R. v. LO CHAK MAN and Another

IN THE COURT OF APPEAL

1995, No. 744
(Criminal)

- Headnote -

Assisting another to retain the benefit of drug trafficking - Meaning of the words "concerned in an arrangement" in s25(1) of the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405 - By the operation of s4(1)(a) the ambit of "the relevant person's proceeds of drug trafficking" in s25(1) is widened to include the proceeds of drug trafficking of others.

Observations (Court of Appeal) on the statutory scheme and on whether the indictment was bad for duplicity, by alleging more than one offence in each count.

IN THE COURT OF APPEAL

1995, No. 744
(Criminal)

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J U D G M E N T

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Litton, V.-P. (giving the judgment of the Court):

Introduction

1. Each of the two applicants was convicted on one count of assisting another to retain the benefit of drug trafficking, contrary to Section 25(1)(a) of the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap 405, after a trial in the High Court before Bewley J and a jury lasting from February to the end of October 1995. They were sentenced to 12 years' imprisonment. Questions of law arise on the appeal. The matter has been fully argued by counsel. Accordingly we give leave to appeal under s82(2)(b) of the Criminal Procedure Ordinance, Cap 221 and deal with counsel's submissions as on a substantive appeal.

The statutory scheme

2. The Ordinance under which the appellants were convicted came into force on 1 December 1989. The object of the new law was to "provide for the tracing, confiscation and recovery of the proceeds of drug trafficking, to create the offence of assisting drug traffickers to retain those proceeds, and for incidental or related matters": see the long title to the Ordinance.

3. "Drug trafficking" is widely defined. It not only includes a number of specific offences provided for in the Dangerous Drugs Ordinance but also:

"entering into or being otherwise concerned in, whether in Hong Kong or elsewhere, an arrangement whereby -

(i) the retention or control by or on behalf of another person of that other person's proceeds of drug trafficking is facilitated; or

(ii) the proceeds of drug trafficking by another person are used to secure that funds are placed at that other person's disposal or are used for that other person's benefit to acquire property by way of investment": Section 2(1).

4. Section 25, where relevant, provides:

"25. Assisting another to retain the benefit of drug trafficking

(1) Subject to subsection (3), a person who enters into or is otherwise concerned in an arrangement whereby-

(a) the retention or control by or on behalf of another ('the relevant person') of the relevant person's proceeds of drug trafficking is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); ....

knowing or having reasonable grounds to believe that the relevant person is a person who carries on or has carried on drug trafficking or has benefited from drug trafficking, commits an offence.

(2) In this section, references to any person's proceeds of drug trafficking include a reference to any property which in whole or in part directly or indirectly represented in his hands his proceeds of drug trafficking."

5. Thus, it can be seen that so long as the proceeds, to which the "arrangement" relates, are partly the proceeds of drug trafficking, they come within the scope of s25(1). The Ordinance is silent as to what is meant by "partly": This is a question left to the jury to decide.

6. As regards "proceeds of drug trafficking" in s25(1), the net is cast very wide. Section 4(1) of the Ordinance says:

"4. Assessing the proceeds of drug trafficking

(1) For the purposes of this Ordinance -

(a) any payments or other rewards received by a person at any time (whether before or after the commencement of this Ordinance) in connection with drug trafficking carried on by him or another are his proceeds of drug trafficking..."

7. As will be seen later on, the proper construction of s4(1)(a) constitutes an important point in this appeal.

The indictment

8. The indictment, as it was first laid, simply averred that each of the two appellants (D1 and D2):

"between the 6th day of December, 1989 and the 19th day of December, 1989 in Hong Kong, was concerned in an arrangement whereby the retention or control of another namely LAW Kin-man's proceeds of drug trafficking was facilitated, knowing or having reasonable grounds to believe that the said LAW Kin-man was a person who carried on or had carried on drug trafficking or had benefited from drug trafficking."

9. Particulars were sought by the defence and eventually, as against D1 his participation in the arrangement was said to have been in respect of (i) US$4,713,861.65 in the account of Valoria Investment Ltd. with Nomura, and (ii) US$459,599.71 in the same account.

10. In relation to D2, his participation in the arrangement was in respect of (i) US$1,156,947.97 in the account of Mabel Chun with the Bank of Credit and Commerce, San Po Kong Branch, (ii) HK$596,980.85 in the same account with the same branch, (iii) HK$6.5m in the account of Pearl Lau Siu Chu with the same bank in the same branch and (iv) HK$600,000 in the account of Sung Tin Biu with the same bank, Kowloon City Branch.

Background facts

11. The person referred to in the indictment, Law Kin Man, was engaged in drug trafficking on a massive scale prior to his arrest in December 1989. At the trial, the evidence of a drug trafficker Yuen Ho-yin was adduced to the effect that in the second half of the year 1987 alone 316.5 kgs of heroin were passed to Law Kin Man, obviously for re-distribution, with an estimated cost price of US$24-odd million. Obviously, evidence of this nature is extremely difficult to obtain. Yuen Ho-yin was only a cog in the wheel: his "boss" was one Jackie Wong Kwong Kit who did not testify. The inference is inevitable that apart from Law Kin Man's acquisitions of heroin through Yuen, there were other large-scale dealings as well.

