SECRETARY FOR JUSTICE v. MALE YE ZHIQIANG AND OTHERS

CACV 195/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 195 OF 2012

(ON APPEAL FROM HCMP No. 2562 of 2011)

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REASONS FOR JUDGMENT

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Hon Yeung VP :

1.  The Interested Party, through its manager (Fu Fujian), filed an affirmation in support of its application to vary the Restraint Order on the basis that it had an interest in the money (HK$23.5 million), the subject matter of the Restraint Order.

2.  The Interested Party claimed that its purchaser had remitted, on 18 May 2011, over US$9.6 million into its account to enable it to acquire goods to supply to the purchaser.  The Interested Party said that it had, on the 19 May 2011, agreed to lend the entire sum of US$9.6 million to the 3^rd respondent and then transferred the money by 17 instalments into its bank account on the same day.  It was further suggested that the 3^rd party had repaid about US$6.2 million leaving a balance of about US$3.3 million (about HK$25 million).

3.  The Interested Party did not explain why it had chosen to lend the money to the 3^rd respondent the next day after the money was received.  The Interested Party did not mention the terms of the purported loan and there was no reference to the time of repayment, the questions of interest and collateral.  There was no explanation as to why the sum of US$9.6 million was remitted into the 3^rd respondent’s account by 17 instalments on the same day.  There was no mention of how and when the repayment of US$6.2 million was made.

4.  The 1^st respondent who was in control of the 3^rd respondent, was arrested on 20 May 2011 and charged with a ‘money laundering’ offence on 23 May 2011.

5.  On 13 June 2011, the Interested Party commenced proceedings in the High Court against the 3rd respondent for the return of US$3.3 million, saying that it was a loan repayable on demand.  It was not its case that the US$3.3 million was the balance of the loan of US$9.6 million.

6.  Quite apart from the matters identified by Cheung JA in his judgment, a draft of which I had the advantage of reading and agree, I was not persuaded that the Interested Party’s claim is an honest or a bona fide one and I would dismiss the appeal on that ground alone.

Hon Cheung JA :

7.  The Interested Party appealed against the judgment of Deputy High Court Judge Patrick Li (as he then was) who refused to vary a Restraint Order he had granted against the respondents on 15 December 2011.  We dismissed the appeal at the conclusion of the hearing.  I now give reasons for our judgment.

Background of the Restraint Order

8.  On 20 May 2011 the Police arrested the 1^st respondent who had since been prosecuted and pleaded guilty to the offence of dealing with property known or believed to represent proceeds of an indictable offence, contrary to section 25(1) and (3) of the Organized and Serious Crimes Ordinance (‘OSCO’) (Cap. 455).  He was sentenced to five years’ imprisonment. 

9.  The summary of facts prepared for plea by the 1^st respondent to the offence (commonly known as the money laundering offence) stated that :

‘ 2. …… Under caution, the defendant [i.e. 1^st respondent] responded, “It’s my mainland friend known as Chan Tak who asked me to remit money for her to Chan Chak Chak by using a company.” PW3 asked the defendant, “Why did Chan Tak ask you to remit money for her?” The defendant replied, “I don’t know. But it was not the first time Chan Tak asked me to remit money for her.”

3. Subsequently, the defendant took out two passbooks of Bank of China from a metal cabinet and showed them to PW3.  He said, “These two books are remittances for Chan Tak,”  One of the passbooks of the Bank of China was that of an account numbered (No. X) (“Account A”) related to the 3^rd Charge.

4. PW3 noticed that the passbook of Account A recorded many remittances of substantial sums.  He immediately declared arrest on the defendant for money laundering and cautioned him.  The defendant said under caution, “It was Chan Tak who asked me to remit money for her.  I don’t know what the money was for.”  PW3 asked the defendant, “Did you receive any benefit from Chan Tak for remitting money for her?”  The defendant replied, “A few tens of dollars each time, no fixed percentage, very very little each time.”  PW3 further asked the defendant, “How did Chan Tak instruct you to remit money for her?”  The defendant replied, “No fixed way, sometimes by phone, sometimes by fax.”

5. …… Under caution, the defendant of his own accord stated the following :

1) He is Fukienese.    He entered Hong Kong using a Macau to Hong Kong travel permit.

2) He had known the mother of Chan Tak Hung (also known as Chan Tak) for 10-odd years.  Chan Tak Hung and her mother dealt with remittances daily but could not travel to and from Hong Kong every day, so they asked the defendant who had a company in Hong Kong to set up Wealth Finance (HK) Company Limited and opened account A to assist them in dealing with remittances.

3) The money in account A was remitted into it by people instructed by Chan Tak Hung and her mother.  Then the defendant would act upon their phone or fax instructions to remit money from account A to other accounts.

