforcement agency becomes aware that it has seized irrelevant material it is obliged to return it.[3]  I cannot help but have the impression that some degree of urgency has only entered the 1^st respondent’s actions since the handing down of my judgment. 

43.  Through the affirmation of Acting Superintendent Lai the 1^st respondent has explained:

“After the handing down of Judgment, a team of officers, subject to other operational commitments, was deployed to handle the return of seizures pursuant to the judgment.”

44.  I am not at all impressed by this statement. It is not only vague as to the number of officers, and their rank, allocated to the task, it suggests that no priority was given to complying with the court’s order.  With such an attitude it is hardly surprising that so little has been achieved after such a long lapse of time.  This is completely unacceptable.  It is not for the 1^st respondent to decide how long he shall take to comply with the court’s order nor shall he impede compliance with it by limiting the number of staff needed for the task or limiting when or how much time they may work on this task. 

45.  I grant the order sought by the applicants and I now order that there must be full compliance with the court’s order within 14 days of the date of this judgment.

46.  The final order that is sought by the applicants’ summons is for an order that:

“The 1^st Respondent do produce evidence to show that he has used his best endeavours to retrieve all copies of the seizures that the Customs and Excise Department had provided to others within 7 days from the date of the Order or other such time as the Court may think fit.”

47.  In response to this application the 1^st respondent has explained what efforts he has made to retrieve the copy documents that he unlawfully provided to his Mainland counterpart.  This explanation is set out in the 6^th and 8^th affirmations of Acting Superintendent Lai.  These efforts amount to two meetings between C&E officers and their Mainland counterpart on 8 January 2015 and 5 February 2015 and three letters from C&E to their Mainland counterpart on 28 January, 17 February and 24 March 2015.  As these affirmations do not provide much in the way of detail of the meetings and as the letters are so brief.  I shall set out the contents in full.

Meeting on 8 January 2015

48.  In his 6^th affirmation Mr Lai says:

“Since the handing down of the Judgment, the PRC Customs was duly informed of the Judgment and two meetings were held between the officers from CED and the PRC Customs on the retrieval of the copy seizures provided to the PRC Customs.”

49.  In his 8^th affirmation he says:

“Two meetings in 8 January and 5 February 2015 respectively were also held with the officers from the Mainland Customs for explanation of the Order dated 23 December 2014 made in these proceedings and also for discussions on the return of the copy seizures to the CED.”

Letter of 28 January 2015

50.  This letter states:

“Pursuant to one of the orders made by the High Court in Hong Kong in the Judicial Review proceedings in relation to ‘128’ project, we are required to retrieve the intelligence materials which have been handed over to the Mainland. We gratefully wish relevant arrangements could be made with your assistance.

Thank you very much for your kind attention.”

Meeting on 5 Febuary 2015

51.  The only relevant passages in the affirmations are those already quoted above in respect of the meeting on 8 February 2015.

Letter of 17 February 2015

52.  This letter states:

“ We have issued a letter on 28 January 2015 requesting your kind assistance in retrieving the intelligence materials of ‘1.28 Project’ which have been handed over to the Mainland. (We) hereby provide the details of those intelligence materials in order to facilitate the arrangements.

Pursuant to the ‘Co-operative and Mutual Assistance Arrangement between Hong Kong Customs and Excise Department and the General Administration of Customs’, we had handed over some copies of documents and computer harddisks between January 2012 and June 2012 (please refer to Annex 1 for details) for the investigation of ‘1.28’ project in Hong Kong. We gratefully wish those intelligence materials could be returned as early as possible in order to comply with one of the orders made by the High Court in Hong Kong.

Thank you very much for your kind attention.”

53.  The details of the intelligence materials provided was in the form of a schedule annexed to this letter. 

Letter of 24 March 2015

54.  This letter states:

“ As per our letter to your Sub-administration on 17 February (2015) [our ref.: GD15-021] concerning the return of intelligence materials, (we) would be most grateful if arrangements could be made as soon as possible. We are well prepared to retrieve the materials concerned at any time.

Where necessary, please contact our officer in-charge of the case … to work out detailed arrangements.

Thank you very much for your kind attention.”

55.  What stands out from all these letters and of what I have been told transpired at these meetings is that the 1^st respondent has given priority to its desire not to offend its Mainland counterpart at the expense of complying with the court’s order that he use his best endeavours to retrieve the materials he unlawfully allowed to leave his possession.  There seems to be a total failure to comprehend the importance of the issues at stake, namely property and privacy rights in respect of the seized materials and the illegality involved in C&E’s conduct in providing them to persons not authorized by law to receive them. 

56.  I am not satisfied that the 1^st respondent has made his best endeavours to retrieve the materials and I direct him to renew his efforts with greater vigour and urgency in carrying out my order.

Costs

57.  In respect of the costs of the summonses I make the following orders nisi:

(i) In respect of the respondents’ summons I award the costs of the summons to the respondents.

(ii) In respect of the applicants’ summons, the applicants have succeeded on two of the three matters that they sought and so I award them the costs of 70% of their summons.  I award the applicants their costs on an indemnity basis and I do so to mark my disapproval of the 1^st respondent’s dilatory conduct in complying with the court’s orders.

[1] Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at page 89, paragraph 10.

[2] See Apple Daily Ltd v Commr of the ICAC (No.2) [2000] 1 HKLRD 647 at 670D-F.

[3] This may be subject to the exception of computers where the hard disk may properly be viewed as not analogous to a filing cabinet containing both relevant and irrelevant material but rather to a single object or thing such as a diary; see R (Faisaltex Ltd) v Crown Court at Preston [2009] 1 WLR 1687.