12. Law Kin Man had scores of accounts with banks and other financial institutions: many with the Bank of Credit and Commerce (BCC): all in the names of friends, associates, nominees, offshore companies or fictitious names. Many of those accounts were opened with no proof of identity or with false documentation. Many of the accounts in the BCC were operated by the application of a chop.

13. As regards the funds in the name of Valoria Investment Ltd. with Nomura averred in count 1, and in the respective names of Mabel Chun, Pearl Lau Siu Chu and Sung Tin Biu with the BCC averred in count 2, a tracing exercise had been performed by a chartered accountant Mr James Wardell. It shows funds in very substantial amounts moving into and out of the scores of Law Kin Man - controlled accounts in a bewilderingly complicated fashion: short-term fixed deposits would be rolled over for a few months and then merged with other accounts; cash would come in and cash would go out. When movements of moneys between accounts in different names were made, false documents would be created to show cash withdrawals and cash deposits: to disguise the provenance of the money.

14. The sums withdrawn from Valoria's account with Nomura eventually went to a Mr Fung in Taiwan through the agency of a Law Kin Man - controlled company called Homer Trading Company. The sums withdrawn from the various BCC accounts averred in count 2 were eventually also transferred to Mr Fung in Taiwan, through the agency of two Law Kin Man - controlled companies: Homer Trading Company and a company called Fu Kua Sun.

D1 and D2's involvement with Law Kin Man

15. D1 is Law Kin Man's younger brother. Before his arrest on 19 December 1989 D1 operated a hair-dressing salon. Some time in the past, he also speculated in shares. In the October 1987 share-market crash D1 lost heavily in the stock market and had to be "rescued" by a loan of $1m from Law Kin Man. D1 was a nominee shareholder and director in a number of Law Kin Man companies: Valoria, Andermat, Anwide. In such capacity, D1 had signed many documents, sometimes in front of bankers and solicitors. He also signed documents like account opening forms, agreements for the operation of nominee accounts, company resolutions, tax returns etc. In relation to Valoria, he had signed a letter to Bankers Trust Nominees which stated: "It is co-beneficially owned by me". There was much evidence before the jury to indicate D1's close relationship with Law Kin Man's financial affairs. In October 1987 D1 went with YY Chan, the Group Manager of BCC, to Singapore. This was in relation to another nominee company Bismark in which D1 was a nominal shareholder and legal documents had to be signed in Singapore, in front of solicitors. As regards Valoria itself, there was evidence to the effect that D1 had attended a meeting in 1988 with a Mr Brewer of Bankers Trust concerning shares held in the bank nominee's name: D1 signed some documents at that meeting, after a brief explanation of their contents. In August 1989 D1 (the sole signatory on the Valoria account with Nomura) attended a lunch meeting at Nomura, organised by a senior Japanese director for the purpose of meeting the account holder: Valoria shortly before then had opened a margin account with Nomura for the purpose of trading in foreign exchange transactions. D1 had, of course, signed the documents for that purpose as well. Law Kin Man was present at the lunch meeting, as was his "manager", Chong Khin Loke.

16. Chong, in his testimony, expressed the opinion that D1's English was of a "kindergarten standard", and that he did not know what he was signing. However, this was not supported by any evidence from D1 himself, for he never testified at his trial, and the jury was entitled to treat Chong's opinion with some cynicism. D1's close association with Law Kin Man is also evidenced by the fact that when he was arrested at 6.10am on 19 December 1989, he was found sleeping in Law Kin Man's bedroom at his (Law Kin Man's) home in Sai Kung. In the same room were found copies of letters signed by D1 addressed to Bankers Trust Nominees.

D2's involvement with Law Kin Man's affairs

17. For years D2 was heavily involved in Law Kin Man's movements of money into and out of the scores of accounts in nominee names. He had a desk in the offices of Anwide - a Law Kin Man controlled company - and one of his functions was to input the amounts held on fixed deposits into the office computer.

18. As regards the withdrawals from the accounts particularised in count 2, the facts established at trial were as follows:

(i) In relation to the sum of US$1,156,947 withdrawn from the Mabel Chun account and transmitted to Fu Kua Sun by telegraphic transfer, the application form was delivered to the San Po Kong Branch of the BCC by D2.

(ii) In respect of the HK$596,850.85 withdrawn from the Mabel Chun account at the same branch, banknotes totalling $600,000 in cash were handed over, and the account closed, after D2 had told the Assistant Manager Leung Hing Sang that he wanted to take all the funds out of the account. The authorisation was in the form of a chop of the signature of Mabel Chun. D2 had brought that chop with him to the branch. He took away the cash.

(iii) As regards the withdrawal of HK$6.5m from the Pearl Lau account, the telegraphic transfer application form, instructing the BCC San Po Kong Branch to transfer the funds to Homer Trading Company, was given by D2 to the Assistant Manger Leung Hing Sang on 14 December 1989.

(iv) As regards the cash withdrawal of HK$600,000 from the Sung Tin Biu account at the BCC Kowloon City Branch, this was taken away by D2 on 11 December 1989, after D2 had telephoned the manager of that branch from the San Po Kong branch.