4) The defendant received monetary reward from Chan Tak Hung and her mother for each remittance.  The balance of HK$18,716 in the other Bank of China account held by Wealth Finance (HK) Company Limited was his reward.  The defendant had also withdrawn HK$52,000 from that account for his own use.

5) The defendant did inquire about the origins of several vast sums in Account A.  Chan Tak Hung and her mother told him those were funds for real estate and chemical plants.  However, upon the arrest of the defendant, he agreed that the remittances made under the instructions of Chan Tak Hung and her mother might be shady in nature.

Account A

6) On 14 September 2010, Wealth Finance (HK) Company Limited [i.e. 3^rd respondent] opened Account A and the defendant was the sole signatory of it.  Account A was a foreign currency account which was further divided into 7 sub-accounts for handling 7 different foreign currencies.

7) Between 15 November 2010 and 23 May 2011, the 7 sub-accounts in Account A had deposits of US$113,162,210.86, GBP 5,383,522.39, EUR 806,250.79, AUD 285,000, CAD 1,016,609.31, JPY 7,994,851 and SGD 199,536.

8) Excluding the transfers among the sub-accounts within Account A, the total deposits made into Account A from outside sources were US$ 104,034,989.53, GBP 5,383,522.39, EUR 485,200.79, CAD 61,482.56 and JPY 7,994,851 totalling about HK$ 883,284,156, i.e. with an average daily deposit of HK$ 4,648,864.  The said sum of money made up of 842 deposits came from at least 162 different accounts, all of which by way of remittances or bank transfers.

9) Among the deposits in Account A, at least US$ 25,386,273.28, GBP 4,988,560.17 and EUR 470,597.04 came from overseas remittances involving 9 different countries or regions including the United Kingdom, the United States, Israel, Mainland China and Taiwan.

10) In the above-mentioned period, a total of US$ 110,238,647.72, GBP 5,343,466.02, EUR 806,249, AUD 285,000, CAD 1,016,608.75, JPY 7,994,851 and SGD 199,536 were withdrawn from the 7 sub-accounts of Account A. All the withdrawals were made by way of remittances or bank transfers.

11) Excluding the transfers and withdrawals among the sub-accounts within Account A, the withdrawals from Account A were US$ 108,507,617.78, GBP 60,016.02, EUR 323,305, AUD 285,000, CAD 1,016,608.75 and SGD 199,536, totalling about HK$859,592,413 and involving 867 transactions.

12) Among the withdrawals from Account A, at least US$ 11,349,025.93, GBP 30,000, EUR 302,255, AUD 285,000 and CAD 1,016,608.75 were remitted to 14 different countries or regions including the United Kingdom, the United States, Australia, Turkey, Israel, Monaco, Mainland China and Vietnam.

13) Between 15 November 2010 and 23 May 2011, Account A had an average daily balance of about HK$ 2,749,252 and an average daily deposit of HK$ 4,648,864.  In other words, the funds deposited were kept less than one day in Account A before they were withdrawn.

Incorporation of company

14) Wealth Finance (HK) Company Limited was incorporated on 7 September 2010.  The address of the company’s registered office was Room 1209, SOLO Building, 41-43, Carnarvon Road, Tsimshatsui.  The shares of the company were all held by the defendant who was the sole director of the company.

Inland Revenue Department’s record

15) For the period from 1 April 2005 to 31 March 2011, Hong Kong Inland Revenue Department has no record of tax returns relating to the defendant or Wealth Finance (HK) Company Limited.

Movement record

16) There is a record of the defendant entering and leaving Hong Kong for a total of 18 times at all material times (i.e. from 15 November 2010 to 23 May 2011).’

10.  The Restraint Order restrained the 1^st respondent from dealing with the balance of money in Account A in Bank of China (‘BOC’). The credit balance as of 23 May 2011 was HK$23,185,028.02 consisting of the following amounts :

US$2,908,757.14,

Can$0.56,

€1.79; and

£40,056.37.

11.  The Restraint Order also applies to two other accounts, one in the name of the 2^nd respondent of which the 1^st respondent was the authorised signatory and another in the name of the 3^rd respondent of which the 1^st respondent was also the authorised signatory.

The Interested Party’s case

12.  In support of the Interested Party’s application, an affirmation was filed by Fu Fujian (‘Fu’) who claimed to be its manager.  The application was only in respect of the money now in Account A. This is what he said about the money :

‘ Sales Contract between the Interested Party and LPL Chemicals Limited (利寶利化工有限公司)

2. The Interested Party is one of the associated companies of Guangxi Mingli Group Co., Ltd (廣西明利集團有限公司)(“Mingli”), a company incorporated in Guangxi province, PRC which specializes in manufacturing of, among other things, food chemicals.