The "arrangement"

19. As can be seen from s25(1) of the Ordinance, a person commits the statutory offence by entering into or being otherwise concerned in an arrangement having the effect as provided for in paragraph (a) or (b) of ss(1). The "arrangement", as established at the trial, was simply this: Law Kin Man's sister Sybil Law Wai Wah played a pivotal role in his affairs; she had replaced Chong as Anwide's manager in October 1989; within hours of Law Kin Man's arrest, she took steps to contact, directly and indirectly, the key persons in BCC - such as the Group Manager YY Chan - to have the sums in the various Law Kin Man-controlled accounts held in the various branches of the BCC to be withdrawn and taken out of the reach of the Hong Kong authorities. She also gave instructions to Chong to call Stephen Leung, the Manager of Nomura, to liquidate all positions held in the Valoria account. The Crown's case was quite simply that by such an arrangement the retention and control of those assets by Law Kin Man was facilitated; by the acts particularised in counts 1 and 2 of the indictment, D1 and D2 had concerned themselves in the arrangement, knowing or having reasonable grounds to believe that Law Kin Man had carried on drug trafficking or had benefited from drug trafficking.

Knowing or having reasonable grounds to believe that Law Kin Man had carried on drug trafficking

20. The inference that D1 and D2 had grounds to believe, before the uplift of funds from the accounts, that Law Kin Man had carried on drug trafficking was not hard for the jury to draw. D1's wife was at the airport with Law Kin Man when he was arrested and it soon became a notorious fact that Law Kin Man was wanted in the USA for drug trafficking. Neither D1 nor D2 testified at the trial as to their own knowledge or belief. The evidence was all one way.

Duplicity

21. It was submitted on behalf of the appellants that both counts of the indictment were duplicitous, in that count 1 alleged two separate arrangements against D1 and count 2 alleged four separate arrangements against D2. We reject this argument. As we have said earlier, the indictment as originally drafted merely alleged an arrangement whereby the retention or control of Law Kin Man's proceeds of drug trafficking was facilitated, with no particulars as to how the Crown alleged that such retention or control was facilitated. The essence of the offence in each count was the appellant's concern in the arrangement, whereby the retention or control of the proceeds of drug-trafficking was facilitated. Later, this was particularized. The two "uplifts" averred in the amended count 1, and the four "uplifts" averred in count 2, merely gave particulars of how, by the arrangement averred, the retention or control of drug money was facilitated. The amended indictment was not happily worded, but no one at the trial could possibly have been misled. Properly understood, each count alleged one distinct offence and the rule against duplicity was not infringed.

"Concerned in an arrangement"

22. Clearly, before the question of the defendants' guilt can be considered, there must be evidence that they were concerned in an arrangement whereby the retention or control of the relevant person's proceeds of drug trafficking was facilitated. Section 25(1) aims at the person who "enters into or is otherwise concerned" in such an arrangement. This connotes a conscious act. As far as D2 was concerned, he was so heavily implicated in the arrangement that, at the trial, no submissions were made on his behalf that he did not know what he was doing. The submission made on D2's behalf was one of law: s25(1), properly construed, required the Crown to prove beyond a reasonable doubt not only that D2 had performed a conscious act, but also this: when D2 entered into the arrangement by effecting the four "uplifts" particularised in count 2, he knew that the retention of Law Kin Man's proceeds of drug trafficking was thereby facilitated. We will need to revert to this argument in greater detail later.

23. As regards D1, the argument is more subtle. To fully understand the point advanced by Mr Griffiths QC on D1's behalf, it is necessary to focus on the judge's summing-up to the jury. At p4 - C, the judge said:

" So the Crown must prove firstly that the sums in the indictment are LAW Kin-man's proceeds of drug trafficking. Secondly, that the defendants knew or had reasonable ground to believe that LAW Kin-man carried on drug trafficking. Thirdly, that the defendants were concerned in an arrangement whereby retention or control by or on behalf of LAW Kin-man of his proceeds of drug trafficking, were facilitated."

24. So far, the summing-up is impeccable. When it came to applying the words "concern in an arrangement", in terms of s25(1)(a), the judge directed the jury as follows (at p34-I to S):

"Now, this is relatively new legislation and it is Draconian legislation which is aimed at preventing drug traffickers getting away with their ill-gotten gains. It aims to sweep up anyone who, with knowledge of the drug trafficker's activities, gets involved in that man's schemes to deal with the proceeds. It then provides a defence for them to establish the probability that they did not know or suspect the nature of their involvement. I direct you that in these circumstances, once the Crown has proved the defendants' involvement in, for example, signing documents authorising an uplift, or carrying documents or money, it need not go on to prove that the defendants knew the significance and the purpose of their actions. That is a matter of defence."

25. Mr Griffiths QC submits that where the judge told the jury that the prosecution did not "need to go on to prove that the defendants knew the significance and the purpose of their actions" this was a misdirection. It suggests that the words "concerned in an arrangement" are so wide that no conscious act had to be proved: so that if someone was duped into signing an authorisation to transfer money, the actus reus of the crime in s25(1)(a) would still have been proved.

26. In the case of D1, his "concern in the arrangement" was no more than this: on Monday 11 December 1989 he went along to the offices of Nomura with Law Wai Wah; the letter giving Nomura instructions to remit US$4.7m out of Valoria's account had been typed up in advance and it was signed by D1 (in English) above the typed words "yours sincerely" in front of Stephen Leung the Manager. (At the hearing, there were some doubts as to whether D1 arrived at Nomura's office with Law Wai Wah, or went along a few minutes later. Clearly, nothing turned upon this point of detail.) As regards the withdrawal of the balance in Valoria's account on 18 December 1989 - after the liquidation of the balance of Valoria's positions - the letter of instructions was typed by the staff at Nomura on Law Wai Wah's instructions; she took it away unsigned and returned with it signed by D1.

27. At the hearing, there was a submission of no case to answer made by counsel (not Mr Griffiths QC) on D1's behalf. It was a lengthy submission, not focussed on the point which Mr Griffiths QC now urges on behalf of D1: namely, that unless the act of signing is a conscious act, related to the transaction in question, it cannot be said that D1 has been concerned in an arrangement of any kind.

28. In our judgment, Mr Griffiths' argument is correct. A person cannot enter into an arrangement or be concerned in an arrangement, in terms of s25(1), as an automaton; his act must be a conscious act. Does this mean that the jury was misdirected on this point?

29. At trial, counsel did not go so far as to submit that D1 was a mere automaton, wholly unconscious of the nature of his acts. To do so would have destroyed all credibility in the eyes of the jury. So counsel danced around the point, without real engagement. It was submitted that Law Kin Man only gave instructions to D1 on a "need to know" basis; that D1 "didn't want to know"; that D1 merely signed without knowing what he was signing; he was a mere hair-dresser; his command of English was "kindergarten standard". But the one person who could have spoken directly about D1's state of mind - D1 himself - never testified.

30. The evidence at trial was overwhelming. As to the events leading up to D1's presence in Nomura's offices on Monday 11 December 1989 and signing the letter of instructions exhibit P105, the evidence was this: On the evening of Thursday 7 December 1989 Law Kin Man was at Kai Tak airport together with D1's wife and his brother Herman, awaiting the arrival of his wife and children on a flight from Sydney. It was there that Law Kin Man was arrested. Within less than two hours of Law Kin Man's arrest, D1 had received a phone call from Law Wai Wah.

31. D1 was the sole signatory on Valoria's account at Nomura. Any dealings with that account therefore required his signature. He personally attended at Nomura's office on Monday 11 December and appended his signature in front of the manager Stephen Leung. In these circumstances, it would have been absurd to suggest to the jury that D1 was not conscious of the fact that he was operating that account by his signature, to transfer money. Indeed, counsel did not in terms so suggest.

32. The focus of the argument on behalf of D1 in the court below was therefore similar to that on behalf of D2: that mens rea is an essential ingredient of every offence, unless it is expressly ruled out by clear words in the statute; therefore the prosecution had to prove not only the acts amounting to "being concerned in an arrangement" but also the knowledge that by such arrangement the retention or control by or on behalf of Law Kin Man of his proceeds of drug trafficking was facilitated.

33. In our judgment, the judge was right to reject this argument. It puts the statutory scheme on its head. Under s25(1) what the prosecution had to prove was that, at the time the defendant was concerned in the arrangement involving the retention or control of the proceeds of drug trafficking, he had at least reasonable grounds to believe that the relevant person (Law Kin Man) had been involved in drug trafficking. That is the extent of the guilty knowledge the prosecution had to prove. Once this threshold has been surmounted, the defendant is then thrown back upon his defences in s25(4) which provides:

"In proceedings against a person for an offence under this section, it is a defence to prove -

(a) that he did not know or suspect that the arrangement related to any person's proceeds of drug trafficking; or

(b) that he did not know or suspect that by the arrangement the retention or control by or on behalf of the relevant person of any property was facilitated."

34. This construction of s25(1) is entirely consistent with Lord Woolf's judgment in Attorney General of Hong Kong v. Lee Kwong Kut (1993) AC 951 at p964.

35. Bewley J's choice of words - the Crown need not prove that the defendants "knew the significance and purpose of their actions" - was unfortunate and taken in isolation was misleading. But, in the light of the clear evidence and in the context of the summing-up as a whole, the judge did not misdirect the jury as regards the ingredients of the offence under s25(1).

Proceeds of Law Kin Man's drug trafficking

36. By the nature of the activities concerned, direct evidence of Law Kin Man's drug trafficking in the United States would have been virtually impossible to obtain. As it was, there was testimony before the jury from Yuen Ho Yin, a self-confessed drug trafficker, covering part of the calendar year 1987. According to Yuen Ho Yin, his first dealings with Law Kin Man commenced in December 1986 when, on the instructions of his "boss" Jackie Wong Kwong Kit, he handed to Law Kin Man two suitcases with US$300,000 cash in each, in a restaurant in New York. There were other occasions in 1987 when large sums in cash were handed over to Law Kin Man. These were the proceeds of drug trafficking of Yuen and Jackie Wong; the object of handing the money over to Law Kin Man was for the purpose of "laundering": having the money passed through a series of accounts to disguise their origin. In other words, there was evidence before the jury to the effect that Law Kin Man did have, within his control, at various times, the proceeds of other people's drug trafficking - not simply his own.

37. Yuen was arrested in the USA in December 1987. Obviously, therefore, Yuen's dealings in drugs with Law Kin Man ceased at that point. However, on the whole of the evidence before the jury, the inference was irresistible that Law Kin Man's own drug trafficking never ceased, but continued right through until December 1989 when he was arrested.