3. By a Sales Contract between LPL Chemicals Limited (利寶利化工有限公司) (“LPL”) and the Interested Party dated 10 January 2011 (SC NO.LPLP 11004) (“the Sales Contract”), the Interested Party agreed to sell and LPL agreed to purchase 45,000 metric tonnes of Phosphoric Acid 85% Food Grade (“the Goods”) subject to the terms and conditions set out therein…..

4. In order to enable the Interested Party to acquire the Goods from Mingli, LPL agreed to pay the purchase price in advance.

5. By a Proforma Invoice from the Interested Party to LPL dated 10 May 2011, the Interested Party requested LPL to pay US$ 9,775,000 being the sale price of 11,500 metric tonnes of the Goods. ….

6. LPL then, by way of remittance, transferred a sum of US$9,640,000.00 into the Interested Party’s HSBC account no.813-541125-274 on 18 May 2011.  After deducting the bank charges, the total sum received by the Interested Party was US$9,639,886.34…..

Loan Agreement between the Interested Party and Wealth Finance (HK) Co., Limited, (“R3”)

7. On 19 May 2011, the Interested Party utilized the sum of US$9,639,886.34 and agreed to make a loan of US$9,629,000 to R3 on the condition that R3 should repay the same in Renmibi in the PRC (“the Loan Agreement”).

8. Pursuant to the Loan Agreement, the Interested Party transferred a total sum of US$9,629,000 (by 17 instalments) into R3’s BOC Account on 19 May 2011……

9. Wrongfully in breach of the Loan Agreement, R3 had repaid the Interested Party a total sum of US$6,257,000 only leaving a balance amounting to US$3,372,000 which remains due and owing by R3.’

13.  On 13 June 2011, the Interested Party commenced proceedings in High Court Action No. 985/2011 against the 3^rd respondent for repayment of US$3,372,000.  It obtained judgment in default on 25 July 2011.   

14.  The Interested Party then obtained a garnishee order to show cause on 7 October 2011 in respect of the funds held by the 3^rd respondent in Account A. BOC informed the solicitors acting for the Interested Party that it had no objection to the Interested Party’s application for the garnishee order to be made absolute.

15.  The Court then made the garnishee order absolute on 9 November 2011.

16.  By a letter dated 19 December 2011 the Department of Justice informed the Interested Party’s solicitors that it would apply for confiscation of all realisable property under the control of the 1^st respondent including the money held by the  3^rd respondent in Account A.

17.  The Interested Party then applied to the Judge to vary the Restraint Order.

18.  The Interested Party claimed that it had no knowledge that the money in Account A were proceeds of money laundering.  On the contrary, the Interested Party stated that it had deposited a total of US$9,629,000 into Account A on 19 May 2011.  As of 23 May 2011 that account had a balance of US$2,908,757.14.  It submitted that it is highly likely that the balance of US$2,908,757.14 in Account A represented money which the Interested Party loaned to the 3^rd respondent pursuant to the Loan Agreement, and hence money which the Interested Party has an interest in.

Statutory scheme

19.  Without going into details, section 8 of the OSCO empowers the Court to impose a confiscation order against a defendant convicted of a money laundering offence if the Court is satisfied, among other things, that the defendant has benefited from the crime.  The purpose of the confiscation order is to cause the defendant to disgorge ill-gotten gains from the crime (see R v Ko Chi Yuen (Appeal) [1994] 2 HKCLR 65 at 67-68.  In order to ensure that there is property for the confiscation order to be imposed, section 15 empowers the Court to impose a restraint order in respect of realisable property (which includes, among other things, any property held or subject to the effective control by the defendant).  This is a temporary measure used to freeze the assets of a person against whom a confiscation order may in due course be made : Secretary for Justice v Tan Lam Chuan and Ors [2005] 3 HKC 545.

20.  Section 15(6) allows a person affected by the restraint order to apply for its discharge or variation.  In this context, it is relevant to refer to the following provisions of section 19 : 

‘ (1) This section applies to the powers conferred on the Court of First Instance by sections 15 to 18, or on a receiver appointed under section 15 or 17 or in pursuance of a charging order.

(2) Subject to subsections (3), (4), (5) and (6), the powers shall be exercised with a view to making available for satisfying the confiscation order or, as the case may be, any confiscation order that may be made in the defendant’s case the value for the time being of realisable property held by any person by the realisation of such property.

(3) In the case of realisable property held by a person to whom the defendant has directly or indirectly made a gift caught by this Ordinance, the powers shall be exercised with a view to realising no more than the value for the time being of the gift.

(4) The powers shall be exercised with a view to allowing any person other than the defendant or the recipient of any such gift to retain or recover the value of any property held by him.’

Reliance on section 19(4)

21.  The Interested Party relies on section 19(4).  Based on the wording of the section 19(4), it is difficult to see how this section can assist him. Section 19(4) covers two types of persons :

1) a person other than the defendant; and

2) the recipient of a gift from the defendant (as provided for by section 19(3) ).