38. The prosecution was able to establish at the trial, through Mr Wardell's pains-taking analysis of the accounting documents seized by the police, that a "tidal wave" of money swept through the Law Kin Man-controlled accounts for the three years commencing December 1986. The amounts involved were enormous: US$84.3m, plus HK$60m. Since the direct evidence from one drug trafficker alone showed that Law Kin Man was drug trafficking on a huge scale, the inference was irresistible that the greater part of the "tidal wave" sweeping through Law Kin Man's accounts represented the proceeds of his own drug trafficking: though, somewhere within the huge flow of funds, there would have been the proceeds of drug trafficking of others. But, in the murky world in which Law Kin Man operated, who precisely were his accomplices, and what was his slice of the proceeds, were matters on which no evidence could reasonably have been forthcoming.

39. When the prosecutor opened his case to the jury this is what he said:

"What are Law Kin Man's proceeds of drug trafficking? Any payment or other reward received by Law Kin Man in connection with drug trafficking carried on by Law Kin Man or another. Law Kin Man's drug trafficking or that of another are Law Kin Man's proceeds of drug trafficking .... the money must the Law Kin Man's proceeds of drug trafficking, that can come about because of Law Kin Man's own drug trafficking or that of another."

40. In this regard, the prosecutor relied upon the provisions of s4(1)(a) of the Ordinance which reads:

"4. Assessing the proceeds of drug trafficking

(1) For the purposes of this Ordinance -

(a) any payments or other rewards received by a person at any time (whether before or after the commencement of this Ordinance) in connection with drug trafficking carried on by him or another are his proceeds of drug trafficking;"

41. No one at the trial demurred regarding this view of the law until the prosecution had closed its case. It would appear that, from February right through to October 1995, everyone in court accepted that the prosecutor was right on his interpretation of s4(1)(a). This view is consistent with the approach of the English Court of Appeal in R. v. Osei (1988) 10 Cr.App.R.(S) 289 where, in considering the effect of s2(1) of the Drug Trafficking Offences Act, 1986 - a provision virtually identical to s4(1) of the Ordinance - the English Court of Appeal held that "any payments" in the section are not confined to payments in the nature of rewards to the drug trafficker. "Any payments" means any payments.

42. If this construction of s4(1)(a) be correct, the practical effect is this: there was no need for the jury to unravel the various streams of money which ultimately found their way into the accounts averred in the indictment: what was withdrawn from those accounts, on any view of the matter, must have been in part at least the proceeds of drug trafficking, for the purposes of s25(2) of the Ordinance.

43. There was some evidence of a shadowy nature to the effect that Law Kin Man was a "money man", having his fingers in many pies. Astonishingly, Superintendent Yip, the officer in charge of the case, was allowed by the judge to be drawn in the course of cross-examination into expressing such an opinion: How his opinion on such a matter was admissible in evidence is beyond understanding. Chong, Law Kin Man's "manager", also expressed views to similar effect - with no particulars of any kind. What it therefore boils down to is this: assuming that the scope of s4(1)(a) be as broad as contended for by the prosecution, it was inevitable that the jury should conclude upon the evidence that the bulk of the US$84.3m and HK$60m flowing through Law Kin Man's accounts represented the proceeds of drug trafficking, in terms of s25(1).

Submission of no case to answer

44. At the conclusion of the prosecution case, lengthy submissions were made by counsel that there was no case for the defendants to answer. One of the points taken was to the effect that s4(1)(a) only applied to moneys which represented the proceeds of Law Kin Man's own drug trafficking or some reward he had received for "laundering" other drug traffickers' money. There were other arguments advanced in support of the submission of no case.

45. The judge ruled that the defendants did have a case to answer, but gave no reasons. He gave no ruling as to the proper construction of s4(1)(a).

46. Defence counsel never sought a ruling from the judge at that stage. Both defendants elected not to give evidence and the sole witness called for the defence was an accountant, Mr Morris.

"Clarification" from the judge

47. After the defence had closed its case, and just before the prosecutor was about to make his closing address to the jury, counsel for D2 asked the judge how he proposed to direct the jury as to the definition of "proceeds of drug trafficking" in s4(1)(a). The judge seemed reluctant to be drawn. At one point he said:

"I shall read them the words of the section".

48. The judge was then reminded of the submissions made earlier and, referring to Law Kin Man he said:

"If he's not received any reward then he doesn't come within the definition."

49. In other words, for the purposes of s25(1) the "proceeds of drug trafficking" were, in the eyes of the judge: (i) the proceeds of Law Kin Man's drug trafficking; and (ii) any commission or reward Law Kin Man might have received for "laundering" other drug traffickers' proceeds.

Final stage of the trial

50. All this occurred in the space of about five minutes. The jury was then brought into the courtroom and the prosecutor immediately began his closing speech. Final addresses for the defendants followed. The judge began his summing-up on the morning of 25 October 1995 and this continued all day, until 4.15pm. By that time the summing-up had almost finished. Just before the court adjourned, the judge invited counsel to pick up on points they felt had been overlooked or mis-stated. The case was then adjourned to 10am the next morning.

51. Overnight, the prosecutor prepared a written submission on the proper construction of s4(1)(a). He drew the judge's attention to the wide interpretation of the words "any payments" given by the English Court of Appeal to the same words appearing in s2(1) of the Drug Trafficking Offences Act, 1986. When the judge appeared in court the next morning (26 October) the written submission was handed up to the judge. Defence counsel did not refer to it (having only just then received a copy) and addressed the judge on other unrelated issues. The judge then retired, taking away the written submissions.

52. At 11.56am the court reconvened, with the jury present. The judge then said to the jury:

"COURT: Good morning, members of the jury. Counsel have been able to put me right on a number of matters on which I may have misled you. The first is a very important matter concerning the meaning of the term 'payment or other reward.' I had not been referred to the English cases on the meaning of these words - at least I don't think I was - which makes it very clear that payment means any payment, whether by way of reward or in some other way, in connection with drug trafficking. The words 'other reward' mean rewards in some form other than payment, for instance, an air ticket with a view to a free holiday."

53. No-one from the Bar made any observations regarding this U-turn and shortly thereafter the judge completed his summing-up and the jury retired to consider their verdict.

Relevance of the judge's change of direction

54. In the course of his summing-up the judge had earlier said this to the jury:

"Now, you may approach Mr WARDELL's evidence from two points of view. The Crown invites you to draw the inference that all the money in the LAW Kin-man accounts is drug money, even if not all was received by LAW Kin-man by way of reward. He submits that some at least of the uplifted monies, would be LAW Kin-man's proceeds of drug trafficking. And he does so on the following basis: firstly, that LAW Kin-man was a large scale drug wholesaler in New York from 1986 to 1989. Vast sums point to drug trafficking. No other business, legitimate or otherwise, produces such profits and LAW Kin-man would not be handling drug money without reward. But he was primarily a wholesaler, not a launderer. Again, the nature of the accounts. Mr Lunn points to the concealment aspect, even the false name for his sister's account way back in 1982. The free interflow between all the accounts. The pattern of many opening accounts in false names and then the money flowing into mainline accounts. Money laundering on an enormous scale. Then he mentioned the sea change, as he put it, that occurred in 1987, when the LAW Kin-man accounts were swamped by a 'tidal wave' of money. And this coincides with YUEN'S evidence and the Piano deposits. There was also the fact that drugs were bought on credit and payment made to Jackie WONG in Hong Kong or Taiwan, which indicates a long-standing relationship and trust. And finally, the involvement in Hong Kong with suspected traffickers such as Sam Ho and Johnny ENG.

Well, members of the jury, you will ask yourselves, is there any evidence pointing the other way, that it is not derived from drug sales? Witnesses have said that LAW Kin-man had a finger in many pies in America, hotels, gambling, real estate. There is evidence, mainly from CHONG, that LAW Kin-man was investing in money belonging to American friends for the purposes of tax evasion. But there is no documentary evidence that the money had come from a legitimate source, or indeed, from any particular source - legal or illegal. There is no evidence such as the cheques found on LAW Kin-man's arrest suggesting he was engaged in illegal bookmaking in Hong Kong in 1984.

Well, if you find that it is all drug money, mostly in the form of reward to LAW Kin-man and that therefore, the uplifts in the indictment contain Law Kin-man's proceeds of drug trafficking, that would mean that you would not have to consider the disputed aspect of Mr WARDELL's evidence regarding the weighted average, and Mr MORRIS' evidence. But you may feel, having regard for the evidence, that LAW Kin-man was known as a money man and that he was evading taxes for friends; that you are unable to draw that inference. Or that a greater proportion might be somebody else's drug money, in other words, not a reward to LAW Kin-man. He was getting up to 61/2 per cent on YUEN's money which he sent to Hong Kong. In that case, you would have to concentrate on the Wallon account. You will probably have little difficulty in deciding that this 11.6 million is all LAW Kin-man's proceeds of drug trafficking.

Tracing the flows on the charts down from the Piano deposits to the uplifts in the indictment, we lose large amounts of money. They are withdrawn and they disappear. Even larger amounts come in the form of money orders, cheques, TT's and cash deposits. Much of this is also withdrawn. The equivalent of some US$93 million is paid in between December 1986 and 1989, some US$9 million and some HK$8 million remain. Mr WARDELL has traced direct lines upwards from each uplift in the indictment to some of the Piano deposits. You can do it yourselves. I have done it, I calculate the number of direct trails as follows: in the Valoria 4.7 million, there are two trails; the Valoria 459,000, four trails; the Mabel CHUN, US dollar account, one trail; the Mabel CHUN, Hong Kong dollar account, four trails; the Pearl LAU account, three trails and SUNG Tin-biu, six trails. There may be others."

55. Here, as can be seen, the judge was in effect directing the jury on the basis that "proceeds of drug trafficking" in s25(1) of the Ordinance were confined to (i) Law Kin Man's own proceeds and (ii) any rewards he might have received for "laundering" other person's proceeds.

56. If this was an error, it was an error favouring the defendants. It excluded from the scope of the charge the proceeds of, say, Jackie Wong Kwong Kit or Yuen Ho Yin: the suitcases full of US$ notes which were handed to Law Kin Man in New York and found their way into Law Kin Man's accounts: at least, to the extent that the sums in those accounts were not simply Law Kin Man's commission for the laundering.

57. This trail of drug-money was real, not illusory. What was illusory were things like the supposed "tax evasion" moneys on which there was the most shadowy of evidence. But with this stream being in effect excluded, except such part as might be regarded as Law Kin Man's commission for laundering other people's money, the judge was constrained to perform before the jury an accounting exercise: pulling out of the vast web of money movements those streams which the judge felt pointed directly to Law Kin Man's proceeds of drug trafficking: directly, that is, as opposed to something which arose by necessary inference from all the circumstances. Hence the reference in the summing-up to "Piano" and the "Wallon account": these were moneys which were deposited in cash into a remittance company called Piano Remittance Company, and channelled through a nominee company called Wallon Trading. It was accepted by the defence that the Wallon deposits with Piano were Law Kin Man's proceeds of drug trafficking.