22.  However as section 19(4) provides, the powers shall be exercised with a view to allowing these persons to retain or recover the value of any property held by him.  The operative requirement is that the property must be held by these persons.  In this case the Interested Person is not a recipient of any gift but more importantly, the property, i.e. the balance of the funds in Account A is not held by the Interested Party at all but by the 3^rd respondent.  In the circumstances I just do not see how the Interested Party can rely on section 19(4). 

23.  Furthermore it is expressly provided by section 19(6) that in exercising the powers conferred by section 15, no account shall be taken of any obligations of the defendant or of the recipient of any such gift which conflict with the obligation to satisfy the confiscation order.

24.  In other words, when the Court imposed the Restraint Order, it did not need to take into account the obligation of the 1^st respondent, if any, towards the Interested Party which may conflict with the obligation to satisfy the confiscation order.  This involves a consideration of the ambit of ‘realisable property’ and whether the 1^st respondent had ‘benefited from the offence’.  In respect of ‘realisable property’ the authorities have been consistent that it includes legitimately acquired property and the definition is not limited to illegitimately acquired properties : HKSAR v SHING Siu-ming & Ors (No. 2) [2000] 3 HKC 83.  The money in Account A, which is under the effective control of the 1^st respondent, is realisable property of the 1^st respondent upon which the Restraint Order may be imposed for the eventual imposition of the confiscation order.

25.  How is the Court to be satisfied that a defendant has benefited from the offence of money laundering?  This is provided by section 2(8) of OSCO :

‘ (8) For the purpose of this ordinance, a person who has at any time (whether before or after the commencement of this Ordinance) received any payment or other reward in connection with the commission of an offence or an organized crime has benefited from that offence or organized crime, as the case may be.’

26.  Section 2(6)(a) further provides :

‘ (a) a person’s proceeds of an offence are—

(i) any payments or other rewards received by him at any time (whether before or after 2 December 1994) in connection with the commission of that offence;’

27.  Again the authorities have been consistent that the words ‘payment or other reward’ do not merely mean the profit to the defendant who committed the crime.  In HKSAR v TSANG Wai-lun Wayland & others CACC 96/2010, this Court applied R v Gertrude Osei (1988) 10 Cr App R(S) 289, which at page 293 held that “ ‘Payment’ means payment.  It means any payment”.

28.  In this case the 1^st respondent committed the crime of money laundering.  Through Account A he received payment from various sources.  Such payment must be ‘payment’ received in connection with the commission of the offence of money laundering and by virtue of section 2(8) he has ‘benefited from the offence’.  In other words the condition for imposing the confiscation order is satisfied.  Even if, for the purpose of argument, the 1^st or 3^rd respondent has the obligation to repay money to the Interested Party, to allow the money in Account A to be released from the Restraint Order will be in conflict with the obligation to satisfy the confiscation order and contrary to the requirement of section 19(6).  The application by the Interested Party must fail on these grounds.

29.  In any event, the Interested Party has not established that it has a proper claim to the money.  According to the facts, during the period between 15 November 2010 and 23 May 2011, Account A had received payment of US$113,162,210, £5,383,522, €806,250, AUS$285,000, CAN$1,016,609, JAP¥7,994,851 and SG$199,536.

30.  Deducting the inter-account transfers, the account had received US$104,034,989, £5,383,522, €485,200, CAN$61,482 and JAP¥7,994,851.  The total amount was about HK$883 million. The deposits came from 842 remittance/transfer transactions and from at least 162 accounts.

31.  In light of the various deposits from different sources over the period, it is difficult to see how the Interested Party can claim that the remaining balance must have come from the Interested Party alone, bearing in mind that more than HK$860 million has already been dissipated before the making of the Restraint Order.

32.  Further, although the Interested Party had obtained the judgment before the Restraint Order, the judgment was in the nature of a default judgment because the 3^rd respondent did not give any notice of intention to defend the Interested Party’s claim. The Third Party’s claim itself is clouded with suspicion.  There is no documentary evidence in respect of the loan or its partial repayment.  The payment of US$9,629,000 was made by 17 instalments into Account A within the same day. 

33.  The Interested Party referred to International Associated Attorneys Limited v Eurostock Energy Limited (unreported, HCA 180/2012, 5/10/2012) where Au-Yeung J considered the a Restraint Order obtained under the Mutual Legal Assistance in Criminal Matters Ordinance (Cap. 525) (‘MLAO’). Au-Yeung J held that an unsecured judgment creditor has no priority over the restrained fund.  This is held in the context of sections 12 and 13 of Schedule 2 of the MLAO which deal with the situation of a person or company holding realisable property being adjudged bankrupt or ordered to be wound up.  It is not necessary for me to express any view on the case in the light of my decision.