58. If the judge had treated the proceeds of other persons drug trafficking as coming within the scope of s25(1), then the trail through the accounts such as Wallon Trading, tracing the proceeds, or part of them, into the accounts averred in the indictment would have been unnecessary.

59. The judge's about-turn, coming at the end of his summing-up, is unquestionably an irregularity at the trial. What we have to consider is whether it is of such seriousness as to impeach the jury's verdict. The answer to this question is governed, in the first place, by the proper construction of s4(1)(a). Obviously, if "other payments" do not include the proceeds of drug trafficking by other persons, then the jury was misdirected on the law and these appeals must be allowed.

Proper construction of s4(1)(a)

60. In our judgment, the construction contended for by the prosecution is the correct one. Both s4 and the broad definition of "drug trafficking" in the Ordinance make it clear that the Ordinance is not only aimed at the drug trafficker himself: it seeks to include the proceeds of other drug trafficking activities within the net. The opening words of s4 make it clear that the assessments referred to in the section are for the purposes of the Ordinance as a whole and not simply for the purposes of s25(1): for instance, confiscations under s6. To confine the words "other payments" in s4(1)(a) to payments in the nature of rewards, commissions etc to the drug trafficker would seriously weaken its effect; it would be extremely difficult to determine what are rewards and what are not in the hands of the drug trafficker. This approach is entirely consistent with that of the English Court of Appeal in R. v. Ian Smith (1989) 11 Cr.App.R. (S) 290 which concerned the powers of the court to make a confiscation order. There, the court held that the words "any payments" are to be given their ordinary meaning and does not mean payment after the deduction of expenses. As the court observed at p294:

"It may be that the wording is draconian, and that it produces a draconian result. But it seems to us that if that is the case, it was a result intended by those who framed the Act."

61. Accordingly, the subsequent direction given by the judge, at the end of his summing-up, was in our judgment the correct one. His earlier interpretation was wrong: an error which favoured the defendants.

Have the appellants been prejudiced?

62. The question then arises: What prejudice has the defence suffered? Obviously, no complaint can be made of the course of the trial up to the stage when defence counsel sought clarification from the judge, after the close of the defence case. Up to that point, the entire case had been fought on the basis of the prosecutor's opening. Understandably, the cross-examination was aimed at exploring the fringe areas of Law Kin Man's activities: the possibility that he might have been some sort of "money man": laundering money for others in connection with "tax evasion", gambling and similar activities: Understandably, these were defence counsel's attempts to distance Law Kin Man from his own drug trafficking and the drug trafficking of others.

63. Counsel has argued that prejudice, or the possibility of prejudice, arises in two ways: (1) the defence might have considered recalling some of the witnesses for further cross-examination, and calling the defendants themselves to testify, and (2) the closing speeches to the jury might have been different if the judge had stated his view of the law at an earlier stage.

64. As to (1) above, it is difficult to imagine what the defence might have done differently if the ruling had been made at an earlier stage. It was the case for both defendants that, despite their close involvement with Law Kin Man's affairs, they knew next to nothing about the nature of his business activities. It is highly improbable that they could have given any admissible evidence concerning Law Kin Man's activities outside of drug trafficking. If there was such evidence, it seems odd that it was not adduced. As regards the cross-examination of prosecution witnesses, the judge had given defence counsel very wide latitude to explore the peripheral areas: to very little effect. Some of the latitude given - such as cross-examining Superintendent Yip on such matters - was unjustified, and it is difficult to imagine greater latitude being given had the proper ruling been made at an earlier stage.

65. As regards (2) above, it is difficult to imagine what else might have been said on the defendant's behalf which was not said. None has been suggested in the course of argument before us.

66. In our judgment, the irregularity was not such as to make the jury's verdict unsafe and unsatisfactory.

Expert evidence

67. Mr James Wardell, a chartered accountant, was the Crown's expert witness. He had undertaken a huge tracing exercise, trailing through the primary accounting documents seized from the BCC and other entities. From this he had prepared flow charts and written narratives describing the myriad steps in the huge web of financial dealings by Law Kin Man. Despite the deceptive devices used by Law Kin Man and his bankers, the defence has not been able to find fault with the tracing exercise.

68. In relation to the flow of funds which eventually found their way into the accounts particularised in the indictment the judge said this to the jury:

" Now, by examining the documents and applying banking principles, Mr WARDELL is of the opinion that at least some of the Piano deposits remain in all the indictment uplifts. He says that although the bank managers were trying to hide the source of the funds and have falsified documents, their evidence supports his tracing of the funds in that they agree with fixed deposits on the chart and this is not challenged. He says that there are no records of any money being held on trust so where deposits are combined, you must assume a merger. On merger, the bank's previous liabilities under the prior fixed deposits, disappear and a new liability is created. Apply the weighted average method where deposits are merged and new fixed deposits created, where records do not tell you otherwise and you have no instructions to refer to, you withdraw equally from each possible source. That is what he calls the weighted average method. He says it is not appropriate to use the first-in, first-out method and he gave an example which produced some absurdity. He says this, according to banking law, is only appropriate in a running account like a current account. He says he is prepared to consider any other reasonable methods. He gave an example from the Mabel CHUN, Hong Kong dollar account, and he accepts that only $30,000 at step 93 could be from Piano. The balance is from unknown deposits in CHEANG Siu-chu's Kelly account. He did a purity calculation showing that $177.19 from Piano remained at the uplift. Well, he was asked to do another calculation by Mr Callaghan and he did, and he found using this calculation that there was only $19.24 at the end of the trail. In the same way, his purity calculation for Wallon was 7.4 per cent and for Kenny KAN, 16 per cent. Mr Hoo describes this as an artificial situation. Mr Lunn says this is the bankers' approach, for what it is worth."

69. Before considering counsel's criticisms of this passage in the summing-up, the following points should be noted:

(i) Where the judge referred to the "weighted average method" in considering the source of merged funds, he was stating nothing more than a proposition of common-sense. Obviously, where funds from two different sources are merged, and the amounts are equal, one would say that the new deposit contains funds equally from both sources. And if the amounts from those two sources were unequal, one would then say that the funds in the new deposit are weighted in the same proportions. This is how a jury would approach the issue, applying common-sense.

(ii) Mr Wardell, in his tracing exercise, did not seek to find out where the funds originally came from: that is to say, whether they were from the proceeds of drug trafficking or from some other activities. This was not his function. In relation to the Mabel Chun Hong Kong Dollar account from which $596,980.85 was withdrawn by D2, as averred in count 2, Mr Wardell was unable, of course, to say which of the streams which eventually found their way into that account were drug money and which were not. But, on the assumption that only the "Piano deposits" represented the proceeds of Law Kin Man's drug trafficking: that is to say, only those funds going into the Wallon Trading Company account with Piano Remittance and nothing more were the proceeds of drug trafficking by Law Kin Man, then, as a matter of arithmetic, the amount of drug money in the Mabel Chun account (traceable ultimately back to Piano) was very little: as mentioned in the summing-up, only HK$19.24, out of the total of HK$596,980.85 in the account. This was, of course, to assume that none of the other streams were tainted. Nothing on the evidence justified such an assumption.

70. It appears that, in the course of cross-examination, Mr Wardell was driven to justify his "weighted average method" by reference to English cases decided in the Chancery Division in the last century. This, seemingly, is what the judge was referring to when he said to the jury:

"Now, by examining the documents and applying banking principles, Mr WARDELL is of the opinion that at least some of the Piano deposits remain in all the indictment uplifts."

71. Counsel argues that this amounts to a misdirection to the jury. Here, counsel submits, the jury is asked to apply standards appropriate only to the civil law when, at the end of the day, the jury had to be satisfied on the criminal standard that the "uplifts" in the indictment were "in whole or in part" the proceeds of drug trafficking.

72. We do not accept this submission. Mr Wardell was not, in any way, expressing an opinion as to the proportion of "drug money" in those "uplifts". His expertise was confined to the tracing exercise. The flow of funds as shown in the charts was never challenged. Whether he was right or wrong to justify his "weighted average method" by reference to "banking law" was of little consequence.

The yellow notebook

73. Among the exhibits seized by the police was a yellow notebook (exhibit P16). It was in Law Kin Man's handwriting recording transactions which appeared to relate to drug trafficking covering the 18 months up to December 1989. It was the prosecution case that the notebook was found on a desk next to the place where D2 normally sat; therefore, as such, it was linked to D2 and provided some evidence as regards D2's knowledge of Law Kin Man's drug trafficking activities. Obviously, if, at the end of the prosecution case, the physical link to D2 was not established, the notebook lost whatever evidential value it might have had. In essence, that was what in fact transpired. Not only did the prosecution fail to establish where the notebook was normally kept, it even failed to establish the precise location from which that exhibit was seized. The police evidence in that regard was confusing. The officer who made the seizure failed to realize its significance.

74. Counsel for D2 therefore argues that the judge should have withdrawn the exhibit from the jury's consideration altogether.

75. The judge summed up the evidence regarding the yellow notebook very fully to the jury: in particular the contradictions between the prosecution witnesses regarding where it was found. The judge was at pains to emphasize to the jury that the notebook was not evidence as to the source of the funds: only if the jury were sure that D2 knew what was in the notebook did the contents constitute evidence as to his state of mind.

76. In our judgment, it would have been better if the judge had withdrawn the notebook from the jury's consideration altogether, because its link to D2 was too tenuous. However, given the decision to leave the matter to the jury, the way the judge summed up the issue cannot be faulted. This ground of appeal fails.

Conclusion

77. A large number of peripheral points were taken at the trial. Some of them have been picked up as grounds of appeal in this court. A ground of appeal - that the judge should have stayed the prosecution because of the unavailability of Law Kin Man as a witness - quite rightly has not been pressed by counsel. Another ground is that the judge should not have allowed evidence to be adduced to the effect that Pearl Lau's husband Sam Ho had previous convictions for drug offences. It is unnecessary to deal with them, because these are, at the end of the day, peripheral points. The focus of the case is the "uplifts" averred in the indictment. On the evidence viewed as a whole the inference that they indirectly represented the proceeds of drug trafficking was irresistible and likewise the inference that both defendants knew that by effecting the uplifts Law Kin Man's retention or control of those funds was facilitated. The jury had ample evidence to convict. These appeals are dismissed.